Report of Foreign Issuer (6-k)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 6-K

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16

OF THE SECURITIES EXCHANGE ACT OF 1934

For the month of July 2015

Commission File Number 1-32895

Penn West Petroleum Ltd.

(Translation of registrant’s name into English)

Suite 200, 207 – 9^th Avenue SW

Calgary, Alberta T2P 1K3

Canada

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.)

Form 20-F ¨ Form 40-F x

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1) ¨

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7) ¨

INCORPORATION BY REFERENCE

Exhibits 99.2 and 99.3 to this Form 6-K are hereby incorporated by reference into the registration statement on Form F-3 of Penn West Petroleum Ltd. (File No. 333-171675).

DOCUMENTS INCLUDED AS PART OF THIS FORM 6-K

See the Exhibit Index hereto.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on July 30, 2015.


PENN WEST PETROLEUM LTD.

By:		/s/ Mark Hawkins
Name:		Mark Hawkins
Title:		Corporate Secretary and Senior Counsel

EXHIBIT INDEX


Exhibit		Description

99.1		News Release, dated July 30, 2015

99.2		Management’s Discussion and Analysis for the three and six months ended June 30, 2015

99.3		Financial Statements for the three and six months ended June 30, 2015

99.4		Quarterly Certification of the Chief Executive Officer under Canadian law

99.5		Quarterly Certification of the Chief Financial Officer under Canadian law

Exhibit 99.1

LOGO

PENN WEST ANNOUNCES ITS FINANCIAL AND OPERATIONAL RESULTS FOR THE SECOND QUARTER ENDED JUNE 30, 2015 AND PROVIDES UPDATED 2015 GUIDANCE

FOR IMMEDIATE RELEASE, July 30, 2015

PENN WEST PETROLEUM LTD. (TSX – PWT; NYSE – PWE) (“Penn West”, the “Company”, “we”, “us” or “our”) is pleased to announce its financial and operational results for the second quarter ended June 30, 2015 and 2015 guidance update. All figures are in Canadian dollars unless otherwise stated.


	Three months ended June 30									Six months ended June 30
	2015			2014			% change			2015			2014			% change
Financial (millions, except per share amounts)

Gross revenues ^(1,2)	$	360		$	656			(45	)	$	700		$	1,329			(47	)
Funds flow from operations ⁽²⁾		79			299			(74	)		151			568			(73	)
Basic per share ⁽²⁾		0.16			0.61			(74	)		0.30			1.15			(74	)
Diluted per share ⁽²⁾		0.16			0.61			(74	)		0.30			1.15			(74	)
Funds flow ⁽²⁾		47			298			(84	)		159			567			(72	)
Basic per share ⁽²⁾		0.09			0.61			(85	)		0.32			1.15			(72	)
Diluted per share ⁽²⁾		0.09			0.60			(85	)		0.32			1.15			(72	)
Net income (loss)		(28	)		143			>(100	)		(276	)		54			>(100	)
Basic per share		(0.06	)		0.29			>(100	)		(0.55	)		0.11			>(100	)
Diluted per share		(0.06	)		0.29			>(100	)		(0.55	)		0.11			>(100	)
Development capital expenditures ⁽³⁾		64			65			(2	)		255			260			(2	)
Long-term debt at period-end	$	2,206		$	2,234			(1	)	$	2,206		$	2,234			(1	)

Dividends (millions)
Dividends paid ⁽⁴⁾	$	5		$	69			(93	)	$	75		$	137			(45	)
DRIP		—			(15	)		(100	)		(10	)		(29	)		(66	)

Dividends paid in cash	$	5		$	54			(91	)	$	65		$	108			(40	)

Operations

Daily production (average)
Light oil and NGL (bbls/d)		51,275			55,783			(8	)		51,859			57,144			(9	)
Heavy oil (bbls/d)		11,947			13,625			(12	)		12,418			13,373			(7	)
Natural gas (mmcf/d)		168			224			(25	)		172			231			(26	)

Total production (boe/d)⁽⁵⁾		91,164			106,706			(15	)		93,024			109,070			(15	)

Average sales price
Light oil and NGL (per bbl)	$	58.05		$	95.22			(39	)	$	52.05		$	93.93			(45	)
Heavy oil (per bbl)		46.44			79.55			(42	)		38.06			74.59			(49	)
Natural gas (per mcf)	$	2.78		$	4.96			(44	)	$	2.93		$	5.37			(45	)
Netback per boe
Sales price	$	43.84		$	70.34			(38	)	$	39.53		$	69.74			(43	)
Commodity gain (loss)		(0.49	)		(3.05	)		(84	)		1.51			(2.51	)		>(100	)

Net sales price		43.35			67.29			(36	)		41.04			67.23			(39	)
Royalties		(4.72	)		(11.54	)		(59	)		(4.51	)		(10.82	)		(58	)
Transportation		(1.40	)		(1.18	)		19			(1.37	)		(1.18	)		16
Operating expenses		(18.51	)		(15.20	)		22			(18.74	)		(17.82	)		5

Netback ⁽²⁾	$	18.72		$	39.37			(52	)	$	16.42		$	37.41			(56	)

(1)	Gross revenues include realized gains and losses on commodity contracts.

(2)	The terms “gross revenues”, “funds flow”, “funds flow from operations” and their applicable per share amounts, and “netback” are non-GAAP measures. Please refer to the “Calculation of Funds Flow/ Funds Flow From Operations” and “Non-GAAP Measures” sections below.

(3)	Includes capital carried by partners.

(4)	Includes dividends paid in cash that are subsequently reinvested to purchase shares from treasury under the dividend reinvestment plan.

(5)	Please refer to the “Oil and Gas Information Advisory” section below for information regarding the term “boe”.

PRESIDENT’S MESSAGE

Strong operational performance and improvements to our financial position in the second quarter continued to advance our long-term strategy of light oil growth and balance sheet strength.

Production of 91,164 boe per day was within our expected guidance range and was 69 percent liquids weighted. To provide increased transparency into performance of funds flow generated directly from our operations we have adopted a “funds flow from operations” metric. This metric does not include the impact of both foreign exchange hedge monetizations and realized gains/losses from foreign currency debt prepayments and maturities. We expect that this metric will be more comparable on a quarter-over-quarter basis and will demonstrate the consistent delivery of our operating performance. The Company’s funds flow from operations was $79 million ($0.16 per share - basic) for the second quarter, which was slightly above $72 million ($0.14 per share - basic) in the first quarter of 2015.

During the quarter, we finalized amending agreements with our lenders, which included modifications to our financial covenants, further increasing our financial flexibility and clearing the way for us to proceed with our development plans in the second half of 2015. As part of these amending agreements, we will offer the net proceeds from asset dispositions to prepay outstanding principal amounts owing to noteholders and to repay outstanding amounts under our syndicated bank facility on a pro rata basis until March 30, 2017 or when $650 million has been prepaid to noteholders. As at June 30, 2015, the Company was in compliance with all financial covenants under its lending agreements, principally, its Senior Debt to EBITDA ratio was 3.2 times, relative to a 5.0 times limit.

We also closed several non-core divestitures during the quarter for total proceeds of approximately $414 million, all of which have been or will be applied to debt repayment as outlined above. We are moving forward on additional non-core asset sales in an effort to further reduce debt and strengthen our balance sheet. We remain confident in our ability to transact on asset dispositions despite the current commodity price environment. As we continue to execute on the long-term strategy for Penn West, these transactions make the enterprise more focused and competitive.

Operationally, we executed the second quarter as planned and focused primarily on completion activities in the Cardium and Viking programs. The unseasonably warm and dry conditions allowed us to get an early start on preparations for our second half 2015 programs. Those same dry conditions, however, also contributed to an early and active forest fire period in certain operating areas which we were able to mitigate. Additionally, there were some volumes offline due to third party pipeline outages during the quarter.

While we continue to witness significant volatility in the commodity and foreign exchange markets, our realized prices remain fairly resilient. The weakening of the Canadian dollar, combined with narrowing differentials between Canadian realized prices and WTI, has helped mitigate the impact of weakening benchmark crude prices. We have also experienced increased stability in our revenues through our ongoing hedging program.

Additionally, we took advantage of the slowdown in activity during breakup to re-evaluate our asset portfolio and second half capital program in the context of lower commodity prices. Our updated evaluations show that Penn West’s economics on new wells in the Cardium and Viking remain profitable and very competitive with our peers. We believe the best economic decision is to maintain the majority of our second half drilling program, although we are mindful of the recent crude oil price weakness and will act accordingly should these lower prices persist.

FINANCIAL AND OPERATIONAL HIGHLIGHTS

•

Production in the second quarter was within guidance and averaged 91,164 boe per day. In the quarter, volumes were reduced by approximately 1,000 boe per day by the divestiture of certain non-core assets and by approximately 2,000 boe per day from the voluntarily shut-in of volumes for economic reasons.

•

To increase the transparency and comparability of funds flow, Penn West has introduced funds flow from operations, which excludes certain non-recurring and non-operationally related funds flow items. For further details, please refer to the Calculation of Funds Flow/Funds Flow From Operations below.

•

Funds flow from operations, which excludes foreign exchange hedge monetizations/settlements and realized debt foreign exchange losses, was $79 million ($0.16 per share) compared to $299 million ($0.61 per share – basic) in the comparative period in 2014. The decrease is primarily attributed to lower revenues due to declines in commodity prices and lower production volumes as a result of non-core asset disposition activity.

•

Funds flow for the second quarter was $47 million ($0.09 per share – basic) compared to $298 million ($0.61 per share – basic) in the comparative period in 2014. The decrease is consistent with the reasons noted in funds flow from operations above plus realized foreign exchange losses on debt prepayments and maturities in the quarter.

•

Development capital expenditures were $64 million during the second quarter of 2015 compared to $65 million in the second quarter of 2014. The Company’s development program was focused on completion work within the Cardium and Viking plays as overall activity levels were lower than the first quarter of 2015 due to spring break-up.

•

During the second quarter, Penn West closed several non-core divestitures for total proceeds of approximately $414 million, all of which have been or will be applied to debt repayment.

•

As part of our on-going program to protect funds flow, Penn West layered in several additional crude oil hedges during and subsequent to the second quarter. Accordingly, the Company currently has crude oil hedges in place as follows:


Notional Volumes (bbls/d)	Contract Term	Pricing (C$ WTI/bbl)
12,500	Q3/15	70.40
12,500	Q4/15	72.57
9,500	Q1/16	72.83
6,000	Q2/16	71.94
5,000	Q3/16	72.08
5,000	Q4/16	72.08

Note: 7,500 barrels of the hedges for Q3/15 are contracted in USD at $52.00 per barrel and converted at an FX rate of C$/US$ 1.30.

OUTLOOK AND REVISED 2015 GUIDANCE

In December 2014, when Penn West last updated its 2015 capital budget, the forward strip for crude oil was in the range of the Company’s Canadian per barrel pricing assumption of C$65.00. Since that time, crude oil prices have declined. Accordingly, the Company has reduced its Canadian crude oil pricing assumption for full year 2015 to C$60.00 per barrel, which is approximately equivalent to US$50.00 per barrel WTI adjusting for foreign exchange and transportation differentials. Consequently, the Company is updating its funds flow from operations guidance range from $500 - $550 million to $350 - $400 million. The decrease in funds flow from operations guidance is largely attributed to lower benchmark oil and natural gas prices, although continued weakness in NGL realizations in the second half of 2015 could have a further impact on reported funds flow from operations. Additionally, the capital budget has been reduced from $625 million to $575 million as a result of a deferral of certain projects and reduced cost estimates.

Table 1: Summary of Changes to 2015 Capital Budget and Assumptions


	Nov 17, 2014 Budget		Dec 17, 2014 Revision		Jul 29, 2015 Revision		Change From Dec
Canadian Light Sweet Crude Oil Assumption (C$/bbl)	$	86.50	$	65.00	$	60.00		-7.7	%
AECO Natural Gas Assumption (C$/mcf)	$	3.69	$	3.25	$	3.25		nil
C$/US$ Foreign Exchange Assumption	$	1.04	$	1.15	$	1.25		8.7	%
Production (Boe/d)		95,000 - 105,000		90,000 - 100,000		90,000 - 100,000		nil
Capital Budget (MM)	$	840	$	625	$	575		-8.0	%
Funds Flow From Operations (MM)	$	875 - $925	$	500 - $550	$	350 - $400		-28.6	%

For sensitivities to key drivers of the Company’s business please refer to page 17 of the associated MD&A for the three and six months ended June 30, 2015.

This outlook section is included to provide shareholders with information about Penn West’s expectations as at July 29, 2015 for production, funds flow from operations and capital expenditures in 2015 and readers are cautioned that the information may not be appropriate for any other purpose. This information constitutes forward-looking information. Readers should note the assumptions, risks and discussion under “Forward-Looking Statements” and are cautioned that numerous factors could potentially impact Penn West’s capital expenditure levels and production and funds flow from operations performance for 2015, including fluctuations in commodity prices and its ongoing asset disposition program.

LONG-TERM DEBT

•

As at June 30, 2015, the Company was in compliance with all financial covenants under its lending agreements and it had approximately $700 million of undrawn capacity under its syndicated bank facility of $1.2 billion. Senior Debt to EBITDA was 3.2 times, relative to a 5.0 times limit.

•

In May 2015, Penn West announced the finalization of amending agreements with its lenders. The amended covenants require Penn West to remain below 5.0 times Senior Debt to EBITDA until June 30, 2016, below 4.5 times from July 1, 2016 to September 30, 2016 and below 4.0 times from October 1, 2016 to December 31, 2016. Thereafter, Penn West’s Senior Debt to EBITDA debt covenant returns to 3.0 times.

•

Pursuant to the terms of the amending agreements with its banking syndicate and noteholders, in the event that Penn West completes any asset dispositions prior to March 30, 2017, it has committed to use the net proceeds from such asset dispositions to offer to prepay at par not less than $650 million of the outstanding principal amounts owing to noteholders (subject to noteholder acceptance), with corresponding pro rata amounts from such asset dispositions to be used to repay any outstanding amounts drawn under its syndicated bank facility. During the second quarter, a total of $316 million was prepaid under this provision, including $278 million in senior notes at par and $38 million on the syndicated bank facility.

•

During the second quarter US$165 million of senior notes matured and were repaid utilizing the company’s syndicated bank facility.

•

Subsequent to the end of the second quarter, $98 million from the most recently completed divestments was offered and accepted by lenders for further prepayment of outstanding notes and repayment of indebtedness on our syndicated bank facility on a pro rata basis. The pro rata syndicated bank facility allocation of $17 million was repaid in early July. We expect the allocated noteholders amount to be paid on August 7, 2015. In anticipation of this noteholder settlement, the Company entered into foreign exchange forward contracts on US$70 million to fix the offered amounts related to the US denominated notes expected to be prepaid in early August.

OPERATED DEVELOPMENT ACTIVITY

During the second quarter, Penn West performed a review of its remaining capital plans for 2015. The analysis reaffirmed that Penn West’s assets are able to deliver strong economic returns in the current commodity price environment and supports continued development of its core plays in the Cardium and Viking, which remain profitable on a full cycle basis.

The Company continues to realize reductions in well and infrastructure costs due to both innovation in well designs and cost compression in the service industry. In the Cardium and Viking, recently drilled wells are expected to offer cost reductions of approximately 15 to 30 percent relative to a year ago. These cost savings help offset the impact of commodity price declines and are a key factor in the Company’s decision to continue investment.

At the end of the second quarter, Penn West had three rigs active with the expectation of adding four more rigs throughout the third quarter.

Table 2: Second Quarter 2015 Core Area Light Oil Development Summary


	Number of Wells
	Drilled				Completed				On production
Business Unit	Gross		Net		Gross		Net		Gross		Net
Cardium		0.0		0.0		7.0		6.7		14.0		13.7
Viking		8.0		8.0		9.0		9.0		9.0		9.0
Slave Point		0.0		0.0		0.0		0.0		0.0		0.0

Total		8.0		8.0		16.0		15.7		23.0		22.7

PLAY UPDATES

Cardium

In the quarter, the teams completed seven (6.7 net) wells and brought 14 (13.7 net) wells on production in the Cardium. Activity was evenly split between Willesden Green in the south and Pembina in the north ends of the play. In the first half of 2015, total well costs were reduced by over 20 percent at Pembina Cardium Unit (“PCU”) #9, J-Lease and Easyford. As the second quarter is a light operational period because of the interruption caused by spring break-up conditions, we expect to report current cost performance in our core areas, including the Cardium, with our third quarter results.

Cardium well results as a whole remain generally in-line with internal expectations despite variances between individual wells or groups of wells. Development in the Pembina region was focused in the J-Lease and PCU #9 areas during the first half of the year. Current performance in J-Lease wells continue to exceed expectations while limited regions of lower pressure in PCU #9 are modestly affecting the performance of certain wells. In Willesden Green, production performance on recently drilled wells has exceeded our internal expectations as we continue to further the Company’s understanding of the reservoir pressure regimes in the area.

The Cardium development teams initiated post break-up activity with one rig started in late June and have since added four rigs for a total of five rigs currently operating (one in J-Lease, one in PCU #9, one in PCU #11 and two in Willesden Green). After reviewing regional results on wells utilizing a sliding sleeve design, Penn West intends to pursue a cemented liner pilot in the PCU #9 in the third quarter of 2015. The cemented liner system design is expected to increase production control and subsequent water injection to improve waterflood performance over time, which in turn is expected to improve overall project economics. As referenced above, the Cardium team’s second half 2015 drilling plans include drilling and bringing six PCU #11 wells on production later this year. This is an emerging area for Penn West with the potential to expand the Company’s inventory in an area that has not seen much development activity over the past several years.

Viking

In the Viking, the Company drilled eight (8.0 net) wells, completed nine (9.0 net) wells and brought nine (9.0 net) wells on production. Due to dry spring conditions the teams were able to accelerate planned second quarter completions and tie-ins. Planned maintenance downtime was also shifted from the second quarter into the second half of the year. As a result of these events, Viking production is up meaningfully relative to internal estimates. In addition, work on key waterflood infrastructure in the Dodsland area was completed and the teams commenced water injection in the second quarter.

Over the first half of 2015, Penn West has improved per well costs in part by transitioning our completions to a 12 stage, 12 ton technique from the previous 15 stage, 15 ton design. This innovation has resulted in per well savings of approximately $100,000 resulting in drilling and completion costs of approximately $700,000 per well and is expected to further improve the Company’s economics in areas that have seen meaningful recovery to date, despite the potential for slightly lower initial production rates. In the first half of 2015, the Company lowered its drilling and completion costs by over 15 percent from the second half of 2014.

In the Company’s second half 2015 program, the teams will be drilling several wells with longer horizontal sections in order to produce from reservoir beneath areas with surface access restrictions. While this will reduce the number of wells drilled, the expectation is to maintain overall economics and production rates.

Peace River Oil Partnership (“PROP”)

In collaboration with its partner, the Company has finalized the budget for the second half 2015 and first half 2016 development program in the area. Management is pleased to have the full support of its partner allowing for development to be accelerated in the play through the addition of a second rig to the program. The second rig is planned to start in September and carry through to the end of the year. Approximately 90 percent of the Company’s expenditures continue to be paid for by our partner in the PROP joint venture.

Slave Point

The Company suspended development activities in Slave Point at the beginning of the year based on its adjusted 2015 capital budget announced in December of 2014. As part of the comprehensive portfolio review over the quarter, the Company continues to believe that while Slave Point economics are above break-even on a half-cycle basis, the full-cycle economics are not yet competitive with many of its opportunities in other core areas, especially in the context of a constrained capital environment. Active evaluation of the play will continue with a focus on cost reductions and expect investment to resume when expected returns are competitive with other internal opportunities.

Other Opportunities

As part of Penn West’s ongoing efforts to control spending and reduce exploratory risk, while maximizing the value of its large asset base, the Company continues to actively pursue farm-out opportunities in non-core development areas. In the first half of 2015, 5.3 net wells were spud on Penn West farm-out lands. We anticipate to have an additional 13 net wells spud in the second half of the year.

DRILLING STATISTICS


	Three months ended June 30										Six months ended June 30
	2015					2014					2015					2014
	Gross		Net			Gross		Net			Gross		Net			Gross		Net
Oil		9		8			11		10			84		76			77		57
Stratigraphic and service		—		—			2		—			1		1			4		1

Total		9		8			13		10			85		77			81		58

Success rate ⁽¹⁾				100	%				100	%				100	%				100	%

(1)	Success rate is calculated excluding stratigraphic and service wells.

CAPITAL EXPENDITURES


	Three months ended June 30									Six months ended June 30
(millions)	2015			2014			% change			2015			2014			% change
Land acquisition and retention	$	1		$	—			100		$	1		$	1			—
Drilling and completions		34			31			10			163			173			(6	)
Facilities and well equipping		31			30			3			91			83			10
Geological and geophysical		—			1			(100	)		2			7			(71	)
Corporate		1			3			(67	)		4			3			33
Capital carried by partners		(3	)		—			>(100	)		(6	)		(7	)		(14	)

Exploration and development capital ⁽¹⁾		64			65			(2	)		255			260			(2	)
Property dispositions, net		(411	)		(1	)		>100			(412	)		(212	)		94

Total capital expenditures	$	(347	)	$	64			>(100	)	$	(157	)	$	48			>(100	)

(1)	Exploration and development capital includes costs related to Property, Plant and Equipment and Exploration and Evaluation activities.

LAND


	As at June 30
	Producing									Non-producing
	2015			2014			% change			2015			2014			% change
Gross acres (000s)		3,900			4,322			(10	)		2,296			2,636			(13	)
Net acres (000s)		2,693			2,949			(9	)		1,583			1,808			(12	)
Average working interest		69	%		68	%		1			69	%		69	%		—

COMMON SHARE DATA


	Three months ended June 30						Six months ended June 30
(millions of shares)	2015		2014		% change		2015		2014		% change
Weighted average
Basic		502.2		492.4		2		501.8		491.4		2
Diluted		502.2		492.6		2		501.8		491.4		2
Outstanding as at June 30								502.2		493.5		2

Non-GAAP Measures

This news release includes non-GAAP measures not defined under International Financial Reporting Standards (“IFRS”) including funds flow, funds flow from operations, funds flow per share-basic, funds flow per share-diluted, funds flow from operations per share-basic, funds flow from operations per share-diluted, netback and gross revenues. Non-GAAP measures do not have any standardized meaning prescribed by GAAP and therefore may not be comparable to similar measures presented by other issuers. Funds flow is cash flow from operating activities before changes in non-cash working capital and decommissioning expenditures. Funds flow and funds flow from operations are used to assess the Company’s ability to fund dividend and planned capital programs. Funds flow from operations excludes the effects of financing related transactions from foreign exchange contracts and debt repayments/ pre-payments and is more representative of cash related to continuing operations. See “Calculation of Funds Flow/Funds Flow From Operations” below for a reconciliation of funds flow to its nearest measure prescribed by IFRS. Netback is the per unit of production amount of revenue less royalties, operating expenses, transportation and realized risk management gains and losses, and is used in capital allocation decisions and to economically rank projects. Gross revenue is total revenues including realized risk management gains and losses on commodity contracts and is used to assess the cash realizations on commodity sales.

Calculation of Funds Flow/Funds Flow From Operations


	Three months ended June 30						Six months ended June 30
(millions, except per share amounts)	2015			2014			2015			2014
Cash flow from operating activities	$	(67	)	$	214		$	89		$	436
Change in non-cash working capital		109			77			54			111
Decommissioning expenditures		5			7			16			20

Funds flow		47			298			159			567
Monetization of foreign exchange contracts		(19	)		—			(63	)		—
Settlements of normal course FX contracts		(23	)		(2	)		(25	)		(2	)
Realized foreign exchange loss – debt prepayments		44			—			44			—
Realized foreign exchange loss – debt maturities		30			3			36			3

Funds flow from operations	$	79		$	299		$	151		$	568

Per share – funds flow
Basic per share	$	0.09		$	0.61		$	0.32		$	1.15
Diluted per share		0.09			0.60			0.32			1.15
Per share – funds flow from operations
Basic per share		0.16			0.61			0.30			1.15
Diluted per share	$	0.16		$	0.61		$	0.30		$	1.15

Oil and Gas Information Advisory

Barrels of oil equivalent (“boe”) may be misleading, particularly if used in isolation. A boe conversion ratio of six thousand cubic feet of natural gas to one barrel of crude oil is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency conversion ratio of 6:1, utilizing a conversion on a 6:1 basis is misleading as an indication of value.

Forward-Looking Statements

Certain statements contained in this document constitute forward-looking statements or information (collectively “forward-looking statements”) within the meaning of the “safe harbour” provisions of applicable securities legislation. Forward-looking statements are typically identified by words such as “anticipate”, “continue”, “estimate”, “expect”, “forecast”, “budget”, “may”, “will”, “project”, “could”, “plan”, “intend”, “should”, “believe”, “outlook”, “objective”, “aim”, “potential”, “target” and similar words suggesting future events or future performance. In addition, statements relating to “reserves” or “resources” are deemed to be forward-looking statements as they involve the implied assessment, based on certain estimates and assumptions, that the reserves and resources described exist in the quantities predicted or estimated and can be profitably produced in the future. In particular, this document contains forward-looking statements pertaining to, without limitation, the following: under “President’s Message”, that the funds flow from operations metric will be more comparable on a quarter-over-quarter basis and will demonstrate the consistent delivery of our operating performance, that finalizing the amending agreements with our lenders improves our financial flexibility which in turn will clear the way for our development plans in the second half of 2015, that pursuant to the amending agreements, the net proceeds from asset dispositions will be used to prepay outstanding principal amounts owing to the noteholders and to repay outstanding amounts under our syndicated bank facility on a pro rata basis until March 31, 2017 or when $650 million has been prepaid to noteholders, that in connection with the closing of several non-core divestitures during the quarter for total proceeds of approximately $414 million, these proceeds have been or will be applied to debt repayment, the continued moving forward by the Company on additional non-core asset sales in an effort to reduce debt and strengthen our balance sheet, the confidence in our ability to transact on asset dispositions despite the current commodity price environment, the increased stability in our revenues through the ongoing hedging program, continuing to execute on the long-term strategy which will make the enterprise as a whole more focused and competitive, that the best economic decision for the business is to maintain the majority of our second half drilling program and our ability to act accordingly in the future should lower crude oil prices persist; under “Outlook and Revised 2015 Capital Budget”, the revised guidance amounts for the Canadian crude oil pricing assumptions for the full year of 2015, the 2015 funds flow from operations and 2015 capital budget; under “Long-Term Debt”, pursuant to asset dispositions, the commitment to repay at par up to $650 million of the outstanding principal amount owing to noteholders (subject to noteholder acceptance), with corresponding pro rata amounts from such asset dispositions to be used to repay any outstanding amounts drawn under the syndicated bank facility in the event any assets dispositions occur prior to March 31, 2017, the use of proceeds from the recent disposition to noteholders on August 7, 2015 with the use of exchange rate contracts to fix the offered amounts on the US denominated notes; under “Operated Development Activity”, that the analysis on the Company’s remaining capital plans for 2015 reaffirm that Penn West assets are able to deliver strong economic returns in the current commodity price environment and continued development of its core plays in the Cardium and Viking, which remain profitable on a full cycle basis, that in the Cardium and Viking, recently drilled wells are expected to offer cost reductions of approximately 15 to 30 percent relative to a year ago and the addition of four more rigs throughout the third quarter; under “Play Updates”, in the Cardium, the expectation to report current cost performance in our core areas, including the Cardium, with the third quarter results, the J-Lease will continue to exceed expectations and limited regions of lower pressure in PCU #9 will modestly affect the performance in certain wells, in Willesden Green, recently drilled wells will continue to exceed expectation, the intention to pursue a cemented liner pilot in the PCU #9 which is expected to increase production control and subsequent water injection to improve overall project economics, the bringing on of six PCU #11 wells on production later this year, and the potential expansion of inventory in the area; in the Viking, planned maintenance time being shifted into the second half of 2015, improvements to completions expected to further improve the Company’s economics in the area and the drilling of several wells with longer horizontal sections in order to produce from surface access restricted areas, maintaining overall economics and production rates despite there being fewer wells because of these longer horizontal sections; in PROP, that a second rig is planned to start September and carry through to the end of the year; in Slave Point, the expectation that investment will resume in the area when expected returns are competitive with other internal opportunities; in “Other Opportunities”, the expectation for the Company to have an additional 13 net wells spud in the second half of the year.

With respect to forward-looking statements contained in this document, we have made assumptions regarding, among other things: the terms and timing of asset sales to be completed under our ongoing program to sell non-core assets; our ability to execute our long-term plan as described herein and in our other disclosure documents and the impact that the successful execution of such plan will have on our Company and our shareholders; the economic returns that we anticipate realizing from expenditures made on our assets; future crude oil, natural gas liquids and natural gas prices and differentials between light, medium and heavy oil prices and Canadian, WTI and world oil and natural gas prices; future capital expenditure levels; future crude oil, natural gas liquids and natural gas production levels; drilling results; future exchange rates and interest rates; the amount of future cash dividends that we intend to pay and the level of participation in our dividend reinvestment plan; our ability to execute our capital programs as planned without significant adverse impacts from various factors beyond our control, including weather, infrastructure access and delays in obtaining regulatory approvals and third party consents; our ability to obtain equipment in a timely manner to carry out development activities and the costs thereof; our ability to market our oil and natural gas successfully to current and new customers; our ability to obtain financing on acceptable terms, including our ability to renew or replace our syndicated bank facility and our ability to finance the repayment of our senior unsecured notes on maturity; and our ability to add production and reserves through our development and exploitation activities. In addition, many of the forward-looking statements contained in this document are located proximate to assumptions that are specific to those forward-looking statements, and such assumptions should be taken into account when reading such forward-looking statements: see in particular the assumptions identified under the heading “Outlook and Revised 2015 Capital Budget”.

Although we believe that the expectations reflected in the forward-looking statements contained in this document, and the assumptions on which such forward-looking statements are made, are reasonable, there can be no assurance that such expectations will prove to be correct. Readers are cautioned not to place undue reliance on forward-looking statements included in this document, as there can be no assurance that the plans, intentions or expectations upon which the forward-looking statements are based will occur. By their nature, forward-looking statements involve numerous assumptions, known and unknown risks and uncertainties that contribute to the possibility that the predictions, forecasts, projections and other forward-looking statements will not occur, which may cause our actual performance and financial results in future periods to differ materially from any estimates or projections of future performance or results expressed or implied by such forward-looking statements. These risks and uncertainties include, among other things: the possibility that we are unable to execute some or all of our ongoing non-core asset disposition program on favourable terms or at all, whether due to the failure to receive requisite regulatory approvals or satisfy applicable closing conditions or for other reasons that we cannot anticipate; the possibility that we breach one or more of the financial covenants pursuant to our amending agreements with the syndicated banks and the holders of our senior, unsecured notes; the possibility that we will not be able to successfully execute our long-term plan in part or in full, and the possibility that some or all of the benefits that we anticipate will accrue to our Company and our securityholders as a result of the successful execution of such plan do not materialize; the impact of weather conditions on seasonal demand; the impact of weather conditions on our ability to execute capital programs; the risk that we will be unable to execute our capital programs as planned without significant adverse impacts from various factors beyond our control, including weather, infrastructure access and delays in obtaining regulatory approvals and third party consents; risks inherent in oil and natural gas operations; uncertainties associated with estimating reserves and resources; competition for, among other things, capital, acquisitions of reserves, resources, undeveloped lands and skilled personnel; incorrect assessments of the value of acquisitions; geological, technical, drilling and processing problems; general economic and political conditions in Canada, the U.S. and globally; industry conditions, including fluctuations in the price of oil and natural gas, price differentials for crude oil and natural gas produced in Canada as compared to other markets, and transportation restrictions, including pipeline and railway capacity constraints; royalties payable in respect of our oil and natural gas production and changes to government royalty frameworks; changes in government regulation of the oil and natural gas industry, including environmental regulation; fluctuations in foreign exchange or interest rates; unanticipated operating events or environmental events that can reduce production or cause production to be shut-in or delayed, including extreme cold during winter months, wild fires and flooding; failure to obtain regulatory, industry partner and other third-party consents and approvals when required, including for acquisitions, dispositions and mergers; failure to realize the anticipated benefits of dispositions, acquisitions, joint ventures and partnerships, including those discussed herein; changes in tax and other laws that affect us and our securityholders; the potential failure of counterparties to honour their contractual obligations; stock market volatility and market valuations; OPEC’s ability to control production and balance global supply and demand of crude oil at desired price levels; political uncertainty, including the risks of hostilities, in the petroleum producing regions of the world; and the other factors described in our public filings (including our Annual Information Form) available in Canada at www.sedar.com and in the United States at www.sec.gov. Readers are cautioned that this list of risk factors should not be construed as exhaustive.

The forward-looking statements contained in this document speak only as of the date of this document. Except as expressly required by applicable securities laws, we do not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The forward-looking statements contained in this document are expressly qualified by this cautionary statement.

Penn West Petroleum Ltd.

Consolidated Balance Sheets


(CAD millions, unaudited)	Note		June 30, 2015			December 31, 2014
Assets
Current
Cash			$	89		$	67
Accounts receivable				197			182
Other				57			46
Deferred funding assets		3		69			84
Risk management		8		6			31

				418			410

Non-current
Deferred funding assets		3		181			195
Exploration and evaluation assets		4		499			505
Property, plant and equipment		5		7,512			7,906
Goodwill				706			734
Risk management		8		59			102

				8,957			9,442

Total assets			$	9,375		$	9,852

Liabilities and Shareholders’ Equity
Current
Accounts payable and accrued liabilities			$	337		$	529
Dividends payable				5			70
Current portion of long-term debt		6		321			283
Decommissioning liability		7		69			52
Risk management		8		18			9

				750			943
Non-current
Long-term debt		6		1,885			1,866
Decommissioning liability		7		500			533
Risk management		8		8			10
Deferred tax liability		11		920			914
Other non-current liabilities				4			4

				4,067			4,270

Shareholders’ equity
Shareholders’ capital		9		8,993			8,983
Other reserves				91			89
Deficit				(3,776	)		(3,490	)

				5,308			5,582

Total liabilities and shareholders’ equity			$	9,375		$	9,852

Subsequent events (Notes 6, 8 and 9)

Commitments and contingencies (Note 12)

See accompanying notes to the unaudited interim consolidated financial statements.

Penn West Petroleum Ltd.

Consolidated Statements of Income (Loss)


	Three months ended June 30								Six months ended June 30
(CAD millions, except per share amounts, unaudited)	Note		2015			2014			2015			2014
Oil and natural gas sales and other income			$	364		$	685		$	675		$	1,378
Royalties				(39	)		(112	)		(76	)		(214	)

				325			573			599			1,164

Risk management gain (loss)		8		(14	)		(11	)		38			(41	)

				311			562			637			1,123

Expenses
Operating				153			147			315			351
Transportation				12			12			23			23
General and administrative				23			34			45			70
Restructuring				3			7			5			11
Share-based compensation		10		7			8			7			17
Depletion and depreciation		5		174			187			355			374
Loss (gain) on dispositions		5		(95	)		—			(95	)		48
Foreign exchange loss (gain)		6		(21	)		(66	)		153			9
Exploration and evaluation		4		—			16			—			16
Financing		6		43			39			80			80
Accretion		7		10			9			19			18

				309			393			907			1,017

Income (loss) before taxes				2			169			(270	)		106

Deferred tax expense		11		30			26			6			52

Net and comprehensive income (loss)			$	(28	)	$	143		$	(276	)	$	54

Net income (loss) per share
Basic			$	(0.06	)	$	0.29		$	(0.55	)	$	0.11
Diluted			$	(0.06	)	$	0.29		$	(0.55	)	$	0.11
Weighted average shares outstanding (millions)
Basic		9		502.2			492.4			501.8			491.4
Diluted		9		502.2			492.6			501.8			491.4

See accompanying notes to the unaudited interim consolidated financial statements.

Penn West Petroleum Ltd.

Consolidated Statements of Cash Flows


	Three months ended June 30								Six months ended June 30
(CAD millions, unaudited)	Note		2015			2014			2015			2014
Operating activities
Net income (loss)			$	(28	)	$	143		$	(276	)	$	54
Depletion and depreciation		5		174			187			355			374
Loss (gain) on dispositions		5		(97	)		—			(97	)		48
Exploration and evaluation				—			16			—			16
Accretion		7		10			9			19			18
Deferred tax expense		11		30			26			8			52
Share-based compensation		10		1			2			2			5
Unrealized risk management loss (gain)		8		52			(16	)		75			(6	)
Unrealized foreign exchange loss (gain)		6		(95	)		(69	)		73			6
Decommissioning expenditures		7		(5	)		(7	)		(16	)		(20	)
Change in non-cash working capital				(109	)		(77	)		(54	)		(111	)

				(67	)		214			89			436

Investing activities
Capital expenditures				(64	)		(65	)		(255	)		(260	)
Property dispositions (acquisitions), net				411			(1	)		412			212
Change in non-cash working capital				(65	)		(55	)		(143	)		(61	)

				282			(121	)		14			(109	)

Financing activities
Increase (decrease) in long-term debt		6		295			9			484			(171	)
Repayments of senior notes		6		(495	)		(62	)		(580	)		(62	)
Issue of equity				—			11			—			11
Realized foreign exchange loss on repayments		6		74			3			80			3
Dividends paid				(5	)		(54	)		(65	)		(108	)

				(131	)		(93	)		(81	)		(327	)

Change in cash				84			—			22			—
Cash, beginning of period				5			—			67			—

Cash, end of period			$	89		$	—		$	89		$	—

See accompanying notes to the unaudited interim consolidated financial statements.

Penn West Petroleum Ltd.

Statements of Changes in Shareholders’ Equity


(CAD millions, unaudited)	Note		Shareholders’ Capital		Other Reserves			Deficit			Total
Balance at January 1, 2015			$	8,983	$	89		$	(3,490	)	$	5,582
Net and comprehensive loss				—		—			(276	)		(276	)
Share-based compensation		10		—		2			—			2
Issued to dividend reinvestment plan		9		10		—			—			10
Dividends declared		9		—		—			(10	)		(10	)

Balance at June 30, 2015			$	8,993	$	91		$	(3,776	)	$	5,308


(CAD millions, unaudited)	Note		Shareholders’ Capital		Other Reserves			Deficit			Total
Balance at January 1, 2014			$	8,913	$	80		$	(1,480	)	$	7,513
Net and comprehensive income				—		—			54			54
Share-based compensation		10		—		5			—			5
Issued on exercise of options		9		12		(1	)		—			11
Issued to dividend reinvestment plan		9		29		—			—			29
Dividends declared		9		—		—			(138	)		(138	)

Balance at June 30, 2014			$	8,954	$	84		$	(1,564	)	$	7,474

See accompanying notes to the unaudited interim consolidated financial statements.

Notes to the Unaudited Consolidated Financial Statements

(All tabular amounts are in CAD millions except numbers of common shares, per share amounts, percentages and various figures in Note 8)

1. Structure of Penn West

Penn West Petroleum Ltd. (“Penn West” or the “Company”) is a senior exploration and production company and is governed by the laws of the Province of Alberta, Canada. The Company operates in one segment, to explore for, develop and hold interests in oil and natural gas properties and related production infrastructure in the Western Canada Sedimentary Basin directly and through investments in securities of subsidiaries holding such interests. Penn West’s portfolio of assets is managed at an enterprise level, rather than by separate operating segments or business units. The Company assesses its financial performance at the enterprise level and resource allocation decisions are made on a project basis across Penn West’s portfolio of assets, without regard to the geographic location of projects. Penn West owns the petroleum and natural gas assets or 100 percent of the equity, directly or indirectly, of the entities that carry on the remainder of the oil and natural gas business of Penn West, except for an unincorporated joint arrangement (the “Peace River Oil Partnership”) in which Penn West’s wholly owned subsidiaries hold a 55 percent interest.

Penn West operates under the trade names of Penn West and Penn West Exploration.

2. Basis of presentation and statement of compliance

a) Statement of Compliance

These unaudited condensed interim consolidated financial statements (“interim consolidated financial statements”) are prepared in compliance with IAS 34 “Interim Financial Reporting” and accordingly do not contain all of the disclosures included in Penn West’s annual audited consolidated financial statements.

The interim consolidated financial statements were prepared using the same accounting policies, critical accounting judgments and key estimates as in the annual consolidated financial statements as at and for the year ended December 31, 2014.

All tabular amounts are in millions of Canadian dollars, except numbers of common shares, per share amounts, percentages and other figures as noted.

The interim consolidated financial statements were approved for issuance by the Board of Directors on July 29, 2015.

b) Basis of Presentation

The interim consolidated financial statements include the accounts of Penn West, its wholly owned subsidiaries and its proportionate interest in partnerships. Results from acquired properties are included in Penn West’s reported results subsequent to the closing date and results from properties sold are included until the closing date.

All intercompany balances, transactions, income and expenses are eliminated on consolidation.

Certain comparative figures have been reclassified to correspond with current period presentation.

3. Deferred funding assets

Deferred funding amounts relate to Penn West’s share of capital and operating expenses to be funded by Penn West’s partner in the Peace River Oil Partnership and Penn West’s share of capital expenditures to be funded by Penn West’s partner in the Cordova Joint Venture. Amounts expected to be settled within the next 12 months are classified as current.


	June 30, 2015		December 31, 2014
Peace River Oil Partnership	$	167	$	195
Cordova Joint Venture		83		84

Total	$	250	$	279

Current portion	$	69	$	84
Long-term portion		181		195

Total	$	250	$	279

4. Exploration and evaluation (“E&E”) assets


	Six months ended June 30, 2015			Year ended December 31, 2014
Balance, beginning of period	$	505		$	645
Capital expenditures		7			92
Joint venture, carried capital		—			16
Expense		—			(16	)
Transfers to PP&E		(13	)		(232	)

Balance, end of period	$	499		$	505

5. Property, plant and equipment


Cost	Six months ended June 30, 2015			Year ended December 31, 2014
Balance, beginning of period	$	17,456		$	17,974
Capital expenditures		248			640
Joint venture, carried capital		6			13
Acquisitions		2			12
Dispositions		(486	)		(1,416	)
Transfers from E&E		13			232
Decommissioning additions (dispositions), net		(19	)		1

Balance, end of period	$	17,220		$	17,456


Accumulated depletion and depreciation	Six months ended June 30, 2015			Year ended December 31, 2014
Balance, beginning of period	$	9,550		$	8,899
Depletion and depreciation		355			750
Impairments		—			634
Dispositions		(197	)		(733	)

Balance, end of period	$	9,708		$	9,550


Net book value	June 30, 2015			December 31, 2014
Total	$	7,512		$	7,906

In 2015, Penn West has recorded gains on dispositions of $95 million (2014 - $48 million loss), which included $2 million expense related to advisory fees (2014 – insignificant).

6. Long-term debt


	Amount (millions)	Maturity dates	Average interest rate ⁽¹⁾			June 30, 2015		December 31, 2014
2007 Notes	US$259	2015 – 2022		6.36	%	$	324	$	550
2008 Notes	US$417, CAD$30	2016 – 2020		6.74	%		551		587
UK Notes	£49	2018		6.95	%⁽²⁾		96		103
2009 Notes	US$79⁽³⁾, £19, €9	2015 – 2019		9.43	%⁽⁴⁾		149		158
2010 Q1 Notes	US$187	2015 – 2025		6.20	%		234		341
2010 Q4 Notes	US$146, CAD$48	2015 – 2025		5.47	%		231		258
2011 Notes	US$91, CAD$23	2016 – 2021		4.99	%		137		152

Total senior notes							1,722		2,149
Syndicated bank facility advances							484		—

Total long-term debt						$	2,206	$	2,149

(1)	Average interest rate can fluctuate based on consolidated debt to EBITDA ratio which expires on March 30, 2017, the date the covenant relief period ends with the bank syndicate and noteholders.

(2)	These notes currently bear interest at 8.28 percent in Pounds Sterling, however, contracts were entered to fix the interest rate at 6.95 percent in Canadian dollars and to fix the exchange rate on the repayment (refer to Note 8).

(3)	A portion of the 2009 Notes have equal repayments, which began in 2013 with a repayment of US$5 million, and extend over the remaining six years.

(4)	The Company entered into contracts to fix the interest rate on the Pounds Sterling and Euro tranches, initially at 9.99 percent and 10.02 percent, to 9.15 percent and 9.22 percent, respectively, and to fix the exchange rate on repayment (refer to Note 8).

The split between current and non-current long-term debt is as follows:


	June 30, 2015		December 31, 2014
Current portion	$	321	$	283
Long-term portion		1,885		1,866

Total	$	2,206	$	2,149

There were no senior notes issued in either 2015 or 2014. Subsequent to June 30, 2015, $98 million from the most recently completed dispositions was offered and accepted by lenders for further prepayment of outstanding notes and repayment of indebtedness on our syndicated bank facility on a pro rata basis. The pro rata syndicated bank facility allocation of $17 million was repaid in early July. The Company expects the allocated noteholders amount to be paid on August 7, 2015.

Additional information on Penn West’s senior notes is as follows:


	June 30, 2015			December 31, 2014
Weighted average remaining life (years)		3.6			3.7
Weighted average interest rate ⁽¹⁾		6.5	%		6.0	%

(1)	Includes the effect of cross currency swaps (refer to Note 8).

At June 30, 2015, the Company had a secured, revolving syndicated bank facility with an aggregate borrowing limit of $1.2 billion and an extendible five-year term (May 6, 2019 maturity date). The syndicated bank facility contains provisions for stamping fees on bankers’ acceptances and LIBOR loans and standby fees on unutilized credit lines that vary depending on certain consolidated financial ratios. At June 30, 2015, the Company had $0.7 billion of unused credit capacity available.

Drawings on the Company’s bank facility are subject to fluctuations in short-term money market rates as they are generally held in short-term money market instruments. At June 30, 2015, 22 percent (December 31, 2014 – none) of Penn West’s long-term debt instruments were exposed to changes in short-term interest rates.

The Company is subject to certain financial covenants under its syndicated bank facility and senior notes. These types of financial covenants are typical for senior lending arrangements and include senior debt and total debt to EBITDA and senior debt and total debt to capitalization, as more specifically defined in the applicable lending agreements. At June 30, 2015, the Company was in compliance with all of its financial covenants under such lending agreements.

Letters of credit totalling $47 million were outstanding on June 30, 2015 (December 31, 2014 – $30 million) that reduce the amount otherwise available to be drawn on the syndicated bank facility.

In May 2015, the Company finalized amending agreements with the lenders under its syndicated bank facility and with the holders of its senior notes to, among other things, amend its financial covenants as follows:

•

the maximum Senior Debt to EBITDA and Total Debt to EBITDA ratio will be less than or equal to 5:1 for the period January 1, 2015 through and including June 30, 2016, decreasing to less than or equal to 4.5:1 for the quarter ending September 30, 2016 and decreasing to less than or equal to 4:1 for the quarter ending December 31, 2016;

•

the Senior Debt to EBITDA ratio will decrease to less than or equal to 3:1 for the period from and after January 1, 2017; and

•

the Total Debt to EBITDA ratio will remain at less than or equal to 4:1 for all periods after December 31, 2016.

The Company also agreed to the following:

•

to temporarily grant floating charge security over all of its property in favor of the lenders and the noteholders on a pari passu basis, which security will be fully released upon the Company achieving both (i) a Senior Debt to EBITDA ratio of 3:1 or less for four consecutive quarters, and (ii) an investment grade rating on its senior unsecured debt;

•

to cancel the $500 million tranche of the Company’s existing $1.7 billion syndicated bank facility that was set to expire on June 30, 2016, the remaining $1.2 billion tranche of the syndicated bank facility remains available to the Company in accordance with the terms of the agreements governing such facility;

•

to temporarily reduce its quarterly dividend commencing in the first quarter of 2015 to $0.01 per share until the earlier of (i) the Senior Debt to EBITDA being less than 3:1 for two consecutive quarters ending on or after September 30, 2015, and (ii) March 30, 2017; and

•

until March 30, 2017, to use net proceeds from any asset dispositions to repay at par $650 million of the outstanding principal amounts owing to noteholders, with corresponding pro rata amounts from such asset dispositions to be used to repay any outstanding amounts drawn under its syndicated bank facility.

During the second quarter of 2015, Penn West repaid senior notes in an aggregate amount of US$165 million as part of normal maturities and additional amounts of US$202 million, $18 million, £8 million and €1 million of senior notes were prepaid as a result of the offers made at par to its noteholders using asset disposition proceeds. Penn West also repaid a total of $38 million outstanding under its syndicated bank facility using asset disposition proceeds. Penn West records unrealized foreign exchange gains or losses on its senior notes as amounts are translated into Canadian dollars at the rate of exchange in effect at the balance sheet date.

The split between realized and unrealized foreign exchange is as follows:


	Three months ended June 30						Six months ended June 30
	2015			2014			2015			2014
Realized foreign exchange loss on debt maturities	$	(30	)	$	(3	)	$	(36	)	$	(3	)
Realized foreign exchange loss on debt pre-payments		(44	)		—			(44	)		—
Unrealized foreign exchange gain (loss)		95			69			(73	)		(6	)

Foreign exchange gain (loss)	$	21		$	66		$	(153	)	$	(9	)

7. Decommissioning liability

The decommissioning liability was determined by applying an inflation factor of 2.0 percent (December 31, 2014 – 2.0 percent) and the inflated amount was discounted using a credit-adjusted rate of 6.5 percent (December 31, 2014 – 6.5 percent) over the expected useful life of the underlying assets, currently extending over 50 years into the future.

The split between current and non-current decommissioning liability is as follows:


	June 30, 2015		December 31, 2014
Current portion	$	69	$	52
Long-term portion		500		533

Total	$	569	$	585

Changes to the decommissioning liability were as follows:


	Six months ended June 30, 2015			Year ended December 31, 2014
Balance, beginning of period	$	585		$	603
Net liabilities incurred (disposed) ⁽¹⁾		(15	)		(75	)
Increase (decrease) in liability due to change in estimate		(4	)		76
Liabilities settled		(16	)		(55	)
Accretion charges		19			36

Balance, end of period	$	569		$	585

(1)	Includes additions from drilling activity, facility capital spending and disposals related to net property dispositions.

8. Risk management

Financial instruments consist of accounts receivable, fair values of derivative financial instruments, accounts payable and accrued liabilities, dividends payable and long-term debt. Except for the senior, notes described in Note 6, the fair values of these financial instruments approximate their carrying amounts due to the short-term maturity of the instruments, the mark to market values recorded for the financial instruments and the market rate of interest applicable to the syndicated bank facility. At June 30, 2015, the estimated fair values of the principal and interest obligations of the outstanding notes totalled $1.6 billion (December 31, 2014 – $2.2 billion) compared to the carrying value of $1.7 billion (December 31, 2014 – $2.1 billion).

The fair values of all outstanding financial, commodity, power, interest rate and foreign exchange contracts are reflected on the balance sheet with the changes during the period recorded in income as unrealized gains or losses.

As at June 30, 2015 and December 31, 2014, the only asset or liability measured at fair value on a recurring basis was the risk management asset and liability, which was valued based on “Level 2 inputs” being quoted prices in markets that are not active or based on prices that are observable for the asset or liability.

The following table reconciles the changes in the fair value of financial instruments outstanding:


Risk management asset (liability)	Six months ended June 30, 2015			Year ended December 31, 2014
Balance, beginning of period	$	114		$	12
Unrealized gain (loss) on financial instruments:
Commodity collars, swaps and assignments		(49	)		51
Electricity swaps		7			(2	)
Interest rate swaps		—			1
Foreign exchange forwards		(43	)		48
Cross currency swaps		10			4

Total fair value, end of period	$	39		$	114

Penn West had the following financial instruments outstanding as at June 30, 2015. Fair values are determined using external counterparty information, which is compared to observable market data. Penn West limits its credit risk by executing counterparty risk procedures which include transacting only with institutions within Penn West’s syndicated bank facility or companies with high credit ratings and by obtaining financial security in certain circumstances.


	Notional volume	Remaining term	Pricing	Fair value (millions)
Natural gas
AECO Swaps	70,000 mcf/d	Jul/15 – Dec/15	$2.86/mcf	$	1
AECO Swaps	14,200 mcf/d	Jan/16 – Dec/16	$3.06/mcf		—

Crude Oil
WTI Swaps	7,500 bbl/d	Jul/15 – Sep/15	US$52.00/bbl		(7	)
WTI Swaps	5,000 bbl/d	Jul/15 – Sep/15	CAD$74.78/bbl		—
WTI Swaps	12,500 bbl/d	Oct/15 – Dec/15	CAD$72.57/bbl		(4	)
WTI Swaps	2,500 bbl/d	Jan/16 – Mar/16	CAD$76.60/bbl		—
WTI Swaps	5,000 bbl/d	Jan/16 – Dec/16	CAD$72.08/bbl		(9	)

Electricity swaps
Alberta Power Pool	10 MW	Jul/15 – Dec/15	$58.50/MWh		—
Alberta Power Pool	70 MW	Jul/15 – Dec/15	$55.17/MWh		(2	)
Alberta Power Pool	25 MW	Jan/16 – Dec/16	$49.90/MWh		(1	)

Crude oil assignment
18 – month term	10,000 boe/d	Jul/15 – May/16	Differential WCS (Edm) vs. WCS (USGC)		4

Foreign exchange forwards on senior notes
3 to 15-year initial term	US$229	2015 – 2022	1.000 CAD/USD		55

Foreign exchange forwards on debt prepayments
	US$70	Aug/15	1.237 CAD/USD		—

Cross currency swaps
10-year initial term	£57	2018	2.0075 CAD/GBP, 6.95%		(1	)
10-year initial term	£20	2019	1.8051 CAD/GBP, 9.15%		5
10-year initial term	€10	2019	1.5870 CAD/EUR, 9.22%		(2	)

Total				$	39

Based on June 30, 2015 pricing, a $1.00 change in the price per barrel of liquids would have changed pre-tax unrealized risk management by $5 million and a $0.10 change in the price per mcf of natural gas would change pre-tax unrealized risk management by $2 million.

Subsequent to June 30, 2015, the Company entered into additional crude oil swaps on 2,000 barrels per day of production in the first quarter of 2016 at WTI $70.00 per barrel, 1,000 barrels per day of production in the second quarter of 2016 at WTI $71.50 per barrel and AECO swaps for 2016 on 4,700 mcf per day of production at an average price of $3.13 per mcf.

The components of risk management on the Statement of Income are as follows:


	Three months ended June 30						Six months ended June 30
	2015			2014			2015			2014
Realized
Settlement of commodity contracts/assignment	$	(4	)	$	(29	)	$	7		$	(49	)
Monetization of commodity contracts		—			—			18			—
Settlement of foreign exchange contracts		23			2			25			2
Monetization of foreign exchange contracts		19			—			63			—

Total realized risk management gain (loss)		38			(27	)		113			(47	)

Unrealized
Commodity contracts		(17	)		39			(42	)		1
Electricity swaps		11			3			7			4
Interest rate swaps		—			—			—			1
Crude oil assignment		(4	)		—			(7	)		—
Foreign exchange contracts		(49	)		(21	)		(43	)		(3	)
Cross-currency swaps		7			(5	)		10			3

Total unrealized risk management gain (loss)		(52	)		16			(75	)		6

Risk management gain (loss)	$	(14	)	$	(11	)	$	38		$	(41	)

Operating costs for the six months ended June 30, 2015 include a realized loss of $4 million (2014 – $2 million loss) on electricity contracts and for the second quarter a realized gain of $1 million (2014 – $2 million loss).

Market risks

Penn West is exposed to normal market risks inherent in the oil and natural gas business, including, but not limited to, commodity price risk, foreign currency rate risk, credit risk, interest rate risk and liquidity risk. The Company seeks to mitigate these risks through various business processes and management controls and from time to time by using financial instruments.

There have been no significant changes to these risks from those discussed in Penn West’s annual audited consolidated financial statements.

Foreign currency rate risk

In 2015, the Company monetized a total of US$315 million of foreign exchange forward contracts on senior notes and settled US$77 million as part of normal course maturities. At June 30, 2015, the following foreign currency forward contracts were outstanding:


Nominal Amount	Settlement date		Exchange rate
Buy US$70		2015		1.237 CAD/USD
Buy US$18		2016		0.995 CAD/USD
Buy US$78		2017		0.999 CAD/USD
Buy US$26		2018		0.995 CAD/USD
Buy US$76		2019		0.992 CAD/USD
Buy US$31		2020		0.995 CAD/USD

9. Shareholders’ equity

i) Issued


Shareholders’ capital	Common Shares		Amount
Balance, January 1, 2014		489,077,284	$	8,913
Issued on exercise of equity compensation plans ⁽¹⁾		1,067,000		12
Issued to dividend reinvestment plan		7,175,803		58

Balance, December 31, 2014		497,320,087		8,983
Issued to dividend reinvestment plan		4,843,076		10

Balance, June 30, 2015		502,163,163	$	8,993

(1)	Upon exercise of options, the net benefit is recorded as a reduction of other reserves and an increase to shareholders’ capital.

ii) Earnings per share - Basic and Diluted

The weighted average number of shares used to calculate per share amounts was as follows:


	Three months ended June 30				Six months ended June 30
Average shares outstanding (millions)	2015		2014		2015		2014
Weighted average
Basic		502.2		492.4		501.8		491.4
Dilutive impact		—		0.2		—		—

Diluted		502.2		492.6		501.8		491.4

For the second quarter of 2015, 17.4 million shares (2014 – 12.4 million) that would be issued under the Stock Option Plan (“Option Plan”) were excluded in calculating the weighted average number of diluted shares outstanding as they were considered anti-dilutive.

For the first six months of 2015, 17.4 million shares (2014 – 18.7 million) that would be issued under the Option Plan were excluded in calculating the weighted average number of diluted shares outstanding as they were considered anti-dilutive.

iii) Dividends

Including amounts funded by the Dividend Reinvestment Plan, Penn West paid dividends of $0.01 per share totalling $5 million in the second quarter of 2015 and $75 million in the first six months of 2015. On July 15, 2015, Penn West paid its second quarter dividend of $0.01 per share totalling $5 million.

10. Share-based compensation

Stock Option Plan

Penn West has an Option Plan that allows Penn West to issue options to acquire common shares to officers, employees and other service providers. The current plan came into effect in 2011.

Under the terms of the plan, the number of options reserved for issuance under the Option Plan shall not exceed nine percent of the aggregate number of issued and outstanding common shares of Penn West. The grant price of options is equal to the volume-weighted average trading price of the common shares on the TSX for a five-trading-day period immediately preceding the date of grant. Options granted to date vest over a four-year period and expire five years after the date of grant.


	Six months ended June 30, 2015					Year ended December 31, 2014
Options	Number of Options			Weighted Average Exercise Price		Number of Options			Weighted Average Exercise Price
Outstanding, beginning of period		14,460,158		$	13.91		14,951,830		$	17.63
Granted		5,061,500			1.86		8,332,400			8.84
Exercised		—			—		(1,067,000	)		9.80
Forfeited/ Expired		(2,131,479	)		12.87		(7,757,072	)		16.20

Outstanding, end of period		17,390,179		$	10.53		14,460,158		$	13.91

Exercisable, end of period		6,220,414		$	17.58		4,162,904		$	20.14

Long-Term Retention and Incentive Plan (“LTRIP”)

Under the LTRIP, Penn West employees receive cash consideration, that fluctuates based on Penn West’s share price on the TSX. Eligible employees receive a grant of a specific number of LTRIP awards (each of which notionally represents a common share) that vest over a three-year period with the cash value paid to the employee on each vesting date. If the service requirements are met, the cash consideration paid is based on the number of LTRIP awards vested and the five-day weighted average trading price of the common shares prior to the vesting date plus dividends declared by Penn West during the period preceding the vesting date.


LTRIP awards (number of shares equivalent)	Six months ended June 30, 2015			Year ended December 31, 2014
Outstanding, beginning of period		3,166,476			2,813,769
Granted		8,980,950			2,749,440
Vested and paid		(1,156,440	)		(1,132,029	)
Forfeited/ Expired		(678,810	)		(1,264,704	)

Outstanding, end of period		10,312,176			3,166,476

At June 30, 2015, LTRIP obligations of $4 million were classified as a current liability (December 31, 2014 – $4 million) included in accounts payable and accrued liabilities and $3 million was classified as a non-current liability (December 31, 2014 – $3 million) included in other non-current liabilities.

Deferred Share Unit (“DSU”) Plan

The DSU plan became effective in 2011, allowing Penn West to grant DSUs in lieu of cash fees to non-employee directors providing a right to receive, upon retirement, a cash payment based on the volume-weighted-average trading price of the common shares on the TSX for the five trading days immediately prior to the day of payment. Management directors are not eligible to participate in the DSU Plan. At June 30, 2015, 336,330 DSUs (December 31, 2014 – 181,873) were outstanding and $1 million was recorded as a current liability (December 31, 2014 – $1 million).

Performance Share Unit (“PSU”) Plan

The PSU plan became effective in 2013, allowing Penn West to grant PSUs to employees of Penn West. Upon meeting the vesting conditions, the employee could receive a cash payment based on performance factors determined by the Board of Directors and the share price. Members of the Board of Directors are not eligible for the PSU Plan.


PSU awards (number of shares equivalent)	Six months ended June 30, 2015			Year ended December 31, 2014
Outstanding, beginning of period		771,020			969,723
Granted		1,483,000			620,000
Vested		(180,010	)		(570,770	)
Forfeited		(103,161	)		(247,933	)

Outstanding, end of period		1,970,849			771,020

The PSU obligation is classified as a liability due to the cash settlement feature. The change in the fair value of outstanding PSU awards is charged to income based on the common share price at the end of each reporting period plus accumulated dividends multiplied by a performance factor determined by the Board of Directors. At June 30, 2015, $1 million (December 31, 2014 - nil) was a current liability included in accounts payable and accrued liabilities and $1 million was classified as a non-current liability (December 31, 2014 – $1 million) and included in other non-current liabilities.

Share-based compensation

Share-based compensation is based on the fair value of the options at the time of grant under the Option Plan, which is amortized over the remaining vesting period on a graded vesting schedule. Share-based compensation under the LTRIP, DSU and PSU is based on the fair value of the awards outstanding at the reporting date and is amortized based on a graded vesting schedule. Share-based compensation consisted of the following:


	Six months ended June 30
	2015		2014
Options	$	2	$	5
LTRIP		4		9
PSU		1		3

Share-based compensation	$	7	$	17

The share price used in the fair value calculation of the LTRIP, PSU and DSU obligations at June 30, 2015 was $2.15 (June 30, 2014 – $10.42). Share-based compensation related to the DSU was insignificant in both periods.

A Black-Scholes option-pricing model was used to determine the fair value of options granted under the Option Plan with the following fair value per option and weighted average assumptions:


	Six months ended June 30
	2015			2014
Average fair value of options granted (per share)	$	0.63		$	1.26
Expected life of options (years)		4.0			4.0
Expected volatility (average)		43.6	%		31.3	%
Risk-free rate of return (average)		0.6	%		1.4	%
Dividend yield		2.0	%		6.1	%

Employee retirement savings plan

Penn West has an employee retirement savings plan (the “savings plan”) for the benefit of all employees. Under the savings plan, employees may elect to contribute up to 10 percent of their salary and Penn West matches these contributions at a rate of $1.50 for each $1.00 of employee contribution. Both the employee’s and Penn West’s contributions are used to acquire Penn West common shares or are placed in low-risk investments. Shares are purchased in the open market at prevailing market prices.

11. Deferred income taxes

The proposed corporate tax rate increase in Alberta from 10 percent to 12 percent was substantively enacted during the second quarter. As a result of this change, a $60 million charge was recorded in deferred income tax expense during the period.

In 2015, the Company has received Investment tax credit refunds totalling $2 million (2014 - nil) which was included in deferred income taxes.

12. Commitments and contingencies

Penn West is involved in various litigation and claims in the normal course of business and records provisions for claims as required. In 2014, Penn West became aware of a number of putative securities class action claims having been filed or threatened to be filed in both Canada and the United States relating to damages alleged to have been incurred due to a decline in share price related to the restatement of certain of Penn West’s historical financial statements and related MD&A. In 2014, Penn West was served with statements of claim against the Company and certain of its present and former directors and officers relating to such types of securities class actions in the Provinces of Alberta, Ontario and Quebec and in the United States. To date, none of these proceedings has been certified under applicable class proceedings legislation. In the United States, the Court has consolidated the various actions, appointed lead plaintiffs, and set a scheduling for the parties to brief a motion to dismiss. Amounts claimed in the Canadian and United States proceedings are significant, but at this stage in the process, any estimate of the Company’s potential exposure or liability, if any, are premature and cannot be meaningfully determined. The Company intends to vigorously defend against any such actions.

Investor Information

Penn West is one of the largest conventional oil and natural gas producers in Canada. Our goal is to be the company that redefines oil & gas excellence in western Canada. Based in Calgary, Alberta, Penn West operates a significant portfolio of opportunities with a dominant position in light oil in Canada on a land base encompassing approximately 4.3 million acres.

Penn West shares are listed on the Toronto Stock Exchange under the symbol PWT and on the New York Stock Exchange under the symbol PWE.

2015 Second Quarter Results Conference Call Details

A conference call and webcast presentation will be held to discuss the matters noted above at 9:00am Mountain Time (11:00am Eastern Time) on Thursday, July 30, 2015.

To listen to the conference call, please call 647-427-7450 or 1-888-231-8191 (toll-free). This call will be broadcast live on the Internet and may be accessed directly at the following URL:

http://event.on24.com/r.htm?e=1017770&s=1&k=95661ED22218B408F36E9EECE402E17E

A digital recording will be available for replay two hours after the call’s completion, and will remain available until August 13, 2015 21:59 Mountain Time (23:59 Eastern Time). To listen to the replay, please dial 416-849-0833 or 1-855-859-2056 (toll-free) and enter Conference ID 74205279, followed by the pound (#) key.

For further information, please contact:


PENN WEST Penn West Plaza Suite 200, 207 – 9^th Avenue SW Calgary, Alberta T2P 1K3		Investor Relations: Toll Free: 1-888-770-2633 E-mail: investor_relations@pennwest.com

Phone: 403-777-2500 Fax: 403-777-2699 Toll Free: 1-866-693-2707 Website: www.pennwest.com		Clayton Paradis, Manager, Investor Relations Phone: 403-539-6343 E-mail: clayton.paradis@pennwest.com

Exhibit 99.2

MANAGEMENT’S DISCUSSION AND ANALYSIS

For the three and six months ended June 30, 2015

This management’s discussion and analysis of financial condition and results of operations (“MD&A”) of Penn West Petroleum Ltd. (“Penn West”, the “Company”, “we”, “us”, “our”) should be read in conjunction with the Company’s unaudited interim condensed consolidated financial statements for the three and six months ended June 30, 2015 (the “Consolidated Financial Statements”) and the Company’s audited consolidated financial statements and MD&A for the year ended December 31, 2014 . The date of this MD&A is July 29, 2015. All dollar amounts contained in this MD&A are expressed in millions of Canadian dollars unless noted otherwise.

Certain financial measures such as funds flow, funds flow from operations, funds flow per share-basic, funds flow per share-diluted, funds flow from operations per share-basic, funds flow from operations per share-diluted, netback and gross revenues included in this MD&A do not have a standardized meaning prescribed by International Financial Reporting Standards (“IFRS”) and therefore are considered non-GAAP measures; accordingly, they may not be comparable to similar measures provided by other issuers. This MD&A also contains oil and gas information and forward-looking statements. Please see the Company’s disclosure under the headings “Non-GAAP Measures”, “Oil and Gas Information”, and “Forward-Looking Statements” included at the end of this MD&A.

Second Quarter Highlights

•

Production in the second quarter averaged 91,164 boe per day compared to 106,706 boe per day in the second quarter of 2014. The decrease in production is primarily due to non-core asset disposition activity in 2014 and 2015 as the Company continues to focus its asset portfolio and strengthen its balance sheet.

•

Development capital expenditures for the second quarter of 2015 were $64 million compared to $65 million in the comparative period in 2014. Second quarter 2015 activities were minimal due to spring break-up as the Company focused on completion work within the Cardium and Viking plays.

•

Netbacks were $18.72 per boe compared to $39.37 per boe in the second quarter of 2014. The decrease is mainly due to a significant reduction in commodity prices compared to 2014.

•

Funds flow from operations was $79 million for the second quarter of 2015 (2014 - $299 million) The decrease in funds flow compared to the prior year is mainly due to lower revenues as a result of a weaker commodity price environment and lower production volumes due to asset dispositions.

•

Net loss in the second quarter of $28 million compared to $143 million net income in the comparable period in 2014. The net loss in 2015 was due to a reduction in revenues primarily related to a lower commodity price environment.

•

In the second quarter, the Company finalized amending agreements with its lenders under its syndicated bank facility and with the holders of its senior notes to amend, among other things, its financial covenants.

•

The Company continued to progress on its asset disposition program with transactions of $414 million closed during the period. In accordance with the amending agreements, sale proceeds were offered and subsequently accepted by its lenders for prepayment on outstanding debt.


PENN WEST SECOND QUARTER 2015		MANAGEMENT’S DISCUSSION AND ANALYSIS			1

Quarterly Financial Summary

(millions, except per share and production amounts) (unaudited)


Three months ended ⁽¹⁾	June 30 2015			Mar. 31 2015			Dec. 31 2014			Sep. 30 2014			June 30 2014		Mar. 31 2014			Dec. 31 2013			Sep. 30 2013
Gross revenues ⁽²⁾	$	360		$	340		$	473		$	589		$	656	$	673		$	622		$	779
Funds flow from operations		79			72			137			231			299		269			203			296
Basic per share		0.16			0.14			0.28			0.47			0.61		0.55			0.42			0.61
Diluted per share		0.16			0.14			0.28			0.47			0.61		0.55			0.42			0.61
Funds flow		47			112			137			231			298		269			203			296
Basic per share		0.09			0.22			0.28			0.47			0.61		0.55			0.42			0.61
Diluted per share		0.09			0.22			0.28			0.47			0.60		0.55			0.42			0.61
Net income (loss)		(28	)		(248	)		(1,772	)		(15	)		143		(89	)		(675	)		34
Basic per share		(0.06	)		(0.49	)		(3.57	)		(0.03	)		0.29		(0.18	)		(1.38	)		0.07
Diluted per share		(0.06	)		(0.49	)		(3.57	)		(0.03	)		0.29		(0.18	)		(1.38	)		0.07
Dividends declared		5			5			70			69			69		69			68			68
Per share	$	0.01		$	0.01		$	0.14		$	0.14		$	0.14	$	0.14		$	0.14		$	0.14
Production
Liquids (bbls/d) ⁽³⁾		63,222			65,343			64,124			64,687			69,409		71,638			78,874			84,460
Natural gas (mmcf/d)		168			177			198			217			224		239			275			296

Total (boe/d)		91,164			94,905			97,143			100,839			106,706		111,461			124,752			133,712

(1)	Certain comparative figures have been reclassified to correspond with current period presentation.

(2)	Includes realized gains and losses on commodity contracts and excludes gains and losses on foreign exchange hedges.

(3)	Includes crude oil and natural gas liquids.

Calculation of Funds Flow/ Funds flow from Operations


	Three months ended June 30						Six months ended June 30
(millions, except per share amounts)	2015			2014			2015			2014
Cash flow from operating activities	$	(67	)	$	214		$	89		$	436
Change in non-cash working capital		109			77			54			111
Decommissioning expenditures		5			7			16			20

Funds flow		47			298			159			567
Monetization of foreign exchange contracts		(19	)		—			(63	)		—
Settlements of normal course foreign exchange contracts		(23	)		(2	)		(25	)		(2	)
Realized foreign exchange loss – debt prepayments		44			—			44			—
Realized foreign exchange loss – debt maturities		30			3			36			3

Funds flow from Operations	$	79		$	299		$	151		$	568

Per share – funds flow
Basic per share	$	0.09		$	0.61		$	0.32		$	1.15
Diluted per share		0.09			0.60			0.32			1.15
Per share – funds flow from operations
Basic per share		0.16			0.61			0.30			1.15
Diluted per share	$	0.16		$	0.61		$	0.30		$	1.15

During the second quarter of 2015, the Company monetized a portion (US$118 million) of foreign exchange forward contracts on senior notes and settled US$77 million of foreign exchange forward contracts as part of normal course maturities. Additionally, in the second quarter, Penn West repaid senior notes of US$165 million as part of normal maturities and an additional $278 million of senior notes as a result of at par prepayment offers made to its noteholders using asset disposition proceeds, together with a concurrent pro rata repayment of $38 million on its syndicated bank facility. As the Canadian dollar has weakened relative to the US dollar from the issue date of the senior notes to the settlement date, a realized foreign exchange loss was recorded.


PENN WEST SECOND QUARTER 2015		MANAGEMENT’S DISCUSSION AND ANALYSIS			2

For the first six months of 2015, the Company monetized a total of US$315 million of foreign exchange forward contracts on senior notes in addition to monetizing its outstanding natural gas hedges in the first quarter of 2015. Subsequent to the monetization, the Company entered into new natural gas contracts.

Business Strategy

Penn West continued to demonstrate its ability to execute in a volatile commodity price environment during the second quarter of 2015. The Company made progress on deleveraging its balance sheet and improving its cost structure by focusing its asset base through the close of a number of asset dispositions during the period. Additionally, during the second quarter, the Company finalized amendments to its financial covenants increasing its financial flexibility.

The Company remains committed to its core strategies within the long-term plan which include debt reduction, profitable growth and execution and cost control. As Penn West moves forward on these strategies it will continue to review potential disposition targets and focus on improving its “best-in-class” operational status in its core plays. The Company will continue to monitor the commodity price environment and take proactive measures as required as it looks to increase the long-term value of the Company.

Business Environment

The following table outlines quarterly averages for benchmark prices and our realized prices for the previous five quarters.


	Q2 2015			Q1 2015			Q4 2014			Q3 2014			Q2 2014
Benchmark prices
WTI crude oil (US$/bbl)	$	57.94		$	48.63		$	73.15		$	97.31		$	102.99
Edm mixed sweet par price (CAD$/bbl)		67.63			51.76			75.58			96.98			105.50
NYMEX Henry Hub ($US/mcf)		2.64			2.98			4.00			4.06			4.67
AECO Monthly Index (CAD$/mcf)		2.66			2.95			4.00			4.22			4.68

Penn West average sales price ⁽¹⁾
Light oil (per bbl)		64.56			49.82			72.82			94.63			102.58
NGL (per bbl)		17.40			20.31			38.88			52.95			52.93
Heavy oil (per bbl)		46.44			30.20			54.35			72.59			79.56
Total liquids (per bbl)		55.85			42.97			65.48			85.27			92.15
Natural gas (per mcf)		2.78			3.08			3.94			4.33			4.96

Benchmark differentials
WTI - Edm Light Sweet ($US/bbl)		(2.86	)		(6.80	)		(6.33	)		(8.09	)		(6.14	)
WTI - WCS Heavy ($US/bbl)	$	(11.59	)	$	(14.73	)	$	(14.23	)	$	(20.18	)	$	(20.04	)

(1)	Excludes the impact of realized hedging gains or losses.

Crude Oil

During the second quarter of 2015, crude oil prices experienced modest gains compared to the previous quarter with WTI averaging US$57.94 per barrel. The North American rig count declined by 15 percent during the second quarter, however, this was not at the same pace as the previous quarter. Despite the decline in activity levels, US crude oil production levels increased by two percent from the previous quarter and by approximately 14 percent on a year-over-year basis.

As we enter the second half of 2015, many forecasters believe that high US production levels, high storage levels, potential growth in supply from a number of countries (particularly Iran) and uncertain world demand will continue to put downward pressure on crude oil prices and limit any price recovery in the near term.


PENN WEST SECOND QUARTER 2015		MANAGEMENT’S DISCUSSION AND ANALYSIS			3

Penn West continued to take proactive measures during the second quarter of 2015 and build on its structured hedging program by entering into a number of new positions. At June 30, 2015, the following contracts were outstanding:


Reference Price	Term	Price ($/Barrel)	Volume (Barrels/day)
WTI	July 2015 – Sept 2015	USD $52.00		7,500
WTI	July 2015 – Sept 2015	CAD $74.78		5,000
WTI	Oct 2015 – Dec 2015	CAD $72.57		12,500
WTI	Jan 2016 – March 2016	CAD $76.60		2,500
WTI	2016	CAD $72.08		5,000

Subsequent to June 30, 2015, the Company entered into additional crude oil swaps on 2,000 barrels per day of production in the first quarter of 2016 at WTI $70.00 per barrel and 1,000 barrels per day of production in the second quarter of 2016 at WTI $71.50 per barrel.

Natural Gas

In the second quarter of 2015, NYMEX Henry Hub natural gas price fluctuated between US$2.50 and US$3.00 per MMBtu and averaged US$2.64 per MMBtu as the market shifted from storage withdrawals to injection between the winter and summer months. At the beginning of the second quarter of 2015, North American storage levels were tracking below the five-year average, however, during the period storage levels recovered and ended at approximately the five-year average. Subsequent to June 30, 2015, storage levels continued to build due to strong production from the Marcellus.

AECO pricing followed the same pattern as NYMEX, fluctuating through the second quarter and averaged $2.66 per mcf. Canadian storage levels continue to operate at a small deficit to the five-year average, but trended closer through the second quarter.

At June 30, 2015, Penn West had 70,000 mcf per day of 2015 production hedged at an average price of $2.86 per mcf and 14,200 mcf per day of 2016 production hedged at an average price of $3.06 per mcf. Subsequent to June 30, 2015, the Company entered into additional AECO swaps for 2016 on total production of 4,700 mcf per day at an average price of $3.13 per mcf.

Average Sales Prices


	Three months ended June 30									Six months ended June 30
	2015			2014			% change			2015		2014			% change
Light oil (per bbl)	$	64.56		$	102.57			(37	)	$	57.10	$	99.69			(43	)
Commodity gain (loss) (per bbl)⁽¹⁾		(1.31	)		(4.85	)		(73	)		0.44		(3.51	)		>(100	)

Light oil net (per bbl)		63.25			97.72			(35	)		57.54		96.18			(40	)

Heavy oil (per bbl)		46.44			79.55			(42	)		38.06		74.59			(49	)

NGL (per bbl)		17.40			52.93			(67	)		18.79		60.39			(69	)

Natural gas (per mcf)		2.78			4.96			(44	)		2.93		5.37			(45	)
Commodity gain (loss) (per mcf)⁽¹⁾		0.08			(0.42	)		>(100	)		0.70		(0.44	)		>(100	)

Natural gas net (per mcf)		2.86			4.54			(37	)		3.63		4.93			(26	)

Weighted average (per boe)		43.84			70.34			(38	)		39.53		69.74			(43	)
Commodity gain (loss) (per boe)⁽¹⁾		(0.49	)		(3.05	)		(84	)		1.51		(2.51	)		>(100	)

Weighted average net (per boe)	$	43.35		$	67.29			(36	)	$	41.04	$	67.23			(39	)

(1)	Realized risk management gains and losses on commodity contracts are included in gross revenues.


PENN WEST SECOND QUARTER 2015		MANAGEMENT’S DISCUSSION AND ANALYSIS			4

RESULTS OF OPERATIONS

Production


	Three months ended June 30							Six months ended June 30
Daily production	2015		2014		% change			2015		2014		% change
Light oil (bbls/d)		44,195		47,525		(7	)		45,021		48,774		(8	)
Heavy oil (bbls/d)		11,947		13,625		(12	)		12,418		13,373		(7	)
NGL (bbls/d)		7,080		8,259		(14	)		6,838		8,370		(18	)
Natural gas (mmcf/d)		168		224		(25	)		172		231		(26	)

Total production (boe/d)		91,164		106,706		(15	)		93,024		109,070		(15	)

Penn West’s production levels were consistent with its expectations during the second quarter of 2015. The decrease from the comparative period in 2014 is primarily related to non-core property dispositions that were closed during the fourth quarter of 2014 and in 2015 as the Company made progress on its planned disposition strategy.

Netbacks


	Three months ended June 30
	2015												2014
	Light Oil and NGL (bbl)			Heavy Oil (bbl)			Natural Gas (mcf)			Combined (boe)			Combined (boe)
Operating netback:
Sales price	$	58.05		$	46.44		$	2.78		$	43.84		$	70.34
Commodity gain (loss) ⁽¹⁾		(1.13	)		—			0.08			(0.49	)		(3.05	)
Royalties		(4.79	)		(4.15	)		(0.81	)		(4.72	)		(11.54	)
Transportation		(1.04	)		(2.05	)		(0.30	)		(1.40	)		(1.18	)
Operating costs		(22.74	)		(18.06	)		(1.82	)		(18.51	)		(15.20	)

Netback	$	28.35		$	22.18		$	(0.07	)	$	18.72		$	39.37


	(bbls/d)			(bbls/d)			(mmcf/d)			(boe/d)			(boe/d)
Production		51,275			11,947			168			91,164			106,706

(1)	Realized risk management gains and losses on commodity contracts.

While the Company’s oil netback declined due to the weakening of crude oil prices, it benefited from improved crude oil differentials and the weakening of the Canadian dollar during the second quarter.

Natural gas netbacks were negative due to a prior period adjustment as the Company received its annual gas cost allowance true-up from the Alberta Crown. This resulted in the Company recording a $14 million expense which accounted for the royalty charge in the period. Under the current commodity price environment, the Company anticipates natural gas royalties to be insignificant for the remainder of the year under current royalty rates.


PENN WEST SECOND QUARTER 2015		MANAGEMENT’S DISCUSSION AND ANALYSIS			5


	Six months ended June 30
	2015												2014
	Light Oil and NGL (bbl)			Heavy Oil (bbl)			Natural Gas (mcf)			Combined (boe)			Combined (boe)
Operating netback:
Sales price ⁽¹⁾	$	52.05		$	38.06		$	2.93		$	39.53		$	69.74
Commodity gain (loss) ⁽²⁾		0.39			—			0.70			1.51			(2.51	)
Royalties		(5.81	)		(4.16	)		(0.38	)		(4.51	)		(10.82	)
Transportation		(0.98	)		(1.71	)		(0.32	)		(1.37	)		(1.18	)
Operating costs		(22.63	)		(19.69	)		(1.89	)		(18.74	)		(17.82	)

Netback	$	23.02		$	12.50		$	1.04		$	16.42		$	37.41


	(bbls/d)			(bbls/d)			(mmcf/d)			(boe/d)			(boe/d)
Production		51,859			12,418			172			93,024			109,070

(1)	Excluded from the netback calculation in 2015 was $10 million of other income.

(2)	Realized risk management gains and losses on commodity contracts.

Production Revenues

Revenues from the sale of oil, NGL and natural gas consisted of the following:


	Three months ended June 30							Six months ended June 30
(millions)	2015		2014		% change			2015		2014		% change
Light oil and NGL	$	266	$	464		(43	)	$	501	$	941		(47	)
Heavy oil		51		99		(48	)		86		181		(52	)
Natural gas		43		93		(54	)		113		207		(45	)

Gross revenues ⁽¹⁾	$	360	$	656		(45	)	$	700	$	1,329		(47	)

(1)	Includes realized risk management gains and losses on commodity contracts which totalled $25 million for the six months ended June 30, 2015 (2014 - $49 million loss).

Overall, revenues have declined from 2014 as a result of a significant decline in the commodity price environment and lower production volumes resulting from non-core asset dispositions that were closed in 2014 and 2015.

Reconciliation of Change in Production Revenues


(millions)
Gross revenues – January 1 – June 30, 2014	$	1,329
Decrease in light oil and NGL production		(89	)
Decrease in light oil and NGL prices ⁽¹⁾		(351	)
Decrease in heavy oil production		(13	)
Decrease in heavy oil prices		(82	)
Decrease in natural gas production		(54	)
Decrease in natural gas prices ⁽¹⁾		(40	)

Gross revenues – January 1 – June 30, 2015	$	700

(1)	Includes realized risk management gains and losses on commodity contracts.


PENN WEST SECOND QUARTER 2015		MANAGEMENT’S DISCUSSION AND ANALYSIS			6

Royalties


	Three months ended June 30									Six months ended June 30
	2015			2014			% change			2015			2014			% change
Royalties (millions)	$	39		$	112			(65	)	$	76		$	214			(64	)
Average royalty rate ⁽¹⁾		11	%		16	%		(5	)		11	%		16	%		(5	)
$/boe	$	4.72		$	11.54			(59	)	$	4.51		$	10.82			(58	)

(1)	Excludes effects of risk management activities.

In 2015, royalties decreased from the comparative periods in 2014 primarily due to the decrease in commodity prices and the impact of asset disposition activity completed in 2014 and 2015. During the second quarter of 2015, the Company received its annual gas cost allowance true-up from the Alberta Crown resulting in an increase in natural gas royalties, which partially offset the effect of significant crude oil price declines.

Expenses


	Three months ended June 30							Six months ended June 30
(millions)	2015		2014		% change			2015		2014		% change
Operating	$	153	$	147		4		$	315	$	351		(10	)
Transportation		12		12		—			23		23		—
Financing		43		39		10			80		80		—
Share-based compensation	$	7	$	8		(13	)	$	7	$	17		(59	)

	Three months ended June 30							Six months ended June 30
(per boe)	2015		2014		% change			2015		2014		% change
Operating	$	18.51	$	15.20		22		$	18.74	$	17.82		5
Transportation		1.40		1.18		19			1.37		1.18		16
Financing		5.15		4.06		27			4.72		4.07		16
Share-based compensation	$	0.78	$	0.75		4		$	0.39	$	0.79		(51	)

Operating

Operating costs in the second quarter of 2015 were modestly higher compared to 2014 as lower costs from asset dispositions and successful cost reduction initiatives in 2015 were more than offset by operating accrual adjustments in the prior year which reduced the 2014 balance. The increase in operating costs on a per boe basis was mainly due to asset dispositions.

For the six months ended June 30, 2015, total operating expenses were lower in 2015 due to asset disposition activity and the successful implementation of cost reduction strategies which resulted in lower repair and maintenance activity and labour costs.

Operating expenses for the first six months of 2015 included a realized loss of $4 million (2014 – $2 million loss) on electricity contracts and for the second quarter of 2015 a realized gain of $1 million (2014 – $2 million loss).


PENN WEST SECOND QUARTER 2015		MANAGEMENT’S DISCUSSION AND ANALYSIS			7

Financing

At June 30, 2015, the value of the Company’s senior notes was $1.7 billion (December 31, 2014 – $2.1 billion). There were no senior notes issued in either 2015 or 2014. During the second quarter of 2015, Penn West repaid senior notes in an aggregate amount of US$165 million as part of normal maturities and additional amounts of US$202 million, $18 million, £8 million and €1 million of senior notes were prepaid as a result of the offers made at par to its noteholders using asset disposition proceeds. Penn West also repaid a total of $38 million outstanding under its syndicated bank facility using asset disposition proceeds. Subsequent to June 30, 2015, $98 million from the most recently completed dispositions was offered and accepted by lenders for further prepayment of outstanding notes and repayment of indebtedness on our syndicated bank facility on a pro rata basis. The pro rata syndicated bank facility allocation of $17 million was repaid in early July. The Company expects the allocated noteholders amount to be paid on August 7, 2015.

Summary information on our senior notes outstanding is as follows at June 30, 2015:

Issue date

Amount (millions)

Term

Average
interest
rate⁽¹⁾

Weighted
average
remaining
term

2007 Notes

May 31, 2007

US$259

8 –15 years

6.36

3.1

2008 Notes

May 29, 2008

US$417, CAD$30

8 – 12 years

6.74

2.5

UK Notes

July 31, 2008

£49

10 years

6.95

%⁽²⁾

3.1

2009 Notes

May 5, 2009

US$79 ⁽³⁾, £19,

€9

5 – 10 years

9.43

%⁽⁴⁾

2.9

2010 Q1 Notes

March 16, 2010

US$187

5 – 15 years

6.20

4.4

2010 Q4 Notes

December 2, 2010,
January 4, 2011

US$146, CAD$48

5 – 15 years

5.47

6.2

2011 Notes

November 30, 2011

US$91, CAD$23

5 – 10 years

4.99

4.7

(1)	Average interest rate can fluctuate based on consolidated debt to EBITDA ratio which expires on March 30, 2017, the date the covenant relief period ends with the bank syndicate and noteholders.

(2)	These notes currently bear interest at 8.28 percent in Pounds Sterling, however, contracts were entered to fix the interest rate at 6.95 percent in Canadian dollars and to fix the exchange rate on the repayment.

(3)	A portion of the 2009 Notes have equal repayments, which began in 2013 with a repayment of US$5 million, and extend over the remaining six years.

(4)	The Company entered into contracts to fix the interest rate on the Pounds Sterling and Euro tranches, initially at 9.99 percent and 10.02 percent, to 9.15 percent and 9.22 percent, respectively, and to fix the exchange rate on repayment.

Penn West’s debt capital structure includes short-term financings under its syndicated bank facility and long-term instruments through its senior notes. Financing charges in 2015 increased compared to 2014 as there was a higher balance drawn under the syndicated bank facility during the second quarter of 2015 compared to 2014.

Additionally, in May 2015 the Company finalized amended agreements with the lenders under its syndicated bank facility and with the holders of its senior notes which resulted in amended financial covenants and led to increases in the fee structure. The fee structure on the Company’s senior notes will change during the amendment period (up until March 30, 2017) as follows:


PENN WEST SECOND QUARTER 2015		MANAGEMENT’S DISCUSSION AND ANALYSIS			8


Consolidated Senior debt to EBITDA ratio	Basis points per annum increase
Less than or equal to 3:1		50
Greater than 3:1 and less than or equal to 4:1		100
Greater than 4:1 and less than or equal to 4.5:1		150
Greater than 4.5:1		200

See “Liquidity and Capital Resources – Liquidity” for further details on the amendments.

The interest rates on any non-hedged portion of the Company’s syndicated bank facility are subject to fluctuations in short-term money market rates as advances on the syndicated bank facility are generally made under short-term instruments. As at June 30, 2015, 22 percent (December 31, 2014 – none) of Penn West’s long-term debt instruments were exposed to changes in short-term interest rates.

Share-Based Compensation

Share-based compensation expense relates to the Company’s Stock Option Plan (the “Option Plan”), Long-Term Retention and Incentive Plan (“LTRIP”), Deferred Share Unit Plan (“DSU”) and Performance Share Unit Plan (“PSU”).

Share-based compensation consisted of the following:


	Three months ended June 30							Six months ended June 30
(millions)	2015		2014		% change			2015		2014		% change
Options	$	1	$	2		(50	)	$	2	$	5		(60	)
LTRIP		5		5		—			4		9		(56	)
PSU		1		1		—			1		3		(67	)

Share-based compensation	$	7	$	8		(13	)	$	7	$	17		(59	)

The share price used in the fair value calculation of the LTRIP, PSU and DSU obligations at June 30, 2015 was $2.15 (2014 – $10.42). Share-based compensation related to the DSU was insignificant in both periods.

General and Administrative Expenses (“G&A”)


	Three months ended June 30							Six months ended June 30
(millions, except per boe amounts)	2015		2014		% change			2015		2014		% change
Gross	$	39	$	43		(9	)	$	77	$	90		(14	)
Per boe		4.70		4.46		5			4.57		4.57		—
Net		23		34		(32	)		45		70		(36	)
Per boe	$	2.81	$	3.46		(19	)	$	2.68	$	3.53		(24	)

The decrease in G&A from the comparable period is mainly due to the realization of cost reduction strategies in 2014 which is largely due to staff reductions. Additionally, the remaining bonus accrual from 2014 was released as employee bonuses paid in the first quarter of 2015 were less than originally estimated.


PENN WEST SECOND QUARTER 2015		MANAGEMENT’S DISCUSSION AND ANALYSIS			9

Restructuring Expense


	Three months ended June 30							Six months ended June 30
(millions, except per boe amounts)	2015		2014		% change			2015		2014		% change
Restructuring	$	3	$	7		(57	)	$	5	$	11		(55	)
Per boe	$	0.44	$	0.80		(45	)	$	0.32	$	0.58		(45	)

In the second quarter of 2015 and thus far in 2015, Penn West continued to implement cost reduction initiatives which led to a reduction in staffing levels both at head office and in the field.

Depletion, Depreciation, Impairment and Accretion


	Three months ended June 30							Six months ended June 30
(millions, except per boe amounts)	2015		2014		% change			2015		2014		% change
Depletion and depreciation (“D&D”)	$	174	$	187		(7	)	$	355	$	374		(5	)
D&D expense per boe		20.91		19.20		9			21.11		18.93		12

Accretion of decommissioning liability		10		9		11			19		18		6
Accretion expense per boe	$	1.13	$	0.92		23		$	1.12	$	0.92		22

The decline in D&D expense is primarily due to asset dispositions in 2014 and 2015 which resulted in lower production volumes. The increase in the D&D expense per boe compared to 2014 is mainly the result of increases in future development costs in 2015 compared to 2014 which was partially offset by the effect of asset dispositions and impairment charges recorded in 2014.

Taxes


	Three months ended June 30						Six months ended June 30
(millions)	2015		2014		% change		2015		2014		% change
Deferred tax expense	$	30	$	26		15	$	6	$	52		(88	)

In the second quarter of 2015, the proposed corporate tax rate increase in Alberta from 10 percent to 12 percent was substantively enacted. As a result of this change, a $60 million charge was recorded in deferred income tax expense during the period. This was offset by recoveries due to the net loss recorded in the period.


PENN WEST SECOND QUARTER 2015		MANAGEMENT’S DISCUSSION AND ANALYSIS			10

Foreign Exchange

Penn West records unrealized foreign exchange gains or losses to translate the U.S., UK and Euro denominated senior notes and the related accrued interest to Canadian dollars using the exchange rates in effect on the balance sheet date. Realized foreign exchange gains or losses are recorded upon repayment of the senior notes.

The split between realized and unrealized foreign exchange gains (losses) is as follows:


	Three months ended June 30									Six months ended June 30
(millions)	2015			2014			% change			2015			2014			% change
Realized foreign exchange loss on maturities	$	(30	)	$	(3	)		>(100	)	$	(36	)	$	(3	)		>(100	)
Realized foreign exchange loss on pre-payments		(44	)		—			(100	)		(44	)		—			(100	)
Unrealized foreign exchange gain (loss)		95			69			38			(73	)		(6	)		>(100	)

Foreign exchange gain (loss)	$	21		$	66			(68	)	$	(153	)	$	(9	)		>(100	)

During the second quarter of 2015, Penn West repaid senior notes of US$165 million as part of normal maturities and US$202 million, $18 million, £8 million and €1 million a result of the offer of disposition proceeds to its noteholders. As the Canadian dollar has weakened relative to the US dollar from the issue date of the senior notes to the settlement date, a realized foreign exchange loss was recorded. For the remainder of 2015, the Company has $8 million of senior notes maturing in December.

The unrealized gain during the second quarter of 2015 is due to the repayment of its senior notes during the period. Cumulative amounts previously recorded as unrealized foreign exchange gains (losses) on the specific debt maturities/pre-payments settled in the period are offset into realized foreign exchange.

The unrealized foreign exchange loss for the first six months of 2015 is primarily due to the weakening of the Canadian dollar relative to the US dollar, partially offset by the above mentioned amounts that are now recorded into realized foreign exchange.

Net Income (Loss)


	Three months ended June 30								Six months ended June 30
(millions, except per share amounts)	2015			2014		% change			2015			2014		% change
Net income (loss) (millions)	$	(28	)	$	143		>(100	)	$	(276	)	$	54		>(100	)
Basic per share		(0.06	)		0.29		>(100	)		(0.55	)		0.11		>(100	)
Diluted per share	$	(0.06	)	$	0.29		>(100	)	$	(0.55	)	$	0.11		>(100	)

The decrease in net income in 2015 compared to 2014 is primarily due to lower revenues as a result of a weaker commodity price environment and lower production volumes due to non-core asset dispositions. This was partially offset by a lower overall cost structure of the Company as it has focused on operational efficiencies throughout the organization and the monetization of certain hedges.


PENN WEST SECOND QUARTER 2015		MANAGEMENT’S DISCUSSION AND ANALYSIS			11

Capital Expenditures


	Three months ended June 30									Six months ended June 30
(millions)	2015			2014			% change			2015			2014			% change
Land acquisition and retention	$	1		$	—			100		$	1		$	1			—
Drilling and completions		34			31			10			163			173			(6	)
Facilities and well equipping		31			30			3			91			83			10
Geological and geophysical		—			1			(100	)		2			7			(71	)
Corporate		1			3			(67	)		4			3			33
Capital carried by partners		(3	)		—			>(100	)		(6	)		(7	)		(14	)

Exploration and development capital ⁽¹⁾		64			65			(2	)		255			260			(2	)
Property dispositions, net		(411	)		(1	)		>100			(412	)		(212	)		94

Total capital expenditures	$	(347	)	$	64			>(100	)	$	(157	)	$	48			>(100	)

(1)	Exploration and development capital includes costs related to Property, Plant and Equipment and Exploration and Evaluation activities.

In the second quarter of 2015, development activities were minimal due to spring break-up and focused on completion work within the Cardium and Viking plays. Overall in 2015, the Company’s development programs have been concentrated in its Cardium and Viking light-oil plays with a total of 76 net wells drilled.

In 2015, the Company continued with an active disposition program completing a royalty sale and a number of other non-core asset dispositions during the period.

Exploration and evaluation (“E&E”) capital expenditures


	Three months ended June 30							Six months ended June 30
(millions)	2015		2014		% change			2015		2014		% change
E&E capital expenditures	$	—	$	7		(100	)	$	7	$	31		(77	)

In the first half of 2015, E&E capital expenditures primarily related to activity in the Company’s Duvernay property.

Gain/Loss on asset dispositions


	Three months ended June 30								Six months ended June 30
(millions)	2015			2014		% change			2015			2014		% change
Loss (gain) on asset dispositions	$	(95	)	$	—		>(100	)	$	(95	)	$	48		>(100	)

The gain on asset dispositions in the second quarter of 2015 related to the Company’s royalty disposition and other non-core asset dispositions which were closed in the period. Partially offsetting the gain on disposition were $2 million of transaction costs recorded during the disposition processes.

Goodwill


(millions)	June 30, 2015		December 31, 2014
Balance, end of period	$	706	$	734

Penn West recorded goodwill on its acquisitions of Petrofund Energy Trust, Canetic Resources Trust and Vault Energy Trust in prior years. During the second quarter of 2015, Penn West reduced goodwill by $28 million as a result of a portion of goodwill being allocated to non-core property dispositions.


PENN WEST SECOND QUARTER 2015		MANAGEMENT’S DISCUSSION AND ANALYSIS			12

Environmental and Climate Change

The oil and gas industry has a number of environmental risks and hazards and is subject to regulation by all levels of government. Environmental legislation includes, but is not limited to, operational controls, site restoration requirements and restrictions on emissions of various substances produced in association with oil and natural gas operations. Compliance with such legislation could require additional expenditures and a failure to comply may result in fines and penalties which could, in the aggregate and under certain assumptions, become material.

Penn West is dedicated to reducing the environmental impact from its operations through its environmental programs which include resource conservation, water management and site abandonment/reclamation/remediation. Operations are continuously monitored to minimize environmental impact and allocate sufficient capital to reclamation and other activities to mitigate the impact on the areas in which the Company operates.

Liquidity and Capital Resources

Capitalization


	June 30, 2015					December 31, 2014
(millions)				%				%
Common shares issued, at market ⁽¹⁾	$	1,080			33	$	1,208		33
Bank loans and long-term notes		2,206			67		2,149		59
Working capital deficiency (surplus) ⁽²⁾		(1	)		—		304		8

Total enterprise value	$	3,285			100	$	3,661		100

(1)	The share price at June 30, 2015 was $2.15 (December 31, 2014 - $2.43 per share).

(2)	Excludes the current portion of deferred funding asset, risk management, long-term debt and decommissioning liability.

Dividends


	Three months ended June 30							Six months ended June 30
(millions, except per share amounts)	2015		2014		% change			2015		2014		% change
Dividends declared	$	5	$	69		(93	)	$	10	$	138		(93	)
Per share		0.01		0.14		(93	)		0.02		0.28		(93	)

Dividends paid ⁽¹⁾	$	5	$	69		(93	)	$	75	$	137		(45	)

(1)	Includes amounts funded by the dividend reinvestment plan.

On July 29, 2015, the Company declared its third quarter dividend of $0.01 per share to be paid on October 15, 2015 to shareholders of record on September 30, 2015.

The amount of future cash dividends may vary depending on a variety of factors and conditions which can include, but are not limited to, fluctuations in commodity markets, production levels and capital investment plans. Penn West’s dividend level could change based on these and other factors and is subject to the approval of its Board of Directors. For further information regarding the Company’s dividend policy, including the factors that could affect the amount of quarterly dividend that it pays and the risks relating thereto, see “Dividends and Dividend Policy – Dividend Policy” in its Annual Information Form, which is available on its website at www.pennwest.com, on the SEDAR website at www.sedar.com, and on the SEC website at www.sec.gov.


PENN WEST SECOND QUARTER 2015		MANAGEMENT’S DISCUSSION AND ANALYSIS			13

Liquidity

The Company has a secured, revolving syndicated bank facility with an aggregate borrowing limit of $1.2 billion and an extendible five-year term (May 6, 2019 maturity date). For further details on the Company’s debt instruments, please refer to the “Financing” section of this MD&A.

The Company actively manages its debt portfolio and considers opportunities to reduce or diversify its debt capital structure. Management contemplates both operating and financial risks and takes action as appropriate to limit the Company’s exposure to certain risks. Management maintains close relationships with the Company’s lenders and agents to monitor credit market developments. These actions and plans aim to increase the likelihood of maintaining the Company’s financial flexibility and capital and dividend programs, supporting the Company’s ability to capture opportunities in the market and execute longer-term business strategies.

The Company has a number of covenants related to its syndicated bank facility and senior notes. On June 30, 2015, the Company was in compliance with all of these financial covenants which consisted of the following:


	Limit	June 30, 2015
Senior debt to EBITDA ⁽¹⁾	Less than 5:1		3.2
Total debt to EBITDA ⁽¹⁾	Less than 5:1		3.2
Senior debt to capitalization	Less than 50%		28.6	%
Total debt to capitalization	Less than 55%		28.6	%

(1)	EBITDA is calculated in accordance with Penn West’s lending agreements wherein unrealized risk management gains and losses and impairment provisions are excluded.

•

the Senior Debt to EBITDA ratio will decrease to less than or equal to 3:1 for the period from and after January 1, 2017; and

•

the Total Debt to EBITDA ratio will remain at less than or equal to 4:1 for all periods after December 31, 2016.

The Company also agreed to the following:

•

The Company intends to continue to actively identify and evaluate hedging opportunities in order to reduce its exposure to fluctuations in commodity prices and protect its future cash flows and capital programs.


PENN WEST SECOND QUARTER 2015		MANAGEMENT’S DISCUSSION AND ANALYSIS			14

Financial Instruments

The Company had the following financial instruments outstanding as at June 30, 2015. Fair values are determined using external counterparty information, which is compared to observable market data. We limit our credit risk by executing counterparty risk procedures which include transacting only with institutions within our syndicated bank facility or with high credit ratings and by obtaining financial security in certain circumstances.


	Notional volume	Remaining term	Pricing	Fair value (millions)
Natural gas
AECO Swaps	70,000 mcf/d	Jul/15 – Dec/15	$2.86/mcf	$	1
AECO Swaps	14,200 mcf/d	Jan/16 – Dec/16	$3.06/mcf		—

Crude Oil
WTI Swaps	7,500 bbl/d	Jul/15 – Sep/15	US$52.00/bbl		(7	)
WTI Swaps	5,000 bbl/d	Jul/15 – Sep/15	CAD$74.78/bbl		—
WTI Swaps	12,500 bbl/d	Oct/15 – Dec/15	CAD$72.57/bbl		(4	)
WTI Swaps	2,500 bbl/d	Jan/16 – Mar/16	CAD$76.60/bbl		—
WTI Swaps	5,000 bbl/d	Jan/16 – Dec/16	CAD$72.08/bbl		(9	)

Electricity swaps
Alberta Power Pool	10 MW	Jul/15 – Dec/15	$58.50/MWh		—
Alberta Power Pool	70 MW	Jul/15 – Dec/15	$55.17/MWh		(2	)
Alberta Power Pool	25 MW	Jan/16 – Dec/16	$49.90/MWh		(1	)

Crude oil assignment
18 – month term	10,000 boe/d	Jul/15 – May/16	Differential WCS (Edm) vs. WCS (USGC)		4

Foreign exchange forwards on senior notes
3 to 15-year initial term	US$229	2015 – 2022	1.000 CAD/USD		55

Foreign exchange forwards on debt prepayments
	US$70	Aug/15	1.237 CAD/USD		—

Cross currency swaps
10-year initial term	£57	2018	2.0075 CAD/GBP, 6.95%		(1	)
10-year initial term	£20	2019	1.8051 CAD/GBP, 9.15%		5
10-year initial term	€10	2019	1.5870 CAD/EUR, 9.22%		(2	)

Total				$	39

Please refer to our website at www.pennwest.com for details on all financial instruments currently outstanding.


PENN WEST SECOND QUARTER 2015		MANAGEMENT’S DISCUSSION AND ANALYSIS			15

The components of risk management gain (loss) were as follows:


	Three months ended June 30									Six months ended June 30
(millions)	2015			2014			% change			2015			2014			% change
Realized
Settlement of commodity contracts and assignment	$	(4	)	$	(29	)		(86	)	$	7		$	(49	)		>(100	)
Monetization of commodity contracts		—			—			—			18			—			100
Settlement of foreign exchange contracts		23			2			>100			25			2			>100
Monetization of foreign exchange contracts		19			—			>100			63			—			100

Total realized risk management gain (loss)		38			(27	)		>100			113			(47	)		>(100	)

Unrealized
Commodity contracts		(17	)		39			>(100	)		(42	)		1			>(100	)
Electricity swaps		11			3			>100			7			4			75
Interest rate swaps		—			—			—			—			1			(100	)
Crude oil assignment		(4	)		—			100			(7	)		—			100
Foreign exchange contracts		(49	)		(21	)		>100			(43	)		(3	)		>100
Cross-currency swaps		7			(5	)		>(100	)		10			3			>100

Total unrealized risk management gain (loss)		(52	)		16			>(100	)		(75	)		6			>(100	)

Risk management gain (loss)	$	(14	)	$	(11	)		27		$	38		$	(41	)		>(100	)

In 2015, the Company monetized a total of US$315 million of foreign exchange forward contracts on senior notes and settled US$77 million of senior notes as part of normal course maturities. Additionally, during the first quarter of 2015, Penn West monetized its natural gas hedges, and subsequently entered into new natural gas hedging contracts.

Outlook


	Nov 17, 2014 Budget		Dec 17, 2014 Revision		July 29, 2015 Revision
Canadian Light Sweet Crude Oil Assumption (C$ per barrel)	$	86.50	$	65.00	$	60.00
AECO Natural Gas Assumption (C$ per mcf)	$	3.69	$	3.25	$	3.25
C$/US$ Foreign Exchange Assumption	$	1.04	$	1.15	$	1.25
Production (boe per day)		95,000 -105,000		90,000 -100,000		90,000 -100,000
Capital Budget (millions)	$	840	$	625	$	575
Funds Flow From Operations (millions)	$	875 - $925	$	500 - $550	$	350 - $400


PENN WEST SECOND QUARTER 2015		MANAGEMENT’S DISCUSSION AND ANALYSIS			16

All press releases are available on Penn West’s website at www.pennwest.com, on SEDAR at www.sedar.com, and on EDGAR at www.sec.gov.

Sensitivity Analysis

Estimated sensitivities to selected key assumptions on funds flow for the 12 months subsequent to the date of this MD&A, including risk management contracts entered to date, are based on forecasted results as discussed in the Outlook above.


		Impact on funds flow
Change of:	Change	$ millions		$/share
Price per barrel of liquids	$1.00		19		0.04
Liquids production	1,000 bbls/day		15		0.03
Price per mcf of natural gas	$0.10		4		0.01
Natural gas production	10 mmcf/day		4		0.01
Effective interest rate	1%		8		0.02
Exchange rate ($US per $CAD)	$0.01		8		0.02

Contractual Obligations and Commitments

We are committed to certain payments over the next five calendar years and thereafter as follows:


	2015		2016		2017		2018		2019		Thereafter
Long-term debt	$	105	$	236	$	254	$	434	$	696	$	481
Transportation		12		27		51		58		60		281
Power infrastructure		23		11		11		11		11		9
Drilling rigs		8		17		12		—		—		—
Purchase obligations ⁽¹⁾		2		1		1		1		—		—
Interest obligations		69		120		97		79		40		45
Office lease ⁽²⁾		29		58		55		55		56		314
Decommissioning liability ⁽³⁾	$	35	$	67	$	77	$	76	$	72	$	242

(1)	These amounts represent estimated commitments of $2 million for CO₂ purchases and $3 million for processing fees related to Penn West’s interests in the Weyburn Unit.

(2)	The future office lease commitments above are contracted to be reduced by sublease recoveries totalling $302 million.

(3)	These amounts represent the inflated, discounted future reclamation and abandonment costs that are expected to be incurred over the life of the Company’s properties.

The Company’s syndicated bank facility is due for renewal on May 6, 2019. In addition, the Company has an aggregate of $1.7 billion in senior notes maturing between 2015 and 2025. If the Company is unsuccessful in renewing or replacing the syndicated bank facility or obtaining alternate funding for some or all of the maturing amounts of the senior notes, it is possible that it could be required to obtain other facilities, including term bank loans. The Company continuously monitors its credit metrics and maintains positive working relationships with its lenders, investors and agents.


PENN WEST SECOND QUARTER 2015		MANAGEMENT’S DISCUSSION AND ANALYSIS			17

The Company is involved in various litigation and claims in the normal course of business and records provisions for claims as required. In 2014, the Company became aware of a number of putative securities class action claims having been filed or threatened to be filed in both Canada and the United States relating to damages alleged to have been incurred due to a decline in share price related to the restatement of certain of the Company’s historical financial statements and related MD&A. In 2014, the Company was served with statements of claim against the Company and certain of its present and former directors and officers relating to such types of securities class actions in the Provinces of Alberta, Ontario and Quebec and in the United States. To date, none of these proceedings has been certified under applicable class proceedings legislation. In the United States, the Court has consolidated the various actions, appointed lead plaintiffs, and set a scheduling for the parties to brief a motion to dismiss. Amounts claimed in the Canadian and United States proceedings are significant, but at this stage in the process, any estimate of the Company’s potential exposure or liability, if any, is premature and cannot be meaningfully determined. The Company intends to vigorously defend against any such actions.

Equity Instruments


Common shares issued:
As at June 30, 2015 and July 29, 2015	502,163,163

Options outstanding:
As at June 30, 2015	17,390,179
Forfeited	(81,925	)

As at July 29, 2015	17,308,254

Changes in Internal Control Over Financial Reporting (“ICFR”)

Penn West’s senior management has evaluated whether there were any changes in the Company’s ICFR that occurred during the period beginning on April 1, 2015 and ending on June 30, 2015 that have materially affected, or are reasonably likely to materially affect, the Company’s ICFR. No changes to Penn West’s ICFR were made during the quarter.

Penn West utilizes the original Internal Control - Integrated Framework (1992) issued by the Committee of the Sponsoring Organizations of the Treadway Commission (COSO) to design and evaluate its internal control over financial reporting. In May 2013, COSO updated the Internal Control – Integrated Framework which superseded the 1992 Framework on December 15, 2014. Currently, the Company is transitioning to the 2013 COSO Framework as it relates to its ICFR.

Future Accounting Pronouncements

The IASB issued IFRS 15 “Revenue from Contracts with Customers” which replaces IAS 18 “Revenue”. IFRS 15 specifies revenue recognition criteria and expanded disclosures for revenue. The new standard is effective for annual periods beginning on or after January 1, 2018 and early adoption is permitted. Penn West is currently assessing the impact of the standard.

The IASB completed the final sections of IFRS 9 “Financial Instruments” which replaces IAS 39 “Financial Statement: Recognition and Measurement”. IFRS 9 provides guidance on the recognition and measurement, impairment and derecognition on financial instruments. The new standard is effective for annual periods beginning on or after January 1, 2018 and early adoption is permitted. Penn West is currently assessing the impact of the standard.

Off-Balance-Sheet Financing

We have off-balance-sheet financing arrangements consisting of operating leases. The operating lease payments are summarized in the Contractual Obligations and Commitments section.


PENN WEST SECOND QUARTER 2015		MANAGEMENT’S DISCUSSION AND ANALYSIS			18

Non-GAAP Measures

Certain financial measures including funds flow, funds flow from operations, funds flow per share-basic, funds flow per share-diluted, funds flow from operations per share-basic, funds flow from operations per share-diluted netback and gross revenues included in this MD&A do not have a standardized meaning prescribed by IFRS and therefore are considered non-GAAP measures; accordingly, they may not be comparable to similar measures provided by other issuers. Funds flow is cash flow from operating activities before changes in non-cash working capital and decommissioning expenditures. Funds flow and Funds flow from operations are used to assess the Company’s ability to fund dividend and planned capital programs. Funds flow from operations excludes the effects of financing related transactions from foreign exchange contracts and debt repayments/ pre-payments and is more representative of cash related to continuing operations. See “Calculation of Funds Flow/ Funds flow from Operations” above for a reconciliation of funds flow to its nearest measure prescribed by IFRS. Netback is the per unit of production amount of revenue less royalties, operating expenses, transportation and realized risk management gains and losses, and is used in capital allocation decisions and to economically rank projects. See “Results of Operations – Netbacks” above for a calculation of the Company’s netbacks. Gross revenue is total revenues including realized risk management gains and losses on commodity contracts and is used to assess the cash realizations on commodity sales.

Oil and Gas Information

Forward-Looking Statements

Certain statements contained in this document constitute forward-looking statements or information (collectively “forward-looking statements”) within the meaning of the “safe harbour” provisions of applicable securities legislation. In particular, this document contains forward-looking statements pertaining to, without limitation, the following: under “Business Strategy”, our intention to continue to focus on the core components of our long-term plan which include debt reduction, profitable growth and execution and cost control, and our intention to continue to review potential disposition strategies as we move forward and focus on improving our best-in-class operational status in our core plays, our ability to continue to monitor the commodity price environment and take proactive measures as required as we look to increase the long-term value of the Company; under “Crude Oil” and “Natural Gas”, our expectations for crude oil and natural gas prices and supply and demand conditions; under “Results of Operations – Netbacks”, the anticipation that natural gas royalties will be insignificant for the remainder of the year under current royalty rates; under “Expenses - Financing”, that payments in connection with the most recently completed asset dispositions will be made in August 2015, under “Environmental and Climate Change”, our belief that compliance with environmental legislation could require additional expenditures and a failure to comply with such legislation may result in fines and penalties which could, in the aggregate and under certain assumptions, become material; under “Liquidity and Capital Resources”, in respect of dividends, the details of our third quarter dividend and payment of the third quarter dividend on October 15, 2015 and our belief that our dividend level could change based on a variety of factors and conditions, and in respect of Liquidity, our belief that our actions increase the likelihood of maintaining our financial flexibility and capital and dividend programs, supporting our ability to capture opportunities in the market and execute longer-term business strategies, our intention to continue to actively identify and evaluate hedging opportunities in order to reduce our exposure to fluctuations in commodity prices and protect our future cash flows and capital programs; under “Outlook”, the revised guidance amounts for the Canadian crude oil pricing assumptions for the full year 2015, the 2015 funds flow from operations and 2015 capital budget; under “Sensitivity Analysis”, the estimated sensitivities to selected key assumptions on funds flow for the 12 months subsequent to this MD&A; and under “Contractual Obligations and Commitments”, our intent to vigorously defend against any legal actions relating to damages alleged to have been incurred due to a decline in our share price arising out of the restatement of certain of our historical financial statements and related MD&A. In addition, statements relating to “reserves” or “resources” are deemed to be forward-looking statements as they involve the implied assessment, based on certain estimates and assumptions, that the reserves and resources described exist in the quantities predicted or estimated and can be profitably produced in the future.


PENN WEST SECOND QUARTER 2015		MANAGEMENT’S DISCUSSION AND ANALYSIS			19

With respect to forward-looking statements contained in this document, the Company has made assumptions regarding, among other things: 2015 prices of C$60.00 per barrel of Canadian light sweet oil and C$3.25 per mcf AECO gas and a 2015 C$/US$ foreign exchange rate of $1.25; that the Company does not dispose of additional material producing properties or royalties or other interests therein; that the current commodity price and foreign exchange environment will continue or improve; future capital expenditure levels; future crude oil, natural gas liquids and natural gas prices and differentials between light, medium and heavy oil prices and Canadian, WTI and world oil and natural gas prices; future crude oil, natural gas liquids and natural gas production levels; future exchange rates and interest rates; future debt levels; and the amount of future cash dividends that the Company intends to pay and the continued suspension of our dividend reinvestment plan.

Although the Company believes that the expectations reflected in the forward-looking statements contained in this document, and the assumptions on which such forward-looking statements are made, are reasonable, there can be no assurance that such expectations will prove to be correct. Readers are cautioned not to place undue reliance on forward-looking statements included in this document, as there can be no assurance that the plans, intentions or expectations upon which the forward-looking statements are based will occur. By their nature, forward-looking statements involve numerous assumptions, known and unknown risks and uncertainties that contribute to the possibility that the forward-looking statements contained herein will not be correct, which may cause our actual performance and financial results in future periods to differ materially from any estimates or projections of future performance or results expressed or implied by such forward-looking statements. These risks and uncertainties include, among other things: the possibility that the Company will not be able to continue to successfully execute our long-term plan in part or in full, and the possibility that some or all of the benefits that the Company anticipates will accrue to our Company and our securityholders as a result of the successful execution of such plan do not materialize; the possibility that the Company is unable to execute some or all of our ongoing asset disposition program on favourable terms or at all; the possibility that we breach one or more of the financial covenants pursuant to our amending agreements with the syndicated banks and the holders of our senior, unsecured notes; general economic and political conditions in Canada, the U.S. and globally, and in particular, the effect that those conditions have on commodity prices and our access to capital; industry conditions, including fluctuations in the price of crude oil, natural gas liquids and natural gas, price differentials for crude oil and natural gas produced in Canada as compared to other markets, and transportation restrictions, including pipeline and railway capacity constraints; fluctuations in foreign exchange or interest rates; unanticipated operating events or environmental events that can reduce production or cause production to be shut-in or delayed (including extreme cold during winter months, wild fires and flooding); and the other factors described under “Risk Factors” in our Annual Information Form and described in our public filings, available in Canada at www.sedar.com and in the United States at www.sec.gov. Readers are cautioned that this list of risk factors should not be construed as exhaustive.

The forward-looking statements contained in this document speak only as of the date of this document. Except as expressly required by applicable securities laws, the Company does not undertake any obligation to publicly update any forward-looking statements. The forward-looking statements contained in this document are expressly qualified by this cautionary statement.

Additional Information

Additional information relating to Penn West, including Penn West’s Annual Information Form, is available on SEDAR at www.sedar.com and on EDGAR at www.sec.gov.


PENN WEST SECOND QUARTER 2015		MANAGEMENT’S DISCUSSION AND ANALYSIS			20

Exhibit 99.3

Penn West Petroleum Ltd.

Consolidated Balance Sheets


(CAD millions, unaudited)	Note		June 30, 2015			December 31, 2014
Assets
Current
Cash			$	89		$	67
Accounts receivable				197			182
Other				57			46
Deferred funding assets		3		69			84
Risk management		8		6			31

				418			410

Non-current
Deferred funding assets		3		181			195
Exploration and evaluation assets		4		499			505
Property, plant and equipment		5		7,512			7,906
Goodwill				706			734
Risk management		8		59			102

				8,957			9,442

Total assets			$	9,375		$	9,852

Liabilities and Shareholders’ Equity
Current
Accounts payable and accrued liabilities			$	337		$	529
Dividends payable				5			70
Current portion of long-term debt		6		321			283
Decommissioning liability		7		69			52
Risk management		8		18			9

				750			943

Non-current
Long-term debt		6		1,885			1,866
Decommissioning liability		7		500			533
Risk management		8		8			10
Deferred tax liability		11		920			914
Other non-current liabilities				4			4

				4,067			4,270

Shareholders’ equity
Shareholders’ capital		9		8,993			8,983
Other reserves				91			89
Deficit				(3,776	)		(3,490	)

				5,308			5,582

Total liabilities and shareholders’ equity			$	9,375		$	9,852

Subsequent events (Notes 6, 8 and 9)

Commitments and contingencies (Note 12)

See accompanying notes to the unaudited interim consolidated financial statements.


PENN WEST SECOND QUARTER 2015		INTERIM CONSOLIDATED FINANCIAL STATEMENTS			1

Penn West Petroleum Ltd.

Consolidated Statements of Income (Loss)


	Three months ended June 30								Six months ended June 30
(CAD millions, except per share amounts, unaudited)	Note		2015			2014			2015			2014
Oil and natural gas sales and other income			$	364		$	685		$	675		$	1,378
Royalties				(39	)		(112	)		(76	)		(214	)

				325			573			599			1,164

Risk management gain (loss)		8		(14	)		(11	)		38			(41	)

				311			562			637			1,123

Expenses
Operating				153			147			315			351
Transportation				12			12			23			23
General and administrative				23			34			45			70
Restructuring				3			7			5			11
Share-based compensation		10		7			8			7			17
Depletion and depreciation		5		174			187			355			374
Loss (gain) on dispositions		5		(95	)		—			(95	)		48
Foreign exchange loss (gain)		6		(21	)		(66	)		153			9
Exploration and evaluation		4		—			16			—			16
Financing		6		43			39			80			80
Accretion		7		10			9			19			18

				309			393			907			1,017

Income (loss) before taxes				2			169			(270	)		106

Deferred tax expense		11		30			26			6			52

Net and comprehensive income (loss)			$	(28	)	$	143		$	(276	)	$	54

Net income (loss) per share
Basic			$	(0.06	)	$	0.29		$	(0.55	)	$	0.11
Diluted			$	(0.06	)	$	0.29		$	(0.55	)	$	0.11
Weighted average shares outstanding (millions)
Basic		9		502.2			492.4			501.8			491.4
Diluted		9		502.2			492.6			501.8			491.4

See accompanying notes to the unaudited interim consolidated financial statements.


PENN WEST SECOND QUARTER 2015		INTERIM CONSOLIDATED FINANCIAL STATEMENTS			2

Penn West Petroleum Ltd.

Consolidated Statements of Cash Flows


	Three months ended June 30								Six months ended June 30
(CAD millions, unaudited)	Note		2015			2014			2015			2014
Operating activities
Net income (loss)			$	(28	)	$	143		$	(276	)	$	54
Depletion and depreciation		5		174			187			355			374
Loss (gain) on dispositions		5		(97	)		—			(97	)		48
Exploration and evaluation				—			16			—			16
Accretion		7		10			9			19			18
Deferred tax expense		11		30			26			8			52
Share-based compensation		10		1			2			2			5
Unrealized risk management loss (gain)		8		52			(16	)		75			(6	)
Unrealized foreign exchange loss (gain)		6		(95	)		(69	)		73			6
Decommissioning expenditures		7		(5	)		(7	)		(16	)		(20	)
Change in non-cash working capital				(109	)		(77	)		(54	)		(111	)

				(67	)		214			89			436

Investing activities
Capital expenditures				(64	)		(65	)		(255	)		(260	)
Property dispositions (acquisitions), net				411			(1	)		412			212
Change in non-cash working capital				(65	)		(55	)		(143	)		(61	)

				282			(121	)		14			(109	)

Financing activities
Increase (decrease) in long-term debt		6		295			9			484			(171	)
Repayments of senior notes		6		(495	)		(62	)		(580	)		(62	)
Issue of equity				—			11			—			11
Realized foreign exchange loss on repayments		6		74			3			80			3
Dividends paid				(5	)		(54	)		(65	)		(108	)

				(131	)		(93	)		(81	)		(327	)

Change in cash				84			—			22			—
Cash, beginning of period				5			—			67			—

Cash, end of period			$	89		$	—		$	89		$	—

See accompanying notes to the unaudited interim consolidated financial statements.


PENN WEST SECOND QUARTER 2015		INTERIM CONSOLIDATED FINANCIAL STATEMENTS			3

Penn West Petroleum Ltd.

Statements of Changes in Shareholders’ Equity


(CAD millions, unaudited)	Note		Shareholders’ Capital		Other Reserves			Deficit			Total
Balance at January 1, 2015			$	8,983	$	89		$	(3,490	)	$	5,582
Net and comprehensive loss				—		—			(276	)		(276	)
Share-based compensation		10		—		2			—			2
Issued to dividend reinvestment plan		9		10		—			—			10
Dividends declared		9		—		—			(10	)		(10	)

Balance at June 30, 2015			$	8,993	$	91		$	(3,776	)	$	5,308


(CAD millions, unaudited)	Note		Shareholders’ Capital		Other Reserves			Deficit			Total
Balance at January 1, 2014			$	8,913	$	80		$	(1,480	)	$	7,513
Net and comprehensive income				—		—			54			54
Share-based compensation		10		—		5			—			5
Issued on exercise of options		9		12		(1	)		—			11
Issued to dividend reinvestment plan		9		29		—			—			29
Dividends declared		9		—		—			(138	)		(138	)

Balance at June 30, 2014			$	8,954	$	84		$	(1,564	)	$	7,474

See accompanying notes to the unaudited interim consolidated financial statements.


PENN WEST SECOND QUARTER 2015		INTERIM CONSOLIDATED FINANCIAL STATEMENTS			4

Notes to the Unaudited Consolidated Financial Statements

(All tabular amounts are in CAD millions except numbers of common shares, per share amounts,

percentages and various figures in Note 8)

1. Structure of Penn West

Penn West operates under the trade names of Penn West and Penn West Exploration.

2. Basis of presentation and statement of compliance

a) Statement of Compliance

All tabular amounts are in millions of Canadian dollars, except numbers of common shares, per share amounts, percentages and other figures as noted.

The interim consolidated financial statements were approved for issuance by the Board of Directors on July 29, 2015.

b) Basis of Presentation

All intercompany balances, transactions, income and expenses are eliminated on consolidation.

Certain comparative figures have been reclassified to correspond with current period presentation.


PENN WEST SECOND QUARTER 2015		NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS		5

3. Deferred funding assets


	June 30, 2015			December 31, 2014
Peace River Oil Partnership	$	167		$	195
Cordova Joint Venture		83			84

Total	$	250		$	279

Current portion	$	69		$	84
Long-term portion		181			195

Total	$	250		$	279

4. Exploration and evaluation (“E&E”) assets
	Six months ended June 30, 2015			Year ended December 31, 2014
Balance, beginning of period	$	505		$	645
Capital expenditures		7			92
Joint venture, carried capital		—			16
Expense		—			(16	)
Transfers to PP&E		(13	)		(232	)

Balance, end of period	$	499		$	505

5. Property, plant and equipment
Cost	Six months ended June 30, 2015			Year ended December 31, 2014
Balance, beginning of period	$	17,456		$	17,974
Capital expenditures		248			640
Joint venture, carried capital		6			13
Acquisitions		2			12
Dispositions		(486	)		(1,416	)
Transfers from E&E		13			232
Decommissioning additions (dispositions), net		(19	)		1

Balance, end of period	$	17,220		$	17,456


Accumulated depletion and depreciation	Six months ended June 30, 2015			Year ended December 31, 2014
Balance, beginning of period	$	9,550		$	8,899
Depletion and depreciation		355			750
Impairments		—			634
Dispositions		(197	)		(733	)

Balance, end of period	$	9,708		$	9,550


Net book value	June 30, 2015			December 31, 2014
Total	$	7,512		$	7,906

In 2015, Penn West has recorded gains on dispositions of $95 million (2014 - $48 million loss), which included $2 million expense related to advisory fees (2014 – insignificant).


PENN WEST SECOND QUARTER 2015		NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS		6

6. Long-term debt


	Amount (millions)	Maturity dates	Average interest rate ⁽¹⁾			June 30, 2015		December 31, 2014
2007 Notes	US$259	2015 – 2022		6.36	%	$	324	$	550
2008 Notes	US$417, CAD$30	2016 – 2020		6.74	%		551		587
UK Notes	£49	2018		6.95	%⁽²⁾		96		103
2009 Notes	US$79 ⁽³⁾, £19, €9	2015 – 2019		9.43	%⁽⁴⁾		149		158
2010 Q1 Notes	US$187	2015 – 2025		6.20	%		234		341
2010 Q4 Notes	US$146, CAD$48	2015 – 2025		5.47	%		231		258
2011 Notes	US$91, CAD$23	2016 – 2021		4.99	%		137		152

Total senior notes							1,722		2,149
Syndicated bank facility advances							484		—

Total long-term debt						$	2,206	$	2,149

(1)	Average interest rate can fluctuate based on consolidated debt to EBITDA ratio which expires on March 30, 2017, the date the covenant relief period ends with the bank syndicate and noteholders.

(2)	These notes currently bear interest at 8.28 percent in Pounds Sterling, however, contracts were entered to fix the interest rate at 6.95 percent in Canadian dollars and to fix the exchange rate on the repayment (refer to Note 8).

(3)	A portion of the 2009 Notes have equal repayments, which began in 2013 with a repayment of US$5 million, and extend over the remaining six years.

(4)	The Company entered into contracts to fix the interest rate on the Pounds Sterling and Euro tranches, initially at 9.99 percent and 10.02 percent, to 9.15 percent and 9.22 percent, respectively, and to fix the exchange rate on repayment (refer to Note 8).

The split between current and non-current long-term debt is as follows:


	June 30, 2015		December 31, 2014
Current portion	$	321	$	283
Long-term portion		1,885		1,866

Total	$	2,206	$	2,149

Additional information on Penn West’s senior notes is as follows:


	June 30, 2015			December 31, 2014
Weighted average remaining life (years)		3.6			3.7
Weighted average interest rate ⁽¹⁾		6.5	%		6.0	%

(1)	Includes the effect of cross currency swaps (refer to Note 8).


PENN WEST SECOND QUARTER 2015		NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS		7

Letters of credit totalling $47 million were outstanding on June 30, 2015 (December 31, 2014 – $30 million) that reduce the amount otherwise available to be drawn on the syndicated bank facility.

•

the Senior Debt to EBITDA ratio will decrease to less than or equal to 3:1 for the period from and after January 1, 2017; and

•

the Total Debt to EBITDA ratio will remain at less than or equal to 4:1 for all periods after December 31, 2016.

The Company also agreed to the following:

•


PENN WEST SECOND QUARTER 2015		NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS		8

The split between realized and unrealized foreign exchange is as follows:


	Three months ended June 30						Six months ended June 30
	2015			2014			2015			2014
Realized foreign exchange loss on debt maturities	$	(30	)	$	(3	)	$	(36	)	$	(3	)
Realized foreign exchange loss on debt pre-payments		(44	)		—			(44	)		—
Unrealized foreign exchange gain (loss)		95			69			(73	)		(6	)

Foreign exchange gain (loss)	$	21		$	66		$	(153	)	$	(9	)

7. Decommissioning liability

The split between current and non-current decommissioning liability is as follows:


	June 30, 2015		December 31, 2014
Current portion	$	69	$	52
Long-term portion		500		533

Total	$	569	$	585

Changes to the decommissioning liability were as follows:


	Six months ended June 30, 2015			Year ended December 31, 2014
Balance, beginning of period	$	585		$	603
Net liabilities incurred (disposed) ⁽¹⁾		(15	)		(75	)
Increase (decrease) in liability due to change in estimate		(4	)		76
Liabilities settled		(16	)		(55	)
Accretion charges		19			36

Balance, end of period	$	569		$	585

(1)	Includes additions from drilling activity, facility capital spending and disposals related to net property dispositions.


PENN WEST SECOND QUARTER 2015		NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS		9

8. Risk management

The following table reconciles the changes in the fair value of financial instruments outstanding:


Risk management asset (liability)	Six months ended June 30, 2015			Year ended December 31, 2014
Balance, beginning of period	$	114		$	12
Unrealized gain (loss) on financial instruments:
Commodity collars, swaps and assignments		(49	)		51
Electricity swaps		7			(2	)
Interest rate swaps		—			1
Foreign exchange forwards		(43	)		48
Cross currency swaps		10			4

Total fair value, end of period	$	39		$	114


PENN WEST SECOND QUARTER 2015		NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS		10


	Notional volume	Remaining term	Pricing	Fair value (millions)
Natural gas
AECO Swaps	70,000 mcf/d	Jul/15 – Dec/15	$2.86/mcf	$	1
AECO Swaps	14,200 mcf/d	Jan/16 – Dec/16	$3.06/mcf		—

Crude Oil
WTI Swaps	7,500 bbl/d	Jul/15 – Sep/15	US$52.00/bbl		(7	)
WTI Swaps	5,000 bbl/d	Jul/15 – Sep/15	CAD$74.78/bbl		—
WTI Swaps	12,500 bbl/d	Oct/15 – Dec/15	CAD$72.57/bbl		(4	)
WTI Swaps	2,500 bbl/d	Jan/16 – Mar/16	CAD$76.60/bbl		—
WTI Swaps	5,000 bbl/d	Jan/16 – Dec/16	CAD$72.08/bbl		(9	)

Electricity swaps
Alberta Power Pool	10 MW	Jul/15 – Dec/15	$58.50/MWh		—
Alberta Power Pool	70 MW	Jul/15 – Dec/15	$55.17/MWh		(2	)
Alberta Power Pool	25 MW	Jan/16 – Dec/16	$49.90/MWh		(1	)

Crude oil assignment
18 – month term	10,000 boe/d	Jul/15 – May/16	Differential WCS (Edm) vs. WCS (USGC)		4

Foreign exchange forwards on senior notes
3 to 15-year initial term	US$229	2015 – 2022	1.000 CAD/USD		55

Foreign exchange forwards on debt prepayments
	US$70	Aug/15	1.237 CAD/USD		—
Cross currency swaps
10-year initial term	£57	2018	2.0075 CAD/GBP, 6.95%		(1	)
10-year initial term	£20	2019	1.8051 CAD/GBP, 9.15%		5
10-year initial term	€10	2019	1.5870 CAD/EUR, 9.22%		(2	)

Total				$	39


PENN WEST SECOND QUARTER 2015		NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS		11

The components of risk management on the Statement of Income are as follows:


	Three months ended June 30						Six months ended June 30
	2015			2014			2015			2014
Realized
Settlement of commodity contracts/assignment	$	(4	)	$	(29	)	$	7		$	(49	)
Monetization of commodity contracts		—			—			18			—
Settlement of foreign exchange contracts		23			2			25			2
Monetization of foreign exchange contracts		19			—			63			—

Total realized risk management gain (loss)		38			(27	)		113			(47	)

Unrealized
Commodity contracts		(17	)		39			(42	)		1
Electricity swaps		11			3			7			4
Interest rate swaps		—			—			—			1
Crude oil assignment		(4	)		—			(7	)		—
Foreign exchange contracts		(49	)		(21	)		(43	)		(3	)
Cross-currency swaps		7			(5	)		10			3

Total unrealized risk management gain (loss)		(52	)		16			(75	)		6

Risk management gain (loss)	$	(14	)	$	(11	)	$	38		$	(41	)

Market risks

There have been no significant changes to these risks from those discussed in Penn West’s annual audited consolidated financial statements.


PENN WEST SECOND QUARTER 2015		NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS		12

Foreign currency rate risk


Nominal Amount	Settlement date		Exchange rate
Buy US$70		2015		1.237 CAD/USD
Buy US$18		2016		0.995 CAD/USD
Buy US$78		2017		0.999 CAD/USD
Buy US$26		2018		0.995 CAD/USD
Buy US$76		2019		0.992 CAD/USD
Buy US$31		2020		0.995 CAD/USD

9. Shareholders’ equity

i) Issued


Shareholders’ capital	Common Shares		Amount
Balance, January 1, 2014		489,077,284	$	8,913
Issued on exercise of equity compensation plans ⁽¹⁾		1,067,000		12
Issued to dividend reinvestment plan		7,175,803		58

Balance, December 31, 2014		497,320,087		8,983
Issued to dividend reinvestment plan		4,843,076		10

Balance, June 30, 2015		502,163,163	$	8,993

(1)	Upon exercise of options, the net benefit is recorded as a reduction of other reserves and an increase to shareholders’ capital.

ii) Earnings per share - Basic and Diluted

The weighted average number of shares used to calculate per share amounts was as follows:


	Three months ended June 30				Six months ended June 30
Average shares outstanding (millions)	2015		2014		2015		2014
Weighted average
Basic		502.2		492.4		501.8		491.4
Dilutive impact		—		0.2		—		—

Diluted		502.2		492.6		501.8		491.4

iii) Dividends


PENN WEST SECOND QUARTER 2015		NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS		13

10. Share-based compensation

Stock Option Plan

Penn West has an Option Plan that allows Penn West to issue options to acquire common shares to officers, employees and other service providers. The current plan came into effect in 2011.


	Six months ended June 30, 2015					Year ended December 31, 2014
Options	Number of Options			Weighted Average Exercise Price		Number of Options			Weighted Average Exercise Price
Outstanding, beginning of period		14,460,158		$	13.91		14,951,830		$	17.63
Granted		5,061,500			1.86		8,332,400			8.84
Exercised		—			—		(1,067,000	)		9.80
Forfeited/ Expired		(2,131,479	)		12.87		(7,757,072	)		16.20

Outstanding, end of period		17,390,179		$	10.53		14,460,158		$	13.91

Exercisable, end of period		6,220,414		$	17.58		4,162,904		$	20.14

Long-Term Retention and Incentive Plan (“LTRIP”)


LTRIP awards (number of shares equivalent)	Six months ended June 30, 2015			Year ended December 31, 2014
Outstanding, beginning of period		3,166,476			2,813,769
Granted		8,980,950			2,749,440
Vested and paid		(1,156,440	)		(1,132,029	)
Forfeited/ Expired		(678,810	)		(1,264,704	)

Outstanding, end of period		10,312,176			3,166,476

Deferred Share Unit (“DSU”) Plan


PENN WEST SECOND QUARTER 2015		NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS		14

Performance Share Unit (“PSU”) Plan


PSU awards (number of shares equivalent)	Six months ended June 30, 2015			Year ended December 31, 2014
Outstanding, beginning of period		771,020			969,723
Granted		1,483,000			620,000
Vested		(180,010	)		(570,770	)
Forfeited		(103,161	)		(247,933	)

Outstanding, end of period		1,970,849			771,020

Share-based compensation


	Six months ended June 30
	2015		2014
Options	$	2	$	5
LTRIP		4		9
PSU		1		3

Share-based compensation	$	7	$	17

A Black-Scholes option-pricing model was used to determine the fair value of options granted under the Option Plan with the following fair value per option and weighted average assumptions:


	Six months ended June 30
	2015			2014
Average fair value of options granted (per share)	$	0.63		$	1.26
Expected life of options (years)		4.0			4.0
Expected volatility (average)		43.6	%		31.3	%
Risk-free rate of return (average)		0.6	%		1.4	%
Dividend yield		2.0	%		6.1	%


PENN WEST SECOND QUARTER 2015		NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS		15

Employee retirement savings plan

11. Deferred income taxes

In 2015, the Company has received Investment tax credit refunds totalling $2 million (2014 - nil) which was included in deferred income taxes.

12. Commitments and contingencies


PENN WEST SECOND QUARTER 2015		NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS		16

Exhibit 99.4

FORM 52-109F2

CERTIFICATION OF INTERIM FILINGS

FULL CERTIFICATE

I, David E. Roberts, President and Chief Executive Officer of Penn West Petroleum Ltd., certify the following:

1.	*Review:* I have reviewed the interim financial report and interim MD&A (together the “interim filings”) of Penn West Petroleum Ltd. (the “issuer”) for the interim period ended June 30, 2015.

No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.

Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.

Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer.

5.	*Design:* Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings

(a)

designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that

(i)

material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and

(ii)

information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and

(b)

designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.

5.1	*Control framework:* The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is the framework set forth in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

5.2

N/A.

5.3

N/A.

6.	Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on January 1, 2015 and ended on June 30, 2015 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.

Date: July 30, 2015

(signed) “David E. Roberts”

David E. Roberts

President & Chief Executive Officer

Exhibit 99.5

FORM 52-109F2

CERTIFICATION OF INTERIM FILINGS

FULL CERTIFICATE

I, David A. Dyck, Senior Vice President and Chief Financial Officer of Penn West Petroleum Ltd., certify the following:

1.	*Review:* I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Penn West Petroleum Ltd. (the “issuer”) for the interim period ended June 30, 2015.

5.	*Design:* Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings

(a)

designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that

(i)

material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and

(ii)

(b)

5.1	*Control framework:* The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is the framework set forth in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

5.2

N/A.

5.3

N/A.

6.	Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on January 1, 2015 and ended on June 30, 2015 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.

Date: July 30, 2015

(signed) “David A. Dyck”

David A. Dyck

Senior Vice President and Chief Financial Officer

Obsidian Energy (NYSE:OBE)
Historical Stock Chart
From Mar 2024 to Apr 2024

Click Here for more Obsidian Energy Charts.

Obsidian Energy (NYSE:OBE)
Historical Stock Chart
From Apr 2023 to Apr 2024

Market Data

News

Trading Tools

Markets

Discover

Hot Features

Follow Feed

Options Flow

Monitor

OBE Obsidian Energy Ltd

Penn West Petroleum Ltd. News

Your Recent History

Company

Business

Popular

Get The App

Trending Now

Toplists

Market Data

News

Trading Tools

Markets

Discover

Hot Features

Follow Feed

Options Flow

Monitor

OBE Obsidian Energy Ltd

Penn West Petroleum Ltd. News

Your Recent History

Company

Business

Popular

Get The App