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Penn West Exploration Announces Its Financial Results For The Fourth Quarter Ended December 31, 2012 And 2012 Year-end Reserve Results

g)  Future development costs using forecast prices and costs (millions)

                              Proved Future      Proved plus Probable
    Year                  Development Costs  Future Development Costs

    2013                        $       994            $        1,233
    2014                                787                     1,291
    2015                                519                       997
    2016                                 98                       254
    2017                                 19                        35
    2018 and subsequent                 146                       308
    Undiscounted total          $     2,563            $        4,118
    Discounted @ 10%/yr         $     2,175            $        3,411

Letter to our Shareholders

This past year proved to be challenging and directionally important for both Penn West and the Canadian energy industry. Our activities of the past several years have created a platform that includes thousands of economic oil locations, greater play concentration, exploration opportunities and core areas with significant oil handling facilities. Penn West has stated two clear goals for 2013: improving capital efficiencies and production reliability. We have implemented organizational changes to attain these objectives. The transition from resource growth and delineation to our focus on maximizing capital efficiency is necessary, attainable and important for capital markets to provide greater recognition of the value of Penn West.

The most important factor affecting oil producers in Canada during 2012 was price differentials between Canadian and US benchmark oil prices due to North American pipeline bottlenecks. This volatility led to equity capital markets diversifying away from the Canadian upstream energy sector. We are focused on mitigating the impact of oil price differential volatility and potential weakness in crude oil pricing. Penn West has contracted 35,000 barrels per day of pipeline capacity to the Gulf coast, which is currently expected to be on-stream mid-2014. This will provide access to significant US markets which should enable us to realize higher oil netbacks. We are evolving our crude oil marketing strategies toward direct sales to refiners and are actively hedging our crude oil production. We have an average floor price of US$91.55 per barrel on over 80 percent of our forecast 2013 oil and liquids production, net of royalties.

We completed two significant external contingent resource studies in 2012. We believe the Cardium is the most significant asset in the company from a growth and long-term value perspective. The independently substantiated 533 million barrels of light-oil contingent resources (1) in our Cardium assets confirms our appraisal activities. Notably, potential recoveries from horizontal multi-fracture water flooding are not reflected in the study. In the Cardium, 2013 activity is directed to primary development wells as we continue to develop a longer-term integrated strategy of primary development with enhanced oil recovery schemes. Our horizontal waterflood pilot in Pembina provides evidence of the potential of this strategy.

In the Peace River Oil Partnership, the economic contingent resource (1) of 473 million barrels assigned by independent reserves auditors provided us further validation of our resource base. In 2013, the focus will be on primary development and continuing engineering and regulatory applications for the commercial cyclic steam project at Seal Main. To date, results of the cyclic steam pilot at Seal Main remain attractive with industry leading steam-oil ratios below 1.5 times and over 150,000 barrels of oil recovered from the first two steam cycles from a single well.

As we exited 2012, our reserves book reflected approximately 15 percent of our identified potential oil drilling locations which we calculate from a combination of the contingent resource studies and internal estimates. We are aiming to complete further resource studies on select plays in our portfolio as we drive further conversions from resource to reserves. Our proved plus probable finding and development cost was $25.50 per boe including future development capital, a five percent improvement over 2011, and approximately 80 percent of these additions were crude oil and liquids. At year-end 2012, our reserves book was 71 percent oil and natural gas liquids on a proved plus probable basis.

We look forward to sharing results with our shareholders as we deliver on our 2013 plan.

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