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Pengrowth Announces Prudent 2016 Capital Budget, Operational Update and Temporary Suspension of Dividend


FOR: PENGROWTH ENERGY CORPORATION
TSX SYMBOL: PGF
NYSE SYMBOL: PGH

Date issue: January 20, 2016
Time in: 10:26 PM e

Attention:

CALGARY, ALBERTA–(Marketwired – Jan. 20, 2016) – Pengrowth Energy Corporation
(TSX:PGF)(NYSE:PGH) today announced its 2016 capital expenditure plans and
suspension of its dividend. Pengrowth’s Board of Directors has approved a $60
to $70 million capital budget for 2016, which is expected to generate annual
average production of between 59,000 and 61,000 barrels of oil equivalent per
day (boe/d). The 2016 capital budget will focus on maintenance initiatives and
does not contemplate a drilling program.

Dividend Update

Pengrowth is focused on preserving its financial health in this low commodity
price environment and, while the Company recognizes the importance of its
dividend to shareholders, maintaining its balance sheet in this environment
takes precedence. As a result of the continued weakness in oil and gas prices,
coupled with the near term outlook for prices, the Board of Directors has
suspended the quarterly dividend. No cash dividend will be paid for the first
quarter of 2016. The Board will continue to review the dividend on a quarterly
basis. Pengrowth is taking this necessary step during this period of low prices
to emerge with a better financial position when prices recover.

Derek Evans, President and Chief Executive Officer said, “Given the current
operating environment characterized by low crude oil and natural gas prices, we
have elected to pursue a very conservative 2016 budget as well as suspending
the dividend. As such, our 2016 budget does not contemplate any development
drilling and is intended to protect our balance sheet by allowing us to reduce
our debt position with excess cash flow. Proceeds from dispositions and our
ongoing cost reduction initiatives will also be applied to reducing our debt
position.”

2015 Operational performance

Pengrowth delivered strong operational performance in 2015 with average annual
production coming in at 71,409 boe/d, which was at the high end of guidance of
70,000 boe/d to 72,000 boe/d. Average production for 2015 includes the impact
of the 2015 disposition program with December production of approximately
63,100 boe/d. The Company’s cost reduction efforts in 2015 resulted in
full-year operating expenses of $14.28/boe, well below guidance of $15.50/boe
to $16.50/boe, due in part to $15 million of one-time prior period cost
recoveries. Also leading to the lower expense was Lindbergh operating costs
being included in operating expenses for only nine months of the year due to
operating costs and production at Lindbergh being capitalized for the first
quarter of 2015 as commerciality had not yet been declared for the project.

Cash general and administrative (G&A) expenses of $3.34/boe were also below
guidance of $3.50/boe to $3.60/boe. Pengrowth reduced its head office staff by
approximately 25 percent in September of 2015. The full impact of this
reduction was not evident in the full-year G&A expense number. In 2016, the
full impact of this reduction will be reflected in the G&A expense, which is
expected to save the Company approximately $25 million in 2016. 2015 capital
spending of approximately $184 million is below the low end of guidance of $190
to $210 million.

As part of its debt reduction strategy, Pengrowth announced its intent to sell
$600 million of non-core assets and direct the proceeds from the sales towards
reducing its outstanding debt. Taking into account the dispositions closed in
the fourth quarter of 2015, the Company achieved $263 million of asset proceeds
in 2015 and has additional pending asset sales which are expected to close
during the first quarter of 2016. Upon closing, total asset disposition
proceeds would be in excess of $300 million. The Company still plans to
continue with its non-core asset sales process throughout 2016 to achieve its
$600 million goal.

2016 Capital Plan

The 2016 capital program has no capital allocated for drilling but will
allocate some minor capital to advance long-term projects, namely at Lindbergh
and Bernadet, as these projects represent excellent low cost, opportunities for
longer-term production growth. The bulk of Pengrowth’s 2016 capital program
will be focused on safety, asset integrity and maintenance programs.

The 2016 capital budget was based on the assumption of an average WTI crude oil
price of US $30.00/bbl, an AECO natural gas price of Cdn $2.40/Mcf and a $0.70
USD/Cdn exchange rate. Currently, the Company has approximately 22,239 bbl/d of
2016 crude oil production (74 percent of 2016 estimated oil production) hedged
at Cdn $88.57/bbl and approximately 127 million cubic feet per day (MMcf/d) of
2016 natural gas production (93 percent of 2016 estimated gas production)
hedged at Cdn $3.28/Mcf.

Production Volumes

Pengrowth’s asset base has one of the lowest decline rates in the basin and,
despite having very little capital allocated to development drilling in 2015
and 2016, production levels have remained fairly robust. For 2016, the Company
forecasts production volumes of 59,000 boe/d to 61,000 boe/d. This estimate
reflects the loss of volumes from the Company’s 2015 disposition program
(approximately 9,100 boe/d on a full-year basis) as well as the absence of 930
boe/d of uneconomic shut-in production.

The make-up of 2016 expected production volumes, using the mid-point of
guidance, is set out below:

/T/

2016 Production Volumes Volume/day
—————————————————————————-
Light oil (bbl/d) 12,500
Heavy oil (bbl/d) 1,000
Thermal oil (bbl/d) 16,500
NGLs (bbl/d) 7,300
Natural Gas (Mcf/d) 136,000
—————————————————————————-
Boe/d(i) 60,000
—————————————————————————-
—————————————————————————-

/T/

(i)Assumes mid-point of average daily production guidance

Capital Allocation

The make-up of 2016 expected capital expenditures by area, using the mid-point
of guidance is set out below:

/T/

Budgeted
Capital allocation by expenditure area $ Millions
—————————————————————————-
Lindbergh 14
Conventional 47
Corporate (Land, seismic, capitalized G&A) 4
—————————————————————————-
Total Capital 65
—————————————————————————-
—————————————————————————-

/T/

2016 Lindbergh Capital

In 2015, Pengrowth successfully executed the start-up of the first commercial
phase of Lindbergh, with production from Lindbergh exceeding 16,000 bbl/d in
early December and averaging approximately 10,500 bbl/d for the year. For 2016,
Pengrowth has elected to adopt a moderated pace of development for Lindbergh
given the continued weakness in commodity prices. The Company expects annual
average production from Lindbergh to grow to 16,500 bbl/d in 2016, a 57 percent
increase from the 2015 annual average of 10,500 bbl/d. While Lindbergh remains
economically robust, with a current cash flow break-even price of US
$17.00/bbl, the profound drop off in crude oil prices to multi-year lows is
limiting the value of adding new production volumes and as such, the Company
will slow the pace of development in 2016 until a more supportive commodity
price environment persists.

The 2016 allocation of $14 million of capital to Lindbergh will be directed to
maintenance activities as well as further pre-engineering and design for the
phase two expansion. Pengrowth expects to receive regulatory approval for the
expansion phase of Lindbergh in the first half of the year.

2016 Conventional Capital

The 2016 conventional budget will focus primarily on maintenance and
enhancement activities on existing conventional operations. Approximately $46
million will be spent on maintenance of infrastructure and its integrity to
support ongoing operations across Pengrowth’s asset portfolio as well as minor
activities at Bernadet in preparation for development.

Operating Expenses

Gross operating expenses in 2016 are expected to decline by six percent from
2015 primarily due to the Company’s cost containment efforts in 2015. Estimated
operating expenses for 2016 include two major planned turnarounds in the
conventional business segment, one at Olds and one at Swan Hills as well as
increased expenditures on integrity and optimization at Pengrowth’s legacy
assets. On a unit basis, operating expenses are expected to rise by
approximately 10 percent from 2015 levels to a range of $15.25/boe to
$16.25/boe due to the previously mentioned factors as well as lower production
volumes in 2016 compared to 2015. Pengrowth will continue to seek out
opportunities to further reduce its operating costs, including seeking further
cost reductions for services.

Cash General and Administrative Expenses

Cash general and administrative (G&A) expenses are expected to decline by
approximately $25 million (28 percent) on a gross dollar basis from 2015
levels. Cost management efforts in 2015 are the drivers behind the decline in
expenses. On a unit basis, 2016 cash G&A costs are expected to decline 10
percent from 2015 levels, to a range of $2.75/boe and $3.25/boe.

Significant Financial Flexibility and Liquidity

Pengrowth is committed to ensuring its financial flexibility in 2016.
Pengrowth’s $1.0 billion committed revolving credit facility, was renewed and
extended in 2015 resulting in a maturity date of March 31, 2019. The Company
has no scheduled debt maturities in 2016 and expects to be in a position to
materially reduce its outstanding debt through a combination of strong funds
flow from operations supported by a substantial hedging program, disposition
proceeds, and its ongoing cost reduction initiatives. Approximately 87 percent
of Pengrowth’s long-term debt is comprised of senior unsecured term debt with
fixed interest rates and maturity dates. This set of laddered maturity dates
ensures that the Company has the ability to manage its debt position without
having a significant maturity burden in any given year. As at December 31, 2015
Pengrowth’s total debt was approximately Cdn $1.85 billion, a reduction of
approximately 10 percent from September 30, 2015.

Commodity Risk Management

Pengrowth has extensive oil and natural gas hedges in place through the end of
2016 that are expected to provide a significant degree of cash flow certainty
notwithstanding the current low commodity price environment. Currently, the
Company has approximately 22,239 bbl/d of 2016 crude oil production (74 percent
of 2016 estimated oil production) hedged at Cdn $88.57/bbl and approximately
127 million cubic feet per day (MMcf/d) of 2016 natural gas production (93
percent of 2016 estimated gas production) hedged at Cdn $3.28/Mcf. The Company
also has significant natural gas hedges in place for 2017 and 2018 and
continues to target opportunities to add additional crude oil hedges for 2017
and 2018 should the commodity price opportunity present itself. The mark to
market value of Pengrowth’s hedge book, including foreign exchange hedging was
approximately $679 million as at January 19, 2016.

2016 Forecast Guidance Summary

The following is a summary of Pengrowth’s 2016 guidance and does not reflect
any anticipated acquisition or divestment activity. Certain guidance estimates
may fluctuate with changes in commodity prices.

/T/

—————————————————————————-
Average daily production volume (boe/d) 59,000 to 61,000
Total capital expenditures ($ millions) 60 to 70
Royalties(1) (% of sales) 7 to 8
Net operating costs ($ per boe)(2) 15.25 to 16.25
Cash G & A expense ($ per boe)(2) 2.75 to 3.25
—————————————————————————-

1. Royalties are before impacts of commodity risk management activities
2. Per boe estimates based on high and low ends of production guidance
3. Guidance based on US $30.00/bbl, an AECO natural gas price of Cdn

$2.40/Mcf and a $0.70 USD/Cdn exchange rate.

/T/

Investor Day

As previously announced, an Investor Day presentation, discussing spending
plans and projected results from operations for 2015 will be held on Thursday,
January 21, 2016 at 9:00 AM MT. A live, listen-only webcast of the event will
be available for those unable to attend in person. To participate in the
webcast, participants may register by visiting http://www.gowebcasting.com/7176.

An archive of the webcast and accompanying presentation will be available
following the conclusion of the live event on Pengrowth’s website at
www.pengrowth.com.

About Pengrowth:

Pengrowth Energy Corporation is an intermediate Canadian producer of oil and
natural gas, headquartered in Calgary, Alberta. Pengrowth’s assets include the
Cardium light oil, Lindbergh thermal and Swan Hills light oil projects.
Pengrowth’s shares trade on both the Toronto Stock Exchange under the symbol
“PGF” and on the New York Stock Exchange under the symbol “PGH”.

PENGROWTH ENERGY CORPORATION

Derek Evans, President and Chief Executive Officer

Currency:

All amounts are stated in Canadian dollars unless otherwise specified.

Caution Regarding Engineering Terms:

When used herein, the term “boe” means barrels of oil equivalent on the basis
of one boe being equal to one barrel of oil or NGLs or 6,000 cubic feet of
natural gas (6 mcf: 1 bbl). Barrels of oil equivalent may be misleading,
particularly if used in isolation. A conversion ratio of six mcf of natural gas
to one boe is based on an energy equivalency conversion method primarily
applicable at the burner tip and does not represent a value equivalency at the
wellhead. All production figures stated are based on Company Interest before
the deduction of royalties.

Production and reserves, unless otherwise noted, are stated as Company
Interest. Company Interest, as used herein, means Pengrowth’s working interest
share of production or reserves prior to the deduction of royalties plus any
royalty interest in production or reserves at the wellhead.

Contingent Resources are those quantities of petroleum estimated, as of a given
date, to be potentially recoverable from known accumulations using established
technology or technology under development but which are not currently
considered to be commercially recoverable due to one or more contingencies. The
contingencies may include factors such as economics, legal, environmental,
political and regulatory matters or lack of markets. Contingent Resources are
further classified in accordance with the level of certainty associated with
the estimates. Contingent Reserves do not constitute and should not be confused
with reserves.

Caution Regarding Forward Looking Information:

This press release contains forward-looking statements within the meaning of
securities laws, including the “safe harbour” provisions of the Canadian
securities legislation and the United States Private Securities Litigation
Reform Act of 1995. Forward-looking information is often, but not always,
identified by the use of words such as “anticipate”, “believe”, “expect”,
“plan”, “intend”, “forecast”, “target”, “project”, “guidance”, “may”, “will”,
“should”, “could”, “estimate”, “predict” or similar words suggesting future
outcomes or language suggesting an outlook. Forward-looking statements in this
press release include, but are not limited to, statements with respect to
estimated 2016 capital budget of $60 to $70 million; expected 2016 average
production of between 59,000 and 61,000 boe/d; the focus of 2016 capital
spending on maintenance initiatives and not drilling; suspension of dividend
payments and the Board revisiting the same each quarter; the ability to
conserve capital in 2016 and reduce indebtedness; the potential for proceeds
from dispositions and ongoing cost reduction initiatives being directed toward
debt reduction; plans to continue with non-core asset sales through 2016 to
achieve $600 million goal; focus of 2016 capital program; future commodity
price assumptions in the capital budget; decline rate; forecast production for
2016; shut-in volumes; the make-up of expected 2016 production volumes;
anticipated 2016 capital allocation by expenditure area; expected average
annual production in 2016; plans to slow the pace of Lindbergh development in
2016; intended use of 2016 capital at Lindbergh; expected approval of the
expansion phase of Lindbergh in the first half of the year; expected use of
conventional capital in 2016; expected decline in operating expenses in 2016;
anticipated turnarounds at Swan Hills and Olds in 2016; anticipated increased
expenditure on integrity and optimization at Pengrowth’s legacy assets in 2016;
anticipated operating costs and cash G&A expense in 2016; anticipated financial
flexibility and liquidity; future debt maturities; expectation that the Company
will be able to use funds flow from operations to reduce indebtedness; hedges
and their anticipated future value and ratio to anticipated production levels
in 2016; mark to market value of hedges; expected average daily production
volume, capital expenditures, royalty expense, net operating cost and cash G&A
expense in 2016 and planned investor day. Statements relating to “reserves” are
deemed to be forward-looking statements, as they involve the implied
assessment, based on certain estimates and assumptions that the reserves
described exist in the quantities predicted or estimated and can profitably be
produced in the future.

Forward-looking statements and information are based on current beliefs as well
as assumptions made by and information currently available to Pengrowth
concerning anticipated financial performance, business prospects, strategies
and regulatory developments. Although management considers these assumptions to
be reasonable based on information currently available to it, they may prove to
be incorrect.

By their very nature, forward-looking statements involve inherent risks and
uncertainties, both general and specific, and risks that predictions,
forecasts, projections and other forward-looking statements will not be
achieved. We caution readers not to place undue reliance on these statements as
a number of important factors could cause the actual results to differ
materially from the beliefs, plans, objectives, expectations and anticipations,
estimates and intentions expressed in such forward-looking statements. These
factors include, but are not limited to: changes in general economic, market
and business conditions; the volatility of oil and gas prices; fluctuations in
production and development costs and capital expenditures; the imprecision of
reserve estimates and estimates of recoverable quantities of oil, natural gas
and liquids; Pengrowth’s ability to replace and expand oil and gas reserves;
geological, technical, drilling and processing problems and other difficulties
in producing reserves; environmental claims and liabilities; incorrect
assessments of value when making acquisitions; increases in debt service
charges; the loss of key personnel; the marketability of production; defaults
by third party operators; unforeseen title defects; fluctuations in foreign
currency and exchange rates; fluctuations in interest rates; inadequate
insurance coverage; compliance with environmental laws and regulations; actions
by governmental or regulatory agencies, including changes in tax laws; the
failure to qualify as a mutual fund trust; Pengrowth’s ability to access
external sources of debt and equity capital; the impact of foreign and domestic
government programs and the occurrence of unexpected events involved in the
operation and development of oil and gas properties. Further information
regarding these factors may be found under the heading “Business Risks” in our
most recent management’s discussion and analysis and under “Risk Factors” in
our Annual Information Form dated February 28, 2014.

The foregoing list of factors that may affect future results is not exhaustive.
When relying on our forward-looking statements to make decisions, investors and
others should carefully consider the foregoing factors and other uncertainties
and potential events. Furthermore, the forward-looking statements contained in
this press release are made as of the date of this press release, and Pengrowth
does not undertake any obligation to update publicly or to revise any of the
included forward-looking statements, whether as a result of new information,
future events or otherwise, except as required by applicable laws.

The forward-looking statements contained in this press release are expressly
qualified by this cautionary statement.

Supplemental and Additional Non-IFRS Measures

In addition to providing measures prepared in accordance with International
Financial Reporting Standards (IFRS), Pengrowth presents supplemental and
additional non-IFRS measures, Adjusted Net Income (Loss), operating netbacks,
adjusted payout ratio and Funds Flow from Operations. These measures do not
have any standardized meaning prescribed by IFRS and therefore are unlikely to
be comparable to similar measures presented by other companies. These
supplemental non-IFRS measures are provided, in part, to assist readers in
determining Pengrowth’s ability to generate cash from operations. Pengrowth
believes these measures are useful in assessing operating performance and
liquidity of Pengrowth’s ongoing business on an overall basis.

These measures should be considered in addition to, and not as a substitute
for, net income (loss), cash provided by operations and other measures of
financial performance and liquidity reported in accordance with IFRS. Further
information with respect to these additional and non-IFRS measures can be found
in Pengrowth’s most recent management’s discussion and analysis.

– END RELEASE – 20/01/2016

For further information:
Pengrowth
Wassem Khalil
Manager, Investor Relations
(403) 233-0224 or Toll free 1-855-336-8814
OR
Pengrowth
Investor Relations
[email protected]
www.pengrowth.com

COMPANY:
FOR: PENGROWTH ENERGY CORPORATION
TSX SYMBOL: PGF
NYSE SYMBOL: PGH

INDUSTRY: Energy and Utilities – Oil and Gas
RELEASE ID: 20160120CC0112

Press Release from Marketwired 1-866-736-3779

All press releases are written by the client and have NO affiliation with the news copy written by The Canadian Press. Any questions that arise due to the content or information provided in the press release should be directed to the company/organization
issuing the release, not to The Canadian Press.



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