Bellatrix Exploration Ltd. Announces Year End 2012 Financial Results

     Bellatrix Exploration Ltd. Announces Year End 2012 Financial Results

PR Newswire

CALGARY, March 7, 2013

TSX, NYSE MKT: BXE

CALGARY, March 7, 2013 /PRNewswire/ - Bellatrix Exploration Ltd. ("Bellatrix"
or the "Company") (TSX, NYSE MKT: BXE) announces its financial and operating
results for the year ended December 31, 2012.

Forward-Looking Statements
This  press   release,  including   the  report   to  shareholders,   contains 
forward-looking statements.  Please  refer  to  our  cautionary  language  on 
forward-looking statements and the other matters set forth at the beginning of
the management's discussion and analysis  (the "MD&A") attached to this  press 
release.

                                  HIGHLIGHTS
                                                    Years ended December 31,
                                                         2012         2011
FINANCIAL (unaudited)                                                     
(CDN$000s except share and per share amounts)                             
Revenue (before royalties and risk management ^(1))     219,314      202,318
Funds flow from operations ^(2)                         111,038       94,237
               Per basic share ^(6)                      $1.03        $0.91
               Per diluted share ^(6)                    $0.96        $0.84
Cash flow from operating activities                     109,328       98,192
               Per basic share ^(6)                      $1.02        $0.95
               Per diluted share ^(6)                    $0.95        $0.87
Net profit before certain non-cash items ^(5)            21,746       17,105
               Per basic share ^(6)                      $0.20        $0.16
               Per diluted share ^(6)                    $0.20        $0.16
Net profit (loss)                                        27,771      (5,949)
               Per basic share ^(6)                      $0.26      ($0.06)
               Per diluted share ^(6)                    $0.25      ($0.06)
Exploration and development                             164,187      175,495
Corporate and property acquisitions                      21,160        4,066
Capital expenditures - cash                             185,348      179,561
Property dispositions - cash                            (6,660)      (4,203)
Non-cash items                                           25,875       10,575
Total capital expenditures - net                        204,563      185,933
Long-term debt                                          133,047       56,701
Convertible debentures ^(7)                              50,687       49,076
Adjusted working capital deficiency ^ (3)                 5,843       13,473
Total net debt ^(3)                                     189,577      119,250
Total assets                                            681,421      580,422
Shareholders' equity                                    381,106      348,405

OPERATING                                          Years ended December 31,
                                                          2012        2011
Average daily sales volumes                                              
    Crude oil, condensate and NGLs       (bbls/d)         5,717       4,540
    Natural gas                           (mcf/d)        65,812      44,484
    Total oil equivalent                  (boe/d)        16,686      11,954
Average prices                                                           
    Light crude oil and condensate        ($/bbl)         86.47       92.51
    NGLs (excluding condensate)           ($/bbl)         38.88       53.54
    Heavy oil                             ($/bbl)         68.51       68.23
    Crude oil, condensate and NGLs        ($/bbl)         73.59       83.89
    Crude oil, condensate and NGLs
     (including risk
     management ^(1))                      ($/bbl)         72.65       81.47
    Natural gas                           ($/mcf)          2.62        3.77
    Natural gas (including risk
     management ^ (1))                     ($/mcf)          3.17        4.05
    Total oil equivalent                  ($/boe)         35.56       45.88
    Total oil equivalent (including
     risk management ^ (1))                ($/boe)         37.40       46.01
                                                 
Statistics                                                               
    Operating netback ^(4)                ($/boe)         19.66       25.09
    Operating netback ^(4) (including
     risk management ^ (1))                ($/boe)         21.51       25.22
    Transportation                        ($/boe)          0.82        1.31
    Production expenses                   ($/boe)          8.73       11.53
    General & administrative              ($/boe)          2.34        2.83
    Royalties as a % of sales after
     Transportation                                         18%         18%
COMMON SHARES                                                 
Common shares outstanding                           107,868,774 107,407,241
Share options outstanding                             9,420,451   7,985,320
Shares issuable on conversion of                 
convertible debentures ^(7)                             9,821,429   9,821,429
Diluted common shares outstanding                   127,110,654 125,213,990
Diluted weighted average shares - net            
profit (loss) ^(6)                                    109,125,094 103,857,689
Diluted weighted average shares - funds          
flow from
operations and cash flow from operating
activities ^(2) (6)                                   118,946,523 116,046,595
SHARE TRADING STATISTICS                                                 
TSX and Other ^(8) (CDN$, except                 
volumes) based on intra-day trading                                        
High                                                       5.67        6.19
Low                                                        2.45        3.15
Close                                                      4.27        4.91
Average daily volume                                  1,127,281   1,152,846
NYSE MKT ^(9) (US$, except volumes)              
based on intra-day trading                                                 
High                                                       4.54           -
Low                                                        3.69           -
Close                                                      4.28           -
Average daily volume                                     37,924           -

^(1) The Company has entered into various commodity price risk management
     contracts which are considered to be economic hedges. Per unit metrics
     after risk management include only the realized portion of gains or
     losses on commodity contracts.
    
    The Company does not apply hedge accounting to these contracts. As such,
     these contracts are revalued to fair value at the end of each reporting
     date. This results in recognition of unrealized gains or losses over the
     term of these contracts which is reflected each reporting period until
     these contracts are settled, at which time realized gains or losses are
     recorded. These unrealized gains or losses on commodity contracts are
     not included for purposes of per unit metrics calculations disclosed.
    
^(2) The highlights section contains the term "funds flow from operations"
     which should not be considered an alternative to, or more meaningful than
     cash flow from operating activities as determined in accordance with
     generally accepted accounting principles ("GAAP") as an indicator of the
     Company's performance. Therefore reference to the additional GAAP
     measures of funds flow from operations, or funds flow from operations per
     share may not be comparable with the calculation of similar measures for
     other entities. Management uses funds flow from operations to analyze
     operating performance and leverage and considers funds flow from
     operations to be a key measure as it demonstrates the Company's ability
     to generate the cash necessary to fund future capital investments and to
     repay debt. The reconciliation between cash flow from operating
     activities and funds flow from operations can be found in the MD&A.
     Funds flow from operations per share is calculated using the weighted
     average number of common shares for the period.
    
^(3) Net debt and total net debt are considered additional GAAP measures. The
     Company's calculation of total net debt includes the liability component
     of convertible debentures and excludes deferred liabilities, long-term
     commodity contract liabilities, decommissioning liabilities, long-term
     finance lease obligations and the deferred tax liability. Net debt and
     total net debt include the net working capital deficiency (excess) before
     short-term commodity contract assets and liabilities and current finance
     lease obligations. Net debt also excludes the liability component of
     convertible debentures. A reconciliation between total liabilities under
     GAAP and total net debt and net debt as calculated by the Company is
     found in the MD&A.
    
^(4) Operating netbacks is considered a non-GAAP term. Operating netbacks are
     calculated by subtracting royalties, transportation, and operating costs
     from revenues before other income.
    
^(5) Net profit before certain non-cash items is considered a non-GAAP term.
     Net profit before certain non-cash items is calculated as net profit
     (loss) per the Consolidated Statement of Comprehensive Income, excluding
     the non-cash impairment loss, unrealized gain or loss on commodity
     contracts, gain property acquisition, and gain or loss on property
     dispositions, net of the deferred tax impact on these adjustments. The
     Company's reconciliation between net profit (loss) and net profit before
     certain non-cash items is found in the MD&A.
    
^(6) Basic weighted average shares for the year ended December 31, 2012 were
     107,543,811 (2011: 103,857,689).
    
    In computing weighted average diluted earnings and weighted average
     diluted net profit before certain non-cash items per share for the year
     ended December 31, 2012, a total of 1,581,283 (2011: 2,367,477) common
     shares, were added to the denominator as a consequence of applying the
     treasury stock method to the Company's outstanding share options as they
     were dilutive, and a total of 9,821,429 (2011: 9,821,429) common shares
     issuable on conversion of convertible debentures were excluded from the
     denominator as they were not dilutive, resulting in diluted weighted
     average shares of 109,125,094 (2011: 106,225.166).
    
    In computing weighted average diluted cash flow from operating activities
     and funds flow from operations per share for the year ended December 31,
     2012, a total of 1,581,283 (2011: 2,367,477) common shares were added to
     the denominator as a consequence of applying the treasury stock method to
     the Company's outstanding share options and a total of 9,821,429 (2011:
     9,821,429) common shares issuable on conversion of convertible debentures
     were also added to the denominator as they were dilutive, resulting in
     diluted weighted average common shares of 118,946,523 (2011:
     116,046,595). As a consequence, a total of $3.2 million (2011: $3.0
     million) for interest accretion expense (net of income tax effect) were
     added to the numerator. 
    
^(7) Shares issuable on conversion of convertible debentures are calculated by
     dividing the $55.0 million principal amount of the convertible debentures
     by the conversion price of $5.60 per share.
    
^(8) TSX and Other includes the trading statistics for the Toronto Stock
     Exchange and other Canadian trading markets.
    
^(9) The Company's common shares commenced trading on the NYSE MKT on
     September 24, 2012.

                            REPORT TO SHAREHOLDERS

Bellatrix's corporate strategy  encompasses effective execution  of a  defined 
exploitation oriented growth  plan in the  Western Canadian Sedimentary  Basin 
complemented with opportunistic  tuck in acquisitions.  In 2012 the  Company 
excelled as a "drill bit driven growth" story defined by;

  *An experienced innovative management team with a long history and proven
    track record
  *A highly technical/creative staff
  *Being a low cost producer/operator/finder
  *Preserving a strong balance sheet with hedging and debt maintenance
  *Possessing and expanding a top tier asset base
  *Exceptional industry leading well results on the core Cardium and
    Notikewin resource plays
  *Large inventory of high IRR opportunities (692 net locations in the
    Cardium and 401 net locations in the Notikewin/Falher totaling net capital
    development opportunity of $4.34 billion)
  *Near term catalysts with forecast 2013 exit rate of 30,000 to 31,000
    boe/d.

Despite average oil & gas  prices softening in 2012  when compared to 2011  by 
10.8% and 30.5%, respectively, Bellatrix posted its fourth consecutive year of
industry leading drill bit growth. Since converting to an exploration company
in November  of  2009  the  Company has  grown  production  by  155%,  liquids 
production by 235%,  reserves per share  by 191%  and cash flow  per share  by 
164%. Fiscal year  2012 proved to  be an exceptional  year punctuated by  the 
following;

  *Record production levels of 6.1 million boe
  *Achieving Company average annual guidance of 16,686 boe/d and exit
    production guidance of 19,500 boe/d
  *Reducing lease operating expenses to $8.73/boe
  *Establishing industry leading 2P FD&A including FDC of $6.95/boe
  *Posting a 2P excluding FDC Recycle Ratio of 5.02 times
  *Increased 2P reserves by 54% to 104 million barrels with a 10% NPV of
    $1.07 billion and a net asset value of $9.90 per basic share.
  *At December 31, 2012, the Company had approximately $87 million or 40% was
    undrawn under the existing $220 million credit facility.

Currently the Company is focusing on  developing its two core resource  plays, 
the Cardium  and  the  Notikewin/Falher  intervals  in  Western  Canada.  The 
Notikewin/Falher in Alberta's deep basin boasts abundant, liquids-rich natural
gas with compelling economics.  The Cardium is  a highly economic  investment 
that we believe has the potential to add substantial reserves, production  and 
long term economic value for our shareholders. Both plays have thick resource
rich reservoirs with exceptional  subsurface control which  have proven to  be 
predictable and  repeatable  with  the  application  of  modern  drilling  and 
completion techniques. To date the Company has drilled 111 Cardium wells  and 
24 Notikewin/Falher wells posting a 100% success rate.

To accelerate the development of the aforementioned 24 year drilling inventory
on the  Company's key  plays  while maintaining  a  strong balance  sheet  and 
minimizing the  issuing  of equity  Bellatrix  entered into  a  joint  venture 
agreement with  a Seoul  Korea  based company  ("JV Partner"),  to  accelerate 
development of  Bellatrix's extensive  undeveloped  Cardium land  holdings  in 
west-central Alberta. Under the terms of  the agreement, the JV Partner  will 
contribute 50%,  or CDN$150  million, to  a $300  million joint  venture  (the 
"Joint Venture") to participate in an expected 83 Cardium well program. Under
the agreement, the JV Partner will earn 33% of Bellatrix's working interest in
the Cardium well  program until  payout (being  recovery of  the JV  Partner's 
capital investment plus  an 8%  return on  investment) on  the total  program, 
which is expected to occur prior to a  maximum of 7 years, reverting to a  20% 
working interest after payout. The effective  date of the agreement is  April 
1, 2013 but with the ability of the JV Partner to elect to invest in the wells
drilled between  January 1  and  up to  April  30, 2013.  Certain  conditions 
precedent are expected to be  satisfied or waived by  April 22, 2013 which  is 
expected to enable  closing to occur  on or before  April 30, 2013.  Bellatrix 
will be required  to provide a  guarantee of  the return of  the JV  Partner's 
capital investment of up to $30 million if not recovered within 7 years.

Operational highlights for the three months  and year ended December 31,  2012 
include:

  *During the 2012 year, Bellatrix posted a 100% success rate drilling and/or
    participating in 34 gross (26.32 net) wells, resulting in 28 gross (21.32
    net) Cardium oil wells, 2 gross (2.0 net) Cardium condensate-rich gas
    wells, 1 gross (1.0 net) Duvernay gas well, and 3 gross (2.0 net)
    Notikewin/Falher liquids-rich gas wells. In the fourth quarter of 2012,
    Bellatrix drilled or participated in 10 gross wells (6.17 net), all of
    which were Cardium light oil horizontal wells.

  *During fiscal 2012 the Company operated 24 gross Cardium wells of the 28
    gross wells reported. The following average initial production ("IP")
    rates for the first 7 days ("IP7"), for the first 15 days ("IP15") and the
    first 30 days ("IP30") were achieved:

       Time     # of wells    Boe/d
       IP 7         24         769
       IP 15        24         715
       IP 30        24         656

  *Q4 2012 sales volumes averaged 18,763 boe/d (weighted 31% to oil,
    condensate and NGLs and 69% to natural gas). This represents a 32%
    increase from the fourth quarter 2011 average sales volumes of 14,209
    boe/d and a 21% increase from third quarter 2012 average sales volumes of
    15,503 boe/d.

  *2012 annual sales volumes averaged 16,686 boe/d (weighted 34% to oil,
    condensate and NGLs and 66% to natural gas). This represents a 40%
    increase from 2011 average sales volumes of 11,954 boe/d.

  *In the fourth quarter of 2012 the Company spent $53.0 million on capital
    projects, including $21.0 on a tuck in acquisition in the Willesden Green
    area, compared to $47.3 million during the fourth quarter of 2011.

  *On December 14, 2012, Bellatrix acquired an additional 11 gross and net
    sections of highly prospective Cardium and Notikewin/Falher lands in the
    Ferrier area of west-central Alberta. This acquisition is anticipated to
    provide an additional 37 net drilling locations in the Cardium, 9 net
    locations in the Notikewin/Falher and an additional 66 net locations in
    the Duvernay formation.

  *As at December 31, 2012, Bellatrix had approximately 206,638 net
    undeveloped acres of land in Alberta, British Columbia and Saskatchewan.

  *Effective November 1, 2012, Bellatrix acquired additional highly
    prospective Cardium and Notikewin/Falher lands and production in the
    Willesden Green area of Alberta with 500 boe/d of production, 16 gross
    (11.95 net) sections of Cardium and Mannville prospective lands, 25 net
    Cardium development locations, 4 net Notikewin/Falher development
    locations and a 25% working interest in an operated compressor station and
    gathering system. The purchase price of $21 million was funded using the
    Company's existing credit facility.

  *During Q3 2012, Bellatrix closed on the disposition of a minor non-core
    property interest in the Wainwright Alberta area for $4.3 million after
    adjustments.

  *During Q2 2012, Bellatrix closed on the disposition of the Girouxville
    property in Alberta, a minor non-core interest, for $0.6 million after
    adjustments.

  *During Q2 2012, Bellatrix closed on the disposition of a non-core property
    interest in Cypress-Chowade in British Columbia for $1.4 million after
    adjustments.

  *Bellatrix continued with its 2 year crusade toward inviolable sovereignty
    of the infrastructure in its core areas of Brazeau and Ferrier. In 2012
    and 2013 the Company is connecting to over half a BCF of daily capacity in
    third party operated gas plants in close proximity. In 2012 and Q1 2013
    the Company has installed a total of 7.5 km of 6" pipeline, 64 km of 8"
    pipeline, 47.4 km of 10" pipeline and 25 km of 12" pipeline providing
    unfettered access to the aforementioned facilities. In addition Bellatrix
    commissioned a 3,300 HP compressor station in Ferrier and is currently
    constructing an additional 3,300 HP compressor station in the Ferrier
    area.

Financial highlights for  the three months  and year ended  December 31,  2012 
include:

  *Q4 2012 revenue was $62.3 million, 5% higher than the $59.2 million
    recorded in Q4 2011. Revenue for the year ended December 31, 2012 was
    $219.3 million, up 8% from $202.3 million in 2011. The increase in
    revenues is a result of higher sales volumes between periods, offset
    partially by reduced liquids and natural gas prices experienced in the
    2012 periods.

  *Funds flow from operations for Q4 2012 was $29.9 million ($0.28 per basic
    share), up 12% from $26.6 million ($0.25 per basic share) in Q3 2012 and
    down 1% from $30.1 million ($0.28 per basic share) in Q4 2012. Funds flow
    from operations for the year ended December 31, 2012 was $111.0 million
    ($1.03 per basic share), up 18% from $94.2 million ($0.91 per basic share)
    in 2011.

  *For the three and twelve months ended December 31, 2012, net profit before
    non-cash impairment loss, unrealized gain (loss) on commodity contracts,
    gain on property acquisition, and gain (loss) on property dispositions,
    net of associated deferred tax impacts, was $7.3 million and $21.7
    million, compared to $7.9 million and $17.1 million in 2011 periods,
    respectively.

  *The net profit for Q4 2012 was $9.3 million, compared to a net loss of
    $13.6 million in Q4 2011.

  *The net profit for the year ended December 31, 2012 was $27.8 million,
    compared to a net loss of $5.9 million in 2011.

  *Crude oil, condensate and NGLs produced 60% and 71% of petroleum and
    natural gas sales revenue for the three and twelve month periods ended
    December 31, 2012, respectively.

  *Production expenses for Q4 2012 were $8.91/boe ($15.4 million), compared
    to $10.78/boe ($14.1 million) for Q4 2011. Production expenses for the
    year ended December 31, 2012 were $8.73/boe ($53.3 million) compared to
    $11.53/boe ($50.3 million) in 2011. The decrease was due to increased
    production volumes which is a result of 2011 and 2012 drilling in areas
    with lower production expenses, as well as reduced processing fees in
    certain areas and continued field optimization projects.

  *Operating netbacks after including risk management for Q4 2012 were
    $20.83/boe, down from $26.38/boe in Q4 2011. Operating netbacks before
    risk management for Q4 2012 were $19.20/boe, down from $26.00/boe in Q4
    2011 and up from $18.29/boe in Q3 2012. The decreased netback for Q4 2012
    compared to Q4 2011 was primarily the result of reduced commodity prices
    and slightly higher royalties, despite a reduction in transportation and
    production expenses. The Q4 2012 netback reflects slightly increased
    overall commodity prices, despite slightly increased expenses compared to
    Q3 2012.

  *Operating netbacks before risk management for the year ended December 31,
    2012 were $19.66/boe, down from $25.09/boe in 2011.

  *Bellatrix spent $53.0 million on capital projects during Q4 2012 compared
    to $47.3 million in Q4 2011. For the year ended December 31, 2012,
    Bellatrix spent $185.3 million on capital projects compared to $179.6
    million in 2011.

  *Proceeds from property dispositions were $6.7 million for the year ended
    December 31, 2012, compared to $4.2 million for 2011.

  *G&A expenses for Q4 2012 decreased to $2.54/boe ($4.4 million), compared
    to $2.88/boe ($3.8 million) for Q4 2011. G&A expenses for the year ended
    December 31, 2012 were $2.34/boe ($14.3 million), compared to $2.83/boe
    ($12.4 million) in 2011.

  *On September 20, 2012, Bellatrix received approval for listing of its
    common shares on the NYSE MKT, and its common shares commenced trading on
    September 24, 2012 under the symbol "BXE".

  *A syndicate of banks led by National Bank of Canada recently completed its
    semi-annual borrowing base determination for November 30, 2012. Effective
    December 13, 2012, the Company's borrowing base was increased by $20
    million to $220 million, through to the next redetermination date of May
    31, 2013.

  *As at December 31, 2012, Bellatrix had $87.0 million drawn on its total
    $220 million credit facility.

  *Total net debt as of December 31, 2012 was $189.6 million, including the
    liability component of convertible debentures.

  *As at December 31, 2012, Bellatrix has approximately $584 million in tax
    pools available for deduction against future income.

RESERVES

Highlights from Bellatrix's December 31, 2012 reserves include:

Total proved plus probable company interest reserves, including all  royalties 
receivable but  before  deducting royalty  burdens,  as evaluated  by  Sproule 
Associates Limited. ("Sproule") at  December 31, 2012  were 104,258 mboe  (gas 
converted 6:1). This  represents a  54% increase from  the 67,550  mboe of  2P 
reserves as at  December 31, 2011.  By commodity type,  natural gas makes  up 
67%, oil and natural gas liquids 33% of total reserves. At December 31, 2012,
the Company's  total proved  company interest  reserves were  55,490 mboe,  an 
increase of 33% compared to 41,818 mboe at December 31, 2011.

  *Including properties which were disposed in 2012, proved and probable
    company interest reserve additions in 2012 replaced 702% of total
    production.

  *The net present value of future net revenue of working interest reserves
    (which does not represent fair market value) at a 10% discount rate
    improved to $1,106.9 million up from $722.5 million posted in 2011
    representing an increase of 53%.

  *Bellatrix's net asset value, as at December 31, 2012, based on the Sproule
    evaluation at a 10% discount rate, internal estimates of the value of
    undeveloped lands and seismic, and 107.9 million common shares
    outstanding, equates to $9.90 per basic share outstanding and is $13.77
    per basic share outstanding at a 5% discount rate.

  *The Company's reserve life index has improved to 8.6 years for total
    company interest proved reserves up from 8.0 years in 2011 with total
    company interest proved and probable reserve life index of 12.4 years
    compared to 10.0 years presented in 2011. These 2012 indices were based
    on first year production as set forth in Sproule Report with 2012 company
    interest production of 17,655 boe/d and 22,888 boe/d for total company
    interest proved reserves and proved and probable reserves, respectively.

  *2012 finding, development and acquisition costs ("FD&A") including changes
    to future development capital ("FDC") for total proved plus probable
    reserves were $6.95/boe. The three year average FD&A including FDC is
    $9.04/boe.

  *2012 FD&A including changes to FDC for proved reserves equated to
    $11.77/boe.

  *At year end, 2012, Sproule had evaluated certain future development
    opportunities on Company lands including 161 gross (112.7 net) future
    undrilled Cardium horizontal locations and 56 gross (23.3 net) evaluated
    future undrilled Notikewin/Falher horizontal locations. Of the 161
    Cardium locations, 104 were assigned proved and probable reserves, with 57
    assigned probable reserves only. Of the 56 Notikewin/Falher locations, 41
    were assigned proved and probable reserves, with the remaining 15 assigned
    probable reserves only.

  *The Company established recycle ratios, after commodity price risk
    management contracts and excluding future development costs of 2.35 times
    on a proved basis and 5.02 times on a proved and probable basis.

The Company recorded all-in annual FD&A cost  of $9.16 per boe in 2012  before 
consideration of FDC  for proved  reserves category. The  three year  average 
FD&A cost is $8.69 per boe for the proved category before FDC; for the  proved 
category including FDC, the three year average FD&A cost is $13.22 per boe.

In additionto the information disclosed herein, more detailed information  on 
the Company's reserves will  be included in  the Company's Annual  Information 
Form and SEC Annual  Report on Form 40-F.  For additional information  please 
refer to  the  reserves  news  release dated  February  21,  2013  (posted  on 
www.sedar.com and filed with the SEC at www.sec.gov).

COMMODITY PRICE RISK MANAGEMENT

In January 2013,  Bellatrix reset  the fixed prices  on two  of its  commodity 
price risk management contracts for natural  gas fixed price swaps. The  first 
existing swap contract for 20,000 GJ/d for the period April 1, 2013 to October
31, 2013 was reset  from a price of  CDN$4.0875/GJ to $3.05/GJ  (CDN$3.51/mcf) 
for a net  payment to  Bellatrix of $4.3  million. The  second existing  swap 
contract for 10,000 GJ/d for the period April 1, 2013 to October 31, 2013  was 
reset from a price  of CDN $4.15/GJ to  CDN$3.095/GJ (CDN$3.56/mcf) for a  net 
payment to Bellatrix  of $2.2  million. Bellatrix  now has  55,000 GJ/d  (47.8 
mmcf/d) for the period April 1, 2013 through to October 31, 2013 hedged at  an 
average fixed price of $3.058/GJ  ($3.52/mcf). By resetting the fixed  prices 
on the natural gas  commodity price risk management  contracts for the  period 
from April 1, 2013  through to October 31,  2013, the Company has  crystalized 
and realized $6.5  million in cash  proceeds while continuing  to have put  in 
place ongoing down  side price protection  on the existing  55,000 GJ/d  (47.8 
mmcf/d) if natural  gas prices  were to  move lower  than the  fixed price  of 
$3.058/GJ ($3.52/mcf).

As of March  6, 2013,  the Company has  entered into  the following  commodity 
price risk management arrangements:

                                                                
Type                 Period   Volume        Price        Price   Index
                                                 Floor        Ceiling
Crude oil        January 1,    1,500  $        $           WTI
fixed ^(1)       2013 to Dec.     bbl/d      94.50 CDN      94.50 CDN
                     31, 2013
Crude oil        January 1,    3,000            -  $  110.00     WTI
call option      2013 to Dec.     bbl/d                            US
                     31, 2013
Crude oil        January 1,    3,000            -  $ 105.00 US    WTI
call option      2014 to Dec.     bbl/d
                     31, 2014
Natural gas   April 1, 2013   20,000  $      $        AECO
fixed             to Oct. 31,      GJ/d       3.05 CDN       3.05 CDN
                         2013
Natural gas   April 1, 2013   10,000  $        $          AECO
fixed             to Oct. 31,      GJ/d      3.095 CDN      3.095 CDN
                         2013
Natural gas    Feb. 1, 2013   10,000  $      $        AECO
fixed             to Dec. 31,      GJ/d       3.05 CDN       3.05 CDN
                         2013
Natural gas   April 1, 2013   15,000  $      $        AECO
fixed             to June 30,      GJ/d       3.05 CDN       3.05 CDN
                         2014

^(1) A call has been placed on 3,000 bbl/d at $110 US/bbl for the year 2013
      and at $105 US/bbl for the calendar year 2014.

OUTLOOK

As a result of the recently announced  joint venture with a Seoul Korea  based 
company, Bellatrix's 2013  capital expenditure  budget has  been increased  to 
between $230 and  $240 million. A  total capital program  of $365 million  is 
anticipated including the capital expected to be invested by the JV  partner. 
Based on  the timing  of  proposed expenditures,  downtime for  scheduled  and 
unscheduled plant  turnarounds,  completion of  required  infrastructure,  and 
normal production declines, execution of the 2013 capital expenditure plan  is 
expected to provide average daily production of approximately 24,000 boe/d  to 
25,000 boe/d, and an exit rate of approximately 30,000 boe/d to 31,000 boe/d.

The Company has initiated the 2013 program by instituting drilling of multiple
horizontal wells from  single surface  locations. Pad  drilling enhances  the 
opportunity  to  efficiently  develop   the  resource  while  minimizing   the 
environmental footprint and  improving our cost  and on-stream  efficiencies. 
Pad drilling also facilitates  drilling through the  spring breakup months  of 
Q2. As a result the Company plans to run 3 rigs throughout the second quarter
ramping up to 7 or 8 rigs for the second half of 2013.

The key  operational strategy  Bellatrix employs  is to  focus on  full  cycle 
profitability, indifferent to product type, with every investment decision.

As  always  the  Company's  priority  is  to  bring  together  the  technical, 
operational and financial talent required to create long term value growth for
our shareholders.

Raymond G. Smith, P. Eng.
President and CEO
March 6, 2013

Note:

A conference call to discuss Bellatrix's annual financial and reserves results
will be held on March 7, 2013  at [11:00 am MDT/1:00 pm EDT]. To  participate, 
please call toll-free 1-888-231-8191 or 647-427-7450. The conference call will
also be recorded and available  by calling 1-855-859-2056 or 403-451-9481  and 
entering passcode 16291676 followed by the pound sign.

Bellatrix's annual meeting is  scheduled for 3:00  pm on May  22, 2013 in  the 
Devonian Room at the Calgary Petroleum Club.

                     MANAGEMENT'S DISCUSSION AND ANALYSIS

March 6,  2013  -  The  following  Management's  Discussion  and  Analysis  of 
financial  results  ("MD&A")  as  provided  by  the  management  of  Bellatrix 
Exploration Ltd. ("Bellatrix" or the "Company") should be read in  conjunction 
with the  audited consolidated  financial statements  of the  Company for  the 
years ended  December  31,  2012  and  2011.  This  commentary  is  based  on 
information available to,  and is dated  as of, March  6, 2013. The  financial 
data presented is in Canadian dollars, except where indicated otherwise.

CONVERSION: The term  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 oil equivalent (6 mcf/bbl) 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 of  6:1, utilizing  a 
conversion on a 6:1 basis may be misleading as an indication of value. All boe
conversions in this report are derived from converting gas to oil in the ratio
of six thousand cubic feet of gas to one barrel of oil.

INITIAL PRODUCTION RATES: Initial production  rates disclosed herein may  not 
necessarily be indicative of long-term performance or ultimate recovery.

ADDITIONAL GAAP MEASURES: This Management's  Discussion and Analysis and  the 
accompanying report to shareholders and financial statements contain the  term 
"funds flow from operations" which should not be considered an alternative to,
or more meaningful than "cash flow from operating activities" as determined in
accordance with  generally  accepted  accounting  principles  ("GAAP")  as  an 
indicator of the Company's performance. Therefore reference to funds flow from
operations or funds flow from operations per share may not be comparable  with 
the calculation of similar measures for other entities. Management uses  funds 
flow from  operations  to  analyze  operating  performance  and  leverage  and 
considers funds flow from  operations to be a  key measure as it  demonstrates 
the Company's ability to  generate the cash necessary  to fund future  capital 
investments and  to repay  debt. The  reconciliation between  cash flow  from 
operating activities  and funds  flow from  operations can  be found  in  this 
Management's Discussion and Analysis. Funds flow from operations per share is
calculated using the weighted average number of shares for the period.

This Management's  Discussion  and Analysis  and  the accompanying  report  to 
shareholders and financial statements contain the term total net debt and  net 
debt. Total  net debt  is  calculated as  long-term  debt plus  the  liability 
component of the convertible debentures and the net working capital deficiency
(excess) before  short-term  commodity  contract assets  and  liabilities  and 
current finance  lease obligations.  Management  believes these  measures  are 
useful supplementary measures  of the  total amount of  current and  long-term 
debt.

NON-GAAP  MEASURES:  This  Management's   Discussion  and  Analysis  and   the 
accompanying report  to shareholders  also contains  other terms  such as  net 
profit before certain  non-cash items  and operating netbacks,  which are  not 
recognized measures under GAAP. Net  profit before certain non-cash items  is 
calculated  as  net   profit  (loss)   per  the   Consolidated  Statement   of 
Comprehensive Income, excluding the  non-cash impairment loss, net  unrealized 
gain or loss on commodity contracts, gain on property acquisition, and gain or
loss on  property  dispositions  net  of the  deferred  tax  impact  on  these 
adjustments. Net debt  is calculated as  long-term debt plus  the net  working 
capital deficiency (excess)  before short-term commodity  contract assets  and 
liabilities and  current finance  lease  obligations. Operating  netbacks  are 
calculated by subtracting  royalties, transportation,  and operating  expenses 
from revenues before  other income.  Management believes  these measures  are 
useful supplemental  measures of  firstly,  the amount  of net  profit  before 
certain non-cash items, and  secondly, the amount  of revenues received  after 
transportation, royalties  and  operating expenses.  Readers  are  cautioned, 
however, that these measures should not be construed as an alternative to  net 
income  determined  in  accordance  with  GAAP  as  measures  of  performance. 
Bellatrix's method  of  calculating  these  measures  may  differ  from  other 
entities, and accordingly,  may not be  comparable to measures  used by  other 
companies.

Additional information  relating to  the  Company, including  the  Bellatrix's 
Annual Information Form, is available on SEDAR at www.sedar.com.

FORWARD LOOKING STATEMENTS: Certain information  contained herein and in  the 
accompanying report  to shareholders  may contain  forward looking  statements 
including management's  assessment of  future plans  and operations,  drilling 
plans and the timing thereof, commodity price risk management strategies, 2013
capital expenditure  budget, the  nature  of expenditures  and the  method  of 
financing thereof, expected 2013 average production and exit rate, anticipated
liquidity of the Company and various  matters that may impact such  liquidity, 
expected 2013  operating expenses  and  general and  administrative  expenses, 
expected costs to satisfy drilling commitments and method of funding  drilling 
commitments, commodity  prices  and  expected  volatility  thereof,  estimated 
amount and timing of incurring  decommissioning liabilities, plans to  utilize 
pad drilling  and effect  thereof, use  of funds  from property  dispositions, 
timing  of  closing  of  joint  venture  agreement,  the  effect  of   certain 
acquisitions,   and   plans   for   facility   construction   may   constitute 
forward-looking statements under  applicable securities  laws and  necessarily 
involve risks including, without limitation, risks associated with oil and gas
exploration,   development,    exploitation,   production,    marketing    and 
transportation, loss  of markets,  volatility  of commodity  prices,  currency 
fluctuations, risks related to satisfaction of conditions precedent to closing
of joint venture  agreement, imprecision of  reserve estimates,  environmental 
risks, competition from other producers, inability to retain drilling rigs and
other services, incorrect assessment of the value of acquisitions, failure  to 
realize the anticipated  benefits of  acquisitions, delays  resulting from  or 
inability to  obtain  required  regulatory approvals  and  ability  to  access 
sufficient  capital   from  internal   and   external  sources.   Events   or 
circumstances may  cause  actual  results  to  differ  materially  from  those 
predicted, as a result of the risk factors set out and other known and unknown
risks, uncertainties, and other factors, many of which are beyond the  control 
of Bellatrix. In addition, forward-looking statements or information are based
on a number of factors  and assumptions which have  been used to develop  such 
statements and information but which may prove to be incorrect and which  have 
been used  to develop  such statements  and information  in order  to  provide 
shareholders  with  a   more  complete  perspective   on  Bellatrix's   future 
operations. Such  information  may prove  to  be incorrect  and  readers  are 
cautioned that the  information may  not be appropriate  for other  purposes. 
Although  the  Company  believes  that  the  expectations  reflected  in  such 
forward-looking statements  or  information  are  reasonable,  undue  reliance 
should not be  placed on  forward-looking statements because  the Company  can 
give no  assurance  that such  expectations  will  prove to  be  correct.  In 
addition to  other factors  and assumptions  which may  be identified  herein, 
assumptions have  been  made regarding,  among  other things:  the  impact  of 
increasing competition; the  general stability of  the economic and  political 
environment in which the Company operates; the timely receipt of any  required 
regulatory approvals; the ability  of the Company  to obtain qualified  staff, 
equipment and  services  in  a  timely and  cost  efficient  manner;  drilling 
results; the ability of the operator of the projects which the Company has  an 
interest in to operate  the field in a  safe, efficient and effective  manner; 
the ability of  the Company  to obtain  financing on  acceptable terms;  field 
production rates and decline rates; the ability to replace and expand oil  and 
natural gas  reserves through  acquisition,  development of  exploration;  the 
timing and costs of pipeline, storage and facility construction and  expansion 
and the  ability of  the Company  to secure  adequate product  transportation; 
future commodity prices; currency, exchange and interest rates; the regulatory
framework  regarding  royalties,  taxes  and  environmental  matters  in   the 
jurisdictions in which the Company operates; and the ability of the Company to
successfully market its oil and  natural gas products. Readers are  cautioned 
that the foregoing list is not exhaustive of all factors and assumptions which
have been used. As a consequence,  actual results may differ materially  from 
those anticipated in the  forward-looking statements. Additional  information 
on these  and  other factors  that  could effect  Bellatrix's  operations  and 
financial results  are  included in  reports  on  file with  Canadian  and  US 
securities regulatory  authorities  and  may be  accessed  through  the  SEDAR 
website      (www.sedar.com,       and      at       Bellatrix's       website 
www.bellatrixexploration.com). Furthermore,  the  forward-looking  statements 
contained herein  are  made as  at  the date  hereof  and Bellatrix  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 may be required by applicable securities laws.

The reader is further cautioned  that the preparation of financial  statements 
in accordance  with GAAP  requires management  to make  certain judgments  and 
estimates that affect  the reported amounts  of assets, liabilities,  revenues 
and expenses.  Estimating reserves  is also  critical to  several  accounting 
estimates  and  requires   judgments  and  decisions   based  upon   available 
geological, geophysical, engineering and  economic data. These estimates  may 
change, having either a negative or positive effect on net earnings as further
information becomes available, and as the economic environment changes.

Overview and Description of the Business

Bellatrix Exploration  Ltd.  ("Bellatrix"  or  the  "Company")  is  a  Western 
Canadian based growth oriented oil and gas company engaged in the  exploration 
for, and the acquisition,  development and production of  oil and natural  gas 
reserves in the provinces of Alberta, British Columbia and Saskatchewan.

Bellatrix's common shares and convertible debentures are listed on the Toronto
Stock Exchange  under the  symbols  BXE and  BXE.DB.A, respectively,  and  the 
common shares of Bellatrix trade on the NYSE MKT under the symbol BXE.

Cardium Joint Venture

Bellatrix has entered into a joint venture agreement with a Seoul Korea  based 
company ("JV  Partner"), to  accelerate development  of Bellatrix's  extensive 
undeveloped Cardium land holdings in west-central Alberta. Under the terms of
the agreement, the JV  Partner will contribute 50%,  or CDN$150 million, to  a 
$300 million joint venture (the "Joint Venture") to participate in an expected
83 Cardium well program. Under the agreement, the JV Partner will earn 33% of
Bellatrix's working interest in the  Cardium well program until payout  (being 
recovery of  the  JV  Partner's  capital  investment  plus  an  8%  return  on 
investment) on  the total  program, which  is  expected to  occur prior  to  a 
maximum of 7  years, reverting to  a 20% working  interest after payout.  The 
effective date of the agreement is April  1, 2013 but with the ability of  the 
JV Partner to elect to invest in the wells drilled between January 1 and up to
April 30, 2013. Certain conditions precedent are expected to be satisfied  or 
waived by April 22, 2013  which is expected to enable  closing to occur on  or 
before April 30, 2013. Bellatrix will  be required to provide a guarantee  of 
the return of the JV Partner's capital investment of up to $30 million if  not 
recovered within 7 years.

Fourth Quarter 2012

HIGHLIGHTS                                Three months ended December 31,
(CDN$000s except share and              
per share amounts)                                     2012            2011
FINANCIAL                                                              
Revenue (before royalties and           
risk management ^(1))                                62,283          59,194
                                                                      
Funds flow from operations              
^(2)                                                 29,865          30,120
   Per basic share ^(6)                            $0.28           $0.28
   Per diluted share ^(6)                          $0.26           $0.26
Cash flow from operating                
activities                                           32,007          30,626
   Per basic share ^(6)                            $0.30           $0.28
   Per diluted share ^(6)                          $0.28           $0.26
Net profit before certain               
non-cash items ^(5)                                   7,299           7,938
   Per basic share ^(6)                            $0.07           $0.07
   Per diluted share ^(6)                          $0.07           $0.07
Net profit (loss) ^                                 9,251        (13,597)
   Per basic share ^(6)                            $0.09         ($0.13)
   Per diluted share ^(6)                          $0.08         ($0.13)
Exploration and development                        32,083          47,141
Corporate and property                  
acquisitions                                         20,965             121
Capital expenditures - cash                        53,048          47,262
Property dispositions - cash                           10            (22)
Non-cash items                                     27,487           6,165
Total capital expenditures -            
net                                                  80,545          53,405
                                                                     
                                                       
                                           Three months ended December
                                                                        31,
(CDN$000s except share and              
per share amounts)                                    2012            2011
OPERATING                                                             
Average daily sales volumes                                           
   Crude oil, condensate and (bbls/d)   
    NGLs                                             5,730              5,420
   Natural gas                (mcf/d)             78,195             52,734
   Total oil equivalent       (boe/d)             18,763             14,209
Average prices                                                        
   Light crude oil and        ($/bbl)   
    condensate                                       82.58              95.18
   NGLs (excluding            ($/bbl)   
    condensate)                                      38.84              54.31
   Heavy oil                  ($/bbl)              65.30              74.30
   Crude oil, condensate and  ($/bbl)   
    NGLs                                             69.55              85.09
   Crude oil, condensate and  ($/bbl)   
    NGLs (including risk
    management ^(1))                                 72.11              82.90
   Natural gas                ($/mcf)               3.46               3.30
   Natural gas (including     ($/mcf)   
    risk management ^(1))                             3.67               3.62
   Total oil equivalent       ($/boe)              35.67              44.69
   Total oil equivalent       ($/boe)   
    (including risk
    management ^ (1))                                37.30              45.07
Statistics                                                               
   Operating netback  ^(4)    ($/boe)              19.20              26.00
   Operating netback ^(4)     ($/boe)   
    (including risk
    management ^(1))                                 20.83              26.38
   Transportation             ($/boe)               0.70               1.21
   Production expenses        ($/boe)               8.91              10.78
   General & administrative   ($/boe)               2.54               2.88
   Royalties as a % of sales           
    after transportation                                20%             15%
DILUTED WEIGHTED AVERAGE                
SHARES                                                                   
Diluted weighted average                
shares - net profit (loss)
^(6)                                            118,931,047     109,349,045
Diluted weighted average                
shares - funds flow from
operations and cash flow from
operating activities ^(2) (6)                   118,931,047     119,170,474
SHARE TRADING STATISTICS                                              
TSX and Other ^(7) (CDN$,               
except volumes) based on
intra-day trading                                                       
High                                                 4.47            5.05
Low                                                  3.59            3.15
Close                                                4.27            4.91
Average daily volume                              842,840         928,836
NYSE MKT ^(8) (US$, except              
volumes) based on intra-day
trading                                                                 
High                                                 4.54               -
Low                                                  3.69               -
Close                                                4.28               -
Average daily volume                               39,079               -

^(1)  The Company has entered into various commodity price risk management
      contracts which are considered to be economic hedges. Per unit metrics
      after risk management includes only the realized portion of gains or
      losses on commodity contracts.
     
     The Company does not apply hedge accounting to these contracts. As
      such, these contracts are revalued to fair value at the end of each
      reporting date. This results in recognition of unrealized gains or
      losses over the term of these contracts which is reflected each
      reporting period until these contracts are settled, at which time
      realized gains or losses are recorded. These unrealized gains or losses
      on commodity contracts are not included for purposes of per share
      metrics calculations disclosed.
     
^(2)  The highlights section contains the term "funds flow from operations"
      which should not be considered an alternative to, or more meaningful
      than cash flow from operating activities as determined in accordance
      with generally accepted accounting principles ("GAAP") as an indicator
      of the Company's performance. Therefore reference to additional GAAP
      terms of diluted funds flow from operations or funds flow from
      operations per share may not be comparable with the calculation of
      similar measures for other entities. Management uses funds flow from
      operations to analyze operating performance and leverage and considers
      funds flow from operations to be a key measure as it demonstrates the
      Company's ability to generate the cash necessary to fund future capital
      investments and to repay debt. The reconciliation between cash flow
      from operating activities and funds flow from operations can be found
      further in the MD&A. Funds flow from operations per share is calculated
      using the weighted average number of common shares for the period.
     
^(3)  Net debt and total net debt are considered additional GAAP terms. The
      Company's calculation of total net debt includes the liability component
      of convertible debentures and excludes deferred liabilities, long-term
      commodity contract liabilities, decommissioning liabilities, long-term
      finance lease obligations and the deferred tax liability. Net debt and
      total net debt include the net working capital deficiency (excess)
      before short-term commodity contract assets and liabilities and current
      finance lease obligations. Net debt also excludes the liability
      component of convertible debentures. A reconciliation between total
      liabilities under GAAP and total net debt and net debt as calculated by
      the Company is found further in the MD&A.
     
^(4)  Operating netbacks is considered a non-GAAP term. Operating netbacks
      are calculated by subtracting royalties, transportation, and operating
      costs from revenues before other income.
     
^(5) Net profit before certain non-cash items is considered a non-GAAP term.
      Net profit before certain non-cash items is calculated as net profit
      (loss) per the Consolidated Statement of Comprehensive Income, excluding
      the impairment loss (reversal) on property, plant and equipment, the
      unrealized gain or loss on commodity contracts, the gain on property
      acquisition, and the gain or loss on property dispositions, net of
      deferred tax impacts on each item. The Company's reconciliation between
      the net profit and net profit before certain non-cash items is found in
      this MD&A.
     
^(6)  Basic weighted average shares for the three months ended December 31,
      2012 were 107,734,134 (2011: 107,397,265).
     
    In computing weighted average diluted earnings per share for the three
      months ended December 31, 2012, a total of 1,375,484 common shares were
      added to the denominator as a consequence of applying the treasury stock
      method to the Company's outstanding share options and a total of
      9,821,429 common shares issuable on conversion of convertible debentures
      were also added to the denominator as they were dilutive, resulting in
      diluted weighted average common shares of 118,931,047. In computing
      weighted average diluted earnings per share for the three months ended
      December 31, 2011, a total of 1,951,780 common shares were added to the
      denominator as a consequence of applying the treasury stock method to
      the Company's outstanding share options and a total of 9,821,429 common
      shares issuable on conversion of convertible debentures were excluded
      from the denominator as they were not dilutive, resulting in diluted
      weighted average common shares of 107,397,265.
     
     In computing weighted average diluted net profit before certain items
      per share for the three months ended December 31, 2012, a total of
      1,375,484 (2011: 1,951,780) common shares were added to the denominator
      as a consequence of applying the treasury stock method to the Company's
      outstanding share options as they were dilutive, and a total of
      9,821,429 (2011: 9,821,429) common shares issuable on conversion of
      convertible debentures were excluded from the denominator as they were
      not dilutive, resulting in diluted weighted average common shares of
      109,109,618 (2011:109,349,045).
     
     In computing weighted average diluted cash flow from operating
      activities and funds flow from operations per share for the three months
      ended December 31, 2012, a total of 1,375,484 (2011: 1,951,780) common
      shares were added to the denominator as a consequence of applying the
      treasury stock method to the Company's outstanding share options and a
      total of 9,821,429 (2011: 9,821,429) common shares issuable on
      conversion of convertible debentures were also added to the denominator
      as they were dilutive, resulting in diluted weighted average common
      shares of 118,931,047 (2011: 119,170,474). As a consequence, a total of
      $0.8 million (2011: $0.8 million) for interest accretion expense (net of
      income tax effect) was added to the numerator.
     
^(7)  TSX and Other includes the trading statistics for the Toronto Stock
      Exchange and other Canadian trading markets.
     
^(8)  The Company's common shares commenced trading on the NYSE MKT on
      September 24, 2012.

As detailed previously  in this  Management's Discussion  and Analysis,  funds 
flow from operations  is a term  that does not  have any standardized  meaning 
under GAAP.  Funds flow  from  operations is  calculated  as cash  flow  from 
operating activities before  asset retirement  costs incurred  and changes  in 
non-cash working capital incurred.

Reconciliation of Cash Flow from Operating Activities to Funds Flow from
Operations
                                             Three months ended December 31,
($000s)                                                 2012            2011
Cash flow from operating activities                  32,007          30,626
Decommissioning costs incurred                            76             186
Change in non-cash working capital                   (2,218)           (692)
Funds flow from operations                            29,865          30,120

Funds flow  from  operations during  the  fourth  quarter of  2012  was  $29.9 
million, a decrease of 0.9% compared  to $30.1 million for the fourth  quarter 
of 2011. The decrease in funds  flow from operations between the periods  was 
due primarily to lower pricing for light and heavy oil, condensate, and NGL's,
largely offset by higher  production volumes and  slightly higher natural  gas 
prices in the 2012 fourth quarter.  Fluctuations in oil and gas prices  during 
the fourth quarter of 2012  resulted in an increase  in net realized gains  on 
commodity risk management contracts by approximately $2.3 million compared  to 
the fourth quarter of 2011.  Cash flow from operating activities during  the 
fourth quarter of 2012  was $32.0 million, compared  to $30.6 million for  the 
fourth quarter of 2011. The increase  in cash flow from operating  activities 
between the periods  was reflective  of an increase  in cash  from changes  in 
working capital, and a minor decrease in decommissioning costs incurred.

In the fourth quarter of 2012, Bellatrix realized a net profit of $9.3 million
compared to a net loss  of $13.6 million in the  fourth quarter of 2011.  The 
net profit recorded in the fourth quarter of 2012 compared to the net loss  in 
the fourth  quarter of  2011 is  primarily  a consequence  of a  $1.3  million 
non-cash unrealized  gain on  commodity risk  management compared  to a  $17.7 
million loss in the 2011 period, and a $16.2 million non-cash gain on property
acquisition recognized in the 2012 fourth quarter, offset by a higher non-cash
impairment loss on oil  and gas properties,  slightly increased depletion  and 
depreciation expenses, and a  deferred income tax expense  of $3.3 million  in 
the 2012  fourth quarter  compared to  a  $4.0 million  recovery in  the  2011 
period.

As previously noted in this MD&A, net profit before certain non-cash items  is 
a non-GAAP measure. A reconciliation between  this measure and net profit  per 
the Consolidated Statement of Comprehensive Income is provided below.

For the fourth quarter of 2012, net profit before certain non-cash items,  net 
of associated deferred tax impacts, was $7.3 million compared to $7.9  million 
in 2011.

Reconciliation of Net Profit (Loss) to Net Profit Before Certain Non-Cash
Items
                                               Three months ended December 31,
($000s)                                                       2012      2011
Net profit (loss) per financial statements                   9,251  (13,597)
Items subject to reversal                                                 
  Impairment loss on property, plant and equipment         14,820    11,018
  Unrealized (gain) loss on commodity contracts           (1,313)    17,676
  Gain on property acquisition                           (16,160)         -
  Loss on property dispositions                                50        20
  Deferred tax impact of above items                          651   (7,179)
Net profit before certain non-cash items                     7,299     7,938

Sales Volumes
                                          Three months ended December 31,
                                                     2012            2011
Light oil and condensate         (bbls/d)             3,910           3,925
NGLs (excluding condensate)      (bbls/d)             1,631           1,173
Heavy oil                        (bbls/d)               189             322
Total crude oil, condensate and  (bbls/d)             5,730           5,420
NGLs
                                                                       
Natural gas                       (mcf/d)            78,195          52,734
                                                                       
Total boe/d                         (6:1)            18,763          14,209

Sales volumes for  the three months  ended December 31,  2012 averaged  18,763 
boe/d, an increase of 32% from the 14,209 boe/d sold in the fourth quarter  of 
2011. The  weighting toward  crude  oil, condensate  and NGLs  sales  volumes 
decreased to  31%  in  the  2012  fourth  quarter,  compared  to  38%  in  the 
corresponding period in 2011. Fourth quarter 2012 natural gas, NGL, and total
overall sales volumes were higher than  the same period in 2011 primarily  due 
to the continued  success achieved  from the Company's  liquids rich  drilling 
program.

Natural gas sales  averaged 78.2  Mmcf/d during  the fourth  quarter of  2012, 
compared to 52.7 Mmcf/d in the  fourth quarter of 2011. The weighting  toward 
natural gas  sales volumes  averaged 69%  in the  fourth quarter  of 2012,  an 
increase over the 62% weighting realized in the corresponding period in 2011.
Crude oil, condensate and NGL sales  volumes increased to 5,730 bbls/d in  the 
fourth quarter of  2012 compared  to 5,420 bbls/d  during the  same period  of 
2011.

Revenue
                                             Three months ended December 31,
($000s)                                                 2012            2011
Light crude oil and condensate                        29,702          34,366
NGLs (excluding condensate)                            5,829           5,862
Heavy oil                                              1,136           2,204
Crude oil and NGLs                                    36,667          42,432
Natural gas                                           24,904          15,995
Total revenue before other                            61,571          58,247
Other ^(1)                                               712             767
Total revenue before royalties and risk     
management                                              62,283          59,194

^1) Other revenue primarily consists of processing and other third party
    income.

Revenue before other  income, royalties  and commodity  price risk  management 
contracts for the fourth quarter of 2012 was $61.6 million, an increase of  6% 
from $58.2 million in  the fourth quarter of  2011. The increase in  revenues 
between the periods  was due to  increased sales volumes  and slightly  higher 
natural gas prices in  the 2012 period, partially  offset by lower crude  oil, 
condensate, and NGL prices.

Light oil and condensate revenues for the fourth quarter of 2012 were down 14%
from the  same  period  in 2011  due  to  lower prices.  For  light  oil  and 
condensate, Bellatrix recorded  an average $82.58/bbl  before commodity  price 
risk management contracts during  the fourth quarter of  2012, 13% lower  than 
the average price of $95.18/bbl received  in the comparative 2011 period.  In 
comparison, the Edmonton par  price decreased by 14%  over the same  period. 
The average WTI crude oil benchmark price decreased by 6% in fourth quarter of
2012 compared  to the  same  period in  2011.  The average  US$/CDN$  foreign 
exchange rate was  1.0093 for  the three months  ended December  31, 2012,  an 
increase of 3% compared  to an average  rate of 0.9773 in  the same period  in 
2011.

NGL revenues for the fourth quarter of 2012 were comparable to the 2011 period
as a  result  of  higher sales  volumes  offset  by lower  prices.  For  NGLs 
(excluding condensate), Bellatrix  recorded an average  $38.84/bbl during  the 
fourth quarter of  2012, a 28%  decrease from the  $54.31/bbl received in  the 
comparative 2011 period. The  decrease in NGL pricing  between the 2012  and 
2011  periods  is  largely  attributable  to  changes  in  NGL  market  supply 
conditions between the periods.

The decrease in heavy oil revenue from the fourth quarter of 2011 to the  same 
period in  2012 is  reflective of  lower sales  volumes and  reduced  prices. 
Bellatrix sold its Wainwright  heavy oil property, with  59 bbls/d of  current 
production, in  the third  quarter of  2012. For  heavy crude  oil,  Bellatrix 
received an  average  price  before commodity  risk  management  contracts  of 
$65.30/bbl in the 2012 fourth quarter,  a decrease of 12% from the  $74.30/bbl 
realized in  the  fourth  quarter  of 2011.  In  comparison,  the  Bow  River 
reference price  decreased by  19%,  and the  Hardisty Heavy  reference  price 
decreased by 21% between the fourth quarter of 2011 and the fourth quarter  of 
2012. The majority of Bellatrix's heavy crude oil density ranges between  11 
and 16 degrees API, consistent with the Hardisty Heavy reference price.

Natural gas revenues in the fourth quarter  of 2012 were up 56% from the  same 
period in 2011 as  a result of a  48% increase in sales  volumes and a  slight 
increase in natural gas prices  between the periods. Bellatrix's natural  gas 
sales are  priced  with reference  to  the  daily or  monthly  AECO  indices. 
Bellatrix's natural  gas sold  has a  higher heat  content than  the  industry 
average, which results in slightly higher  prices per mcf than the daily  AECO 
index. During the  fourth quarter  of 2012,  the AECO  daily reference  price 
increased  by  1%,  and  the   AECO  monthly  reference  price  decreased   by 
approximately 12% compared to the fourth quarter of 2011. Bellatrix's natural
gas average sales price before  commodity price risk management contracts  for 
the fourth  quarter of  2012 increased  by  5% to  $3.46/mcf compared  to  the 
$3.30/mcf realized in the same period  in 2011. The more significant  increase 
in Bellatrix's realized natural  gas prices compared to  the daily AECO  index 
between the  periods was  primarily  due to  the  weighting of  sales  volumes 
realized at increased prices during  the fourth quarter of 2012.  Bellatrix's 
natural gas  average price  after including  commodity price  risk  management 
contracts for the three months ended December 31, 2012 was $3.67/mcf, compared
to $3.62/mcf for the three months ended December 31, 2011.

In the fourth quarter  of 2012, average sales  volumes increased 21% from  the 
third quarter 2012 average volumes of  15,503 boe/d. The increase was due  to 
the success achieved from the Company's drilling program in 2012.

During the fourth quarter  of 2012, Bellatrix spent  $32.1 million on  capital 
projects,  excluding  corporate  and  asset  acquisitions  and   dispositions, 
compared to $47.1 million in 2011.  In the fourth quarter of 2012,  Bellatrix 
drilled or  participated in  10 gross  wells  (6.17 net),  all of  which  were 
Cardium light oil horizontal wells. In  the fourth quarter of 2011,  Bellatrix 
drilled or participated in  12 (7.64 net) wells  including 8 gross (6.68  net) 
oil wells, 3 gross (0.95 net) natural  gas wells, and participated in 1  gross 
(0.007 net) dry hole that was drilled in a non-operated oil unit.

In the fourth quarter  of 2012, the Company  paid $11.8 million in  royalties, 
compared to $8.8  million in  the same  period in  2011. As  a percentage  of 
pre-commodity  price  risk  management  sales  (after  transportation  costs), 
royalties were 20% in the fourth quarter  of 2012 compared to 15% in the  same 
period in 2011. Royalties for the fourth quarter of 2011 were reduced by  $1.5 
million in adjustments relating to  previous quarter estimates, primarily  for 
wells under the recent Alberta royalty programs. Excluding these adjustments,
the average royalty rate  percentage for the fourth  quarter of 2011 would  be 
18%. Certain light oil wells are  now incurring higher royalty rates as  they 
come off  the  initial  royalty  incentive rates.  The  Company's  heavy  oil 
properties are minor, and consist of principally the Frog Lake Alberta  assets 
which  are  subject  to  high  crown  royalty  rates.  The  Company's  royalty 
percentage for natural  gas royalties  continues to decline  due to  increased 
production from recently drilled wells which take advantage of Alberta royalty
incentive programs.

In the fourth quarter of 2012, operating costs totaled $15.4 million, compared
to $14.1  million recorded  in the  same period  of 2011.  During the  fourth 
quarter of 2012, operating costs averaged $8.91/boe, down from the  $10.78/boe 
incurred during the fourth quarter of 2011. The decrease was primarily due to
increased production  from  recent drilling  in  areas with  lower  production 
expenses and  the Company's  continued efforts  to streamline  operations  and 
field optimization projects.  In comparison,  operating costs  for the  third 
quarter of 2012 averaged $7.96/boe. The increase between the third and fourth
quarters of  2012 was  primarily  due to  additional chemical  well  treating, 
compressor rentals, and other maintenance expenses.

During the  fourth quarter  of 2012,  the Company's  field operating  netbacks 
before commodity  risk management  contracts decreased  by 26%  to  $19.20/boe 
compared to $26.00/boe in the comparative  2011 period, driven primarily by  a 
20% decrease  in  overall  commodity  prices  and  a  slight  2%  increase  in 
royalties, partially offset by  a 17% reduction in  production expenses and  a 
41% reduction in  transportation costs.  In comparison,  the Company's  field 
operating netback before  commodity risk  management contracts  for the  third 
quarter of 2012 was $18.29/boe.

Field  operating  netbacks  for  natural  gas  before  commodity  price   risk 
management contracts during the fourth quarter  of 2012 of $1.85/mcf were  52% 
higher than the $1.22/mcf recorded in  the same period in 2011. The  increase 
was primarily  a  result of  slightly  higher gas  prices,  as well  as  lower 
transportation, royalties, and production expenses.  In comparison, the field
operating netback for natural gas  before commodity risk management  contracts 
for the third quarter of 2012 was $1.12/mcf.

Field operating netbacks before commodity price risk management contracts  for 
crude oil, condensate  and NGLs  during the  fourth quarter  of 2012  averaged 
$37.60/bbl, a decrease of 33% from  the $56.26/bbl realized during the  fourth 
quarter of 2011. The decrease between the periods was primarily as a result of
weaker commodity prices and increased royalties, offset partially by decreases
in production and transportation expenses. In comparison, the field operating
netback for crude oil, condensate and NGLs  for the third quarter of 2012  was 
$41.12/bbl.

In the fourth quarter  of 2012, general  and administrative expenses  ("G&A"), 
net of capitalized  G&A and recoveries,  were $4.4 million,  compared to  $3.8 
million in the comparable 2011 period.  The increase to net G&A was  primarily 
attributable to increases in staffing  costs between the periods. The  overall 
increase in G&A  expenses was offset  slightly by higher  capitalized G&A  and 
recoveries as  a result  of the  increase in  capital activity  in the  fourth 
quarter of 2012 compared to the fourth quarter of 2011.

Depletion, depreciation and accretion expense  for the fourth quarter of  2012 
was $18.6  million ($10.77/boe),  compared to  $17.6 million  ($13.48/boe)  in 
2011. The increase in depletion, depreciation and accretion expense from  the 
2011 fourth quarter to that in 2012 is reflective of the 32% increase in sales
volumes between  the  same  comparative  periods,  offset  by  the  additional 
reserves achieved through the Company's drilling success.

2012 Annual Financial and Operational Results

Acquisition and Dispositions

Effective November 1,  2012, Bellatrix acquired  Cardium and  Notikewin/Falher 
lands and production in the Willesden Green area adjacent to Bellatrix's  core 
area in the Ferrier/Willesden  Green Cardium light oil  resource play in  West 
Central  Alberta.  The  assets  acquired  included  then  current  production 
capability of approximately  500 boe/d (32%  oil and liquids  and 68%  natural 
gas), 16  gross (11.95  net)  sections of  Cardium and  Mannville  prospective 
lands,  25  net   Cardium  development  locations,   4  net   Notikewin/Falher 
development locations, and a  25% working interest  in an operated  compressor 
station and  gathering system.  Bellatrix  acquired these  assets for  a  net 
purchase price of $21 million, which  was funded using the Company's  existing 
credit facilities.

On December  14, 2012,  Bellatrix  acquired an  additional  11 gross  and  net 
sections of  highly  prospective Cardium  and  Notikewin/Falher lands  in  the 
Ferrier area of west-central Alberta, subject  to the receipt of land  permits 
anticipated in  Q1  2013.  This  acquisition is  anticipated  to  provide  an 
additional 37 net drilling  locations in the Cardium,  9 net locations in  the 
Notikewin/Falher,  and  an  additional  66  net  locations  in  the   Duvernay 
formation. The  Company continues  to focus  on adding  Cardium and  Notikewin 
prospective lands.

During the third  quarter of 2012,  Bellatrix closed on  the disposition of  a 
minor non-core property  interest in  the Wainwright area,  Alberta for  $4.25 
million after  adjustments. This  non-operated unit  heavy oil  property  had 
production of approximately 59  boe/d. The net  proceeds from the  disposition 
were initially used to reduce the Company's bank indebtedness, and  ultimately 
were directed towards the  development of the  Company's Cardium oil  resource 
program.

During the second quarter of 2012, Bellatrix closed on the disposition of  the 
Girouxville property  in Alberta,  a minor  non-core property  interest.  The 
property was sold for $0.6 million after adjustments.

Additionally,  in  the  second  quarter  of  2012,  Bellatrix  closed  on  the 
disposition of  the  Cypress-Chowade property  in  British Columbia,  a  minor 
non-core property interest.  The property  was sold for  $1.4 million  after 
adjustments.  There  was  no  current  production  from  the   Cypress-Chowade 
property.

Bellatrix had other  minor property  dispositions in 2012  resulting in  total 
cumulative property dispositions of $6.7 million.

Sales Volumes

Sales volumes  for the  year ended  December 31,  2012 averaged  16,686  boe/d 
compared to 11,954  boe/d for  the 2011  year, representing  a 40%  increase. 
Total crude  oil, condensate  and  NGLs averaged  approximately 34%  of  sales 
volumes for the year ended December 31, 2012, compared to 38% of sales volumes
in the 2011 year.   The increase in  sales was primarily a  result of a  year 
over year  increased  capital  program and  the  associated  drilling  success 
achieved in the  Cardium and Notikewin  resource plays. Capital  expenditures 
for the year ended December 31,  2012 were $185.3 million, compared to  $179.6 
million for the 2011 year.

Sales Volumes
                                                Years ended December 31,
                                                       2012        2011
Light oil and condensate              (bbls/d)          3,996       3,416
NGLs (excluding condensate)           (bbls/d)          1,441         808
Heavy oil                             (bbls/d)            280         316
Total crude oil, condensate and NGLs  (bbls/d)          5,717       4,540
                                                                     
Natural gas                            (mcf/d)         65,812      44,484
                                                                     
Total boe/d                              (6:1)         16,686      11,954

During the 2012  year, Bellatrix posted  a 100% success  rate drilling  and/or 
participating in 34 gross (26.32 net) wells, resulting in 28 gross (21.32 net)
Cardium oil wells,  2 gross  (2.0 net)  Cardium condensate-rich  gas wells,  1 
gross (1.0 net)  Duvernay gas  well, and  3 gross  (2.0 net)  Notikewin/Falher 
liquids-rich gas wells.

By comparison, Bellatrix drilled or participated in 54 gross (34.84 net) wells
during the 2011 year, including 39 gross (29.04 net) oil wells, 14 gross (5.79
net) liquids-rich natural gas wells, and 1 gross (0.007 net) dry hole that was
drilled in a non-operated oil unit.

For the year  ended December  31, 2012, crude  oil, condensate  and NGL  sales 
volumes increased  by approximately  26%, averaging  5,717 bbl/d  compared  to 
4,540 bbl/d in  the 2011 year.  For the  year ended December  31, 2012,  sales 
volumes for crude oil, condensate and NGLs averaged approximately 34% of total
sales volumes compared to approximately 38% of total sales volumes in the 2011
year. The  reduction in  liquids weighting  between the  years was  a  direct 
result of adding the dry gas producing Duvernay well during the second quarter
of 2012, as  well as  bringing on  several other  high-productivity gas  wells 
throughout the 2012 year.

Sales of natural  gas averaged  65.8 Mmcf/d for  the year  ended December  31, 
2012, compared to 44.5 Mmcf/d in  the 2011 year, an increase of  approximately 
48%. The weighting  towards natural gas  sales volumes averaged  approximately 
66% for the year ended December 31, 2012, compared to 62% in the 2011 year.

For 2013,  Bellatrix will  utilize  pad drilling,  involving the  drilling  of 
multiple horizontal wells  from single surface  locations, enhancing  resource 
development efficiency, minimizing the Company's environmental footprint,  and 
improving cost  and on-stream  efficiencies.  An initial  capital  expenditure 
budget of between $230 to $240 million has been set for fiscal 2013. Based on
the timing of  proposed expenditures, downtime  for scheduled and  unscheduled 
plant  turnarounds,  completion   of  required   infrastructure,  and   normal 
production declines,  execution  of  the  2013  capital  expenditure  plan  is 
anticipated to provide  average daily  production of  approximately 24,000  to 
25,000 boe/d and an exit rate of approximately 30,000 boe/d to 31,000 boe/d.

Commodity Prices
Average Commodity Prices
                                                    Years ended December 31,
                                                     2012    2011 % Change
                                                                       
Average exchange rate (US$/Cdn$)                    1.0009  1.0111      (1)
                                                                       
Crude oil:                                                              
WTI (US$/bbl)                                        94.14   95.12      (1)
Edmonton par - light oil ($/bbl)                     86.53   95.16      (9)
Bow River - medium/heavy oil ($/bbl)                 74.30   78.30      (5)
Hardisty Heavy - heavy oil ($/bbl)                   64.99   69.10      (6)
Bellatrix's average prices ($/bbl)                                      
  Light crude oil and condensate                    86.47   92.51      (7)
  NGLs (excluding condensate)                       38.88   53.54     (27)
  Heavy crude oil                                   68.51   68.23        -
  Total crude oil and NGLs                          73.59   83.89     (12)
  Total crude oil and NGLs (including risk          72.65   81.47     (11)
   management ^(1))
                                                        
Natural gas:                                                            
NYMEX (US$/mmbtu)                                     2.83    4.03     (30)
AECO daily index (CDN$/mcf)                           2.39    3.62     (34)
AECO monthly index (CDN$/mcf)                         2.40    3.67     (35)
Bellatrix's average price ($/mcf)                     2.62    3.77     (31)
Bellatrix's average price (including risk             3.17    4.05     (22)
management ^(1)) ($/mcf)
                                                                       

^(1) Per unit metrics including risk management include realized gains or
      losses on commodity contracts and exclude unrealized gains or losses on
      commodity contracts.

During 2012,  the differential  between West  Texas Intermediate  ("WTI")  and 
Edmonton par  price widened,  whereas  for 2011  the differential  was  nearly 
non-existent. North  America  has seen  significant  increases in  light  oil 
production as a  result of  the rapid  pace of  development in  the shale  oil 
reservoirs. These  volumes have  displaced Canadian  production resulting  in 
lower  demand  for  Edmonton  light  oil.  This  factor,  along  with  higher 
incidences of refinery maintenance in 2012 and continued refinery  conversions 
to run heavier streams, has resulted in the widening of the price differential
between WTI  and  Edmonton  par.  For light  oil  and  condensate,  Bellatrix 
recorded  an  average  $86.47/bbl  before  commodity  price  risk   management 
contracts during the year ended December  31, 2012, 7% lower than the  average 
price received  in the  2012  year. In  comparison,  the Edmonton  par  price 
decreased by 9%  over the same  period. The average  WTI crude oil  benchmark 
price decreased by 1% in the year ended December 31, 2012 compared to the 2011
year. The average  US$/CDN$ foreign  exchange rate  was 1.0009  for the  year 
ended December 31,  2012, a  decrease of  1% compared  to an  average rate  of 
1.0111 in the 2011 year.

For NGLs  (excluding condensate),  Bellatrix  recorded an  average  $38.88/bbl 
during the year ended  December 31, 2012, a  27% decrease from the  $53.54/bbl 
received in the 2011 year.  The decrease in NGL  pricing between the 2012  and 
2011 years is largely attributable to changes in NGL market supply  conditions 
between the years.

For heavy crude oil, Bellatrix received an average price before commodity risk
management contracts  of $68.51/bbl  in  the 2012  year, consistent  with  the 
average price of $68.23/bbl realized in the 2011 year. In comparison, the  Bow 
River reference price decreased by 5%, and the Hardisty Heavy reference  price 
decreased by 6% between the 2012 and 2011 years. The majority of Bellatrix's
heavy crude oil density ranges between 11 and 16 degrees API, consistent  with 
the Hardisty Heavy reference price.

Bellatrix's natural  gas sales  are  priced with  reference  to the  daily  or 
monthly AECO indices. Bellatrix's natural gas  sold has a higher heat  content 
than the industry  average, which results  in slightly higher  prices per  mcf 
than the daily  AECO index. During  the 2012 year,  the AECO daily  reference 
price decreased by  34%, and  the AECO  monthly reference  price decreased  by 
approximately 35% compared to the  2011 year. Bellatrix's natural gas  average 
sales price before commodity price risk management contracts for the 2012 year
decreased by 31%  to $2.62/mcf  compared to $3.77/mcf  in the  2011 year.  The 
lower decrease  in Bellatrix's  realized natural  gas prices  compared to  the 
daily AECO  index between  the years  was primarily  due to  the weighting  of 
additional sales volumes  realized at  increasing prices  throughout the  2012 
year. Bellatrix's natural gas average  price after including commodity  price 
risk management contracts for the year ended December 31, 2012 was  $3.17/mcf, 
compared to $4.05/mcf for the year ended December 31, 2011.

Revenue

Revenue before other  income, royalties  and commodity  price risk  management 
contracts for the year ended December  31, 2012 was $217.1 million, 8%  higher 
than the $200.2 million in the 2011 year. The increase in revenues between the
years was due to increased sales  volumes between the years, partially  offset 
by reduced liquids and natural gas prices experienced in the 2012 year.

Revenue before other  income, royalties  and commodity  price risk  management 
contracts for  crude  oil  and NGLs  for  the  year ended  December  31,  2012 
increased by 11%  from the  2011 year,  resulting from  higher sales  volumes, 
partially offset by  lower light  crude oil,  condensate and  NGL prices  when 
compared to the 2011 year.  In the 2012 year, total crude oil, condensate and
NGL revenues contributed 71% of total  revenue (before other) compared to  69% 
in the 2011 year. Light  crude oil, condensate and  NGL revenues in the  year 
ended December 31, 2012 comprised 95%  of total crude oil, condensate and  NGL 
revenues (before other) for those periods, compared to 94% in the 2011 year.

Natural gas revenue before  other income, royalties  and commodity price  risk 
management contracts  for  the  year  ended December  31,  2012  increased  by 
approximately 3% compared to the 2011 year  as a result of an approximate  48% 
increase in sales volumes between the years, largely offset by a 31%  decrease 
in realized gas prices before risk management.

                                                               
                                                    Years ended December 31,
($000s)                                                     2012        2011
Light crude oil and condensate                           126,468     115,353
NGLs (excluding condensate)                               20,504      15,782
Heavy oil                                                  7,023       7,866
Crude oil and NGLs                                       153,995     139,001
Natural gas                                               63,143      61,186
Total revenue before other                               217,138     200,187
Other ^(1)                                                 2,176       2,131
Total revenue before royalties and risk                  219,314     202,318
management

^(1) Other revenue primarily consists of processing and other third party
     income.

Commodity Price Risk Management

The Company has a formal commodity price risk management policy which  permits 
management to use specified price  risk management strategies including  fixed 
price contracts, collars  and the purchase  of floor price  options and  other 
derivative financial  instruments and  physical  delivery sales  contracts  to 
reduce the impact of price volatility for a maximum of eighteen months  beyond 
the transaction date. The program is designed to provide price protection on a
portion of the Company's future production  in the event of adverse  commodity 
price  movement,  while  retaining   significant  exposure  to  upside   price 
movements. By doing this, the Company seeks to provide a measure of  stability 
to funds  flow  from operations,  as  well  as to  ensure  Bellatrix  realizes 
positive  economic  returns  from  its  capital  development  and  acquisition 
activities. The Company plans to continue its commodity price risk management
strategies focusing on  maintaining sufficient cash  flow to fund  Bellatrix's 
capital expenditure program. Any remaining  production is realized at  market 
prices.

A summary of the financial commodity price risk management volumes and average
prices by quarter currently outstanding  as of March 6,  2013 is shown in  the 
following tables:

Natural gas                                                   
Average Volumes (GJ/d)                                         
                  Q1 2013  Q2 2013  Q3 2013   Q4
                                                                          2013
Fixed                          6,556        55,000        55,000    35,109
                                                              
                  Q1 2014  Q2 2014  Q3 2014   Q4
                                                                          2014
Fixed                         15,000        15,000             -         -
                                                              
Average Price ($/GJ                                            
AECO C)
                            Q1 2013       Q2 2013       Q3 2013   Q4 2013
Fixed                           3.05          3.06          3.06      3.05
                                                              
                            Q1 2014       Q2 2014       Q3 2014   Q4 2014
Fixed                           3.05          3.05             -         -
                                                              
Crude oil and liquids                                          

                                                              
Average Volumes                                                
(bbls/d)
                            Q1 2013       Q2 2013       Q3 2013   Q4 2013
Call option                    3,000         3,000         3,000     3,000
Fixed                          1,500         1,500         1,500     1,500
Total bbls/d                   4,500         4,500         4,500     4,500
                                                              
                            Q1 2014       Q2 2014       Q3 2014   Q4 2014
Call option                    3,000         3,000         3,000     3,000
                                                                     
                                                                     
Average Price ($/bbl                                           
WTI)
                            Q1 2013       Q2 2013       Q3 2013   Q4 2013
Call option (ceiling          110.00        110.00        110.00    110.00
price) (US$/bbl)
Fixed price (CDN$/bbl)         94.50         94.50         94.50     94.50
                                                              
                            Q1 2014       Q2 2014       Q3 2014   Q4 2014
Call option (ceiling          105.00        105.00        105.00    105.00
price) (US$/bbl)

As of December 31, 2012, the  fair value of Bellatrix's outstanding  commodity 
contracts is  a net  unrealized asset  of  $0.2 million  as reflected  in  the 
financial statements.  The  fair  value  or  mark-to-market  value  of  these 
contracts is based on  the estimated amount that  would have been received  or 
paid to settle the  contracts as at  December 31, 2012  and will be  different 
from what  will eventually  be realized.  Changes in  the fair  value of  the 
commodity  contracts  are  recognized   in  the  Consolidated  Statements   of 
Comprehensive Income within the financial statements.

The following is a summary of the  gain (loss) on commodity contracts for  the 
years ended  December 31,  2012  and 2011  as  reflected in  the  Consolidated 
Statements of Comprehensive Income in the financial statements:

Commodity contracts
                                         Crude Oil Natural    2012
($000s)                                  & Liquids     Gas   Total
Realized cash gain (loss) on contracts     (1,976)  13,245  11,269
Unrealized gain on contracts ^(1)            6,267   4,539  10,806
Total gain on commodity contracts            4,291  17,784  22,075

Commodity contracts
                                         Crude Oil Natural    2011
($000s)                                  & Liquids     Gas   Total
Realized cash gain (loss) on contracts     (4,015)   4,582     567
Unrealized gain (loss) on contracts ^(1)   (9,879)   2,979 (6,900)
Total gain (loss) on commodity contracts  (13,894)   7,561 (6,333)

     Unrealized gain (loss) on commodity contracts represents non-cash
^(1) adjustments for changes in the fair value of these contracts during the
     period.

Royalties

For the  year ended  December 31,  2012, total  royalties were  $38.8  million 
compared to $34.7 million incurred in  the 2011 year. Overall royalties as  a 
percentage of revenue (after transportation costs) in the 2012 year were  18%, 
compared with 18% in the 2011 year.

Certain light oil wells  are now incurring higher  royalty rates as they  come 
off the initial royalty incentive  rates. The Company's heavy oil  properties 
are minor, and consist of principally  the Frog Lake Alberta assets which  are 
subject to  high crown  royalty rates.  The Company's  royalty percentage  for 
natural gas royalties continues  to decline due  to increased production  from 
recently drilled  wells  which take  advantage  of Alberta  royalty  incentive 
programs. Natural gas royalties and  total royalties recognized in 2012  were 
reduced by  $1.5  million  and  $1.7  million,  respectively,  in  adjustments 
relating to  prior period  estimates,  primarily for  Ferrier area  wells  for 
Indian Oil and Gas Canada royalties under recent royalty incentive  programs. 
Excluding these adjustments,  the average  natural gas  and overall  corporate 
royalty rate percentages for 2012 would be 6% and 19%, respectively.

                                                                 
Royalties by Commodity Type                  Years ended December 31,
($000s, except where noted)                        2012        2011
Light crude oil, condensate and NGLs              33,607      23,065
 $/bbl                                            16.89       14.96
 Average light crude oil, condensate and 
   NGLs royalty rate (%)                              23          18
                                                                 
Heavy Oil                                          3,496       3,538
 $/bbl                                            34.11       30.69
 Average heavy oil royalty rate (%)                  52          46
                                                                 
Natural Gas                                        1,653       8,095
 $/mcf                                             0.07        0.50
 Average natural gas royalty rate (%)                 3          14
                                                                 
Total                                             38,756      34,698
$/boe                                               6.35        7.95
Average total royalty rate (%)                        18          18

Royalties, by Type
                                                  Years ended December 31,
         ($000s)                                        2012        2011
         Crown royalties                               11,518      12,264
         Indian Oil and Gas Canada royalties            8,038       8,346
         Freehold & GORR                               19,200      14,088
Total               38,756      34,698

Expenses
                                       Years ended December 31,
($000s)                                       2012        2011
Production                                   53,316      50,313
Transportation                                4,978       5,715
General and administrative                   14,272      12,358
Interest and financing charges ^ (1)          9,834       7,041
Share-based compensation                      3,219       2,939

^(1) Does not include financing charges in relation to the Company's accretion
     of decommissioning liabilities.

Expenses per boe
                                 Years ended December 31,
($ per boe)                             2012        2011
Production                               8.73       11.53
Transportation                           0.82        1.31
General and administrative               2.34        2.83
Interest and financing charges           1.61        1.61
Share-based compensation                 0.53        0.67

Production Expenses

For the  year  ended December  31,  2012, production  expenses  totaled  $53.3 
million ($8.73/boe), compared to $50.3 million ($11.53/boe) in the 2011 year.
For the year ended December  31, 2012, production expenses increased  overall, 
while decreasing on  a per  boe basis  when compared  to the  2011 year.  The 
decrease in production expenses on a boe basis in the 2012 year was  primarily 
due to increased production, which  is a result of  drilling in both 2011  and 
2012 in areas with  lower production expenses, as  well as reduced  processing 
fees in certain areas and continued field optimization projects.

Bellatrix  is  targeting  operating  costs  of  approximately  $73.6   million 
($8.00/boe) in  the  2013  year,  which is  a  reduction  from  the  $8.73/boe 
operating costs incurred for the 2012 year. This is based upon assumptions of
estimated 2013  average production  of approximately  24,000 boe/d  to  25,000 
boe/d, continued field optimization work  and planned capital expenditures  in 
producing areas which are anticipated to have lower operating costs.

Production Expenses, by Commodity Type
                                                        Years ended December
                                                                           31,
($000s, except where noted)                                   2012      2011
Light crude oil, condensate and NGLs                        21,840    20,536
$/bbl                                                        10.97     13.32
                                                                         
Heavy oil                                                    1,555     2,587
$/bbl                                                        15.17     22.44
                                                                         
Natural gas                                                 29,921    27,190
$/mcf                                                         1.24      1.67
                                                                         
Total                   53,316    50,313
$/boe                                                         8.73     11.53
                                                                         
Total                                                      53,316    50,313
Processing and other third party income ^(1)               (2,176)   (2,131)
Total after deducting processing and other third            51,140    48,182
party income
$/boe                                                         8.37     11.04

^(1) Processing and other third party income is included within petroleum and
      natural gas sales on the Consolidated Statements of Comprehensive
      Income.

Transportation

Transportation expenses for the year ended December 31, 2012 were $5.0 million
($0.82/boe), compared  to  $5.7 million  ($1.31/boe)  in the  2011  year.  The 
decrease in overall and per boe costs is reflective of a higher volume of  oil 
production being shipped through pipelines  rather than through trucking at  a 
higher cost, as  well as reduced  gas transportation fees  resulting from  the 
acquisition of  an  ownership interest  in  certain gathering  and  processing 
facilities in the first half of 2011.

Operating Netback                                          
Field Operating Netback - Corporate                        
(before risk management)
                                            For the years ended December 31,
($/boe)                                               2012             2011
Sales                                                 35.56            45.88
Transportation                                       (0.82)           (1.31)
Royalties                                            (6.35)           (7.95)
Production expense                                   (8.73)          (11.53)
Field operating netback                               19.66            25.09

For the year ended  December 31, 2012, the  corporate field operating  netback 
(before commodity price risk management contracts) was $19.66/boe compared  to 
$25.09/boe in the 2011 year. The reduced netback was primarily the result  of 
reduced commodity  prices,  offset  by  reduced  transportation,  royalty  and 
production  expenses.  After  including   commodity  price  risk   management 
contracts, the  corporate  field  operating  netback for  the  2012  year  was 
$21.51/boe compared to $25.22/boe in the 2011 year. Per unit metrics including
risk management include realized  gains or losses  on commodity contracts  and 
exclude unrealized gains or losses on commodity contracts.

Field Operating Netback - Crude Oil, Condensate and               
NGLs (before risk management)
                                                   Years ended December 31,
($/bbl)                                                    2012        2011
Sales                                                      73.59       83.89
Transportation                                            (0.98)      (1.86)
Royalties                                                (17.73)     (16.06)
Production expense                                       (11.18)     (13.96)
Field operating netback                                    43.70       52.01
                                                               

Field operating netback for crude oil, condensate and NGLs averaged $43.70/bbl
for the  year ended  December 31,  2012,  a decrease  of 16%  from  $52.01/bbl 
realized in the 2011  year. In the 2012  year, Bellatrix's combined crude  oil 
and NGLs average price (before risk management) decreased by approximately 12%
compared to the 2011 year. The commodity price decrease in conjunction with a
slight increase in royalties was partially offset by reductions in  production 
and transportation expenses, resulting  in the overall  decrease to the  field 
operating netback  for  crude  oil,  condensate  and  NGLs.  After  including 
commodity price risk management contracts,  field operating netback for  crude 
oil and NGLs  for the  year ended December  31, 2012  decreased to  $42.76/boe 
compared to $49.58/boe in the 2011 year.

Field Operating Netback - Natural Gas (before risk                
management)
                                                    Years ended December 31,
($/mcf)                                                    2012        2011
Sales                                                       2.62        3.77
Transportation                                            (0.12)      (0.16)
Royalties                                                 (0.07)      (0.50)
Production expense                                        (1.24)      (1.67)
Field operating netback                                     1.19        1.44

Field operating netback for  natural gas in the  year ended December 31,  2012 
year decreased by 17% to $1.19/mcf, compared to $1.44/mcf realized in the 2011
year, reflecting  depressed  natural  gas prices,  offset  somewhat  by  lower 
production, transportation and  royalty expenses.  After including  commodity 
price risk management contracts, field  operating netback for natural gas  for 
the year ended  December 31, 2012  increased to $1.74/mcf,  which compared  to 
$1.72/mcf in the 2011 year.

General and Administrative

General  and  administrative  ("G&A")  expenses  (after  capitalized  G&A  and 
recoveries)  for  the  year  ended  December  31,  2012  were  $14.3   million 
($2.34/boe), compared to  $12.4 million  ($2.83/boe) for the  2011 year.  G&A 
expenses in the 2012 year were higher in comparison to the 2011 year, which is
reflective of  higher  compensation  costs and  slightly  reduced  recoveries, 
offset partially by higher capitalized G&A. On a boe basis, G&A for the year
ended December 31, 2012  decreased by approximately 17%  when compared to  the 
2011 year. The  decrease was  primarily as a  result of  higher average  sales 
volumes in the 2012 year, despite higher overall costs.

For 2013, the Company is anticipating G&A expenses after capitalization to  be 
approximately $23.0  million  ($2.50/boe)  based  on  estimated  2013  average 
production volumes of approximately 24,000 boe/d to 25,000 boe/d.

General and Administrative Expenses               
                                      Years ended December 31,
($000s, except where noted)                   2012        2011
Gross expenses                              21,170      18,582
Capitalized                                (4,335)     (3,553)
Recoveries                                 (2,563)     (2,671)
G&A expenses                                14,272      12,358
G&A expenses, per unit ($/boe)                2.34        2.83

Interest and Financing Charges

Bellatrix recorded $9.8 million ($1.61/boe) of interest and financing  charges 
related to bank debt and its debentures for the year ended December 31,  2012, 
compared to $7.0 million ($1.61/boe) in the 2011 year. The overall increase in
interest and financing charges between the years was primarily due to  greater 
interest and  accretion  charges  in relation  to  the  Company's  outstanding 
debentures  in  conjunction  with  higher  interest  charges  related  to  the 
Company's long-term debt as the Company carried a higher average debt  balance 
in the 2012 year  compared to the  2011 year. Bellatrix's  total net debt  at 
December 31,  2012 of  $189.6  million includes  the $50.7  million  liability 
portion of its  $55 million  principal amount of  4.75% convertible  unsecured 
subordinated debentures (the "4.75% Debentures"), $133.0 million of bank  debt 
and the net balance  of the working capital  deficiency. The 4.75%  Debentures 
have a maturity date of April 30, 2015.

                                                                         
Debt to Funds Flow from Operations Ratio                                  
                                                   Years ended December 31,
($000s, except where noted)                                 2012        2011
                                                                         
Shareholders' equity                                     381,106     348,405
                                                                         
Long-term debt                                           133,047      56,701
Convertible debentures (liability component)              50,687      49,076
Working capital deficiency ^(2)                            5,843      13,473
Total net debt ^(2) at year end                          189,577     119,250
                                                                         
Debt to funds flow from operations ^(1) ratio      
(annualized) ^(3)                                                           
Funds flow from operations ^(1) (annualized)             119,460     120,480
Total net debt ^(2) at year end                          189,577     119,250
Total net debt to periods funds flow from          
operations ratio
(annualized) ^(3)                                             1.6x        1.0x
                                                                         
Net debt ^(2) (excluding convertible debentures)   
at year end                                                138,890      70,174
Net debt to periods funds flow from operations     
ratio (annualized) ^(3)                                       1.2x        0.6x
                                                                         
Debt to funds flow from operations ^(1) ratio                             
Funds flow from operations ^(1) for the year             111,038      94,237
Total net debt ^(2) to funds flow from operations  
for the year                                                  1.7x        1.3x
                                                                         
Net debt ^(2) (excluding convertible debentures)   
to funds flow
from operations for the year                                  1.3x        0.7x
                                                                         

^(1) As detailed previously in this Management's Discussion and Analysis,
     funds flow from operations is a term that does not have any standardized
     meaning under GAAP. Funds flow from operations is calculated as cash
     flow from operating activities, less decommissioning costs incurred and
     changes in non-cash working capital incurred. Refer to the
     reconciliation of cash flow from operating activities to funds flow from
     operations appearing elsewhere herein.
    
^(2) Net debt and total net debt are considered additional GAAP measures. The
     Company's calculation of total net debt includes the liability component
     of convertible debentures and excludes deferred liabilities, long-term
     commodity contract liabilities, decommissioning liabilities, long-term
     finance lease obligation and the deferred tax liability. Net debt and
     total net debt include the net working capital deficiency (excess) before
     short-term commodity contract assets and liabilities and current finance
     lease obligation. Net debt also excludes the liability component of
     convertible debentures. Total net debt and net debt are additional GAAP
     measures; refer to the following reconciliation of total liabilities to
     total net debt and net debt.
    
^(3) Total net debt and net debt to periods funds flow from operations ratio
     (annualized) is calculated based upon fourth quarter funds flow from
     operations annualized.

Reconciliation of Total Liabilities to Total Net Debt              
and Net Debt
                                                          As at December 31,
($000s)                                                        2012     2011
Total liabilities per financial statements                  300,315  232,017
 Current liabilities included within working capital    (53,327) (73,578)
    calculation
 Commodity contract liability                            (6,214)  (2,944)
 Decommissioning liabilities                            (43,909) (45,091)
 Finance lease obligation                               (13,131)  (4,627)
                                                                         
Working Capital                                                           
 Current assets                                         (52,447) (51,927)
 Current liabilities                                      53,327   73,578
 Current portion of finance lease                        (1,425)    (490)
 Net commodity contract asset (liability)                  6,388  (7,688)
                                                             5,843   13,473
Total net debt                                              189,577  119,250
 Convertible debentures                                 (50,687) (49,076)
Net debt                                                    138,890   70,174

Share-Based Compensation

Non-cash share-based compensation expense for the year ended December 31, 2012
was an expense of $3.2 million compared to $2.9 million in the 2011 year.  The 
overall increase  in non-cash  share-based  compensation expense  between  the 
years is primarily a  result of a larger  number of outstanding share  options 
expensed during the year and greater Deferred Share Unit Plan expenses of $1.0
million  (2011:  $0.8  million),   offset  partially  by  higher   capitalized 
share-based compensation of $1.6 million (2011: $1.4 million).

Depletion and Depreciation

Depletion and depreciation expense  for the year ended  December 31, 2012  was 
$75.7 million ($12.40/boe), compared to $63.4 million ($14.53/boe)  recognized 
in the 2011 year. The decrease in depletion and depreciation expense  between 
the years, on a per  boe basis, was primarily a  result of an increase in  the 
reserve base used for the depletion calculation, partially offset by a  higher 
cost base and increased future development costs.

For the year ended December 31, 2012 Bellatrix has included a total of  $524.6 
million (2011: $376.8 million) for  future development costs in the  depletion 
calculation and  excluded from  the  depletion calculation  a total  of  $37.2 
million (2011: $35.1 million) for estimated salvage.

Depletion and Depreciation                
                              Years ended December 31,
($000s, except where noted)           2012        2011
Depletion and Depreciation          75,720      63,384
Per unit ($/boe)                     12.40       14.53

Property Acquisition

Effective November 1, 2012, Bellatrix acquired production and working interest
in certain facilities, as well as undeveloped land in the Willesden Green area
of Alberta for a cash purchase  price of $20.9 million after adjustments.  In 
accordance with IFRS, a  property acquisition is accounted  for as a  business 
combination when certain criteria are met,  such as the acquisition of  inputs 
and processes  to convert  those inputs  into beneficial  outputs.  Bellatrix 
assessed the  property  acquisition  and  determined  that  it  constitutes  a 
business combination under IFRS. In a business combination, acquired  assets 
and liabilities are recognized by the  acquirer at their fair market value  at 
the time of purchase. Any variance  between the determined fair value of  the 
assets and liabilities and the purchase  price is recognized as either a  gain 
or loss in the statement of comprehensive income in the period of acquisition.

The estimated fair  value of the  property, plant and  equipment acquired  was 
determined  using  both   internal  estimates  and   an  independent   reserve 
evaluation. The decommissioning liabilities assumed were determined using  the 
timing and estimated  costs associated with  the abandonment, restoration  and 
reclamation of the wells  and facilities acquired. A  summary of the  acquired 
property is provided below:

                                                   
                                             ($000s)
Estimated fair value of acquisition:                
  Oil and natural gas properties        29,530
  Exploration and evaluation assets            8,525
  Decommissioning liabilities                  (973)
                                          37,082
                                                   
Cash consideration                             20,922
                                                   
Gain on property acquisition                16,160

Impairment of Assets

In accordance with IFRS, the Company calculates an impairment test when  there 
are indicators of impairment. The impairment  test is performed at the  asset 
or cash generating unit ("CGU") level. IAS 36 - "Impairment of Assets"  ("IAS 
36") is a one  step process for testing  and measuring impairment of  assets. 
Under IAS 36, the asset or CGU's carrying value is compared to the higher  of: 
value-in-use and fair value less  costs to sell. Value  in use is defined  as 
the present value of  the future cash  flows expected to  be derived from  the 
asset or CGU.

When performed, the impairment test is  based upon the higher of  value-in-use 
and estimated fair market values  for the Company's properties, including  but 
not  limited  to  an  updated   external  reserve  engineering  report   which 
incorporates a full  evaluation of  reserves on  an annual  basis or  internal 
reserve updates at quarterly periods, and the latest commodity pricing  deck. 
Estimating reserves  is  very  complex,  requiring  many  judgments  based  on 
available geological, geophysical, engineering and economic data. Changes  in 
these judgments could have a material impact on the estimated reserves. These
estimates may  change, having  either a  negative or  positive effect  on  net 
earnings  as  further  information  becomes  available  and  as  the  economic 
environment changes.

2012 Impairment

Bellatrix engaged an external reserve evaluator to prepare an updated  company 
reserve report  effective December  31, 2012.  Overall corporate  proved  and 
probable reserve volumes increased significantly at December 31, 2012 compared
to evaluated reserves at December 31,  2011. However, the fair values of  two 
largely natural gas-weighted CGUs and one CGU with significant natural gas and
heavy oil weightings were reduced, largely as a result of suppressed commodity
prices.

As at December  31, 2012,  Bellatrix performed  an impairment  test using  VIU 
values in accordance with IAS 36, resulting in an excess of the carrying value
of three CGUs  over their recoverable  amount, resulting in  a non-cash  $14.8 
million impairment loss. In performing the test, future cash flows at  between 
a 10% and 20% discount rate were  used for the Company's largely gas  weighted 
North East  Alberta,  South  East  Alberta, and  British  Columbia  CGUs.  The 
Company's core  West Central  Alberta  CGU had  no indicators  of  impairment. 
Discounted  salvage  values  and  discounted  future  associated  general  and 
administrative costs  were also  incorporated into  the VIU  calculation.  The 
$14.8 million impairment loss was comprised of $11.4 million recognized in the
Company's North East Alberta CGU, $2.9 million in the South East Alberta  CGU, 
and $0.5  million in  the British  Columbia CGU.  The reduction  in the  fair 
values of  these CGUs  between December  31, 2011  and December  31, 2012  was 
predominantly due to weak natural gas prices.

2011 Impairment

During the year  ended December  31, 2011, Bellatrix  performed an  impairment 
test in accordance with IAS 36 resulting in an excess of the carrying value of
three CGUs  over  their recoverable  amount,  resulting in  a  non-cash  $25.6 
million impairment loss.

IAS 36  requires  impairment losses  to  be reversed  when  there has  been  a 
subsequent increase in the recoverable amount.  In the case of an  impairment 
loss reversal, the  carrying amount  of the  asset or  CGU is  limited to  the 
original carrying amount less depreciation,  depletion and amortization as  if 
no impairment had been recognized for the asset or CGU for prior periods.  In 
2011, a partial reversal of impairment  was recognized relating to a  previous 
impairment for  the Company`s  South East  Alberta CGU.  As a  result of  the 
reversal, impairment expense for the 2011 year was reduced by $2.7 million.

The impairment  test  is based  upon  fair  market values  for  the  Company's 
properties,  including  but  not  limited  to  an  updated  external   reserve 
engineering report  which incorporates  a full  evaluation of  reserves on  an 
annual basis or internal reserve updates at quarterly periods, and the  latest 
commodity pricing deck. Estimating reserves  is very complex, requiring  many 
judgments  based  upon  available  geological,  geophysical,  engineering  and 
economic data. Changes in these judgments could have a material impact on the
Company's estimated reserves.  These estimates  may change,  having either  a 
negative or positive  impact on  net earnings as  further information  becomes 
available and as the economic environment changes.

Income Taxes

Deferred income taxes arise  from differences between  the accounting and  tax 
basis of the Company's  assets and liabilities. For  the year ended  December 
31, 2012,  the Company  recognized  a deferred  income  tax expense  of  $10.1 
million compared to $0.8 million in the 2011 year.

At December 31, 2012, the  Company had a total  deferred tax asset balance  of 
$1.0 million. IFRS requires  that a deferred tax  asset be recorded when  the 
tax pools  exceeds the  book value  of assets,  to the  extent the  amount  is 
probable to be realized.

At December 31, 2012,  Bellatrix had approximately $584  million in tax  pools 
available for deduction against future income as follows:

                                                                  
($000s)                                            Rate %    2012    2011
Intangible resource pools:                                               
 Canadian exploration expenses                      100  56,200  47,600
 Canadian development expenses                       30 358,700 326,900
 Canadian oil and gas property expenses              10  40,400  25,100
 Foreign resource expenses                           10     800     800
Attributed Canadian Royalty Income             (Alberta) 100  16,100  16,100
Undepreciated capital cost ^(1)                       6 - 55  98,000  83,100
Non-capital losses (expire through 2027)                 100  10,000  10,000
Financing costs                                      20 S.L.   3,300   4,700
                                                           583,500 514,300

^(1) Approximately $91 million of undepreciated capital cost pools are class
     41, which is claimed at a 25% rate.

Cash Flow from Operating Activities, Funds Flow from Operations and Net Profit
(Loss)

As detailed previously in this MD&A, funds flow from operations is a term that
does not have any standardized meaning under GAAP. Funds flow from operations
is calculated as  cash flow from  operating activities before  decommissioning 
costs incurred and changes in non-cash working capital incurred.

Reconciliation of Cash Flow from Operating Activities             
and Funds Flow from Operations
                                                    Years ended December 31,
($000s)                                                     2012        2011
Cash flow from operating activities                     109,328      98,192
Decommissioning costs incurred                               635         569
Change in non-cash working capital                         1,075     (4,524)
Funds flow from operations                               111,038      94,237

Bellatrix's cash flow from operating  activities of $109.3 million ($1.02  per 
basic share and $0.95 per diluted share) for the year ended December 31,  2012 
increased approximately 11% from the $98.2 million ($0.95 per basic share  and 
$0.87 per  diluted share)  generated in  the 2011  year. Bellatrix  generated 
funds flow from operations of $111.0 million ($1.03 per basic share and  $0.96 
per diluted share) for the  year ended December 31,  2012, an increase of  18% 
from $94.2 million ($0.91 per basic share and $0.84 per diluted share) for the
2011 year.

The increase in funds flow from operations between the 2012 and 2011 years was
principally due to higher funds from operating netbacks, despite significantly
reduced commodity  prices,  as  well  as higher  net  realized  gains  on  the 
Company's  commodity  risk  management  contracts,  and  offset  partially  by 
increased financing expenses  and slightly higher  general and  administrative 
expenses in 2012 compared to 2011.

Bellatrix maintains a  commodity price  risk management program  to provide  a 
measure of stability to funds flow from operations. Unrealized mark-to-market
gains or losses are non-cash adjustments  to the current fair market value  of 
the contract over its entire term and  are included in the calculation of  net 
profit.

As previously noted in this MD&A, net profit before certain non-cash items  is 
a non-GAAP measure. A reconciliation between this measure and net loss per the
Consolidated Statement of Comprehensive Income is provided below.

For the  year ended  December 31,  2012, net  profit before  certain  non-cash 
items, net of associated deferred tax impacts, was $21.7 million compared to a
net profit of $17.1 million in the 2011 year.

Reconciliation of Net Profit (Loss) to Net Profit                 
Before Certain Non-Cash Items
                                                     Years ended December 31,
($000s)                                                       2012        2011
Net profit (loss) per financial statements                 27,771     (5,949)
Items subject to reversal                                                   
      Impairment loss on property, plant and            14,820      25,569
          equipment
      Unrealized (gain) loss on commodity             (10,806)       6,900
          contracts
      Loss (gain) on property dispositions               4,113     (1,730)
      Gain on property acquisition                    (16,160)           -
      Deferred tax impact of above items                 2,008     (7,685)
Net profit before certain non-cash items                    21,746      17,105

A net profit of  $27.8 million ($0.26  per basic share  and $0.25 per  diluted 
share) was recognized for the year ended December 31, 2012, compared to a  net 
loss of $5.9 million ($0.06  per basic share and  $0.06 per diluted share)  in 
the 2011 year. The net  profit recorded in the  year ended December 31,  2012 
compared to the net loss recorded in the 2011 year is primarily a  consequence 
of higher  cash  flows  as noted  above,  a  $16.2 million  gain  on  property 
acquisition recognized in 2012, a  net unrealized gain on commodity  contracts 
in the 2012 year compared to a  loss in 2011, and a lower non-cash  impairment 
loss on oil  and gas  properties, offset somewhat  by a  higher depletion  and 
depreciation expense, a total net loss on property dispositions compared to  a 
minor gain on property dispositions in the comparative 2011 year, and a higher
deferred tax expense.

Cash Flow from Operating Activities, Funds Flow from Operations and Net Profit
(Loss)
                                                     Years ended December 31,
($000s, except per share amounts)                        2012             2011
Cash flow from operating activities                   109,328           98,192
            Basic ($/share)                        1.02             0.95
            Diluted ($/share)                        0.95             0.87
                                           
Funds flow from operations                            111,038           94,237
            Basic ($/share)                        1.03             0.91
            Diluted ($/share)                        0.96             0.84
                                           
Net profit (loss)                                     27,771          (5,949)
            Basic ($/share)                        0.26           (0.06)
            Diluted ($/share)                        0.25           (0.06)

Capital Expenditures

Bellatrix invested $185.3 million in  capital expenditures, including a  $21.0 
million property  acquisition,  during  the  year  ended  December  31,  2012, 
compared to $179.6 million in the 2011 year.

Capital Expenditures                                      
                                             Years ended December 31,
($000s)                                              2012        2011
Lease acquisitions and retention                     8,303      16,367
Geological and geophysical                             290         433
Drilling and completion costs                      118,783     141,051
Facilities and equipment                            36,811      18,471
                                                 164,187     176,322
Drilling incentive credits                               -       (827)
   Exploration and development ^(1)             164,187     175,495
Corporate ^(2)                                         195         268
Property acquisition                                20,966       3,798
   Total capital expenditures - cash            185,348     179,561
Property dispositions - cash                       (6,660)     (4,203)
   Total net capital expenditures - cash        178,688     175,358
Capital lease additions - non-cash                  10,000       3,700
Adjustment on property acquisition - non-cash       16,160           -
Other - non-cash ^(3)                                (285)       6,875
   Total non-cash                                25,875      10,575
Total net capital expenditures                     204,563     185,933

(1) Excludes capitalized costs related to decommissioning liabilities
         expenditures incurred during the year.
(2) Corporate includes office furniture, fixtures and equipment.
(3) Other includes non-cash adjustments for the current year's
         decommissioning liabilities and share based compensation.

During the 2012  year, Bellatrix posted  a 100% success  rate drilling  and/or 
participating in 34 gross (26.32 net) wells, resulting in 28 gross (21.32 net)
Cardium oil wells,  2 gross  (2.0 net)  Cardium condensate-rich  gas wells,  1 
gross (1.0 net)  Duvernay gas  well, and  3 gross  (2.0 net)  Notikewin/Falher 
liquids-rich gas wells.

By comparison, Bellatrix drilled or participated in 54 gross (34.84 net) wells
during the year ended  December 31, 2011, including  39 gross (29.04 net)  oil 
wells, 14 gross (5.79 net) liquids-rich natural gas wells, and 1 gross  (0.007 
net) dry hole that was drilled in a non-operated oil unit.

The $185.3 million capital  program for the year  ended December 31, 2012  was 
financed from funds flow from operations and bank debt.

Based on the  current economic conditions  and Bellatrix's operating  forecast 
for 2013, the Company budgets a  capital program between $230 to $240  million 
funded from  the  Company's cash  flows  and  to the  extent  necessary,  bank 
indebtedness. The 2013 capital  budget is expected  to be directed  primarily 
towards horizontal  drilling and  completions activities  in the  Cardium  and 
Notikewin areas.

Decommissioning Liabilities

At December 31,  2012, Bellatrix has  recorded decommissioning liabilities  of 
$43.9 million, compared  to $45.1  million at  December 31,  2011, for  future 
abandonment and reclamation of the  Company's properties. For the year  ended 
December 31, 2012, decommissioning liabilities decreased by a net $1.2 million
as a  result  of a  reduction  of $3.0  million  for liabilities  reversed  on 
dispositions, a $0.7  million decrease for  changes in estimates,  and a  $0.6 
million decrease  for liabilities  settled  during the  year, offset  by  $2.4 
million incurred on property acquisitions and development activities, and $0.7
million as a result of  charges for the unwinding  of the discount rates  used 
for fair valuing the  liabilities. The $0.7 million  decrease as a result  of 
changes in  estimates  is primarily  due  to  a discount  rate  variations  at 
December 31, 2012 compared to 2011, in addition to other abandonment liability
revisions.

Liquidity and Capital Resources

As an oil and gas business, Bellatrix has a declining asset base and therefore
relies on ongoing development and  acquisitions to replace production and  add 
additional reserves. Future oil  and natural gas  production and reserves  are 
highly dependent on  the success  of exploiting the  Company's existing  asset 
base and  in  acquiring  additional  reserves.  To  the  extent  Bellatrix  is 
successful or unsuccessful in these  activities, cash flow could be  increased 
or reduced.

Bellatrix is  focused on  growing  oil and  natural  gas production  from  its 
diversified portfolio  of  existing and  emerging  resource plays  in  Western 
Canada. Bellatrix  remains  highly  focused on  key  business  objectives  of 
maintaining financial  strength,  optimizing capital  investments  -  attained 
through a  disciplined approach  to capital  spending, a  flexible  investment 
program and financial stewardship. Natural gas prices are primarily driven  by 
North American supply  and demand, with  weather being the  key factor in  the 
short term.  Bellatrix  believes that  natural  gas represents  an  abundant, 
secure, long-term supply of energy to meet North American needs.  Bellatrix's 
results are affected by external market and risk factors, such as fluctuations
in the prices  of crude  oil and natural  gas, movements  in foreign  currency 
exchange rates and inflationary pressures on service costs. Market  conditions 
have resulted in Bellatrix experiencing primarily downward trends in crude oil
pricing for 2012 compared  to 2011, and a  more significant downward trend  in 
natural gas pricing,  although natural gas  prices started to  recover in  the 
second half of 2012.

Liquidity risk  is the  risk  that Bellatrix  will not  be  able to  meet  its 
financial obligations  as  they become  due.  Bellatrix actively  manages  its 
liquidity through  daily  and longer-term  cash,  debt and  equity  management 
strategies. Such strategies encompass,  among other factors: having  adequate 
sources of financing available through its bank credit facilities,  estimating 
future cash  generated  from operations  based  on reasonable  production  and 
pricing assumptions, analysis of  economic risk management opportunities,  and 
maintaining  sufficient  cash  flows   for  compliance  with  operating   debt 
covenants. Bellatrix  is  fully compliant  with  all of  its  operating  debt 
covenants.

Bellatrix generally relies on operating  cash flows and its credit  facilities 
to fund capital requirements and provide liquidity. Future liquidity  depends 
primarily on cash flow generated  from operations, existing credit  facilities 
and the ability to  access debt and  equity markets. From  time to time,  the 
Company accesses capital markets to meet its additional financing needs and to
maintain flexibility  in  funding  its  capital programs.  There  can  be  no 
assurance  that  future  debt  or  equity  financing,  or  cash  generated  by 
operations will be available or sufficient  to meet these requirements or  for 
other corporate purposes or, if debt or equity financing is available, that it
will be on terms acceptable to Bellatrix.

Credit risk  is the  risk of  financial loss  to Bellatrix  if a  customer  or 
counterparty  to  a  financial  instrument  fails  to  meet  its   contractual 
obligations, and arises  principally from Bellatrix's  trade receivables  from 
joint venture partners,  petroleum and  natural gas  marketers, and  financial 
derivative counterparties.

A substantial portion  of Bellatrix's accounts  receivable are with  customers 
and joint interest partners in the petroleum and natural gas industry and  are 
subject to normal industry credit risks. Bellatrix sells substantially all of
its production to seven  primary purchasers under  standard industry sale  and 
payment terms. The most significant 60 day exposure to a single  counterparty 
is currently approximately $12.6  million. Purchasers of Bellatrix's  natural 
gas, crude oil  and natural  gas liquids are  subject to  a periodic  internal 
credit review to minimize the risk of non-payment. Bellatrix has continued  to 
closely monitor  and  reassess  the creditworthiness  of  its  counterparties, 
including financial institutions. This has  resulted in Bellatrix reducing  or 
mitigating  its  exposures  to  certain  counterparties  where  it  is  deemed 
warranted and permitted under contractual terms.

Bellatrix may be exposed  to third party credit  risk through its  contractual 
arrangements with its current or  future joint venture partners, marketers  of 
its petroleum and natural gas production, derivative counterparties and  other 
parties.  In  the  event  such  entities  fail  to  meet  their   contractual 
obligations to Bellatrix, such failures may have a material adverse effect  on 
the  Company's  business,  financial  condition,  results  of  operations  and 
prospects. In addition, poor credit conditions  in the industry and of  joint 
venture  partners  may  impact  a  joint  venture  partner's  willingness   to 
participate in Bellatrix's ongoing  capital program, potentially delaying  the 
program and  the results  of such  program until  Bellatrix finds  a  suitable 
alternative partner.

Total net debt levels of $189.6 million at December 31, 2012 have increased by
$70.3 million  from  $119.3 million  at  December  31, 2011,  primarily  as  a 
consequence of an increase  in a working capital  deficiency and bank debt  as 
the Company executed  its 2012 capital  program. Total net  debt includes  the 
liability component of the 4.75% Debentures and excludes unrealized  commodity 
contract assets and  liabilities, deferred taxes,  finance lease  obligations, 
deferred liabilities and decommissioning liabilities.

Funds flow  from operations  represents 60%  of the  funding requirements  for 
Bellatrix's capital expenditures for the year ended December 31, 2012.

Effective December 13, 2012, the  Company's borrowing base was increased  from 
$200 million to  $220 million  through to  the next  scheduled borrowing  base 
determination to be  completed on or  before May 31,  2013. Effective May  31, 
2012, the revolving period of the  credit facility was extended from June  26, 
2012 to  June 25,  2013. The  Company's credit  facilities consist  of a  $25 
million demand  operating facility  provided by  a Canadian  bank and  a  $195 
million extendible revolving  term credit  facility provided  by two  Canadian 
banks and a Canadian financial institution. Amounts borrowed under the credit
facility bear interest  at a floating  rate based on  the applicable  Canadian 
prime rate, U.S. base rate, the LIBOR margin rate, or the bankers'  acceptance 
stamping fee, plus between 1.00% and 3.50%, depending on the type of borrowing
and the Company's debt to cash flow ratio. The credit facilities are  secured 
by a $400  million debenture containing  a first ranking  charge and  security 
interest. Bellatrix has provided a negative pledge and undertaking to provide
fixed charges over its properties in certain circumstances. A standby fee  is 
charged of  between 0.50%  and 0.875%  on the  undrawn portion  of the  credit 
facilities, depending on the Company's debt to cash flow ratio.

The revolving period for the revolving  term credit facility will end on  June 
25, 2013, unless extended for a further 364 day period. Should the  facility 
not be extended it will convert to a non-revolving term facility with the full
amount outstanding due 366 days after the last day of the revolving period  of 
June 25, 2013. The borrowing base will be subject to re-determination on  May 
31 and November 30 in each year  prior to maturity, with the next  semi-annual 
redetermination occurring on May 31, 2013.

As at December  31, 2012,  approximately $87.0 million  or 40%  of unused  and 
available bank  credit  under its  credit  facilities was  available  to  fund 
Bellatrix's ongoing capital spending and operational requirements.

Bellatrix currently  has commitments  associated  with its  credit  facilities 
outlined above and the commitments outlined under the "Commitments"  section. 
Bellatrix continually monitors its  capital spending program  in light of  the 
recent volatility  with  respect  to  commodity  prices  and  Canadian  dollar 
exchange rates with  the aim  of ensuring  the Company  will be  able to  meet 
future anticipated obligations  incurred from normal  ongoing operations  with 
funds flow  from  operations and  draws  on Bellatrix's  credit  facility,  as 
necessary. Bellatrix has the ability to fund its 2013 capital program of $230
to $240 million  by utilizing  cash flow, and  to the  extent necessary,  bank 
indebtedness.

As at  February 25,  2013,  Bellatrix had  outstanding  a total  of  9,334,894 
options exercisable at  an average exercise  price of $3.45  per share,  $55.0 
million principal amount  of 4.75% Debentures  convertible into common  shares 
(at a conversion price of $5.60 per share) and 107,880,996 common shares.

Related Party Transactions

Previous to 2012, the Company entered  into agreements to obtain financing  in 
the amount of $5.3 million for the construction of certain facilities.

Members of the  Company's management  team and entities  affiliated with  them 
provided financing  of $900,000.  The  terms of  the transactions  with  those 
related parties were the same as those with arms-length participants.

Commitments

As at December 31, 2012, Bellatrix committed to drill 3 gross (1.7 net)  wells 
pursuant to farm-in agreements. Bellatrix expects to satisfy these  drilling 
commitments at an estimated cost of approximately $6.5 million.

In addition, Bellatrix entered  into two joint  venture agreements during  the 
2011  year  and  an  additional  joint  venture  agreement  during  2012.  The 
agreements include a minimum commitment for  the Company to drill a  specified 
number of wells  each year  over the term  of the  individual agreements.  The 
details of these agreements are provided in the table below:

                                                                       
Joint Venture Agreement           Feb. 1, 2011  Aug. 4, 2011  Dec. 14, 2012
Agreement Term                    2011 to 2015  2011 to 2016   2014 to 2018
Minimum wells per year (gross                3       5 to 10              2
and net)
Minimum total wells (gross and              15            40             10
net)
Estimated total cost ($000s)             $52.5        $140.0          $35.0
Remaining wells to drill at                  8            32             10
December 31, 2012
Remaining estimated total cost           $28.0        $112.0          $35.0
($000s)

The Company has the following liabilities as at December 31, 2012:

                                                                   
                                                                          More
Liabilities                        < 1                                    than
($000s)               Total     Year     1-3 Years    4-5 Years   5 years
Accounts payable                                    $             $      $
and accrued              $      $           
liabilities ^(1)     50,771   50,771             -            -         -
Long-term debt -
principal ^(2)      133,047        -       133,047            -         -
Convertible
debentures -
principal            55,000        -        55,000            -         -
Convertible
debentures -
interest ^(3)         6,085    2,613         3,472            -         -
Commodity
contract
liability             7,345    1,131         6,214            -         -
Decommissioning
liabilities ^(4)     43,909        -         7,187        5,796    30,926
Finance lease
obligation           14,556    1,425         3,069        3,172     6,890
                           $      $                                     $
Total               310,713   55,940   $ 207,989  $ 8,968    37,816

^(1) Includes $0.4 million of accrued coupon interest payable in relation to
      the 4.75% Debentures and $0.2 million of accrued interest payable in
      relation to the credit facilities is included in Accounts Payable and
      Accrued Liabilities.
^(2)  Bank debt is based on a revolving term which is reviewed annually and
      converts to a 366 day non-revolving facility if not renewed. Interest
      due on the bank credit facility is calculated based upon floating rates.
^(3)  The 4.75% Debentures outstanding at December 31, 2012 bear interest at a
      coupon rate of 4.75%, which currently requires total annual interest
      payments of $2.6 million.
^(4) Amounts represent the inflated, discounted future abandonment and
      reclamation expenditures anticipated to be incurred over the life of the
      Company's properties (between 2013 and 2053).

Bellatrix will also  have drilling  commitments associated  with its  recently 
announced joint venture agreement in January,  2013 with a South Korean  based 
company. Closing of this agreement is expected to occur on or before April 30,
2013. Refer to the details discussed earlier herein.

Off-Balance Sheet Arrangements

The Company  has  certain fixed  term  lease agreements,  including  primarily 
office space  leases,  which  were  entered  into  in  the  normal  course  of 
operations. All  leases have  been treated  as operating  leases whereby  the 
lease payments are included in operating expenses or G&A expenses depending on
the nature of the  lease. The lease agreements  do not currently provide  for 
early termination. No  asset or liability  value has been  assigned to  these 
leases in the balance sheet as of December 31, 2012.

The Company is committed to payments  under fixed term operating leases  which 
do not currently provide for early termination. The Company's commitment  for 
office space as at December 31, 2012 is as follows:

                                
($000s)      Gross     Expected  
Year           Amount     Recoveries     Net amount
2013      $ 2,254   $ 947    $ 1,307
2014          1,520          641          879

Subsequent to year end,  Bellatrix entered into a  fixed term operating  lease 
agreement for corporate office space  in a new location, commencing  September 
1, 2013. Bellatrix is currently pursuing subleasing options for the remaining
term of  its existing  corporate  office space.  A  summary of  the  Company's 
commitment for the new office space is as follows:

                    
($000s)              
Year                     Total amount
 2013                  $  388
 2014                         2,153
 2015                         2,243
 2016                         2,243
 2017                         2,243
 More than 5 years           14,449

Business Prospects and 2013 Year Outlook

Bellatrix continues  to  develop  its  core  assets  and  conduct  exploration 
programs utilizing  its  large  inventory  of  geological  prospects.  As  at 
December 31, 2012, Bellatrix has  approximately 206,638 net undeveloped  acres 
and including  all  opportunities  has  in excess  of  1,700  net  exploration 
drilling opportunities identified. 

As a result of the recently announced  joint venture with a Seoul Korea  based 
company, Bellatrix's 2013  capital expenditure  budget has  been increased  to 
between $230 and  $240 million. A  total capital program  of $365 million  is 
anticipated including the capital expected to be invested by the joint venture
partner. Based on the timing of proposed expenditures, downtime for scheduled
and unscheduled plant turnarounds, completion of required infrastructure,  and 
normal production declines, execution of the 2013 capital expenditure plan  is 
expected to provide average daily production of approximately 24,000 boe/d  to 
25,000 boe/d, and an exit rate of approximately 30,000 boe/d to 31,000 boe/d.

The Company has initiated the 2013 program by instituting drilling of multiple
horizontal wells from  single surface  locations. Pad  drilling enhances  the 
opportunity  to  efficiently  develop   the  resource  while  minimizing   the 
environmental footprint and  improving our cost  and on-stream  efficiencies. 
Pad drilling also facilitates  drilling through the  spring breakup months  of 
Q2. As a result the Company plans to run 3 rigs throughout the second quarter
ramping up to 7 or 8 rigs for the second half of 2013.

Financial Reporting Update

Future Accounting Pronouncements

The following pronouncements  from the  IASB are applicable  to Bellatrix  and 
will become effective  for future  reporting periods,  but have  not yet  been 
adopted:

IFRS 9 - "Financial Instruments",  which is the result  of the first phase  of 
the IASB's project to replace IAS 39, "Financial Instruments: Recognition  and 
Measurement". The new  standard replaces the  current multiple  classification 
and measurement  models for  financial assets  and liabilities  with a  single 
model that has  only two  classification categories: amortized  cost and  fair 
value. This standard is  effective for annual periods  beginning on or  after 
January 1, 2015 with different transitional arrangements depending on the date
of initial application. The extent of the impact of the adoption of IFRS 9 has
not yet been determined.

IFRS 10 - "Consolidated Financial  Statements" ("IFRS 10"), which requires  an 
entity to  consolidate an  investee when  it  is exposed,  or has  rights,  to 
variable returns from its involvement with the investee and has the ability to
affect those returns through its power over the investee. Under existing IFRS,
consolidation is required when an entity has the power to govern the financial
and operating  policies  of  an entity  so  as  to obtain  benefits  from  its 
activities. This  standard replaces  SIC-12 -  "Consolidation—Special  Purpose 
Entities"  and  parts  of  IAS  27  -  "Consolidated  and  Separate  Financial 
Statements." Bellatrix intends  to adopt IFRS  10, including the  amendments 
issued in  June  2012, in  its  financial  statements for  the  annual  period 
beginning on  January 1,  2013. The  adoption  of IFRS  10 is  currently  not 
anticipated to impact the Company's financial statements.

IFRS 11 - "Joint  Arrangements" ("IFRS 11"), requires  a venturer to  classify 
its interest in  a joint arrangement  as a joint  venture or joint  operation, 
each having its own  accounting model. Joint ventures  will be accounted  for 
using the  equity method  of accounting,  whereas for  a joint  operation  the 
venture will  recognize its  share  of the  assets, liabilities,  revenue  and 
expenses of the joint  operation. The standard provides  for a more  substance 
based  reflection  of  joint  arrangements  by  focusing  on  the  rights  and 
obligations of the arrangement, rather than its legal form. IFRS 11 replaces
IAS 31  - "Interests  in  Joint Ventures"  and  SIC-13 -  "Jointly  Controlled 
Entities—Non-monetary Contributions by  Venturers" and establishes  principles 
for accounting for all  joint arrangements. Bellatrix  intends to adopt  IFRS 
11, including the amendments issued in June 2012, in its financial  statements 
for the annual period beginning on January  1, 2013. The adoption of IFRS  11 
is currently not  anticipated to have  a significant impact  on the  Company's 
financial statements.

IFRS 12 - "Disclosure of Interests in Other Entities" ("IFRS 12"), establishes
disclosure requirements  for  interests  in  other  entities,  such  as  joint 
arrangements, associates,  special  purpose  vehicles and  off  balance  sheet 
vehicles.  The  standard  carries   forward  existing  disclosures  and   also 
introduces significant  additional disclosure  requirements that  address  the 
nature  of,  and  risks  associated  with,  an  entity's  interests  in  other 
entities. Bellatrix intends to adopt IFRS 12, including the amendments issued
in June 2012, in its financial  statements for the annual period beginning  on 
January 1, 2013. The adoption of IFRS 12 is currently not anticipated to have
a significant impact on the Company's financial statements.

IFRS 13 - "Fair  Value Measurement" ("IFRS 13"),  is a comprehensive  standard 
for fair  value measurement  and disclosure  requirements for  use across  all 
IFRSs. The new standard clarifies that fair  value is the price that would  be 
received to sell  an asset,  or paid  to transfer  a liability  in an  orderly 
transaction between  market participants,  at the  measurement date.  It  also 
establishes disclosures  about fair  value measurement.  Under existing  IFRS, 
guidance on  measuring  and  disclosing  fair value  is  dispersed  among  the 
specific standards requiring fair  value measurements and  in many cases  does 
not reflect a clear measurement basis  or consistent disclosures. IFRS 13  is 
effective for annual periods beginning on or after January 1, 2013 and applies
prospectively from the beginning of the annual period in which the standard is
adopted.   The extent  of  the impact  of  the adoption  of  IFRS 13  on  the 
Company's financial statements has not yet been determined.

In June  2011, the  IASB  issued an  amendment to  IAS  1 -  "Presentation  of 
Financial Statements" ("IAS 1") requiring  companies to group items  presented 
within Other Comprehensive Income  based on whether  they may be  subsequently 
reclassified to profit  or loss.  This amendment to  IAS 1  is effective  for 
annual periods beginning  on or  after July  1, 2012  with full  retrospective 
application. Early  adoption is  permitted. Bellatrix  intends to  adopt  the 
amendments in  its financial  statements for  the annual  period beginning  on 
January 1, 2013. The extent of the impact of the amendments on the  financial 
statements has not yet been determined.

Business Risks and Uncertainties

General

Bellatrix's production  and exploration  activities  are concentrated  in  the 
Western Canadian Sedimentary Basin, where  activity is highly competitive  and 
includes a variety of  different sized companies  ranging from smaller  junior 
producers to the much larger integrated petroleum companies.

Bellatrix is subject to the various types of business risks and  uncertainties 
including:

  *Finding and developing oil and natural gas reserves at economic costs;

  *Production of oil and natural gas in commercial quantities; and

  *Marketability of oil and natural gas produced.

In order to  reduce exploration  risk, the  Company strives  to employ  highly 
qualified and motivated professional employees with a demonstrated ability  to 
generate quality  proprietary geological  and geophysical  prospects. To  help 
maximize drilling success, Bellatrix combines exploration in areas that afford
multi-zone prospect  potential, targeting  a  range of  low to  moderate  risk 
prospects  with   some  exposure   to   select  high-risk   with   high-reward 
opportunities. Bellatrix  also  explores  in  areas  where  the  Company  has 
significant drilling experience.

The Company mitigates its risk  related to producing hydrocarbons through  the 
utilization of the most appropriate technology and information systems managed
by qualified personnel. In addition,  Bellatrix seeks to maintain  operational 
control of the majority of its prospects.

Oil and gas exploration and production can involve environmental risks such as
pollution of the environment  and destruction of natural  habitat, as well  as 
safety risks  such  as personal  injury.  In  order to  mitigate  such  risks, 
Bellatrix conducts  its  operations  at  high  standards  and  follows  safety 
procedures intended to reduce the potential for personal injury to  employees, 
contractors and the public at  large. The Company maintains current  insurance 
coverage for general and comprehensive liability as well as limited  pollution 
liability. The amount and terms of  this insurance are reviewed on an  ongoing 
basis and adjusted as necessary to reflect changing corporate requirements, as
well  as  industry  standards  and  government  regulations.  Bellatrix   may 
periodically use  financial  or  physical delivery  contracts  to  reduce  its 
exposure against the potential adverse  impact of commodity price  volatility, 
as governed  by  formal policies  approved  by senior  management  subject  to 
controls established by the Board.

Pricing and Marketing

Oil

The producers of oil are entitled  to negotiate sales contracts directly  with 
oil purchasers, with the result that the market determines the price of  oil. 
Worldwide supply and  demand primarily  determines oil  prices. The  specific 
price depends in part on oil  quality, prices of competing fuels, distance  to 
market, the availability of transportation, the value of refined products, the
supply/demand balance and contractual terms  of sale. Oil exporters are  also 
entitled to enter into export contracts  with terms not exceeding one year  in 
the case of  light crude oil  and two years  in the case  of heavy crude  oil, 
provided that  an order  approving  such export  has  been obtained  from  the 
National Energy  Board of  Canada (the  "NEB").  Any oil  export to  be  made 
pursuant to a contract of longer duration (to a maximum of 25 years)  requires 
an exporter to obtain  an export licence  from the NEB.  The NEB is  currently 
undergoing a consultation process to update the current regulations  governing 
the issuance of export licences. The updating process is necessary to meet the
criteria set out  in the  federal Jobs,  Growth and  Long-term Prosperity  Act 
which received Royal Assent on June 29, 2012 (the "Prosperity Act"). In  this 
transitory period, the NEB has issued, and is currently following an  "Interim 
Memorandum of  Guidance concerning  Oil and  Gas Export  Applications and  Gas 
Import Applications under Part VI of the National Energy Board Act".

Natural Gas

Alberta's natural  gas market  has been  deregulated since  1985. Supply  and 
demand determine the price of natural gas and price is calculated at the sale
point, being the  wellhead, the outlet  of a  gas processing plant,  on a  gas 
transmission system such as the Alberta "NIT" (Nova Inventory Transfer), at  a 
storage facility, at the inlet to a utility system or at the point of  receipt 
by the consumer.  Accordingly, the price  for natural gas  is dependent  upon 
such producer's own arrangements (whether long or short term contracts and the
specific point of sale). As natural  gas is also traded on trading  platforms 
such as the  Natural Gas Exchange  (NGX) or the  New York Mercantile  Exchange 
(NYMEX) in the United States, spot and future prices can be set by such supply
and demand. Natural gas exported from  Canada is subject to regulation by  the 
NEB and the Government of Canada. Exporters are free to negotiate prices  and 
other terms with purchasers, provided that the export contracts must  continue 
to meet certain  other criteria prescribed  by the NEB  and the Government  of 
Canada. Natural gas  (other than propane,  butane and ethane)  exports for  a 
term of less than two years or for a term of two to 20 years (in quantities of
not more than  30,000 m3/day)  must be  made pursuant  to an  NEB order.  Any 
natural gas export to be made pursuant to a contract of longer duration (to  a 
maximum of 25 years) or for a  larger quantity requires an exporter to  obtain 
an export licence from the NEB.

Royalties and Incentives - General

In  addition  to  federal  regulation,  each  province  has  legislation   and 
regulations which govern royalties, production  rates and other matters.  The 
royalty  regime  in  a  given  province   is  a  significant  factor  in   the 
profitability of oil sands projects,  crude oil, natural gas liquids,  sulphur 
and natural gas production. Royalties payable on production from lands  other 
than Crown lands are  determined by negotiation  between the mineral  freehold 
owner and  the lessee,  although  production from  such  lands is  subject  to 
certain provincial taxes  and royalties. Royalties  from production on  Crown 
lands are determined by governmental  regulation and are generally  calculated 
as a  percentage of  the value  of gross  production. The  rate of  royalties 
payable generally  depends  in  part  on  prescribed  reference  prices,  well 
productivity, geographical location, field discovery date, method of  recovery 
and the type or  quality of the petroleum  product produced. Other  royalties 
and royalty like  interests are  carved out  of the  working interest  owner's 
interest, from time to time, through non public transactions. These are often
referred to as overriding royalties,  gross overriding royalties, net  profits 
interests, or net carried interests.

Occasionally  the  governments  of  the  western  Canadian  provinces   create 
incentive programs  for  exploration  and development.  Such  programs  often 
provide for royalty rate reductions,  royalty holidays or royalty tax  credits 
and are  generally  introduced when  commodity  prices are  low  to  encourage 
exploration and  development  activity by  improving  earnings and  cash  flow 
within the industry.

Land Tenure

The respective provincial governments predominantly own crude oil and  natural 
gas located in the western provinces. Provincial governments grant rights  to 
explore for and produce oil and natural gas pursuant to leases, licences,  and 
permits  for  varying  terms,  and  on  conditions  set  forth  in  provincial 
legislation including requirements to perform specific work or make payments.
Private ownership of  oil and natural  gas also exists  in such provinces  and 
rights to explore  for and produce  such oil  and natural gas  are granted  by 
lease on such terms and conditions as may be negotiated.

Each of  the  provinces of  Alberta,  British Columbia  and  Saskatchewan  has 
implemented legislation providing for  the reversion to  the Crown of  mineral 
rights to deep, non-productive geological formations at the conclusion of  the 
primary term  of a  lease or  license. On  March 29,  2007, British  Columbia 
expanded its policy of deep rights reversion for new leases to provide for the
reversion of  both shallow  and deep  formations that  cannot be  shown to  be 
capable of production at the end of their primary term.

Alberta also has a policy of "shallow rights reversion" which provides for the
reversion to the Crown of mineral rights to shallow, non-productive geological
formations for  all  leases and  licenses.  For leases  and  licenses  issued 
subsequent to January 1, 2009, shallow rights reversion will be applied at the
conclusion of the primary term of the lease or license. Holders of leases  or 
licences that have been continued indefinitely  prior to January 1, 2009  will 
receive a notice regarding the reversion of the shallow rights, which will  be 
implemented three years  from the  date of  the notice.  Leases and  licences 
granted prior  to January  1, 2009,  but continued  after that  date, are  not 
subject to shallow  rights reversion  until they continue  past their  primary 
term (at  which  time  the  application of  deep  rights  reversion  occurs). 
Afterwards, the holders of such agreements will be served with shallow  rights 
reversion notices based on vintage and location similar to leases and licences
that were already continued as of January  1, 2009. The order in which  these 
agreements will receive  reversion notices  will depend on  their vintage  and 
location.

Environmental Regulation

The oil  and  natural  gas  industry is  currently  subject  to  environmental 
regulations pursuant to a variety  of provincial and federal legislation,  all 
of which is subject  to governmental review and  revision from time to  time. 
Such legislation provides for restrictions and prohibitions on the release  or 
emission of various substances  produced in association  with certain oil  and 
gas industry  operations,  such as  sulphur  dioxide and  nitrous  oxide.  In 
addition, such  legislation sets  out the  requirements for  the  satisfactory 
abandonment and reclamation of well and facility sites. Compliance with  such 
legislation  can  require  significant  expenditures  and  a  breach  of  such 
requirements may result in suspension or revocation of necessary licenses  and 
authorizations, civil liability  for pollution damage,  and the imposition  of 
material fines  and  penalties.  Implementation  of  strategies  for  reducing 
greenhouse gases could have  a material impact  on the nature  of oil and  gas 
operations, including those of the Company.  Given the evolving nature of  the 
debate related  to climate  change and  the control  of greenhouse  gases  and 
resulting requirements, it  is not possible  to predict either  the nature  of 
those requirements  or  the impact  on  the  Company and  its  operations  and 
financial condition.

Global Financial Crisis

Recent  market   events  and   conditions,   including  disruptions   in   the 
international credit markets and other financial systems and the American  and 
European sovereign debt levels have caused significant volatility in commodity
prices. These events and conditions have  caused a decrease in confidence  in 
the broader U.S. and  global credit and financial  markets and have created  a 
climate of greater volatility, less  liquidity, widening of credit spreads,  a 
lack of  price  transparency,  increased  credit  losses  and  tighter  credit 
conditions. Notwithstanding various  actions by  governments, concerns  about 
the general condition  of the capital  markets, financial instruments,  banks, 
investment banks, insurers and other financial institutions caused the broader
credit  markets  to   further  deteriorate  and   stock  markets  to   decline 
substantially. While there are signs of economic recovery, these factors  have 
negatively impacted company valuations  and are likely  to continue to  impact 
the performance of  the global  economy going forward.  Petroleum prices  are 
expected to  remain  volatile  for the  near  future  as a  result  of  market 
uncertainties over  the supply  and demand  of these  commodities due  to  the 
current state of the  world economies, actions taken  by OPEC and the  ongoing 
global credit and liquidity concerns. This volatility may in the future affect
the Company's ability to obtain equity or debt financing on acceptable terms.

Substantial Capital Requirements

The Company  anticipates  making  substantial  capital  expenditures  for  the 
acquisition, exploration, development  and production of  oil and natural  gas 
reserves in the future. As future  capital expenditures will be financed  out 
of cash  generated  from operations,  borrowings  and possible  future  equity 
offerings, the  Company's  ability to  do  so  is dependent  on,  among  other 
factors, the overall state of the capital markets, the Company's credit rating
(if applicable), interest rates, royalty rates, tax burden due to current  and 
future tax laws, and investor appetite for investments in the energy  industry 
and the  Company's  securities  in  particular.  Further,  if  the  Company's 
revenues or reserves decline, it may not have access to the capital  necessary 
to undertake or complete future drilling programs. There can be no  assurance 
that debt  or  equity financing,  or  cash  generated by  operations  will  be 
available or  sufficient to  meet these  requirements or  for other  corporate 
purposes or, if  debt or equity  financing is  available, that it  will be  on 
terms acceptable  to the  Company. The  inability of  the Company  to  access 
sufficient capital for its operations could have a material adverse effect  on 
the  Company's  business  financial  condition,  results  of  operations   and 
prospects.

Third Party Credit Risk

The Company may be exposed to third party credit risk through its  contractual 
arrangements with its current or  future joint venture partners, marketers  of 
its petroleum and natural gas production and other parties. In the event such
entities fail  to meet  their  contractual obligations  to the  Company,  such 
failures may  have  a  material  adverse effect  on  the  Company's  business, 
financial condition, results of operations  and prospects. In addition,  poor 
credit conditions in the industry and  of joint venture partners may impact  a 
joint venture partner's  willingness to participate  in the Company's  ongoing 
capital program,  potentially delaying  the program  and the  results of  such 
program until the Company finds a suitable alternative partner.

Critical Accounting Estimates

The reader is advised  that the critical  accounting estimates, policies,  and 
practices  as  described  herein  continue  to  be  critical  in   determining 
Bellatrix's financial results.

The reader  is  cautioned that  the  preparation of  financial  statements  in 
accordance with  GAAP  requires  management  to  make  certain  judgments  and 
estimates that affect  the reported amounts  of assets, liabilities,  revenues 
and expenses.  The  following  discussion outlines  accounting  policies  and 
practices that are critical to determining Bellatrix's financial results.

Derivatives

The fair value of commodity  contracts is estimated, whenever possible,  based 
on published market  prices, and  if not  available, on  estimates from  third 
party brokers, as  at the balance  sheet date  and may differ  from what  will 
eventually be realized.

Oil and gas reserves

Reserves and resources  are used in  the units of  production calculation  for 
depreciation, depletion  and amortization  and the  impairment analysis  which 
affect net profit.  There are numerous  uncertainties inherent in  estimating 
oil and gas  reserves. Estimating  reserves is very  complex, requiring  many 
judgments based on  geological, geophysical, engineering  and economic  data. 
Changes in  these judgments  could have  a material  impact on  the  estimated 
reserves. These estimates may  change, having either  a negative or  positive 
effect on  net profit  as further  information becomes  available and  as  the 
economic environment changes.

Depreciation and depletion

Depletion of  petroleum  and natural  gas  properties is  provided  using  the 
unit-of-production method  based on  production  volumes before  royalties  in 
relation to  total  estimated  proved  and  probable  reserves  as  determined 
annually by  independent  engineers  and internal  reserve  evaluations  on  a 
quarterly basis  determined in  accordance with  National Instrument  51-101. 
Natural gas reserves and production are converted at the energy equivalent  of 
six thousand cubic feet to one barrel of oil.

Calculations for depletion and depreciation of production equipment are  based 
on total capitalized costs plus  estimated future development costs of  proved 
and probable undeveloped reserves less  the estimated net realizable value  of 
production equipment  and  facilities  after the  proved  reserves  are  fully 
produced. The  costs  of acquiring  and  evaluating unproved  properties  are 
excluded from depletion calculations.

Recoverability of asset carrying values

The Company assesses  its oil  and gas properties,  including exploration  and 
evaluation assets, for possible impairment if  there are events or changes  in 
circumstances that indicate  that carrying  values of  the assets  may not  be 
recoverable, or at least at every reporting date.

The assessment of any impairment of property, plant and equipment is dependent
upon estimates of recoverable  amount that take into  account factors such  as 
reserves, economic and  market conditions,  timing of cash  flows, the  useful 
lives of assets and their related salvage values.

Bellatrix's assets are aggregated  into CGUs, for  the purpose of  calculating 
impairment, based on their ability to generate largely independent cash flows,
geography, geology, production profile and  infrastructure of its assets.  By 
their nature,  these  estimates and  assumptions  are subject  to  measurement 
uncertainty and  may impact  the carrying  value of  the Company's  assets  in 
future periods.

Decommissioning obligations

Provisions for  decommissioning  obligations  associated  with  the  Company's 
drilling operations are based on current legal and constructive  requirements, 
technology, price levels and expected plans for remediation. Actual costs and
cash outflows  can  differ from  estimates  because  of changes  in  laws  and 
regulations, public  expectations,  prices,  discovery and  analysis  of  site 
conditions and changes in clean up technology.

Share-based compensation

The fair value  of stock  options granted is  measured using  a Black  Scholes 
model. Measurement inputs include share  price on measurement date,  exercise 
price of  the  option, expected  volatility,  expected life  of  the  options, 
expected dividends and the risk-free  rate. The Company estimates  volatility 
based on the  historical share  price. The expected  life of  the options  is 
based on historical experience and general option holder behavior.  Dividends 
were not  taken into  consideration as  the  Company does  not expect  to  pay 
dividends. Management also makes  an estimate of the  number of options  that 
will be forfeited and  the rate is  adjusted to reflect  the actual number  of 
options that actually vest.

Income taxes

Related  assets  and  liabilities  are   recognized  for  the  estimated   tax 
consequences between amounts  included in the  financial statements and  their 
tax base  using substantively  enacted  future income  tax rates.  Timing  of 
future revenue  streams and  future capital  spending changes  can affect  the 
timing of any temporary differences, and accordingly affect the amount of  the 
deferred tax  asset  or  liability  calculated at  a  point  in  time.  These 
differences could materially impact earnings.

Business combinations

Business combinations  are  accounted  for using  the  acquisition  method  of 
accounting. The determination of fair value often requires management to make
assumptions and estimates about future  events. The assumptions and  estimates 
with respect to determining the fair value of property, plant, and  equipment, 
and exploration  and evaluation  assets acquired  generally require  the  most 
judgment and  include  estimates  of  reserves  acquired,  forecast  benchmark 
commodity prices, and discount  rates. Changes in any  of the assumptions  or 
estimates  used  in  determining  the  fair  value  of  acquired  assets   and 
liabilities could impact the  amounts assigned to  assets, liabilities in  the 
purchase price allocation, and any resulting gain or loss. Future net earnings
can be affected as a result  of changes in future depletion, depreciation  and 
accretion, and asset impairments.

Legal, Environmental Remediation and Other Contingent Matters

The Company is involved in various claims and litigation arising in the normal
course of business. While the outcome of these matters is uncertain and there
can be no assurance that such matters will be resolved in the Company's favor,
the Company does not currently believe  that the outcome of adverse  decisions 
in any pending or threatened proceeding related to these and other matters  or 
any amount which  it may be  required to pay  by reason thereof  would have  a 
material adverse impact on its financial position or results of operations.

The Company  reviews legal,  environmental  remediation and  other  contingent 
matters to both  determine whether a  loss is probable  based on judgment  and 
interpretation of  laws  and  regulations  and determine  that  the  loss  can 
reasonably be  estimated. When  the  loss is  determined,  it is  charged  to 
earnings. The  Company's management  monitor known  and potential  contingent 
matters and make appropriate provisions by charges to earnings when  warranted 
by the circumstances.

With the above  risks and uncertainties  the reader is  cautioned that  future 
events and results may vary substantially from that which Bellatrix  currently 
foresees.

Controls and Procedures

Disclosure Controls and Procedures

The Company's  Chief  Executive  Officer  and  Chief  Financial  Officer  have 
designed, or  caused  to  be  designed  under  their  supervision,  disclosure 
controls and procedures  to provide  reasonable assurance  that: (i)  material 
information relating  to the  Company is  made known  to the  Company's  Chief 
Executive Officer and Chief Financial  Officer by others, particularly  during 
the period in  which the annual  and interim filings  are being prepared;  and 
(ii) information  required  to be  disclosed  by  the Company  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  period  specified in  securities  legislation. Such  officers  have 
evaluated,  or  caused   to  be   evaluated  under   their  supervision,   the 
effectiveness of  the  Company's disclosure  controls  and procedures  at  the 
financial year  end of  the  Company and  have  concluded that  the  Company's 
disclosure controls and procedures are effective at the financial year end  of 
the Company for the foregoing purposes.

Internal Control over Financial Reporting

The Company's  Chief  Executive  Officer  and  Chief  Financial  Officer  have 
designed, or caused to be  designed under their supervision, internal  control 
over  financial  reporting  to  provide  reasonable  assurance  regarding  the 
reliability of  the  Company's  financial reporting  and  the  preparation  of 
financial statements  for external  purposes in  accordance with  GAAP.  Such 
officers have evaluated, or  caused to be  evaluated under their  supervision, 
the effectiveness of the Company's  internal control over financial  reporting 
at the financial  year end  of the Company  and concluded  that the  Company's 
internal control over financial reporting  is effective at the financial  year 
end of the Company for the foregoing purpose.

The Company  is  required to  disclose  herein  any change  in  the  Company's 
internal control  over financial  reporting that  occurred during  the  period 
beginning on  October  1,  2012  and  ended on  December  31,  2012  that  has 
materially affected,  or  is  reasonably  likely  to  materially  affect,  the 
Company's internal control over financial  reporting. No material changes  in 
the Company's internal control over financial reporting were identified during
such period  that  has  materially  affected,  or  are  reasonably  likely  to 
materially affect, the Company's internal control over financial reporting.

It should be noted that a  control system, including the Company's  disclosure 
and internal  controls  and procedures,  no  matter how  well  conceived,  can 
provide only reasonable, but  not absolute, assurance  that the objectives  of 
the control  system  will be  met  and it  should  not be  expected  that  the 
disclosure and internal  controls and  procedures will prevent  all errors  or 
fraud.

Sensitivity Analysis

The table below shows sensitivities to funds flow from operations as a  result 
of product price, exchange rate, and interest rate changes. This is based  on 
actual average prices  received for  the fourth  quarter of  2012 and  average 
production volumes of  18,763 boe/d during  that period, as  well as the  same 
level of  debt outstanding  at December  31, 2012.  Diluted weighted  average 
shares are based  upon the fourth  quarter of 2012.  These sensitivities  are 
approximations only,  and  not  necessarily valid  under  other  significantly 
different production levels or product mixes. Commodity price risk  management 
activities can significantly  affect these sensitivities.  Changes in any  of 
these parameters will affect funds flow as shown in the table below:

                                                     
                                      Funds Flow from        Funds Flow from
                                       Operations ^(1)        Operations ^ (1)
                                         (annualized)       Per Diluted Share
Sensitivity Analysis                           ($000s)                     ($)
Change of US $1/bbl WTI                          1,500                    0.01
Change of $0.10/ mcf                             2,600                    0.02
Change of US $0.01 CDN/ US                       1,100                    0.01
exchange rate
Change in prime of 1%                            1,300                    0.01

(1) The term "funds flow from operations" should not be considered an
    alternative to, or more meaningful than cash flow from operating
    activities as determined in accordance with GAAP as an indicator of the
    Company's performance. Therefore reference to additional GAAP measures of
    diluted funds flow from operations or funds flow from operations per share
    may not be comparable with the calculation of similar measures for other
    entities. Management uses funds flow from operations to analyze operating
    performance and leverage and considers funds flow from operations to be a
    key measure as it demonstrates the Company's ability to generate the cash
    necessary to fund future capital investments and to repay debt. The
    reconciliation between cash flow from operating activities and funds flow
    from operations can be found elsewhere herein. Funds flow from operations
    per share is calculated using the weighted average number of common shares
    for the period.

Selected Quarterly Consolidated Information

The following table sets forth selected consolidated financial information  of 
the Company for the quarters in 2012 and 2011.

                                                                     
2012 - Quarter ended (unaudited)    
($000s, except per share amounts)     March 31  June 30  Sept. 30   Dec. 31
Revenues before royalties and risk  
management                              58,191   50,714    48,126    62,283
Cash flow from operating activities    24,056   28,458    24,807    32,007
Cash flow from operating activities 
per share                                                              
                Basic                 $0.22    $0.24     $0.23     $0.30
            Diluted               $0.21    $0.22     $0.22     $0.28
Funds flow from operations ^(1)        29,194   25,366    26,613    29,865
Funds flow from operations per      
share ^(1)                                                             
               Basic                 $0.27    $0.24     $0.25     $0.28
            Diluted               $0.25    $0.22     $0.23     $0.26
Net profit (loss)                       9,172    9,963     (615)     9,251
Net profit (loss) per share                                           
               Basic                 $0.09    $0.09   ($0.01)     $0.09
             Diluted               $0.08    $0.09   ($0.01)     $0.08
Net capital expenditures (cash)        73,831   16,284    35,515    64,383
                                                                     
2011 - Quarter ended (unaudited)    
($000s, except per share amounts)     March 31  June 30  Sept. 30   Dec. 31
Revenues before royalties and risk  
management                              40,535   53,444    49,145    59,194
Cash flow from operating activities    15,718   23,825    28,023    30,626
Cash flow from operating activities 
per share                                                              
               Basic                 $0.16    $0.23     $0.26     $0.28
               Diluted               $0.15    $0.22     $0.24     $0.26
Funds flow from operations ^(1)        17,027   23,126    23,964    30,120
Funds flow from operations per      
share ^(1)                                                             
               Basic                 $0.17    $0.22     $0.22     $0.28
               Diluted               $0.16    $0.21     $0.21     $0.26
Net profit (loss)                     (5,487)   12,315       820  (13,597)
Net profit (loss) per share                                           
               Basic               ($0.06)    $0.12     $0.01   ($0.13)
               Diluted             ($0.06)    $0.11     $0.01   ($0.13)
Net capital expenditures (cash)        59,247   28,784    40,087    47,240

^(1) Refer to "Additonal GAAP Measures" in respect of the term "funds flow
     from operations" and "funds flow from operations per share".

The quarterly results for  2012 compared to 2011  were positively impacted  by 
increased production resulting from the expansion of Bellatrix's 2011 and 2012
drilling programs, offset somewhat by lower overall commodity prices  realized 
in the 2012 quarters compared to the 2011 quarters.

During the first quarter of 2012,  the Company spent $74.1 million in  capital 
expenditures, compared to  $59.1 million in  the first quarter  of 2011.  The 
Company drilled or  participated in 13  gross (10.72 net)  wells in the  first 
quarter of 2012,  compared to 21  gross (12.07 net)  wells in the  comparative 
2011 quarter. Higher sales volumes of  15,900 boe/d in the 2012 first  quarter 
compared to 10,084  boe/d in  the 2011  period, in  conjunction with  stronger 
crude oil and NGL pricing and offset slightly by depressed natural gas prices,
resulted in increased revenue of $58.2  million in the first quarter of  2012, 
compared to $40.5 million in the 2011 first quarter.

In the second quarter of  2012, the Company closed  on the disposition of  two 
minor  non-core  properties   for  total  proceeds   of  $2.0  million   after 
adjustments. In  the 2012  second quarter,  the Company  spent $18.3  million 
(2011: $29.0 million) in capital expenditures, and drilled 2 gross (1.72  net) 
wells, compared to 2 gross (1.71 net)  wells in the same period in 2011.  Due 
primarily to  Bellatrix's 2012  drilling  program executed  in the  first  and 
second quarters, sales volumes increased by 42% to 16,569 boe/d in the  second 
quarter of 2012, compared to 11,643 boe/d in the second quarter of 2011.

During the third quarter of 2012, the  Company closed on the disposition of  a 
minor non-core property interest in the  Wainwright area for proceeds of  $4.3 
million after adjustments. In  the third quarter of  2012, the Company  spent 
$39.8 million on capital expenditures compared  to $44.2 million in the  third 
quarter of 2011. In the third quarter of 2012, Bellatrix drilled 9 gross (7.71
net) wells, compared to  19 gross (13.41  net) wells in  the third quarter  of 
2011.

Fourth quarter of 2012 results are  compared in detail to fourth quarter  2011 
results throughout this MD&A.

Overall, the  success and  execution of  the Company's  2012 drilling  program 
resulted in increased sales volumes  and cash flows, despite weaker  commodity 
prices experienced during most of the 2012 year.

Selected Annual Consolidated Information

The following table sets forth selected consolidated financial information  of 
the Company for the most recently completed year ending December 31, 2012  and 
for comparative 2011 and 2010 years. The adoption date of IFRS of January  1, 
2011 required restatement for comparative  purposes, of the Company's  opening 
balance sheet as at January 1, 2010, all interim quarterly periods in 2010 and
for its year ended December 31, 2010.

                                                                       
Years ended December 31,                    
($000s, except per share amounts)                  2012       2011      2010
Revenues (before royalties and risk         
management)                                     219,314    202,318   117,673
Funds flow from operations ^(1)                111,038     94,237    53,042
Funds flow from operations per share ^(1)                               
        Basic                                 $1.03      $0.91     $0.57
        Diluted                               $0.96      $0.87     $0.54
Cash flow from operating activities                                     
Cash flow from operating activities per     
share                                           109,328     98,192    44,272
        Basic                                 $1.02      $0.95     $0.47
         Diluted                               $0.95      $0.87     $0.46
Net profit (loss)                               27,771    (5,949)   (4,985)
Net profit (loss) per share                                             
        Basic                                 $0.26    ($0.06)   ($0.05)
        Diluted                               $0.25    ($0.06)   ($0.05)
Net capital expenditures (cash)              (178,688)  (175,358)  (92,181)
Total assets                                   681,421    580,422   477,054
Total net debt ^(1) (2)                        189,577    119,250    87,444
Non-current financial liabilities                                       
         Future income taxes                       -          -         -
          Decommissioning liabilities          43,909     45,091    38,710
Sales volumes (boe/d)                           16,775     11,954     8,519
Distributions declared                               -          -         -
Distributions per share/unit                         -          -         -

^(1)  Refer to " Additional GAAP Measures" in respect of the terms "funds
       flow from operations," "funds flow from operations per share," "net
       debt" and "total net debt."
^(2)   Net debt includes the net working capital deficiency before short-term
       commodity contract assets and liabilities, current finance lease
       obligations and short-term future income tax assets and liabilities.
       Total net debt also includes the liability component of convertible
       debentures and excludes finance lease obligations, decommissioning
       liabilities and future income tax liabilities.

2012 annual results are compared in  detail to 2011 annual results  throughout 
this MD&A.

The annual results for 2011 compared to 2010 were most notably impacted by  an 
expanded drilling program resulting in increased sales volumes. Revenues  and 
cash flows  were  impacted  by  increased sales  volumes,  higher  crude  oil, 
condensate and NGL prices  and lower natural gas  prices realized, as well  as 
lower operating costs per boe between the years.

Bellatrix's capital expenditures totaled $179.6  million in 2011, compared  to 
$106.7 million in 2010. Due in large  part to the expanded capital program  in 
2011, total sales volumes increased by  40% to 11,954 boe/d in 2011,  compared 
to 8,519 boe/d  in 2010. Primarily  due to the  significant increase in  sales 
volumes between  the  years, revenues  before  royalties and  risk  management 
increased to $202.3 million  in 2011, compared to  $117.7 million realized  in 
2010, despite reductions in commodity prices between the years.

BELLATRIX EXPLORATION LTD.                                                                            
CONSOLIDATED BALANCE SHEETS                                                                           
As at December 31,
(expressed in Canadian dollars)                                                                       
                                                                                                     
                                                                                                
($000s)         2012      2011
                                                                                                     
ASSETS                                                                                                
Current assets                                                                                        
              Accounts receivable (note 21)                                         $   $  
                                                                                        40,792     45,322
              Deposits and prepaid expenses                                             4,136     3,626
              Commodity contract asset (note 21)                                        7,519     2,979
                                                                                      52,447    51,927
Exploration and evaluation assets (note 6)                                              38,177    33,089
Property, plant and equipment (note 7)                                                 589,759   484,301
Deferred taxes (note 15)                                                                 1,038    11,105
Total assets                                                                               $     $ 
                                                                                      681,421    580,422
                                                                                                    
LIABILITIES                                                                                          
Current liabilities                                                                                   
              Accounts payable and accrued liabilities                                $  $ 
                                                                                         50,771     62,421
              Current portion of finance lease obligation (note 10)                     1,425       490
              Commodity contract liability (note 21)                                    1,131    10,667
                                                                                      53,327    73,578
                                                                                                    
Commodity contract liability (note 21)                                                   6,214     2,944
Long-term debt (note 8)                                                                133,047    56,701
Convertible debentures (note 9)                                                         50,687    49,076
Finance lease obligation (note 10)                                                      13,131     4,627
Decommissioning liabilities (note 11)                                                   43,909    45,091
Total liabilities                                                                      300,315   232,017
                                                                                                     
SHAREHOLDERS' EQUITY                                                                                  
              Shareholders' capital (note 12)                                         371,576   370,048
              Equity component of convertible debentures (note 9)                       4,378     4,378
              Contributed surplus                                                      37,284    33,882
              Deficit                                                                (32,132)  (59,903)
Total shareholders' equity                                                             381,106   348,405
Total liabilities and shareholders' equity                                              $      $ 
                                                                                        681,421    580,422
                                                                                                     
COMMITMENTS (note 20)                                                                          
SUBSEQUENT EVENT (note 22)
                                                                                                     
See accompanying notes to the consolidated financial statements.


BELLATRIX EXPLORATION LTD.                                       
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME                  
For the years ended December 31,                                 
(expressed in Canadian dollars)                                  
                                                                  
($000s)                                                    2012        2011
                                                                        
REVENUES                                                                  
 Petroleum and natural gas sales                     $ 217,138  $ 200,187
 Other income                                             2,176       2,131
 Royalties                                             (38,756)    (34,698)
 Total revenues                                         180,558     167,620
                                                                        
 Realized gain on commodity contracts                    11,269         567
 Unrealized gain (loss) on commodity contracts           10,806     (6,900)
                                                       202,633     161,287
                                                                        
EXPENSES                                                                  
 Production                                              53,316      50,313
 Transportation                                           4,978       5,715
 General and administrative (note 17)                    14,272      12,358
 Share-based compensation (note 13)                       3,219       2,939
 Depletion and depreciation (note 7)                     75,720      63,384
 Gain on property acquisition (note 7)                 (16,160)           -
 Loss (gain) on property dispositions (note 7)            4,113     (1,730)
 Impairment loss on property, plant and equipment        14,820      25,569
(note 7)
                                                       154,278     158,548
                                                                        
NET PROFIT BEFORE FINANCE AND TAXES                       48,355       2,739
                                                                         
 Finance expenses (note 16)                              10,517       7,920
                                                                         
NET PROFIT (LOSS) BEFORE TAXES                            37,838     (5,181)
                                                                        
TAXES                                                                     
 Deferred tax expense (note 15)                          10,067         768
                                                                        
NET PROFIT (LOSS) AND COMPREHENSIVE INCOME                27,771     (5,949)
                                                                         
                                                                        
Net profit (loss) per share (note 19)                                     
 Basic                                                    $0.26     ($0.06)
 Diluted                                                  $0.25     ($0.06)

See accompanying notes to the consolidated financial statements.

BELLATRIX EXPLORATION LTD.                                               
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY                          
For the years ended December 31,                                
(expressed in Canadian dollars)                                 
                                                              
($000s)                                                 2012          2011
                                                                       
SHAREHOLDERS' CAPITAL (note 12)                                          
   Common shares                                                       
     Balance, beginning of year                  $ 370,048    $ 316,779
     Issued for cash, net of transaction costs            -        52,734
     Issued on exercise of share options              1,093           381
     Contributed surplus transferred on                 435           154
       exercised options
     Balance, end of year                           371,576       370,048
                                                                       
                                                                       
EQUITY COMPONENT OF CONVERTIBLE DEBENTURES (note                         
9)
     Balance, beginning and end of year               4,378         4,378
                                                                       
CONTRIBUTED SURPLUS (note 13)                                           
     Balance, beginning of year                      33,882        30,489
     Share-based compensation expense                 4,024         3,632
   Adjustment of share-based compensation           (187)          (85)
       expensefor forfeitures of unvested share
       options
     Transfer to share capital for exercised          (435)         (154)
       options
     Balance, end of year                            37,284        33,882
                                                                       
                                                                       
DEFICIT                                                                  
     Balance, beginning of year                    (59,903)      (53,954)
     Net profit (loss)                               27,771       (5,949)
     Balance, end of year                          (32,132)      (59,903)
                                                                       
                                                                       
                                                                       
TOTAL SHAREHOLDERS' EQUITY                         $ 381,106    $ 348,405
                                                                        
See accompanying notes to the consolidated financial statements.

BELLATRIX EXPLORATION LTD.                                               
CONSOLIDATED STATEMENTS OF CASH                                          
FLOWS
For the years ended December 31,                                         
(expressed in Canadian dollars)                                          
                                                                        
($000s)                                           2012                 2011
                                                                       
Cash provided by (used in):                                              
                                                                        
CASH FLOW FROM OPERATING ACTIVITIES                                      
Net profit (loss)                      $      27,771      $     (5,949)
Adjustments for:                                                         
         Depletion and                        75,720               63,384
           depreciation
         Finance expenses (note                2,294                2,356
           16)
         Share-based compensation              3,219                2,939
           (note 13)
         Unrealized (gain) loss on          (10,806)                6,900
           commodity contracts
         Gain on property                   (16,160)                    -
           acquisition (note 7)
         Loss (gain) on property               4,113              (1,730)
           dispositions
         Impairment loss on                   14,820               25,569
           property, plant and
           equipment
         Deferred tax expense                 10,067                  768
           (note 15)
         Decommissioning costs                 (635)                (569)
           incurred
         Change in non-cash                  (1,075)                4,524
           working capital (note 14)
                                             109,328               98,192
                                                                       
CASH FLOW FROM (USED IN) FINANCING                                       
ACTIVITIES
         Issuance of share capital             1,093               55,385
         Issue costs on share                      -              (3,088)
           capital
         Advances from loans and             528,529              372,141
           borrowings
         Repayment of loans and            (452,183)            (356,612)
           borrowings
         Obligations under finance             (560)                (172)
           lease (note 10)
                                              76,879               67,654
         Change in non-cash                     (55)                  136
           working capital (note 14)
                                              76,824               67,790
                                                                       
CASH FLOW FROM (USED IN) INVESTING                                       
ACTIVITIES
         Expenditure on                     (17,118)             (16,839)
           exploration and
           evaluation assets
         Additions to property,            (168,230)            (162,722)
           plant and equipment
         Proceeds on sale of                   6,660                4,203
           property, plant and
           equipment
                                           (178,688)            (175,358)
         Change in non-cash                  (7,464)                9,376
           working capital (note 14)
                                           (186,152)            (165,982)
                                                                       
         Change in cash                            -                    -
                                                                       
         Cash, beginning of year                   -                    -
                                                                       
         Cash, end of year           $  -     $  -
                                                                       
Cash paid:                                                              
    Interest                        $      5,676    $       4,738
    Taxes                                          -                    -
                                                                        
See accompanying notes to the                                            
consolidated financial statements.
                                                                        

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(expressed in Canadian dollars)

1. CORPORATE INFORMATION

Bellatrix  Exploration  Ltd.  (the  "Company"  or  "Bellatrix")  is  a  growth 
oriented, public exploration and production company.

2. BASIS OF PREPARATION

a.Statement of compliance

These  consolidated   financial  statements   ("financial  statements")   were 
authorized by the Board of Directors  on March 6, 2013. The Company  prepared 
these  financial  statements  in   accordance  with  International   Financial 
Reporting Standards as issued by the International Accounting Standards  Board 
("IFRS").

b.Basis of measurement

The consolidated financial statements are  presented in Canadian dollars,  the 
Company's functional currency, and have  been prepared on the historical  cost 
basis  except  for  derivative  financial  instruments  and  liabilities   for 
cash-settled share-based  payment arrangements  measured at  fair value.  The 
consolidated financial statements have, in management's opinion, been properly
prepared using  careful  judgment and  reasonable  limits of  materiality  and 
within the framework of  the significant policies summarized  in note 3.  The 
areas involving a  higher degree  of judgment  or complexity,  or areas  where 
assumptions and  estimates are  significant to  the financial  statements  are 
disclosed in note 4.

3. SIGNIFICANT ACCOUNTING POLICIES

a.Principles of Consolidation

The consolidated financial statements include the accounts of the Company  and 
its subsidiary. Any reference to the "Company" throughout these  consolidated 
financial  statements  refers  to  the   Company  and  its  subsidiary.   All 
inter-entity transactions have been eliminated.

b.Revenue Recognition

Revenues from the sale of petroleum and natural gas are recorded when title to
the products  transfers  to the  purchasers  based on  volumes  delivered  and 
contracted delivery  points and  prices. Royalty  income is  recognized as  it 
accrues in accordance with the terms of the overriding royalty agreements  and 
is included with petroleum and natural gas sales.

Processing charges  to other  entities  for use  of  facilities owned  by  the 
Company are recognized as revenue as they accrue in accordance with the  terms 
of the service agreements and are presented as other income.

c.Joint Interests

A significant portion of the Company's exploration and development  activities 
are conducted jointly with others.  The financial statements reflect only  the 
Company's proportionate share of  the assets, liabilities, revenues,  expenses 
and cash flows from these activities.

d.Property, Plant and Equipment and Exploration and Evaluation Assets

 I.   Pre-exploration expenditures
           Expenditures made by the Company before acquiring the legal right
           to explore in a specific area do not meet the definition of an
            asset and therefore are expensed by the Company as incurred.
          
 II.  Exploration and evaluation expenditures
           Costs incurred once the legal right to explore has been acquired
            are capitalized as exploration and evaluation assets. These costs
            include, but are not limited to, exploration license expenditures,
            leasehold property acquisition costs, evaluation costs, including
           drilling costs directly attributable to an identifiable well and
            directly attributable general and administrative costs. These
            costs are accumulated in cost centres by property and are not
            subject to depletion until technical feasibility and commercial
            viability have been determined.
           Exploration and evaluation assets are assessed for impairment if
           sufficient data exists to determine technical feasibility and
            commercial viability, or if facts and circumstances suggest that
            the carrying amount is unlikely to be recovered.
          
 III. Developing and production costs
           Items of property, plant and equipment, which include oil and gas
           development and production assets, are measured at cost less
            accumulated depletion and depreciation and accumulated impairment
            losses.
           Gains and losses on disposal of an item of property, plant and
            equipment, including oil and natural gas interests, are determined
           by comparing the proceeds from disposal with the carrying amount
            of property, plant and equipment, and are recognized within the
            Consolidated Statements of Comprehensive Income.
          
 IV.  Subsequent costs
           Costs incurred subsequent to the determination of technical
            feasibility and commercial viability and the costs of replacing
            parts of property, plant and equipment are recognized as oil and
            natural gas interests only when they increase the future economic
            benefits embodied in the specific asset to which they relate. All
            other expenditures are recognized in profit or loss as incurred.
           Such capitalized oil and natural gas interests generally represent
            costs incurred in developing proved and/or probable reserves and
            bringing in or enhancing production from such reserves, and are
            accumulated on a well, field or geotechnical area basis. The
            carrying amount of any replaced or sold component is derecognized.
            The costs of the day-to-day servicing of property, plant and
            equipment are recognized in profit or loss as incurred.
          
 V.   Depletion and depreciation
           Depletion of petroleum and natural gas properties is provided
            using the unit-of-production method based on production volumes in
            relation to total estimated proven and probable reserves as
           determined annually by independent engineers and determined in
            accordance with National Instrument 51-101. Natural gas reserves
            and production are converted at the energy equivalent of six
            thousand cubic feet to one barrel of oil.
           Calculations for depletion and depreciation of production
            equipment are based on total capitalized costs plus estimated
           future development costs of proven and probable undeveloped
            reserves less the estimated net realizable value of production
            equipment and facilities after the proved and probable reserves
            are fully produced.
           Depreciation of office furniture and equipment is provided for on
           a 20% declining balance basis. Depreciation methods, useful lives
            and residual values are reviewed at each reporting date.
          

e.Impairment

 I. Financial assets
         A financial asset is assessed at each reporting date to determine
          whether there is any objective evidence that it is impaired. A
         financial asset is considered to be impaired if objective evidence
          indicates that one or more events have had a negative effect on the
          estimated future cash flows of that asset.
         An impairment loss in respect of a financial asset measured at
          amortized cost is calculated as the difference between its carrying
         amount and the present value of the estimated future cash flows
          discounted at the original effective interest rate. All impairment
          losses are recognized in profit or loss.
        
 II. Non-financial assets
         For the purpose of impairment testing, assets are grouped together
          into the smallest group of assets that generates cash inflows from
          continuing use that are largely independent of the cash inflows of
         other assets or groups of assets (the "cash-generating unit" or
          "CGU"). Developing and producing assets are assessed for impairment
          if facts and circumstances suggest that the carrying amount exceeds
          the recoverable amount.
         The recoverable amount of an asset or a CGU is the greater of its
          value in use and its fair value less costs to sell. Fair value less
          costs to sell is determined to be the amount for which the asset
          could be sold in an arm's length transaction. Fair value less costs
         to sell can be determined by using an observable market metric or by
          using discounted future net cash flows of proved and probable
          reserves using forecasted prices and costs. Value in use is
          determined by estimating the present value of the future net cash
          flows expected to be derived from the continued use of the asset or
          cash generating unit.
         An impairment loss is recognized if the carrying amount of an asset
          or its CGU exceeds its estimated recoverable amount. Impairment
          losses are recognized in profit or loss. Impairment losses
         recognized in respect of CGU's are allocated first to reduce the
          carrying amount of goodwill, if any, allocated to the units and then
          to reduce the carrying amounts of the other assets in the unit
          (group of units) on a pro rata basis.
         Impairment losses recognized in prior years are assessed at each
          reporting date for any indications that the loss has decreased or no
          longer exists. An impairment loss is reversed if there has been a
         change in the estimates used to determine the recoverable amount. An
          impairment loss is reversed only to the extent that the asset's
          carrying amount does not exceed the carrying amount that would have
          been determined, net of depletion and depreciation or amortization,
          if no impairment loss had been recognized.
         Exploration and evaluation assets are grouped together with the
          Company's CGU's when they are assessed for impairment, both at the
         time of any triggering facts and circumstances as well as upon their
          eventual reclassification to producing assets (oil and natural gas
          interests in property, plant and equipment).

f.Provisions

Provisions are recognized when the Company has a present legal or constructive
obligation as a  result of a  past event, it  is probable that  an outflow  of 
economic benefits will  be required to  settle the obligation  and a  reliable 
estimate can  be  made  of  the amount  of  the  obligation.  Provisions  are 
determined by  discounting the  expected cash  flows at  a pre-tax  rate  that 
reflects current market assessments of the  time value of money and the  risks 
specific to the  liability if the  risks have not  been incorporated into  the 
estimate of cash flows. The increase in  the provision due to the passage  of 
time is recognized within finance costs.

 I.  Decommissioning obligations
          The Company's activities give rise to dismantling, decommissioning
          and site disturbance re-mediation activities. A provision is made
           for the estimated cost of site restoration and capitalized in the
           relevant asset category.
          Decommissioning obligations are measured at the present value of
           management's best estimate of the expenditure required to settle
           the present obligation at the balance sheet date. Changes in the
           present value of the estimated expenditure are reflected as an
          adjustment to the provision and the relevant asset. The unwinding
           of the discount on the decommissioning provision is recognized as a
           finance cost. Actual costs incurred upon settlement of the
           decommissioning liabilities are charged against the provision to
           the extent the provision was recognized.
         
 II. Environmental Liabilities
          The Company records liabilities on an undiscounted basis for
           environmental remediation efforts that are likely to occur and
           where the cost can be reasonably estimated. The estimates,
           including associated legal costs, are based on available
          information using existing technology and enacted laws and
           regulations. The estimates are subject to revision in future
           periods based on actual costs incurred or new circumstances. Any
           amounts expected to be recovered from other parties, including
           insurers, are recorded as an asset separate from the associated
           liability.
         

g. Share-based Payments

 I.  Equity-settled transactions
         Bellatrix accounts for options issued under the Company's share
           option plan to employees, directors, officers, consultants and
           other service providers by reference to the fair value of the
           equity instruments granted. The fair value of each share option is
           estimated on the date of the grant using the Black-Scholes options
           pricing model and charged to earnings over the vesting period with
           a corresponding increase to contributed surplus. The Company
           estimates a forfeiture rate on the grant date and the rate is
           adjusted to reflect the actual number of options that actually
           vest. The expected life of the options granted is adjusted, based
           on the Company's best estimate, for the effects of
           non-transferability, exercise restrictions and behavioural
           considerations.
         
 II. Cash-settled transactions
         The Company's Deferred Share Unit Plan (the "Plan") is accounted
           for as a cash settled share based payment plan in accordance with
           IFRS 2 - "Share-based Payments" in which the fair value of the
           amount payable under the Plan is recognized as an expense with a
           corresponding increase in liabilities. The liability is re-measured
           at each reporting date and at settlement date. Any changes in the
           fair value of the liability are recognized in profit or loss.
         

h.Income Taxes

Income tax  expense is  comprised of  current and  deferred tax.  Income  tax 
expense is recognized in profit or loss  except to the extent that it  relates 
to items recognized  directly in  equity, in which  case it  is recognized  in 
equity.

 I.  Current income tax
         Current income tax assets and liabilities for the current and prior
           periods are measured at the amount expected to be recovered from or
           paid to the taxation authorities. The tax rates and tax laws used
           to compute the amount are those that are enacted or substantively
           enacted by the date of the statement of financial position.
         
 II. Deferred income tax
         Deferred tax is recognized using the balance sheet method,
           providing for temporary differences between the carrying amounts of
           assets and liabilities for financial reporting purposes and the
           amounts used for taxation purposes. Deferred tax is not recognized
           on the initial recognition of assets or liabilities in a
           transaction that is not a business combination. In addition,
           deferred tax is not recognized for taxable temporary differences
           arising on the initial recognition of goodwill. Deferred tax is
           measured at the tax rates that are expected to be applied to
           temporary differences when they reverse, based on the laws that
           have been enacted or substantively enacted by the reporting date.
           Deferred tax assets and liabilities are offset if there is a
           legally enforceable right to offset, and they relate to income
           taxes levied by the same tax authority on the same taxable entity,
           or on different tax entities, but they intend to settle current tax
           liabilities and assets on a net basis or their tax assets and
           liabilities will be realized simultaneously.
         A deferred tax asset is recognized to the extent that it is
           probable that future taxable profits will be available against
           which the temporary difference can be utilized. Deferred tax assets
           are reviewed at each reporting date and are reduced to the extent
           that it is no longer probable that the related tax benefit will be
           realized.
         

i. Financial Instruments

All financial instruments,  including all derivatives,  are recognized on  the 
balance  sheet  initially  at  fair  value.  Subsequent  measurement  of  all 
financial assets and liabilities  except those held-for-trading and  available 
for sale  are  measured  at  amortized cost  determined  using  the  effective 
interest rate method. Held-for-trading financial assets are measured at  fair 
value with changes  in fair  value recognized  in income.  Available-for-sale 
financial assets  are  measured at  fair  value  with changes  in  fair  value 
recognized  in   comprehensive  income   and  reclassified   to  income   when 
derecognized or impaired. The Company has the following classifications:

Financial Assets and           Category              Subsequent Measurement
Liabilities
Cash and cash equivalents      Held-for-trading      Fair value through profit
                                                     or loss
Accounts receivable            Loans and receivables Amortized cost
Deposits and prepaid expenses  Other assets          Amortized cost
Commodity risk management      Held-for-trading      Fair value through profit
contracts                                            or loss
Accounts payable and accrued   Other liabilities     Amortized cost
liabilities
Long-term debt                 Other liabilities     Amortized cost
Convertible debentures         Other liabilities     Amortized cost
Finance lease obligation       Other liabilities     Amortized cost

Transaction costs attributable  to financial instruments  classified as  other 
than held-for-trading are  included in  the recognized amount  of the  related 
financial instrument and recognized over  the life of the resulting  financial 
instrument using the effective interest rate method.

The Company  utilizes  financial  derivatives and  commodity  sales  contracts 
requiring  physical  delivery,  to  manage  the  price  risk  attributable  to 
anticipated sale of petroleum and natural gas production and foreign  exchange 
exposures. The Company  does not enter  into derivative financial  instruments 
for trading  or  speculative purposes.  The  Company has  not  designated  its 
financial derivative contracts  as effective accounting  hedges, and thus  not 
applied hedge  accounting, even  though the  Company considers  all  commodity 
contracts to  be economic  hedges.  As a  result, financial  derivatives  are 
classified as  fair value  through profit  or  loss and  are recorded  on  the 
balance sheet at fair value.

The derivative financial  instruments are initiated  within the guidelines  of 
the Company's commodity price risk  management policy. This includes  linking 
all derivatives to specific assets and liabilities on the balance sheet or  to 
specific firm commitments or forecasted transactions.

The Company accounts  for its  commodity sales and  purchase contracts,  which 
were entered  into and  continue to  be held  for the  purpose of  receipt  or 
delivery of non-financial items in accordance with its expected purchase, sale
or usage requirements  as executory  contracts. As such,  physical sales  and 
purchase contracts  are not  recorded at  fair value  on the  balance  sheet. 
Settlements on these physical sales contracts are recognized in petroleum  and 
natural gas sales.

Financial instruments  measured at  fair value  on the  balance sheet  require 
classification into one of the following levels of the fair value hierarchy:

Level 1 - Quoted prices (unadjusted) in active markets for identical assets or
liabilities

Level 2  - Inputs  other  than quoted  prices included  in  level 1  that  are 
observable for the asset or liability, either directly or indirectly.

Level 3 - inputs for the asset  or liability that are not based on  observable 
market data.

The  fair  value  hierarchy  level  at  which  a  fair  value  measurement  is 
categorized is  determined on  the basis  of the  lowest level  input that  is 
significant to the fair  value measurement in its  entirety. The Company  has 
categorized its  financial instruments  that are  fair valued  on the  balance 
sheet according to the fair value hierarchy.

j. Compound Financial Instruments

The Company's  compound  financial  instruments comprise  of  its  convertible 
debentures that can be converted to common shares at the option of the holder,
and the number  of shares  to be  issued does not  vary with  changes in  fair 
value.

The liability component of the convertible debentures is recognized  initially 
at the  fair  value of  a  similar liability  that  does not  have  an  equity 
conversion option.  The  equity  component is  recognized  initially  as  the 
difference between the fair  value of the convertible  debenture and the  fair 
value of the liability component. Any directly attributable transaction costs
are allocated to the  liability and equity components  in proportion to  their 
initial carrying amounts.

Subsequent to initial recognition, the liability component of the  convertible 
debentures is measured at amortized cost using the effective interest method.
The  equity  component  of  the  convertible  debentures  is  not  re-measured 
subsequent to initial recognition.

k. Finance Lease Obligation

Leases which effectively transfer substantially  all of the risks and  rewards 
of ownership to the Company are classified as finance leases and are accounted
for as an acquisition of  an asset and an assumption  of an obligation at  the 
inception of  the  lease, measured  as  the  present value  of  minimum  lease 
payments to a maximum of  the asset's fair value.  The asset is amortized  in 
accordance  with  the  Company's  depletion  and  depreciation  policy.   The 
obligations recorded under  finance lease  payments are reduced  by the  lease 
payments made.

l.Basic and Diluted per Share Calculations

Basic per share amounts  are calculated using the  weighted average number  of 
shares outstanding during  the period.  The Company uses  the treasury  share 
method to determine the dilutive effect of share options. Under the  treasury 
share method,  only "in  the money"  dilutive instruments  impact the  diluted 
calculations in computing  diluted per  share amounts. The  Company uses  the 
"if-converted"  method  to  determine  the  dilutive  effect  of   convertible 
debentures.

m. Finance Income and Expenses

Finance income  is recognized  as it  accrues  in profit  or loss,  using  the 
effective interest  method. Finance  expense  comprises interest  expense  on 
borrowings, amortization of deferred charges,  accretion of the discount  rate 
on provisions,  accretion  of  the  liability  component  of  the  convertible 
debentures and impairment losses recognized on financial assets.

n. Borrowing Costs

Borrowing costs  incurred  for  the  construction  of  qualifying  assets  are 
capitalized during the period of time that is required to complete and prepare
the assets for their intended use  or sale. Qualifying assets are assets  that 
necessarily take a substantial period of time to get ready for their  intended 
use. All other  borrowing costs are  recognized in profit  or loss using  the 
effective interest  method. The  capitalization rate  used to  determine  the 
amount of borrowing costs to be  capitalized is the weighted average  interest 
rate applicable to the Company's outstanding borrowings during the period.

o. Cash and Cash Equivalents

Cash and  cash  equivalents  include  cash  and  short-term  investments  with 
original maturities of three months or less.

p. Business Combinations

Business combinations  are accounted  for using  the acquisition  method.  The 
identifiable  assets  acquired  and  liabilities  and  contingent  liabilities 
assumed are measured at their fair  values at the acquisition date. The  cost 
of an  acquisition is  measured as  the aggregate  consideration  transferred, 
measured at the acquisition date fair value. If the cost of the acquisition is
less than  the  fair value  of  the net  assets  acquired, the  difference  is 
recognized immediately in net income. Acquisition costs incurred are expensed.

4. CRITICAL JUDGMENTS AND ACCOUNTING ESTIMATES

The consolidated financial  statements of  the Company have  been prepared  by 
management in accordance with IFRS. The preparation of consolidated  financial 
statements in  conformity  with IFRS  requires  management to  make  judgment, 
estimates  and  assumptions  that  affect  the  reported  amounts  of  assets, 
liabilities, and  contingent  liabilities  at the  date  of  the  consolidated 
financial statements and reported amounts of revenues and expenses during  the 
reporting period and accompanying notes. By their nature, these estimates are
subject to measurement uncertainty and the effect on the financial  statements 
of changes in such estimates in  future periods could be material.  Revisions 
to accounting estimates are  recognized in the period  in which the  estimates 
are revised and in any future periods affected.

 I.    Derivatives
           
             The fair value of commodity contracts is estimated, whenever
           possible, based on published market prices, and if not available,
             on estimates from third party brokers, as at the balance sheet
             date and may differ from what will eventually be realized.
           
 II.   Oil and gas reserves
           
             Reserves and resources are used in the units of production
             calculation for depreciation, depletion and amortization and the
             impairment analysis which affect net profit. There are numerous
             uncertainties inherent in estimating oil and gas reserves.
           Estimating reserves is very complex, requiring many judgments
             based on geological, geophysical, engineering and economic data.
             Changes in these judgments could have a material impact on the
             estimated reserves. These estimates may change, having either a
             negative or positive effect on net profit as further information
             becomes available and as the economic environment changes.
           
 III.  Depreciation and depletion
           
             Depletion of petroleum and natural gas properties is provided
             using the unit-of-production method based on production volumes
             before royalties in relation to total estimated proved and
           probable reserves as determined annually by independent engineers
             and internal reserve evaluations on a quarterly basis determined
             in accordance with National Instrument 51-101. Natural gas
             reserves and production are converted at the energy equivalent of
             six thousand cubic feet to one barrel of oil.
           
             Calculations for depletion and depreciation of production
             equipment are based on total capitalized costs plus estimated
             future development costs of proved and probable undeveloped
           reserves less the estimated net realizable value of production
             equipment and facilities after the proved reserves are fully
             produced. The costs of acquiring and evaluating unproved
             properties are excluded from depletion calculations.
           
 IV.   Recoverability of asset carrying values
           
             The Company assesses its oil and gas properties, including
             exploration and evaluation assets, for possible impairment if
           there are events or changes in circumstances that indicate that
             carrying values of the assets may not be recoverable, or at least
             at every reporting date.
           
             The assessment of any impairment of property, plant and equipment
             is dependent upon estimates of recoverable amount that take into
           account factors such as reserves, economic and market conditions,
             timing of cash flows, the useful lives of assets and their
             related salvage values.
           
             Bellatrix's assets are aggregated into CGUs, for the purpose of
             calculating impairment, based on their ability to generate
             largely independent cash flows, geography, geology, production
           profile and infrastructure of its assets. By their nature, these
             estimates and assumptions are subject to measurement uncertainty
             and may impact the carrying value of the Company's assets in
             future periods.
           
 V.    Decommissioning obligations
           
             Provisions for decommissioning obligations associated with the
             Company's drilling operations are based on current legal and
             constructive requirements, technology, price levels and expected
           plans for remediation. Actual costs and cash outflows can differ
             from estimates because of changes in laws and regulations, public
             expectations, prices, discovery and analysis of site conditions
             and changes in clean up technology.
           
 VI.   Share-based compensation
           
             The fair value of stock options granted is measured using a Black
             Scholes model. Measurement inputs include share price on
             measurement date, exercise price of the option, expected
             volatility, expected life of the options, expected dividends and
             the risk-free rate. The Company estimates volatility based on
           the historical share price. The expected life of the options is
             based on historical experience and general option holder
             behavior. Dividends were not taken into consideration as the
             Company does not expect to pay dividends. Management also makes
             an estimate of the number of options that will be forfeited and
             the rate is adjusted to reflect the actual number of options that
             actually vest.
           
 VII.  Income taxes
           
             Related assets and liabilities are recognized for the estimated
             tax consequences between amounts included in the financial
             statements and their tax base using substantively enacted future
           income tax rates. Timing of future revenue streams and future
             capital spending changes can affect the timing of any temporary
             differences, and accordingly affect the amount of the deferred
             tax asset or liability calculated at a point in time. These
             differences could materially impact earnings.
           
 VIII. Business combinations
           
             Business combinations are accounted for using the acquisition
             method of accounting. The determination of fair value often
             requires management to make assumptions and estimates about
             future events. The assumptions and estimates with respect to
             determining the fair value of property, plant, and equipment, and
             exploration and evaluation assets acquired generally require the
           most judgment and include estimates of reserves acquired,
             forecast benchmark commodity prices, and discount rates. Changes
             in any of the assumptions or estimates used in determining the
             fair value of acquired assets and liabilities could impact the
             amounts assigned to assets, liabilities in the purchase price
             allocation, and any resulting gain or loss. Future net earnings
             can be affected as a result of changes in future depletion,
             depreciation and accretion, and asset impairments.
           

5. NEW STANDARDS AND INTERPRETATIONS NOT YET ADOPTED

The following pronouncements  from the  IASB are applicable  to Bellatrix  and 
will become effective  for future  reporting periods,  but have  not yet  been 
adopted:

IFRS 9 - "Financial Instruments",  which is the result  of the first phase  of 
the IASB's project to replace IAS 39, "Financial Instruments: Recognition  and 
Measurement". The new  standard replaces the  current multiple  classification 
and measurement  models for  financial assets  and liabilities  with a  single 
model that has  only two  classification categories: amortized  cost and  fair 
value. This standard is  effective for annual periods  beginning on or  after 
January 1, 2015 with different transitional arrangements depending on the date
of initial application. The extent of the impact of the adoption of IFRS 9 has
not yet been determined.

IFRS 10 - "Consolidated Financial  Statements" ("IFRS 10"), which requires  an 
entity to  consolidate an  investee when  it  is exposed,  or has  rights,  to 
variable returns from its involvement with the investee and has the ability to
affect those returns through its power over the investee. Under existing IFRS,
consolidation is required when an entity has the power to govern the financial
and operating  policies  of  an entity  so  as  to obtain  benefits  from  its 
activities. This  standard replaces  SIC-12 -  "Consolidation—Special  Purpose 
Entities"  and  parts  of  IAS  27  -  "Consolidated  and  Separate  Financial 
Statements." Bellatrix intends  to adopt IFRS  10, including the  amendments 
issued in  June  2012, in  its  financial  statements for  the  annual  period 
beginning on  January 1,  2013. The  adoption  of IFRS  10 is  currently  not 
anticipated to impact the Company's financial statements.

IFRS 11 - "Joint  Arrangements" ("IFRS 11"), requires  a venturer to  classify 
its interest in  a joint arrangement  as a joint  venture or joint  operation, 
each having its own  accounting model. Joint ventures  will be accounted  for 
using the  equity method  of accounting,  whereas for  a joint  operation  the 
venture will  recognize its  share  of the  assets, liabilities,  revenue  and 
expenses of the joint  operation. The standard provides  for a more  substance 
based  reflection  of  joint  arrangements  by  focusing  on  the  rights  and 
obligations of the arrangement, rather than its legal form. IFRS 11 replaces
IAS 31  - "Interests  in  Joint Ventures"  and  SIC-13 -  "Jointly  Controlled 
Entities—Non-monetary Contributions by  Venturers" and establishes  principles 
for accounting for all  joint arrangements. Bellatrix  intends to adopt  IFRS 
11, including the amendments issued in June 2012, in its financial  statements 
for the annual period beginning on January  1, 2013. The adoption of IFRS  11 
is currently not  anticipated to have  a significant impact  on the  Company's 
financial statements.

IFRS 12 - "Disclosure of Interests in Other Entities" ("IFRS 12"), establishes
disclosure requirements  for  interests  in  other  entities,  such  as  joint 
arrangements, associates,  special  purpose  vehicles and  off  balance  sheet 
vehicles.  The  standard  carries   forward  existing  disclosures  and   also 
introduces significant  additional disclosure  requirements that  address  the 
nature  of,  and  risks  associated  with,  an  entity's  interests  in  other 
entities. Bellatrix intends to adopt IFRS 12, including the amendments issued
in June 2012, in its financial  statements for the annual period beginning  on 
January 1, 2013. The adoption of IFRS 12 is currently not anticipated to have
a significant impact on the Company's financial statements.

IFRS 13 - "Fair  Value Measurement" ("IFRS 13"),  is a comprehensive  standard 
for fair  value measurement  and disclosure  requirements for  use across  all 
IFRSs. The new standard clarifies that fair  value is the price that would  be 
received to sell  an asset,  or paid  to transfer  a liability  in an  orderly 
transaction between  market participants,  at the  measurement date.  It  also 
establishes disclosures  about fair  value measurement.  Under existing  IFRS, 
guidance on  measuring  and  disclosing  fair value  is  dispersed  among  the 
specific standards requiring fair  value measurements and  in many cases  does 
not reflect a clear measurement basis  or consistent disclosures. IFRS 13  is 
effective for annual periods beginning on or after January 1, 2013 and applies
prospectively from the beginning of the annual period in which the standard is
adopted.   The extent  of  the impact  of  the adoption  of  IFRS 13  on  the 
Company's financial statements has not yet been determined.

In June  2011, the  IASB  issued an  amendment to  IAS  1 -  "Presentation  of 
Financial Statements" ("IAS 1") requiring  companies to group items  presented 
within Other Comprehensive Income  based on whether  they may be  subsequently 
reclassified to profit  or loss.  This amendment to  IAS 1  is effective  for 
annual periods beginning  on or  after July  1, 2012  with full  retrospective 
application. Early  adoption is  permitted. Bellatrix  intends to  adopt  the 
amendments in  its financial  statements for  the annual  period beginning  on 
January 1, 2013. The extent of the impact of the amendments on the  financial 
statements has not yet been determined.

6. EXPLORATION AND EVALUATION ASSETS

($000s)                                     
                                                  
Cost                                               
Balance, December 31, 2010                 $   18,535
Additions                                     16,839
Transfer to oil and natural gas properties   (1,817)
Disposals ^ (1)                                (468)
Balance, December 31, 2011                    33,089
Additions                                     17,118
Transfer to oil and natural gas properties  (10,301)
Disposals ^ (1)                              (1,729)
Balance, December 31, 2012                 $   38,177

^(1) Disposals include swaps.

7. PROPERTY, PLANT AND EQUIPMENT

($000s)                                                  
                                Oil and            Office 
                              natural gas      furniture and
                               properties          equipment             Total
Cost                                                                 
Balance, December 31,    $    484,600  $     2,236  $    486,836
2010
Additions                       173,595              267         173,862
Transfer from                     1,817                -           1,817
exploration and
evaluation assets
Disposals ^ (1)                 (2,697)                -         (2,697)
Balance, December 31,           657,315            2,503         659,818
2011
Additions                       194,442              299         194,741
Transfer from                    10,301                -          10,301
exploration and
evaluation assets
Disposals ^ (1)                (10,950)                -        (10,950)
Balance, December 31,    $    851,108  $      2,802  $   853,910
2012
                                                                    
Accumulated Depletion,                                               
Depreciation and
Impairment losses
Balance, December 31,    $   86,482  $     774  $  87,256
2010
Charge for time period           63,085              299          63,384
Impairment loss                  28,039              194          28,233
Impairment reversal             (2,664)                -         (2,664)
Disposals ^ (1)                   (692)                -           (692)
Balance, December 31,    $  174,250  $     1,267  $   175,517
2011
Charge for time period           75,466              254          75,720
Impairment loss                  14,760               60          14,820
Disposals ^ (1)                 (1,906)                -         (1,906)
Balance, December 31,    $   262,570  $      1,581  $   264,151
2012
^(1) Disposals include                                               
swaps.
                                                                    
Carrying amounts                                                     
At December 31, 2011     $    483,065  $        $   484,301
                                                       1,236
At December 31, 2012     $    588,538  $   1,221  $      589,759

Bellatrix has  included  $524.6  million (2011:  $376.8  million)  for  future 
development costs  and  excluded  $37.2  million  (2011:  $35.1  million)  for 
estimated salvage from the  depletion calculation for  the three months  ended 
December 31, 2012.

For the year  ended December 31,  2012, the Company  capitalized $4.3  million 
(2011: $3.6 million) of general  and administrative expenses and $1.6  million 
(2011: $1.4 million) of share-based  compensation expense directly related  to 
exploration and development activities.

Bellatrix's credit facilities  are secured against  all of the  assets of  the 
Corporation by a $400  million debenture containing  a first ranking  floating 
charge and security interest. The Corporation has provided a negative  pledge 
and undertaking to provide fixed charges over major petroleum and natural  gas 
reserves in certain circumstances.

Property Acquisition

Effective November 1, 2012, Bellatrix acquired production and working interest
in certain facilities, as well as undeveloped land in the Willesden Green area
of Alberta for a cash purchase  price of $20.9 million after adjustments.  In 
accordance with IFRS, a  property acquisition is accounted  for as a  business 
combination when certain criteria are met,  such as the acquisition of  inputs 
and processes  to convert  those inputs  into beneficial  outputs.  Bellatrix 
assessed the  property  acquisition  and  determined  that  it  constitutes  a 
business combination under IFRS. In a business combination, acquired  assets 
and liabilities are recognized by the  acquirer at their fair market value  at 
the time of purchase. Any variance  between the determined fair value of  the 
assets and liabilities and the purchase  price is recognized as either a  gain 
or loss in the statement of comprehensive income in the period of acquisition.

The estimated fair  value of the  property, plant and  equipment acquired  was 
determined  using  both   internal  estimates  and   an  independent   reserve 
evaluation. The decommissioning liabilities assumed were determined using  the 
timing and estimated  costs associated with  the abandonment, restoration  and 
reclamation of the wells  and facilities acquired. A  summary of the  acquired 
property is provided below:

                                        
                                               ($000s)
Estimated fair value of acquisition:                  
 Oil and natural gas properties          29,530
 Exploration and evaluation assets               8,525
 Decommissioning liabilities                     (973)
                                            37,082
                                                     
Cash consideration                               20,922
                                                     
Gain on property acquisition                 16,160

Included in the Company's deferred tax expense for the year was a $4.0 million
expense relating to the gain recognized  on the property acquisition. If  the 
acquisition had  been  effective  January  1, 2012,  the  Company  would  have 
realized an  estimated  additional  $5.6  million  (unaudited)  of  production 
revenue and an estimated additional $2.1 million (unaudited) of profit  before 
tax. Between the acquisition  date and December  31, 2012, approximately  $0.6 
million of  production revenue  and  $0.1 million  of  profit before  tax  was 
recognized relating to the acquired properties.

Impairment

Bellatrix assesses the recoverability  of the carrying values  of its oil  and 
natural gas  properties  on  a CGU  basis.  The  composition of  each  CGU  is 
determined based  on  factors  such as  common  processing  facilities,  sales 
points, and  commonalities  in the  geological  and geophysical  structure  of 
individual areas.

In accordance  with IFRS,  the recoverability  of a  CGU's carrying  value  is 
determined by calculating and using the greater of its Value in Use ("VIU") or
Fair Value Less Costs to Sell ("FVLCS"). VIU is determined by estimating  the 
present value of the  future net cash  flows expected to  be derived from  the 
continued use of the assets in the CGU. FVLCS is determined to be the  amount 
for which the assets in the CGU could be sold in an arm's length transaction.
FVLCS is calculated  for each  CGU based  on independently  available data  on 
recent industry acquisition transactions ("transaction metrics") applicable to
the CGU based on similarities in  assets involved in the transactions.  These 
transaction metrics are determined as a  dollar-value per boe for proved  plus 
probable reserves. The per-boe value for each CGU is applied to the  estimated 
boe proved plus probable reserves remaining in that CGU as determined at least
annually by independent reserve engineers. The recoverable amount is compared
to the carrying value of that CGU in order to determine if impairment  exists. 
Impairment is recognized as an expense included in the Company's  consolidated 
statement of comprehensive income in the period in which it occurs.

A 1%  increase to  the  discount rates  applied  in 2012  year-end  impairment 
calculations would  result  in  an  increase in  impairment  expense  of  $0.8 
million. Identical decreases would result from  a 1% decrease to the  discount 
rates applied.

2012 Impairment

Bellatrix engaged an external reserve evaluator to prepare an updated  company 
reserve report  effective December  31, 2012.  Overall corporate  proved  and 
probable reserve volumes increased significantly at December 31, 2012 compared
to evaluated reserves at December 31,  2011. However, the fair values of  two 
largely natural gas-weighted CGUs and one CGU with significant natural gas and
heavy oil weightings were reduced, largely as a result of suppressed commodity
prices.

As at December  31, 2012,  Bellatrix performed  an impairment  test using  VIU 
values in accordance with IAS 36, resulting in an excess of the carrying value
of three CGUs  over their recoverable  amount, resulting in  a non-cash  $14.8 
million impairment loss. In performing the test, future cash flows at  between 
a 10% and 20% discount rate were  used for the Company's largely gas  weighted 
North East  Alberta,  South  East  Alberta, and  British  Columbia  CGUs.  The 
Company's core  West Central  Alberta  CGU had  no indicators  of  impairment. 
Discounted  salvage  values  and  discounted  future  associated  general  and 
administrative costs were also incorporated into the VIU calculation.

2011 Impairment

During the year  ended December  31, 2011, Bellatrix  performed an  impairment 
test in accordance with IAS 36 resulting in an excess of the carrying value of
three CGUs  over  their recoverable  amount,  resulting in  a  non-cash  $25.6 
million impairment loss.

IAS 36  requires  impairment losses  to  be reversed  when  there has  been  a 
subsequent increase in the recoverable amount.  In the case of an  impairment 
loss reversal, the  carrying amount  of the  asset or  CGU is  limited to  the 
original carrying amount less depreciation,  depletion and amortization as  if 
no impairment had been recognized for the asset or CGU for prior periods.  In 
2011, a partial reversal of impairment  was recognized relating to a  previous 
impairment for  the Company`s  South East  Alberta CGU.  As a  result of  the 
reversal, impairment expense for the 2011 year was reduced by $2.7 million.

8. LONG-TERM DEBT

($000s)                           2012           2011
Operating facility         $   4,047  $  5,701
Revolving term facility        129,000         51,000
Balance, end of year       $   133,047  $      56,701

Effective December 13, 2012, the  Company's borrowing base was increased  from 
$200 million to  $220 million  through to  the next  scheduled borrowing  base 
determination to be completed  on or before May  31, 2013. Effective May  31, 
2012, the revolving period of the  credit facility was extended from June  26, 
2012 to  June  25,  2013. As  of  December  31, 2012,  the  Company's  credit 
facilities consist of a  $25 million demand operating  facility provided by  a 
Canadian bank and  a $195  million extendible revolving  term credit  facility 
provided by two Canadian banks  and a Canadian financial institution.  Amounts 
borrowed under the credit facility will bear interest at a floating rate based
on the applicable Canadian prime rate,  U.S. base rate, LIBOR margin rate,  or 
the bankers' acceptance stamping fee, plus between 1.00% and 3.50%,  depending 
on the type  of borrowing  and the  Company's debt  to cash  flow ratio.  The 
credit facilities are secured by a  $400 million debenture containing a  first 
ranking charge  and  security interest.  Bellatrix  has provided  a  negative 
pledge and undertaking to provide fixed charges over its properties in certain
circumstances. A standby fee  is charged of between  0.50% and 0.875% on  the 
undrawn portion of the credit facilities,  depending on the Company's debt  to 
cash flow ratio.

The revolving period for the revolving  term credit facility will end on  June 
25, 2013, unless extended for a further 364 day period. Should the  facility 
not be extended it will convert to a non-revolving term facility with the full
amount outstanding due 366 days after the last day of the revolving period  of 
June 25, 2013. The borrowing base will be subject to re-determination on  May 
31 and November 30 in each year  prior to maturity, with the next  semi-annual 
redetermination occurring on May 31, 2013.

Principal payment will not be required  under the revolving term facility  for 
more than  365  days  from  December  31, 2012  and  as  there  is  sufficient 
availability under the revolving term  credit facility to cover the  operating 
facility, the  entire  amounts  owing  on  the  credit  facilities  have  been 
classified as long-term.

Pursuant to Bellatrix's credit facilities, the Company is permitted to pay the
semi-annual interest payments on the  debentures, and payments by the  Company 
to debenture  holders in  relation  to the  redemption  of debentures  and  in 
relation to debenture normal course issuer bids approved by the Toronto  Stock 
Exchange (the "TSX"), provided  that the aggregate of  all such normal  course 
issuer bids and redemptions do not exceed $10.0 million in any fiscal year.

As at  December  31, 2012,  the  Company  had outstanding  letters  of  credit 
totaling $0.6 million that reduce the  amount otherwise available to be  drawn 
on the syndicated facility.

As at December 31, 2012, the  Company had approximately $87.0 million, or  40% 
of unused and available bank credit under its credit facilities. Bellatrix was
fully compliant with all of its operating debt covenants.

9. CONVERTIBLE DEBENTURES

The following table sets forth a reconciliation of the convertible debentures:

Convertible debentures                  
                                       
($000s except number of debentures)          4.75%
Number of Debentures                             
Balance, December 31, 2011 and 2012         55,000
Debt Component                                   
Balance, December 31, 2010             $    47,599
Accretion                                    1,477
Balance, December 31, 2011             $    49,076
Accretion                                    1,611
Balance, December 31, 2012             $  50,687
                                                
Equity Component                                 
Balance, December 31, 2011 and 2012    $    4,378

On April 20, 2010, Bellatrix issued $55 million of 4.75% convertible unsecured
subordinated debentures (the "4.75% Debentures") on a bought deal basis.  The 
4.75% Debentures have a face value of  $1,000 each, bear interest at the  rate 
of 4.75% per annum payable semi-annually in  arrears on the last day of  April 
and October of each year  commencing on October 31,  2010 and mature on  April 
30, 2015 (the "Maturity  Date"). The 4.75% Debentures  are convertible at  the 
holder's option and at any time prior to the close of business on the  earlier 
of the  close  of business  on  the  business day  immediately  preceding  the 
Maturity Date and the date specified by the Corporation for redemption of  the 
4.75% Debentures into common shares of  the Corporation at a conversion  price 
of $5.60 per common share (the  "Conversion Price"), subject to adjustment  in 
certain events. The  4.75% Debentures  are not redeemable  by the  Corporation 
before April 30,  2013. On and  after April 30,  2013 and prior  to April  30, 
2014, the  4.75% Debentures  are redeemable  at the  Corporation's option,  in 
whole or in  part, at par  plus accrued  and unpaid interest  if the  weighted 
average trading price  of the common  shares for the  specified period is  not 
less than 125% of the Conversion Price. On and after April 30, 2014, the 4.75%
Debentures are redeemable at the Corporation's option, in whole or in part, at
any time at par  plus accrued and unpaid  interest. The 4.75% Debentures  are 
listed and posted for trading on the TSX under the symbol "BXE.DB.A".

As the 4.75% Debentures are convertible into common shares, the liability  and 
equity components are  presented separately. The  initial carrying amount  of 
the financial  liability is  determined by  discounting the  stream of  future 
payments of  interest  and principal  and  has  been determined  to  be  $48.8 
million. A total of  $2.2 million of  issue costs has  been allocated to  the 
liability component  of  the  debentures.  Using  the  residual  method,  the 
carrying amount  of  the conversion  feature  is the  difference  between  the 
principal amount and the  carrying value of  the financial liability.  Within 
the Shareholder's  Equity section  of the  consolidated financial  statements, 
$4.4 million  has been  recorded  as the  carrying  amount of  the  conversion 
feature of the debentures, net of $0.3 million of issue costs and $1.5 million
of deferred taxes.  The 4.75%  Debentures, net  of the  equity component  and 
issue costs is accreted using the effective interest rate method over the term
of the  4.75%  Debentures such  that  the  carrying amount  of  the  financial 
liability will equal the principal balance at maturity.

10. FINANCE LEASE OBLIGATION

The Company entered into separate agreements in December 2012, 2011, and  2010 
to raise $10 million,  $3.7 million, and $1.6  million, respectively, for  the 
Company's proportionate share  of the  construction of  certain facilities  in 
each of the years.

The agreements resulted in  the recognition of finance  leases in 2012,  2011, 
and 2010 for the use of the constructed facilities. The agreements will expire
in years 2030 to 2032, respectively,  or earlier if certain circumstances  are 
met. At  the  end  of the  term  of  each agreement,  the  ownership  of  the 
facilities is transferred to the Company. Assets under these finance leases at
December 31, 2012 totaled $15.3 million (2011: $5.3 million) with  accumulated 
depreciation of $1.4 million (2011: $0.4 million).

Multiple participants of the joint ventures  were involved in the 2012,  2011, 
and 2010 agreements. Although the majority of participants were fully external
to the  Company, some  related parties  were  involved in  the 2011  and  2010 
agreements. See note 18.

The following is a schedule of future minimum lease payments under the finance
lease obligations:

                                                    
Year ending December 31,                              ($000s)
2013                                              $    3,552
2014                                                    3,399
2015                                                    3,244
2016                                                    3,059
2017                                                    2,719
Thereafter                                             13,472
Total lease payments                                   29,445
Amount representing implicit interest at 15.28%      (14,889)
                                                      14,556
Current portion of finance lease obligation           (1,425)
Finance lease obligation                            $   13,131

11. DECOMMISSIONING LIABILITIES

The Company's decommissioning liabilities result from net ownership  interests 
in petroleum and natural  gas assets including  well sites, gathering  systems 
and processing  facilities.  The  Company estimates  the  total  undiscounted 
amount of cash  flows required  to settle its  decommissioning liabilities  is 
approximately $51 million  which will be  incurred between 2013  and 2053.  A 
risk-free rate between 1.14%  - 2.36% (2011: 0.95%  - 2.49%) and an  inflation 
rate of  2.4% (2011:  2.4%)  were used  to calculate  the  fair value  of  the 
decommissioning liabilities as at December 31, 2012.

                                                   
($000s)                                       2012       2011
Balance, beginning of year              $  45,091  $  38,710
Incurred on development activities           1,400      1,694
Acquired through business combinations         973          -
Revisions on estimates                       (648)      4,703
Reversed on dispositions                  (2,955)     (326)
Settled during the year                      (635)      (569)
Accretion expense                              683        879
Balance, end of year                    $  43,909  $  45,091

12. SHAREHOLDERS' CAPITAL

Bellatrix is authorized to  issue an unlimited number  of common shares.  All 
shares issued are fully paid and  have no par value. The common  shareholders 
are entitled to dividends declared by  the Board of Directors; Bellatrix  does 
not anticipate paying dividends.

                                                            
                                   2012                      2011
                                          Amount                   Amount
                             Number      ($000s)     Number        ($000s)
Common shares, opening                 $                          
balance                    107,407,241      370,048    97,446,026  $  316,779
Shares issued for cash,  
net of
transactioncosts and
tax effect of $0.8
million in 2011                      -          -    9,822,000     52,734
Shares issued on                           1,093 
exercise of options            461,533                    139,215        381
Contributed surplus      
transferred on
 exercised options                 -        435            -        154
Balance, end of year                   $                           
                           107,868,774      371,576   107,407,241  $  370,048

13. SHARE-BASED COMPENSATION PLANS

a.Share Option Plan

Bellatrix has a share option plan where the Company may grant share options to
its directors, officers,  employees and service  providers. Under this  plan, 
the exercise price of each share option  is not less than the volume  weighted 
average trading price of the Company's  share price for the five trading  days 
immediately preceding the date of grant. The maximum term of an option  grant 
is five years.  Option grants  are non-transferable or  assignable except  in 
accordance with the share option plan  and the holding of share options  shall 
not entitle  a holder  to any  rights as  a shareholder  of Bellatrix.  Share 
options, entitling the holder to purchase  common shares of the Company,  have 
been granted  to  directors,  officers, employees  and  service  providers  of 
Bellatrix. One third of the initial grant of share options normally vests  on 
each of the first, second, and third anniversary from the date of grant.

During the year ended  December 31, 2012,  Bellatrix granted 2,648,000  (2011: 
2,544,000) share  options.  During the  year  ended December  31,  2012,  the 
Company recorded share-based compensation of $3.8 million (2011: $3.5 million)
related to its outstanding share options,  net of forfeitures of $0.2  million 
(2011:  $0.1  million),  of  which  $1.6  million  (2011:  $1.4  million)  was 
capitalized to  property,  plant and  equipment.  In addition,  $1.0  million 
(2011: $0.8 million) (note 13 b.)  was expensed in relation to the  Director's 
Deferred Share Unit Plan, resulting  in total net share-based compensation  of 
$3.2 million recognized as an expense for the 2012 year (2011: $2.9 million).

The fair values  of all share  options granted  are estimated on  the date  of 
grant using the Black-Scholes option-pricing model. The weighted average fair
market value of share options granted during the years ended December 31, 2012
and 2011, and the weighted average assumptions used in their determination are
as noted below:

                                                                 
                                                           2012   2011
    Inputs:                                                          
    Share price                                             3.60   5.21
    Exercise price                                          3.60   5.21
    Risk free interest rate (%)                              1.1    1.8
    Option life (years)                                      2.8    3.6
    Option volatility (%)                                     53     65
    Results:                                                         
    Weighted average fair value of each share option        1.28   2.48
        granted

Bellatrix calculates  volatility based  on historical  share price.  Bellatrix 
incorporates an estimated forfeiture rate between 3% and 10% (2011: 3% to 10%)
for stock options that  will not vest, and  adjusts for actual forfeitures  as 
they occur.

The weighted average TSX share trading  price for the year ended December  31, 
2012 was $4.31 (2011: $5.01).

The following tables summarize information regarding Bellatrix's Share  Option 
Plan:

Share Options Continuity                               
                            Weighted Average  
                                 Exercise Price        Number
Balance, December 31, 2010         $     2.69   5,823,377
Granted                            $     5.21   2,544,000
Exercised                          $     2.74   (139,215)
Forfeited and cancelled            $     4.37   (242,842)
Balance, December 31, 2011         $     3.44   7,985,320
Granted                            $     3.61   2,648,000
Exercised                          $    2.37   (461,533)
Forfeited and cancelled            $     4.50   (751,336)
Balance, December 31, 2012         $    3.46   9,420,451

As of December 31,  2012, a total of  10,739,129 share options were  reserved, 
leaving an additional 1,318,678 available for future grants.

Share Options Outstanding, December    
31, 2012                                                                     
                  Outstanding                           Exercisable
                                          Weighted             
                              Weighted       Average
                      At       Average     Remaining           At
Exercise      December,      Exercise   Contractual     December    Exercise
Price               2012         Price          Life     31, 2012        Price
$ 0.65 -                                  1.3                     
$ 1.45          682,949      $  1.02                    682,949      $ 1.02
$ 1.46 -                                     1.2                     
$ 1.99        1,177,449      $  1.65                  1,177,449      $ 1.65
$ 2.00 -                                     2.2                     
$ 3.36        1,407,052      $  2.41                    973,718      $ 2.08
$ 3.37 -                                     4.3                     
$ 3.84        1,575,000      $  3.42                     84,665      $ 3.70
$ 3.85 -                                     2.8                     
$ 4.72        2,271,001      $  3.95                  1,172,313      $ 3.90
$ 4.73 -                                     3.5                     
$ 5.50        2,307,000      $  5.28                    723,975      $ 5.26
$ 0.65 -                                    2.8                     
$ 5.50        9,420,451      $  3.46                  4,815,069      $ 2.78
                                                         
Share Options Outstanding, December
31, 2011                                
                  Outstanding                           Exercisable
                                         Weighted             
                              Weighted       Average
                      At       Average     Remaining           At
Exercise       December,      Exercise   Contractual     December     Exercise
Price               2011         Price          Life     31, 2011        Price
$ 0.65 -                    $  1.01                              $  
$ 1.45          758,028                        2.4      483,628         1.02
$ 1.46 -                    $  1.66                              $  
$ 1.99        1,244,115                        2.3      914,105         1.66
$ 2.00 -                    $  2.15                              $  
$ 3.36        1,273,676                        2.0      964,805         2.19
$ 3.37 -                    $  3.66                              $  
$ 3.84          171,000                        4.1       38,333         3.75
$ 3.85 -                    $  3.93                              $  
$ 4.72        1,921,001                        3.1      685,646         3.98
$ 4.73 -                    $  5.25                              $  
$ 5.57        2,617,500                        4.0      287,833         5.11
$ 0.65 -                    $  3.44                              $  
$ 5.57        7,985,320                        3.1    3,374,350         2.51

b.Deferred Share Unit Plan

On May 11,  2011, the Board  of Directors of  Bellatrix approved a  Directors' 
Deferred Share  Unit  Plan  ("the  Plan")  where  the  Company  may  grant  to 
non-employee directors Deferred Share Units  ("DSUs"), each DSU being a  right 
to receive, on  a deferred  payment basis, a  cash payment  equivalent to  the 
volume weighted average trading price of  the Company's common shares for  the 
five trading  days immediately  preceding the  redemption date  of such  DSU. 
Participants of the Plan may also  elect to receive their annual  remuneration 
in the form of DSUs. Subject  to TSX and shareholder approval, Bellatrix  may 
elect to deliver common  shares from treasury in  satisfaction in whole or  in 
part of any payment to be made upon the redemption of the DSUs. The DSUs vest
immediately and  must  be redeemed  by  December  1^st of  the  calendar  year 
immediately following the  year in which  the participant ceases  to hold  all 
positions with Bellatrix or earlier if the participant elects to have the DSUs
redeemed at an earlier date (provided that the DSUs may not be redeemed  prior 
to  the  date  that  the  participant  ceases  to  hold  all  positions   with 
Bellatrix). On a  go forward basis,  it is intended  that in the  event of  a 
share based award, non-employee directors would receive DSU grants instead  of 
share option grants.

During the year ended  December 31, 2012, the  Company granted 249,298  (2011: 
159,226) DSUs and had 408,524 DSUs outstanding as at December 31, 2012  (2011: 
159,226).  For  the  year  ended   December  31,  2012,  Bellatrix   recorded 
approximately $1.0 million  (2011: $0.8 million)  of share based  compensation 
expense and  had a  liability balance  of $1.7  million (2011:  $0.8  million) 
relating to the Company's outstanding DSUs.

14. SUPPLEMENTAL CASH FLOW INFORMATION

Change in Non-cash Working Capital                         
    ($000s)                                         2012             2011
Changes in non-cash working capital                                   
items:
    Accounts receivable                   $    4,530   $  (5,822)
    Deposits and prepaid expenses               (510)             993
    Accounts payable and accrued              (12,614)          18,865
     liabilities
                                       $   (8,594)   $     14,036
Changes related to:                                                   
    Operating activities                  $  (1,075)   $    4,524
    Financing activities                         (55)             136
    Investing activities                      (7,464)           9,376
                                         $   (8,594)   $     14,036

15. INCOME TAXES

Bellatrix is a corporation as defined under the Income Tax Act (Canada) and is
subject to Canadian  federal and  provincial taxes. Bellatrix  is subject  to 
provincial taxes in Alberta, British Columbia and Saskatchewan as the  Company 
operates in those jurisdictions.

Deferred taxes reflect  the tax  effects of differences  between the  carrying 
amounts of assets  and liabilities  for financial reporting  purposes and  the 
amounts reported for  tax purposes. As  at December 31,  2012, Bellatrix  had 
approximately $584 million in tax pools available for deduction against future
income. Included  in this  tax  basis are  estimated non-capital  loss  carry 
forwards of approximately $10 million that expire in years through 2027.

The provision for income taxes differs from the expected amount calculated  by 
applying the  combined Federal  and Provincial  corporate income  tax rate  of 
25.0% (2011: 26.5%) to  loss before taxes. This  difference results from  the 
following items:

                                                              
($000s)                                       2012          2011
Expected income tax expense (recovery)  $   9,459   $  (1,373)
Share based compensation expense               564          576
Change in tax rates                              -          (6)
Flow through shares                              -        1,537
Other                                           44           34
Deferred tax expense (recovery)          $  10,067   $   768

The statutory tax  rate decreased to  25.0% in 2012  from 26.5% in  2011 as  a 
result of tax legislation enacted in 2007.

The components of the net deferred tax asset at December 31 are as follows:

                                                              
($000s)                                                   2012         2011
Deferred income tax liabilities:                                       
 Equity component of 4.75% Debentures              $    (799)   $  (1,078)
 Property, plant and equipment andexploration      (17,737)     (8,126)
  and evaluation assets
 Commodity contract asset                               (43)           -
Deferred income tax assets:                                            
 Finance lease obligation                              3,639       1,279
 Property, plant and equipment and exploration             -           -
  and evaluation assets
 Commodity contract liability                              -       2,658
 Decommissioning liabilities                          10,977      11,273
 Share issue costs                                       834       1,174
 Non-capital losses                                    2,500       2,500
 Attributed Canadian Royalty Income                    1,209       1,209
 Other                                                   458         216
Deferred income tax asset                           $   1,038   $  11,105

The Company has recognized a net deferred tax asset based on the independently
evaluated reserve  report as  cash  flows are  expected  to be  sufficient  to 
realize the deferred tax asset.

A continuity of  the net deferred  income tax asset  (liability) for 2012  and 
2011 is provided below:

                                                                   
Movement of temporary differences during the year
                             Recognized              
                   Balance,           in                     Flow     Balance,
                    Jan. 1,    profit or   Recognized     through     Dec. 31,
($000s)              2012        loss   in equity      shares        2012
Property, plant                                                 
and equipment
and
 exploration
and evaluation                                                              
assets            $ (8,126)  $  (9,611)    $   -  $      -   $ (17,737)
Decommissioning                                                 
liabilities         11,273      (296)           -         -      10,977
Commodity                                                       
contract
liability            2,658    (2,701)           -         -        (43)
Share issue                                                     
costs                1,174      (340)           -         -         834
Non-capital                                                     
losses               2,500          -           -         -       2,500
Equity                                                          
component of
4.75%
 debentures      (1,078)        279           -         -       (799)
Finance lease                                                   
obligation           1,279      2,360           -         -       3,639
Attributed                                                      
Canadian
Royalty Income       1,209          -           -         -       1,209
Other                 216        242          -         -        458
                                                                 
                 $  11,105  $ (10,067)    $      -  $      -   $    1,038
                                                              
                                                                   
                             Recognized              
                   Balance,           in                     Flow     Balance,
                    Jan. 1,    profit or   Recognized     through     Dec. 31,
($000s)              2011        loss   in equity      shares        2011
Property, plant                                                 
and equipment
and
 exploration
and evaluation                                                        
assets            $   2,991  $  (7,349)    $     -  $ (3,768)   $  (8,126)
Decommissioning                                                 
liabilities          9,729      1,544           -         -      11,273
Commodity                                                       
contract
liability              989      1,669           -         -       2,658
Share issue                                                     
costs                  752      (399)         821         -       1,174
Non-capital                                                     
losses                  79      2,421           -         -       2,500
Equity                                                          
component of
4.75%
 debentures      (1,354)        276           -         -     (1,078)
Finance lease                                                   
obligation             399        880           -         -       1,279
Attributed                                                      
Canadian
Royalty Income       1,209          -           -         -       1,209
Other                  26        190          -         -        216
                                                          
                 $  14,820  $    (768)    $   821  $ (3,768)   $  11,105
                                                              

16. FINANCE INCOME AND EXPENSES

                                                          
                                                                       
($000s)                                             2012           2011
Finance expense                                                    
 Interest on long-term debt                $   5,603   $  2,952
 Interest on convertible debentures              2,620         2,612
                                                                  
 Accretion on convertible debentures             1,611         1,477
 Accretion on decommissioning liabilities          683           879
                                                 2,294         2,356
Finance expense                             $  10,517    $  7,920

17. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME PRESENTATION

A mixed  presentation  of nature  and  function  was used  for  the  Company`s 
presentation  of  operating   expenses  in  the   consolidated  statement   of 
comprehensive income  for  the  current and  comparative  years.  General  and 
administrative expenses  are  presented  by their  function.  Other  expenses, 
including production, transportation, depletion and dispositions are presented
by their nature. Such presentation is in accordance with industry practice.

Total employee compensation  costs included  in total  production and  general 
administrative expenses in the consolidated statements of comprehensive income
are detailed in the following table:

                                                     
($000s)                                  2012         2011
 Production                             885         818
 General and administrative ^(1)      8,292       6,497
Employee compensation              $  9,177   $  7,315

^(1) Amount shown is net of capitalization

18. RELATED PARTY TRANSACTIONS

a.Finance lease agreements

Previous to 2012, the Company entered  into agreements to obtain financing  in 
the amount of $5.3 million for the construction of certain facilities.

Members of the  Company's management  team and entities  affiliated with  them 
provided financing  of $900,000.  The  terms of  the transactions  with  those 
related parties were the same as those with arms-length participants.

b.Key Management Compensation

Key  management  includes  senior   officers  and  directors  (executive   and 
non-executive) of  the  Company. The  compensation  paid or  payable  to  key 
management for employee services is shown below:

                                                                     
                                                                     
($000s)                                                2012           2011
Salaries and other short-term employee benefits  $  4,611   $    3,960
Long-term incentive compensation                        77     59
Share-based compensation ^ (1)                       2,942         2,506
                                                $  7,630   $    6,525

^(1) Share-based compensation include share options and DSUs.

19. PER SHARE AMOUNTS

The calculation of basic  earnings per share for  the year ended December  31, 
2012 was  based on  a net  profit of  $27.8 million  (2011: net  loss of  $5.9 
million).

                                                       2012          2011
Basic common shares outstanding                  107,868,774   107,407,241
Dilutive effect of:                                                     
       Share options outstanding                  9,420,451     7,985,320
       Shares issuable for convertible             9,821,429     9,821,429
        debentures                               
Diluted common shares outstanding                127,110,654   125,213,990
Weighted average shares outstanding              107,543,811   103,857,689
Dilutive effect of share options and                                     -
convertible debentures ^(1)                          1,581,283
Diluted weighted average shares outstanding      109,125,094   103,857,689

(1) For the year ended December 31, 2012, a total of 7,839,168 (2011:
    7,985,320) share options and 9,821,429 (2011: 9,821,429) common shares
    issuable pursuant to the conversion of the 4.75% Debentures were excluded
    from the calculation as they were not dilutive.

20. COMMITMENTS

The Company is committed to payments under fixed term operating leases which
do not currently provide for early termination. The Company's commitment for
office space as at December 31, 2012 is as follows:

                            
($000s)  Gross    Recoveries     Net amount
Year Amount
  2013 $  2,254     $   947 $  1,307
  2014     1,520           641       879

Subsequent to year end,  Bellatrix entered into a  fixed term operating  lease 
agreement for corporate office space  in a new location, commencing  September 
1, 2013. Bellatrix is currently pursuing subleasing options for the remaining
term of  its existing  corporate office  space. A  summary of  the  Company's 
commitment for the new office space is as follows:

                      
($000s)                    
 Year                  Total amount
 2013                 $   388
 2014                        2,153
 2015                        2,243
 2016                        2,243
 2017                        2,243
 More than 5 years          14,449

As at December 31, 2012, Bellatrix committed to drill 3 gross (1.7 net)  wells 
pursuant to farm-in agreements. Bellatrix expects to satisfy these  drilling 
commitments at an estimated cost of approximately $6.5 million.

In addition, Bellatrix entered  into two joint  venture agreements during  the 
2011  year  and  an  additional  joint  venture  agreement  during  2012.  The 
agreements include a minimum commitment for  the Company to drill a  specified 
number of wells  each year  over the term  of the  individual agreements.  The 
details of these agreements are provided in the table below:

                                                
Joint Venture Agreement   F*Story too large*

[TRUNCATED]