Penn West Exploration Announces its Financial Results for the Third Quarter Ended September 30, 2011 and 2012 Growth Plan

By Penn West Petroleum Ltd, PRNE
Wednesday, November 2, 2011

CALGARY, Alberta, November 3, 2011 -

- All $s are CAD unless otherwise mentioned

PENN WEST PETROLEUM LTD. (TSX: PWT) (NYSE: PWE)(”PENN WEST”) is pleased to announce its results for the third quarter ended September 30, 2011

Over the last two years, Penn West has demonstrated the ability to add value through the application of horizontal multi-stage technology to our assets. From the beginning of 2010 to year end 2011, we anticipate increasing our light-oil production to 51 percent of our production from 39 percent and our total liquids production to 66 percent from 57 percent. For 2012, Penn West targets a seven to nine percent annual average production growth rate and a further increase in its liquid weighting prior to the disposition of non-core assets.

Strategy

  • Penn West has dominant and leading positions in four of Canada’s five largest light-oil producing regions. This provides us with unrivaled leverage to low-risk, large-scale light-oil development. Since 2009, our focus has been to appraise our significant oil resources with an emphasis on optimizing the application of evolving drilling and completions technology. These activities have provided Penn West with an inventory of drilling locations to fuel light-oil growth well into the future. In 2012, we will further shift our capital spending into large-scale development in the Cardium, Carbonates, Spearfish and Viking oil trends. To maximize efficiency, we will drill on a continuous basis to the fullest extent possible. Resource appraisal activities will be focused on Peace River oil sands, Cordova shale gas, enhanced oil recovery and selected exploratory plays.

Financial Results

  • Funds flow (1) was $348 million in the third quarter of 2011, a 30 percent increase from the $267 million reported in the third quarter of 2010 due to stronger commodity prices and an increase in our weighting to light-oil production and a 12 percent decrease from the $396 million reported in the second quarter of 2011 due to lower commodity prices. Basic funds flow was $0.74 per share (1)in the third quarter of 2011 compared to $0.59 per share in the third quarter of 2010 and to $0.85 per share in the second quarter of 2011.
  • Net income for the third quarter of 2011 was $138 million ($0.29 per share-basic) compared to $304 million ($0.67 per share-basic) in the third quarter of 2010 and $271 million ($0.58 per share-basic) in the second quarter of 2011. Net income in the prior periods included gains on asset dispositions, including a $368 million gain on the formation of our joint venture in the Cordova Embayment in the third quarter of 2010 and a $127 million gain on minor property dispositions recorded in the second quarter of 2011.

Operational Results

  • Average production for the third quarter of 2011 was consistent with our guidance at 161,323 boe (2) per day compared to 156,107 boe per day in the second quarter of 2011. Third quarter activities were concentrated on restoring production and on resuming full operations in areas affected by fires and floods in the second quarter.
  • Our production was weighted 63 percent to oil and liquids in the third quarter of 2011 compared to 60 percent in the third quarter of 2010.
  • Capital expenditures for the third quarter of 2011, including net property acquisitions, totalled $481 million compared to $357 million for the third quarter of 2010. For the first nine months of 2011, capital expenditures, including net property dispositions, totalled $1,157 million including land expenditures of $172 million and the drilling of 318 net wells primarily focused on our suite of light-oil resource plays.

(1) The terms ”funds flow” and ”funds flow per share-basic” are non-GAAP measures. Please refer to the ”Calculation of Funds Flow” and “Non-GAAP Measures Advisory” sections below.
(2) Please refer to the ”Oil and Gas Information Advisory” section below for information regarding the term ”boe”.

2011 Production and Capital

  • Production guidance remains unchanged with average production for the second half of 2011 between 163,000 and 167,000 boe per day and exit production for 2011 between 174,000 and 177,000 boe per day. Expected annual production guidance for 2011 remains at an average of between 162,000 and 164,000 boe per day. Anticipated property dispositions may impact the forecasted exit production rate depending on close dates.
  • Our full-year 2011 exploration and development program, including land related expenditures to date, is expected to remain in the range of $1.4 billion to $1.5 billion, net of asset dispositions.
  • In the fourth quarter of 2011, we will deploy an average of 20 to 25 drilling rigs through to break-up in the spring of 2012 to drive our first quarter 2012 production additions and to enhance our efficiencies.
  • Our continuing portfolio management program includes a recently marketed disposition program which we believe could result in up to $400 million of proceeds.

2012 Capital Budget

  • Our 2012 capital and operating plan shifts from appraisal activities to development reflecting increased levels of predictability in our plays. Substantially all of our capital programs are allocated to light-oil plays to deliver both value and production increases.
  • We have set our 2012 exploration and development capital program to be in the range of $1.6 billion to $1.7 billion. Based on this level of capital expenditures, we forecast 2012 average production to be approximately 174,000 to 178,000 boe per day prior to the effect of asset dispositions. This represents year-over-year growth in annual average production of between seven and nine percent driven largely by light oil.
  • To support our planned 2012 capital program, we currently have 60,000 barrels per day of our 2012 liquids production hedged between US$85.58 per barrel and US$102.28 per barrel; 50,000 mcf per day of our 2012 natural gas production hedged at an average price of $4.30 per mcf and foreign exchange contracts to swap US$90 million per month of US dollar revenue for 2012 to Canadian dollars at an average rate of one US dollar equals 1.01 Canadian dollars. These hedge positions protect approximately 60 percent of our forecasted 2012 revenues, net of royalties at current future strip commodity prices.

Dividend, Risk Management and Financing Activities

  • On November 2, 2011, our Board of Directors declared our fourth quarter dividend of $0.27 per share to be paid on January 13, 2012 to shareholders of record on December 31, 2011.
  • Crude oil prices averaged WTI US$89.81 per barrel in the third quarter of 2011 compared to US$102.55 per barrel in the second quarter of 2011 and US$76.21 per barrel for the third quarter of 2010. In the third quarter of 2011, the AECO Monthly Index averaged $3.72 per mcf compared to $3.74 per mcf in the second quarter of 2011 and $3.72 per mcf in the third quarter of 2010.
  • For the remainder of 2011, we have 41,000 barrels per day of our 2011 crude oil production hedged between US$79.98 per barrel and US$96.39 per barrel.
  • On October 27, 2011, we increased our bank facility capacity by $500 million using the “accordion” feature under our existing facility. The rates, terms and maturity date of the additional capacity are the same as the existing facility. The facility now has an aggregate borrowing limit of $2.75 billion which expires on June 26, 2015 and is extendible.
  • On October 31, 2011, we priced a proposed offering of senior unsecured notes (the “2011 Notes”) to be issued on a private placement basis with principal amounts of approximately $135 million (the “Private Placement”). The 2011 Notes have an average term of approximately 8.1 years and bear a weighted average fixed interest rate of approximately 4.49 percent. The Private Placement, subject to the completion of customary closing conditions, is expected to close on or about November 30, 2011. We intend to use the proceeds to repay advances on our bank facility.

Operational Highlights

Through the third quarter, Penn West re-established its operational momentum after severe conditions during the second quarter and into the first part of the third quarter significantly impaired access and operations. By the middle of the third quarter we had 18-20 drilling rigs across our four major light-oil projects as well as on other select high-return targets. Activity levels have shifted to a development focus on our key light-oil plays. Results year-to-date and the completion results from the third quarter are consistent with the information presented earlier this year at our Investor Day. We completed the acquisition of significant complimentary lands based on successful appraisal drilling.

Oil Development

  • In the Cardium, development is focused in the most promising areas identified to date. Penn West rig released 35 wells in the third quarter, with the majority in Alder Flats, Willesden Green and West Pembina. Results are meeting or exceeding expectations, averaging 200 - 300 boe per day in the first month. Penn West will continue drilling with five rigs for the balance of the year and into 2012.
  • The predictability of the Slave Point reservoir and our control of infrastructure in the area allow us to pursue an aggressive development plan. Initial production from the two single wells drilled at Sawn Lake on the platform earlier in the year was 900 boe per day. Six months later the wells are producing 700 boe per day. These results led us to expand both infrastructure and our highly prospective Slave Point land position at Sawn Lake, Otter and Senex, adding approximately 150,000 acres of land through Crown sales.
  • Full-scale development is underway in the Spearfish. Results are repeatable and predictable in both productivity and costs. An expansion of our facility to 14,000 boe per day is on schedule for completion in the first quarter of 2012 and our development program is designed to fill the facility by the end of 2012.
  • In the Saskatchewan portion of the Viking play, we are continuing with full-scale oil development. Predictable production, operational efficiencies and favourable royalties continue to drive strong economics.
  • In the evolving Alberta Viking oil play, appraisal drilling in Esther, Consort and Monitor has been very successful. Each of the seven wells brought on-stream recently are producing over 100 boe per day (approximately 65 percent oil) after the first month. Our land position in this play trend exceeds 400,000 net acres.
  • Penn West is also selectively developing an inventory of other high deliverability, high netback plays. These include light oil in the Peace River Arch, the Hoadley liquids-rich gas trend and light oil in southeast Saskatchewan.

Resource Appraisal

  • In the Peace River Oil Partnership, the performance of the first cycle of our steam pilot appraisal at Seal Main continues to exceed expectations. After being placed on production in late July, the well produced peak rates in excess of 800 barrels of oil per day and has produced at an average rate of just under 500 barrels of oil per day over the last three months. The anticipated steam oil ratio will be at or less than 2.0.  The second cycle of steam injection will begin late in the fourth quarter of 2011.
  • At Cordova, completions are underway on the first multi-well pad and production from these six wells is expected to come on stream by the end of 2011. Our drilling program is on schedule and we anticipate drilling a total of 24 wells (12 net) by the end of 2011.
                             Three months ended            Nine months ended
                                   September 30                 September 30
                                              %                            %
                         2011       2010 change       2011       2010 change
    Financial
    (millions, except per
    share amounts)
    Gross revenues
    (1)               $   861  $     728     18  $   2,625  $   2,252     17
    Funds flow            348        267     30      1,100        880     25
    Basic per
    share                0.74       0.59     25       2.36       2.02     17
    Diluted per
    share (2)            0.74       0.58     28       2.36       1.99     19
    Net income (2)        138        304   (55)        700      1,147   (39)
    Basic per
    share (2)            0.29       0.67   (57)       1.50       2.63   (43)
    Diluted per
    share (2)            0.29       0.66   (56)       1.50       2.59   (42)
    Capital
    expenditures,
    net (3)               481        357     35      1,157        555    100
    Long-term debt
    at period-end       2,905      2,260     29      2,905      2,260     29
    Convertible
    debentures            224        255   (12)        224        255   (12)
    Dividends paid
    (4)               $   127  $     203   (37)  $     293  $     585   (50)
    Payout ratio
    (5)                   36%        76%   (40)        27%        66%   (39)
    Operations
    Daily
    production
    Light oil and
    NGL (bbls/d)       83,287     80,614      3     83,675     78,097      7
    Heavy oil
    (bbls/d)           18,105     17,766      2     17,894     18,735    (4)
    Natural gas
    (mmcf/d)              360        394    (9)        358        404   (11)
    Total
    production
    (boe/d)           161,323    164,087    (2)    161,171    164,123    (2)
    Average sales
    price
    Light oil and
    NGL (per bbl)   $   82.23  $   65.68     25  $   85.25  $   68.62     24
    Heavy oil (per
    bbl)                63.38      58.81      8      66.43      60.15     10
    Natural gas
    (per mcf)       $    3.81  $    3.68      4  $    3.89  $    4.33   (10)
    Netback per
    boe
    Sales price     $   58.05  $   47.48     22  $   60.26  $   50.16     20
    Risk
    management
    gain (loss)        (0.37)       0.58  (100)     (1.14)       0.06  (100)
    Net sales
    price               57.68      48.06     20      59.12      50.22     18
    Royalties         (10.87)     (8.60)     26    (10.96)     (9.05)     21
    Operating
    expenses          (17.49)    (15.78)     11    (17.38)    (15.63)     11
    Transportation     (0.49)     (0.55)   (11)     (0.50)     (0.55)    (9)
    Netback         $   28.83  $   23.13     25  $   30.28  $   24.99     21

HIGHLIGHTS

    (1) Gross revenues include realized gains and losses on commodity
        contracts.
    (2) Comparative figures have been restated to IFRS.
    (3) Excludes business combinations.
    (4) Includes dividends paid prior to those reinvested in shares under the
        dividend reinvestment plan. In 2011, we began paying
        dividends on a quarterly basis. The last monthly distribution payment
        as a Trust was declared in December 2010 and paid in
        January 2011 ($0.09 per unit). Our first quarterly dividend ($0.27
        per share) as a corporation was paid in April 2011.
    (5) Payout ratio is calculated as dividends paid divided by funds flow.
        The term "payout ratio" is a non-GAAP measure. See "Non-
        GAAP Measures Advisory" section below.
                                 Three months ended    Nine months ended
                                       September 30         September 30
                                     2011      2010       2011      2010
                               Gross  Net Gross Net Gross  Net Gross Net
    Oil                          119   88   118  86   322  252   217 152
    Natural gas                   22   16    19  14    46   32    38  25
    Dry                            -    -     2   2     -    -     2   2
                                 141  104   139 102   368  284   257 179
    Stratigraphic and service      7    1    13   7    77   34    38  24
    Total                        148  105   152 109   445  318   295 203
    Success rate (1)                 100%       98%       100%       99%

DRILLING PROGRAM

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

Our activity levels have increased during 2011 as we focus on the development of our light-oil resource plays in the Cardium, Carbonates, Spearfish (Waskada) and the Colorado (Viking). Over the past three years, we implemented horizontal multi-stage fracture technology for substantially all production wells.

CAPITAL EXPENDITURES

                                  Three months ended       Nine months ended
    (millions)                          September 30            September 30
                                    2011        2010        2011        2010
    Land acquisition and
    retention                    $    66     $  (12)     $   172     $    92
    Drilling and completions         326         247         807         537
    Facilities and well
    equipping                        105          52         324         141
    Geological and geophysical         2           1           9          10
    Corporate                          8           5          17           7
    Capital expenditures             507         293       1,329         787
    Joint venture, carried
    capital                         (32)           -        (77)           -
    Property acquisitions
    (dispositions), net                6          64        (95)       (232)
    Capital expenditures, net        481         357       1,157         555
    Business combinations              -           -         286           -
    Total expenditures           $   481     $   357     $ 1,443     $   555

We have increased our capital activity, notably in drilling, completions and well equipping, as we move from the appraisal phase into full-scale development at our key light-oil plays across western Canada. To date in 2011, we have sold net production of approximately 1,300 boe per day for net proceeds of $89 million, including the cash consideration paid on business combinations.

LAND

                                                          As at September 30
                         Producing                       Non-producing
                                          %                                %
              2011        2010       change        2011        2010    change
    Gross
    acres
    (000s)   6,195       6,214            -       2,997       2,996        -
    Net
    acres
    (000s)   4,159       4,104            1       2,126       2,085        2
    Average
    working
    interest   67%         66%            1         71%         70%        1

Acreage figures are comparable year-over-year as strategic land acquisitions have offset land lease expiries in non-core areas.

COMMON SHARES DATA

                            Three months ended             Nine months ended
                                  September 30                  September 30
                                             %                             %
    (millions of shares)  2011   2010   change          2011   2010   change
    Weighted average
       Basic             469.2  453.0        4         465.9  436.7        7
       Diluted           469.4  462.3        2         466.1  446.1        4
    Outstanding as at September 30                     469.5  454.7        3

Letter to our Shareholders

In some respects the events of the last couple of months have felt like déjà vu. Markets are clouded by debt concerns and commodity prices have fluctuated. We are in a world of financial uncertainty where vacillation has been the order of the day for politicians. Although the market behaviors are the same and some of the financial and monetary circumstances bear similarities, there are distinctive differences from the 2008 banking crisis. In the short term, we anticipate these issues will continue to contribute to market uncertainty and cast a shadow over the prospects for economic growth in Europe.

The impact to Penn West with respect to questions surrounding the plight of the European economy boil down to one specific issue; will these concerns drastically alter demand for oil in the world economy?   Even as the European economy has struggled for the past two years, Brent crude pricing has remained above the $100 per barrel mark. Some believe that Europe, even in recession, is unlikely to create a large enough drop in demand to significantly move oil pricing from its current price band. We believe that North America is likely to experience economic growth, albeit moderate, for the next couple of years and that the ultimate driver for a world oil price will continue to be demand growth not only in Asia but in numerous other developing economies. As long as those economic growth conditions prevail, we believe that oil pricing should remain no worse than ‘neutral’ in the near to mid-term.

To provide certainty for both our dividend and capital programs, we have actively hedged oil through 2012 with this scenario in mind. Just under 60 percent of our revenue for 2012 is secured using costless collars with an average floor price in excess of US$85 per barrel. We have increased our bank facility by $500 million, have expanded our portfolio of private notes, and have a selection of non-core assets currently in the disposition market.

This level of revenue certainty and financial flexibility combined with the maturing of our light-oil prospect inventory allows us to move ahead with our light-oil growth plans for 2012.

We will remain vigilant as the economic stories of 2012 unfold. We will take appropriate action should conditions worsen or strengthen. We have plans in place should those possible scenarios present themselves. Our actions, however, will be driven by the performance of economies and not by the hyperbole which situations like this tend to generate.

On behalf of the Board of Directors,

(signed)

Murray R. Nunns
President and Chief Executive Officer  

Calgary, Alberta
November 2, 2011

Outlook

This outlook section is included to provide shareholders with information about our expectations as at November 2, 2011 for production and capital expenditures for 2011 and 2012 and readers are cautioned that the information may not be appropriate for any other purpose. This information constitutes forward-looking information. Readers should note the assumptions, risks and discussion under “Forward-Looking Statements”.

In 2011, our capital program remained focused on tight-oil development and resource appraisal at our key light-oil plays in the Cardium, Carbonates, Spearfish and Viking. As we move into 2012, we expect to move to full-scale development at these key light-oil plays.

Annual production guidance for 2011 remains unchanged at an average of between 162,000 and 164,000 boe per day. We continue to estimate average production for the second half of 2011 at between 163,000 and 167,000 boe per day with exit production for 2011 between 174,000 and 177,000 boe per day prior to the effect of any asset dispositions.

Our estimated 2012 exploration and development capital program is expected to be in the range of $1.6 to $1.7 billion prior to asset dispositions. Based on this level of capital expenditures, we estimate average production to be approximately 174,000 to 178,000 boe per day for 2012, prior to the effect of asset dispositions.

Our prior production forecast and capital forecast, released on August 10, 2011 with our second quarter results and filed on SEDAR at www.sedar.com was for 2011 average production of 162,000 to 164,000 boe per day and our exploration and development capital budget remains unchanged between $1.4 billion - $1.5 billion, net of asset dispositions.

Private Note Placement

On October 31, 2011, Penn West priced a proposed offering of senior unsecured notes (the “2011 Notes”) to be issued on a private placement basis in the United States and Canada with aggregate principal amounts of approximately $135 million (the “Private Placement”). The 2011 Notes are subject to various terms with an average term of approximately 8.1 years and an average fixed interest rate of approximately 4.49 percent. The 2011 Notes will be unsecured and rank equally with Penn West’s bank facilities and Penn West’s other outstanding senior notes. Subject to the completion of customary closing conditions, the Private Placement is expected to close on or about November 30, 2011. Penn West intends to use the proceeds to repay advances on its bank facility. The 2011 Notes have not been and will not be registered under the United States Securities Act of 1933, as amended (the “Securities Act”), and may not be offered or sold in the United States absent registration or an applicable exemption from the Securities Act.

Non-GAAP Measures Advisory

The above information includes non-GAAP measures not defined under IFRS or previous generally accepted accounting principles (”GAAP”), including funds flow, funds flow per share-basic, funds flow per share-diluted, netback and payout ratio. Non-GAAP measures do not have any standardized meaning prescribed by GAAP and therefore may not be comparable to similar measures presented by other issuers. Funds flow is cash flow from operating activities before changes in non-cash working capital and decommissioning expenditures. Funds flow is used to assess our ability to fund dividends and planned capital programs. See “Calculation of Funds Flow” below. Netback is a per-unit-of-production measure of operating margin used in capital allocation decisions and to economically rank projects. Operating margin is calculated as revenue less royalties, operating costs and transportation and is used for similar purposes to netback. Payout ratio is calculated as dividends paid divided by funds flow. We use payout ratio to assess the adequacy of retained funds flow to finance capital programs.

Calculation of Funds Flow

                                           Three months
                                                  ended    Nine months ended
                                           September 30         September 30
    (millions, except per share amounts)  2011     2010     2011        2010
    Cash flow from operating activities $  428   $  333  $   923     $   914
    Increase (decrease) in
    non-cash working capital              (97)     (77)      132        (72)
    Decommissioning expenditures            17       11       45          38
    Funds flow                          $  348   $  267  $ 1,100     $   880

    Basic per share                     $ 0.74   $ 0.59  $  2.36     $  2.02
    Diluted per share                   $ 0.74   $ 0.58  $  2.36     $  1.99

Oil and Gas Information Advisory

Barrels of oil equivalent (”boe”) may be misleading, particularly if used in isolation. A boe conversion ratio of six thousand cubic feet of natural gas to one barrel of crude oil is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

Forward-Looking Statements

In the interest of providing our securityholders and potential investors with information regarding Penn West, including management’s assessment of our future plans and operations, certain statements contained in this document constitute forward-looking statements or information (collectively “forward-looking statements”) within the meaning of the “safe harbour” provisions of applicable securities legislation. Forward-looking statements are typically identified by words such as “anticipate”, “continue”, “estimate”, “expect”, “forecast”, “may”, “will”, “project”, “could”, “plan”, “intend”, “should”, “believe”, “outlook”, “objective”, “aim”, “potential”, “target” and similar words suggesting future events or future performance. In addition, statements relating to “reserves” or “resources” are deemed to be forward-looking statements as they involve the implied assessment, based on certain estimates and assumptions, that the reserves and resources described exist in the quantities predicted or estimated and can be profitably produced in the future.

In particular, this document contains forward-looking statements pertaining to, without limitation, the following: our anticipation that from the beginning of 2010 to year end 2011, we will have increased our light-oil production to 51 percent of our production from 39 percent and our total liquids production to 66 percent from 57 percent; our intention in 2012 to target a seven to nine percent annual average production growth rate and a further increase in our liquid weighting prior to the disposition of non-core assets; the disclosure contained under the heading “Strategy”, including our belief that we have unrivaled leverage to low-risk, large-scale light-oil development, our belief that our activities since 2009 have provided us with an inventory of drilling locations to fuel light-oil growth well into the future, our intention in 2012 to further shift our capital spending into large scale development in the Cardium, Carbonates, Spearfish and Viking oil trends, our intention (in order to maximize efficiency) to drill on a continuous basis to the fullest extent possible, and our expectation that our resource appraisal activities will be focused on Peace River oil sands, Cordova shale gas, enhanced oil recovery and selected exploratory plays; the disclosure contained under the heading “2011 Production and Capital”, including our expectation that our average production for the second half of 2011 will be between 163,000 and 167,000 boe per day, that exit production for 2011 will be between 174,000 and 177,000 boe per day, that annual production for 2011 will average between 162,000 and 164,000 boe per day, the possibility that anticipated property dispositions may impact the forecasted exit production rate depending on closing dates, our expectation that our full-year 2011 exploration and development program, including land related expenditures to date, will remain in the range of $1.4 billion to $1.5 billion, net of asset dispositions, our expectation that in the fourth quarter of 2011 we will deploy an average of 20 to 25 drilling rigs through to break-up in the spring of 2012 to drive our first quarter 2012 production additions and to enhance our efficiencies, and our belief that our continuing portfolio management program, which includes a recently marketed disposition program, could result in up to $400 million of proceeds; the disclosure contained under the heading “2012 Capital Budget”, including our expectation that our 2012 capital and operating plan will shift from appraisal activities to development reflecting increased levels of predictability in our plays, our belief that substantially all of our capital programs will be allocated to light-oil plays to deliver both value and production increases, our expectation that our 2012 exploration and development capital program will be in the range of $1.6 to $1.7 billion, our expectation that based on this level of capital expenditures our 2012 average production will be approximately 174,000 to 178,000 boe per day prior to the effect of asset dispositions (which would represent year-over-year growth in annual average production of between seven to nine percent driven largely by light-oil), and our belief that our 2012 hedge positions protect approximately 60 percent of our forecasted 2012 revenues, net of royalties at current future strip commodity prices; all disclosure regarding the details of our fourth quarter dividend; all disclosure relating to our pricing and closing of the 2011 Notes Private Placement, including the proposed aggregate principal amount and terms of such 2011 Notes, the proposed use of the proceeds received from the issuance of the 2011 Notes, and the expected closing date of such Private Placement; our intention to maintain a fleet of 18 to 20 rigs operating through the balance of the year and into 2012; our intention in the Cardium to continue drilling with five rigs for the balance of the year and into 2012; our intention to pursue an aggressive development plan in the Slave Point reservoir; our belief that results in the Spearfish are repeatable and predictable in both productivity and costs, our belief that the expansion of our facility in the area to 14,000 boe per day is on schedule for completion in the first quarter of 2012, and our belief that our development program will be able to fill the facility by the end of 2012; in relation to the Peace River Oil Partnership, our anticipation that the steam oil ratio will be at or less than 2.0 and our plan that the second cycle of steam injection will begin late in the fourth quarter of 2011; in relation to our Cordova play, our expectation that production from the first six wells will come on stream by the end of 2011, and our anticipation of drilling a total of 24 wells (12 net) by the end of 2011; certain disclosures contained in our “Letter to our Shareholders”, including our belief that the current economic climate has distinctive differences from the 2008 banking crisis, our view that in the short term, there will be market uncertainty that will cast a shadow over the prospects for economic growth in Europe, our belief that North America is likely to experience economic growth, albeit moderate, for the next couple of years and that the ultimate driver for a world oil price will continue to be demand growth not only in Asia but in numerous other developing economies, our belief that as long as those economic growth conditions prevail, that oil pricing should remain no worse than ‘neutral’ in the near to mid-term, our belief that our 2012 hedging program provides certainty for both our dividend and capital programs, our belief that just under 60 percent of our revenue for 2012 is secured using costless collars with an average floor price in excess of US$85 per barrel, and our belief that the level of revenue certainty and financial flexibility that results from our hedging activities, debt financing activities and disposition program combined with the maturing of our light-oil prospect inventory will allow us to move ahead with our light-oil growth plans for 2012; certain disclosures contained under the heading “Outlook”, including our expectation, as we move into 2012, to move to full-scale development of our key light-oil plays in the Cardium, Carbonates, Spearfish and Viking, our annual production guidance for 2011 of an average of between 162,000 and 164,000 boe per day, our continued estimate that average production for the second half of 2011 will be between 163,000 and 167,000 boe per day with exit production for 2011 between 174,000 and 177,000 boe per day prior to the effect of any asset dispositions, our estimate that our 2012 exploration and development capital program will be in the range of $1.6 to $1.7 billion prior to asset dispositions, our estimate that, based on this level of capital expenditures, our average production will be approximately 174,000 to 178,000 boe per day for 2012, prior to the effect of asset dispositions, and our expectation that our exploration and development capital budget for 2011 will remain between $1.4 billion to $1.5 billion, net of asset dispositions.

With respect to forward-looking statements contained in this document, we have made assumptions regarding, among other things: future crude oil, natural gas liquids and natural gas prices and differentials between light, medium and heavy oil prices; future capital expenditure levels; future crude oil, natural gas liquids and natural gas production levels; drilling results; future exchange rates and interest rates; the amount of future cash dividends that we intend to pay; our ability to obtain equipment in a timely manner to carry out development activities and the costs thereof; our ability to market our oil and natural gas successfully to current and new customers; the impact of increasing competition; our ability to obtain financing on acceptable terms; and our ability to add production and reserves through our development and exploitation activities. In addition, many of the forward-looking statements contained in this document are located proximate to assumptions that are specific to those forward-looking statements, and such assumptions should be taken into account when reading such forward-looking statements: see in particular the assumptions identified under the heading “Outlook”.

Although we believe that the expectations reflected in the forward-looking statements contained in this document, and the assumptions on which such forward-looking statements are made, are reasonable, there can be no assurance that such expectations will prove to be correct. Readers are cautioned not to place undue reliance on forward-looking statements included in this document, as there can be no assurance that the plans, intentions or expectations upon which the forward-looking statements are based will occur. By their nature, forward-looking statements involve numerous assumptions, known and unknown risks and uncertainties that contribute to the possibility that the predictions, forecasts, projections and other forward-looking statements will not occur, which may cause our actual performance and financial results in future periods to differ materially from any estimates or projections of future performance or results expressed or implied by such forward-looking statements. These risks and uncertainties include, among other things: the impact of weather conditions on seasonal demand and ability to execute capital programs; risks inherent in oil and natural gas operations; uncertainties associated with estimating reserves and resources; competition for, among other things, capital, acquisitions of reserves, resources, undeveloped lands and skilled personnel; incorrect assessments of the value of acquisitions, including the completed acquisitions discussed herein; geological, technical, drilling and processing problems; general economic conditions in Canada, the U.S. and globally; industry conditions, including fluctuations in the price of oil and natural gas; royalties payable in respect of our oil and natural gas production and changes thereto; changes in government regulation of the oil and natural gas industry, including environmental regulation; fluctuations in foreign exchange or interest rates; unanticipated operating events or environmental events that can reduce production or cause production to be shut-in or delayed, including wild fires and flooding; failure to obtain industry partner and other third-party consents and approvals when required; stock market volatility and market valuations; OPEC’s ability to control production and balance global supply and demand of crude oil at desired price levels; political uncertainty, including the risks of hostilities, in the petroleum producing regions of the world; the need to obtain required approvals from regulatory authorities from time to time; failure to realize the anticipated benefits of dispositions, acquisitions, joint ventures and partnerships, including the completed dispositions, acquisitions, joint ventures and partnerships discussed herein; changes in tax and other laws that affect us and our securityholders; changes in government royalty frameworks; uncertainty of obtaining required approvals for acquisitions and mergers; the potential failure of counterparties to honour their contractual obligations; and the other factors described in our public filings (including under “Risk Factors” in our Annual Information Form and in Note 10 to our 2011 third quarter unaudited financial statements) available in Canada at www.sedar.com and in the United States at www.sec.gov. Readers are cautioned that this list of risk factors should not be construed as exhaustive.

                                 Penn West Petroleum Ltd.
                                Consolidated Balance Sheets

    (CAD millions, unaudited)          September 30, 2011   December 31, 2010

    Assets
    Current
    Accounts receivable                          $    411         $       386
    Other                                             101                  87
    Risk management                                   149                  23
                                                      661                 496
    Non-current
    Deferred funding assets                           627                 678
    Exploration and evaluation assets                 275                 128
    Property, plant and equipment                  11,715              11,218
    Goodwill                                        2,020               2,020
    Risk management                                    87                   3
                                                   14,724              14,047
    Total assets                                 $ 15,385         $    14,543

    Liabilities and Shareholders' Equity
    Current
    Accounts payable and accrued liabilities     $    845         $       910
    Dividends payable                                 127                  41
    Convertible debentures                            224                 255
    Risk management                                    45                  85
                                                    1,241               1,291
    Non-current
    Long-term debt                                  2,905               2,496
    Decommissioning liability                         626                 648
    Risk management                                    54                  67
    Deferred tax liability                          1,335               1,452
    Other non-current liabilities                       5                  29
                                                    6,166               5,983
    Shareholders' equity
    Shareholders' capital                           8,808                   -
    Unitholders' capital                                -               9,170
    Other reserves                                     90                   -
    Retained earnings (deficit)                       321               (610)
                                                    9,219               8,560
    Total liabilities and shareholders' equity   $ 15,385         $    14,543
                             Penn West Petroleum Ltd.
                        Consolidated Statements of Income

                                    Three months ended     Nine months ended
                                          September 30          September 30
    (CAD millions, except per
    share amounts, unaudited)            2011     2010      2011        2010

             Oil and natural
             gas sales                $   866  $   719   $ 2,675   $   2,249
             Royalties                  (161)    (130)     (482)       (406)
                                          705      589     2,193       1,843

             Risk management
             gain (loss)
             Realized                     (5)        9      (50)           3
             Unrealized                   249     (45)       261         110
                                          949      553     2,404       1,956

    Expenses
             Operating                    260      239       765         701
             Transportation                 7        8        22          25
             General and
             administrative                38       36       112         104
             Share-based
             compensation
             expense
             (recovery)                  (66)       23        16          77
             Depletion and
             depreciation                 292      263       850         875
             Gain on
             dispositions                   -    (368)     (151)     (1,082)
             Exploration and
             evaluation
             expense                        1        -         5           1
             Unrealized risk
             management loss
             (gain)                        11       13       (2)          10
             Unrealized
             foreign exchange
             loss (gain)                  136     (46)        91        (27)
             Financing                     47       46       142         131
             Accretion                     11       10        33          30
                                          737      224     1,883         845
    Income before taxes                   212      329       521       1,111

             Deferred tax
             expense
             (recovery)                    74       25     (179)        (36)

    Net and comprehensive
    income                            $   138  $   304   $   700   $   1,147

    Net income per share
             Basic                    $  0.29  $  0.67   $  1.50   $    2.63
             Diluted                  $  0.29  $  0.66   $  1.50   $    2.59
    Weighted average shares
    outstanding (millions)
             Basic                      469.2    453.0     465.9       436.7
             Diluted                    469.4    462.3     466.1       446.1
                              Penn West Petroleum Ltd.
                       Consolidated Statements of Cash Flows

                               Three months ended           Nine months ended
                                     September 30                September 30
    (CAD millions,
    unaudited)                    2011       2010          2011          2010

    Operating activities
          Net income           $   138    $   304     $     700     $   1,147
          Depletion and
          depreciation             292        263           850           875
          Gain on
          dispositions               -      (368)         (151)       (1,082)
          Exploration and
          evaluation
          expense                    1          -             5             1
          Accretion                 11         10            33            30
          Deferred tax
          expense
          (recovery)                74         25         (179)          (36)
          Share-based
          compensation
          expense
          (recovery)              (66)         21            14            72
          Unrealized risk
          management loss
          (gain)                 (238)         58         (263)         (100)
          Unrealized
          foreign
          exchange loss
          (gain)                   136       (46)            91          (27)
          Decommissioning
          expenditures            (17)       (11)          (45)          (38)
          Change in
          non-cash
          working capital           97         77         (132)            72
                                   428        333           923           914
    Investing activities
          Capital
          expenditures           (475)      (293)       (1,252)         (787)
          Acquisitions            (42)      (151)         (238)         (479)
          Proceeds from
          dispositions              36        278           327         1,144
          Change in
          non-cash
          working capital          191        152            57           146
                                 (290)       (14)       (1,106)            24
    Financing activities
          Increase
          (decrease) in
          bank loan               (44)      (169)           245       (1,235)
          Proceeds from
          issuance of
          notes                      -          -            75           304
          Repayment of
          acquired credit
          facilities                 -          -          (39)             -
          Issue of equity            1         18           160           484
          Dividends and
          distributions
          paid                    (95)      (168)         (227)         (491)
          Settlement of
          convertible
          debentures                 -          -          (31)             -
                                 (138)      (319)           183         (938)

    Change in cash                   -          -             -             -
    Cash, beginning of
    period                           -          -             -             -
    Cash, end of period        $     -    $     -     $       -     $       -
                                       Penn West Petroleum Ltd.
                            Statements of Changes in Shareholders' Equity

    (CAD millions, unaudited)
                               Shareholders'     Other     Retained
                                     Capital  Reserves     Earnings     Total

    Balance at January 1, 2011     $   9,170    $    -    $   (610)   $ 8,560
    Elimination of deficit             (610)         -          610         -
    Net and comprehensive income           -         -          700       700
    Implementation of
    Option Plan and CSRIP                  -        81            -        81
    Share-based compensation
    expense                                -        31            -        31
    Issued on exercise of
    options and share rights             182      (22)            -       160
    Issued to dividend
    reinvestment plan                     66         -            -        66
    Dividends declared                     -         -        (379)     (379)
    Balance at
    September 30, 2011             $   8,808    $   90    $     321   $ 9,219

    (CAD millions, unaudited)
                                 Unitholders'     Other
                                      Capital  Reserves     Deficit     Total

    Balance at January 1, 2010     $   8,451    $    -    $ (1,034)   $ 7,417
    Net and comprehensive income           -         -        1,147     1,147
    Issued on exercise of
    trust unit rights                     44         -            -        44
    Issued to employee trust
    unit savings plan                     29         -            -        29
    Issued to distribution
    reinvestment plan                     94         -            -        94
    Issued to settle
    convertible debentures                18         -            -        18
    Issued on trust
    unit offering                        428         -            -       428
    Distributions declared                 -         -        (563)     (563)
    Balance at September 30, 2010  $   9,064    $    -    $   (450)   $ 8,614

Investor Information

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

A conference call will be held to discuss Penn West’s results at 10:00am Mountain Time (12:00pm Eastern Time) on November 3, 2011.

To listen to the conference call, please call 416-695-6622 or 1-800-769-8320 (North America toll-free). This call will be broadcast live on the Internet and may be accessed directly on the Penn West website at www.pennwest.com or at the following URL: events.digitalmedia.telus.com/pennwest/110311/index.php

A taped recording will be available until November 10, 2011 by dialing 1-800-408-3053 (North America toll-free) and entering pass code 1440223.

Penn West expects to file its Management’s Discussion and Analysis and unaudited interim consolidated financial statements on SEDAR and EDGAR shortly.

For further information:
PENN WEST EXPLORATION
Suite 200, 207 - 9th Avenue SW
Calgary, Alberta  T2P 1K3    
Investor Relations:
Toll Free: +1-888-770-2633
E-mail: investor_relations@pennwest.com
       
Phone: +1-403-777-2500
Fax: +1-403-777-2699
Toll Free: +1-866-693-2707
Website: www.pennwest.com    
Murray Nunns, President & Chief Executive Officer
Phone:  +1-403-218-8939
E-mail: murray.nunns@pennwest.com
       
Jason Fleury, Senior Manager, Investor Relations
Phone:  +1-403-539-6343
E-mail: jason.fleury@pennwest.com

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