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Bellatrix Exploration Ltd.
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BELLATRIX EXPLORATION LTD. ANNOUNCES YEAR END 2010 FINANCIAL RESULTS


View All News Releases March 10, 2011

TSX: BXE

CALGARY, March 10 /CNW/ - (TSX: BXE) Bellatrix Exploration Ltd. ("Bellatrix" or the "Company") announces its financial and operating results for year ended December 31, 2010.

Forward-Looking Statements

This press release 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 attached to this press release.

HIGHLIGHTS

    -------------------------------------------------------------------------
                                                     Years ended December 31,
                                                        2010         2009
    -------------------------------------------------------------------------
    FINANCIAL
    (CDN$000s except share and per share amounts)
    Revenue (before royalties and risk management(1))   117,673      109,014
    Funds flow from operations(2)                        53,042       36,025
      Per basic share                                     $0.57        $0.46
      Per diluted share(5)                                $0.54        $0.46
    Cash flow from operating activities                  44,272       30,671
      Per basic share                                     $0.47        $0.39
      Per diluted share(5)                                $0.46        $0.39
    Net loss                                            (27,533)    (126,620)
      Per basic share                                    $(0.30)      $(1.61)
      Per diluted share(5)                               $(0.30)      $(1.61)
    -------------------------------------------------------------------------
    Exploration and development                          98,387       15,844
    Corporate and property acquisitions                   8,361          643
    -------------------------------------------------------------------------
    Capital expenditures - cash                         106,748       16,487
    Property dispositions - cash                        (14,567)     (92,921)
    Non-cash items                                        2,280         (492)
    -------------------------------------------------------------------------
    Total capital expenditures - net                     94,461      (76,926)
    -------------------------------------------------------------------------
    Long-term debt                                       41,172       27,902
    Convertible debentures(3)                            47,599       81,684
    Working capital excess                               (1,327)      (2,317)
    -------------------------------------------------------------------------
    Total net debt(3)                                    87,444      107,269
    -------------------------------------------------------------------------
    Total assets                                        487,156      440,970
    Shareholders' equity                                322,789      281,351
    -------------------------------------------------------------------------



    OPERATING                                        Years ended December 31,
                                                        2010         2009
    -------------------------------------------------------------------------
    Average daily sales volumes
      Crude oil, condensate and NGLs     (bbls/d)         2,550        2,877
      Natural gas                         (mcf/d)        35,814       33,295
      Total oil equivalent                (boe/d)         8,519        8,426
    Average prices
      Light crude oil and condensate      ($/bbl)         76.25        61.24
      NGLs                                ($/bbl)         39.81        27.73
      Heavy oil                           ($/bbl)         60.50        49.10
      Crude oil, condensate and NGLs      ($/bbl)         65.47        49.65
      Crude oil and condensate (including
       risk management(1))                ($/bbl)         66.59        49.62
      Natural gas                         ($/mcf)          4.19         4.50
      Natural gas (including
       risk management (1))               ($/mcf)          5.28         5.96
      Total oil equivalent                ($/boe)         37.20        34.72
      Total oil equivalent (including
       risk management (1))               ($/boe)         42.15        40.49

    Statistics
      Operating netback(4)                ($/boe)         16.42        13.11
      Operating netback(4) (including
       risk management (1))               ($/boe)         21.37        18.88
      Transportation                      ($/boe)          1.20         1.26
      Production expenses                 ($/boe)         12.21        14.64
      General & administrative            ($/boe)          3.03         3.33
      Royalties as a % of sales
       after transportation                                 20%          17%
    -------------------------------------------------------------------------
    COMMON SHARES
    Common shares outstanding                        97,446,026   78,809,039
    Share options outstanding                         5,823,377    4,213,733
    Shares issuable on conversion of
     convertible debentures(6)                        9,821,429    5,305,250
    -------------------------------------------------------------------------
    Diluted common shares outstanding               113,090,832   88,328,022
    Diluted weighted average shares (5)             101,232,085   78,548,800

    -------------------------------------------------------------------------
    SHARE TRADING STATISTICS
    (CDN$, except volumes) based on
     intra-day trading
    High                                                   5.05         2.75
    Low                                                    2.53         0.48
    Close                                                  4.80         2.65
    Average daily volume                                544,435      235,339
    -------------------------------------------------------------------------
    (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 Canadian generally accepted accounting principles
        ("GAAP") as an indicator of the Company's performance. Therefore
        reference to 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 in the Management Discussion and Analysis
        ("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 non-GAAP terms.  The
        Company's calculation of net debt includes the net working capital
        deficiency (excess) before short-term commodity contract assets and
        liabilities, current capital lease obligation and short-term future
        income tax assets and liabilities. Total net debt also includes the
        liability component of convertible debentures and excludes asset
        retirement obligations, long-term capital lease obligation and the
        future income tax assets and liabilities. A reconciliation between
        total liabilities under GAAP and total net debt as calculated by the
        Company is found in the MD&A.

    (4) Operating netbacks are calculated by subtracting royalties,
        transportation, and operating costs from revenues before other
        income.

    (5) Basic weighted average shares for the year ended December 31, 2010
        were 93,286,554 (2009: 78,548,800).

        In computing weighted average diluted earnings per share for the year
        ended December 31, 2010 a total of 5,823,377 (2009: 4,213,733) share
        options and 9,821,429 (2009: 5,305,250) common shares issuable on
        conversion of convertible debentures were excluded from the
        calculation as they were not dilutive.

        In computing weighted average diluted cash flow from operations and
        funds flow from operations for the year ended December 31, 2010 a
        total of 1,083,985 (2009: nil) 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 6,861,546 (2009:
        nil) 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 101,232,085.  As a
        consequence, a total of $2.0 million for interest accretion expense
        (net of income tax effect) was added to the numerator.

    (6) Shares issuable on conversion of convertible debentures are
        calculated as the $55.0 million principal amount of the convertible
        debentures divided by the conversion price of $5.60 per share.

                           REPORT TO SHAREHOLDERS

There are vital moments in a Company's development, when the junction of achievement and opportunity position it for even greater success. Bellatrix Exploration Ltd. has reached this pivotal point in its evolution. Bellatrix has successfully navigated the planned paradigm shift to being a low cost operator with a strong balance sheet and with a technically strong management team providing top decile growth in shareholder value driven by the drill bit. In 2010, the Bellatrix team completed the restructuring of the Company's balance sheet, provided shrewd hedging on both oil and gas production, drove down field lease operating costs, reduced G&A, posted top decile performance in finding and development costs and recycle ratios while exploiting the Company's extensive drilling inventory of Cardium oil and Notikewin liquids rich gas assets in West Central Alberta.

MARKET AND SHARE TRADING STATS

Bellatrix's share price has increased significantly from $0.77 on July 1, 2009 to a closing price of $5.80 on March 1, 2011, representing a 653% increase. In comparison, the S&P/TSX Composite Index and S&P/TSX Energy Index increased by 36% and 37%, respectively.

PRODUCTION

Production Operations highlights for the year ended December 31, 2010 are as follows:

-   98% drilling success realized on 48 gross wells, including 14 gross
        (7.8 net) wells in Q4 2010.

    -   Installed 29.4km of pipeline, built 3 oil batteries and 2 gas
        compression facilities.

    -   2010 sales volumes averaged 8,519 boe/d with an exit rate of
        10,500 boe/d (weighted 42% to crude oil, condensate and NGL's).

    -   Closed the purchase of certain West Pembina property interests for
        $4.75 million before adjustments on December 10, 2010. This
        acquisition included an additional 6.5 gross sections (2.5 net) of
        Cardium rights, for an increase of an additional 10.0 net Cardium
        horizontal drilling locations, as well as approximately 70 boe/d of
        production and associated facilities.

    -   Closed the sale of a non-core property at Mantario, Saskatchewan for
        net proceeds of approximately $13.6 million after adjustments on
        December 22, 2010.

    -   On January 25, 2011, Bellatrix acquired the interest in a section of
        Frog Lake First Nations lands from a joint venture partner for a net
        purchase price of $2.2 million after adjustments.

    -   On January 25, 2011, Bellatrix exercised a right of first refusal
        increasing its interest in a joint venture property in the Brazeau
        Area of West Central Alberta for approximately $1.5 million.

    -   Bellatrix has 211,893 net undeveloped acres in Alberta, British
        Columbia and Saskatchewan.

As part of the 2011 capital expenditures budget the Corporation anticipates a very active first quarter in 2011 with participation in 22 gross (12.2 net) wells weighted 2/3 oil and 1/3 liquids rich gas. To date in the first quarter of 2011, the Company has drilled or participated in 9 gross (5.5 net) Cardium oil wells and 6 gross (2.4 net) Notikewin liquids rich gas wells. The remaining 7 gross (4.3 net) potential oil wells are scheduled to be drilled prior to the end of Q1.

To date in Q1 2011 the Company has placed 6 gross (4.2 net) Cardium operated wells on production establishing the following average production rates:

------------------------------------------------
    6 Wells        IP(1) 7        709 boe/d per well
    5 Wells        IP(1) 15       539 boe/d per well
    4 wells        IP(1) 30       450 boe/d per well
    ------------------------------------------------
    (1) IP represents average boe/d for 7, 15 and 30 days

Currently the Company is producing approximately 11,000 boe/d but has experienced significant downtime associated with freeze offs, a compressor failure and pump failures resulting in production averaging approximately 10,000 boe/d in the first 2 months of Q1. Behind pipe tested production of 1,500 boe/d net will be tied in by the end of Q1.

DRILLING

The Company dramatically increased its capital program in 2010 as compared to 2009. Exploration and development capital expenditures after drilling credits but excluding acquisitions and dispositions were $98.4 million in 2010, compared to $15.8 million in 2009. During the fourth quarter of 2010, Bellatrix spent $34.9 million on capital projects, excluding corporate and asset acquisitions and dispositions, compared to $9.6 million in 2009. In 2010, Bellatrix drilled or participated in 48 (28.8 net) wells including 9 gross (6.3 net) natural gas wells, and 38 gross (21.5 net) oil wells and 1 gross and net dry hole establishing a 98 percent drill bit success rate.

FINANCIAL

    Financial highlights for the year ended December 31, 2010 are as follows:

    -   Sales volumes increased 52% to Q4 2010 (10,002 boe/d) from Q4 2009
        (6,572 boe/d)

    -   In 2010 total crude oil, condensate and NGL revenues contributed 53%
        of total revenue (before other) compared to 49% in 2009.  Light
        crude oil, condensate and NGL revenues in 2010 contributed 85% of
        total crude oil, condensate and NGL revenue (before other) compared
        to 39% in 2009.

    -   Funds flow from operations increased 47% to 2010 ($53.0 million) from
        2009 ($36.0 million).

    -   Per unit production expenses have decreased to $11.31/boe and
        $12.21/boe for the three and twelve month periods ended December 31,
        2010, respectively, which compares to $16.65/boe and $14.64/boe for
        the comparable periods in 2009, respectively.

    -   Total net debt of $87.4 million at the end of 2010 compared to 2009
        year end debt of $107.7 million.

    -   Financings:

           -  closed an equity offering of 13.61 million common shares for
              $45 million ($3.30 per share) on January 28, 2010.

           -  closed a $55 million convertible debenture offering on
              April 20, 2010; these debentures bear interest at 4.75% per
              annum payable semi-annually, are convertible into common shares
              at a conversion price of $5.60 per common share, and mature on
              April 30, 2015.

           -  closed a bought deal flow through share financing of
              4.71 million common shares for $20 million ($4.25 per share) on
              August 12, 2010.

    -   Realized natural gas price after including risk management contracts
        for year ended December 31, 2010 was $5.28/mcf.

The total net proceeds from property dispositions completed in 2010 were $14.6 million which was initially used to pay down debt and ultimately will be directed towards development of Bellatrix's Cardium oil resource program. Bellatrix's total net debt including the liability component of its convertible debentures, excluding unrealized commodity contract assets and liabilities, future income tax assets and liabilities, capital lease obligations and asset retirement obligations, as at December 31, 2010 was $87.4 million, compared to $107.3 million at 2009.

Effective December 15, 2010, the Company's borrowing base was increased from $85 million to $100 million through to the next scheduled borrowing base determination on May 30, 2011.

As at December 31, 2010, Bellatrix had approximately $41.2 million drawn on its extendible, revolving bank credit facility leaving approximately $58.8 million available on its credit facilities.

Bellatrix has approximately $450 million in tax pools available for deduction against future income.

Funds flow from operations for the 2010 year was $53.0 million on gross sales of $117.7 million compared to funds flow from operations for the 2009 year of $36.0 million on gross sales of $109.0 million.

Funds flow from operations for the 2010 fourth quarter was $15.9 million on gross sales of $37.8 million compared to funds flow from operations for the 2009 fourth quarter of $7.7 million on gross sales of $24.0 million.

The net loss for 2010 year was $27.5 million compared to a net loss of $126.6 million for the same period in 2009. The decrease in net loss from the 2009 to that in 2010 was primarily due to the non-cash $114.2 million loss recognized in Q2 2009 on the sale of petroleum and natural gas properties in Saskatchewan. The net loss for the 2010 fourth quarter was $8.2 million compared to a net loss of $8.2 million in the 2009 fourth quarter. The net loss from the 2009 fourth quarter is comparable the 2010 fourth quarter although the 2010 fourth quarter is reflective of higher sales revenues, offset by increased depletion, depreciation and accretion and a reduction in the future income tax recovery.

COMMODITY PRICE RISK MANAGEMENT

Bellatrix recently added four natural gas fixed price swaps for a total of 20,000 GJ (18.2 Mmcf/d) at an average price of CDN$3.78 GJ/d (CDN$4.155/mcf) for the period April 1, 2011 through October 31, 2011. In addition, the Company has added three crude oil fixed price swaps for 500 bbl/d each at US$89.10/bbl, US$95.00/bbl and US$97.50/bbl, respectively for varying terms within 2011. The Company now has fixed price swaps in place at an annual 2011 average of 2,877 bbl/d of crude oil at an average fixed price of CDN$90.83/bbl. As at March 10, 2011, the Company had entered into commodity price risk management arrangements as follows:

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                                                                 Price
    Type                 Period       Volume  Price Floor      Ceiling  Index
    -------------------------------------------------------------------------
    Oil fixed   January 1, 2011  1,000 bbl/d  $ 88.18 CDN  $ 88.18 CDN    WTI
               to Dec. 31, 2011
    Oil fixed   January 1, 2011    500 bbl/d  $ 89.00 CDN  $ 89.00 CDN    WTI
               to Dec. 31, 2011
    Oil fixed   January 1, 2011    500 bbl/d  $  89.10 US  $  89.10 US    WTI
               to Dec. 31, 2011
    Oil fixed  February 1, 2011    500 bbl/d  $  95.00 US  $  95.00 US    WTI
               to Dec. 31, 2011
    Oil fixed     March 1, 2011
               to Dec. 31, 2011    500 bbl/d  $  97.50 US  $  97.50 US    WTI
    Natural gas   April 1, 2011
     fixed     to Oct. 31, 2011   5,000 GJ/d  $  3.87 CDN  $  3.87 CDN   AECO
    Natural gas   April 1, 2011
     fixed     to Oct. 31, 2011   5,000 GJ/d  $  3.65 CDN  $  3.65 CDN   AECO
    Natural gas   April 1, 2011
     fixed     to Oct. 31, 2011   5,000 GJ/d  $ 3.805 CDN  $ 3.805 CDN   AECO
    Natural gas   April 1, 2011
     fixed     to Oct. 31, 2011   5,000 GJ/d  $  3.80 CDN  $  3.80 CDN   AECO
    -------------------------------------------------------------------------

RESERVES

Highlights from Bellatrix's December 31, 2010 reserves include:

-   Total proved plus probable company interest reserves, including all
        royalties receivable but before deducting royalty burdens, as
        evaluated by GLJ Petroleum Consultants Ltd. ("GLJ") at December 31,
        2010 were 42,560 mboe (gas converted 6:1). This represents a 64.5%
        increase from the 25,872 mboe of 2P reserves as at December 31, 2009.

    -   Excluding properties which were disposed in 2010, proved and probable
        company interest reserve additions in 2010 replaced 690% of
        production.

    -   The net present value of future net revenue of reserves at 10%
        discount rate improved to $481.54 million up from $357.34 million
        posted in 2009 representing an increase of 34.8%.

    -   Bellatrix's net asset value, as at December 31, 2010, based on the
        GLJ evaluation at a 10% discount rate and 97,466,026 common shares
        outstanding, equates to $5.11 per basic share outstanding and is
        $5.79 per basic share outstanding at an 8% discount rate.

    -   The Company's reserve life index has extended to 7.2 years for total
        company interest proved reserves up from 6.4 years in 2009 with total
        company interest proved and probable reserve life index increased to
        11.2 years up from 9.4 years presented in 2009. These 2010 indices
        were based on 2011 company interest production of 9,451 boe/d and
        10,416 boe/d for total company interest proved reserves and proved
        and probable reserves, respectively.

    -   2010 finding, development and acquisition costs ("FD&A") including
        changes to future development capital ("FDC") for total proved plus
        probable reserves were $12.89 /boe.

    -   2010 FD&A including changes to FDC for proved reserves equated to
        $15.94 /boe.

    -   The Company established recycle ratios, after commodity price risk
        management contracts and excluding future development costs of 2.52
        times on a proved basis and 4.31 times on a proved and probable
        basis.

The Company recorded all-in annual FD&A cost of $8.47 per boe in 2010 before consideration of FDC for proved reserves category. The three year average FD&A cost is $9.42 per boe for the proved category before FDC; including FDC, the three year average FD&A cost is $15.46 per boe.

Based on the reserves information and other data as at December 31, 2010, the Company has performed ceiling test calculations in accordance with the requirements of CICA AcG 16 "Oil and Gas Accounting - Full Cost." No ceiling test impairment of oil and gas properties was identified for accounting purposes as at December 31, 2010.

For additional information please refer to the reserves news release dated February 17, 2011 (posted on www.sedar.com).

The Company has experienced several years of positive revisions to its established reserve base as reserve confidence increases with production history and expects this trend to continue. Additionally, reserves expected from the Company's developing Cardium and Notikewin resource plays are only partially evaluated due to the early stage of development of the play and the horizontal drilling and completion technologies involved. Specifically, the reserve evaluation includes 18.9 net undeveloped Notikewin horizontal gas locations at Ferrier and 36.2 net undeveloped Cardium horizontal oil locations at Pembina. Focusing on the Cardium oil play, the Company is in the process of developing and proving up reserves across 144 gross (82 net) sections of land, an average 57% working interest.

At December 31, 2010 the Company's proved and probable company interest reserves, using forecast prices and costs, were 42,560 mboe, an increase of 64.5% compared to 25,872 mboe at December 31, 2009. By commodity type, natural gas makes up 59.8%, light oil and natural gas liquids 38.6% and heavy oil 1.6% of total reserves. At December 31, 2010, the Company's total proved company interest reserves were 24,930 mboe, an increase of 50.4% compared to 16,573 mboe at December 31, 2009.

2010 sales volumes averaged 8,519 boe/d compared to 8,426 boe/d for 2009. Fourth quarter 2010 sales volumes averaged 10,002 boe/d compared to 6,572 boe/d for the fourth quarter of 2009. The weighting towards crude oil, condensate and NGLs sales volumes averaged 38% in the 2010 fourth quarter, compared to 25% in the corresponding period in 2009. Sales volumes for the month of December 2010 averaged approximately 10,500 boe/d; crude oil, condensate and NGLs made up 42% of the December 2010 volumes. 2009 sales volumes were impacted by minimal capital spending in 2009 and dispositions totaling approximately 3,600 boe/d for the third and fourth quarter of 2009. Through 2010, the Company significantly increased its capital program and achieved drilling success leading to the dramatic increase in sales volumes in 2010.

2011 OUTLOOK

In 2011, Bellatrix will continue to be active in drilling its two core resource plays, the Cardium and Notikewin, utilizing horizontal drilling multi fracturing technology. In West Central Alberta, the Company has developed an inventory of 320 net horizontal drilling locations targeting the Cardium Interval and 100 net horizontal drilling locations to access the Notikewin sequence of channel sands. A capital budget of $100 million has been set for fiscal 2011. In addition, the Company anticipates utilizing up to $10 million from a joint venture partner. Based on the timing of the 2011 capital program, downtime for anticipated plant turnarounds and normal production declines, execution of the 2011 budget is anticipated to provide 2011 average daily production of approximately 12,000 boe/d and an exit rate of approximately 13,000 boe/d.

A conference call to discuss Bellatrix's annual financial and reserves results will be held on March 10, 2011 at 2:30 pm MDT/4:30 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 1-800-642-1687 or 416-849-0833 and entering passcode 43811183 followed by the pound sign.

Bellatrix's annual meeting is scheduled for 3:00 pm on May 25, 2011 in the Devonian Room at the Calgary Petroleum Club.

This is an exciting time for the staff and shareholders of Bellatrix. The Company remains doggedly dedicated to "the pursuit of sustainable growth" for its stakeholders.

Raymond G. Smith, P. Eng.
    President and CEO
    March 10, 2011


                     MANAGEMENT'S DISCUSSION AND ANALYSIS

March 10, 2011 - The following Management's Discussion and Analysis of financial results 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, 2010 and 2009. This commentary is based on information available to, and is dated as of, March 10, 2011. The financial data presented is in accordance with Canadian generally accepted accounting principles ("GAAP") 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. 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.

NON-GAAP MEASURES: This Management's Discussion and Analysis 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 Canadian 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 the 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 also contains other terms such as total net debt and operating netbacks, which are not recognized measures under Canadian GAAP. 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 short-term future income tax assets and liabilities. 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 total amount of current and long-term debt 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 other terms such as current and long-term debt or 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 trusts or 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 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, expected 2011 average production and exit rate, expected first quarter 2011 average production and production to be tied in, updating of ceiling test calculations, plans and timing related to the adoption of IFRS and the effects thereof, elections anticipated to be made under IFRS, anticipated liquidity of the Company and various matters that may impact such liquidity, expected 2011 operating expenses and general and administrative expenses, 2011 capital expenditures budget and the nature of capital expenditures and the timing and method of financing thereof, method of funding drilling commitments, commodity prices and expected volatility thereof, estimated amount and timing of incurring asset retirement obligations and use of proceeds from recent financings, 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, 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. The recovery and reserve estimates of Bellatrix's reserves provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered. 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. 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 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 gas 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 securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com), 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 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 is the continuing corporation resulting from the reorganization (the "Reorganization") effective November 1, 2009 pursuant to a plan of arrangement involving, among others, True Energy Trust (the "Trust" or "True"), Bellatrix Exploration Ltd. ("Bellatrix" or the "Company") and securityholders of the Trust.

The Reorganization has been accounted for on a continuity of interest basis and accordingly, the consolidated financial statements for periods prior to the effective date of the Reorganization will reflect the financial position, results of operations and cash flows as if the Company had always carried on the business formerly carried on by the Trust. Information herein with respect to Bellatrix includes information in respect of the Trust prior to completion of the Reorganization to the extent applicable unless the context otherwise requires. Pursuant to the Arrangement, the Unitholders' Capital of the Trust Units as of the effective date of November 1, 2009 was reduced by the amount of the deficit of the Trust on October 31, 2009 of $666.8 million.

References to "common shares" and "shares", "Share Option Plan", and "options" should be read as references to "Units", "Unit Rights Incentive Plan", and "rights" respectively, for periods prior to November 1, 2009.

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

Fourth Quarter 2010
                                 HIGHLIGHTS

    -------------------------------------------------------------------------
                                                          Three months ended
                                                                 December 31,
    (CDN$000s except share and per share amounts)          2010         2009
    -------------------------------------------------------------------------
    FINANCIAL
    Revenue (before royalties and
     risk management(1))                                 37,826       24,004

    Funds flow from operations(2)                        15,892        7,681
      Per basic share(3)                                  $0.16        $0.10
      Per diluted share(3)                                $0.15        $0.10
    Cash flow from operating activities                  11,285        2,743
      Per basic share(3)                                  $0.12        $0.03
      Per diluted share(3)                                $0.11        $0.03
    Net loss                                             (8,173)      (8,216)
      Per basic share(3)                                 $(0.08)      $(0.10)
      Per diluted share(3)                               $(0.08)      $(0.10)
    -------------------------------------------------------------------------
    Exploration and development                          34,884        9,606
    Corporate and property acquisitions                   4,812          264
    -------------------------------------------------------------------------
    Capital expenditures - cash                          39,696        9,870
    Property dispositions - cash                        (13,980)          56
    Non-cash items                                          158          551
    -------------------------------------------------------------------------
    Total capital expenditures - net                     25,874       10,477
    -------------------------------------------------------------------------
    OPERATING
    -------------------------------------------------------------------------
    Average daily sales volumes
      Crude oil, condensate and NGLs     (bbls/d)         3,821        1,642
      Natural gas                         (mcf/d)        37,083       29,580
      Total oil equivalent                (boe/d)        10,002        6,572
    Average prices
      Light crude oil and condensate      ($/bbl)         77.48        73.19
      NGLs                                ($/bbl)         42.80        29.69
      Heavy oil                           ($/bbl)         57.83        62.79
      Crude oil, condensate and NGLs      ($/bbl)         69.22        59.05
      Crude oil, condensate and NGLs
       (including risk management(1))     ($/bbl)         69.94        58.85
      Natural gas                         ($/mcf)          3.79         5.33
      Natural gas (including risk
       management(1))                     ($/mcf)          3.79         6.72
      Total oil equivalent                ($/boe)         40.51        38.72
      Total oil equivalent (including
       risk management (1))               ($/boe)         40.79        44.93
    Statistics
      Operating netback(4)                ($/boe)         19.71        15.36
      Operating netback(4) (including
       risk management(1))                ($/boe)         19.99        21.57
      Transportation                      ($/boe)          1.18         1.17
      Production expenses                 ($/boe)         11.31        16.65
      General & administrative            ($/boe)          1.92         3.43
      Royalties as a % of sales
       after transportation                                 21%          15%
    -------------------------------------------------------------------------

    (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 Canadian GAAP as an indicator of the Company's
        performance. Therefore reference to 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
        as below. Funds flow from operations per share is calculated using
        the weighted average number of common shares for the period.

    (3) Basic weighted average shares for the fourth quarter of 2010 were
        97,332,859 (2009: 78,703,754).

        In computing weighted average diluted earnings per share for the
        three months ended December 31, 2010 a total of 5,823,377 (2009:
        4,213,733) share options and 9,821,429 (2009:5,305,250) common shares
        issuable on conversion of convertible debentures were excluded from
        the calculation as they were not dilutive.

        In computing weighted average diluted cash flow from operations and
        funds flow from operations for the three months ended December 31,
        2010 a total of 992,192 (2009: nil) 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
        (2009: nil) 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 108,146,480.
        As a consequence, a total of $0.7 million for interest accretion
        expense (net of income tax effect) was added to the numerator.

    (4) Operating netbacks are calculated by subtracting royalties,
        transportation, and operating costs from revenues before other
        income.

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, except per share amounts)                      2010         2009
    -------------------------------------------------------------------------
    Cash flow from operating activities                  11,285        2,743
    Asset retirement costs incurred                         466          241
    Change in non-cash working capital                    4,141        4,697
    -------------------------------------------------------------------------
    Funds flow from operations                           15,892        7,681
    -------------------------------------------------------------------------

Funds flow from operations during the fourth quarter of 2010 was $15.9 million, an increase of 107% compared to $7.7 million for the fourth quarter of 2009. This was reflective of higher overall production and increased pricing for light oil, condensate and NGL's, offset by a decline in natural gas and heavy oil prices. As prices have increased this quarter compared to that in 2009, realized gains on commodity risk contracts have decreased by approximately $3.5 million. Interest expense for the 2010 fourth quarter decreased approximately $0.9 million compared to the 2009 fourth quarter which is primarily reflective of a combination of the Company's reduced convertible debenture balance and lower interest rate on the convertible debentures outstanding in the fourth quarter of 2010 as compared to those previously outstanding. Cash flow from operating activities during the fourth quarter of 2010 was $11.3 million, compared to $2.7 million for the fourth quarter of 2009. This increase was further reflective of a slight increase in asset retirement costs incurred, offset by a decrease in cash from changes in working capital. In the last quarter of 2010, Bellatrix had a net loss of $8.2 million compared to a net loss of $8.2 million in the fourth quarter of 2009. The net loss from the 2009 fourth quarter is comparable to the net loss in the 2010 fourth quarter although the 2010 fourth quarter is reflective of higher sales revenues, offset by increased depletion, depreciation and accretion and a reduction in future income tax recovery.

Sales volumes for the three months ended December 31, 2010 averaged 10,002 boe/d, up 52% from the 6,572 boe/d sold in the fourth quarter of 2009. The weighting toward crude oil, condensate and NGLs sales volumes averaged 38% in the 2010 fourth quarter, compared to 25% in the corresponding period in 2009. Fourth quarter 2010 sales volumes were higher than the same period in 2009 primarily due to the success achieved from an expanded drilling program in 2010. Sales volumes for the month of December 2010 averaged approximately 10,500 boe/d; crude oil, condensate and NGLs made up 42% of December 2010 sales volumes.

Natural gas sales averaged 37.1 Mmcf/d during the last quarter of 2010, compared to 29.6 Mmcf/d in the fourth quarter of 2009. The Company's natural gas sales increase was attributed to natural gas wells drilled in the third and fourth quarter of 2010. The weighting toward natural gas sales volumes averaged 62% in the fourth quarter, compared to 75% in the corresponding period of 2009 as Bellatrix concentrates on exploiting its Cardium oil resource play. Crude oil, condensate and NGL sales volumes averaged 3,821 bbls/d in the fourth quarter of 2010 compared to 1,642 bbls/d during the same period of 2009.

During the fourth quarter of 2010, Bellatrix experienced an overall increase of 5% in commodity prices, based on an increase in light oil, condensate and NGL pricing, offset by a decrease in natural gas and heavy oil pricing, as compared to the same period in 2009. The average daily and monthly AECO indices for natural gas during this quarter were 19% and 15%, respectively, lower than in the same period in 2009. For the three months ending December 31, 2010, Bellatrix received an average natural gas price, before transportation and commodity price risk management contracts, of $3.79/mcf, 30% lower than $5.33/mcf in the same period in 2009 and 1% lower than $3.81/mcf in the third quarter of 2010. Bellatrix had a natural gas physical sales contract to deliver 5,275 GJ/day at a fixed price of $7.90/GJ in the fourth quarter of 2009 which contributed to higher pricing experienced in the 2009 period. For heavy crude oil, Bellatrix received an average price before transportation of $57.83/bbl during the fourth quarter of 2010, 8% lower than $62.79/bbl in the same period in 2009 and comparable to $57.89/bbl in the third quarter of 2010. In comparison, the average reference price for Hardisty Heavy crude in the fourth quarter of 2010 was 3% lower than the average 2009 price in the same period. For light oil, and condensate, Bellatrix received an average price of $77.48/bbl before transportation and commodity price risk management contracts for the fourth quarter in 2010, compared to $73.19 during the same 2009 period, representing a 6% increase in price. In comparison, the Edmonton par reference price increased by 5% in the fourth quarter of 2010, compared to the same time period in 2009. In the 2010 fourth quarter, Bellatrix received an average price of $42.80/bbl for NGLs, before transportation and commodity price risk management contracts, representing a 44% increase when compared to fourth quarter of 2009. During the fourth quarter of 2010, revenue before other income and commodity price risk management contracts of $37.2 million was 59% higher than the corresponding 2009 period.

In the fourth quarter of 2010, average sales volumes increased 10% from the third quarter 2010 average volumes of 9,119 boe/d. The increase is due to the success achieved from an expanded drilling program in 2010.

During the fourth quarter of 2010, Bellatrix spent $34.9 million on capital projects, excluding corporate and asset acquisitions and dispositions, compared to $9.6 million in 2009. In the fourth quarter of 2010, Bellatrix drilled or participated in 14 wells in the Ferrier, Lodgepole, Willesden Green and West Pembina areas, resulting in 7.31 net oil wells and a 0.50 net natural gas well. In the fourth quarter of 2009, Bellatrix drilled or participated in 12 (9.50 net) wells including 5.75 net natural gas wells, and 3.5 net oil wells and 0.25 awaiting completion. Fourth quarter 2010 drilling was focused on the Notikewin and Cardium resource plays.

In the fourth quarter of 2010, the Company paid $7.7 million in royalties, compared to $3.4 million in the same period in 2009. As a percentage of pre-commodity price risk management sales (after transportation costs), royalties were 21% in the fourth quarter of 2010 compared to 15% in the same period in 2009. Royalties for the fourth quarter of 2010 were impacted by adjustments to natural gas royalties of $1.2 million related to Alberta crown gas cost allowance amendments for the 2009 year. Excluding these Alberta crown adjustments, the average royalty rate percentage for the fourth quarter of 2010 would be 18%. Included in the overall royalties for Q4 2010 is approximately 5% due to additional gross overriding royalties for recent wells drilled which were funded by certain joint venture partners. In this same period of 2010, operating costs totaled $10.4 million, compared to $10.1 million recorded in the same period of 2009. During the fourth quarter of 2010, operating costs averaged $11.31/boe, down from the $16.65/boe incurred during the fourth quarter of 2009. 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 2010 averaged $11.63/boe. During the fourth quarter of 2010, company field operating netbacks before commodity risk management contracts increased by 28% to $19.71/boe compared to 2009, driven primarily by a 32% reduction in production expenses and a 5% increase in overall commodity prices, offset slightly by higher royalties and transportation costs. In comparison, the company field operating netback before commodity risk management contracts for the third quarter of 2010 was $13.22/boe. Field operating netbacks for natural gas before commodity price risk management contracts during the fourth quarter of 2010 of $1.11/mcf were 53% lower than the $2.35/mcf recorded in the same period in 2009. The decrease is primarily a result of the continued deterioration of natural gas prices and higher royalties. In comparison, the field operating netback for natural gas before commodity risk management contracts for the third quarter of 2010 was $1.32/mcf. Field operating netbacks before commodity price risk management contracts for crude oil, condensate and NGLs during the fourth quarter of 2010 averaged $40.78/bbl, up from $19.08/bbl during the fourth quarter of 2009, primarily as a result of a significant reduction in production expenses and royalties, as well as increased pricing. In comparison, the field operating netback for crude oil, condensate and NGLs for the third quarter of 2010 was $28.16/bbl.

In the fourth quarter of 2010, general and administrative expenses, net of capitalized G&A and recoveries, were $1.8 million, compared to $2.1 million in the comparable 2009 period. Although there was an overall increase in G&A expenses, this was offset by higher capitalized G&A and recoveries as a result of the increase in capital activity in the fourth quarter of 2010 compared to the fourth quarter of 2009.

Depletion, depreciation and accretion expense for the fourth quarter of 2010 was $20.7 million ($22.50/boe), compared to $16.4 million ($27.12/boe) in 2009. The increase in depletion, depreciation and accretion expense from the 2009 fourth quarter to that in 2010 is reflective of the 52% increase in sales in the same comparative period, offset by the additional reserves achieved through the Company's drilling success.

2010 Annual Financial and Operational Results

Financings in 2010

Part of Bellatrix's focus in 2010 has been directed towards improving the Company's financial flexibility and building a stronger balance sheet. In January 2010, Bellatrix issued 13.64 million common shares at a price of $3.30 per share for gross proceeds of $45.0 million (net proceeds of $42.4 million after transaction costs). The net proceeds from this financing were used to temporarily reduce outstanding bank indebtedness, thereby freeing up borrowing capacity that could be redrawn to fund Bellatrix's ongoing capital expenditure program and for general corporate purposes.

On April 20, 2010, Bellatrix issued $55 million of convertible unsecured subordinated debentures (the "4.75% Debentures") on a bought deal basis. The 4.75% Debentures have a face value of $1,000, 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 13, 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. Proceeds from the issuance of the 4.75% Debentures have been used by Bellatrix to partially fund the redemption of the convertible unsecured subordinated debentures due June 30, 2011 (the "7.5% Debentures") and the balance of the redemption amount has been funded through bank indebtedness.

On April 20, 2010, Bellatrix deposited with Computershare Trust Company of Canada, the trustee (the "Trustee") for Bellatrix's 7.5% Debentures, sufficient funds to satisfy the principal amount and interest owing on the 7.5% Debentures and on May 3, 2010 the trustee provided notice to the registered holders of the 7.5% Debentures of its intention to redeem the 7.5% Debentures on July 2, 2010. The 7.5% Debentures were redeemed on July 2, 2010 for an amount of $1,025 for each $1,000 principal amount of the 7.5% Debentures plus accrued and unpaid interest, or a total of $88.0 million. The funds deposited with the Trustee on April 20, 2010 and acknowledgment by the Trustee thereof discharged and extinguished the financial liability for the 7.5% Debentures as of that date.

As the 7.5% Debentures were convertible into Common Shares, the Company carried a liability and equity portion on its balance sheet in relation to the debentures. Canadian GAAP provides specific guidelines on the accounting for redemption of convertible debt. Under these guidelines, an amount is determined, using fair value techniques, for the liability and equity portion of the redeemed debentures, resulting in a gain/loss and an adjustment to retained earnings. The net impact on the deficit for Bellatrix as a result of the redemption of the 7.5% Debentures recorded in the second quarter and reflected as at December 31, 2010 is as follows:

-------------------------------------------------------------------------
    (000's)
    -------------------------------------------------------------------------

    Non-cash loss on the redemption of 7.5% Debentures,
     recorded on the Consolidated Statements of Loss               $   3,514
    Adjustment for the redemption of 7.5%
     Debentures, recorded against the deficit                         (2,915)
    -------------------------------------------------------------------------
    Net increase to deficit                                        $     599
    -------------------------------------------------------------------------

The $88.0 million cost of redemption of the 7.5% Debentures was reflected in the Statement of Cash Flows for the second quarter of 2010 as follows:

-------------------------------------------------------------------------
    (000's)
    -------------------------------------------------------------------------
    Cash flows from Operating Activities:
      Realization of imputed interest cost on 7.5% Debentures      $  (5,050)

    Cash flows from Financing Activities:
      Redemption of 7.5% Debentures                                  (88,009)
      Realization of imputed interest cost on 7.5%
       Debentures allocated to operating activities                    5,050
    -------------------------------------------------------------------------
    Total                                                          $ (88,009)
    -------------------------------------------------------------------------

On August 12, 2010, Bellatrix issued 4,710,000 Common Shares on a flow-through basis ("Flow-Through Shares") at $4.25 a share for gross proceeds of $20.0 million. Proceeds from the issuance of the Flow-Through Shares were used to accelerate the Company's Cardium light oil exploration program. The Company will incur expenditures eligible for Canadian exploration expenses ("CEE") that will be renounced to subscribers of the Flow-Through Shares effective December 31, 2010. Bellatrix is committed to incur the $20.0 million CEE expenditures on or before December 31, 2011.

Acquisitions and Dispositions

The Company intends to provide consistent growth by drilling and developing its extensive land position to maximize the value of its reserve and resource potential. Bellatrix has been working on a number of internal initiatives to streamline and optimize our ongoing operations, specifically the ability to expand and accelerate the drilling of its Cardium oil resource.

On December 10, 2010, Bellatrix closed the purchase of certain property interests in the West Pembina area for a purchase price of $4.5 million after adjustments. The transaction, which was effective August 1, 2010, included the acquisition of an additional 6.5 gross net sections (2.5 net) of Cardium rights, for an increase of an additional 10.0 Cardium horizontal drilling locations. The acquisition also included approximately 70 boe/d of production and associated facilities.

On December 22, 2010, Bellatrix disposed of its non-core property at Mantario, Saskatchewan for net proceeds of approximately $13.6 million after adjustments. The sale was effective December 1, 2010. The net proceeds were used to reduce the Company's bank indebtedness and ultimately will be directed towards the development of its Cardium oil resource program.

On December 30, 2010, the Company closed the Willesden Green Facilities Joint Venture raising the amount of $1.6 million and with the Company contributing the battery facilities located at 4-29-42-8W5 to the joint venture for approximately $1.6 million. This is accounted for as a capital lease transaction.

On December 31, 2010, the Company also closed another minor non-core property sale at Killam for net proceeds of $375,000 after adjustments. The purchase and sale agreement had an effective and closing date of December 31, 2010.

On January 25, 2011, Bellatrix acquired the interest in a section of Frog Lake First Nation lands from a joint venture partner for a net purchase price of $2.2 million after adjustments. The transaction has an effective date of January 1, 2011. These assets consists of approximately 130 boe/d of net production; an additional 20% interest in the Colony formation in these lands (BXE already has 13.75%WI) and an additional 50% WI in the McLaren formation in these lands (BXE already has a 50% WI) except for a 1/4 section which the McLaren interests are as per the Colony. The south half of the section is undeveloped with 2 wells scheduled for drilling in Q1 2011.

On January 25, 2011, Bellatrix exercised a right of first refusal increasing its interest in a joint venture property in the Brazeau Area of West Central Alberta for approximately $1.5 million. The asset acquisition consisted of approximately 3,200 gross (1,102.8 net) acres of Cardium rights providing the Company with up to 6.3 additional net Cardium locations and included 15 boe/d of production.

In 2009, the Company's focus was to restructure and strengthen its balance sheet. The Company had two minor dispositions in the second quarter of 2009 and successfully completed the divestiture of the majority of its petroleum and natural gas properties in Saskatchewan in the third quarter of 2009. Total net proceeds from all dispositions during 2009 were $92.9 million. Net proceeds from the dispositions were used to reduce the Company's bank indebtedness; these strategic accomplishments allowed the Company to progress forward with substantially improved financial flexibility.

On June 30, 2009, Bellatrix sold 145 boe/d, including 0.63 Mmcf/d of natural gas, in the Penhold Area of Central Alberta for $4.7 million, after purchase adjustments and closing costs. In addition, in June 2009, Bellatrix completed a disposition of certain royalty interests for approximately $3.7 million, after purchase adjustments and closing costs. The proceeds from these two dispositions were used to reduce Bellatrix's bank indebtedness.

On July 30, 2009, the Company successfully completed the divestiture of a majority of its oil and natural gas assets in Saskatchewan for net proceeds of $85 million (the "Saskatchewan Divestiture"). The Saskatchewan Divestiture excluded the Saskatchewan properties of Mantario and Cypress and included Bellatrix's interests to the base Belly River in three sections in the Ferrier area of West Central Alberta. The disposition was accounted for under the guidance of Accounting Guideline 16 - "Oil and Gas Accounting - Full Cost". Under full cost accounting, if crediting the proceeds from disposition to costs results in a change of 20 percent or more to the DD&A rate then a gain or loss should be recognized. When a gain or loss is to be recognized the total net book value of capitalized costs should be allocated between the properties sold and the properties retained. The assets sold were an allocation of the Company's historical full cost pool based on a pro-rata ratio of future cash flows of proved reserves associated with the assets sold, discounted at 10%, as compared to all oil and gas assets as of June 30, 2009. In the second quarter of 2009, the Company recorded a $114.2 million non-cash loss on the assets sold being the excess of the allocated net book value to these assets, compared to the total estimated net proceeds, after purchase adjustments and estimated closing costs.

The 2009 dispositions reduced sales volumes by approximately 3,600 boe/d for the third and fourth quarters of 2009.

Sales Volumes

Sales volumes for the year ended December 31, 2010 averaged 8,519 boe/d compared to 8,426 boe/d for the same period in 2009, representing a 1% increase. Year over year, sales volumes are comparable as the drilling success achieved in fiscal 2010 has offset the impact of 2009 dispositions.

Sales Volumes
    -------------------------------------------------------------------------
                                                     Years ended December 31,
                                                           2010         2009
    -------------------------------------------------------------------------
    Light oil and condensate             (bbls/d)         1,563          753
    NGLs                                 (bbls/d)           577          354
    Heavy oil                            (bbls/d)           410        1,770
    -------------------------------------------------------------------------
    Total crude oil, condensate and NGLs (bbls/d)         2,550        2,877
    -------------------------------------------------------------------------

    Natural gas                           (mcf/d)        35,814       33,295
    -------------------------------------------------------------------------

    Total boe/d                             (6:1)         8,519        8,426
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

During the 2010 year, Bellatrix had a 98% success rate in its drilling program that consisted of 48 gross wells, resulting in 21.5 net oil wells, 6.3 net natural gas wells and one dry hole.

By comparison, Bellatrix had a 100% success rate in its 2009 drilling program which consisted of 18 wells (11.68 net). Of the 18 wells, 5 gross wells in the Willesden Green area were farmed out with Bellatrix retaining a 24% average working interest with no payout account.

For the year ended December 31, 2010, the weighting towards crude oil, condensate and NGLs decreased 11% averaging 2,550 bbls/d compared to 2009 average sales of 2,877 bbls/d. The decrease is a result of the disposition of a significant Saskatchewan heavy oil producing property by the Company in the second half of 2009. Consequently, heavy oil sales volumes dropped to 5% of total production for the 2010 fiscal period compared to 21% of total production in 2009. The decrease in heavy oil sales volumes was offset by an increase in light oil, condensate and NGL sales volumes for the 2010 period which is the result of Bellatrix's successful 2010 drilling program. Light oil, condensate and NGL sales volumes made up 25% of total production for the 2010 year compared to 13% in 2009. On December 22, 2010, the Company closed on the sale of its Mantario, Saskatchewan heavy oil property, leaving the Company with reduced heavy oil volumes on a go forward basis.

For the year ended December 31, 2010, the weighting towards natural gas sales volumes averaged 70% compared to 66% for the 2009 year. Sales of natural gas averaged 35.8 Mmcf/d for 2010, compared to 33.3 Mmcf/d in 2009, an increase of 26%.

Based on the timing of proposed expenditures, downtime for anticipated plant turnarounds and normal production declines, execution of the 2011 budget is anticipated to provide 2011 average daily production of approximately 12,000 boe/d and an exit rate of approximately 13,000 boe/d. The 2011 capital budget is expected to be directed primarily towards horizontal drilling and completions activities in the Cardium and Notikewin resource plays.

Commodity Prices

    Average Commodity Prices
    -------------------------------------------------------------------------
                                                     Years ended December 31,
                                                2010        2009    % Change
    -------------------------------------------------------------------------

    Exchange rate (US$/Cdn$)                  0.9709      0.8757          11

    Natural gas:
    NYMEX (US$/mmbtu)                           4.38        4.16           5
    AECO daily index (CDN$/mcf)                 4.00        3.95           1
    AECO monthly index (CDN$/mcf)               4.28        4.14           3
    Bellatrix's average price ($/mcf)           4.19        4.50          (7)
    Bellatrix's average price (including
     risk management(1)) ($/mcf)                5.28        5.96         (11)

    Crude oil:
    WTI (US$/bbl)                              79.58       62.09          28
    Edmonton par - light oil ($/bbl)           77.81       66.20          18
    Bow River - medium/heavy oil ($/bbl)       68.26       59.71          14
    Hardisty Heavy - heavy oil ($/bbl)         62.29       55.59          12
    Bellatrix's average prices ($/bbl)
      Light crude oil and condensate           76.25       61.24          25
      NGLs                                     39.81       27.73          44
      Heavy crude oil                          60.50       49.10          23
      Total crude oil and NGLs                 65.47       49.65          32
      Total crude oil and NGLs
       (including risk management (1))         66.59       49.62          34

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

Bellatrix's natural gas sales are priced with reference to the daily or monthly AECO indices. During 2010, the AECO daily and monthly reference price increased by 1% and 3%, respectively, compared to the same period in 2009. Bellatrix's average sales price before commodity price risk management contracts for 2010 decreased by 7% compared to the same period in 2009. Bellatrix had a natural gas physical sales contract to deliver 5,275 GJ/day at a fixed price of $7.29/GJ and $7.90/GJ in the third and fourth quarter of 2009, respectively, which contributed to higher pricing experienced relative to the AECO indices. Bellatrix's natural gas price after including commodity price risk management contracts for 2010 was $5.28/mcf compared to $5.96/mcf for 2009.

For light oil and condensate, Bellatrix recorded an average $76.25/bbl before commodity price risk management contracts during 2010, 25% higher than the average price received in the 2009 year. In comparison, the Edmonton par price increased by 18% over the same period. The average WTI crude oil US dollar based price increased 28% from 2009 to 2010. The average US$/CDN$ foreign exchange rate was 0.9709 for the full year of 2010 compared to 0.8757 in 2009.

For heavy crude oil, Bellatrix received an average price before transportation of $60.50/bbl for 2010, an increase of 23% over prices in the 2009 year. The Bow River reference price increased by 14% and the Hardisty Heavy reference price increased by 12% over the same period. The majority of Bellatrix's heavy crude oil density ranges between 11 and 16 degrees API consistent with the Hardisty Heavy reference price, although primarily all of Bellatrix's heavy oil production was sold at Saskatchewan delivery points. Bellatrix's increase in realized price from 2009 to 2010 is higher than the increase in the reference price for the same time period as 2009 heavy crude oil sales volumes included heavy oil from the Kerrobert, Saskatchewan property (sold in July 2009) which had slightly lower pricing than the other heavy oil properties retained.

Revenue

Revenue before other income and commodity price risk management contracts for the year ended December 31, 2010 was $115.7 million, 9% higher than the $106.8 million in the same period in 2009. The increase in revenue from light crude oil, condensate and NGLs were substantially offset by a decrease in heavy oil sales as Bellatrix disposed of the majority of its heavy oil producing property in the second half of 2009. In 2010 total crude oil, condensate and NGL revenues contributed 53% of total revenue (before other) compared to 49% in 2009. Light crude oil, condensate and NGL revenues in 2010 contributed 85% of total crude oil, condensate and NGL revenue (before other) compared to 39% in 2009.

Revenue before other income and commodity price risk management contracts for natural gas for the year ended December 31, 2010 is comparable to the year ended December 31, 2009 as sales volumes increased but natural gas prices weakened.

-------------------------------------------------------------------------
                                                     Years ended December 31,
    ($000s)                                                 2010        2009
    -------------------------------------------------------------------------
    Light crude oil and condensate                        43,502      16,821
    NGLs                                                   8,383       3,579
    Heavy oil                                              9,062      31,726
    -------------------------------------------------------------------------
    Crude oil and NGLs                                    60,947      52,126
    Natural gas                                           54,729      54,652
    -------------------------------------------------------------------------
    Total revenue before other                           115,676     106,778
    Other(1)                                               1,997       2,236
    -------------------------------------------------------------------------
    Total revenue before royalties and risk management   117,673     109,014
    -------------------------------------------------------------------------

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

Revenues for 2011 are uncertain due to volatile commodity prices. While sales volumes and crude oil and liquid prices for 2011 are expected to be higher than 2010, natural gas prices remain relatively weak.

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 current 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 10, 2011 is shown in the following tables:

Natural gas

    Average Volumes (GJ/d)
    -------------------------------------------------------------------------
                                 Q1 2011     Q2 2011     Q3 2011     Q4 2011
    -------------------------------------------------------------------------
    Fixed                              -      20,000      20,000       6,739
    -------------------------------------------------------------------------
    Total GJ/d                         -      20,000      20,000       6,739
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Average Price ($/GJ AECO C)
    -------------------------------------------------------------------------
                                 Q1 2011     Q2 2011     Q3 2011     Q4 2011
    -------------------------------------------------------------------------
    Fixed                              -        3.78        3.78        3.78
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Crude oil and liquids

    Average Volumes (bbls/d)
    -------------------------------------------------------------------------
                                 Q1 2011     Q2 2011     Q3 2011     Q4 2011
    -------------------------------------------------------------------------
    Fixed (CDN$/bbl)               1,500       1,500       1,500       1,500
    Fixed (US$/bb)                 1,000       1,500       1,500       1,500
    -------------------------------------------------------------------------
    Total bbls/d                   2,500       3,000       3,000       3,000
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Average Price ($/bbl WTI)
    -------------------------------------------------------------------------
                                 Q1 2011     Q2 2011     Q3 2011     Q4 2011
    -------------------------------------------------------------------------
    Fixed price (CDN$/bbl)         88.45       88.45       88.45       88.45
    Fixed Price (US$/bb)           92.48       93.87       93.87       93.87
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

As of December 31, 2010, the fair value of Bellatrix's outstanding commodity contracts is an unrealized liability of $3.7 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, 2010 and may be different from what will eventually be realized. Changes in the fair value of the commodity contracts are recognized in the Consolidated Statements of Loss within the financial statements.

The following is a summary of the gain (loss) on commodity contracts for the years ended December 31, 2010 and 2009 as reflected in the Consolidated Statements of Loss in the financial statements:

Commodity contracts
    -------------------------------------------------------------------------
                                           Crude Oil     Natural        2010
    ($000s)                                & Liquids         Gas       Total
    -------------------------------------------------------------------------
    Realized cash gain on contracts            1,036      14,352      15,388
    Unrealized loss on contracts(1)           (3,785)     (3,321)     (7,106)
    -------------------------------------------------------------------------
    Total gain (loss)on commodity contracts   (2,749)     11,031       8,282
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Commodity contracts
    -------------------------------------------------------------------------
                                           Crude Oil     Natural        2009
    ($000s)                                & Liquids         Gas       Total
    -------------------------------------------------------------------------
    Realized cash gain (loss) on contracts       (31)     17,777      17,746
    Unrealized gain (loss) on contracts(1)        53        (405)       (352)
    -------------------------------------------------------------------------
    Total gain on commodity contracts             22      17,372      17,394
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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

Royalties

For the year ended December 31, 2010, total royalties were $22.9 million, compared to $17.6 million incurred in 2009. Overall royalties as a percentage of revenue (after transportation costs) in 2010 were 20%, compared with 17% in 2009. Royalties for 2010 were impacted by Saskatchewan crown amendments of approximately $0.7 million relating primarily to natural gas properties sold in 2008 and 2009 and additional natural gas royalties of $1.2 million related to Alberta crown gas cost allowance amendments for 2009. Excluding these crown adjustments, the average royalty rate percentage for 2010 would be 18%. Included in the overall royalties for 2010 is approximately 4% due to additional gross overriding royalties for 2010 wells drilled which were funded by certain joint venture partners.

Royalties by Commodity Type                      Years ended December 31,
    ($000s, except where noted)                             2010        2009
    -------------------------------------------------------------------------
    Light crude oil, condensate and NGLs                  11,695       5,758
      $/bbl                                                14.97       14.26
      Average light crude oil, condensate and
       NGLs royalty rate (%)                                  23          28

    Heavy Oil                                              2,012       5,975
      $/bbl                                                13.44        9.25
      Average heavy oil royalty rate (%)                      23          20

    Natural Gas                                            9,207       5,821
      $/mcf                                                 0.70        0.48
      Average natural gas royalty rate (%)                    18          11

    -------------------------------------------------------------------------
    Total                                                 22,914      17,554
    -------------------------------------------------------------------------
    $/boe                                                   7.37        5.71
    -------------------------------------------------------------------------
    Average total royalty rate (%)                            20          17
    -------------------------------------------------------------------------


    Royalties, by Type
    -------------------------------------------------------------------------
                                                     Years ended December 31,
    ($000s)                                                 2010        2009
    -------------------------------------------------------------------------
    Crown royalties                                        7,095       4,027
    Indian Oil and Gas Canada royalties                    4,199       3,198
    Freehold & GORR                                       11,499       9,651
    Saskatchewan resource surcharge                          121         678
    -------------------------------------------------------------------------
    Total                                                 22,914      17,554
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Expenses
    -------------------------------------------------------------------------
                                                     Years ended December 31,
    ($000s)                                                 2010        2009
    -------------------------------------------------------------------------
    Production                                            37,964      45,015
    Transportation                                         3,723       3,880
    General and administrative                             9,414      10,239
    Interest and financing charges                         7,403      13,657
    Share-based compensation (recovery)                    1,618       (159)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Expenses per boe
    -------------------------------------------------------------------------
                                                     Years ended December 31,
    ($ per boe)                                             2010        2009
    -------------------------------------------------------------------------
    Production                                             12.21       14.64
    Transportation                                          1.20        1.26
    General and administrative                              3.03        3.33
    Interest and financing charges                          2.38        4.44
    Share-based compensation (recovery)                     0.52       (0.05)
    -------------------------------------------------------------------------

Production Expenses

For the year ended December 31, 2010, production expenses totaled $38.0 million ($12.21/boe), compared to $45.0 million ($14.64/boe) recorded in 2009. The decrease in production expenses in 2010 on a boe basis is due to increased production from 2010 drilling in areas with lower production expenses and the Company's continued efforts to streamline operations and field optimization projects.

Bellatrix is targeting operating costs of approximately $48.2 million ($11.00/boe) in 2011. This is based upon assumptions of estimated 2011 average production of approximately 12,000 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)                             2010        2009
    -------------------------------------------------------------------------
    Light crude oil, condensate and NGLs                  12,142       8,730
    $/bbl                                                  15.54       21.62

    Heavy oil                                              2,644      11,180
    $/bbl                                                  17.67       17.30

    Natural gas                                           23,178      25,105
    $/mcf                                                   1.77        2.07

    -------------------------------------------------------------------------
    Total                                                 37,964      45,015
    -------------------------------------------------------------------------
    $/boe                                                  12.21       14.64
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Total                                                 37,964      45,015
    -------------------------------------------------------------------------
    Processing and other third party income(1)            (1,997)     (2,237)
    -------------------------------------------------------------------------
    Total after deducting processing and
     other third party income                             35,967      42,778
    -------------------------------------------------------------------------
    $/boe                                                  11.57       13.91
    -------------------------------------------------------------------------

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

Transportation

Transportation expenses for the year ended December 31, 2010 were $3.7 million ($1.20/boe) compared to $3.9 million ($1.26/boe) in the same 2009 period.

Operating Netback

    Field Operating Netback - Corporate (before risk management)
    -------------------------------------------------------------------------
                                             For the years ended December 31,
    ($/boe)                                                 2010        2009
    -------------------------------------------------------------------------
    Sales                                                  37.20       34.72
    Transportation                                         (1.20)      (1.26)
    Royalties                                              (7.37)      (5.71)
    Production expense                                    (12.21)     (14.64)
    -------------------------------------------------------------------------
    Field operating netback                                16.42       13.11
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

For the 2010 year, corporate field operating netback (before commodity price risk management contracts) was $16.42/boe compared to $13.11/boe in fiscal 2009. This was primarily the result of higher pricing received for crude, condensate and NGL's along with a reduction in production expenses as we increase production in areas with lower production costs and streamline our operations, offset by overall higher royalties. After including commodity price risk management contracts, the corporate field operating netback for 2010 was $21.37/boe compared to $18.88/boe in 2009.

Field Operating Netback - Natural Gas (before risk management)
    -------------------------------------------------------------------------
                                                     Years ended December 31,
    ($/mcf)                                                 2010        2009
    -------------------------------------------------------------------------
    Sales                                                   4.19        4.50
    Transportation                                         (0.22)      (0.20)
    Royalties                                              (0.71)      (0.48)
    Production expense                                     (1.77)      (2.07)
    -------------------------------------------------------------------------
    Field operating netback                                 1.49        1.75
    -------------------------------------------------------------------------

Field operating netback for natural gas in 2010 decreased 15% to $1.49/mcf, compared to $1.75/mcf in 2009, reflecting weaker realized natural gas prices and higher royalties, offset by a reduction in production expenses. After including commodity price risk management contracts, field operating netback for natural gas for fiscal 2010 was $2.59/mcf compared to $3.21/mcf in the same period in 2009.

Field Operating Netback - Crude Oil, Condensate and NGLs (before risk
    management)

    -------------------------------------------------------------------------
                                                     Years ended December 31,
    ($/bbl)                                                 2010        2009
    -------------------------------------------------------------------------
    Sales                                                  65.48       49.65
    Transportation                                         (0.95)      (1.34)
    Royalties                                             (14.72)     (11.18)
    Production expense                                    (15.88)     (18.96)
    -------------------------------------------------------------------------
    Field operating netback                                33.93       18.17
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

Field operating netback for crude oil, condensate and NGLs averaged $33.93/bbl for 2010, up 87% compared to $18.17/bbl for 2009. The increase in the netback is primarily the result of a 32% increase in the crude oil, condensate and NGLs sales price, along with a reduction in transportation and production expenses, offset by an increase in royalties. After including commodity price risk management contracts, field operating netback for crude oil and NGLs for 2010 was $35.03/boe compared to $18.14/boe in 2009.

General and Administrative

General and administrative ("G&A") expenses (after capitalized G&A and recoveries) for 2010 were $9.4 million ($3.03/boe) compared to $10.2 million ($3.33/boe) for 2009. Gross expenses increased in 2010 compared to 2009 due to higher compensation and base costs which were offset by an increase in capitalized G&A and recoveries; consistent with Bellatrix's increased 2010 capital program.

For 2011, the Company is anticipating G&A costs after capitalization to be approximately $12.0 million ($2.74/boe) based on estimated 2011 average production volumes of approximately 12,000 boe/d.

General and Administrative Expenses
    -------------------------------------------------------------------------
                                                     Years ended December 31,
    ($000s, except where noted)                             2010        2009
    -------------------------------------------------------------------------
    Gross expenses                                        14,154      12,371
    Capitalized                                           (1,977)       (648)
    Recoveries                                            (2,763)     (1,484)
    -------------------------------------------------------------------------
    G&A expenses                                           9,414      10,239
    -------------------------------------------------------------------------
    G&A expenses, per unit ($/boe)                          3.03        3.33
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

Interest and Financing Charges

Bellatrix recorded $7.4 million of interest and financing charges for the year ended December 31, 2010 compared to $13.7 million in 2009. The reduction in interest and financing charges is primarily due to a combination of lower average bank debt in 2010 and the Company's issuance of its 4.75% Debentures in April 2010 which facilitated the redemption of Bellatrix's 7.5% Debentures. Bellatrix's total net debt at December 31, 2010 of $87.4 million includes the $47.6 million liability portion of convertible debentures, $41.2 million of bank debt and the net balance of working capital. The 4.75% Debentures have a maturity date of April 30, 2015.

Interest and Financing Charges
    -------------------------------------------------------------------------
                                                     Years ended December 31,
    ($000s, except where noted)                             2010        2009
    -------------------------------------------------------------------------
    Interest and financing charges                         7,403      13,657
    Interest and financing charges ($/boe)                  2.38        4.44

    Debt to funds flow from operations(1)
     ratio annualized(3)
    Funds flow from operations(1) (annualized)            63,568      30,724
    Total net debt(2) at year end                         87,444     107,269
    Total net debt to periods funds flow
     from operations ratio annualized(3)                    1.4x        3.5x

    Net debt(2) (excluding convertible debentures)
     at year end                                          39,845      25,585
    Net debt to periods funds flow from operations
     ratio annualized(3)                                    0.6x        0.8x

    Debt to funds flow from operations(1) ratio
    Funds flow from operations(1) for the year            53,042      36,025
    Total net debt(2) to funds flow from
     operations for the year                                1.6x        3.0x

    Net debt(2) (excluding convertible debentures)
     to funds flow from operations for the year             0.8x        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 before realization
        of imputed interest costs on 7.5% Debentures, asset retirement costs
        incurred and changes in non-cash working capital incurred.

    (2) Net debt includes the net working capital deficiency (excess) before
        short-term commodity contract assets and liabilities, current capital
        lease obligation and short-term future tax assets and liabilities.
        Total net debt also includes the liability component of convertible
        debentures and excludes capital lease obligation, asset retirement
        obligations and the future income tax assets and liabilities. Total
        net debt is a non-GAAP measure; refer to the following reconciliation
        of total liabilities to total 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
    -------------------------------------------------------------------------
                                                     Years ended December 31,
    ($000s, except where noted)                             2010        2009
    -------------------------------------------------------------------------
    Total liabilities per financial statements           164,367     159,619
      Current liabilities included within
       working capital calculation                       (46,670)    (24,305)
      Asset retirement obligations                       (27,483)    (25,728)
      Capital lease obligation                            (1,443)          -

    Working Capital
      Current assets                                     (45,108)    (29,036)
      Current liabilities                                 46,670      24,305
      Current portion of capital lease                      (146)          -
      Net commodity contract asset (liability)            (3,732)      3,374
      Net future income taxes - current                      989        (960)
    -------------------------------------------------------------------------
                                                          (1,327)     (2,317)
    -------------------------------------------------------------------------
    Total net debt                                        87,444     107,269
    -------------------------------------------------------------------------

Share-Based Compensation

Non-cash share-based compensation expense for the year ended December 31, 2010 was $1.6 million compared to a recovery of $0.2 million in 2009. The 2010 expense reflects a $2.4 million (2009: $0.8 million) share-based compensation expense, offset by $0.8 million (2009: $0.2 million) of share-based compensation expense capitalized and $0.03 million (2009: $0.8 million) of prior year share-based compensation expense for 2010 cancellation of unvested share options. The increase in the share-based compensation expense is due to a higher weighted fair value per option for 2010 grants compared to 2009. The increase in capitalized share-based compensation is consistent with capitalized G&A and Bellatrix's increased 2010 capital program.

In connection with the Reorganization, a new option plan under Bellatrix was approved. As a result, the existing 4,067,733 incentive unit rights as at November 1, 2009 were exchanged for an equal number of common share options of Bellatrix with the same terms and conditions, including as to exercise price, vesting and expiry dates.

Depletion, Depreciation and Accretion

Depletion, depreciation and accretion expense for 2010 was $74.9 million ($24.07/boe), compared to the $90.8 million ($29.51/boe) in 2009. The reduction in the depletion, depreciation and accretion expense in 2010 compared to 2009 is primarily due to a $15.7 million decrease in depletion and depreciation which reflects Bellatrix's increased cost base due to capital additions in 2010 and higher future development costs, offset by the additional reserves achieved through the Company's drilling success.

For the year ended December 31, 2010, Bellatrix has included $157.9 million (2009: $57.2 million) for future development costs in the depletion calculation and excluded from the depletion calculation $18.6 million (2009: $20.5 million) for undeveloped land and $32.6 million (2009: $27.8 million) for estimated salvage.

Depletion, Depreciation and Accretion Costs

    -------------------------------------------------------------------------
                                                     Years ended December 31,
    ($000s, except where noted)                             2010        2009
    -------------------------------------------------------------------------
    Depletion and Depreciation                            72,703      88,441
    Accretion                                              2,153       2,319
    -------------------------------------------------------------------------
      Total                                               74,856      90,760
    -------------------------------------------------------------------------
    Per unit ($/boe)                                       24.07       29.51
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

Reorganization Costs

The Company incurred $0.9 million in costs for legal, financial advisory, accounting, printing, mailing and other expenses that are included as reorganization costs within the Consolidated Statements of Loss for the year ended December 31, 2009 associated with the Reorganization resulting in the conversion from an open-ended, unincorporated investment trust to Bellatrix Exploration Ltd., a publicly traded exploration and development corporation.

Income Taxes

Future income taxes arise from differences between the accounting and tax bases of the Company's assets and liabilities. For the year ended December 31, 2010, the Company recognized a future income tax recovery of $8.2 million compared to a recovery of $44.4 million in 2009, which is consistent with pre-tax losses of $35.7 million and $171.6 million for the respective periods.

As at December 31, 2010, the Company had a total net future income tax asset balance of $9.3 million. Canadian GAAP requires that a future income tax asset be recorded when the tax pools exceeds the book value of assets, to the extent the amount is more than likely than not to be realized.

At December 31, 2010, Bellatrix had approximately $449 million in tax pools available for deduction against future income as follows:

-------------------------------------------------------------------------

    ($000s)                                 Rate %         2010         2009
    -------------------------------------------------------------------------
    Intangible resource pools:
      Canadian exploration expenses            100       44,000       43,200
      Canadian development expenses             30      286,500      210,500
      Canadian oil and gas property
       expenses                                 10        9,100       15,100
      Foreign resource expenses                 10          900        1,100
    Attributed Canadian Royalty
     Income                           100 (Alberta)      16,100       16,100
    Undepreciated capital cost            6 - 55(1)      89,100      100,600
    Non-capital losses (expire
     through 2027)                             100          300       13,100
    Financing costs               20 straight line        3,000          200
    -------------------------------------------------------------------------
                                                        449,000      399,900
    -------------------------------------------------------------------------

    (1) Approximately $84 million of undepreciated capital cost pools are
        class 41, which is claimed at a 25% rate.

As a result of the issuance of the Flow-Through Shares on August 12, 2010, Bellatrix is committed to incur approximately $20.0 million in qualifying Canadian Exploration Expenses prior to December 31, 2011.

Approximately $1.7 million of tax pools related to financing costs were eliminated as a result of the Reorganization from the Trust to the Company, effective November 1, 2009.

Cash Flow from Operating Activities, Funds Flow from Operations and Net Loss

Reconciliation of Cash Flow from Operating Activities and Funds Flow
    from Operations
    -------------------------------------------------------------------------
                                                     Years ended December 31,
    ($000s, except per share amounts)                      2010         2009
    -------------------------------------------------------------------------
    Cash flow from operating activities                  44,272       30,671
    Realization of imputed interest costs
     on 7.5% Debentures                                   5,050            -
    Asset retirement costs incurred                       1,373        1,510
    Change in non-cash working capital                    2,347        3,844
    -------------------------------------------------------------------------
    Funds flow from operations                           53,042       36,025
    -------------------------------------------------------------------------

Bellatrix's cash flow from operating activities of $44.3 million ($0.46 per diluted share) for the year ended December 31, 2010 increased approximately 44% from the $30.7 million ($0.39 per diluted share) generated in 2009. Bellatrix generated funds flow from operations of $53.0 million ($0.54 per diluted share) for the year ended December 31, 2010, up 47% from $36.0 million ($0.46 per diluted share) for 2009. The increase in cash flow from operating activities and funds flow from operations for 2010 compared to 2009 was primarily the result of higher petroleum and natural gas sales, lower production, G&A and interest and financing expenses, offset by a decrease in realized gains on commodity price risk management contracts and higher royalties.

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 loss.

The net loss for the 2010 year was $27.5 million ($0.30 per diluted share) compared to a net loss of $126.6 million ($1.61 per diluted share) in 2009. The decrease in the net loss from 2009 to 2010 was primarily due to a $114.2 million non-cash loss recorded in 2009 on the disposition of the majority of the Company's petroleum and natural gas properties in Saskatchewan, reduced production, depletion, depreciation and accretion expenses offset by a decrease in gains on commodity price risk management contracts.

Cash Flow from Operating Activities, Funds Flow from Operations and
    Net Loss

    -------------------------------------------------------------------------
                                                     Years Ended December 31,
    ($000s, except per share amounts)                      2010         2009
    -------------------------------------------------------------------------
    Cash flow from operating activities                  44,272       30,671
      Basic ($/share)                                      0.47         0.39
      Diluted ($/share)                                    0.46         0.39

    Funds flow from operations                           53,042       36,025
      Basic ($/share)                                      0.57         0.46
      Diluted ($/share)                                    0.54         0.46

    Net loss                                            (27,533)    (126,620)
      Basic ($/share)                                     (0.30)       (1.61)
      Diluted ($/share)                                   (0.30)       (1.61)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

Capital Expenditures

Bellatrix invested $98.4 million on exploration and development activities during 2010 compared to $15.8 million in 2009. The increase in these expenditures during the period is consistent with the higher capital budget for 2010.

Capital Expenditures
    -------------------------------------------------------------------------
                                                     Years ended December 31,
    ($000s)                                                2010         2009
    -------------------------------------------------------------------------
    Lease acquisitions and retention                        480          649
    Geological and geophysical                              737           31
    Drilling and completion costs                        90,914       13,715
    Facilities and equipment                              9,384        3,616
    -------------------------------------------------------------------------
                                                        101,515       18,011
    Drilling incentive credits                           (3,128)      (2,168)
    -------------------------------------------------------------------------
      Exploration and development(1)                     98,387       15,843
    Corporate(2)                                            521          644
    Property acquisitions                                 7,840            -
    -------------------------------------------------------------------------
      Total capital expenditures - cash                 106,748       16,487
    Property dispositions - cash                        (14,567)     (92,921)
    -------------------------------------------------------------------------
      Total net capital expenditures - cash              92,181      (76,434)
    -------------------------------------------------------------------------
    Capital lease additions- non-cash                     1,600            -
    Other - non-cash(3)                                     680         (492)
    -------------------------------------------------------------------------
      Total- non-cash                                     2,280         (492)
    -------------------------------------------------------------------------
    Total net capital expenditures                       94,461      (76,926)
    -------------------------------------------------------------------------

    (1) Excludes capitalized costs related to asset retirement obligation
        expenditures incurred during the year.
    (2) Corporate costs include office furniture, fixtures and equipment and
        other costs.
    (3) Other includes non-cash adjustments for current period's asset
        retirement obligations and unit based compensation.

During the 2010 year, Bellatrix achieved a 98% success rate in its 2010 drilling program that consisted of 48 (28.8 net) wells including 9 gross (6.3 net) natural gas wells, and 38 gross (21.5 net) oil wells and 1 gross and net dry hole.

The $101.5 million capital program, before drilling incentive credits, for the year ended December 31, 2010, was financed entirely with funds flow from operations, bank indebtedness, proceeds from equity financings and joint venture partners.

Based on the current economic conditions and Bellatrix's operating forecast for 2011, the Company budgets a capital program of $100 million funded from the Company's cash flows and debt facilities. In addition, the Company anticipates utilizing up to $10 million from a joint venture partner.

Ceiling Test

The Company calculates a ceiling test quarterly and annually to place a limit on the aggregate carrying value of its capitalized costs, which may be amortized against revenues of future periods. The ceiling test is performed in accordance with the requirements of the Canadian Institute of Chartered Accountants ("CICA") AcG-16 "Oil and Gas Accounting - Full Cost", a two step process.

The Company performed a ceiling test calculation at December 31, 2010 resulting in undiscounted cash flows from proved reserves and the undeveloped properties exceeding the carrying value of oil and gas assets. Consequently, no impairment in oil and gas assets was identified as at December 31, 2010.

In 2011, an impairment test calculation will be performed in accordance with International Financial Reporting Standards ("IFRS") and will be updated on a quarterly basis. Under IFRS, the impairment test is calculated at the cash generating unit level which is discussed in more detail in the Financial Reporting Update section of this MD&A. The impairment test will be based upon fair market values for the Company's properties using the latest available data, including but not limited to an updated annual external reserve engineering report which incorporates a full evaluation of reserves 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.

Asset Retirement Obligations

As at December 31, 2010, Bellatrix has recorded an Asset Retirement Obligation ("ARO") of $27.5 million, compared to $25.7 million at December 31, 2009, for future abandonment and reclamation of the Company's properties. For the year ended December 31, 2010, the ARO increased by $1.8 million as a result of $1.6 million incurred on property acquisitions and development activities, $2.0 million as a result of changes in estimates and $2.2 million for accretion expense, offset by a reduction of $2.6 million for liabilities reversed on dispositions and $1.4 million for liabilities settled during the year.

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.

Liquidity risk is the risk that Bellatrix will not be able to meet its financial obligations as they fall 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 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. While Bellatrix completed a January 2010 equity offering, issued the 4.75% Debentures in April 2010 and completed a Flow-Through Share offering in August 2010, 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 five primary purchasers under standard industry sale and payment terms. 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 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.

During 2010, Bellatrix has concentrated on executing its considerable drilling program and improving its balance sheet. Bellatrix has taken advantage of several financial opportunities that have improved the Company's financial flexibility. In January 2010, Bellatrix closed an equity issuance of 13.64 million common shares at a price of $3.30 per share for gross proceeds of $45.0 million (net proceeds of $42.4 million after transaction costs). The net proceeds from this financing were used to temporarily reduce outstanding indebtedness. On April 20, 2010, the Company issued $55 million of 4.75% Debentures, in order to facilitate the repayment of its 7.5% Debentures. The balance of the repayment of the 7.5% Debentures was funded through bank indebtedness.

On August 12, 2010, Bellatrix issued 4.71 million Flow-Through Shares at $4.25 each for gross proceeds of $20.0 million. Proceeds of the Flow-Through Shares were used to accelerate the Company's Cardium light oil exploration program. The Company will incur expenditures eligible for Canadian exploration expenses which will be renounced to subscribers of the Flow-Through Shares effective on or before December 31, 2010. The Company is committed to incur the $20.0 million CEE expenditures on or before December 31, 2011.

Total net debt levels at December 31, 2010 have decreased $19.9 million from $107.3 million at December 31, 2009, primarily as a consequence of the January 2010 equity issuance, the Company's issuance of its 4.75% Debentures which facilitated the redemption of its 7.5% Debentures and the Flow-Through Share financing. Total net debt includes the liability component of the convertible debentures and excludes unrealized commodity contract assets and liabilities, future income taxes, capital lease obligations and asset retirement obligations.

Funds flow from operations represents 50% of the funding requirements for Bellatrix's capital expenditures for the year ended December 31, 2010. The remainder has been funded through bank indebtedness, equity financings and funds available through joint venture partners.

Effective December 15, 2010, the Company's borrowing base was increased from $85 million to $100 million. The Company's expanded facilities consists of a $15 million demand operating facility provided by a Canadian bank and an $85 million extendible revolving term credit facility provided by a Canadian bank 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 or LIBOR rate, plus between 1.25% and 4.25%, depending on the type of borrowing and the Company's debt to cash 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 major petroleum and natural gas reserves in certain circumstances. A standby fee is charged of between 0.55% and 1.02% on the undrawn portion of the credit facilities, depending on the Company's debt to cash flow ratio.

On June 8, 2010, Bellatrix executed an amending agreement with its banking syndicate that provided for the extension of the revolving period of existing credit facility from June 29, 2010 to June 28, 2011. 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 28, 2011. The Company's borrowing base will be subject to re-determination on May 30, 2011. Thereafter, a semi-annual re-determination of the borrowing base will occur, with the next such re-determination occurring on November 30, 2011.

Pursuant to Bellatrix's credit facilities, the Company is permitted to pay the semi-annual interest payments on the 4.75% Debentures, and payments by the Company to debenture holders in relation to the redemption of the 4.75% Debentures and in relation to debenture normal course issuer bids for the 4.75% Debentures approved by the Toronto Stock Exchange, 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, 2010, approximately $58.8 million was undrawn under the existing credit facilities.

As an added layer of protection of its cash flows, Bellatrix has 1,000 bbl/d and 500 bbl/d of oil protected by fixed price swaps at CDN$88.18/bbl and CDN$89.00/bbl, respectively and 500 bbl/d of oil protected by a fixed price swap at US$89.10 for the 2011 calendar year. Subsequent to December 31, 2010, the Company added further crude oil fixed price swaps; one for 500 bbl/d at US$95.00 for February 1 to December 31, 2011 and another for 500 bbl/d at US$97.50 for March 1 to December 31, 2011, and four natural gas fixed price swaps for 20,000 GJ/d total at an average of $3.78/GJ for April 1 to October 31, 2011.

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 2011 capital program of $100 million by utilizing undrawn amounts on its credit facility and ongoing cash flows. In addition, the Company anticipates utilizing up to $10 million from a joint venture partner.

As at February 28, 2011, Bellatrix had outstanding a total of 5,834,543 options exercisable at an average exercise price of $2.70 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 97,447,360 common shares.

Related Party Transactions

The Company received legal services from a law firm in which a director and corporate secretary is a partner. The fees charged are based on standard rates and time spent on matters pertaining to the Company. The services provided were in the normal course of operations and have been recorded at the exchange amount. For the year ended December 31, 2010, legal fees invoiced by the related party totaled $0.6 million (2009: $1.1 million).

Commitments

As at December 31, 2010, the Company had committed to drill 9 gross (4.7 net) wells pursuant to farm-in agreements. Bellatrix expects to satisfy this drilling commitment at an estimated cost of approximately $12.9 million. On February 1, 2011, the Company entered into a joint venture agreement which includes a minimum commitment for Bellatrix to drill 3 gross (3.0 net) wells per year for 2011 to 2015 for a total estimated cost of approximately $52.5 million.

As a result of the issuance of the Flow-Through Shares on August 12, 2010, Bellatrix is committed to incur approximately $20.0 million in qualifying Canadian Exploration Expenses on or before December 31, 2011.

The following are the contractual maturities of financial liabilities as at December 31, 2010:

-------------------------------------------------------------------------
    Financial liability     less than
     $000s)                    1 Year    1-2 Years    2-5 Years   Thereafter
    -------------------------------------------------------------------------
    Accounts payable
     and accrued
     liabilities(1)        $   42,792   $        -   $        -   $        -
    Bank debt -
     principal(2)                   -       41,172            -            -
    Convertible debentures
     - principal                    -            -       55,000            -
    Convertible debentures
     - interest(3)              2,613        2,620        6,084            -
    Capital lease
     obligation                   379          363          991        1,516
    -------------------------------------------------------------------------
    Total                  $   45,784   $   44,155   $   62,075   $    1,516
    -------------------------------------------------------------------------

    (1) As at December 31, 2010, $0.4 million of accrued coupon interest
        payable in relation to the 4.75% Debentures and $0.1 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.
    (3) The 4.75% Debentures outstanding at December 31, 2010 bear interest
        at a coupon rate of 4.75%, which currently requires total annual
        interest payments of $2.6 million.

Interest due on the bank credit facilities is calculated based on floating rates.

The Company estimates the total undiscounted amount of cash flows required to settle its asset retirement obligations to be approximately $63 million which is estimated to be incurred between 2014 and 2054.

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, 2010.

The Company is committed to payments under operating leases for office space as follows:

-------------------------------------------------------------------------
    ($000s)                                           Expected
    Year                            Gross Amount    Recoveries    Net amount
    -------------------------------------------------------------------------
    2011                             $     2,192   $     1,027   $     1,165
    2012                                   2,203         1,062         1,141
    2013                                   2,218         1,103         1,115
    2014                                   1,469           753           716
    -------------------------------------------------------------------------

Business Prospects and 2011 Year Outlook

At December 31, 2010, Bellatrix reports 211,893 net undeveloped acres (compared to 258,507 net in 2009). The change is attributable to normal course lease expiries in non-core gas areas (approximately 62% of the change), strategic non-core asset sales (approximately 25% of the change), and reclassification of lands (such as drilling). In the Greater Pembina core area of Bellatrix, expiries to the undeveloped net acreage were largely offset by recent acquisitions. During 2010, Bellatrix negotiated a Joint Venture Agreement which would grant access to significant Cardium rights. This arrangement was concluded on February 1, 2011 and grants Bellatrix access to 20 net sections of prospective Cardium rights. The addition of these lands closely balances the 22 net sections of Cardium rights on first nation lands which were unable to be continued in Q4 2010.

In 2011, Bellatrix will continue to be active in drilling its two core resource plays, the Cardium and Notikewin, utilizing horizontal drilling multi fracturing technology. Bellatrix has developed an inventory of 320 net horizontal drilling locations targeting the Cardium Interval and 100 net horizontal drilling locations to access the Notikewin sequence of channel sands.

Bellatrix plans to operate within funds flow from operations and available credit facilities. Bellatrix has set a $100 million capital expenditures budget for 2011. In addition, the Company anticipates utilizing up to $10 million from a joint venture partner. Based on the timing of proposed expenditures, downtime for anticipated plant turnarounds and normal production declines, execution of the 2011 budget is anticipated to provide 2011 average daily production of approximately 12,000 boe/d and an exit rate of approximately 13,000 boe/d. The 2011 capital budget is expected to be directed primarily towards horizontal drilling and completions activities in the Cardium and Notikewin resource plays.

As part of the 2011 capital expenditures budget the Corporation anticipates a very active first quarter in 2011 with participation in 22 gross (12.2 net) wells weighted 2/3 oil and 1/3 liquids rich gas. To date in the first quarter of 2011, the Company has drilled or participated in 9 gross (5.5 net) Cardium oil wells and 6 gross (2.4 net) Notikewin liquids rich gas wells. The remaining 7 gross (4.3 net) potential oil wells are scheduled to be drilled prior to the end of Q1.

Currently the Company is producing approximately 11,000 boe/d but has experienced significant downtime associated with freeze offs, a compressor failure and pump failures resulting in production averaging approximately 10,000 boe/d in the first 2 months of Q1. Behind pipe tested production of 1,500 boe/d net will be tied in by the end of Q1.

As an added layer of protection of its cash flows, Bellatrix has 1,000 bbl/d and 500 bbl/d of oil protected by fixed price swaps at CDN$88.18/bbl and CDN$89.00/bbl, respectively and 500 bbl/d of oil protected by a fixed price swap at US$89.10 for the 2011 calendar year. Subsequent to December 31, 2010, the Company added further crude oil fixed price swaps; one for 500 bbl/d at US$95.00 for February 1 to December 31, 2011 and another for 500 bbl/d at US$97.50 for March 1 to December 31, 2011, and four natural gas fixed price swaps for 20,000 GJ/d total at an average of $3.78/GJ for April 1 to October 31, 2011.

Financial Reporting Update

Future Accounting Pronouncements

International Financial Reporting Standards ("IFRS")

On February 13, 2008 the CICA Accounting Standards Board announced that Canadian public reporting issuers will be required to report under International Financial Reporting Standards ("IFRS"), which will replace current Canadian GAAP for years beginning on or after January 1, 2011. The transition date of January 1, 2011 will require 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. The objective is to improve financial reporting by having one single set of accounting standards that are comparable with other entities on an international basis.

An internal project team was set up to manage this transition and to ensure successful implementation within the required time frame. Members of the internal project team and key finance personnel have attended industry specific seminars. Members of the Board and Audit Committee possess financial expertise and are provided with quarterly updates, including accounting policy choices among IFRSs and recommendations to date.

In 2009 and 2010, the Company completed high level analyses to determine the areas impacted by the conversion and is finalizing the financial reporting impacts on the adoption of IFRS. The assessment provided insight as to the most significant areas of GAAP differences applicable to Bellatrix and include treatment of exploration and evaluation costs, depreciation and depletion of property, plant and equipment, and impairment of assets, as well as more extensive presentation and disclosure requirements under IFRS. The analysis has been reviewed by the Company's external auditors for consistency in the interpretation of the standards.

IFRS in-depth reviews have been concentrated on cash generating units, options available under IFRS for modified full cost accounting, decommissioning liabilities, share-based compensation and a preliminary analysis of the impact on our data gathering and reporting systems. We are still assessing the impact of IFRS and have not finalized all of our accounting policy choices and IFRS 1 exemptions. Throughout 2010 and to date, efforts are underway to fully quantify the impact of IFRS on the Company's January 1, 2010 transition date balance sheet and the future financial position and results of operations.

IFRS 1 - "First-time Adoption of International Financial Reporting Standards" is the standard that governs mandatory exceptions and optional exemptions that an entity may elect for its transition to IFRS in order to assist the entity with the transition process. This standard is only applicable to the opening balance sheet of the entity on the transition date of January 1, 2010.

The following are IFRS 1 exemptions that Bellatrix currently anticipates electing on transition date. The quantification of certain of the effects of the adoption of IFRS discussed below are an estimate of the impact based on the policy elections currently proposed which may change prior to finalization. In addition, other differences may exist between amounts reported by the Company under Canadian GAAP versus IFRS. New or revised IFRS are being developed by the International Accounting Standards Board ("IASB") that may impact the adoption of IFRS by the Corporation. The Company continues to monitor these and other accounting standard developments within IFRS which might impact its IFRS conversion. The following also is not exhaustive as to all actual or potential differences, which remain subject to determination and change.

Property, Plant and Equipment ("PP&E")

The adopter has the option to elect fair value at the date of transition as the deemed cost for its PP&E or to use a revalued amount according to its previous GAAP if the revaluation, at the date of revaluation, is comparable to fair value or depreciated cost in accordance with IFRS. On July 23, 2009 the IASB published amendments to IFRS 1 which will allow an election to measure oil and gas assets at the date of transition to IFRS at the amount determined under Canadian GAAP. The Company plans to make this election under IFRS 1 for its opening balance sheet at January 1, 2010. The standard allows the adopter to allocate its PP&E asset base to the Company's cash generating units based on reserve volumes or values. Bellatrix anticipates the method of allocation that it will use on the transition date will be based upon proved plus probable company interest reserve cash flow values. Once the Company's petroleum and natural gas assets are allocated to the Company's petroleum and natural gas assets, it is required to perform an impairment test.

Business Combinations

An exemption under IFRS 1 provides the entity with relief on the restatement of business combinations prior to the transition date. Under IFRS 3 - "Business Combinations," the determination of the fair value of share consideration differs from the determination under current Canadian accounting standards. Any difference in the fair value calculation would have a resulting impact on the carrying amount of net assets acquired, non-controlling interest and any goodwill. The Company plans to make the election under IFRS 1, allowing Bellatrix to be exempt from restating business combinations prior to the transition date to IFRS.

Share Based Payments

Differences in the accounting for the Company's share option plan have been identified. IFRS 2 - "Share-based Payments," requires the Company to estimate the number of options expected to vest when a grant of equity instruments do not vest immediately. An estimate of the option's life is also required for the estimation of the fair value of the instruments. IFRS 2 does not allow the recognition of the expense on a straight-line basis and requires each installment to be treated as a separate arrangement. Currently, the Company accounts for forfeitures as they occur and considers the estimated life of the options to be consistent with their expiry date. Share-based compensation expense is accounted for using the graded method which is required under IFRS. IFRS 1 provides an elective exemption which the Company plans to elect which will allow Bellatrix to apply IFRS 2 to the 3,571,955 unvested options outstanding on the transition date of January 1, 2010. As a result of applying IFRS 2, the Company anticipates a decrease to contributed surplus of less than $0.5 million with an offsetting increase to the January 1, 2010 deficit. The adjustment is a result of applying an estimated forfeiture rate of 3%, 5% and 10% for options vesting in year 1, 2 and 3, respectively.

Decommissioning Liabilities

IAS 37 - "Provisions, Contingent Liabilities and Contingent Assets," will govern how the Company accounts for its decommissioning liabilities (currently referred to as asset retirement obligations). The decommissioning liability should reflect risks specific to the liability and will be based on management's best assumptions and estimates versus the fair value of the obligation. The amount recognized should be the best estimate of the expenditure required to settle the present obligation at the end of the period. If there are uncertainties surrounding the amount to be recognized as a provision then the obligation is estimated by weighting all possible outcomes by their associated probabilities. The discount rate used for the decommissioning liability will be a risk free rate as the estimated provision is adjusted to reflect risks specific to the liability. Currently under Canadian GAAP, the Company uses a credit-adjusted risk free rate. Therefore, under IFRS, the decommissioning liabilities are expected to be higher due to lower discount rates. Under IFRS, the unwinding of the discount rate is charged as interest expense versus accretion expense under current Canadian standards. IFRS 1 provides an exemption that the Company plans to elect which will allow Bellatrix to measure decommissioning liabilities as at the date of transition to IFRS in accordance with IAS 37 and recognize directly in retained earnings any difference between that amount and the carrying amount of those liabilities at the date of transition to IFRS determined under Canadian GAAP. The Company has calculated its decommissioning liabilities using risk free rates that coincide with the expected time frame of the abandonments which range from 1.45% to 4.1%. As a result of applying IAS 37, the Company anticipates its opening January 1, 2010 decommissioning liability to increase by approximately $10 million to $15 million, with an offsetting charge to the January 1, 2010 deficit.

Impairment of Assets

Currently, under Canadian GAAP, the ceiling test is a two step process that is performed at the country cost centre level. If the undiscounted cash flows from proved reserves and the undeveloped properties do not exceed the carrying value of oil and gas assets; impairment exists. The impairment is measured by comparing the carrying value of oil and gas assets to the discounted cash flows from proved plus probable reserves. Accounting Guideline 16 - "Oil and Gas Accounting - Full Cost" suggests discounting the cash flows using a risk-free rate.

IFRS uses the concept of cash generating units ("CGU") to accumulate asset carrying costs to test and measure impairment. Bellatrix anticipates initially having a total of 6 CGU's. 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 future cash flows expected to be derived from the asset or CGU.

The impairment test under IFRS is performed at a level that is lower than the current country cost centre level used under Canadian GAAP which may result in more frequent write downs. Also, the test uses discounted cash flows to test and measure asset impairment, whereas under Canadian GAAP, the asset carrying values have been supported by undiscounted cash flows. IAS 36 requires impairment losses that were previously recognized to be reversed when circumstances exist such that the impairment is reduced or no longer exists. Canadian GAAP prohibits the reversal of previously recognized impairment losses.

Bellatrix is required to perform an impairment test on the transition date to IFRS and when indicators suggest the possibility of impairment. The Company anticipates an impairment to its PP&E in certain non-core heavy oil and minor natural gas related properties on transition to IFRS as at January 1, 2010 to be between $40 million to $50 million, with an offsetting charge to the January 1, 2010 deficit. Bellatrix has used the fair value less costs to sell to measure the fair value of its CGU's.

Oil and Gas Expenditures

Petroleum and natural gas expenditures fall under IFRS 6 - "Exploration for and Evaluation of Mineral Resources," and IAS 16 - "Property, Plant and Equipment." Capital expenditures incurred will be segregated into three categories:

1)  Pre-exploration expenditures

    2)  Exploration and evaluation expenditures

    3)  Development and production expenditures

Pre-exploration expenditures

These are costs incurred by the Company before acquiring the legal right to explore in a specific area. These expenditures do not meet the definition of an asset as defined by IAS 16 and therefore will be expensed by the Company as incurred. We do not anticipate these costs to be significant to the Company.

Exploration and evaluation expenditures

IFRS 6 provides flexibility on the accounting for exploration and evaluation ("E&E") expenditures, allowing the Company to choose what type of expenditures will be capitalized or expensed. The costs incurred in the E&E phase will be capitalized once the legal right to explore in a specific area has been obtained. The assets are classified as E&E assets until technical feasibility and commercial viability of extracting resources is proven.

The Company does not intend to amortize its E&E expenditures until technical feasibility and commercial viability has been established. The standard does not define technical feasibility and commercial feasibility. Bellatrix intends to classify E&E assets as technically feasible and commercially viable once the property has proved reserves. Once proved reserves are established, the respective E&E assets will be transferred into the development and production category. E&E assets will be assessed for impairment if such information becomes available or there has been a change in facts and circumstances that would lead management to believe that the assets may be impaired. The following is a list of examples of changes in facts and circumstances that indicate an impairment test is needed:

-   Remaining land lease terms have expired or expire in the near future
        and is not expected to be renewed

    -   Dry holes

    -   Management decisions to continue or discontinue activities in an area

    -   Budgeted or planned capital spending in an area is significantly
        reduced or eliminated

    -   Other information that may come to management's attention indicating
        that the carrying amount of the E&E asset is unlikely to be recovered
        in full

A company has the option to test E&E assets for impairment separate from developing and producing ("D&P") assets, at the cash generating unit level or an aggregated cash generating unit level (as long as it is not at a level higher than an operating segment).

The Company intends on testing the E&E assets for impairment along with the respective developing and producing assets at the aggregated cash generating unit level. An impairment test is required before any E&E asset is transferred to the developing and producing phase.

Developing and production expenditures

Once technical feasibility and commercial viability has been established, the assets are classified as D&P assets and will be subject to depreciation and depletion.

Depletion of Petroleum and Natural Gas Assets

Under Canadian GAAP, depletion of petroleum and natural gas assets is based on proved reserves and is calculated at the country cost centre level. Under IFRS, depletion is to be calculated at a lower unit of account level. For Bellatrix, the unit of account level will be at the area level. Also, under IFRS, a company has the option of choosing the reserve base that it will use for its depletion calculation. Bellatrix anticipates on using proved plus probable reserves for its depletion calculations. It is anticipated that depletion charges will be lower under IFRS as the reserve base for which the calculations are based on will be larger.

Asset Divestitures

Under Canadian GAAP, proceeds of a divestiture are deducted from the country cost centre pool without recognition of a gain or loss unless such a deduction resulted in a change to the depletion rate of 20% or greater. Under IFRS, proceeds of a divestiture are deducted from the carrying value of the asset and a gain or loss is recognized in earnings.

Future Income Taxes

IFRS does not use the terminology of future income taxes; IFRS refers to deferred income taxes.

The transition to IFRS will require the Company to re-measure its deferred income taxes for its January 1, 2010 balance sheet. Adjustments to deferred income taxes will be made accordingly in conjunction with other transitionary IFRS adjustments discussed earlier, with an offsetting adjustment to the January 1, 2010 deficit.

A transitionary deferred income tax adjustment will be required for the Company's convertible debentures. Convertible debentures have both a debt and equity component. The allocation of deferred tax on the convertible debentures differs under Canadian GAAP and IFRS. Under Canadian GAAP, the tax basis of the liability is considered to be the same as its carrying amount; therefore, no temporary difference exists. IFRS does not contain this special exemption and requires the temporary difference to be recognized. The deferred tax expense is charged directly to the carrying amount of the equity component of the convertible debentures. Bellatrix anticipates recording a deferred tax liability of less than $1 million, with an offsetting debit to the equity component of its 7.5% Debentures. Subsequent changes in the deferred tax liability are recognized in profit or loss.

In addition to the adjustments required to deferred income taxes as a result of the January 1, 2010 transitionary adjustments, the Company will require adjustments for its comparative periods in 2010 for share issue costs and flow-through shares. Under Canadian GAAP, the accounting treatment of flow-through shares is addressed by EIC 146 - "Flow-Through Shares". The proceeds received for the flow-through shares are credited to shareholders' capital and the deferred tax liability is recognized when the company files the renouncement documents with the tax authorities to renounce the tax credits associated with the expenditures.

Under IFRS, Bellatrix expects to set up a liability for the difference between the proceeds received and the market price of the shares on the date of the transaction (the "premium"). Once the renouncement documents are filed with the tax authorities, Bellatrix will record the tax liability associated with the renouncement of the tax benefits and remove the deferred liability originally set up. The difference between the deferred tax liability and the original liability set up will go through profit or loss.

A temporary difference exists for share issue costs under Canadian GAAP and IFRS. The difference between Canadian GAAP and IFRS is where changes in the deferred tax liability are recorded. Unlike Canadian GAAP, changes in the deferred tax liability are recognized where they were originally recognized; therefore, changes in the deferred tax liability related to share issue costs are recorded against share capital as opposed to profit or loss. The Company does not have any transitionary adjustments related to share issue costs.

Information technology and data systems

Bellatrix has performed an assessment of the implications of IFRS on its information technology and data systems. The Company's current data gathering and accounting system is capable of obtaining and recording data at a level of detail required for IFRS. The Company has identified transactions relating to its property, plant and equipment in relation to requirements under IFRS to have the most impact on its information technology and data systems. In order to comply with some of the requirements under IFRS, the Company will need to be able to record assets at the E&E and D&P categories, have the ability to transfer expenditures from the E&E phase to the D&P phase and record depletion, depreciation and accretion at the unit of account or lower. A test environment has been set up and Bellatrix is still in the process of testing the requirements and amending system modifications. Based on the test environment set up, minor modifications are needed.

Business activities

Bellatrix has reviewed the impact of IFRS on its commodity price risk management practices, debt covenants and compensation arrangements. It is not expected that IFRS will result in any significant changes to the Company's business activities. Currently, Bellatrix's credit facility agreement provides for a notice which allows for consideration to be given to revise the method of calculating one or more of the financial calculations which are materially different as a result of the adoption of IFRS. The Company must provide notice within 45 days of the end of a quarter or 90 days at the end of the fourth quarter or in respect of an entire fiscal year.

Internal control over financial reporting and disclosure controls and procedures

The implementation of IFRS may require changes to the Company's internal controls over financial reporting ("ICFR") and disclosure controls and procedures ("DC&P"). The Company plans to assess the changes required in its ICFR and DC&P as accounting policy choices are finalized and its implications on ICFR and DC&P are identified.

Bellatrix continues to quantify the effects of choices available under IFRS which impact the opening balance sheet and the Company's external auditors have commenced their review process. The Company previously anticipated finalizing the opening balance sheet adjustments in the third quarter of 2010, but is still in the process of calculating all of the anticipated adjustments. Certain proposed opening balance sheet adjustments have been reviewed with the Company's Audit Committee and Board of Directors. Once the opening balance sheet adjustments are finalized, the Company will complete the roll-forward of the first to fourth quarter 2010 financial statements to IFRS.

IFRS will likely result in additional disclosures in Bellatrix's financial statements for items already disclosed in other security documents in Canada. As part of preparing draft IFRS disclosures, the Company has analyzed and will continue to analyze the additional disclosures to ensure sufficient information is available upon adoption of IFRS.

During the fourth quarter of 2010, the Company concentrated on its information technology and data systems, as well as deferred income taxes and its impairment test upon transition to IFRS.

We will continue to monitor standards development as issued by the International Accounting Standards Board and the AcSB, as well as regulatory developments as issued by the Canadian Securities Administrators (CSA), which may affect the timing, nature or disclosure of our adoption of IFRS.

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.

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 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, from time to time, carved out of the working interest owner's interest 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.

Alberta

Producers of oil and natural gas from Crown lands in Alberta are required to pay annual rental payments, currently at a rate of $3.50 per hectare, and make monthly royalty payments in respect of oil and natural gas produced.

On October 25, 2007, the Government of Alberta released a report entitled "The New Royalty Framework" ("NRF") containing the Government's proposals for Alberta's new royalty regime which were subsequently implemented by the Mines and Minerals (New Royalty Framework) Amendment Act, 2008. The NRF took effect on January 1, 2009. On March 11, 2010, the Government of Alberta announced changes to Alberta's royalty system intended to increase Alberta's competitiveness in the upstream oil and natural gas sectors, which changes included a decrease in the maximum royalty rates for conventional oil and natural gas production effective for the January 2011 production month. Royalty curves incorporating the changes announced on March 11, 2010 were released on May 27, 2010.

With respect to conventional oil, the NRF eliminated the classification system used by the previous royalty structure which classified oil based on the date of discovery of the pool. Under the NRF, royalty rates for conventional oil are set by a single sliding rate formula which is applied monthly and incorporates separate variables to account for production rates and market prices. Royalty rates for conventional oil under the NRF ranged from 0-50%, an increase from the previous maximum rates of 30-35% depending on the vintage of the oil, and rate caps were set at $120 per barrel. Effective January 1, 2011, the maximum royalty payable under the NRF was reduced to 40%. The royalty curve for conventional oil announced on May 27, 2010 amends the price component of the conventional oil royalty formula to moderate the increase in the royalty rate at prices higher than $535/m3 compared to the previous royalty curve.

Royalty rates for natural gas under the NRF are similarly determined using a single sliding rate formula incorporating separate variables to account for production rates and market prices. Royalty rates for natural gas under the NRF ranged from 5-50%, an increase from the previous maximum rates of 5-35%, and rate caps were set at $16.59/GJ. Effective January 1, 2011, the maximum royalty payable under the NRF was reduced to 36%. The royalty curve for natural gas announced on May 27, 2010 amends the price component of the natural gas royalty formula to moderate the increase in the royalty rate at prices higher than $5.25/GJ compared to the previous royalty curve.

Producers of oil and natural gas from freehold lands in Alberta are required to pay annual freehold production taxes. The level of the freehold production tax is based on the volume of monthly production and a specified rate of tax for both oil and gas.

In April 2005, the Government of Alberta implemented the Innovative Energy Technologies Program (the "IETP"), which has the stated objectives of increasing recovery from oil and gas deposits, finding technical solutions to the gas over bitumen issue, improving the recovery of bitumen by in-situ and mining techniques and improving the recovery of natural gas from coal seams. The IETP is backed by a $200 million funding commitment over a five-year period beginning April 1, 2005 and provides royalty adjustments to specific pilot and demonstration projects that utilize new or innovative technologies to increase recovery from existing reserves.

On April 10, 2008, the Government of Alberta introduced two new royalty programs to be implemented along with the NRF and intended to encourage the development of deeper, higher cost oil and gas reserves. A five-year program for conventional oil exploration wells over 2,000 metres provides qualifying wells with up to a $1 million or 12 months of royalty relief, whichever comes first, and a five-year program for natural gas wells deeper than 2,500 metres provides a sliding scale royalty credit based on depth of up to $3,750 per metre. On May 27, 2010, the natural gas deep drilling program was amended, retroactive to May 1, 2010, by reducing the minimum qualifying depth to 2,000 metres, removing a supplemental benefit of $875,000 for wells exceeding 4,000 metres that are spud subsequent to that date, and including wells drilled into pools drilled prior to 1985, among other changes.

On November 19, 2008, in response to the drop in commodity prices experienced during the second half of 2008, the Government of Alberta announced the introduction of a five-year program of transitional royalty rates with the intent of promoting new drilling. The 5-year transition option is designed to provide lower royalties at certain price levels in the initial years of a well's life when production rates are expected to be the highest. Under this new program, companies drilling new natural gas or conventional oil deep wells (between 1,000 and 3,500 m) are given a one-time option, on a well-by-well basis, to adopt either the new transitional royalty rates or those outlined in the NRF. Pursuant to the changes made to Alberta's royalty structure announced on March 11, 2010, producers were only able to elect to adopt the transitional royalty rates prior to January 1, 2011 and producers that had already elected to adopt such rates as of that date were permitted to switch to Alberta's conventional royalty structure up until February 15, 2011. On January 1, 2014, all producers operating under the transitional royalty rates will automatically become subject to Alberta's conventional royalty structure. The revised royalty curves for conventional oil and natural gas will not be applied to production from wells operating under the transitional royalty rates.

On March 3, 2009, the Government of Alberta announced a three-point incentive program in order to stimulate new and continued economic activity in Alberta. The program introduced a drilling royalty credit for new conventional oil and natural gas wells and a new well royalty incentive program, both applying to conventional oil or natural gas wells drilled between April 1, 2009 and March 31, 2010. The drilling royalty credit provides up to a $200 per metre royalty credit for new wells and is primarily expected to benefit smaller producers since the maximum credit available will be determined using the company's production level in 2008 and its drilling activity between April 1, 2009 and March 31, 2010, favouring smaller producers with lower activity levels. The new well incentive program initially applied to wells that began producing conventional oil or natural gas between April 1, 2009 and March 31, 2010 and provided for a maximum 5% royalty rate for the first 12 months of production on a maximum of 50,000 barrels of oil or 500 MMcf of natural gas. In June, 2009, the Government of Alberta announced the extension of these two incentive programs for one year to March 31, 2011. On March 11, 2010, the Government of Alberta announced that the incentive program rate of 5% for the first 12 months of production would be made permanent, with the same volume limitations.

In addition to the foregoing, on May 27, 2010, in conjunction with the release of the new royalty curves, the Government of Alberta announced a number of new initiatives intended to accelerate technological development and facilitate the development of unconventional resources (the "Emerging Resources and Technologies Initiative"). Specifically:

-   Coalbed methane wells will receive a maximum royalty rate of 5% for
        36 producing months on up to 750 MMcf of production, retroactive to
        wells that began producing on or after May 1, 2010;

    -   Shale gas wells will receive a maximum royalty rate of 5% for
        36 producing months with no limitation on production volume,
        retroactive to wells that began producing on or after May 1, 2010;

    -   Horizontal gas wells will receive a maximum royalty rate of 5% for
        18 producing months on up to 500 MMcf of production, retroactive to
        wells that commenced drilling on or after May 1, 2010;

    -   Horizontal oil wells and horizontal non-project oil sands wells will
        receive a maximum royalty rate of 5% with volume and production month
        limits set according to the depth of the well, retroactive to wells
        that commenced drilling on or after May 1, 2010.

The Emerging Resource and Technologies Initiative will be reviewed in 2014, and the Government of Alberta has committed to providing industry with three years notice at that time if it decides to discontinue the program.

In addition to the foregoing, Alberta currently maintains a royalty reduction program for low productivity oil and oil sands wells, a royalty adjustment program for deep marginal gas wells and a royalty exemption for re-entry wells, among others.

Land Tenure

Crude oil and natural gas located in the western provinces is owned predominantly by the respective provincial governments. Provincial governments grant rights to explore for and produce oil and natural gas pursuant to leases, licences, and permits for varying terms from two years, and on conditions set forth in provincial legislation including requirements to perform specific work or make payments. Oil and natural gas located in such provinces can also be privately owned 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's policy of deep rights reversion was expanded 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.

In Alberta, the NRF includes 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. The order in which these agreements will receive the reversion notice will depend on their vintage and location, with the older leases and licenses receiving reversion notices first beginning in January 2011. Leases and licences that were granted prior to January 1, 2009 but continued after that date will not be subject to shallow rights reversion until they reach the end of their primary term and are continued (at which time deep rights reversion will be applied); thereafter, 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.

Environmental Regulation

The oil and natural gas industry is currently subject to environmental regulations pursuant to a variety of provincial and federal legislation. 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 requires that well and facility sites be abandoned and reclaimed to the satisfaction of provincial authorities. 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 the natural gas operations, including those of the Corporation. 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 Corporation 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 deterioration of global economic conditions, have caused significant volatility to commodity prices. These conditions worsened in 2008 and continued in 2009, causing a loss of confidence in the broader U.S. and global credit and financial markets and resulting in the collapse of, and government intervention in, major banks, financial institutions and insurers and creating 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. Although economic conditions improved towards the latter portion of 2009 and in 2010, these factors have negatively impacted company valuations and will 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, OPEC actions and the ongoing global credit and liquidity concerns.

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 the Company's revenues may decline as a result of decreased commodity pricing, it may be required to reduce capital expenditures. In addition, uncertain levels of near term industry activity coupled with the present global credit crisis exposes the Company to additional access to capital risk. 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.

Reserves

The Company uses the full cost method of accounting for oil and gas properties. Generally, all costs of exploring and developing oil and natural gas reserves are capitalized and depleted against associated oil and natural gas production using the unit-of-production method based on the estimated proved reserves using forecast pricing. Estimating reserves is also critical to several accounting estimates and requires judgments and decisions based upon available geological, geophysical, engineering and economic data. Estimated reserves are also utilized by Bellatrix's bank in determining credit facilities. Reserves affect net income through depletion and the ceiling test calculation. 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. Changes in these judgments and estimates could have a material impact on the financial results and financial condition.

Asset retirement obligations

The discounted, expected future cost of statutory, contractual or legal obligations to retire long-lived assets are recorded as an Asset Retirement Obligation ("ARO") liability with a corresponding increase to the carrying amount of the related asset. The recorded ARO liability increases over time to its future amount through accretion charges to earnings. Revisions to the estimated amount or timing of the obligations are reflected as increases or decreases to the ARO liability. Amounts capitalized to the related assets are amortized to income consistent with the depletion or depreciation of the underlying asset.

Share based compensation

Options granted under the Share Option Plan to employees and the Board of Directors is accounted for in accordance with the fair-value based method of accounting. Accordingly, the stock based compensation expense is measured at the grant date based on the fair value, using the Black-Scholes model, and is expensed over the vesting period of the options using the graded vesting method. Determination of the fair value of options granted at the grant date requires judgment, including the expected share price volatility. The Company calculates volatility based on historical share price excluding specific time frames in which volatility was affected by specific transactions that are not considered to be indicative of the Company's normal share price volatility.

Fair value of derivatives

The fair value or mark-to-market value of commodity contracts is based on the estimated amount that would have been received or paid to settle the contracts as at December 31, 2010, and may be different from what will eventually be realized. Changes in the fair value of the commodity contracts are recognized in the Consolidated Statements of Loss within the financial statements. The actual gains and losses realized on eventual cash settlement can vary due to subsequent fluctuations in commodity prices.

Accounts receivable

The Company employs judgment to estimate the carrying value of accounts receivable. After making assessments of credit risk from customers and joint venture partners, the Company may provide for an allowance for doubtful accounts as required. Actual accounts receivable amounts collected in future periods may differ from these estimates.

Income taxes

In following the liability method of accounting for 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 future income tax liability calculated at a point in time. These differences could materially impact earnings.

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 the Canadian 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, 2010 and ended on December 31, 2010 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 and operational changes. This is based on actual average prices received for the fourth quarter of 2010 and average production volumes of 10,002 boe/d during that period, as well as the same level of debt outstanding at December 31, 2010. Diluted weighted average shares are based upon the fourth quarter of 2010. 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:

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                                      Funds Flow from        Funds Flow from
                                         Operations(1)          Operations(1)
                                          (annualized)     Per Diluted Share
    -------------------------------------------------------------------------
    Sensitivity Analysis                       ($000s)                    ($)
    -------------------------------------------------------------------------
    Change of US $1/bbl WTI                     1,100                   0.01
    Change of $0.10/ mcf                        1,000                   0.01
    Change of US $0.01 CDN/ US exchange rate      800                   0.01
    Change in prime of 1%                         400                   0.00
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (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 Canadian GAAP as an
        indicator of the Company's performance. Therefore reference to
        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 eight most recently completed quarters at the end of 2010.

-------------------------------------------------------------------------
    2010 - Quarter ended
    ($000s, except per share
     amounts)                      March 31    June 30   Sept. 30    Dec. 31
    -------------------------------------------------------------------------
    Revenues before royalties
     and risk management             26,929     25,574     27,344     37,826
    Funds flow from operations(1)    10,198     10,610     16,342     15,892
    Funds flow from operations
     per share(1)
      Basic                           $0.12      $0.11      $0.17      $0.16
      Diluted                         $0.11      $0.11      $0.17      $0.15
    Cash flow from operating
     activities                      13,456      6,065     13,466     11,285
    Cash flow from operating
     activities per share
      Basic                           $0.15      $0.07      $0.14      $0.12
      Diluted                         $0.15      $0.07      $0.14      $0.11
    Net income (loss)                     7    (10,812)    (8,555)    (8,173)
    Net income (loss) per share
      Basic and Diluted               $0.00     $(0.12)    $(0.09)    $(0.08)
    Net capital expenditures (cash)  18,393     17,656     30,416     25,716
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    2009 - Quarter ended
    ($000s, except per share
     amounts)                      March 31    June 30   Sept. 30    Dec. 31
    -------------------------------------------------------------------------
    Revenues before royalties
     and risk management             31,345     29,805     23,860     24,004
    Cash flow from operating
     activities                       9,311      6,467     12,150      2,743
    Cash flow from operating
     activities per share
      Basic and Diluted               $0.12      $0.08      $0.15      $0.03
    Funds flow from operations(1)     6,489     10,765     11,090      7,681
    Funds flow from operations
     per share(1)
      Basic and Diluted               $0.08      $0.14      $0.14      $0.10
    Net loss                         (9,056)   (99,715)    (9,363)    (8,216)
    Net loss per share
      Basic and Diluted              $(0.12)    $(1.27)    $(0.12)    $(0.10)
    Net capital expenditures (cash)   2,764     (7,138)   (81,986)     9,926
    Distributions declared            1,570          -          -          -
    Distributions per share           $0.02          -          -          -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

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

The quarterly results for 2010 compared to 2009 were impacted by Bellatrix's increased capital program, improved pricing for crude oil, condensate and NGL's, increased production efficiencies and lower total net debt levels.

The Company's focus in 2010 was to continue to reduce total net debt levels, expand its capital program and continue to streamline its operations and field optimization projects. In 2009, Bellatrix was focused on reducing operating costs and general and administrative charges in light of the volatile economic environment. Capital spending for 2009 was kept to a minimum and the Company concentrated on field optimization projects in order to arrest decline and maintain production.

During the first quarter of 2010, the Company closed a $45 million equity offering, allowing debt to be temporarily reduced in order to fund its 2010 capital program. Total net debt levels decreased by $140.3 million, from the $213.9 million of total net debt at the end of the first quarter of 2011. The Company spent $18.3 million in capital expenditures in Q1 2010 compared to $2.8 million in the same period in 2009.

During the second quarter of 2010, Bellatrix issued the 4.75% Debentures in order to facilitate the redemption of its 7.5% Debentures. This allowed the Company to move forward with reduced total net debt levels at a reduced carrying cost. The Company invested $18.3 million in capital expenditures in the second quarter of 2010, compared to $1.2 million for the same period in 2009.

During the third quarter of 2010, Bellatrix issued $20 million of Flow-Through Shares, allowing the Company to further reduce debt levels in order to fund its capital program. In the third and fourth quarters of 2010, the Company continued to invest in its 2010 capital program in order to replace production of approximately 3,600 boe/d that was sold in the second half of 2009. Proceeds of approximately $92.9 million for the 2009 dispositions were used to reduce the Company's indebtedness.

Overall, the Company's increased and successful capital program, higher realized prices for crude oil, condensate and NGL's, reduced production, G&A and interest and financing expenses, have resulted in the Company having increased cash flows, sales volumes and reserves for 2010, as compared to 2009.

Selected Annual Information

-------------------------------------------------------------------------
    Years ended December 31,
    ($000s, except per share amounts)             2010       2009       2008
    -------------------------------------------------------------------------
    Revenues before royalties and risk
     management                                117,673    109,014    265,385
    Funds flow from operations(1)               53,042     36,025     77,893
    Funds flow from operations per share(1)
      Basic                                      $0.57      $0.46      $0.99
      Diluted                                    $0.54      $0.46      $0.98
    Cash flow from operating activities
    Cash flow from operating activities
     per share                                  44,272     30,671     78,784
      Basic                                      $0.47      $0.39      $1.00
      Diluted                                    $0.46      $0.39      $0.99
    Net loss                                   (27,533)  (126,620)   (19,590)
    Net loss per share
      Basic                                     $(0.30)    $(1.61)    $(0.25)
      Diluted                                   $(0.30)    $(1.61)    $(0.25)
    Net capital expenditures (cash)            (92,181)   (76,434)    (1,338)
    Total assets                               487,156    440,970    736,117
    Total net debt(1)(2)                        87,444    107,269    215,004
    Long-term financial liabilities
      Future income taxes                            -          -     42,777
      Asset retirement obligations              27,483     25,728     33,682
      Exchangeable shares of subsidiary              -          -      2,887
    Sales volumes (boe/d)                        8,519      8,426     11,867
    Distributions declared                           -      1,570     36,334
    Distributions per share                          -      $0.02      $0.46
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (1) Refer to "Non-GAAP Measures" in respect of the term "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 capital lease
        obligation and short-term future income tax assets and liabilities.
        Total net debt also includes the liability component of convertible
        debentures and excludes capital lease obligations, asset retirement
        obligations and the future income tax liability.

The annual results for 2009 compared to 2008 were impacted by dispositions, fluctuating commodity prices, lower operating costs and reduced capital spending.

In 2008, average daily sales volumes were 11,867 boe/d compared to 8,426 boe/d in 2009. The reduction in average daily sales volumes was primarily a result of the disposition of two minor properties in the second quarter of 2009 and the majority of its Saskatchewan properties in the third quarter of 2009. The dispositions completed in 2009 reduced sales volumes by approximately 3,600 boe/d for the third and fourth quarters in 2009. Total proceeds of approximately $92.9 million, after purchase adjustments and closing costs, were used to reduce the Company's indebtedness.

2008 revenues before royalties and risk management contracts decreased by approximately 59% when compared to the same period in 2009, primarily as a result of the dispositions discussed above and extreme volatile commodity prices experienced. WTI crude oil prices varied significantly in 2008, increasing to a high of US$147/bbl in July and dramatically falling during the fourth quarter of 2008 with December 2008 prices of under US$40/bbl. WTI crude oil prices averaged over US$60/bbl through 2009.

In 2009, the Company made an effort to reduce operating costs and general and administrative charges in light of the volatile economic environment. Capital spending was kept to a minimum and the Company concentrated on field optimization projects in order to arrest decline and maintain production. Bellatrix invested approximately $15.8 million in exploration and development in 2009 compared to $36.7 million in 2008.

As a result of the efforts made in 2009, Bellatrix was able to reduce total net debt by $107.7 million from the $215.0 million outstanding as at December 31, 2008.

BELLATRIX EXPLORATION LTD.
    CONSOLIDATED BALANCE SHEETS
    As at December 31
    -------------------------------------------------------------------------

    ($000s)                                                 2010        2009
    -------------------------------------------------------------------------

    ASSETS
    Current assets
      Accounts receivable                              $  39,500   $  20,722
      Deposits and prepaid expenses                        4,619       4,940
      Future income taxes (note 13)                          989           -
      Commodity contract asset (note 17)                       -       3,374
                                                      -----------------------
                                                          45,108      29,036
    Property, plant and equipment (note 4)               433,697     410,566
    Future income taxes (note 13)                          8,351       1,368
                                                      -----------------------
    Total assets                                       $ 487,156   $ 440,970
                                                      -----------------------
                                                      -----------------------

    LIABILITIES
    Current liabilities
      Accounts payable and accrued liabilities         $  42,792   $  23,345
      Current portion of capital lease obligation
       (note 7)                                              146           -
      Future income taxes (note 13)                            -         960
      Commodity contract liability (note 17)               3,732           -
                                                      -----------------------
                                                          46,670      24,305
    Long-term debt (note 5)                               41,172      27,902
    Convertible debentures (note 6)                       47,599      81,684
    Capital lease obligation (note 7)                      1,443           -
    Asset retirement obligations (note 8)                 27,483      25,728
                                                      -----------------------
    Total liabilities                                    164,367     159,619
                                                      -----------------------


    SHAREHOLDERS' EQUITY
      Shareholders' capital (note 1 and 10)              315,510     252,592
      Equity component of convertible debentures
       (note 6)                                            5,881       5,037
      Contributed surplus (note 11)                       30,526      28,232
      Deficit (note 10)                                  (29,128)     (4,510)
                                                      -----------------------
    Total shareholders' equity                           322,789     281,351
                                                      -----------------------
    Total liabilities and shareholders' equity         $ 487,156   $ 440,970
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    COMMITMENTS (note 16)
    See accompanying notes to the consolidated financial statements.



    BELLATRIX EXPLORATION LTD.
    CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
    For the years ended December 31


    ($000s)                                                 2010        2009
    -------------------------------------------------------------------------

    REVENUES
      Petroleum and natural gas sales                  $ 117,673   $ 109,014
      Royalties                                          (22,914)    (17,554)
      Gain (loss) on commodity contracts (note 17)         8,282      17,394
                                                      -----------------------
                                                         103,041     108,854

    EXPENSES
      Production                                          37,964      45,015
      Transportation                                       3,723       3,880
      General and administrative                           9,414      10,239
      Interest and financing charges                       7,403      13,657
      Share-based compensation (notes 10 and 11)           1,618        (159)
      Depletion, depreciation and accretion               74,856      90,760
      Provision for uncollectible accounts (note 17)         250       1,400
      Loss on redemption of 7.5% Debentures (note 6)       3,514           -
      Loss on repurchase of convertible debentures
       (note 6)                                                -          51
      Loss on sale of marketable securities                    -         501
      Loss on sale of petroleum and natural gas
       properties (note 4)                                     -     114,182
      Reorganization costs (note 1)                            -         885
                                                      -----------------------
                                                         138,742     280,411

    LOSS BEFORE TAXES                                    (35,701)   (171,557)

    TAXES
      Future income tax recovery (note 13)                (8,168)    (44,448)
                                                      -----------------------

    NET LOSS BEFORE NON-CONTROLLING INTEREST             (27,533)   (127,109)

      Non-controlling interest                                 -        (489)
                                                      -----------------------

    NET LOSS and COMPREHENSIVE LOSS                    $ (27,533)  $(126,620)
                                                      -----------------------

    Net loss per share
      Basic                                            $   (0.30)  $   (1.61)
      Diluted                                          $   (0.30)  $   (1.61)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes to the consolidated financial statements.



    BELLATRIX EXPLORATION LTD.
    CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
    For the years ended December 31


    ($000s)                                                 2010        2009
    -------------------------------------------------------------------------

    SHAREHOLDERS' CAPITAL
      Trust units of True Energy Trust
        Balance, beginning of year                     $       -   $ 917,012
        Reduction in capital for deficit (note 1)              -    (666,818)
        Exchanged for common shares of Bellatrix
         (note 1)                                              -    (250,194)
                                                      -----------------------
        Balance, end of year                                   -           -
                                                      -----------------------
      Common shares of Bellatrix Exploration Ltd.
        Balance, beginning of year                       252,592           -
        Issued for cash, net of transaction costs         62,358           -
        Issued on exercise of share options                  434           -
        Contributed surplus transferred on
         exercised options                                   126
        Issued on corporate reorganization (note 1)            -     250,194
        Issued on conversion of exchangeable shares
         pursuant to reorganization (note 1)                   -       2,398
                                                      -----------------------
        Balance, end of year                             315,510     252,592
                                                      -----------------------
                                                         315,510     252,592
                                                      -----------------------

    EQUITY COMPONENT OF CONVERTIBLE DEBENTURES
      Balance, beginning of year                           5,037       5,119
      Conversion feature of 7.5% Debentures
       redeemed (note 6)                                  (5,037)          -
      Conversion feature of 4.75% Debentures
       issued (note 6)                                     5,881           -
      Adjustment for repurchase of convertible
       debentures under normal course issuer
       bid (note 6)                                            -         (82)
                                                      -----------------------
      Balance, end of year                                 5,881       5,037
                                                      -----------------------

    CONTRIBUTED SURPLUS
      Balance, beginning of year                          28,232      28,240
      Share-based compensation expense
       (note 10 and 11)                                    2,452         812
      Adjustment of prior period share-based
       compensation expense for forfeitures of
       unvested share options                                (32)       (820)
      Transfer to share capital for exercised options       (126)          -
                                                      -----------------------
      Balance, end of year                                30,526      28,232
                                                      -----------------------

    DEFICIT
      Balance, beginning of year                          (4,510)   (543,290)
      Distributions declared                                   -      (1,570)
      Reduction of deficit on Reorganization (note 1)          -     666,818
      Adjustment for repurchase of convertible
       debentures                                              -         152
      Adjustment for redemption of 7.5% Debentures
       (note 6)                                            2,915           -
      Net loss                                           (27,533)   (126,620)
                                                      -----------------------
      Balance, end of year                               (29,128)     (4,510)
                                                      -----------------------

    ACCUMULATED OTHER COMPREHENSIVE INCOME
      Balance, beginning of year                               -        (620)
      Realized loss on sale of marketable securities           -         620
                                                      -----------------------
      Balance, end of year                                     -           -
                                                      -----------------------

    -------------------------------------------------------------------------
    TOTAL SHAREHOLDERS' EQUITY                         $ 322,789   $ 281,351
    -------------------------------------------------------------------------

    See accompanying notes to the consolidated financial statements.


    BELLATRIX EXPLORATION LTD.
    CONSOLIDATED STATEMENTS OF CASH FLOWS
    For the years ended December 31


    ($000s)                                                 2010        2009
    -------------------------------------------------------------------------

    Cash provided by (used in):
    CASH FLOW FROM OPERATING ACTIVITIES
    Net loss                                           $ (27,533)  $(126,620)
    Items not involving cash:
      Non-controlling interest (note 9)                        -        (489)
      Depletion, depreciation and accretion               74,856      90,760
      Share-based compensation (notes 10 and 11)           1,618        (159)
      Unrealized loss (gain) on commodity contracts
       (note 17)                                           7,106         352
      Accretion on convertible debentures (note 6)         1,649       1,895
      Future income tax recovery (note 13)                (8,168)    (44,448)
      Loss on redemption of 7.5% Debentures (note 6)       3,514           -
      Realization of imputed interest costs on 7.5%
       Debentures (note 6)                                (5,050)          -
      Loss on repurchase of convertible debentures
       (note 6)                                                -          51
      Loss on sale of marketable securities                    -         501
      Loss on sale of petroleum and natural gas
       properties (note 4)                                     -     114,182
      Asset retirement costs incurred (note 8)            (1,373)     (1,510)
      Change in non-cash working capital (note 12)        (2,347)     (3,844)
                                                      -----------------------
                                                          44,272      30,671

    CASH FLOW FROM (USED IN) FINANCING ACTIVITIES
      Increase (Decrease) in bank debt                    13,270    (104,486)
      Issuance of share capital, net of share
       issue costs (note 10)                              61,318           -
      Issuance of 4.75% Debentures, net of issue
       costs (note 6)                                     52,520           -
      Redemption of 7.5% Debentures (note 6)             (88,009)          -
      Realization of imputed interest costs on
       7.5% Debentures allocated to operating
       activities (note 6)                                 5,050           -
      Proceeds from exercise of options (note 10)            434           -
      Obligations under capital lease (note 7)               (11)
      Repurchase of convertible debentures under
       normal course issuer bid                                -      (1,315)
      Distributions declared                                   -      (1,570)
                                                      -----------------------
                                                          44,572    (107,371)
      Change in non-cash working capital (note 12)           493      (1,584)
                                                      -----------------------
                                                          45,065    (108,955)

    CASH FLOW FROM (USED IN) INVESTING ACTIVITIES
      Additions to property, plant and equipment        (106,748)    (16,487)
      Proceeds on sale of property, plant and
       equipment                                          14,567      92,921
      Proceeds on sale of marketable securities                -         349
                                                      -----------------------
                                                         (92,181)     76,783
      Change in non-cash working capital (note 12)         2,844       1,501
                                                      -----------------------
                                                         (89,337)     78,284

      Change in cash                                           -           -

      Cash, beginning of year                                  -           -
    -------------------------------------------------------------------------

      Cash, end of year                                $       -   $       -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes to the consolidated financial statements.



    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
    -------------------------------------------------------------------------

    1.  CORPORATE STRUCTURE AND THE ARRANGEMENT

        Bellatrix Exploration Ltd. (the "Company" or "Bellatrix") is a growth
        oriented, public exploration and production company. The Company
        resulted from a reorganization (the "Reorganization) effective
        November 1, 2009 pursuant to a plan of arrangement (the
        "Arrangement") involving, among others, True Energy Trust (the
        "Trust" or "True"), Bellatrix Exploration Ltd. and securityholders of
        the Trust.

        Pursuant to the Reorganization, the Trust was restructured from an
        open-ended, unincorporated investment trust to Bellatrix Exploration
        Ltd., a publicly traded corporation. Unitholders of the Trust
        received an equal number of common shares of Bellatrix which holds
        the assets and liabilities previously held, directly or indirectly,
        by the Trust. Exchangeable shares of the Trust were exchanged for
        common shares of Bellatrix at the current exchange ratio in effect on
        the effective date. The outstanding 7.5% convertible debentures of
        the Trust were assumed by Bellatrix as a result of the Arrangement
        and were convertible into common shares of the Company, rather than
        trust units of the Trust, at a conversion price of $16.00 per share.
        All outstanding incentive unit rights to acquire Trust units of True
        became share options to acquire an equal number of common shares of
        Bellatrix Exploration Ltd. on the same terms and conditions,
        including as to exercise price, vesting and expiry dates.

        Pursuant to the Arrangement, the Unitholders' Capital of the Trust
        Units as of the effective date of November 1, 2009 was reduced by the
        amount of the deficit of the Trust on October 31, 2009 of
        $666.8 million.

        The cost of the Reorganization of $885,000 was expensed during the
        year ended December 31, 2009.

        The Reorganization has been accounted for on a continuity of interest
        basis and accordingly, the consolidated financial statements for
        periods prior to the effective date of the Reorganization reflect the
        financial position, results of operations and cash flows as if the
        Company had always carried on the business formerly carried on by the
        Trust. Information herein with respect to Bellatrix includes
        information in respect of the Trust prior to completion of the
        Reorganization to the extent applicable unless the context otherwise
        requires. In addition, references to "common shares" and "shares",
        "Share Option Plan", and "options" should be read as references to
        "Units", "Unit Rights Incentive Plan", and "rights" respectively, for
        periods prior to November 1, 2009.

    2.  SIGNIFICANT ACCOUNTING POLICIES

        The consolidated financial statements of the Company have been
        prepared by management in accordance with generally accepted
        accounting principles in Canada. The preparation of consolidated
        financial statements in conformity with generally accepted accounting
        principles requires management to make estimates and assumptions that
        affect the amounts reported in the consolidated financial statements
        and accompanying notes. Amounts recorded for depreciation, depletion
        and amortization, asset retirement costs and obligations and amounts
        used for ceiling test and impairment calculations are based on
        estimates of natural gas, and crude oil reserves and future costs
        required to develop those reserves. Accounts receivable are recorded
        at the estimated recoverable amount which involves the estimates of
        uncollectable accounts. Share-based compensation involves the
        calculation of the option's fair value which includes the estimate of
        the Company's share price volatility. 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. 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 below.

        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.

        c. Joint Interests

           A significant portion of the Company's exploration and
           development activities are conducted jointly with others and,
           accordingly, the financial statements reflect only the Company's
           proportionate interest in such activities.

        d. Petroleum and Natural Gas Properties

           The Company follows the full cost method of accounting for
           petroleum and natural gas operations whereby all costs related to
           the exploration and development of petroleum and natural gas
           reserves are capitalized. These costs include land acquisition
           costs, geological and geophysical expenses, the costs of drilling
           both productive and non-productive wells, directly related
           overhead and estimated abandonment costs. Proceeds from the
           disposal of properties are deducted from the full cost pool
           without recognition of a gain or loss unless such a sale would
           significantly alter the rate of depletion and depreciation.

        e. Depletion and Depreciation

           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 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 proved 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. These properties are
           assessed periodically to ascertain whether impairment has
           occurred. When the property is considered to be impaired, the
           cost of the property or the amount of the impairment is added to
           costs subject to depletion.

           Depreciation of office furniture and equipment is provided for on
           a 20% declining balance basis.

        f. Ceiling Test

           The Company applies a two-stage ceiling test on the aggregate
           carrying value of its capitalized costs, which may be amortized
           against revenues of future periods. The first stage of this
           process is to ensure that such costs do not exceed the
           undiscounted future cash flows from production of proved
           reserves. Undiscounted future cash flows are calculated based on
           management's best estimate of forward indexed prices applied to
           estimated future production of proved reserves plus the carrying
           cost of undeveloped properties, less estimated future operating
           costs, royalties, future development costs and abandonment costs.
           When the carrying amount of a cost centre is not recoverable, the
           second stage of the process will determine the impairment whereby
           the cost centre would be written down to its fair value. The
           second stage requires the calculation of discounted future cash
           flows from proved plus probable reserves plus the carrying cost
           of undeveloped properties net of any impairment allowance. The
           fair value of proved and probable reserves is estimated using
           accepted present value techniques, which incorporate risks and
           other uncertainties when determining expected cash flows.

           The cost of undeveloped properties is excluded from the
           impairment test described above and subject to a separate
           impairment test.

        g. Asset Retirement Obligations

           The Company records a provision for the future retirement
           obligations associated with the Company's property, plant, and
           equipment. The fair value of the asset retirement obligation is
           based on discounted cash flow methodology. This amount is also
           capitalized as part of the cost of the related asset and
           amortized to expense over its useful life. The liability accretes
           until the Company settles the obligation.

        h. Flow-through Shares

           Resource expenditures for income tax purposes related to
           exploration and development activities funded by flow-through
           share arrangements are renounced to investors in accordance with
           income tax legislation. The tax effect related to renounced
           expenditures is recorded as a reduction of share capital and
           increase in future income tax liabilities on the date that the
           Company files the renouncement documents with the tax
           authorities.

        i. 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.

        j. Share-based Compensation Plan

           The Company accounts for Share Option Plan issued to employees
           and the Board of Directors using the fair value method. 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.

        k. Obligations under Lease

           Leases which effectively transfer substantially all of the risks
           and rewards of ownership to the Company are classified as capital
           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 capital lease payments are reduced
           by the lease payments made.

        l. Income Taxes

           Income taxes are recorded using the liability method of tax
           allocation. Future income tax assets and liabilities are
           determined based on "temporary differences" and are measured
           using the current, or substantively enacted, tax rates and laws
           expected to apply when these differences reverse. A valuation
           allowance is recorded against any future income tax assets if it
           is more likely than not that the asset will not be realized.

        m. 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 Liabilities            Category
           ------------------------------------------------------------------
           Accounts receivable                         Loans and receivables
           ------------------------------------------------------------------
           Marketable securities                       Available-for-sale
           ------------------------------------------------------------------
           Commodity risk management contracts         Held-for-trading
           ------------------------------------------------------------------
           Accounts payable and accrued liabilities    Other liabilities
           ------------------------------------------------------------------
           Long-term debt                              Other liabilities
           ------------------------------------------------------------------
           Convertible debentures                      Other liabilities
           ------------------------------------------------------------------
           Capital lease obligation                    Other liabilities
           ------------------------------------------------------------------

           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.

           The Company utilizes financial derivatives and non-financial
           derivatives, such as 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 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 on an accrual basis rather than as
           derivatives. As such, physical sales and purchase contracts are
           not recorded at fair value on the balance sheet with changes in
           fair value included in earnings.

           Subsequent changes in fair value of derivatives that are not
           designated or do not qualify for hedge accounting or normal
           purchase, sale or usage contracts are recognized in net income as
           incurred. For derivatives that are designated and qualify for
           cash flow hedge accounting at inception or the date of adoption,
           the effective portion of the change in fair value is recognized
           in other comprehensive income as incurred with the remaining
           portion of the change in fair value recognized in net income as
           incurred in the same financial statement caption as the hedged
           transaction. Net derivative gains (losses) in accumulated other
           comprehensive income are reclassified to net income in the same
           financial statement caption and future periods as the hedged
           transactions affect net income.

           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 (note 17).

        n. 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 stock method to determine the dilutive effect of
           share options. Under the treasury stock 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.

        o. Cash and cash equivalents

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

    3.  FUTURE ACCOUNTING PRONOUNCEMENTS

        International Financial Reporting Standards ("IFRS")

        On February 13, 2008 the CICA Accounting Standards Board announced
        that Canadian public reporting issuers will be required to report
        under International Financial Reporting Standards ("IFRS"), which
        will replace Canadian generally accepted accounting principles for
        years beginning on or after January 1, 2011. The Company's first IFRS
        compliant financial statements will be for the three months ended
        March 31, 2011.

    4.  PROPERTY, PLANT AND EQUIPMENT

        ---------------------------------------------------------------------
        ($000s)
        ---------------------------------------------------------------------
                                                     Accumulated
                                                   depletion and    Net book
        December 31, 2010                     Cost  depreciation       value
        ---------------------------------------------------------------------
        Petroleum and natural gas
         properties                    $ 1,045,239  $   613,408  $   431,831
        Office furniture and equipment       4,531        2,665        1,866
        ---------------------------------------------------------------------
                                       $ 1,049,770  $   616,073  $   433,697
        ---------------------------------------------------------------------

        ---------------------------------------------------------------------

        December 31, 2009
        ---------------------------------------------------------------------
        Petroleum and natural gas
         properties                    $   949,892  $   541,075  $   408,817
        Office furniture and equipment       4,045        2,296        1,749
        ---------------------------------------------------------------------
                                       $   953,937  $   543,371  $   410,566
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Bellatrix has included $157.9 million (2009: $57.2 million) for
        future development costs and excluded $18.5 million (2009:
        $20.5 million) for undeveloped land and $32.6 million (2009:
        $27.8 million) for estimated salvage from the depletion calculation
        during the year ended December 31, 2010.

        For the year ended December 31, 2010, the Company capitalized
        $1.9 million (2009: $0.6 million) of general and administrative
        expenses and $1.1 million (2098: $0.2 million), including the future
        tax effect thereon of $0.3 million (2009: $0.1 million), of
        share-based compensation expense directly related to exploration and
        development activities.

        The Company performed a ceiling test calculation as at December 31,
        2010 resulting in undiscounted cash flows from proved reserves and
        the undeveloped properties exceeding the carrying value of oil and
        gas assets. No impairment in oil and gas assets was identified as at
        December 31, 2010 and 2009.

        The prices used in the ceiling test evaluation of the Company's crude
        oil and natural gas reserves at December 31, 2010 were based on the
        following benchmark price forecasts adjusted for quality and
        transportation differentials:

        ---------------------------------------------------------------------
                          Hardisty Heavy     Edmonton Light     AECO Natural
                               Crude Oil    Sweet Crude Oil              Gas
        Year                      ($/bbl)            ($/bbl)        ($/mmbtu)
        ---------------------------------------------------------------------
        2011                       69.98              87.83             4.15
        2012                       70.70              90.51             4.77
        2013                       69.50              92.05             5.23
        2014                       69.91              93.77             6.08
        2015                       71.80              96.28             6.42
        2016                       73.56              98.63             6.69
        2017                       75.11             100.71             6.92
        2018                       76.61             102.71             7.11
        2019                       78.21             104.83             7.27
        2020                       79.66             106.79             7.41
        2021                       81.11             108.73             7.52
        2022                       82.61             110.76             7.68
        2023                       84.13             112.77             7.81
        2024                       85.67             114.84             7.97
        2025                       87.25             117.00             8.09
        Percentage increase
         each year after 2025       1.8%               1.8%             1.8%
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Loss on Petroleum and Natural Gas Properties Sold

        On July 30, 2009, the Company closed a divestiture for the majority
        of its petroleum and natural gas properties in Saskatchewan (the
        "Saskatchewan Divestiture") for net proceeds of approximately
        $85 million, net of closing adjustments and closing costs. These
        petroleum and natural gas properties were classified as held for sale
        on June 30, 2009.

        The disposition was accounted for in accordance with Accounting
        Guideline 16 - "Oil and Gas Accounting - Full Cost". Under full cost
        accounting, if crediting the proceeds from disposition to costs
        results in a change of 20 percent or more to the depletion rate then
        a gain or loss on disposition should be recognized. When a gain or
        loss is to be recognized the total net book value of capitalized
        costs should be allocated between the properties sold and the
        properties retained. The carrying amount of the assets sold was an
        allocation of the Company's historical full cost pool based on a
        pro-rata ratio of future cash flows of proved reserves associated
        with the assets sold, discounted at 10%, as compared to all oil and
        gas assets on June 30, 2009. In the second quarter of 2009, the
        Company recorded a $114.2 million loss on the assets sold for the
        excess of the allocated net book value of the assets, compared to the
        total net proceeds, after purchase adjustments and closing costs, of
        approximately $85 million.

    5.  LONG-TERM DEBT

        ---------------------------------------------------------------------
        ($000s)                                           2010          2009
        ---------------------------------------------------------------------
        Operating facility                         $     6,172   $     2,656

        Revolving term facility                         35,000        25,246
        ---------------------------------------------------------------------

        Balance, end of year                       $    41,172   $    27,902
        ---------------------------------------------------------------------

        Effective December 15, 2010, the Company's borrowing base was
        increased from $85 million to $100 million. The Company's expanded
        facilities consists of a $15 million demand operating facility
        provided by a Canadian bank and an $85 million extendible revolving
        term credit facility provided by a Canadian bank 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 or LIBOR rate, plus between 1.25%
        and 4.25%, depending on the type of borrowing and the Company's debt
        to cash 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 major petroleum and natural gas reserves in
        certain circumstances. A standby fee is charged of between 0.55% and
        1.02% on the undrawn portion of the credit facilities, depending on
        the Company's debt to cash flow ratio.

        On June 8, 2010, Bellatrix executed an amending agreement with its
        banking syndicate that provided for the extension of the revolving
        period of existing credit facility from June 29, 2010 to June 28,
        2011. 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 28, 2011. The
        Company's borrowing base will be subject to re-determination on
        May 30, 2011. Thereafter, a semi-annual re-determination of the
        borrowing base will occur, with the next such re-determination
        occurring on November 30, 2011.

        Payment will not be required under the revolving term facility for
        more than 365 days from December 31, 2010 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, 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, 2010, approximately $58.8 million was not drawn
        under the existing facilities and Bellatrix was fully compliant with
        all of its operating debt covenants.

    6.  CONVERTIBLE DEBENTURES

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

        ---------------------------------------------------------------------
        ($000s except number
         of debentures)                     7.5%         4.75%         Total
        ---------------------------------------------------------------------
        Number of Debentures
        Balance, December 31, 2009        84,884             -        84,884
        Issued                                 -        55,000        55,000
        Redeemed                         (84,884)            -       (84,884)
        ---------------------------------------------------------------------
        Balance, December 31, 2010             -        55,000        55,000
        ---------------------------------------------------------------------
        Debt Component
        Balance, December 31, 2009   $    81,684   $         -   $    81,684
        Issued                                 -        48,841        48,841
        Issue costs                            -        (2,202)       (2,202)
        Accretion                            689           960         1,649
        Redeemed                         (82,373)            -       (82,373)
        ---------------------------------------------------------------------
        Balance, December 31, 2010   $         -   $    47,599   $    47,599
        ---------------------------------------------------------------------
        Equity Component
        Balance, December 31, 2009   $     5,037             -   $     5,037
        Issued                                 -         6,159         6,159
        Issue costs                            -          (278)         (278)
        Redeemed                          (5,037)            -        (5,037)
        ---------------------------------------------------------------------
        Balance, December 31, 2010   $         -   $     5,881   $     5,881
        ---------------------------------------------------------------------

        On April 20, 2010, Bellatrix issued $55 million of 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 13, 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. 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, $5.9 million has been recorded as
        the carrying amount of the conversion feature of the debentures, net
        of $0.3 million of issue costs. The 4.75% Debentures, net of the
        equity component and issue costs, of $46.6 million, 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.

        On April 20, 2010, Bellatrix deposited with Computershare Trust
        Company of Canada, the trustee (the "Trustee") for Bellatrix's
        previously outstanding series of debentures, being the 7.5%
        convertible unsecured subordinated debentures due June 30, 2011 (the
        "7.5% Debentures"), sufficient funds to satisfy the principal amount
        and interest owing on the 7.5% Debentures and on May 3, 2010 the
        trustee provided notice to the registered holders of the 7.5%
        Debentures of its intention to redeem the 7.5% Debentures on July 2,
        2010. The 7.5% Debentures were redeemed for an amount of $1,025 for
        each $1,000 principal amount of the 7.5% Debentures plus accrued and
        unpaid interest, or a total of $88.0 million. Proceeds from the
        issuance of the 4.75% Debentures have been used by Bellatrix to
        partially fund the redemption of the 7.5% Debentures and the balance
        of the redemption amount has been funded through bank indebtedness.
        The funds deposited with the Trustee on April 20, 2010 and
        acknowledgment by the Trustee thereof discharged and extinguished the
        Company's financial liability for the 7.5% Debentures as of that
        date.

        The Company recorded a $3.6 million loss and a reduction of the
        deficit of $2.9 million in connection with the redemption of the 7.5%
        Debentures.

    7.  CAPITAL LEASE OBLIGATION

        Bellatrix entered into an agreement with a certain joint venture
        ("Joint Venture") for the use of certain facilities which will expire
        in year 2030 or earlier if certain circumstances are met. At the end
        of the term of the agreement, ownership of the facilities is
        transferred to the Company. The agreement is accounted for as a
        capital lease in accordance with CICA Handbook Section 3065 -
        "Leases". Assets under capital lease at December 31, 2010 totaled
        $1.6 million with accumulated depreciation of $0.06 million.

        The following is a schedule of future minimum lease payments under
        the capital lease obligation:

        ---------------------------------------------------------------------
        Year ending December 31,                                      ($000s)
        ---------------------------------------------------------------------
        2011                                                     $       379
        2012                                                             363
        2013                                                             347
        2014                                                             331
        2015                                                             313
        Thereafter                                                     1,516
        ---------------------------------------------------------------------
        Total lease payments                                           3,249
        Amount representing implicit interest at 15.28%               (1,660)
        ---------------------------------------------------------------------
                                                                       1,589
        Current portion of capital lease obligation                     (146)
        ---------------------------------------------------------------------
        Capital lease obligation                                 $     1,443
        ---------------------------------------------------------------------

    8.  ASSET RETIREMENT OBLIGATIONS

        The Company's asset retirement obligations 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
        asset retirement obligations is approximately $63 million which will
        be incurred between 2014 and 2054. A credit-adjusted risk-free rate
        of 8 percent and an inflation rate of 2.4 percent were used to
        calculate the fair value of the asset retirement obligation.

        ---------------------------------------------------------------------
        ($000s)                                           2010          2009
        ---------------------------------------------------------------------
        Balance, beginning of year                 $    25,728   $    33,682
        Acquired through asset acquisitions                223             -
        Incurred on development activities               1,418           584
        Changes in prior period estimates                1,972         1,652
        Reversed on dispositions                        (2,638)      (10,999)
        Settled during the year                         (1,373)       (1,510)
        Accretion expense                                2,153         2,319
        ---------------------------------------------------------------------
        Balance, end of year                       $    27,483   $    25,728
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    9.  EXCHANGEABLE SHARES OF SUBSIDIARY/NON-CONTROLLING INTEREST

        As a result of the 2005 conversion to a Trust, 843,304 exchangeable
        shares were issued by a subsidiary of the Trust. An unlimited number
        of exchangeable shares were authorized, issuable in series of which
        the first series in an unlimited number was designated for Series A
        exchangeable shares.

        The Series A exchangeable shares were non-voting (but holders were
        entitled to equivalent voting rights in the Trust) and could have
        been converted, at the option of the holder into trust units at any
        time. The number of trust units issued upon conversion was based on
        the exchange ratio in effect on the date of conversion. The exchange
        ratio was calculated monthly based on the five day weighted average
        trust unit trading price preceding the monthly effective date. The
        exchangeable shares were not eligible for cash distributions; however
        cash distributions increased the exchange ratio.

        Pursuant to the Reorganization, effective November 1, 2009, the
        issued and outstanding exchangeable shares were exchanged for common
        shares of Bellatrix based upon the exchange ratio in effect
        immediately prior to the effective time of the Arrangement.

        The following table summarizes the information regarding the
        exchangeable shares for the year ended December 31, 2009:

        ---------------------------------------------------------------------
                                                           December 31, 2009
                                                        Number        Amount
                                                                      ($000s)
        ---------------------------------------------------------------------
        Balance, beginning of year                     294,026   $     2,887
        Non-controlling interest recovery                    -          (489)
        Cancelled                                           (8)            -
        Converted pursuant to Reorganization          (294,018)       (2,398)
        ---------------------------------------------------------------------
        Balance, end of year                                 -   $         -
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    10. SHAREHOLDERS' EQUITY

        a. Common Shares

           Bellatrix is authorized to issue an unlimited number of common
           shares.

           ------------------------------------------------------------------
                                          2010                   2009
                                               Amount                 Amount
                                    Number     ($000s)     Number     ($000s)
           ------------------------------------------------------------------
           Balance, beginning
            of year             78,809,039  $ 252,592           -  $       -
           Shares issued for
            cash, net of
            transaction costs
            and tax effect of
            $1.1 million        18,350,000     62,358
           Shares issued on
            exercise of options    286,987        434
           Contributed surplus
            transferred on
            exercised options            -        126
           Issued pursuant to
            Reorganization               -          -  78,496,581    250,194
           Issued on conversion
            of exchangeable
            shares pursuant to
            Reorganization
            (note 1)                     -          -     312,458      2,398
           ------------------------------------------------------------------
           Balance, end of
            year                97,466,026  $ 315,510  78,809,039  $ 252,592
           ------------------------------------------------------------------

           On January 28, 2010, Bellatrix closed a bought deal equity
           financing whereby 13,640,000 common shares were issued for gross
           proceeds of $45.0 million (net proceeds of $42.4 million after
           transaction costs and before tax effect). The net proceeds of the
           issuance were used to temporarily reduce outstanding indebtedness.

           On August 12, 2010, Bellatrix issued 4,710,000 common shares on a
           flow-through basis ("Flow-Through Shares") at $4.25 each for gross
           proceeds of $20.0 million (net proceeds of $18.9 after transaction
           costs and before tax effect). The net proceeds from the issuance
           of the Flow-Through Shares were used to accelerate the Company's
           Cardium light oil exploration program. The Company will incur
           eligible Canadian exploration expenses ("CEE") that will be
           renounced to subscribers effective December 31, 2010. Bellatrix
           is committed to incur the $20.0 million CEE expenditures on or
           before December 31, 2011.

        b. Trust Units

           The Trust Indenture provided for an unlimited number of trust
           units to be authorized and issued. Each trust unit was
           transferable, carried the right to one vote and represented an
           equal undivided beneficial interest in any distributions from the
           Trust and in the net assets of the Trust in the event of
           termination or winding-up of the Trust. All trust units were of
           the same class with equal rights and privileges. Trust units were
           redeemable at any time at the lesser of 90% of the market price
           (as determined in accordance with the Trust Indenture) and the
           closing price of the trust units on the date tendered for
           redemption to a maximum, unless waived, of $250,000 per calendar
           month in which case the redemption price was payable by
           distributing notes of the Trust's subsidiary or notes of the
           Trust.

           The Reorganization from the Trust to the Company, effective
           November 1, 2009, followed securityholder and regulatory approval
           pursuant to a Special Meeting.

           In connection with the Reorganization, the unitholders' capital
           was reduced by the deficit of the Trust as of October 31, 2009 of
           $666.8 million and trust units were exchanged for common shares of
           Bellatrix.

           ------------------------------------------------------------------
                                                                2009
                                                        Number        Amount
                                                                      ($000s)
           ------------------------------------------------------------------
           Balance, beginning of year               78,496,581   $   917,012
           Repurchased under normal course
            issuer bid                                       -             -
           Exchangeable shares converted                     -             -
           Reduction in capital for deficit amount           -      (666,818)
           Exchanged for Bellatrix common shares   (78,496,581)     (250,194)
           ------------------------------------------------------------------
           Balance, end of year                              -   $         -
           ------------------------------------------------------------------

        c. Share Option Plan

           In connection with the Arrangement, Bellatrix assumed all of the
           obligations of the Trust in respect of outstanding incentive
           rights. The Arrangement did not result in the acceleration of
           vesting of any outstanding incentive rights. Incentive
           rightsholders surrendered the incentive rights held by them in
           exchange for the same number of share options of Bellatrix, having
           the same terms as the incentive rights so held as to exercise
           price, vesting and expiry dates.

           Upon approval of the Arrangement effective November 1, 2009,
           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.

           Under the terms of the Trust's Incentive Plan, the exercise price
           of each incentive right was initially equal to the per trust unit
           closing price on the trading day immediately preceding the date of
           grant, unless otherwise determined, and thereafter was reduced
           pursuant to a formula. The formula provided that the exercise
           price of each incentive right was reduced by any decreases in the
           daily closing price on the Toronto Stock Exchange of the Trust
           Units, provided, however, that such decreases in the exercise
           price did not exceed the amount of Trust unit distributions.

           As of December 31, 2010, a total of 9,720,186 share options were
           reserved, leaving an additional 3,896,809 available for future
           grants.

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

           Share Options Continuity(a)
           ------------------------------------------------------------------
                                              Weighted Average
                                              Exercise Price(b)       Number
           ------------------------------------------------------------------
           Balance, December 31, 2008                   $ 3.97     2,700,500
           Granted                                      $ 1.44     3,295,800
           Forfeited and cancelled                      $ 4.05    (1,782,567)
           ------------------------------------------------------------------
           Balance, December 31, 2009                   $ 2.01     4,213,733
           Granted                                      $ 3.65     2,178,500
           Exercised                                    $ 1.51      (286,987)
           Forfeited and cancelled                      $ 2.77      (281,869)
           ------------------------------------------------------------------
           Balance, December 31, 2010                   $ 2.69     5,823,377

           (a) As a result of the Reorganization, the existing 4,067,733
               incentive unit rights as of November 1, 2009, were exchanged
               for an equal number of common share options of Bellatrix with
               the same terms as to exercise price, vesting and expiry dates.
           (b) Exercise prices prior to the November 1, 2009 Reorganization
               reflect grant prices less reduction in exercise prices for
               rights issued under the Trust unit incentive plan.


           Share Options Outstanding, December 31, 2010
           ------------------------------------------------------------------
                           Outstanding                        Exercisable

                                              Weighted
                                 Weighted      Average
                            At    Average    Remaining         At
           Exercise    Dec. 31,  Exercise  Contractual    Dec. 31,  Exercise
            Price         2010      Price         Life       2010      Price
           ------------------------------------------------------------------
           $ 0.65 -
            $ 0.83     339,575     $ 0.69          3.3    104,856     $ 0.69
           $ 1.07 -
            $ 1.50     886,014     $ 1.36          3.3    280,635     $ 1.37
           $ 1.64 -
            $ 2.00   1,735,120     $ 1.88          3.3    660,074     $ 1.85
           $ 2.47 -
            $ 3.94   2,406,668     $ 3.64          3.9    365,334     $ 2.52
           $ 3.98 -
            $ 5.57     456,000     $ 4.88          1.8    396,500     $ 4.96
           ------------------------------------------------------------------
           ------------------------------------------------------------------
           $ 0.65 -
            $ 5.57   5,823,377     $ 2.69          3.5  1,807,399     $ 2.53
           ------------------------------------------------------------------
           ------------------------------------------------------------------

           Share Options Outstanding, December 31, 2009
           ------------------------------------------------------------------
                           Outstanding                        Exercisable

                                              Weighted
                                 Weighted      Average
                            At    Average    Remaining         At
           Exercise    Dec. 31,  Exercise  Contractual    Dec. 31,  Exercise
            Price         2009      Price         Life       2009      Price
           ------------------------------------------------------------------
           $ 0.65 -
            $ 0.83     459,641     $ 0.68          4.3          -          -
           $ 1.07 -
            $ 1.50   1,015,631     $ 1.35          4.3          -          -
           $ 1.64 -
            $ 2.00   1,847,628     $ 1.88          4.3     85,000     $ 1.70
           $ 2.47 -
            $ 3.94     445,833     $ 2.55          3.0    274,823     $ 2.52
           $ 3.98 -
            $ 5.57     445,000     $ 4.90          2.5    284,156     $ 4.93
           ------------------------------------------------------------------
           ------------------------------------------------------------------
           $ 0.65 -
            $ 5.57   4,213,733     $ 2.01          4.0    643,979     $ 3.47
           ------------------------------------------------------------------
           ------------------------------------------------------------------

        d. Employee Stock Savings Plan

           Effective October 1, 2006, the Company introduced an employee unit
           savings plan for the benefit of all employees. Effective
           November 1, 2009, with the Reorganization, the employee unit
           savings plan continued as the employee stock savings plan. Under
           the stock savings plan, employees may elect to contribute up to
           10 percent of their salary and contributions are used to fund the
           acquisition of common shares. The Company matches employee
           contributions at a rate of $1.00 for each $1.00 contributed up to
           5% of the employees' salary. Shares are purchased in the open
           market by the plan administrator, an investment firm, on behalf of
           the participants in the plan. For the year ended December 31,
           2010, the Company matched $0.2 million (2009 - $0.1 million) under
           the plan.

    11. CONTRIBUTED SURPLUS

        ---------------------------------------------------------------------
        ($000s)                                           2010          2009
        ---------------------------------------------------------------------
        Balance, beginning of year                 $    28,232   $    28,240
        Share-based compensation expense                 2,452           812
        Adjustment of prior period share-based
         compensation expense for forfeitures
         of unvested share options                         (32)         (820)
        Transfer to share capital for exercised
         options                                          (126)            -
        ---------------------------------------------------------------------
        Balance, end of year                       $    30,526   $    28,232
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Share-based Compensation Expense

        During the year ended December 31, 2010, Bellatrix granted 2,178,500
        (2009: 3,295,800) share options. During the year ended December 31,
        2010, the Company recorded share-based compensation of $2.5 million
        (2009: $0.8 million), of which $0.8 million (2009: $0.2 million) was
        capitalized to property, plant and equipment.

        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, 2010 and 2009 and the assumptions used
        in their determination are as noted below:

        ---------------------------------------------------------------------
                                                          2010          2009
        ---------------------------------------------------------------------
        Assumptions:
          Risk free interest rate (%)                      1-3           2-3
          Expected life (years)                            3-5             5
          Expected volatility (%)                        68-75        69-104
        ---------------------------------------------------------------------
        Results:
          Weighted average fair value of each
           share option granted                         $ 1.99        $ 0.31
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    12. SUPPLEMENTAL CASH FLOW INFORMATION

        Cash Interest and Taxes Paid
        ---------------------------------------------------------------------
        ($000s)                                           2010          2009
        ---------------------------------------------------------------------

        Cash paid:
          Interest                                 $     4,675   $    10,104
          Taxes (net of refunds)                   $         -   $      (272)
        ---------------------------------------------------------------------

        Change in Non-cash Working Capital
        ---------------------------------------------------------------------
        ($000s)                                           2010          2009
        ---------------------------------------------------------------------
        Changes in non-cash working capital items:
          Accounts receivable                      $   (18,778)  $     7,397
          Deposits and prepaid expenses                    321         1,029
          Accounts payable and accrued liabilities      19,447       (10,783)
          Distributions payable                              -        (1,570)
        ---------------------------------------------------------------------
                                                   $       990   $    (3,927)
        ---------------------------------------------------------------------
        Changes related to:
          Operating activities                     $    (2,347)  $    (3,844)
          Financing activities                             493        (1,584)
          Investing activities                           2,844         1,501
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
                                                   $       990   $    (3,927)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    13. 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.

        True was a mutual fund trust as defined under the Income Tax Act
        (Canada). All taxable income earned by the Trust prior to the
        Reorganization was allocated to unitholders and such allocations were
        deducted for income tax purposes.

        Future income 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, 2010, Bellatrix has approximately $449 million in tax
        pools available for deduction against future income. Included in this
        tax basis are estimated non-capital loss carry forwards of
        approximately $0.3 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 28.05% (2009: 29.39%) to loss before taxes. This
        difference results from the following items:

        ---------------------------------------------------------------------

        Years ended December 31 ($000s)                   2010          2009
        ---------------------------------------------------------------------
        Expected income tax recovery               $   (10,014)  $   (50,421)
        Distributions deducted for tax purposes              -          (575)
        Share based compensation expense                   454           (47)
        Change in tax rates                              1,240         6,746
        Other                                              152          (151)
        ---------------------------------------------------------------------
        Future income tax recovery                 $    (8,168)  $   (44,448)
        ---------------------------------------------------------------------

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

        ---------------------------------------------------------------------
        ($000s)                                           2010          2009
        ---------------------------------------------------------------------
        Future income tax liabilities:
          Petroleum and natural gas properties     $    (1,021)  $   (10,306)
          Commodity contract asset                           -          (958)
        Future income tax assets:
          Future site restoration/asset
           retirement obligation                         6,907         6,652
          Share issue costs                                753            58
          Capital lease                                    399             -
          Commodity contract liability                     989             -
          Non-capital losses                                79         3,728
          Attributed Canadian Royalty Income             1,209         1,209
          Other                                             25            25
        ---------------------------------------------------------------------
        Net future income tax asset                $     9,340   $       408
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    14. PER SHARE AMOUNTS

        ---------------------------------------------------------------------
                                                          2010          2009
        ---------------------------------------------------------------------
        Basic common shares outstanding, as at
         December 31                                97,446,026    78,809,039

        Dilutive effect of:

          Share options outstanding                  5,823,377     4,213,733

          Shares issuable for convertible
           debentures                                9,821,429     5,305,250
        ---------------------------------------------------------------------
        Diluted common shares outstanding          113,090,832    88,328,022
        ---------------------------------------------------------------------
        Weighted average shares outstanding         93,286,554    78,548,800
        Dilutive effect of exchangeable shares,
         share options and convertible debentures(1)         -             -
        ---------------------------------------------------------------------
        Diluted weighted average shares
         outstanding                                93,286,554    78,548,800
        ---------------------------------------------------------------------

        (1) A total of 5,823,377 (2009: 4,213,733) share options and
            9,821,429 (2009: 5,305.250) common shares issuable pursuant to
            the conversion of convertible debentures were excluded from the
            calculation for the year ended December 31, 2010 as they were not
            dilutive.

    15. RELATED PARTY TRANSACTIONS

        During the year ended December 31, 2010, the Company incurred fees of
        $0.6 million (2009: $1.1 million) for legal services provided by a
        firm in which a director and corporate secretary is a partner. The
        services provided were made in the normal course of operations, on
        commercial terms, and therefore were recorded at the exchange amount.
        As at December 31, 2010, an amount due to this firm of $0.1 million
        was included in accounts payable (2009: $0.1 million).

    16. 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 is as follows:

        ---------------------------------------------------------------------
        ($000s)                            Gross      Expected
         Year                             Amount    Recoveries    Net amount
        ---------------------------------------------------------------------
         2011                        $     2,192   $     1,027   $     1,165
         2012                              2,203         1,062         1,141
         2013                              2,218         1,103         1,115
         2014                              1,469           753           716
        ---------------------------------------------------------------------

        As at December 31, 2010, the Company had committed to drill 9 gross
        (4.7 net) wells pursuant to farm-in agreements. Bellatrix expects to
        satisfy this drilling commitment at an estimated cost of
        approximately $12.9 million. On February 1, 2011, the Company entered
        into a joint venture agreement which includes a minimum commitment
        for Bellatrix to drill 3 gross (3.0 net) wells per year for 2011 to
        2015 for a total estimated cost of approximately $52.5 million.

        As a result of the issuance of the Flow-Through shares on August 12,
        2010, Bellatrix is committed to incur approximately $20.0 million in
        qualifying Canadian Exploration Expenses on or before December 31,
        2011.

    17. FINANCIAL RISK MANAGEMENT

        a. Overview

           The Company has exposure to the following risks from its use of
           financial instruments:

           -   Credit risk
           -   Liquidity risk
           -   Market risk

           This note presents information about the Company's exposure to
           each of the above risks, the Company's objectives, policies and
           processes for measuring and managing risk, and the Company's
           management of capital. Further quantitative disclosures are
           included throughout these financial statements.

           The Board of Directors has overall responsibility for the
           establishment and oversight of the Company's risk management
           framework. The Board has implemented and monitors compliance with
           risk management policies.

           The Company's risk management policies are established to identify
           and analyze the risks faced by the Company, to set appropriate
           risk limits and controls, and to monitor risks and adherence to
           market conditions and the Company's activities.

        b. Credit risk

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

           A substantial portion of the Company's accounts receivable are
           with customers and joint interest partners in the petroleum and
           natural gas industry and are subject to standard industry credit
           risks. The Company sells substantially all of its production to
           five primary purchasers under normal industry sale and payment
           terms. Purchasers of the Company's natural gas, crude oil and
           natural gas liquids are subject to an internal credit review to
           minimize the risk of non-payment.

           The Company has continued to closely monitor and reassess the
           creditworthiness of its counterparties, including financial
           institutions. This has resulted in the Company reducing or
           mitigating its exposures to certain counterparties where it is
           deemed warranted and permitted under contractual terms.

           Receivables from petroleum and natural gas marketers are normally
           collected on the 25th day of the month following production. The
           Company's policy to mitigate credit risk associated with these
           balances is to establish marketing relationships with a range of
           medium to large purchasers and to conduct credit reviews of these
           parties on a regular basis. Joint venture receivables are
           typically collected within one to three months of the joint
           venture bill being issued to the partner. The Company attempts to
           mitigate the risk from joint venture receivables by obtaining
           partner approval of significant capital expenditures prior to
           expenditure. However, the receivables are from participants in the
           petroleum and natural gas sector, and collection of the
           outstanding balances is dependent on industry factors such as
           commodity price fluctuations, escalating costs and the risk of
           unsuccessful drilling, in addition further risk exists with joint
           venture partners as disagreements occasionally arise that increase
           the potential for non-collection. The Company does not typically
           obtain collateral from petroleum and natural gas marketers or
           joint venture partners; however, in certain instances the Company
           does have the ability to withhold production from joint venture
           partners in the event of non-payment. Bellatrix recorded a
           $0.3 million provision for uncollectible accounts for the year
           ended December 31, 2010 (2009: $1.4 million).

           As at December 31, 2010, accounts receivable was comprised of the
           following:

           ------------------------------------------------------------------
                                    Not past due      Past due
                                      (less than      (90 days
           Aging ($000s)                 90 days)      or more)        Total
           ------------------------------------------------------------------
           Joint venture and
            other trade accounts
            receivable                    14,095         2,587        16,682
           Amounts due from
            government agencies              901         2,193         3,094
           Revenue and other accruals     15,477           442        15,919
           Cash call receivables              14         2,183         2,197
           Plant revenue allocation
            receivable                         -         2,855         2,855
           Less: Allowance for
            doubtful accounts                  -        (1,247)       (1,247)
           ------------------------------------------------------------------
           Total accounts receivable      30,487         9,013        39,500
           ------------------------------------------------------------------
           Less:
           Accounts payable due to
            same partners                 (1,101)         (461)       (1,562)
           Subsequent receipts           (19,788)       (1,599)      (21,387)
           ------------------------------------------------------------------
                                           9,598         6,953        16,551
           ------------------------------------------------------------------

           Amounts due from government agencies include drilling incentive
           credits, GST and royalty and other adjustments. During the year
           ended December 31, 2010, the Company has collected $3.3 million
           attributable to drilling incentive credits. Plant revenue
           allocation receivable includes amounts under dispute over plant
           revenue allocations, net of expenses, from an operator. The
           Company has commenced legal action for collection of these
           amounts. Accounts payable due to same partners includes amounts
           which may be available for offset against certain receivables.

           Cash calls receivables consist of advances paid to joint interest
           partners for capital projects.

           The carrying amount of accounts receivable and derivative assets
           represents the maximum credit exposure. The Company has an
           allowance for doubtful accounts as at December 31, 2010 of
           $1.2 million.

        c. Liquidity risk

           Liquidity risk is the risk that the Company will not be able to
           meet its financial obligations as they are due. The Company's
           approach to managing liquidity is to make reasonable efforts to
           sustain sufficient liquidity to meet its liabilities when due,
           under both normal and stressed conditions without incurring
           unacceptable losses or risking harm to the Company's reputation.

           The Company prepares annual capital expenditure budgets which are
           regularly monitored and updated as necessary. Further, the Company
           utilizes authorizations for expenditures on both operated and non-
           operated projects to further manage capital expenditures. To
           facilitate the capital expenditure program, the Company has a
           revolving reserve based credit facility, as outlined in note 5,
           which is reviewed at least annually by the lender. The Company
           attempts to match its payment cycle with collection of petroleum
           and natural gas revenues on the 25th of each month. The Company
           also mitigates liquidity risk by maintaining an insurance program
           to minimize exposure to insurable losses.

           The following are the contractual maturities of financial
           liabilities as at December 31, 2010:

           ------------------------------------------------------------------
           Financial
            liability       less than
            ($000s)            1 Year    1-2 Years    2-5 Years   Thereafter
           ------------------------------------------------------------------
           Accounts
            payable and
            accrued
            liabili-
            ties(1)       $    42,792  $         -  $         -  $         -
           Bank debt -
            principal(2)            -       41,172            -            -
           Convertible
            debentures
            - principal             -            -       55,000            -
           Convertible
            debentures
            - interest(3)       2,613        2,620        6,084            -
           Capital lease
            obligation            379          363          991        1,516
           ------------------------------------------------------------------
           Total          $    45,784  $    44,155  $    62,075  $     1,516
           ------------------------------------------------------------------

           (1) As at December 31, 2010, $0.4 million of accrued coupon
               interest payable in relation to the 4.75% Debentures and
               $0.1 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.
           (3) The 4.75% Debentures outstanding at December 31, 2010 bear
               interest at a coupon rate of 4.75%, which currently requires
               total annual interest payments of $2.6 million.

           Interest due on the bank credit facilities is calculated based
           upon floating rates.

        d. Market risk

           Market risk is the risk that changes in market prices, such as
           foreign exchange rates, commodity prices, and interest rates will
           affect the Company's net earnings or the value of financial
           instruments. The objective of market risk management is to manage
           and control market risk exposures within acceptable limits, while
           maximizing returns.

           Foreign currency exchange rate risk

           Foreign currency exchange rate risk is the risk that the fair
           value of future cash flows will fluctuate as a result of changes
           in foreign exchange rates. Although substantially all of the
           Company's petroleum and natural gas sales are denominated in
           Canadian dollars, the underlying market prices in Canada for
           petroleum and natural gas are impacted by changes in the exchange
           rate between the Canadian and United States dollar. As at
           December 31, 2010, if the Canadian/US dollar exchange rate had
           decreased by US$0.01 with all other variables held constant, after
           tax net earnings for the year ended December 31, 2010 would have
           been approximately $0.6 million lower/higher. An equal and
           opposite impact would have occurred to net earnings had the
           Canadian/US dollar exchange rate increased by US$0.01.

           The Company had no forward exchange rate contracts in place as at
           or during the year ended December 31, 2010.

           Commodity price risk

           Commodity price risk is the risk that the fair value or future
           cash flows will fluctuate as a result of changes in commodity
           prices. Commodity prices for petroleum and natural gas are
           impacted by not only the relationship between the Canadian and
           United States dollar, as outlined above, but also world economic
           events that dictate the levels of supply and demand.

           The Company utilizes both financial derivatives and physical
           delivery sales contracts to manage commodity price risks. All such
           transactions are conducted in accordance with the commodity price
           risk management policy that has been approved by the Board of
           Directors.

           The Company's formal commodity price risk management policy
           permits management to use specified price risk management
           strategies including fixed price contracts, costless collars and
           the purchase of floor price options, other derivative financial
           instruments, and physical delivery sales contracts to reduce the
           impact of price volatility for a maximum of eighteen months beyond
           the current 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 cash flows from
           operating activities, as well as, to ensure Bellatrix realizes
           positive economic returns from its capital developments and
           acquisition activities.

           As at December 31, 2010, the Company had entered into commodity
           price risk management arrangements as follows:

    -------------------------------------------------------------------------
                                                    Price      Price
    Type                   Period       Volume      Floor     Ceiling   Index
    -------------------------------------------------------------------------
    Oil fixed     January 1, 2011
                 to Dec. 31, 2011  1,000 bbl/d  $88.18 CDN  $88.18 CDN    WTI
    Oil fixed     January 1, 2011
                 to Dec. 31, 2011    500 bbl/d  $89.00 CDN  $89.00 CDN    WTI
    Oil fixed     January 1, 2011
                 to Dec. 31, 2011    500 bbl/d  $ 89.10 US  $ 89.10 US    WTI
    -------------------------------------------------------------------------

           Subsequent to December 31, 2010, the Company entered into
           commodity price risk management arrangements as follows:

    -------------------------------------------------------------------------
                                                    Price      Price
    Type                   Period       Volume      Floor     Ceiling   Index
    -------------------------------------------------------------------------
    Oil fixed    February 1, 2011
                 to Dec. 31, 2011    500 bbl/d  $ 95.00 US  $ 95.00 US    WTI
    Oil fixed       March 1, 2011
                 to Dec. 31, 2011    500 bbl/d  $ 97.50 US  $ 97.50 US    WTI
    Natural gas     April 1, 2011
     fixed       to Oct. 31, 2011   5,000 GJ/d  $ 3.87 CDN  $ 3.87 CDN   AECO
    Natural gas     April 1, 2011
     fixed       to Oct. 31, 2011   5,000 GJ/d  $ 3.65 CDN  $ 3.65 CDN   AECO
    Natural gas     April 1, 2011
     fixed       to Oct. 31, 2011   5,000 GJ/d  $3.805 CDN  $3.805 CDN   AECO
    Natural gas     April 1, 2011
     fixed       to Oct. 31, 2011   5,000 GJ/d  $ 3.80 CDN  $ 3.80 CDN   AECO
    -------------------------------------------------------------------------

           For the years ended December 31, 2010 and 2009, the gain (loss) on
           commodity contracts was comprised of the following:

           ------------------------------------------------------------------

           ($000s)                                        2010          2009
           ------------------------------------------------------------------

           Gain (loss) on commodity contracts
             Realized(1)                           $    15,388   $    17,746
             Unrealized(2)                              (7,106)         (352)
           ------------------------------------------------------------------
                                                   $     8,282   $    17,394
           ------------------------------------------------------------------

           (1) Realized gains and losses on commodity contracts represent
               actual cash settlements and other amounts paid under these
               contracts.
           (2) Unrealized gains and losses on commodity contracts represent
               non-cash adjustments for changes in the fair value of these
               contracts during the period.

           As at December 31, 2010, if oil and natural gas liquids prices had
           been US$1 per barrel and natural gas prices $0.10 per mcf lower,
           with all other variables held constant, after tax net earnings for
           the year ended December 31, 2010 would have been approximately
           $1.6 million lower. An equal and opposite impact would have
           occurred to net earnings had oil and natural gas liquids prices
           been US$1 per barrel and natural gas $0.10 per mcf higher.

           Interest rate risk

           Interest rate risk is the risk that future cash flows will
           fluctuate as a result of changes in market interest rates. The
           Company is exposed to interest rate fluctuations on its bank debt
           which bears a floating rate of interest. As at December 31, 2010,
           if interest rates had been 1% lower with all other variables held
           constant, after tax net earnings for the year ended December 31,
           2010 would have been approximately $0.3 million higher, due to
           lower interest expense. An equal and opposite impact would have
           occurred to net earnings had interest rates been 1% higher.

           The Company had no interest rate swap or financial contracts in
           place as at or during the year ended December 31, 2010.

        e. Capital management

           The Company's policy is to maintain a strong capital base so as to
           maintain investor, creditor and market confidence and to sustain
           the future development of the business. The Company manages its
           capital structure and makes adjustments to it in the light of
           changes in economic conditions and the risk characteristics of the
           underlying petroleum and natural gas assets. The Company considers
           its capital structure to include shareholders' equity, bank debt,
           convertible debentures and working capital. In order to maintain
           or adjust the capital structure, the Company may from time to time
           issue common shares, issue convertible debentures, adjust its
           capital spending, and/or dispose of certain assets to manage
           current and projected debt levels

           The Company monitors capital based on the ratio of total net debt
           to annualized funds flow (the "ratio"). This ratio is calculated
           as total net debt, defined as outstanding bank debt, plus the
           liability component of convertible debentures, plus or minus
           working capital (excluding commodity contract assets and
           liabilities and future income tax assets or liabilities), divided
           by funds flow from operations (cash flow from operating activities
           before realization of imputed interest costs on 7.5% Debentures,
           changes in non-cash working capital and deductions for asset
           retirement costs) for the most recent calendar quarter, annualized
           (multiplied by four). The total net debt to annualized funds flow
           ratio may increase at certain times as a result of acquisitions,
           fluctuations in commodity prices, timing of capital expenditures
           and other factors. In order to facilitate the management of this
           ratio, the Company prepares annual capital expenditure budgets
           which are reviewed and updated as necessary depending on varying
           factors including current and forecast prices, successful capital
           deployment and general industry conditions. The annual and updated
           budgets are approved by the Board of Directors. Bellatrix does not
           pay dividends.

           In January 2010 (note 10), the Company closed an equity issuance
           on a bought deal basis to further Bellatrix's financial
           flexibility. On April 20, 2010 (note 6), the Company closed an
           offering of $55 million of 4.75% Debentures on a bought deal basis
           in order to facilitate the redemption of the Company's 7.5%
           Debentures. On August 12, 2010 (note 10), Bellatrix issued
           $20.0 million of Flow-Through shares on a bought deal private
           placement basis. The Company plans to continue to monitor
           forecasted debt levels to manage its operations within forecasted
           funds flow. Bellatrix expects the total net debt to annualized
           funds flow ratio to reflect its strategic accomplishments in
           reducing the Company's total net debt while funds flow are exposed
           to the current volatile economic environment.

           The Company's long-term strategy is to target a total net debt to
           annualized funds flow ratio of 1.2 times. As at December 31, 2010,
           the Company's ratio of total net debt to annualized funds flow
           based on fourth quarter results was 1.4 times. The total net debt
           to annualized funds flow ratio as at December 31, 2010 decreased
           from that at December 31, 2009 of 3.5 times due to a reduction of
           the Company's convertible debenture indebtedness and higher
           annualized funds flow from operations, offset slightly by higher
           long-term debt. Bellatrix continues to take a balanced approach to
           the priority use of funds flows. The 4.75% Debentures have a
           maturity date of April 30, 2015. Upon maturity, the Company may
           settle the principal in cash or issuance of additional common
           shares.

           Excluding Debentures, net debt to annualized funds flow based on
           fourth quarter results was 0.6 times.

           Bellatrix's capital structure and calculation of total net debt
           and total net debt to funds flow ratios as defined by the Company
           is as follows:

           ------------------------------------------------------------------
                                                     Years ended December 31,
           ($000s, except where noted)                    2010          2009
           ------------------------------------------------------------------

           Shareholders' equity                        322,789       281,351

           Long-term debt                               41,172        27,902
           Convertible debentures (liability
            component)                                  47,599        81,684
           Working capital surplus                      (1,327)       (2,317)
           ------------------------------------------------------------------
           Total net debt(1) at year end                87,444       107,269


           Debt to funds flow from operations
            ratio (annualized)(2)
           Funds flow from operations (annualized)      63,568        30,724
           Total net debt(1) to periods funds flow
            from operations ratio (annualized)            1.4x          3.5x

           Net debt(1) (excluding convertible
            debentures) at quarter end                  39,845        25,585
           Net debt to periods funds flow from
            operations ratio (annualized)                 0.6x          0.8x

           Debt to funds flow from operations ratio
           Funds flow from operations for the year      53,042        36,025
           Total net debt(1) to funds flow from
            operations for the year                       1.6x          3.0x

           Net debt(1) (excluding convertible
            debentures) to funds flow from
            operations for the year                       0.8x          0.7x
           ------------------------------------------------------------------

           (1) Net debt and total net debt are non-GAAP terms. Net debt
               includes the net working capital deficiency (excess) before
               short-term commodity contract assets and liabilities, current
               capital lease obligation and short-term future income tax
               assets and liabilities. Total net debt also includes the
               liability component of convertible debentures and excludes
               capital lease obligation, asset retirement obligations and the
               future income tax liability.
           (2) Debt to funds flow from operations ratio annualized is
               calculated based upon fourth quarter funds flow from
               operations annualized.

           The Company's credit facility is based on petroleum and natural
           gas reserves (see note 5). The credit facility outlines
           limitations on percentages of forecasted production, from external
           reserve engineer data, which may be hedged through financial
           commodity price risk management contracts.

        f. Fair value of financial instruments

           The Company's financial instruments as at December 31, 2010
           include accounts receivable, deposits, commodity contract asset,
           accounts payable and accrued liabilities, long-term debt,
           convertible debentures and capital lease obligation. The fair
           value of accounts receivable, deposits, accounts payable, accrued
           liabilities and capital lease obligation approximate their
           carrying amounts due to their short-terms to maturity.

           The fair value of commodity contracts is determined by discounting
           the difference between the contracted price and published forward
           price curves as at the balance sheet date, using the remaining
           contracted petroleum and natural gas volumes. The fair value of
           commodity contracts as at December 31, 2010 was a liability of
           $3.7 million compared to an asset of $3.4 million in 2009. The
           commodity contracts are classified as level 2 within the fair
           value hierarchy.

           Long-term bank debt bears interest at a floating market rate and
           the credit and market premiums therein are indicative of current
           rates; accordingly the fair market value approximates the carrying
           value.

           The fair value of the 4.75% Debentures of $56.9 million is based
           on exchange traded values. The convertible debentures are
           classified as level 1 within the fair value hierarchy.

    ADDITIONAL INFORMATION

    Oil and Gas Working Interest(1) Gross Reserves
    -------------------------------------------------------------------------

    Reconciliation of Proved Reserves(2)
    -------------------------------------------------------------------------
                            Crude oil     Coal bed      Natural   Equivalent
                                & NGL      methane          gas        units
                                (mbbl)       (mmcf)       (mmcf)       (mboe)
    -------------------------------------------------------------------------
    December 31, 2009           4,803        1,518       68,613       16,492
    Revision of previous
     estimates                   (337)         323          668         (172)
    Discoveries, extensions,
     infill drilling and
     improved recovery          6,911            1       33,057       12,421
    Dispositions, net of
     acquisitions                (943)           -          740         (820)
    Production                   (923)        (211)     (12,724)      (3,079)
    -------------------------------------------------------------------------
    December 31, 2010           9,511        1,632       90,353       24,842
    -------------------------------------------------------------------------

    Proved plus probable
     reserves
    December 31, 2010          17,063        1,991      150,284       42,442
    December 31, 2009           7,096        1,950      109,976       25,750
    -------------------------------------------------------------------------

    (1) "Working interest" refers to Bellatrix's working interest (operated
        or non-operated) share before deduction of royalties and without
        including any royalty interests of Bellatrix. Also referred to as
        "gross" under National Instrument 51-101 ("NI 51-101"). May not add
        due to rounding.
    (2) Based on forecast prices.

    Finding, Development and Acquisition Costs ("FD&A")
    -------------------------------------------------------------------------

    ($/boe)
    -------------------------------------------------------------------------
                                                                   2008-2010
                                              2010         2009      Average
    -------------------------------------------------------------------------
    Proved (excluding FDC)                    8.47         6.01         9.42
    Proved (including FDC)                   15.94         8.61        15.46

    Proved plus probable (excluding FDC)      4.96         6.90         6.58
    Proved plus probable (including FDC)     12.89         5.93        13.36
    -------------------------------------------------------------------------

NI 51-101 specifies how finding and development costs ("FDC") should be calculated if they are reported. Essentially NI 51-101 requires that the exploration and development costs incurred in the year along with the change in estimated FDC be aggregated and then divided by the applicable reserve additions. The calculation specifically excludes the effects of acquisitions and dispositions on both reserves and costs. By excluding the effects of acquisitions and dispositions Bellatrix believes that the provisions of the NI 51-101 do not fully reflect Bellatrix's ongoing reserve replacement costs. Since acquisitions can have a significant impact on Bellatrix's annual reserve replacement costs, excluding these amounts could result in an inaccurate portrayal of Bellatrix's cost structure. Accordingly, Bellatrix also provides FD&A costs that incorporate all acquisitions and excludes dispositions during the year. Finding and development costs disclosed herein is based on working interest gross reserves.

The aggregate of the exploration and development costs incurred in the most recent financial year and the change during that year in estimated future development costs generally will not reflect total F&D costs related to reserve additions for that year.

Finding and development costs, excluding FDC, for proved reserves, were $8.47/boe and $6.01/boe in 2010 and 2009, respectively (proved plus probable - $4.96/boe in 2010 and $6.90/boe in 2009) and $9.42/boe on a three year average (proved plus probable $6.58/boe).

The net present value of future net revenue of reserves do not represent fair market value.

The Company's corporate presentation is available at www.bellatrixexploration.com.

Bellatrix Exploration Ltd. 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. Common shares and convertible debentures of Bellatrix trade on the Toronto Stock Exchange ("TSX") under the symbols BXE and BXE.DB.A, respectively.

Bellatrix Exploration Ltd.
1920, 800 5th Avenue SW
Calgary, Alberta T2P 3T6
Main: 403-266-8670
Fax: 403-264-8163
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Bellatrix Exploration
Investor Relations
investor.relations@bxe.com
Emergency Contact
1-403-266-8670