Bellatrix Exploration Ltd. announces second quarter 2010 financial results

TSX: BXE

CALGARY, Aug. 5 /CNW/ - (TSX: BXE) Bellatrix Exploration Ltd. ("Bellatrix" or the "Company") announces its financial and operating results for the three and six months ended June 30, 2010.

Forward-Looking Statements

This press release contains forward-looking statements. Please refer to our disclaimer on forward-looking statements set forth at the beginning of the management's discussion and analysis attached to this press release.

    
                                 HIGHLIGHTS

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                        Three months ended June 30, Six months ended June 30,
                                 2010         2009         2010         2009
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    FINANCIAL (unaudited)

    (CDN$000s except share
     and per share amounts)

    Revenue (before
     royalties and risk
     management(1))            25,574       29,805       52,503       61,150
    Funds flow from
     operations (2)            10,610       10,765       20,808       17,254
      Per basic share           $0.11        $0.14        $0.23        $0.22
      Per diluted share (5)     $0.11        $0.14        $0.23        $0.22
    Cash flow from operating
     activities                 6,065        6,467       19,521       15,778
      Per basic share           $0.07        $0.08        $0.22        $0.20
      Per diluted share         $0.07        $0.08        $0.22        $0.20
    Net loss                  (10,812)     (99,715)     (10,805)    (108,771)
      Per basic share          $(0.12)      $(1.27)      $(0.12)     $(1.39)
      Per diluted share(5)     $(0.12)      $(1.27)      $(0.12)     $(1.39)
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    Exploration and
     development               15,096        1,028       33,407       3,556
    Corporate and property
     acquisitions               3,187          123        3,222         351
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    Capital expenditures
     - cash                    18,283        1,151       36,629       3,907
    Property dispositions
     - cash                      (627)      (8,289)        (580)     (8,281)
    Other - non-cash            1,376       (1,107)       1,664      (1,221)
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    Total capital
     expenditures - net        19,032       (8,245)      37,713      (5,595)
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    Long-term debt             34,401      120,205       34,401     120,205
    Convertible
     debentures(3)             46,906       82,075       46,906      82,075
    Working capital (excess)
     deficiency(3)                (11)      (5,563)         (11)      (5,563)
    -------------------------------------------------------------------------
    Total net debt(3)          81,296      196,717       81,296      196,717
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    Total assets              456,644      562,854      456,644      562,854
    Shareholders' equity      318,637      296,443      318,637      296,443
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    OPERATING           Three months ended June 30, Six months ended June 30,
                                 2010         2009         2010         2009
    -------------------------------------------------------------------------
    Daily sales
     volumes
      Crude oil,
       condensate
       and NGLs   (bbls/d)      2,076        3,816        1,992        3,821
      Natural gas  (mcf/d)     33,570       35,703       32,811       36,312
      Total oil
       equivalent  (boe/d)      7,671        9,767        7,461        9,873
    Average prices
      Crude oil,
       condensate
       and NGLs    ($/bbl)      65.66        53.55        66.16        45.16
      Crude oil,
       condensate
       and NGLs
       (including
       risk manage-
       ment(1))    ($/bbl)      66.73        53.55        66.72        45.16
      Natural gas  ($/mcf)       4.15         3.40         4.65         4.42
      Natural gas
       (including
       risk manage-
       ment(1))    ($/mcf)       5.43         5.18         5.72         5.70
      Total oil
       equivalent  ($/boe)      35.92        33.34        38.11        33.72
      Total oil
       equivalent
       (including
       risk manage-
       ment(1))    ($/boe)      41.81        39.85        42.99        38.43

    Statistics
      Operating
       netback(4)  ($/boe)      14.67        12.52        16.18        11.16
      Operating
       netback(4)
       (including
       risk manage-
       ment(1))    ($/boe)      20.56        19.03        21.07        15.87
      Transporta-
       tion        ($/boe)       1.26         1.42         1.25         1.58
      Production
       expenses    ($/boe)      13.00        13.41        13.18        14.47
      General &
       administra-
       tive        ($/boe)       3.89         2.90         3.89         3.03
      Royalties as
       a % of sales
       after
       transportation             20%          19%          20%          20%
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    COMMON SHARES(6)
    Common shares
     outstanding           92,483,866   78,496,581   92,483,866   78,496,581
    Share options
     outstanding            6,159,872    4,234,632    6,159,872    4,234,632
    Trust units
     issuable for
     exchangeable
     shares                         -      312,467            -      312,467
    Shares issuable
     for convertible
     debentures(7)          9,821,429    5,390,625    9,821,429    5,390,625
    -------------------------------------------------------------------------
    Diluted common
     shares outstanding   108,456,167   88,434,305  108,456,167   88,434,305
    Diluted weighted
     average shares(5)     92,481,374   78,496,581   90,358,879   78,496,581

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    SHARE TRADING
     STATISTICS(6)

    (CDN$, except
     volumes) based on
     intra-day trading

    High                         4.04         1.08         4.60         1.56
    Low                          2.53         0.66         2.53         0.48
    Close                        3.07         0.77         3.07         0.77
    Average daily volume      552,749      123,853      725,975      147,289
    -------------------------------------------------------------------------
    (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 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 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.

    (5) In computing weighted average diluted earnings per share and weighted
        average diluted funds flow from operations for the three and six
        month period ended June 30, 2010, a total of 6,159,872 (2009:
        4,234,632) share options, nil (2009: 312,467) exchangeable shares and
        9,821,428 (2009: 5,390,625) common shares issuable on conversion of
        convertible debentures were excluded from the calculation as they
        were not dilutive.

    (6) Reference to "common shares" or "shares" includes "trust units" or
        "units" of True Energy Trust and a reference to "share options"
        includes a reference to "incentive rights" prior to the
        reorganization of True Energy Trust into the Corporation effective
        November 1, 2009, unless the context otherwise requires.

    (7) Shares issuable for 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
    

Bellatrix is a mega sun, noctilucous by nature, which serves as Orion's left shoulder, was named after Gamma Orionis known as the hunter and is one of the brightest stars in the sky. Bellatrix the Company is also a hunter demonstrating its penchant for growth utilizing the drill bit driven by a solid technical team skilled at full cycle exploration.

Throughout the first half of 2010, Bellatrix remained primarily focused on the cornerstone drivers of value creation for the Company: the Cardium light oil and Notikewin liquids rich gas horizontal drilling projects located in West Central Alberta. In reaction to the prolonged weak natural gas pricing in North America the Company plans to increase its concentration on the oil side of our business by doubling the number of Cardium wells drilled in the second half as compared to the first half of 2010. The first half of this fiscal year was punctuated by the following achievements:

    
    -   96% drilling success realized on 25 gross wells

    -   production increased 20% from Q4 2009 to Q2 2010

    -   increased land holdings on the Cardium and Notikewin play trends by
        16 gross (8.24 net) sections

    -   drilling inventory in the Cardium increased to 340 net locations and
        60 net locations in the Notikewin

    -   closed a $45 million equity offering ($3.30 per share) on January 28,
        2010

    -   closed a $55 million debenture offering on April 20, 2010

    -   entered into a bought deal flow through share financing for
        $20 million ($4.25 per share) on July 21, 2010

    -   acquired 55 boe/d and 8 km of pipeline with infrastructure for
        $3.2 million to alleviate pipeline bottlenecks

    -   July field production averaged 8,100 boe/d and exiting July at
        8,600 boe/d

    -   total net debt of $81.3 million at the end of Q2

    -   54% of natural gas production hedged at $6.56/mcf for calendar year
        2010

    -   500 bbls/d protected by a costless collar of $75.00/bbl X $101.15/bbl

    -   500 bbls/d protected by way of a fixed price swap of $91.76/bbl
    

In the first half of 2010 the Company drilled a total of 25 gross (14.74 net) wells resulting in 18 gross (9.45 net) oil wells and 6 gross (4.29 net) gas wells with 1 gross and net dry hole establishing a 96 percent drill bit success rate. Despite the extremely wet breakup period experienced during the second quarter of 2010, Bellatrix drilled and/or participated in 11 gross (6.69 net) wells resulting in 4 gross (2.16 net) Cardium light wells including 3 in West Pembina and 1 in the Lodgepole area, 2 gross (0.28 net) Frog Lake McLaren heavy oil wells, 1 gross and net heavy oil well at Mantario, 3 gross (2.24 net) Notikewin horizontal gas wells in Ferrier, Brazeau and West Pembina with 1 dry hole at Mantario. As at August 1, five of these wells were in the process of being completed and tied in.

The Company continues to optimize its drilling completion techniques on our horizontal wells in an effort to maximize productivity and ultimate resource recovery. Initial horizontal wells in both the Cardium and Notikewin were drilled with approximately 1,000 m horizontal legs and stimulated with 6 fracture treatments. The horizontal wells drilled in Q2 are being extended to optimal length encountering up to 1,400 m horizontal legs where ownership and reservoir configuration allow and are being fracture stimulated with up to 20 stages. Early results are demonstrating superior IP's with lower initial decline rates in the optimized wells. That said, there will still be a normal distribution to the well results because of inherent reservoir heterogeneity.

At Ferrier, for example, the Company drilled its fourth successful Notikewin horizontal gas well (67% WI) to a total depth of 4,006 meters; horizontal length was 1,367 meters. The well was fracture stimulated in 17 stages and had an initial gross gas test rate of 16 mmcf/d at 3,200 psi flowing tubing pressure following recovery of nitrogen load gas. Bellatrix tied the well in and it was placed on production in early June at an initial restricted rate of 2.5 mmcf/d with 35 to 40 bbls of liquids per mmcf. On June 21, the well was opened to 10 mmcf/d and has not shown any rate decline as of the date hereof.

The remaining two Q2 Notikewin wells are being completed this week.

Of the aforementioned 4 Cardium wells drilled in the second quarter only one well has been completed and placed on production at 350 boe/d (one week IP post load fluid recovery) with the remaining 3 at various stages of completion. The four wells range in horizontal length from 993 m to 1,382 m and will be completed with 15 to 20 fracture stimulations as compared to the Q1 wells which were 900 m to 1,300 m in horizontal length and received between 6 and 12 fracture treatments.

At Mantario, Bellatrix drilled and completed two 100% WI McLaren heavy oil wells, at depths of 905 and 915 meters; the first well was completed and placed on production at an initial rate of 125 bopd; the second well was dry and abandoned. The Company has an inventory of an additional 14 drilling locations at Mantario.

Bellatrix continues to develop a stronger presence in the prolific oil and liquids rich gas focus in the Cardium and Notikewin zones at Ferrier and Pembina. The Company has increased its land holdings by over 16.25 gross (7.66 net) sections in the quarter and acquired a strategic length of pipeline that opens additional production capacity for future gas development while relieving existing infrastructure bottlenecks in the area.

Specifically at Ferrier, the Company acquired 10.0 gross sections (3.25 net) of land with Notikewin gas potential under farm-in for a non-converting overriding royalty; we expect to spud the first of two commitment wells in August. At Lodgepole, the Company acquired 4.25 (3.41 net) sections of Cardium rights under farm-in for a non-converting overriding royalty and expects to spud the first Cardium horizontal commitment well in July/August.

At Brazeau, in May Bellatrix closed a $3.2 million acquisition which included approximately 55 boe/d of net production along with an interest in an additional two sections (0.74 net) of land and the acquisition of facilities and an 8 km section of pipeline.

For the three and six month periods ended June 30, 2010, Bellatrix spent $18.5 million and $39.4 million, respectively on capital projects, before drilling royalty credits, of its initial total 2010 $75 million capital expenditures budget. Subject to completion of the flow through share financing, our 2010 capital program has been increased to $95 million by expanding the Cardium development program.

During the second quarter of 2010, the Company issued $55 million of 4.75% convertible unsecured subordinated debentures (the "4.75% Debentures"). This facilitated repayment of the existing 7.5% convertible unsecured subordinated debentures (the "7.5% Debentures") and further improved our financial flexibility. Bellatrix deposited with Computershare Trust Company of Canada, the trustee (the "Trustee") for Bellatrix's other outstanding series of debentures, being the 7.5% Debentures due June 30, 2011, 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. 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. Proceeds from the issuance of the 4.75% 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.

On July 21, 2010, we announced that Bellatrix entered into an agreement with a syndicate of underwriters to issue, on a bought deal private placement basis, 4.71 million common shares on a flow through basis ("Flow Through Shares") at a price of $4.25 per Flow Through Share for aggregate gross proceeds of $20,017,500. Proceeds of the offering will be used to accelerate the Company's Cardium light oil exploration program by incurring expenditures eligible for Canadian exploration expenses that will be renounced to subscribers of the Flow Through Shares effective on or before December 31, 2010. Closing is expected to occur on or about August 12, 2010 and is subject to certain customary conditions including, but not limited to, the receipt of all necessary approvals including the approval of the Toronto Stock Exchange.

The Company is on track to fulfill its drilling goals for the remainder of 2010. Bellatrix expects to drill 29 additional gross wells (17.08 net) in the remaining quarters of 2010.

The Company's second half 2010 Cardium development program was resumed in late June following spring break up. The Company has spudded the first two of 20 gross (12.31 net) remaining planned 2010 operated and non-operated Cardium horizontal wells. The Cardium development program will expand on the Company's earlier successes at West Pembina, Lodgepole and Willesden Green.

Bellatrix plans to drill 8 gross (4.27 net) additional horizontal Notikewin wells in 2010 at Brazeau, Pembina and Willesden Green. The first two of these development wells are currently drilling.

At Frog Lake, Bellatrix plans to drill an additional heavy oil well at a 50% WI as follow up to 6 gross (0.83 net) McLaren heavy oil wells that were drilled and placed on production in the first half of 2010 that are producing at a gross average of 70 boe/d per well.

Second quarter 2010 sales volumes averaged 7,671 boe/d compared to 9,767 boe/d in the same period of 2009. Sales volumes for the six months ended June 30, 2010 averaged 7,461 boe/d compared to 9,873 boe/d for the same period in 2009. The reduction in average sales volume is due to natural production declines and the impact of dispositions totaling approximately 3,600 boe/d for the third and fourth quarter of 2009, offset by the additional production achieved through drilling success in the fourth quarter of 2009 and the first and second quarters of 2010. First quarter 2010 sales volumes averaged 7,248 boe/d.

For the three months ended June 30, 2010, natural gas revenues contributed approximately 51% of total petroleum and natural gas sales; the remaining was from crude oil and NGL sales.

Second quarter 2010 production was impacted by delays in bringing new wells on production due to a shortage of stimulation equipment and fracture fluids, early onset of road bans truncating our drilling program earlier than expected, unplanned plant outages and generally wet field conditions.

For the month of July, the Company is producing 1,317 bbls/d of crude oil, 759 bbls/d of natural gas liquids and 36.3 mmcf/d of natural gas yielding approximately 8,135 boe/d. Exiting the month of July, the Company has increased production to 8,600 boe/d.

FINANCIAL

Bellatrix's total net debt including the liability component of the convertible debentures, excluding unrealized commodity contract assets and liabilities, future income tax assets and liabilities and asset retirement obligations, as at June 30, 2010 was $81.3 million.

As at June 30, 2010, Bellatrix had approximately $34.4 million drawn on its extendible, revolving bank credit facility leaving approximately $50.6 million available. On June 8, 2010, Bellatrix executed an amending agreement with its banking syndicate that provided for the extension of the revolving period of its existing credit facility from June 29, 2010 to June 28, 2011. 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. Based on the current debt to cash flow ratio, interest is being charged at the lowest floating rate in the range. As previously reported, on March 31, 2010, the borrowing base level was confirmed at $85 million through to the next borrowing base determination on November 30, 2010.

Funds flow from operations for the 2010 second quarter was $10.6 million on gross sales of $25.6 million compared to funds flow from operations for the 2009 second quarter of $10.8 million on gross sales of $29.8 million. Funds flow from operations for six months ended June 30, 2010 was $20.8 million on gross sales of $52.5 million compared to funds flow from operations for the same period in 2009 of $17.3 million on gross sales of $61.2 million. In comparison, funds flow from operations for the first quarter of 2010 was $10.2 million on gross sales of $26.9 million.

The net loss for the 2010 second quarter was $10.8 million compared to a net loss of $99.7 million in the 2009 second quarter. The net loss for Q2 2009 was primarily the result of a non-cash accounting loss on petroleum and natural gas properties held for sale of $114.2 million. The Saskatchewan asset divestiture closed on July 30, 2009. In comparison, Bellatrix recorded income of $7 thousand for the three months ended March 31, 2010. The loss recorded in the second quarter of 2010 compared to the income in the first quarter of 2010 is primarily a consequence of a $10.4 million non-cash difference between a $7.3 million unrealized gain on commodity price risk management contracts in Q1 2010 compared to a $3.1 million unrealized loss on commodity price risk management contracts recorded in Q2 2010.

As an added layer of protection of its cash flows, the Company's 2010 commodity price risk management contracts provide price protection on approximately 54% of its annual estimated natural gas production for 2010 that is forward sold for an average of CDN$5.972/GJ ($6.56/mcf). In addition, the Company has a price ceiling in place for 2010 on 5,000 GJ/d or 14% of its estimated natural gas production for 2010 at an average price of CDN$8.05/GJ ($8.85/mcf). These percentages of price protection and the conversion from $/GJ to $/mcf are based upon on an estimated 2010 average corporate natural gas production of 32 mmcf/d and 39 MJ/m3 average heat content, respectively. In addition, 500 bbl/d of oil for calendar 2010 is protected by way of a costless collar of CDN$75.00 x CDN$101.15 and another 500 bbl/d of oil for the period of June 1 to December 31, 2010 is protected by way of a fixed price swap at CDN$91.76/bbl. Bellatrix recently added a crude oil fixed price swap for 1,000 bbl/d at CDN$88.18/bbl for calendar 2011. Bellatrix maintains an active commodity price risk management program focused on maintaining sufficient cash flow to fund its operations.

Bellatrix continues to be positioned with approximately 236,300 net acres of undeveloped land, with in excess of 640 exploitation drilling opportunities identified on 5 different play types representing over 10 years of drilling inventory, coupled with a dramatically improved balance sheet. After conducting a more in depth review the Company possesses up to 340 net drilling locations in the exciting Cardium oil play and 60 net Notikewin drilling locations in West Central Alberta.

Bellatrix is a company dedicated to "the pursuit of sustainable growth" for its stakeholders.

Raymond G. Smith, P. Eng.

President and CEO

August 5, 2010

    
                     MANAGEMENT'S DISCUSSION AND ANALYSIS
    

August 5, 2010 - 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 unaudited interim consolidated financial statements and selected notes for the three and six months ended June 30, 2010 and the audited consolidated financial statements of the Company for the years ended December 31, 2009 and 2008 and the related Management's Discussion and Analysis of financial results. This commentary is based on information available to, and is dated as of, August 5, 2010. 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. 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 2010 average production and exit rate, updating of ceiling test calculations, use of proceeds from equity and debenture financings, 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 operating expenses and general and administrative expenses, expected levels of revenues in 2010 compared to 2009, 2010 capital expenditures and the nature of capital expenditures and the timing and method of financing thereof and the completion of the Flow-Through Financing and the timing thereof and anticipated resultant increase in the Company's 2010 capital program, 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. 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; completion of the Flow-Through Financing; 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. 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.

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

Financings in 2010

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 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% 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. 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 Generally Accepted Accounting Principles ("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 for the six month period ended June 30, 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
    -------------------------------------------------------------------------
    

On July 21, 2010, Bellatrix entered into an agreement with a syndicate of underwriters to issue, on a bought deal private placement basis, 4,710,000 common shares on a flow through basis ("Flow Through Shares") at a price of $4.25 per Flow Through Share for aggregate gross proceeds of $20,017,500 (the "Flow-Through Financing"). Proceeds of the Flow-Through Financing will be used to accelerate the Company's Cardium light oil exploration program by incurring expenditures eligible for Canadian exploration expenses that will be renounced to subscribers of the Flow Through Shares effective on or before December 31, 2010. Closing of the Flow-Through Financing is expected to occur on or about August 12, 2010 and is subject to certain conditions including, but not limited to, the receipt of all necessary approvals including the approval of the Toronto Stock Exchange.

Second Quarter 2010 Financial and Operational Results

Sales Volumes

Sales volumes for the three months ended June 30, 2010 averaged 7,671 boe/d compared to 9,767 boe/d for the same period in 2009, representing a 21% decrease. In comparison, sales volumes for the first quarter of 2010 averaged 7,248 boe/d.

The decrease in average sales volumes from the second quarter 2009 to 2010 is due to natural production declines and the impact of dispositions totaling approximately 3,600 boe/d for the third and fourth quarter of 2009, offset by the additional production achieved through drilling success in the fourth quarter of 2009 and the first half of 2010.

Second quarter 2010 production was impacted by delays in bringing new wells on production due to a shortage of stimulation equipment and fracture fluids, early onset of road bans truncating our drilling program earlier than expected, unplanned plant outages and generally wet field conditions.

Sales Volumes

    
    -------------------------------------------------------------------------
                        Three months ended June 30, Six months ended June 30,
                                 2010         2009         2010         2009
    -------------------------------------------------------------------------

    Natural gas    (mcf/d)     33,570       35,703       32,811       36,312
    -------------------------------------------------------------------------

    Heavy oil     (bbls/d)        356        2,771          358        2,646
    Light oil and
     condensate   (bbls/d)      1,204          680        1,130          818
    NGLs          (bbls/d)        516          365          504          357
    -------------------------------------------------------------------------
    Total crude
     oil and NGLs (bbls/d)      2,076        3,816        1,992        3,821
    -------------------------------------------------------------------------
    Total boe/d      (6:1)      7,671        9,767        7,461        9,873
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

In the first half of 2010, Bellatrix drilled a total of 25 gross (14.74 net) wells resulting in 18 gross (9.45 net) oil wells, 6 gross (4.29 net) gas wells and 1 gross (1.0 net) dry hole, establishing a 96 percent drill bit success rate. In the three months ended June 30, 2010, Bellatrix drilled and/or participated in 11 gross (6.69 net) wells resulting in 4 gross (2.16 net) Cardium light wells including 3 in West Pembina and 1 in the Lodgepole area, 2 gross (0.28 net) Frog Lake McLaren heavy oil wells, 1 gross and net heavy oil well at Mantario, 3 gross (2.24 net) Notikewin horizontal gas wells in Ferrier, Brazeau and West Pembina with 1 dry hole at Mantario.

By comparison, the Company did not participate directly in any drilling in the first half of 2009. In the first quarter of 2009, the Company farmed out the drilling of 5 gross wells retaining a 24% average working interest with no payout account.

For the three months ended June 30, 2010, the weighting towards natural gas sales volumes averaged 73% compared to 61% in the same period in 2009. Similarly, for the six month period ended June 30, 2010, the weighting towards natural gas sales volumes averaged 73% compared to 61% for the same period in 2009. Heavy oil sales volumes made up 5% of total production for the 2010 second quarter compared to 28% in the 2009 second quarter. The shift in weighting is a result of the sale of predominantly heavy oil producing properties in the second half of 2009.

Sales volumes of natural gas averaged 33.6 mmcf/d for the second quarter of 2010, compared to 35.7 mmcf/d in the same 2009 period, a decrease of 6%. Crude oil and NGL sales volumes for the 2010 second quarter decreased 46% averaging 2,076 bbls/d compared to 2009 average sales volumes of 3,816 bbls/d.

2010 production volumes are anticipated to average approximately 8,500 boe/d and an exit rate of approximately 10,000 boe/d. The forecast of 2010 production volumes is based upon a number of assumptions, including downtime for anticipated plant turnarounds and normal production declines and expected results from the execution of the current planned capital budget of $75.0 million. Subject to closing of the $20.0 million Flow Through Share Financing, the 2010 capital program has been increased to $95.0 million.

Commodity Prices

Average Commodity Prices

    
    -------------------------------------------------------------------------
                       Three months ended June 30,  Six months ended June 30,
                                                %                          %
                           2010     2009   Change     2010     2009   Change
    -------------------------------------------------------------------------

    Exchange rate
     (US$/Cdn$)          0.9731   0.8570       14   0.9673   0.8291       17

    Natural gas:
    NYMEX (US$/mmbtu)      4.35     3.81       14     4.66     4.13       13
    AECO daily index
     (CDN$/Mcf)            3.89     3.45       13     4.42     4.18        6
    AECO monthly index
     (CDN$/Mcf)            4.03     3.47       16     4.69     4.64        1
    Bellatrix's average
     price ($/mcf)         4.15     3.40       22     4.65     4.42        5
    Bellatrix's average
     price (including
     risk management(1))
     ($/mcf)               5.43     5.18        5     5.72     5.70        -

    Crude oil:
    WTI (US$/bbl)         78.05    43.31       80    78.46    43.31       81
    Edmonton par - light
     oil ($/bbl)          75.46    66.16       14    77.88    58.16       34
    Bow River -
     medium/heavy oil
     ($/bbl)              66.40    61.69        8    69.92    52.73       33
    Hardisty Heavy -
     heavy oil ($/bbl)    59.67    58.07        3    64.23    48.72       32
    Bellatrix's average
     prices ($/bbl)
      Light crude oil,
       condensate, and
       NGLs               66.19    47.83       38    66.64    44.88       48
      Heavy crude oil     63.10    55.71       13    63.98    45.29       41
      Total crude oil
       and NGLs           65.66    53.55       23    66.16    45.16       46
      Total crude oil
       and NGLs
       (including risk
       management(1))     66.73    53.55       25    66.72    45.16       48
    -------------------------------------------------------------------------
    (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 the 2010 second quarter, the AECO daily reference price increased by 13% and the monthly reference price increased by 16% compared to the same period in 2009. Bellatrix's average sales price before commodity price risk management contracts for the 2010 second quarter increased by 22% compared to the same period in 2009. Bellatrix's natural gas price after including commodity price risk management contracts for the second quarter of 2010 was $5.43/mcf compared to $5.18/mcf for the same period in 2009.

For light oil, condensate and NGLs, Bellatrix recorded an average price of $66.19/bbl before commodity price risk management contracts in the 2010 second quarter, 38% higher than the average price received in the same period in 2009. In comparison, the Edmonton par price increased by 14% over the same period. The average WTI crude oil US dollar based price increased 80% from the second quarter of 2009 to that in 2010.

For heavy crude oil, Bellatrix received an average price before transportation of $63.10/bbl in the 2010 second quarter, an increase of 13% over prices in the same 2009 period. The Bow River reference price increased by 8% and the Hardisty Heavy reference price increased by 3% over the same period in 2009. The majority of Bellatrix's heavy crude oil density ranges between 11 and 16 degrees API consistent with the Hardisty Heavy reference price, although all of Bellatrix's heavy oil production is sold at Saskatchewan delivery points.

Revenue

Revenue before other income and commodity price risk management contracts for the three month period ended June 30, 2010 was $25.0 million, 15% lower than the $29.6 million in the same period in 2009. Natural gas revenues contributed approximately 51% of the total revenue before other income and price risk management contracts for the three month period ended June 30, 2010, compared to 37% in the same period in 2009. Crude oil and NGLs revenue contributed approximately 49% of the total revenue before other income and price risk management contracts for the three month period ended June 30, 2010, compared to 63% in the same period in 2009.

The decrease in revenue for the 2010 period was the result of lower production volumes, offset by improved commodity prices.

    
    -------------------------------------------------------------------------
                        Three months ended June 30, Six months ended June 30,
    ($000s)                      2010         2009         2010         2009
    -------------------------------------------------------------------------

    Light crude oil,
     condensate and NGLs       10,360        4,550       19,715        9,548
    Heavy oil                   2,044       14,046        4,143       21,689
    -------------------------------------------------------------------------
    Crude oil and NGLs         12,404       18,596       23,858       31,237
    Natural gas                12,672       11,033       27,600       29,026
    -------------------------------------------------------------------------
    Total revenue before
     other                     25,076       29,629       51,458       60,263
    Other (1)                     498          176        1,045          887
    -------------------------------------------------------------------------
    Total revenue before
     royalties and risk
     management                25,574       29,805       52,503       61,150
    -------------------------------------------------------------------------
    (1) Other revenue primarily consists of processing and other third party
        income.
    

Revenues for the remainder of 2010 are currently expected to be higher than the corresponding period in 2009 due to higher overall commodity prices and average estimated 2010 production of approximately 8,500 boe/d.

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 and ensure minimum prices 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 operations. 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 August 5, 2010 is shown in the following tables:

Natural gas

    
    Average Volumes (GJ/d)
    -------------------------------------------------------------------------
                                                        Q3 2010      Q4 2010
    -------------------------------------------------------------------------
    Fixed                                                20,000       20,000
    Call option (ceiling price)                           5,000        5,000
    -------------------------------------------------------------------------
    Total GJ/d                                           25,000       25,000
    -------------------------------------------------------------------------

    Average Price ($/GJ AECO C)
    -------------------------------------------------------------------------
                                                        Q3 2010      Q4 2010
    -------------------------------------------------------------------------
    Fixed                                                  5.60         5.90
    Call option (ceiling price)                            8.05         8.05
    -------------------------------------------------------------------------


    Crude oil and liquids

    Average Volumes (bbls/d)
    -------------------------------------------------------------------------
                                                        Q3 2010      Q4 2010
    -------------------------------------------------------------------------
    Costless collars                                        500          500
    Fixed                                                   500          500
    -------------------------------------------------------------------------
    Total bbls/d                                          1,000        1,000
    -------------------------------------------------------------------------

    Average Volumes (bbls/d)
    -------------------------------------------------------------------------
                              Q1 2011      Q2 2011      Q3 2011      Q4 2011
    -------------------------------------------------------------------------
    Fixed                       1,000        1,000        1,000        1,000
    -------------------------------------------------------------------------
    Total bbls/d                1,000        1,000        1,000        1,000
    -------------------------------------------------------------------------

    Average Price (CDN$/bbl WTI)
    -------------------------------------------------------------------------
                                                        Q3 2010      Q4 2010
    -------------------------------------------------------------------------
    Collar ceiling price                                 101.15       101.15
    Collar floor price                                    75.00        75.00
    Fixed price                                           91.76        91.76
    -------------------------------------------------------------------------

    Average Price (CDN$/bbl WTI)
    -------------------------------------------------------------------------
                              Q1 2011      Q2 2011      Q3 2011      Q4 2011
    -------------------------------------------------------------------------
    Fixed price                 88.18        88.18        88.18        88.18
    -------------------------------------------------------------------------
    

As of June 30, 2010, the fair value of Bellatrix's outstanding commodity contracts is an unrealized asset of $7.5 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 June 30, 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 three months ended June 30, 2010 and 2009 as reflected in the Consolidated Statements of Loss in the financial statements:

Commodity contracts

    
    -------------------------------------------------------------------------
                            Crude Oil      Natural      Q2 2010      Q2 2009
    ($000s)                 & Liquids          Gas        Total        Total
    -------------------------------------------------------------------------
    Realized cash gain on
     contracts                    203        3,906        4,109        5,789
    Unrealized gain (loss)
     on contracts(1)            1,259       (4,393)      (3,134)      (2,704)
    -------------------------------------------------------------------------
    Total gain (loss) on
     commodity contracts        1,462         (487)         975        3,085
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
                            Crude Oil      Natural     YTD 2010     YTD 2009
    ($000s)                 & Liquids          Gas        Total        Total
    -------------------------------------------------------------------------
    Realized cash gain on
     contracts                    203        6,398        6,601        8,420
    Unrealized gain on
     contracts(1)               1,252        2,870        4,122        5,140
    -------------------------------------------------------------------------
    Total gain on
     commodity contracts        1,455        9,268       10,723       13,560
    -------------------------------------------------------------------------
    (1) Unrealized gain commodity contracts represent non-cash adjustments
        for changes in the fair value of these contracts during the period.
    

Royalties

For the three months ended June 30, 2010, total royalties were $4.9 million, compared to $5.3 million incurred in the same 2009 period. Overall royalties as a percentage of revenue (after transportation costs) in the second quarter of 2010 were 20%, compared with 19% in the same 2009 period.

    
    -------------------------------------------------------------------------
    Royalties by
     Commodity Type
    ($000s, except      Three months ended June 30, Six months ended June 30,
     where noted)                2010         2009         2010         2009
    -------------------------------------------------------------------------

    Light crude oil,
     condensate and NGLs        2,622        1,222        5,121        2,583
      $/bbl                     16.75        12.84        17.31        12.14
      Average light crude
       oil, condensate and
       NGLs royalty rate (%)       26           24           26           24

    Heavy Oil                     399        2,645          946        4,494
      $/bbl                     12.32        10.49        14.61         9.38
      Average heavy oil
       royalty rate (%)            20           20           24           22

    Natural Gas                 1,856        1,457        4,060        4,555
      $/mcf                      0.61         0.45         0.68         0.69
      Average natural gas
       royalty rate (%)            15           14           15           16

    -------------------------------------------------------------------------
                     Total      4,877        5,324       10,127       11,632
    -------------------------------------------------------------------------
                     $/boe       6.99         5.99         7.50         6.51
    -------------------------------------------------------------------------
    Average total royalty
                   rate (%)        20           19            20          20
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Royalties, by Type
    -------------------------------------------------------------------------
                        Three months ended June 30, Six months ended June 30,
    ($000s)                      2010         2009         2010         2009
    -------------------------------------------------------------------------
    Crown royalties             1,712        1,176        2,986        3,266
    Indian Oil and Gas
     Canada royalties             287          784        1,208        1,973
    Freehold & GORR             2,878        3,072        5,861        5,903
    Saskatchewan resource
     surcharge                      -          292           72          490
    -------------------------------------------------------------------------
    Total                       4,877        5,324       10,127       11,632
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Expenses
    -------------------------------------------------------------------------
                        Three months ended June 30, Six months ended June 30,
    ($000s)                      2010         2009         2010         2009
    -------------------------------------------------------------------------
    Production                  9,079       11,916       17,796       25,862
    Transportation                877        1,267        1,685        2,830
    General and
     administrative             2,715        2,581        5,251        5,423
    Interest and
     financing charges          1,979        4,218        4,393        7,520
    Share-based
     compensation (recovery)      601          243          721         (360)
    -------------------------------------------------------------------------

    Expenses per boe
    -------------------------------------------------------------------------
                        Three months ended June 30, Six months ended June 30,
    ($000s)                      2010         2009         2010         2009
    -------------------------------------------------------------------------
    Production                  13.00        13.41        13.18        14.47
    Transportation               1.26         1.42         1.25         1.58
    General and
     administrative              3.89         2.90         3.89         3.03
    Interest and
     financing charges           2.83         4.75         3.25         4.21
    Share-based
     compensation (recovery)     0.86         0.27         0.53        (0.20)
    -------------------------------------------------------------------------
    

Production Expenses

For the three months ended June 30, 2010, production expenses totaled $9.1 million ($13.00/boe), compared to $11.9 million ($13.41/boe) recorded in the same 2009 period. The decrease in production expenses from the second quarter of 2009 to 2010 is due to the disposition of properties with higher production costs in the second half of 2009 as well as the Company's efforts to streamline operations and the continuation of field optimization projects. In comparison, production expenses were $8.7 million ($13.36/boe) for the first quarter of 2010.

Bellatrix is targeting operating costs of approximately $35.9 million ($11.57/boe) in 2010. This is based upon assumptions of estimated 2010 average production of approximately 8,500 boe/d, continued field optimization work benefits and planned capital expenditures in producing areas which are anticipated to have lower operating costs.

    
    Production Expenses, by Commodity Type
    -------------------------------------------------------------------------
    ($000s, except      Three months ended June 30, Six months ended June 30,
    where noted)                 2010         2009         2010         2009
    -------------------------------------------------------------------------
    Light crude oil,
     condensate and NGLs        3,022        2,350        5,400        4,627
    $/bbl                       19.31        24.70        18.25        21.75

    Heavy oil                     637        3,412          950        8,148
    $/bbl                       19.63        13.53        14.66        17.01

    Natural gas                 5,420        6,154       11,446       13,087
    $/mcf                        1.77         1.89         1.93         1.99

    -------------------------------------------------------------------------
    Total                       9,079       11,916       17,796       25,862
    -------------------------------------------------------------------------
    $/boe                       13.00        13.41        13.18        14.47
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Total                       9,079       11,916       17,796       25,862
    -------------------------------------------------------------------------
    Processing and other
     third party income(1)       (498)        (176)      (1,045)        (887)
    -------------------------------------------------------------------------
    Total after deducting
     processing and other
     third party income         8,581       11,740       16,751       24,975
    -------------------------------------------------------------------------
    $/boe                       12.29        13.21        12.40        13.98
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (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 three months ended June 30, 2010 were $0.9 million ($1.26/boe) compared to $1.3 million ($1.42/boe) in the same 2009 period. The reduction in transportation expenses was due to significantly less heavy oil hauling costs following the sale of Saskatchewan properties in July 2009.

Operating Netback

    
    Field Operating Netback - Corporate (before risk management)
    -------------------------------------------------------------------------
                        Three months ended June 30  Six months ended June 30,
    ($/boe)                      2010         2009         2010         2009
    -------------------------------------------------------------------------
    Sales                       35.92        33.34        38.11        33.72
    Transportation              (1.26)       (1.42)       (1.25)       (1.58)
    Royalties                   (6.99)       (5.99)       (7.50)       (6.51)
    Production expense         (13.00)      (13.41)      (13.18)      (14.47)
    -------------------------------------------------------------------------
    Field operating netback     14.67        12.52        16.18        11.16
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

For the second quarter of 2010, corporate field operating netback (before commodity price risk management contracts) was $14.67/boe compared to $12.52/boe in the same 2009 period. This was primarily the result of an increase in commodity prices, as well as a decrease in transportation and production expenses offset by an increase in royalties. After including commodity price risk management contracts, the corporate field operating netback for the second quarter of 2010 was $20.56/boe compared to $19.03/boe in the same 2009 period. In comparison, first quarter 2010, corporate field operating netback (before commodity price risk management contracts) was $17.79/boe.

    
    Field Operating Netback - Natural Gas (before risk management)
    -------------------------------------------------------------------------
                        Three months ended June 30, Six months ended June 30,
    ($/mcf)                      2010         2009         2010         2009
    -------------------------------------------------------------------------
    Sales                        4.15         3.40         4.65         4.42
    Transportation              (0.22)       (0.21)       (0.22)       (0.20)
    Royalties                   (0.61)       (0.45)       (0.68)       (0.69)
    Production expense          (1.77)       (1.89)       (1.93)       (1.99)
    -------------------------------------------------------------------------
    Field operating netback      1.55         0.85         1.82         1.54
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Field operating netback for natural gas in the second quarter of 2010 increased 82% to $1.55/mcf, compared to $0.85/mcf in the same period in 2009, reflecting stronger natural gas prices experienced, along with higher royalty expenses, offset by lower production costs. After including commodity price risk management contracts, field operating netback for natural gas for the three month period ended June 30, 2010 was $2.82/mcf compared to $2.63/mcf in the same period in 2009.

    
    Field Operating Netback - Crude Oil, Condensate and NGLs (before risk
    management)
    -------------------------------------------------------------------------
                        Three months ended June 30, Six months ended June 30,
    ($/bbl)                      2010         2009         2010         2009
    -------------------------------------------------------------------------
    Sales                       65.66        53.55        66.16        45.16
    Transportation              (1.05)       (1.72)       (1.01)       (2.15)
    Royalties                  (16.00)      (11.13)      (16.82)      (10.23)
    Production expense         (19.37)      (16.59)      (17.61)      (18.47)
    -------------------------------------------------------------------------
    Field operating netback     29.24        24.11        30.72        14.31
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Field operating netback for crude oil, condensate and NGLs averaged $29.24/bbl for the three month period ended June 30, 2010, up 21% compared to $24.11/bbl for the same period in 2009. The significant increase is primarily due to the increase in commodity prices for crude oil, condensate and natural gas liquids and a decrease in transportation expenses, offset by an increase in royalties and production expenses. After including commodity price risk management contracts, field operating netback for crude oil and NGLs for the second quarter in 2010 was $30.32/boe compared to $24.11/boe in the same period in 2009.

General and Administrative

General and administrative ("G&A") expenses (after capitalized G&A and recoveries) for the three month period ended June 30, 2010 were $2.7 million ($3.89/boe) compared to $2.6 million ($2.90/boe) for the same period in 2009. The increase in G&A expenses from the second quarter of 2009 to that in 2010 is due to higher compensation and base costs. The increase in amounts of capitalized G&A for the three months ended June 30, 2010 is consistent with an increased capital program.

For 2010, the Company is currently anticipating G&A costs after capitalization to be approximately $11.3 million ($3.64/boe) based on continued efficiencies and estimated 2010 average production volumes of approximately 8,500 boe/d.

    
    General and Administrative Expenses
    -------------------------------------------------------------------------
    ($000s, except      Three months ended June 30, Six months ended June 30,
     where noted)                2010         2009         2010         2009
    -------------------------------------------------------------------------
    Gross expenses              3,624        3,178        6,816        6,564
    Capitalized                  (584)        (106)        (948)        (212)
    Recoveries                   (325)        (491)        (617)        (929)
    -------------------------------------------------------------------------
    G&A expenses                2,715        2,581        5,251        5,423
    -------------------------------------------------------------------------
    G&A expenses, per unit
     ($/boe)                     3.89         2.90         3.89         3.03
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Interest and Financing Charges

Bellatrix recorded $2.0 million of interest and financing charges for the three months ended June 30, 2010 compared to $4.2 million in the same 2009 period. For the six months ended June 30, 2010, the Company recorded $4.4 million of interest and financing charges compared to $7.5 million for the same period in 2009. Bellatrix's total net debt at June 30, 2010 of $81.3 million includes the $46.9 million liability portion of the 4.75% Debentures, $34.4 million of bank debt and the net balance of working capital.

    
    Interest and Financing Charges
    -------------------------------------------------------------------------
    ($000s, except      Three months ended June 30, Six months ended June 30,
     where noted)                2010         2009         2010         2009
    -------------------------------------------------------------------------
    Interest and financing
     charges                    1,979        4,218        4,393        7,520
    Interest and financing
     charges ($/boe)             2.83         4.75         3.25         4.21

    Debt to funds flow
     from operations(1)
     ratio annualized(3)
    Funds flow from
     operations(1)
     (annualized)              42,440       43,060       41,616       34,508
    Total net debt(2)
     at period end             81,296      196,717       81,296      196,717
    Total net debt to
     periods funds flow
     from operations
     ratio annualized(3)         1.9x         4.6x         1.9x         5.7x

    Net debt(2) (excluding
     convertible debentures)
     at period end             34,390      114,642       34,390      114,642
    Net debt to periods
     funds flow from
     operations ratio
     annualized(3)               0.8x         2.7x         0.8x         3.3x

    Debt to funds flow from
     operations(1) ratio
     (trailing)(4)
    Funds flow from
     operations(1) ratio
     trailing                  39,579       62,360       39,579       62,360
    Total net debt(2) to
     funds flow from
     operations ratio
     trailing                    2.0x         3.2x         2.0x         3.2x

    Net debt(2) (excluding
     convertible debentures)
     to funds flow from
     operations for the
     period                      0.9x         1.8x         0.9x         1.8x

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

    (1) 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 and short-term
        future tax assets and liabilities. Total net debt also includes the
        liability component of convertible debentures and excludes 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 annualizing funds flow
        from operations for the three and six month periods ended June 30,
        respectively.

    (4) Trailing periods funds flow from operations ratio annualized is based
        on the twelve-months period ended June 30, 2010 and June 30, 2009.


    Reconciliation of Total Liabilities to Total Net Debt
    -------------------------------------------------------------------------
                                                               As at June 30,
    ($000s)                                                2010         2009
    -------------------------------------------------------------------------
    Total liabilities per financial statements          138,007      263,959
      Current liabilities included within working
       capital calculation                              (28,751)    (154,667)
      Current portion of long-term debt excluded
       from working capital calculation                       -      120,205
      Asset retirement obligations                      (27,949)     (24,141)
      Future income taxes                                     -       (3,076)

    Working Capital
      Current assets                                    (34,129)    (131,281)
      Current liabilities                                28,751      154,667
      Petroleum and natural gas properties held for
       sale excluded from working capital calculation         -       94,578
      Current portion of long-term debt excluded from
       working capital calculation                            -     (120,205)
      Asset retirement obligations related to
       petroleum and natural gas properties held for
       sale excluded from working capital calculation         -       (9,578)
      Net commodity contract asset                        7,496        8,866
      Net future income taxes - current                  (2,129)      (2,610)
    -------------------------------------------------------------------------
                                                            (11)      (5,563)
    -------------------------------------------------------------------------
    Total net debt                                       81,296      196,717
    -------------------------------------------------------------------------
    

Share-Based Compensation

Non-cash share-based compensation expense for the three months ended June 30, 2010 was an expense of $0.6 million compared to $0.2 million in the same period in 2009. The increase in expense from the second quarter of 2009 compared to 2010 is primarily due to the issuance of 2,054,500 options during the quarter with a weighted average fair value of $2.07 per option.

Depletion, Depreciation and Accretion

Depletion, depreciation and accretion expense for the three months ended June 30, 2010 was $17.3 million ($24.85/boe), compared to the $27.4 million ($30.80/boe) in the same period in 2009, which reflects lower production volumes combined with reduced carrying costs in the 2010 period as compared to the same period in 2009.

For the three months ended June 30, 2010, Bellatrix has included $51.0 million (2009: $62.5 million) for future development costs in the depletion calculation and excluded from the depletion calculation $19.8 million (2009: $26.6 million) for undeveloped land and $28.5 million (2009: $37.9 million) for estimated salvage.

    
    Depletion, Depreciation and Accretion Costs
    -------------------------------------------------------------------------
    ($000s, except      Three months ended June 30, Six months ended June 30,
     where noted)                2010         2009         2010         2009
    -------------------------------------------------------------------------
    Depletion and
     Depreciation              16,814       26,714       32,278       53,307
    Accretion                     535          660        1,047        1,322
    -------------------------------------------------------------------------
      Total                    17,349       27,374       33,325       54,629
    -------------------------------------------------------------------------
    Per unit ($/boe)            24.85        30.80        24.68        30.57
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Income Taxes

Future income taxes arise from differences between the accounting and tax bases of the Company's assets and liabilities. For the six months ended June 30, 2010, the Company recognized a future income tax recovery of $2.8 million compared to a recovery of $38.3 million in the same period in 2009.

As at June 30, 2010, the Company had a total net future income tax asset balance of $3.8 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 June 30, 2010, Bellatrix had approximately $423 million in tax pools available for deduction against future income as follows:

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

    ($000s)                                 Rate %
    -------------------------------------------------------------------------
    Intangible resource pools:
      Canadian exploration expenses            100                    43,900
      Canadian development expenses             30                   236,100
      Canadian oil and gas property
       expenses                                 10                    14,800
      Foreign resource expenses                 10                     1,000
    Attributed Canadian Royalty
     Income                           100 (Alberta)                   16,100
    Undepreciated capital cost(1)           6 - 55                   108,700
    Non-capital losses (expire
     through 2027)                             100                       400
    Financing costs               20 straight line                     2,000
    -------------------------------------------------------------------------
                                                                     423,000
    -------------------------------------------------------------------------
    (1) Approximately $101 million of undepreciated capital cost pools are
        class 41, which is claimed at a 25% rate.
    

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

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.

    
    Reconciliation of Cash Flow from Operating Activities and Funds Flow from
    Operations
    -------------------------------------------------------------------------
    ($000s, except      Three months ended June 30, Six months ended June 30,
    per share amounts)           2010         2009         2010         2009
    -------------------------------------------------------------------------

    Cash flow from
     operating activities       6,065        6,467       19,521       15,778

    Realization of imputed
     interest costs on 7.5%
     debentures                 5,050            -        5,050            -
    Asset retirement costs
     incurred                     441          313          603        1,051

    Change in non-cash
     working capital             (946)       3,985       (4,366)         425
    -------------------------------------------------------------------------
    Funds flow from
     operations                10,610       10,765       20,808       17,254
    -------------------------------------------------------------------------
    

Bellatrix generated funds flow from operations of $10.6 million ($0.11 per diluted share) for the three months ended June 30, 2010, down 1% from $10.8 million ($0.14 per diluted share) for the same period in 2009. Bellatrix's cash flow from operating activities for the three months ended June 30, 2010 was $6.1 million ($0.07 per diluted share)compared to $6.5 million ($0.08 per diluted share) in the same 2009 period.

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 income.

The net loss for the three month period ended June 30, 2010 was $10.8 million ($0.12 per diluted share) compared to a net loss of $99.7 million ($1.27 per diluted share) for the same period in 2009. The decrease in the net loss from the second quarter of 2009 to that in 2010 was primarily due to the $114.2 million non-cash accounting loss recorded on the assets held for sale in June 2009, reduced non-cash charges for depletion, depreciation and accretion, reduced operating, transportation and interest expenses, offset by a $3.5 million non-cash accounting loss recorded on the redemption of the 7.5% Debentures, decrease in sales and non-cash unrealized gains on commodity contracts.

In comparison, Bellatrix recorded income of $7 thousand for the three months ended March 31, 2010. The loss recorded in the second quarter of 2010 compared to the income in the first quarter of 2010 is primarily a consequence of a $10.4 million non-cash difference between a $7.3 million unrealized gain on commodity price risk management contracts in Q1 2010 compared to a $3.1 million unrealized loss on commodity price risk management contracts recorded in Q2 2010.

    
    Cash Flow from Operating Activities, Funds Flow from Operations and Net
    Loss
    -------------------------------------------------------------------------
                                Three months ended        Three months ended
    ($000s, except                         June 30,                  June 30,
     per share amounts)          2010         2009         2010         2009
    -------------------------------------------------------------------------

    Funds flow from
     operations                10,610       10,765       20,808       17,254
      Basic   ($/share)          0.11         0.14         0.23         0.22
      Diluted ($/share)          0.11         0.14         0.23         0.22

    Cash flow from
     operating activities       6,065        6,467       19,521       15,778
      Basic   ($/share)          0.07         0.08         0.22         0.20
      Diluted ($/share)          0.07         0.08         0.22         0.20

    Net loss                  (10,812)     (99,715)     (10,805)    (108,771)
      Basic   ($/share)         (0.12)       (1.27)       (0.12)       (1.39)
      Diluted ($/share)         (0.12)       (1.27)       (0.12)       (1.39)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

Capital Expenditures

Bellatrix invested $15.3 million on exploration and development activities during the second quarter of 2010, before $0.2 million of drilling incentive credits, compared to $1.0 million invested in the same period in 2009. The increase in these expenditures during the period is consistent with the higher capital budget for 2010.

    
    Capital Expenditures
    -------------------------------------------------------------------------
                        Three months ended June 30, Six months ended June 30,
    ($000s)                      2010         2009         2010         2009
    -------------------------------------------------------------------------
    Lease acquisitions
     and retention                 53          225          252          308
    Geological and
     geophysical                   69           40          672           51
    Drilling and
     completion costs          11,650          141       30,386        1,447
    Facilities and
     equipment                  3,493          622        4,910        1,750
    -------------------------------------------------------------------------
                               15,265        1,028       36,220        3,556
    Drilling incentive
     credits                     (169)           -       (2,813)           -
    -------------------------------------------------------------------------
      Exploration and
       development(1)          15,096        1,028       33,407        3,556
    Corporate(2)                    -          133           35          350
    Property acquisitions       3,187          (10)       3,187            1
    -------------------------------------------------------------------------
      Total capital
       expenditures - cash     18,283        1,151       36,629        3,907
    Property dispositions
     - cash                      (627)      (8,289)        (580)      (8,281)
    -------------------------------------------------------------------------
      Total net capital
       expenditures - cash     17,656       (7,138)      36,049       (4,374)
    -------------------------------------------------------------------------
    Other - non-cash(3)         1,376       (1,107)       1,664       (1,221)
    -------------------------------------------------------------------------
      Total net capital
       expenditures            19,032       (8,245)      37,713       (5,595)
    -------------------------------------------------------------------------
    (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 capitalized.
    

The $15.3 million capital program, before drilling incentive credits, for the three months ended June 30, 2010 was financed with funds flow from operations and bank indebtedness.

In the first half of 2010, Bellatrix drilled a total of 25 gross (14.74 net) wells resulting in 18 gross (9.45 net) oil wells, 6 gross (4.29 net) gas wells and 1 gross (1.0 net) dry hole, establishing a 96 percent drill bit success rate. In the first half of 2010, Bellatrix drilled a total of 25 gross (14.74 net) wells resulting in 18 gross (9.45 net) oil wells, 6 gross (4.29 net) gas wells and 1 gross (1.0 net) dry hole, establishing a 96 percent drill bit success rate. In the three months ended June 30, 2010, Bellatrix drilled and/or participated in 11 gross (6.69 net) wells resulting in 4 gross (2.16 net) Cardium light wells including 3 in West Pembina and 1 in the Lodgepole area, 2 gross (0.28 net) Frog Lake McLaren heavy oil wells, 1 gross and net heavy oil well at Mantario, 3 gross (2.24 net) Notikewin horizontal gas wells in Ferrier, Brazeau and West Pembina with 1 dry hole at Mantario.

Based on the current economic conditions and Bellatrix's operating forecast for 2010, the Company budgets a 2010 capital program of $95 million funded by $85 million from the Company's cash flows and debt facilities and $10 million funded from joint venture partners, subject to the completion of the $20.0 million Flow Through Share Financing.

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 June 30, 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 June 30, 2010.

The ceiling test calculation will be updated in 2010 on a quarterly and annual basis based upon 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 June 30, 2010, Bellatrix has recorded an Asset Retirement Obligation ("ARO") of $27.9 million, compared to $25.7 million at December 31, 2009, for future abandonment and reclamation of the Company's properties. For the six month period ended June 30, 2010, the ARO increased by $2.2 million total as a result of $1.0 million of accretion expense, $1.2 million incurred on changes in estimates and liabilities, $0.6 million incurred through property acquisitions and operations, offset by $0.6 million for liabilities settled during the period.

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 plans to focus 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.

Bellatrix continues to be subject to liquidity and credit risk as more fully described in the Company's Management, Discussion and Analysis for the year ended December 31, 2009.

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 convertible debentures in April 2010 and recently announced a Flow Through Share offering 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.

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 the first half of 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 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 $84.8 million 7.5% Debentures. The balance of the repayment of the 7.5% Debentures was funded through 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 July 21, 2010, Bellatrix entered into an agreement with a syndicate of underwriters to issue, on a bought deal private placement basis, 4,710,000 common shares on a flow through basis at a price of $4.25 per Flow Through Share for aggregate gross proceeds of $20,017,500. Proceeds of the Flow-Through Offering will be used to accelerate the Company's Cardium light oil exploration program by incurring expenditures eligible for Canadian exploration expenses which will be renounced to subscribers of the Flow Through Shares effective on or before December 31, 2010. Closing of the Flow-Through Offering is expected to occur on or about August 12, 2010 and is subject to certain conditions including, but not limited to, the receipt of all necessary approvals including the approval of the Toronto Stock Exchange.

Total net debt levels at June 30, 2010 have decreased $26.0 million from $107.3 million at December 31, 2009, primarily as a consequence of the January 2010 equity issuance. Total net debt includes the liability component of the convertible debentures and excludes unrealized commodity contract assets and liabilities, future income taxes and asset retirement obligations.

Funds flow from operations represents 58% and 57% of the funding requirements for Bellatrix's capital expenditures for the three and six months ended June 30, 2010, respectively. The remainder has been funded through bank indebtedness.

The Company's credit facilities consists of a $10 million demand operating facility provided by a Canadian bank and a $75 million extendible revolving term credit facility provided by a Canadian bank and a Canadian financial institution. Amounts borrowed under the credit facilities 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 flow ratio. Based on current debt to cash flow ratio, interest is being charged at the lowest floating rate in the range. 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.

The revolving period for the revolving term credit facility will end on June 28, 2011, unless extended for a further 364-day period. Should the facility not be extended it will convert to a non-revolving term facility with the full amount outstanding due 366 days after the last day of the revolving period of June 28, 2011. The borrowing base will be subject to re-determination on November 30, 2010. Thereafter, a semi-annual re-determination of the borrowing base will occur on May 30 and November 30 in each year prior to the maturity date.

As an added layer of protection of its cash flows, the Company's 2010 commodity price risk management contracts provide price protection on approximately 54% of its annual estimated natural gas production for 2010 that is forward sold for an average of CDN$5.972/GJ ($6.56/mcf). In addition, the Company has a price ceiling in place for 2010 on 5,000 GJ/d or 14% of its estimated natural gas production for 2010 at an average price of CDN$8.05/GJ ($8.85/mcf). These percentages of price protection and the conversion from $/GJ to $/mcf are based upon on an estimated 2010 average corporate natural gas production of 32 mmcf/d and 39 MJ/m3 average heat content, respectively. In addition, 500 bbl/d of oil for calendar 2010 is protected by way of a costless collar of CDN$75.00 x CDN$101.15 and another 500 bbl/d of oil for the period of June 1 to December 31, 2010 is protected by way of a fixed price swap at CDN$91.76/bbl. Bellatrix recently added a crude oil fixed price swap for 1,000 bbl/d at CDN$88.18/bbl for calendar 2011. Bellatrix maintains an active commodity price risk management program focused on maintaining sufficient cash flow to fund its operations.

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 2010 capital program of $95 million by utilizing undrawn amounts on its credit facility, ongoing cash flows and proceeds from the Flow-Through Financing.

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 normal course issuer bids for the 4.75% Debentures approved by the TSX, provided that the aggregate of all such normal course issuer bids and redemptions do not exceed $10.0 million in any fiscal year.

As at July 31, 2010, Bellatrix had outstanding a total of 6,151,872 options exercisable at an average exercise price of $2.61 per share, $55.0 million of 4.75% Debentures convertible into common shares (at a conversion price of $5.60 per share) and 92,491,866 common shares.

Commitments

As at June 30, 2010, the Company had committed to drill four wells pursuant to farm-in agreements. Bellatrix expects to satisfy this drilling commitment at an estimated cost of approximately $5.2 million. Bellatrix committed to purchase $5.1 million of casing pipe which will be used in the 2010 capital program. As of June 30, 2010, the balance of this commitment is $3.3 million.

The following are the contractual maturities of financial liabilities as at June 30, 2010:

    
    -------------------------------------------------------------------------
    Financial liability    (less than)
    ($000s)                    1 Year    1-2 Years    2-5 Years   Thereafter
    -------------------------------------------------------------------------

    Accounts payable
     and accrued
     liabilities(1)        $   26,622   $        -   $        -   $        -

    Convertible debentures
     - principal                    -            -       55,000            -

    Convertible debentures
     - interest(2)              2,613        5,232        4,788            -
    -------------------------------------------------------------------------
     Total                 $   29,235   $    5,232   $   59,788   $        -
    -------------------------------------------------------------------------
    (1) As at June 30, 2010, $0.5 million of accrued coupon interest payable
        in relation to the 4.75% Debentures is included in Accounts Payable
        and Accrued Liabilities.
    (2) The 4.75% Debentures outstanding at June 30, 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 facility is calculated based on floating rates.

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 June 30, 2010.

Business Prospects and 2010 Year Outlook

The Company continues to develop its core assets and conducts exploration programs utilizing its large inventory of geological prospects. The Company has approximately 236,000 net acres of undeveloped land with in excess of 640 exploitation drilling opportunities identified on 5 different play types, representing over 10 years of drilling inventory. The Company possesses up to 340 drilling locations in the exciting Cardium oil horizontal play and 60 Notikewin horizontal drilling locations in West Central Alberta.

Subject to the completion of the Flow Through Financing, Bellatrix has increased its 2010 capital program of $75 million to $95 million. Bellatrix will continue to take a balanced approach to the priority use of cash flow and its 2010 capital program.

Bellatrix plans to operate within funds flow from operations, the proceeds from the January 2010 equity financing and the Flow Through Financing. The Company intends to continue to maintain reductions in G&A and operating expenses and field optimization and maintenance programs to maintain production base in addition to its developmental focus in the Notikewin and Cardium resource plays.

As an added layer of protection of its cash flows, the Company's 2010 commodity price risk management contracts provide price protection on approximately 54% of its annual estimated natural gas production for 2010 that is forward sold for an average of CDN$5.972/GJ ($6.56/mcf). In addition, the Company has a price ceiling in place for 2010 on 5,000 GJ/d or 14% of its estimated natural gas production for 2010 at an average price of CDN$8.05/GJ ($8.85/mcf). These percentages of price protection and the conversion from $/GJ to $/mcf are based upon on an estimated 2010 average corporate natural gas production of 32 mmcf/d and 39 MJ/m3 average heat content, respectively. In addition, 500 bbl/d of oil for calendar 2010 is protected by way of a costless collar of CDN$75.00 x CDN$101.15 and another 500 bbl/d of oil for the period of June 1 to December 31, 2010 is protected by way of a fixed price swap at CDN$91.76/bbl. Bellatrix recently added a crude oil fixed price swap for 1,000 bbl/d at CDN$88.18/bbl for calendar 2011.

Based on the timing of proposed expenditures, completion of the Flow-Through Financing and resultant increase in the 2010 capital program, downtime for anticipated plant turnarounds and normal production declines, execution of the 2010 budget is anticipated to provide 2010 average daily production of approximately 8,500 boe/d and an exit rate of approximately 10,000 boe/d.

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 Canadian generally accepted accounting principles ("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. Bellatrix is anticipating providing staff training to key operational staff in the later part of 2010. 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.

The Company has completed a high level analysis to determine the areas impacted by the conversion and is assessing 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. As we are still assessing the impact of IFRS and have not yet selected or finalized all of our accounting policy choices and IFRS 1 exemptions, we are unable to quantify the impact of IFRS on the Company's 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 will elect on transition date:

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 International Accounting Standards Board ("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. In addition, the Company anticipates a total of 11 cash generating units. Once the Company's petroleum and natural gas assets are allocated to their respective cash generating units, it is required to perform an impairment test. If an impairment is identified on the opening balance, it is recorded against retained earnings as a transitional adjustment. The Company anticipates an impairment to its PP&E in transition to IFRS.

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 unvested options outstanding on transition date. We anticipate minimal adjustments to equity as a result of adopting this standard.

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.

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 separated between tangible and intangible and 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 using total proved reserves or total proved plus probable reserves, test 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) and can group E&E assets with developing and producing assets.

The Company intends on using total proved and probable reserves for its impairment test and plans on testing the E&E assets along with the respective developing and producing assets within the cash generating units. 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 developing and producing ("D&P") assets and will be subject to depreciation and depletion.

Information technology and data systems

Bellatrix has performed a preliminary 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 cash generating unit level or lower. A test environment has been set up and Bellatrix is anticipating on completing the required testing and any resulting systems modifications in the third quarter of 2010.

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 in 2010.

Bellatrix has commenced the quantification of 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 intends on finalizing the opening balance sheet adjustments in the third quarter of 2010. Once finalized, the Company will present the results to its Audit Committee and Board members.

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

The reader is advised that Bellatrix continues to be subject to various types of business risks and uncertainties as described in the Company's Management, Discussion and Analysis for the year ended December 31, 2009 and the Company's Annual Information Form for the year ended December 31, 2009.

Critical Accounting Estimates

The reader is advised that the critical accounting estimates, policies, and practices as described in the Company's Management's Discussion and Analysis for the year ended December 31, 2009 continue to be critical in determining Bellatrix's unaudited financial results as at June 30, 2010. There were no changes in accounting policies for the six month period ended June 30, 2010.

Legal, Environmental Remediation and Other Contingent Matters

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.

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.

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.

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 April 1, 2010 and ended on June 30, 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, currency and interest rate changes. This is based on actual average prices received for the second quarter of 2010 and average production volumes of 7,671 boe/d during that period, as well as the same level of debt outstanding as at June 30, 2010. Diluted weighted average shares are based upon the second 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:

    
    -------------------------------------------------------------------------
                                   Funds Flow from           Funds Flow from
                                      Operations(1)             Operations(1)
                                       (annualized)        Per Diluted Share
    -------------------------------------------------------------------------
    Sensitivity Analysis                    ($000s)                       ($)
    -------------------------------------------------------------------------
    Change of US $1/bbl WTI                    590                      0.01
    Change of $0.10/ mcf                     1,050                      0.01
    Change of US $0.01 Cdn/ US
     exchange rate                             390                         -
    Change in prime of 1%                      350                         -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (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
        in the Management's Discussion and Analysis. 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 most recently completed quarters ending June 30, 2010.

    
    -------------------------------------------------------------------------
    2010 - Quarter ended
     (unaudited)
    ($000s, except per
     share amounts)          March 31      June 30
    -------------------------------------------------------------------------
    Revenues before
     royalties and risk
     management                26,929       25,574
    Cash flow from operating
     activities                13,456       6,065
    Cash flow from operating
     activities per share
      Basic and Diluted         $0.15        $0.07
    Funds flow from
     operations(1)             10,198       10,610
    Funds flow from
     operations per share(1)
      Basic                     $0.12        $0.11
      Diluted                   $0.11        $0.11
    Net income (loss)               7      (10,812)
    Net income per share
      Basic and Diluted         $0.00       $(0.12)
    Net capital expenditures
     (cash)                    18,393        17,656

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

    2009 - Quarter ended
     (unaudited)
    ($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)      (9,633)      (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            -            -            -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    2008 - Quarter ended
     (unaudited)
    ($000s, except per
     share amounts)          March 31      June 30     Sept. 30      Dec. 31
    -------------------------------------------------------------------------
    Revenues before royalties
     and risk management       70,033       82,074       72,225       41,053
    Cash flow from operating
     activities                17,843       19,892       29,406       11,643
    Cash flow from operating
     activities per share
      Basic and Diluted         $0.23        $0.25        $0.37        $0.15
    Funds flow from
     operations(1)             24,233       26,304       21,491        5,865
    Funds flow from
     operations per share(1)
      Basic and Diluted         $0.31        $0.33        $0.27        $0.07
    Net income (loss)         (18,621)     (21,374)      29,939       (9,534)
    Net income (loss) per
     share
      Basic and Diluted        $(0.24)      $(0.27)       $0.38       $(0.12)
    Net capital expenditures
     (cash)                     2,862      (34,450)      13,779       16,471
    Distributions declared      9,507        9,505        9,474        7,848
    Distributions per share     $0.12        $0.12        $0.12        $0.10
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Refer to "Non-GAAP Measures" in respect of the term "funds flow from
        operations" and "funds flow from operations per share".



    BELLATRIX EXPLORATION LTD.
    CONSOLIDATED BALANCE SHEETS
    As at June 30 and December 31 (unaudited)
    -------------------------------------------------------------------------

    ($000s)                                                2010         2009
    -------------------------------------------------------------------------
    ASSETS
    Current assets
      Accounts receivable                            $   22,688   $   20,722
      Deposits and prepaid expenses                       3,945        4,940
      Commodity contract asset (note 13)                  7,496        3,374
                                                    -------------------------
                                                         34,129       29,036
    Property, plant and equipment (note 4)              416,604      410,566
    Future income taxes (note 11)                         5,911        1,368
                                                    -------------------------
    Total assets                                     $  456,644   $  440,970
                                                    -------------------------
                                                    -------------------------

    LIABILITIES
    Current liabilities
      Accounts payable and accrued liabilities       $   26,622  $    23,345
      Future income taxes (note 11)                       2,129          960
                                                    -------------------------
                                                         28,751       24,305
    Long-term debt (note 5)                              34,401       27,902
    Convertible debentures (note 6)                      46,906       81,684
    Asset retirement obligations (note 7)                27,949       25,728
                                                    -------------------------
    Total liabilities                                   138,007      159,619
                                                    -------------------------

    SHAREHOLDERS' EQUITY
      Shareholders' capital (note 8)                    295,867      252,592
      Equity component of convertible debentures
       (note 6)                                           5,881        5,037
      Contributed surplus (note 9)                       29,289       28,232
      Deficit                                           (12,400)      (4,510)
                                                    -------------------------
    Total shareholders' equity                          318,637      281,351
                                                    -------------------------
    Total liabilities and shareholders' equity       $  456,644   $  440,970
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    SUBSEQUENT EVENT (note 14)

    See accompanying selected notes to the consolidated financial statements.


    BELLATRIX EXPLORATION LTD.
    CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
    For the three and six months ended June 30 (unaudited)

                        Three months ended June 30, Six months ended June 30,
    ($000s)                      2010         2009         2010         2009
    -------------------------------------------------------------------------

    REVENUES
      Petroleum and natural
       gas sales           $   25,574   $   29,805   $   52,503   $   61,150
      Royalties                (4,877)      (5,324)     (10,127)     (11,632)
      Gain on commodity
       contracts (note 13)        975        3,085       10,723       13,560
                          ---------------------------------------------------
                               21,672       27,566       53,099       63,078

    EXPENSES
      Production                9,079       11,916       17,796       25,862
      Transportation              877        1,267        1,685        2,830
      General and
       administrative           2,715        2,581        5,251        5,423
      Interest and
       financing charges        1,979        4,218        4,393        7,520
      Share-based
       compensation
       (recovery) (notes 8
       and 9)                     601          243          721         (360)
      Depletion,
       depreciation and
       accretion               17,349       27,374       33,325       54,629
      Loss on redemption
       of 7.5% Debentures
       (note 6)                 3,514            -        3,514            -
      Loss on sale of
       marketable securities        -          501            -          501
      Loss on petroleum and
       natural gas
       properties held for
       sale (note 4)                -      114,182            -      114,182
                          ---------------------------------------------------
                               36,114      162,282       66,685      210,587

    LOSS BEFORE TAXES         (14,442)    (134,716)     (13,586)    (147,509)

    TAXES
      Future income tax
       recovery (note 11)      (3,630)     (34,602)      (2,781)     (38,303)
                          ---------------------------------------------------

    NET LOSS BEFORE
     NON-CONTROLLING
     INTEREST                 (10,812)    (100,114)     (10,805)    (109,206)

      Non-controlling
       interest                     -         (399)           -         (435)
                          ---------------------------------------------------

    NET LOSS                  (10,812)     (99,715)     (10,805)    (108,771)
    -------------------------------------------------------------------------

     Realized loss on
      available for sale
      marketable securities         -          509            -          620
    -------------------------------------------------------------------------
    COMPREHENSIVE LOSS     $  (10,812)  $  (99,206)  $  (10,805)  $ (108,151)

    Net loss per share
      Basic                $    (0.12)  $    (1.27)  $    (0.12)  $    (1.39)
      Diluted              $    (0.12)  $    (1.27)  $    (0.12)  $    (1.39)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying selected notes to the consolidated financial statements.



    BELLATRIX EXPLORATION LTD.
    CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
    For the three and six months ended June 30 (unaudited)

                                Three months ended          Six months ended
                                           June 30,                  June 30,
    ($000s)                      2010         2009         2010         2009
    -------------------------------------------------------------------------

    SHAREHOLDERS' CAPITAL
    Trust units of
     True Energy Trust
      Balance, beginning
       and end of period   $      -     $  917,012   $        -   $  917,012
                          ---------------------------------------------------

    Common shares of
     Bellatrix Exploration
     Ltd.
      Balance, beginning
       of period              295,846            -      252,592            -
      Issued for cash, net
       of transaction costs        (4)           -       43,164            -
      Issued on exercise
       of share options            19            -           82            -
      Contributed surplus
       transferred on
       exercised options            6            -           29            -
                          ---------------------------------------------------
      Balance, end of
       period                 295,867            -      295,867            -
                          ---------------------------------------------------
                              295,867      917,012      295,867      917,012
                          ---------------------------------------------------

    EQUITY COMPONENT OF
     CONVERTIBLE DEBENTURES
      Balance, beginning and
       end of period            5,037        5,119        5,037        5,119
      Conversion feature of
       7.50% Debentures
       redeemed (note 6)       (5,037)           -       (5,037)           -
      Conversion feature on
       4.75% Debentures
       issued (note 6)          5,881            -        5,881            -
                          ---------------------------------------------------
      Balance, end of period    5,881        5,119        5,881        5,119
                          ---------------------------------------------------

    CONTRIBUTED SURPLUS
      Balance, beginning of
       period                  28,377       27,670       28,232       28,240
      Share-based
       compensation expense
       (note 8 and 9)             921          175        1,107          390
      Adjustment of prior
       period share-based
       compensation expense
       for forfeitures of
       unvested share
       options                     (3)          98          (21)        (687)
      Transferred to share
       capital for
       exercised options           (6)           -          (29)           -
                          ---------------------------------------------------
      Balance, end of period   29,289       27,943       29,289       27,943
                          ---------------------------------------------------

    DEFICIT
      Balance, beginning
       of period               (4,503)    (553,916)      (4,510)    (543,290)
      Distributions
       declared                     -            -            -       (1,570)
      Adjustment for
       redemption of 7.5%
       Debentures (note 6)      2,915            -        2,915            -
      Net loss                (10,812)     (99,715)     (10,805)    (108,771)
                          ---------------------------------------------------
      Balance, end of
       period                 (12,400)    (653,631)     (12,400)    (653,631)
                          ---------------------------------------------------

    ACCUMULATED OTHER
     COMPREHENSIVE INCOME
      Balance, beginning
       of period                    -         (509)           -         (620)
      Realized loss on sale
       of marketable
       securities                   -          509            -          620
                          ---------------------------------------------------
      Balance, end of
       period                       -            -            -            -
                          ---------------------------------------------------

    -------------------------------------------------------------------------
    TOTAL SHAREHOLDERS'
     EQUITY                $  318,637   $  296,443   $  318,637   $  296,443
    -------------------------------------------------------------------------

    See accompanying selected notes to the consolidated financial statements.



    BELLATRIX EXPLORATION LTD.
    CONSOLIDATED STATEMENTS OF CASH FLOWS
    For the three and six months ended June 30 (unaudited)

                                Three months ended          Six months ended
                                           June 30,                  June 30,
    ($000s)                      2010         2009         2010         2009
    -------------------------------------------------------------------------

    Cash provided by (used in):
    CASH FLOW FROM OPERATING ACTIVITIES
    Net loss               $  (10,812)  $  (99,715)  $  (10,805)  $ (108,771)
    Adjustments:
      Non-controlling
       interest                     -         (399)           -         (435)
      Depletion,
       depreciation and
       accretion               17,349       27,374       33,325       54,629
      Share-based
       compensation
       (recovery)
       (notes 8 and 9)            601          243          721         (360)
      Unrealized loss
       (gain) on commodity
       contracts (note 13)      3,134        2,704       (4,122)      (5,140)
      Accretion on
       convertible
       debentures (note 6)        454          477          956          951
      Loss on sale of
       marketable
       securities                   -          501            -          501
      Loss on petroleum
       and natural gas
       properties (note 4)          -      114,182            -      114,182
      Future income tax
       recovery (note 11)      (3,630)     (34,602)      (2,781)     (38,303)
      Loss on redemption
       of 7.5% Debentures
       (note 6)                 3,514            -        3,514            -
      Realization of imputed
       interest costs on
       7.5%Debentures (note 6) (5,050)           -       (5,050)           -
      Asset retirement
       costs incurred
       (note 7)                  (441)        (313)        (603)      (1,051)
      Change in non-cash
       working capital
       (note 10)                  946       (3,985)       4,366         (425)
                          ---------------------------------------------------
                                6,065        6,467       19,521       15,778

    CASH FLOW FROM (USED
     IN) FINANCING
     ACTIVITIES
      Increase (decrease)
       in bank debt            34,401      (11,417)       6,499      (12,183)
      Issuance of share
       capital, net of
       share issue costs
       (note 8)                    (4)           -       42,447            -
      Issuance of 4.75%
       Debentures, net of
       issue costs (note 6)    52,519            -       52,519            -
      Redemption of 7.50%
       Debentures (note 6)    (82,959)           -      (82,959)           -
      Proceeds from exercise
       of options (note 8)         19            -           82            -
      Distributions declared        -            -            -       (1,570)
                          ---------------------------------------------------
                                 3,976     (11,417)      18,588      (13,753)
      Change in non-cash
       working capital
      (note 10)                  (961)         709          593         (809)
                          ---------------------------------------------------
                                 3,015     (10,708)      19,181      (14,562)

    CASH FLOW FROM (USED
     IN) INVESTING
     ACTIVITIES
      Additions to
       property, plant
       and equipment          (18,283)      (1,151)     (36,629)      (3,907)
      Proceeds on sale of
       property, plant and
       equipment                  627        8,289          580        8,281
      Proceeds on sale of
       marketable
       securities                   -          349            -          349
                          ---------------------------------------------------
                              (17,656)       7,487      (36,049)       4,723
      Change in non-cash
       working capital
       (note 10)                 (421)      (3,246)      (2,653)      (5,939)
                          ---------------------------------------------------
                              (18,077)       4,241      (38,702)      (1,216)

      Change in cash           (8,997)           -            -            -

      Cash, beginning of
       period                   8,997            -            -            -
    -------------------------------------------------------------------------

      Cash, end of period  $        -   $        -   $        -   $        -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying selected notes to the consolidated financial statements.



    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
    (unaudited)
    -------------------------------------------------------------------------

    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. The Arrangement involved the exchange, on a one-for-one
        basis of trust units and exchangeable shares, after accounting for
        the conversion factor applicable to the exchangeable shares, for
        common shares of Bellatrix. 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.

        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 interim consolidated financial statements of the Company have
        been prepared by management in accordance with generally accepted
        accounting policies in Canada. The unaudited interim consolidated
        financial statements have been prepared following the same accounting
        policies and methods of computation as the consolidated financial
        statements for the fiscal year ended December 31, 2009. The interim
        consolidated financial statement note disclosures do not include all
        of those required by Canadian generally accepted accounting
        principles ("GAAP") applicable for annual financial statements.
        Accordingly, the interim consolidated financial statements should be
        read in conjunction with the consolidated financial statements and
        the notes thereto as at and for the year ended December 31, 2009.

    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. Currently, we are
        assessing the effects of adoption and developing a plan accordingly.
        We will continue to monitor any changes in the adoption of IFRS and
        will update plans as necessary.

    4.  PROPERTY, PLANT AND EQUIPMENT

        ($000s)
        ---------------------------------------------------------------------
                                                     Accumulated
                                                   depletion and    Net book
        June 30, 2010                         Cost  depreciation       value
        ---------------------------------------------------------------------
        Petroleum and natural gas
         properties                    $   988,208  $   573,184  $   415,024
        Office furniture and equipment       4,045        2,465        1,580
        ---------------------------------------------------------------------
                                       $   992,253  $   575,649  $   416,604
        ---------------------------------------------------------------------

        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 $51.0 million (2009: $62.5 million) for future
        development costs and excluded $19.8 million (2009: $26.6 million)
        for undeveloped land and $28.5 million (2009: $37.9 million) for
        estimated salvage from the depletion calculation during the six month
        period ended June 30, 2010.

        For the six month period ended June 30, 2010, the Company capitalized
        $1.0 million (2009: $0.2 million) of general and administrative
        expenses and $0.4 million (2009: $0.06 million) of share-based
        compensation expense directly related to exploration and development
        activities.

        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)                                         June 30, December 31,
                                                           2010         2009
        ---------------------------------------------------------------------
        Operating facility                          $     1,401  $     2,656

        Revolving term facility                          33,000       25,246
        ---------------------------------------------------------------------
        Balance, end of period                      $    34,401  $    27,902
        ---------------------------------------------------------------------

        The Company's credit facilities consists of a $10 million demand
        operating facility provided by a Canadian bank and a $75 million
        extendible revolving term credit facility provided by a Canadian bank
        and a Canadian financial institution. Amounts borrowed under the
        credit facilities 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 flow ratio. The credit facilities are secured
        by a $400 million debenture containing a first ranking charge and
        security interest. Bellatrix has provided a negative pledge and
        undertaking to provide fixed charges over 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.

        The revolving period for the revolving term credit facility will end
        on June 28, 2011, unless extended for a further 364-day period.
        Should the facility not be extended it will convert to a non-
        revolving term facility with the full amount outstanding due 366 days
        after the last day of the revolving period of June 28, 2011. The
        borrowing base will be subject to re-determination on November 30,
        2010. Thereafter, a semi-annual re-determination of the borrowing
        base will occur on May 30 and November 30 in each year prior to the
        maturity date.

        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 TSX, provided that the aggregate of all
        such normal course issuer bids and redemptions do not exceed $10.0
        million in any fiscal year.

    6.  CONVERTIBLE DEBENTURES

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

        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, June 30, 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          267          956
        Redeemed                           (82,373)           -      (82,373)
        ---------------------------------------------------------------------
        Balance, June 30, 2010         $         -  $    46,906  $    46,906
        ---------------------------------------------------------------------
        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, June 30, 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,
        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 $46.9 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
        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.  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 $65.0 million which
        will be incurred between 2012 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)                                         June 30, December 31,
                                                           2010         2009
        ---------------------------------------------------------------------
        Balance, beginning of period                $    25,728  $    33,682
        Incurred on development activities                  628          584
        Changes in prior period estimates                 1,160        1,652
        Reversed on dispositions                            (11)     (10,999)
        Settled during the period                          (603)      (1,510)
        Accretion expense                                 1,047        2,319
        ---------------------------------------------------------------------
        Balance, end of period                      $    27,949  $    25,728
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    8.  SHAREHOLDERS' EQUITY

        a. Common Shares

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

           ------------------------------------------------------------------
                                   June 30, 2010          December 31, 2009
                                            Amount                    Amount
                               Number       ($000s)      Number       ($000s)
           ------------------------------------------------------------------
           Common shares,
            opening
            balance        78,809,039  $   252,592            -  $         -
           Shares issued
            for cash, net
            of transaction
            costs and tax
            effect of
            $0.7 million   13,640,000       43,164            -            -
           Shares issued
            on exercise of
            options            34,827           82            -            -
           Contributed
            surplus trans-
            ferred on ex-
            ercised options         -           29            -            -
           Issued pursuant
            to Reorgan-
            ization                 -            -   78,496,581      250,194
           Issued on
            conversion of
            exchangeable
            shares pursuant
            to Reorgan-
            ization (note 1)        -            -      312,458        2,398
           ------------------------------------------------------------------
           Balance, end of
            period         92,483,866  $   295,867   78,809,039  $   252,592
           ------------------------------------------------------------------
           ------------------------------------------------------------------

           On January 28, 2010, Bellatrix closed a bought deal equity
           financing whereby 13,640,000 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.

           In connection with the Reorganization on November 1, 2009, 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.

        b. Share Option Plan

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

           Share Options Continuity
           ------------------------------------------------------------------
                                               Weighted Average
                                                 Exercise Price       Number
           ------------------------------------------------------------------
           Balance, December 31, 2009            $         2.01    4,213,733
           ------------------------------------------------------------------
           Granted                               $         3.83    2,054,500
           Exercised                             $         2.38      (34,827)
           Forfeited and cancelled               $         3.23      (73,534)
           ------------------------------------------------------------------
           Balance, June 30, 2010                $         2.61    6,159,872
           ------------------------------------------------------------------

           As of June 30, 2010, a total of 9,204,903 share options were
           reserved, leaving an additional 3,085,031 available for future
           grants.

           Share Options Outstanding, June 30, 2010
           ------------------------------------------------------------------
                           Outstanding                      Exercisable
                                               Weighted
                                  Weighted      Average
                             At    Average    Remaining         At
            Exercise    June 30,  Exercise  Contractual    June 30,  Exercise
             Price         2010      Price         Life       2010     Price
            -----------------------------------------------------------------
            $ 0.65 -
             $ 0.83      452,186    $ 0.68          3.8    135,803    $ 0.67
            $ 1.07 -
             $ 1.50    1,008,177    $ 1.35          3.8    254,694    $ 1.37
            $ 1.64 -
             $ 2.00    1,840,174    $ 1.88          3.8    458,579    $ 1.88
            $ 2.47 -
             $ 3.94    2,444,335    $ 3.64          4.4    260,992    $ 2.54
            $ 3.98 -
             $ 5.57      415,000    $ 4.93          2.0    389,333    $ 4.97
            -----------------------------------------------------------------
            -----------------------------------------------------------------
            $ 0.65 -
             $ 5.57    6,159,872    $ 2.61          3.9  1,499,401    $ 2.60
            -----------------------------------------------------------------
            -----------------------------------------------------------------

    9.  CONTRIBUTED SURPLUS

        ---------------------------------------------------------------------
        ($000s)                                         June 30, December 31,
                                                           2010         2009
        ---------------------------------------------------------------------
        Balance, beginning of period                $    28,232  $    28,240
        Share-based compensation expense                  1,107          812
        Adjustment of prior period share-based
         compensation expense for forfeitures of
         unvested share options                             (21)        (820)
        Transferred to share capital for exercised
         options                                            (29)           -
        ---------------------------------------------------------------------
        Balance, end of period                      $    29,289  $    28,232
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Share-based Compensation Expense

        During the six months ended June 30, 2010, the Company granted
        2,054,500 share options to employees, consultants, directors and
        officers. For the six months ended June 30, 2010, the Company
        recorded share-based compensation of $1.1 million, of which $0.4
        million was capitalized to property, plant and equipment.

        The fair values of all incentive rights 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 six month period ended June 30, 2010 and the assumptions used in
        their determination are as noted below:

        ---------------------------------------------------------------------
                                                                        2010
        ---------------------------------------------------------------------
        Assumptions:
          Risk free interest rate (%)                                    2-3
          Expected life (years)                                          2-5
          Expected volatility (%)                                      74-75
        ---------------------------------------------------------------------
        Results:
          Weighted average fair value of each option granted          $ 2.07
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    10. SUPPLEMENTAL CASH FLOW INFORMATION

        Cash Interest and Taxes Paid
        ---------------------------------------------------------------------
                                Three months ended          Six months ended
                                      June 30,                  June 30,
        ($000s)                  2010         2009         2010         2009
        ---------------------------------------------------------------------
        Cash paid:
          Interest        $     2,423  $     4,280  $     2,637  $     5,174
          Taxes (net of
           refunds)       $         -  $         1  $         -  $      (273)
        ---------------------------------------------------------------------


        Change in Non-cash Working Capital
        ---------------------------------------------------------------------
                                Three months ended          Six months ended
                                      June 30,                  June 30,
        ($000s)                  2010         2009         2010         2009
        ---------------------------------------------------------------------
        Changes in
         non-cash working
         capital items:
          Accounts
           receivable     $     2,688  $     2,787  $    (1,966) $     5,332
          Deposits and
           prepaid expenses      (392)       1,722          995        1,624
          Accounts payable
           and accrued
           liabilities         (2,732)     (11,031)       3,277      (12,559)
          Distributions
           payable                  -            -            -       (1,570)
        ---------------------------------------------------------------------
                          $      (436) $    (6,522) $     2,306  $    (7,173)
        ---------------------------------------------------------------------
        Changes related
         to:
          Operating
           activities     $       946  $    (3,985) $     4,366  $      (425)
          Financing
           activities            (961)         709          593         (809)
          Investing
           activities            (421)      (3,246)      (2,653)      (5,939)
        ---------------------------------------------------------------------
                          $      (436) $    (6,522) $     2,306  $    (7,173)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    11. 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.

        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
        June 30, 2010, Bellatrix has approximately $423 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 28.06% (2009: 29.48%) to income before taxes. This
        difference results from the following items:

        ---------------------------------------------------------------------
                                                            Six months ended
                                                                June 30,
        ($000s)                                            2010         2009
        ---------------------------------------------------------------------
        Expected income recovery                    $    (3,812) $   (43,486)
        Distribution deducted for tax purposes                -         (631)
        Share based compensation expense (recovery)         202         (106)
        Change in tax rates                                 882        5,750
        Other                                               (53)         170
        ---------------------------------------------------------------------
        Future income tax recovery                  $    (2,781) $   (38,303)
        ---------------------------------------------------------------------

    12. PER SHARE AMOUNTS

        ---------------------------------------------------------------------
                                Three months ended          Six months ended
                                      June 30,                  June 30,
                                 2010         2009         2010         2009
        ---------------------------------------------------------------------
        Basic common shares
         outstanding       92,483,866   78,496,581   92,483,866   78,496,581
        Dilutive effect
         of:
          Share options
           outstanding      6,159,872    4,234,632    6,159,872    4,234,632
          Units issuable
           for exchangeable
           shares                   -      312,467            -      312,467
          Shares issuable
           for convertible
           debentures(1)    9,821,429    5,390,625    9,821,429    5,390,625
        ---------------------------------------------------------------------
        Diluted common
         shares
         outstanding      108,465,167   88,434,305  108,465,167   88,434,305
        ---------------------------------------------------------------------
        Weighted average
         shares
         outstanding       92,481,374   78,496,581   90,358,879   78,496,581
        Dilutive effect
         of exchangeable
         shares, share
         options and
         convertible
         debentures(2)              -            -            -            -
        ---------------------------------------------------------------------
        Diluted weighted
         average shares
         outstanding       92,481,374   78,496,581   90,358,877   78,496,581
        ---------------------------------------------------------------------
        (1) Excludes 5,305,250 common shares issuable pursuant to the
            conversion of the 7.5% Debentures defeased on April 20, 2010. See
            note 6 for details.
        (2) A total of 6,159,872 (2009: 4,234,632) share options, nil (2009:
            312,467) exchangeable shares, 9,821,429 (2009: 5,390,625) common
            shares issuable pursuant to the conversion of the convertible
            debentures were excluded from the calculation for the three and
            six month period ended June 30, 2010 as they were not dilutive.

    13. FINANCIAL RISK MANAGEMENT

        a. Credit risk

           As at June 30, 2010, accounts receivable was comprised of and
           estimated to be aged as follows:

           ------------------------------------------------------------------
                                      Not past due     Past due
                                        (less than  (90 days or
           Aging ($000s)                   90 days)        more)       Total
           ------------------------------------------------------------------
           Joint venture and
            other trade accounts
            receivable                 $     3,265  $     2,058  $     5,863
           Amounts due from
            government agencies                428        4,651        5,079
           Revenue and other
            accruals                         8,216          457        8,673
           Cash call receivables                88        1,290        1,378
           Plant revenue allocation
            receivable                           -        2,855        2,855
           Less:
           Allowance for doubtful
            accounts                             -         (980)        (980)
           ------------------------------------------------------------------
           Total accounts receivable        12,357       10,331       22,688
           ------------------------------------------------------------------
           Less:
           Accounts payable due to
            same partners                   (1,101)        (306)      (1,407)
           Subsequent receipts              (9,103)      (1,211)     (10,314)
           ------------------------------------------------------------------
                                       $     2,153  $     8,814  $    10,967
           ------------------------------------------------------------------

           Amounts due from government agencies include drilling royalty
           credits, Alberta Royalty Tax Credit, GST and royalty and other
           adjustments. 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.

           The carrying amount of accounts receivable and derivative assets
           represents the maximum credit exposure. The Company has an
           allowance for doubtful accounts as at June 30, 2010 of $1.0
           million.

        b. Liquidity risk

           The following are the contractual maturities of financial
           liabilities as at June 30, 2010:
           ------------------------------------------------------------------
           Financial
            liability      (less than)
            ($000s)            1 Year    1-2 Years    2-5 Years   Thereafter
           ------------------------------------------------------------------
           Accounts
            payable and
            accrued
            liabili-
            ties(1)       $    26,622  $         -  $         -  $         -
           Convertible
            debentures
            - principal             -            -       55,000            -
           Convertible
            debentures
            - interest(2)       2,613        5,232        4,788            -
           ------------------------------------------------------------------
           Total          $    29,235  $     5,232  $    59,788  $         -
           ------------------------------------------------------------------
           (1) As at June 30, 2010, $0.5 million of accrued coupon interest
               payable in relation to the 4.75% Debentures is included in
               Accounts Payable and Accrued Liabilities.
           (2) The 4.75% Debentures outstanding at June 30, 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 facility is calculated based upon
           floating rates.

           As at June 30, 2010, the Company had committed to drill four wells
           pursuant to farm-in agreements. Bellatrix expects to satisfy this
           drilling commitment at an estimated cost of approximately $5.2
           million. Bellatrix committed to purchase $5.1 million of casing
           pipe which will be used in the 2010 capital program. As of June
           30, 2010, the balance of this commitment is $3.3 million.

        c. 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 and ensure minimum prices 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 June 30, 2010, the Company had entered into commodity price
           risk management arrangements as follows:

    -------------------------------------------------------------------------
                                                      Price       Price
    Type                   Period        Volume       Floor     Ceiling Index
    -------------------------------------------------------------------------
    Natural Gas   July 1, 2010 to
     fixed         Sept. 30, 2010 10,000 GJ/day  $ 5.66 CDN  $ 5.66 CDN  AECO
    Natural Gas   Oct. 1, 2010 to
     fixed          Dec. 31, 2010 10,000 GJ/day  $6.245 CDN  $6.245 CDN  AECO
    Natural Gas   Jan. 1, 2010 to
     call option    Dec. 31, 2010  5,000 GJ/day  $        -  $ 8.05 CDN  AECO
    Natural Gas    Feb.1, 2010 to
     fixed          Dec. 31, 2010  5,000 GJ/day  $ 5.52 CDN  $ 5.52 CDN  AECO
    Natural Gas  April 1, 2010 to
     fixed          Dec. 31, 2010  5,000 GJ/day  $ 5.57 CDN  $ 5.57 CDN  AECO
    Oil collar    Jan. 1, 2010 to
                    Dec. 31, 2010     500 bbl/d  $75.00 CDN  $101.15 CDN  WTI
    Oil fixed     June 1, 2010 to     500 bbl/d  $91.76 CDN  $ 91.76 CDN  WTI
                    Dec. 31, 2010
    -------------------------------------------------------------------------

           Subsequent to June 30, 2010, the Company entered into an
           additional price risk management contract consisting of a crude
           oil fixed price swap for 1,000 bbl/d of oil for the period of
           January 1, 2011 to December 31, 2011 at a price of CDN$88.18/bbl.

           For the three and six months ended June 30, 2010 and 2009, the
           gain (loss) on commodity contracts was comprised of the following:


           ------------------------------------------------------------------
                                Three months ended          Six months ended
                                      June 30,                  June 30,
           ($000s)               2010         2009         2010         2009
           ------------------------------------------------------------------

           Gain (loss) on
            commodity
            contracts
             Realized(1)  $     4,109  $     5,789  $     6,601  $     8,420
             Unrealized(2)     (3,134)      (2,704)       4,122        5,140
           ------------------------------------------------------------------
                          $       975  $     3,085  $    10,723  $    13,560
           ------------------------------------------------------------------
           (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.

           Interest rate risk

           The Company had no interest rate swap or financial contracts in
           place as at or during the six month period ended June 30, 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 8), 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.
           Subsequent to June 30, 30, 2010 (note 14), Bellatrix entered into
           an agreement to issue $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 between 1.0 to 2.0 times. As at June
           30, 2010, the Company's ratio of total net debt to annualized
           funds flow based on second quarter results was 1.9 times. The
           total net debt to annualized funds flow ratio as at June 30, 2010
           decreased from that at June 30, 2009 of 4.6 times due to the
           significant reduction in the Company's long term debt despite
           slightly lower annualized funds flow. The total net debt to
           annualized funds flow as at June 30, 2010 of 1.9 times increased
           slightly in comparison to the ratio of 1.7 times as at March 31,
           2010 as total net debt levels increased, offset by higher
           annualized funds flow. Bellatrix continues to take a balanced
           approach to the priority use of funds flows. The 4.75% Debentures
           outstanding as of June 30, 2010 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
           second quarter results was 0.8 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:

           ------------------------------------------------------------------
                                Three months ended          Six months ended
                                      June 30,                  June 30,
           ($000s)               2010         2009         2010         2009
           ------------------------------------------------------------------

           Shareholders'
            equity            318,637      296,443      318,637      296,443

           Long-term debt      34,401      120,205       34,401      120,205
           Convertible
            debentures
            (liability
            component)         46,906       82,075       46,906       82,075
           Working capital
            surplus               (11)      (5,563)         (11)      (5,563)
           ------------------------------------------------------------------
           Total net debt(1)
            at period end      81,296      196,717       81,296      196,717

           Debt to funds
            flow from
            operations ratio
            (annualized)(2)
           Funds flow from
            operations
            (annualized)       42,440       43,060       41,616       34,508
           Total net debt(1)
            to periods funds
            flow from
            operations ratio
            (annualized)         1.9x         4.6x         1.9x         5.7x

           Net debt(1)
            (excluding
            convertible
            debentures) at
            quarter end        34,390      114,642       34,390      114,642
           Net debt to
            periods funds
            flow from
            operations ratio
            (annualized)         0.8x         2.7x         0.8x         2.7x

           Debt to funds
            flow from
            operations ratio
            (trailing)(3)
           Funds flow from
            operations ratio
            trailing           39,579       62,360       39,579       62,360
           Total net debt(1)
            to periods funds
            flow from
            operations ratio
            (trailing)           2.0x         3.2x         2.0x         3.2x

           Net debt(1)
            (excluding
            convertible
            debentures) to
            periods funds
            flow from
            operations ratio
            (trailing)           0.9x         1.8x         0.9x         1.8x
           ------------------------------------------------------------------
           (1) Net debt includes the net working capital deficiency (excess)
               before short-term commodity contract assets and liabilities
               and short-term future income tax assets and liabilities. Total
               net debt also includes the liability component of the
               convertible debentures and excludes asset retirement
               obligations and the future income tax liability.
           (2) Debt to funds flow from operations ratio annualized is
               calculated based upon second quarter and year to date funds
               flow from operations annualized, respectively.
           (3) Trailing periods funds flow from operations is based on the
               twelve-months period ended June 30, 2010 and June 30, 2009.

           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 June 30, 2010 include
           accounts receivable, deposits, commodity contract asset, accounts
           payable and accrued liabilities, and convertible debentures. The
           fair value of accounts receivable, deposits, accounts payable and
           accrued liabilities 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 June 30, 2010 was an asset of $7.5
           million (2009: $8.9 million). 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 $52.3 million is based
           on exchange traded values. The 4.75% Debentures are classified as
           level 1 within the fair value hierarchy.

    14. SUBSEQUENT EVENT

        On July 21, 2010, the Company entered into an agreement with a
        syndicate of underwriters to issue, on a bought deal private
        placement basis, 4,710,000 common shares on a flow through basis
        ("Flow Through Shares") at a price of $4.25 per Flow Through Share
        for aggregate gross proceeds of $20,017,500 (the "Flow-Through
        Financing"). Proceeds of the Flow-Through Financing will be used to
        accelerate the Company's Cardium light oil exploration program by
        incurring expenditures eligible for Canadian exploration expenses
        that will be renounced to subscribers of the Flow Through Shares
        effective on or before December 31, 2010. Closing of the Flow-Through
        Financing is expected to occur on or about August 12, 2010 and is
        subject to certain conditions including, but not limited to, the
        receipt of all necessary approvals including the approval of the
        Toronto Stock Exchange.
    

An updated corporate presentation will be posted on 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.

SOURCE Bellatrix Exploration Ltd.

For further information: For further information: Raymond G. Smith, P.Eng., President and CEO, (403) 750-2420 or Edward J. Brown, CA, Vice President, Finance and CFO, (403) 750-2655 or Troy Winsor, Investor Relations, (800) 663-8072; Bellatrix Exploration Ltd., 2300, 530 - 8th Avenue SW, Calgary, Alberta, Canada, T2P 3S8, Phone: (403) 266-8670, Fax: (403) 264-8163, www.bellatrixexploration.com


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