TransGlobe Energy: 2008 Second Quarter Interim Report and News Release

CALGARY, ALBERTA, Aug 7, 2008 (Marketwire via COMTEX) -- TGL | Quote | Chart | News | PowerRating -- TransGlobe Energy Corporation ("TransGlobe" or the "Company") (TSX:TGL) (NASDAQ:TGA) is pleased to announce its financial and operating results for the three and six-month periods ended June 30, 2008. All dollar values are expressed in United States dollars unless otherwise stated. The conversion to barrels of oil equivalent ("Boe") of natural gas to oil is made on the basis of six thousand cubic feet of natural gas being equivalent to one barrel ("Bbl") of crude oil. With the sale of TransGlobe's Canadian assets on April 30, the results from the Canadian segment of operations are presented as "discontinued operations" in this document.

HIGHLIGHTS

- Record cash flow from operations in the second quarter of $18.5 million ($0.31/diluted share);

- Second-quarter loss of $5.4 million ($0.09/diluted share) due to derivative losses;

- Debt reduced from $98.0 million at the end of the first quarter to $43.0 million in the second quarter;

- Sold Canadian assets for Cdn $56.7 million;

- Continued production growth from operated assets in Egypt to 3,352 Bopd in the second quarter; total production averaging 7,706 Boepd, a 44% increase over the comparable quarter in 2007; and

- Average production from continuing operations of 7,283 Bopd in the second quarter.

Corporate Summary

During the second quarter, TransGlobe saw record cash flow from operations of $18.5 million. The cash flow increase of $0.6 million over the prior quarter is significant because approximately 1,500 Boepd of Canadian production was sold on April 30. The high oil prices and the production increases from the newly acquired West Gharib properties have more than offset the sale of the Canadian production. TransGlobe recorded a gain of approximately $4.4 million on the sale of its Canadian assets. The proceeds of $56.7 million from this disposition were applied to reduce TransGlobe's debt. This brought TransGlobe's debt at the end of the second quarter to $43.0 million, down from $98.0 million at the end of the first quarter. TransGlobe's debt-to-cash-flow ratio currently stands at approximately 0.7:1, and the Company is well positioned to take advantage of new opportunities. TransGlobe can fully fund its capital program from cash flow. In addition, TransGlobe's financial flexibility going forward was further strengthened by the expansion of the Revolving Credit Agreement from $50.0 million to $64.0 million.

TransGlobe recorded a loss in the second quarter of $5.4 million, mainly as a result of derivative losses of $20.4 million ($17.1 million unrealized) caused by the recent extreme volatility in oil prices. The Dated Brent oil price of $138.86 at the end of the second quarter represents a 38% increase over the first quarter. By the end of July, the oil price had dropped to $123.24, which lowered the Company's unrealized derivative liability to $19.4 million from $26.6 million at June 30, 2008. In 2008, approximately 26% percent of the Company's net daily production in 2008 is hedged at an average ceiling price of approximately $82.00/Bbl.

TransGlobe average production for 2008 is targeted to be 7,300 to 7,500 Boepd, a 30% increase over 2007 average production. This increase can be achieved despite the sale of the Canadian assets. The average production in the first six months of 2008 was 7,776 Boepd (includes 4 months of production from Canadian operations). A record drilling program is scheduled for the next six months which could result in further production increases and reserve additions. TransGlobe has concentrated heavily on development work in West Gharib during the first six months of 2008. West Gharib production increased by an additional 600 Bopd from wells drilled. The recent arrival of a second, large rig is accelerating the Egyptian drilling program for the balance of 2008.

The drilling program for the second half of 2008 and for 2009 will have a greater focus on exploration. Two exploration wells are currently drilling in Egypt, and one exploratory well is drilling on Block 32 in Yemen. An additional exploration well is planned on Block 72 in Yemen for the fourth quarter of 2008. TransGlobe is currently interpreting the new 3D seismic for Block 72, which will likely lead to the identification of additional drilling locations in the area. An extensive 3D seismic acquisition program is planned for Block S-1/Block 75 in the fourth quarter. Development work in Yemen in the second half of the year will also include up to three wells on the An Nagyah field. Further, a development well on Block 32, Godah-10, is anticipated to commence drilling in the third quarter of this year. The operations update section of this report provides further detail on TransGlobe's drilling plans for the rest of this year.

TransGlobe plans to drill up to eight new exploration prospects in the next twelve months, testing a variety of play types and sizes and potential reserves (unrisked) to TransGlobe of over 40 million barrels.

Other developments for TransGlobe include the recent increase - at no cost - of its holdings in the Nuqra field in Egypt due to the departure of a partner company and the announcement on July 30 of a new normal course issuer bid, which will allow the Company to buy back up to 5,558,322 shares at prevailing market price.

A conference call to discuss TransGlobe's second quarter results presented in this report will be held August 7, 2008 at 2:30 PM Mountain Time (4:30 PM Eastern Time) and is accessible to all interested parties by dialing 1-416-641-6108 or toll-free 1-866-226-1792 (see also TransGlobe's news release dated July 31, 2008).

FINANCIAL AND OPERATING RESULTS ($000s, except per share, price, volume amounts and % change) Three Months Ended June 30 Six Months Ended June 30 -------------------------------------------------------- Financial 2008 2007 Change 2008 2007 Change ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Oil and gas revenue 77,283 31,016 149% 137,703 56,770 143% Oil and gas revenue net of royalties and other 41,629 20,553 103% 77,544 37,804 105% Operating expense 4,901 4,189 17% 10,690 6,597 144% General and administrative expense 2,865 1,329 116% 5,137 2,532 103% Depletion, depreciation and accretion expense 9,145 10,021 (9)% 19,849 15,713 26% Income taxes 11,574 2,492 364% 18,724 4,568 316% Cash flow from operations(1) 18,485 12,814 44% 36,358 24,824 46% Basic per share 0.31 0.22 0.61 0.42 Diluted per share 0.31 0.21 0.61 0.41 Net income (loss) (5,365) 2,343 (329)% (907) 8,323 (111)% Basic per share (0.09) 0.04 (0.02) 0.14 Diluted per share (0.09) 0.04 (0.02) 0.14 Capital expenditures 4,522 10,048 (55)% 11,927 20,257 (41)% Corporate acquisition 241 - 44,459 - Long-term debt 42,197 - 42,197 - Common shares outstanding Basic (weighted average) 59,775 59,660 - 59,744 59,599 - Diluted (weighted average) 59,775 60,534 - 59,744 60,587 - Total assets 205,535 125,664 64% 205,535 125,664 64% ---------------------------------------------------------------------------- (1) Cash flow from operations is a non-GAAP measure that represents cash generated from operating activities before changes in non-cash working capital. Operating ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Total production (Boepd) (6:1)(1) 7,706 5,353 44% 7,776 5,264 48% Total sales (Boepd) (6:1)(1) 7,706 5,353 44% 7,776 5,347 45% Oil and liquids (Bopd) 7,370 4,391 68% 7,034 4,352 62% Average price ($ per Bbl) 112.45 68.08 65% 101.92 62.35 63% Gas (Mcfpd) 2,016 5,767 (65)% 4,449 5,971 (25)% Average price ($ per Mcf) 9.88 6.96 42% 8.78 6.84 28% Operating expense ($ per Boe) 7.00 8.60 (19)% 7.55 6.82 11% ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- (1) The differences in production and sales volumes result from inventory changes. Financial from Continuing Operations (excludes Canadian Operations) ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Oil and gas revenue from continuing operations 74,616 25,041 198% 126,680 45,067 181% Oil and gas revenue, net of royalties and other, from continuing operations 39,541 15,632 153% 68,889 28,235 144% Operating expense from continuing operations 4,465 3,009 48% 8,388 4,373 92% Depletion, depreciation and accretion expense from continuing operations 9,145 7,203 27% 17,171 10,243 68% Cash flow from continuing operations(1) 16,841 9,073 86% 30,005 17,479 72% Basic per share 0.28 0.15 0.50 0.29 Diluted per share 0.28 0.15 0.50 0.29 Net income (loss) from continuing operations (11,449) 1,417 (908)% (9,096) 6,519 (240)% Basic per share (0.19) 0.02 (0.15) 0.11 Diluted per share (0.19) 0.02 (0.15) 0.11 Capital expenditures 4,913 8,224 (40)% 11,178 14,533 (23)% ---------------------------------------------------------------------------- (1) Cash flow from continuing operations is a non-GAAP measure that represents cash generated from continuing operating activities before changes in non-cash working capital. Operating from Continuing Operations (excludes Canadian Operations) ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Total production from continuing operations (Bopd) (6:1) 7,283 3,964 84% 6,803 3,928 73% Total sales (Bopd) (6:1) 7,283 3,964 84% 6,803 3,928 73% Oil and liquids (Bopd) 7,283 3,964 84% 6,803 3,928 73% Average price ($ per Bbl) 112.59 69.42 62% 102.32 63.37 61% Operating expense ($ per Bbl) 6.74 8.34 (19)% 6.77 6.15 10% ---------------------------------------------------------------------------- ----------------------------------------------------------------------------

OPERATIONS UPDATE

ARAB REPUBLIC OF EGYPT

West Gharib, Arab Republic of Egypt (100% working interest, TransGlobe operated)

Operations and Exploration

Following the February 5, 2008 acquisition of GHP Exploration (West Gharib) Ltd. ("GHP"), TransGlobe holds a 100% working interest in the West Gharib PSC, which consists of nine development leases. This includes the East Hoshia development lease, which was approved in January 2008. Eight of the nine development leases (excluding the Hana development lease) are encumbered with a 25% financial interest through an investment agreement between Dublin Petroleum (Egypt) Limited (a wholly-owned subsidiary of TransGlobe) and a private company. The 25% financial interest is non-voting but otherwise is treated as a 25% participating interest partner.

Three wells were drilled during the second quarter resulting in two oil wells (at South Rahmi and Hoshia) and a water injection well at Hoshia. The drilling rig is currently drilling a deeper exploration well (9,000+ feet) at Hana which is expected to be completed in late August. The Hana exploration well is targeting a 2+ million barrel prospect (unrisked) below the main Hana pool. The secondary target for the well is the main producing reservoir in the Hana pool. The rig is currently scheduled to remain in the Hana field for additional development/appraisal wells. In mid-June, a second drilling rig (1,200 hp) arrived from China and was moved to a step out location in the Arta field for assembly and acceptance testing. The Arta well was drilled and cased as a potential oil well in late July. The well is expected to be completed and placed on production by mid August. Following the Arta well, the rig moved to an exploration well on the West Hoshia concession, targeting a 6+ million barrel (unrisked) prospect.

Obtaining a second drilling rig was a critical element of the Company's plan to accelerate the development of the existing West Gharib fields and to ramp up exploration on the West Gharib concession. The Company expects to drill 20-25 wells per year in West Gharib with two, deep rigs operating (depending upon the depths drilled). Acquisition commenced on a new 360+ km2 3-D seismic program in late July, one month ahead of schedule. The new 3-D seismic program extends northwest from the East Hoshia development lease to the East Arta development lease, covering five development leases. It is expected that the processed 3-D will be available for interpretation and mapping by the fourth quarter of this year to generate additional exploration and development locations.

The Company identified the Hana and Hoshia fields as waterflood/enhanced recovery projects with extended injection tests scheduled to commence mid-2008. Initial water injection commenced at Hana in late July and it is expected that water injection will begin at Hoshia in late August/September, depending on equipment availability. It is expected that full field-enhanced recovery project(s) could be approved by year-end, assuming the test injection projects support the reservoir simulation work. These projects could significantly increase the recoverable reserves assigned to the respective pools.

Production

Production from West Gharib averaged 3,758 Bopd (3,352 Bopd to TransGlobe) during the quarter, representing a 19% increase in total field production and a 38% increase to TransGlobe over the previous quarter. Production increases are primarily due to the purchase of a partner's interest, adding approximately 900 Bopd effective February 5, 2008, and drilling successes on the Hana and Hoshia fields.

Production averaged 3,438 Bopd during July (3,103 Bopd to TransGlobe).

Quarterly West Gharib Production (Bopd) 2008 2007 ---------------------------------------------------------------------------- Q-2 Q-1 Q-4 Q-3(1) ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Gross field production rate 3,758 3,160 2,932 218 TransGlobe effective working interest 3,352 2,432 1,594 118 TransGlobe net (after royalties) 1,907 1,389 971 73 TransGlobe net (after royalties and tax)(2) 1,311 958 714 51 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- (1) Production presented represents six days production, averaged over the quarter. (2) Under the terms of the West Gharib PSC, royalties and taxes are paid out of the government's share of production sharing oil.

Nuqra Block 1, Arab Republic of Egypt (71.43% working interest, TransGlobe operated)

Operations and Exploration

TransGlobe Petroleum Egypt Inc. (a wholly-owned subsidiary) increased its working interest in the Nuqra #1 joint venture to 71.43% from 50% effective June 30, 2008, subject to government approval. The increased working interest represents the Company's proportionate share of a departing joint venture partner's interest. Effective June 30, 2008, the Company will pay 88.57% of costs up to first oil production at which time the Company will pay 71.43% of costs going forward. Prior to June 30, the Company had paid 60% of the costs to first oil production with a 50% working interest. The Company will recover carried costs from the remaining partners' share of any future production.

The Company has identified a prospect that appears to be similar to the oil discovery announced by a competitor at Al Baraka #1 & 2 on the Kom Ombo Concession, located immediately west of the Nuqra Concession. One exploration well is budgeted for 2008 on a contingency basis. The Company has discussed rig sharing possibilities with the adjacent operators to facilitate a potential 2008/2009 drilling program.

YEMEN EAST- Masila Basin

Block 32, Republic of Yemen (13.81087% working interest)

Operations and Exploration

No new wells were drilled during the second quarter. Drilling commenced in August on an exploration well located approximately three kilometers east of Tasour. The exploration well is targeting a 12 million barrel (gross recoverable, unrisked) Qishn prospect with results expected during August. Following the Tasour east exploration well, the rig is scheduled to drill a step-out appraisal well at Godah 10 to extend the eastern boundary of the Godah pool.

Production

Production from Block 32 averaged 7,511 Bopd (1,037 Bopd to TransGlobe) during the quarter, essentially flat with the previous quarter. Production averaged approximately 7,805 Bopd (1,078 Bopd to TransGlobe) during July.

A six-inch gas pipeline connecting the Godah production facility to the Tasour Central Production Facility ("CPF") was constructed to supply associated gas production from the Godah pool to the Tasour CPF for fuel gas. It is expected that up to 60% of diesel being consumed for power generation can be replaced with natural gas, resulting in lower operating costs. The fuel-gas project became operational in July.

Quarterly Block 32 Production (Bopd) 2008 2007 ---------------------------------------------------------------------------- Q-2 Q-1 Q-4 Q-3 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Gross production rate 7,511 7,482 7,582 8,913 TransGlobe working interest 1,037 1,033 1,047 1,231 TransGlobe net (after royalties) 521 579 620 845 TransGlobe net (after royalties and tax)(1) 377 455 478 722 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- (1) Under the terms of the Block 32 PSA, royalties and taxes are paid out of the government's share of production sharing oil.

Block 72, Republic of Yemen (33% working interest)

Operations and Exploration

Field acquisition of 410 km2 of 3-D seismic and 100 km of 2-D seismic was completed at the end of March 2008. The southeastern portion of the seismic data has been processed and interpreted. The first of two planned exploration wells will target a 20 million barrel (gross recoverable, unrisked) Qishn prospect identified on the new seismic. The remainder of the 3-D seismic acquired over the northwest portion of the Block is being mapped and interpreted. It is expected that a second exploration well will be selected on the northwest area early in the fourth quarter. Drilling is scheduled to commence on the first exploration well in mid October with the second exploration well scheduled for December/January.

The Block 72 joint venture group has a remaining commitment of one exploration well during the first exploration period, which was extended to January 2009.

Block 84, Republic of Yemen (33% working interest)

Operations and Exploration

The Production Sharing Agreement ("PSA") for Block 84 was signed with the Ministry of Oil and Minerals ("MOM") on April 13, 2008. The PSA is now before Parliament for final approval and ratification, which is expected to occur later this year. A 400+ km2 3-D seismic acquisition program is planned for late 2008 with exploration drilling to commence in 2009. The timing of the 3-D seismic acquisition program is contingent upon receiving final approval and ratification of the Block 84 PSA.

Block 84 encompasses 731 km2 (approximately 183,000 acres) and is located in the Masila Basin adjacent to the Canadian Nexen Masila Block where more than one billion barrels of oil have been produced to date. The Block 84 joint venture group has committed to a 3-D seismic acquisition program and the drilling of four exploration wells during the first exploration period of 42 months.

YEMEN WEST- Marib Basin

Block S-1, Republic of Yemen (25% working interest)

Operations and Exploration

The operator is currently finalizing long term contracts for a drilling rig and services for Block S-1 and 75. Drilling is expected to commence early in the fourth quarter starting with three horizontal sidetracks in the An Nagyah field. The 2009 development and exploration drilling program for Block S-1 and Block 75 will be finalized during budget discussions this fall.

Gas injection commenced in the western portion of the An Nagyah field during the first quarter to improve production performance and increase recoverable reserves. In addition, the operator of the Block S-1 Joint Venture group has initiated discussions with the MOM regarding a potential development project to produce and sell known deposits of gas at the An Naeem discovery on Block S-1. At present, TransGlobe has not booked the significant gas reserves associated with the An Naeem discovery. An approved gas development plan is required to proceed with recognizing the reserves and with development.

A combined 3-D seismic program is planned to commence in late 2008 to define additional exploration drilling locations on the northwest portion of Block S-1 and the north portion of Block 75.

Production

Production from Block S-1 averaged 11,573 Bopd (2,893 Bopd to TransGlobe) during the second quarter, essentially flat with the previous quarter. Production averaged approximately 11,856 Bopd (2,964 Bopd to TransGlobe) during July.

Quarterly Block S-1 Production (Bopd) 2008 2007 ---------------------------------------------------------------------------- Q-2 Q-1 Q-4 Q-3 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Gross field production rate 11,573 11,378 10,768 9,924 TransGlobe working interest 2,894 2,844 2,692 2,481 TransGlobe net (after royalties) 1,453 1,593 1,469 1,418 TransGlobe net (after royalties and tax)(1) 1,051 1,253 1,153 1,162 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- (1) Under the terms of the Block S-1 PSA, royalties and taxes are paid out of the government's share of production sharing oil.

Block 75, Republic of Yemen (25% working interest)

Operations and Exploration

The PSA for Block 75 was ratified and signed into law effective March 8, 2008. A combined 3-D seismic program (Block S-1 and Block 75) is planned to commence in late 2008, with exploration drilling to commence in 2009.

Block 75 encompasses 1,050 km2 (approximately 262,500 acres) and is located in the Marib Basin adjacent to Block S-1. The Block 75 joint venture group has committed to carry out a 3-D seismic acquisition program and the drilling of one exploration well during the first exploration period of 36 months.

CANADA

Operations and Exploration

The Canadian assets were sold on April 30, 2008. The Canadian segment of operations are presented as "discontinued operations".

Production

Production averaged 1,283 Boepd during the month of April resulting in an average production rate of 423 Boepd during the second quarter of 2008.

Quarterly Canadian Production (Boepd) 2008 2007 ---------------------------------------------------------------------------- Q-2 Q-1 Q-4 Q-3 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- TransGlobe working interest 423 1,523 1,504 1,397 TransGlobe net (after royalties) 331 1,197 1,250 1,175 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------

Management's Discussion and Analysis

August 7, 2008

Management's discussion and analysis ("MD&A") should be read in conjunction with the unaudited interim consolidated financial statements for the three and six months ended June 30, 2008 and 2007 and the audited consolidated financial statements and MD&A for the year ended December 31, 2007 included in the Company's annual report. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in Canada in the currency of the United States (except where otherwise noted). Additional information relating to the Company, including the Company's Annual Information Form, is available on SEDAR at www.sedar.com. The Company's annual report on Form 40-F can be found in the Electronic Data Gathering, Analysis and Retrieval ("EDGAR") database at www.sec.gov.

Forward-looking Information

This MD&A may include certain statements that may be deemed to be "forward-looking statements" within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Such statements relate to possible future events. All statements other than statements of historical fact may be forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as "seek", "anticipate", "plan", "continue", "estimate", "expect", "may", "will", "project", "predict", "potential", "targeting", "intend", "could", "might", "should", "believe" and similar expressions. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. Although TransGlobe's forward-looking statements are based on the beliefs, expectations, opinions and assumptions of the Company's management on the date the statements are made, such statements are inherently uncertain and provide no guarantee of future performance. Actual results may differ materially from TransGlobe's expectations as reflected in such forward-looking statements as a result of various factors, many of which are beyond the control of the Company. These factors include, but are not limited to, unforeseen changes in the rate of production from TransGlobe's oil and gas properties, changes in price of crude oil and natural gas, adverse technical factors associated with exploration, development, production or transportation of TransGlobe's crude oil and natural gas reserves, changes or disruptions in the political or fiscal regimes in TransGlobe's areas of activity, changes in tax, energy or other laws or regulations, changes in significant capital expenditures, delays or disruptions in production due to shortages of skilled manpower, equipment or materials, economic fluctuations, and other factors beyond the Company's control. TransGlobe does not assume any obligation to update forward-looking statements if circumstances or management's beliefs, expectations or opinions should change, and investors should not attribute undue certainty to, or place undue reliance on, any forward-looking statements. Please consult TransGlobe's public filings at www.sedar.com and www.sec.gov for further, more detailed information concerning these matters.

Use of Barrel of Oil Equivalents

The calculation of barrels of oil equivalent ("Boe") is based on a conversion rate of six thousand cubic feet of natural gas to one barrel ("Bbl") of crude oil. Boe's may be misleading, particularly if used in isolation. A Boe conversion ratio of 6 Mcf:1 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.

Non-GAAP Measures

This document contains the term "cash flow from operations" and "cash flow from continuing operations", which should not be considered an alternative to, or more meaningful than "cash flow from operating activities" as determined in accordance with Generally Accepted Accounting Principles ("GAAP"). Cash flow from operations and cash flow from continuing operations are non-GAAP measures that represent cash generated from operating activities before changes in non-cash working capital. Management considers this a key measure as it demonstrates TransGlobe's ability to generate the cash flow necessary to fund future growth through capital investment. Cash flow from operations and cash flow from continuing operations may not be comparable to similar measures used by other companies.

Reconciliation of Cash Flow from Operations and Cash Flow from Continuing Operations Three Months Ended Six Months Ended June 30 June 30 ---------------------------------------------------------------------------- ($000s) 2008 2007 2008 2007 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Cash flow from operating activities 9,573 11,260 25,889 22,789 Changes in non-cash working capital from continuing operations 8,763 1,621 10,408 2,726 Changes in non-cash working capital from discontinued operations 149 (67) 61 (691) ---------------------------------------------------------------------------- Cash flow from operations (1) 18,485 12,814 36,358 24,824 Less: Cash flow from discontinued operations 1,644 3,741 6,353 7,345 ---------------------------------------------------------------------------- Cash flow from continuing operations(1)16,841 9,073 30,005 17,479 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- (1) Cash flow from operations and cash flow from continuing operations are non-GAAP measures that represent cash generated from operating activities and continuing operating activities, respectively, before changes in non-cash working capital.

Netback

Netback is a non-GAAP measure that represents revenue net of royalties, operating expenses and current taxes. Management believes that netback is a useful supplemental measure to analyze operating performance and provide an indication of the results generated by the Company's principal business activities prior to the consideration of other income and expenses. Netback may not be comparable to similar measures used by other companies.

GUIDANCE Six Months Twelve Months Ended Ended June 30, December 31, 2008 2008 ---------------------------------------------------------------------------- Actual Actual total continuing operations operations Guidance ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Production (Boepd) 7,776 6,803 7,300 - 7,500 Cash flow from operation ($millions) 36.4 30.0 68.0 - 70.0 Capital expenditures ($millions)(1) 11.9 11.2 38.0 ---------------------------------------------------------------------------- Dated Brent oil prices ($/Bbl) 109.14 102.31 100.00 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- (1) Excluding corporate acquisitions.

The production and cash flow in the 2008 guidance includes four months of production from Canadian operations (sold effective April 30, 2008).

We expect capital expenditures for the year to be approximately $38.0 million, a reduction from the original Guidance of $58.6 million. The reduction resulted mainly from the rephasing of projects totaling approximately $11.0 million in Yemen from late 2008 to early 2009 and delay the $4.0 million drilling program in Nuqra (Egypt) to 2009 due to rig availability. The reduction in the budget for the West Gharib concession of approximately $5.0 million is a result of lower costs on our capital projects than originally budgeted. The budgeted work program of 15 wells, 3-D seismic and the enhanced recovery test projects on West Gharib are expected to be completed as planned. In addition to actively pursuing new opportunities, excess cash will be applied to reduce company debt and to the purchase of shares under the normal course issuer bid.

The 2008 Guidance provides information as to management's expectation for results of operations for 2008. Readers are cautioned that the 2008 Guidance may not be appropriate for other purposes. The Company's expected results are sensitive to fluctuations in the business environment and may vary accordingly:

Sensitivity Cash flow from operations ---------------------------------------------------------------------------- $millions Per share ---------------------------------------------------------------------------- Volume changes 500 Bopd 5.0 0.08 ---------------------------------------------------------------------------- Price changes Dated Brent oil price - $10/Bbl 2.8 0.05 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- This guidance contains forward-looking statements that should be read in conjunction with the Company's disclosure under "Forward-Looking Statements" included on the first page of the MD&A. SELECTED QUARTERLY FINANCIAL INFORMATION 2008 2007 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- ($000s, except per share, price and volume amounts) Q-2 Q-1 Q-4 Q-3 Q-2 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Total Operations Average sales volumes (Boepd) 7,706 7,845 6,837 5,227 5,353 Average price ($/Boe) 110.21 84.63 75.83 67.04 63.68 Oil and gas sales 77,283 60,420 47,699 32,240 31,016 Oil and gas sales, net of royalties and other 41,629 35,915 29,343 20,764 20,553 Cash flow from operations(1) 18,485 17,873 13,944 13,373 12,814 Cash flow from operations per share - Basic 0.31 0.30 0.23 0.22 0.22 - Diluted 0.31 0.30 0.23 0.22 0.21 Net income (loss) (5,365) 4,458 (719) 5,198 2,343 Net income (loss) per share - Basic (0.09) 0.07 (0.02) 0.09 0.04 - Diluted (0.09) 0.07 (0.01) 0.08 0.04 Total assets 205,535 249,401 204,219 202,718 125,664 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Continuing Operations Average sales volumes (Bopd) 7,283 6,322 5,333 3,830 3,964 Average price from continuing operations ($/Bbl) 112.59 90.49 83.14 74.72 69.42 Oil and gas sales 74,616 52,064 40,788 26,326 25,041 Oil and gas sales, net of royalties and other 39,541 29,348 23,600 15,793 15,632 Cash flow from continuing operations(1) 16,841 13,164 9,334 9,257 9,073 Cash flow from continuing operations per share - Basic 0.28 0.22 0.16 0.16 0.15 - Diluted 0.28 0.22 0.15 0.15 0.15 Net income (loss) (11,449) 2,353 (2,319) 4,168 1,417 Net income (loss) per share - Basic (0.19) 0.04 (0.04) 0.07 0.02 - Diluted (0.19) 0.04 (0.04) 0.07 0.02 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- (1) Cash flow from operations and cash flow from continuing operations are non-GAAP measures that represent cash generated from operating activities and continuing operating activities, respectively, before changes in non-cash working capital.

Average sales volumes from total operations decreased 2%, on a Boepd basis, in Q2-2008 from Q1-2008 due to the sale of the Canadian operations, offset by increased production from continuing operations. Average sales volumes from continuing operations increased 15%, on a Bopd basis, in Q2-2008 from Q1-2008 due to realizing the full impact of the GHP acquisition in Egypt which added approximately 900 Bopd effective February 5, 2008 and drilling successes on the Hana and Hoshia fields in Egypt.

Cash flow from total operations and continuing operations increased 3% and 28% in Q2-2008 compared with Q1-2008, respectively. The increase in cash flow from total operations is due to an increase in average commodity prices, offset by a small decrease in total volumes, and increased royalty, general and administrative expenses ("G&A") and operating costs. The increase in cash flow from continuing operations is mainly a result of a 24% increase in average commodity prices and a 15% increase in volumes, offset partially by increased royalty, G&A and operating costs.

Net income from total operations in Q2-2008 was a loss of $5.4 million, representing a $9.8 million decrease from Q1-2008. Net income from total operations in Q2-2008 includes a gain on disposition of the Canadian assets of $4.4 million, net of tax. Net income from continuing operations in Q2-2008 was a loss of $11.4 million, representing a decrease of $13.8 million from Q1-2008. Although revenues, net of royalties, increased by $10.2 million in Q2, this amount was offset by a $16.5 million increase in the derivative loss on commodity contracts and an increase of $1.6 million amortization of transactions costs, resulting from the repayment of the Term Loan.

CORPORATE ACQUISITION

In the first quarter of 2008, the Company acquired all the shares of GHP Exploration (West Gharib) Ltd. ("GHP") for total consideration of $40.2 million, plus transaction costs and working capital adjustments, effective September 30, 2007. This acquisition was funded by bank debt and cash on hand. GHP holds a 30% working interest in the West Gharib Concession area in the Arab Republic of Egypt ("Egypt"). With the acquisition of GHP, the Company holds a 100% working interest in the West Gharib Production Sharing Concession ("PSC"), with a working interest of 100% in the Hana development lease and an effective working interest of 75% in the eight non-Hana development leases. TransGlobe is the operator of the West Gharib Concession.

The adjustment date of the acquisition is September 30, 2007, with all changes in working capital to February 5, 2008 (the closing date), including oil production from September 30, 2007 to February 5, 2008, recorded as a purchase price adjustment. Oil produced after February 5, 2008 is recorded as TransGlobe production.

DISCONTINUED OPERATIONS

TransGlobe entered into an agreement with a third party for the sale of its Canadian segment of operations to allow the Company to focus on the development of its Middle East/North Africa assets. The sale closed on April 30, 2008. Accordingly, the Canadian segment has been reclassified as discontinued operations in the Consolidated Financial Statements. This is further discussed in the MD&A section entitled "Operating Results From Discontinued Operations".

Q2-2008 TO Q2-2007 NET INCOME VARIANCES $ Per Share % $000s Diluted Variance ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Q2-2007 net income 2,343 0.04 ---------------------------------------------------------------------------- Cash items Volume variance 33,563 0.55 1,432 Price variance 16,012 0.26 683 Royalties (25,667) (0.42) (1,095) Expenses: - Operating (1,455) (0.02) (62) Realized derivative loss (3,373) (0.06) (144) Cash general and administrative (1,428) (0.02) (61) Current income taxes (9,079) (0.15) (387) Realized foreign exchange loss 33 - 1 Interest on long-term debt (981) (0.02) (42) Settlement of asset retirement obligations 95 - 4 Other income 48 - 2 Cash flow from discontinued operations 2,871 0.05 123 ---------------------------------------------------------------------------- Total cash items variance 10,639 0.17 454 ---------------------------------------------------------------------------- Non-Cash items Unrealized derivative loss (16,866) (0.28) (720) Depletion, depreciation and accretion (1,943) (0.03) (83) Stock-based compensation (135) - (6) Settlement of asset retirement obligations (95) - (4) Amortization of deferred financing costs (1,596) (0.03) (68) Non-cash income from discontinued operations 2,288 0.04 98 ---------------------------------------------------------------------------- Total non-cash items variance (18,347) (0.30) (783) ---------------------------------------------------------------------------- Q2-2008 net income (loss) (5,365) (0.09) (329) ---------------------------------------------------------------------------- ----------------------------------------------------------------------------

Net income decreased $7.7 million in Q2-2008 compared with Q2-2007 mainly as a result of a $17.1 million unrealized derivative loss in the quarter ended June 30, 2008. <table>

OPERATING RESULTS AND NETBACK

Daily Volumes, Working Interest Before Royalties and Other

Three Months Ended Six Months Ended June 30 June 30 ---------------------------------------------------------------------------- 2008 2007 2008 2007 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Egypt - Oil sales(1) Bopd 3,352 - 2,892 - Yemen - Oil sales Bopd 3,931 3,964 3,911 3,928 ---------------------------------------------------------------------------- Total continuing operations - daily sales volumes Bopd 7,283 3,964 6,803 3,928 ---------------------------------------------------------------------------- Canada - Oil and liquids Bopd sales(2) 87 428 231 423 - Gas sales(2) Mcfpd 2,016 5,767 4,449 5,971 ---------------------------------------------------------------------------- Canada Boepd 423 1,389 973 1,419 ---------------------------------------------------------------------------- Total Company - daily sales volumes Boepd 7,706 5,353 7,776 5,347 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- (1) Egypt includes the operating results of GHP for the period February 5, 2008 to June 30, 2008. In that period, production averaged 1,082 Bopd for a year to date average of 874 Bopd. (2) Canada includes the operating results for the period January 1, 2008 to April 30, 2008. In that period, production averaged 1,463 Boepd.

Netback from Continuing Operations

Consolidated ---------------------------------------------------------------------------- Six Months Ended Six Months Ended June 30, 2008 June 30, 2007 ---------------------------------------------------------------------------- (000s, except per Bbl amounts) $ $/Bbl $ $/Bbl ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Oil sales 126,680 102.31 45,057 63.37 Royalties and other 57,791 46.68 16,822 23.66 Current taxes 18,806 15.19 4,497 6.32 Operating expenses 8,388 6.77 4,373 6.15 ----------------------------------------------------------------------------

Netback 41,695 33.68 19,365 27.24

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

Consolidated ---------------------------------------------------------------------------- Three Months Ended Three Months Ended June 30, 2008 June 30, 2007 ---------------------------------------------------------------------------- (000s, except per Bbl amounts) $ $/Bbl $ $/Bbl ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Oil sales 74,616 112.59 25,041 69.42 Royalties and other 35,075 52.92 9,409 26.08 Current taxes 11,574 17.46 2,495 6.92 Operating expenses 4,465 6.74 3,009 8.34 ----------------------------------------------------------------------------

Netback 23,502 35.46 10,128 28.08

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

</table>

Segmented Net Operating Results

In Q2-2008, the Company had continuing operations in two geographic areas, segmented into the Arab Republic of Egypt and the Republic of Yemen ("Yemen"), and discontinued operations in Canada. The MD&A for the continuing operations will follow. Please refer to "Operating Results from Discontinued Operations" for the MD&A on the Canadian segment.

Egypt Six Months Ended ---------------------------------------------------------------------------- June 30, 2008 June 30, 2007 ---------------------------------------------------------------------------- (000s, except per Bbl amounts) $ $/Bbl $ $/Bbl ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Oil sales 48,610 92.35 - - Royalties and other 20,913 39.73 - - Current taxes 8,639 16.41 - - Operating expenses 2,037 3.87 - - ---------------------------------------------------------------------------- Netback 17,021 32.34 - - ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Three Months Ended ---------------------------------------------------------------------------- June 30, 2008 June 30, 2007 ---------------------------------------------------------------------------- (000s, except per Bbl amounts) $ $/Bbl $ $/Bbl ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Oil sales 30,984 101.58 - - Royalties and other 13,352 43.77 - - Current taxes 5,515 18.08 - - Operating expenses 1,326 4.35 - - ---------------------------------------------------------------------------- Netback 10,791 35.38 - - ---------------------------------------------------------------------------- ----------------------------------------------------------------------------

The netback for Egypt for Q2-2008 includes average quarterly production of 1,128 Bopd from the GHP acquisition that closed on February 5, 2008 and 2,224 Bopd from the acquisition of Dublin International Petroleum (Egypt) Limited ("Dublin") and Drucker Petroleum Inc. ("Drucker") that was completed in Q3-2007. The average selling price during that period for this production was $101.58/Bbl, which represents a gravity/quality adjustment of approximately $19.80/Bbl to an average Dated Brent price for the period of $121.38/Bbl.

Yemen Six Months Ended ---------------------------------------------------------------------------- June 30, 2008 June 30, 2007 ---------------------------------------------------------------------------- (000s, except per Bbl amounts) $ $/Bbl $ $/Bbl ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Oil sales 78,070 109.68 45,057 63.37 Royalties and other 36,878 51.81 16,822 23.66 Current taxes 10,167 14.28 4,497 6.32 Operating expenses 6,351 8.92 4,373 6.15 ---------------------------------------------------------------------------- Netback 24,674 34.67 19,365 27.24 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Three Months Ended ---------------------------------------------------------------------------- June 30, 2008 June 30, 2007 ---------------------------------------------------------------------------- (000s, except per Bbl amounts) $ $/Bbl $ $/Bbl ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Oil sales 43,632 121.97 25,041 69.42 Royalties and other 21,723 60.73 9,409 26.08 Current taxes 6,059 16.94 2,495 6.92 Operating expenses 3,139 8.77 3,009 8.34 ---------------------------------------------------------------------------- Netback 12,711 35.53 10,128 28.08 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------

In Yemen, netback increased 26% and 27% in the three and six month periods ending June 30, 2008, respectively, compared with the same periods of 2007, primarily as a result of oil sales increasing by 74% and 73%, respectively. The increase in sales was mainly due to oil prices growing in the three and six month periods ending June 30, 2008 by 76% and 73%, respectively, over 2007. Sales volumes remained constant in Q2-2008 compared with Q2-2007.

- Royalties and taxes as a percentage of revenue increased to 60% in the first six months of 2008 compared with 47% in 2007. Royalty and tax rates fluctuate in Yemen due to changes in the amount of cost sharing oil, whereby the Block 32 and Block S-1 PSAs allow for the recovery of operating and capital costs through a reduction in government take of oil production.

- Operating expenses on a Bbl basis for the three and six months ended June 30, 2008 increased 5% and 45%, respectively, mainly due to declining production in the Tasour field, increased diesel costs and well workovers.

COMMODITY CONTRACTS

TransGlobe uses hedging arrangements as part of its risk management strategy to manage commodity price fluctuations and stabilize cash flows for future exploration and development programs. The hedging program was expanded significantly in September 2007 to protect the cash flows from the added risk of commodity price exposure following a marked increase in TransGlobe's debt levels resulting from the Dublin and Drucker acquisitions.

From a corporate perspective, the high commodity prices in the quarter had a significant positive impact on the Company's revenue. However, these strong prices resulted in realized losses recorded on the derivative commodity contracts closed out during the quarter based on a weighted average Dated Brent oil price of $121.38/Bbl. In addition, the high forward curve prices for Dated Brent oil of $138.86/Bbl at June 30, 2008 resulted in the recording of unrealized losses on the future derivative commodity contracts.

The estimated fair value of unrealized commodity contracts is reported on the Consolidated Balance Sheets, with any change in the unrealized positions recorded to income. The fair values of these transactions are based on an approximation of the amounts that would have been paid to, or received from, counter-parties to settle the transactions outstanding as at the Consolidated Balance Sheet date with reference to forward prices and market values provided by independent sources. The actual amounts realized may differ from these estimates.

Three Months Ended Six Months Ended June 30 June 30 ---------------------------------------------------------------------------- ($000s) 2008 2007 2008 2007 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Realized cash loss on commodity contracts 3,373 - 4,877 - Unrealized loss on remaining commodity contracts 17,061 195 19,468 154 ---------------------------------------------------------------------------- Total derivative loss on commodity contracts 20,434 195 24,345 154 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------

If the Dated Brent oil price remains at the high levels experienced at the end of Q2-2008, the unrealized loss will be realized over the next two years. However, a 10% decrease in Dated Brent oil prices would result in a $6.1 million reduction in the derivative commodity contract liability, thus reducing the unrealized loss by the same amount. Conversely, a 10% increase in Dated Brent oil prices would increase the unrealized loss on commodity contracts by a further $6.2 million. The following commodity contracts are outstanding at June 30, 2008:

Dated Brent Period Volume Type Pricing Put-Call ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Crude Oil September 1, 2007- Financial August 31, 2008 15,000 Bbls/month Collar $60.00-$78.55 January 1, 2008- Financial December 31, 2008 12,000 Bbls/month Collar $60.00-$81.20 January 1, 2009- Financial December 31, 2009 12,000 Bbls/month Collar $60.00-$82.10 September 1, 2008- Financial January 31, 2009 11,000 Bbls/month Collar $60.00-$88.80 February 1, 2009- Financial December 31, 2009 6,000 Bbls/month Collar $60.00-$86.10 January 1, 2010- Financial August 31, 2010 12,000 Bbls/month Collar $60.00-$84.25 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------

The total volumes hedged for the balance of 2008 and the following years are:

6 Months 2008 2009 2010 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Bbls 146,000 221,000 96,000 Bopd 793 605 263 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------

As a result of the re-evaluation of management's intent for the derivative commodity contracts, the derivative commodity contracts were classified as both current and long-term liabilities on the Balance Sheet as at June 30, 2008 as there is no intent to early settle these derivative instruments. With $15.0 million of the derivative commodity contracts classified as current liabilities, $11.6 million of the derivative commodity contracts were classified as long-term liabilities.

GENERAL AND ADMINISTRATIVE EXPENSES Six Months Ended ---------------------------------------------------------------------------- June 30, 2008 June 30, 2007 ---------------------------------------------------------------------------- (000s, except Bbl amount

More News:   Market Updates | Stock Alerts | All Trading News | Stock Index