UNITED STATES 
  SECURITIES AND EXCHANGE COMMISSION 
  Washington, DC 20549

FORM 20-F

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
  EXCHANGE 
  ACT OF 1934 FOR THE YEAR ENDED DECEMBER 31, 2002

Commission File No.: 0-11378

TRANSGLOBE ENERGY CORPORATION
  (Exact name of Registrant as specified in its charter)

British Columbia, Canada 
  (Jurisdiction of incorporation or organization)

Suite 2900
  330  Fifth Avenue S.W. 
  Calgary, Alberta
  Canada
  T2P 0L4 
  (Address of principal executive office)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

None

Securities registered or to be registered pursuant to Section 12(g) of the Act:

(Title of class) Common Shares

Securities for which there is a reporting obligation pursuant
  to Section 15(d) of the Act:

(Title of class) None

Indicate the number of outstanding shares of each of the Issuers
  classes of capital or common stock as of the close of the period covered by
  the annual report.

51,494,801 Common Shares

Indicate by a check mark whether the Registrant: (1) has filed
  all reports required to be filed by Section 13 or 15(d) of the Securities
  Exchange Act of 1934 during the preceding 12 months (or for such shorter
  period that the Registrant was required to file such reports and (2) has been
  subject to such filing requirements for the past 90 days.

YES X          NO

Indicate by check mark which financial statement item the registrant has elected to follow:

Item 17 XItem 18

Index to Exhibits on Page 42

Page 1 of 62

---

TABLE OF CONTENTS

|PART I   |                                                                                    | 5  | 
|-------- | ---------------------------------------------------------------------------------- | -- | 
|ITEM 1.  | Identity Of Directors, Senior Management And Advisers                              | 5  | 
|ITEM 2.  | Offer Statistics And Expected Timetable                                            | 5  | 
|ITEM 3.  | Key Information                                                                    | 5  | 
|ITEM 4.  | Information On The Company                                                         | 9  | 
|ITEM 5.  | Operating and Financial Review and Prospects                                       | 23 | 
|ITEM 6.  | Directors, Senior Management and Employees                                         | 30 | 
|ITEM 7.  | Major Shareholders and Related Party Transactions                                  | 34 | 
|ITEM 8.  | Financial Information                                                              | 35 | 
|ITEM 9.  | The Offer and Listing                                                              | 36 | 
|ITEM 10. | Additional Information                                                             | 36 | 
|ITEM 11. | Quantitative and Qualitative Disclosures About Market Risk                         | 40 | 
|ITEM 12. | Description Of Securities Other Than Equity Securities                             | 40 | 
|         |                                                                                    |    | 
|PART II  |                                                                                    | 40 | 
|ITEM 13. | Defaults, Dividend Arrearages and Delinquencies                                    | 40 | 
|ITEM 14. | Material Modifications to the Rights of Security Holders and
      Use of Proceeds | 40 | 
|ITEM 15. | Controls and Procedures                                                            | 41 | 
|ITEM 16. | Reserved                                                                           | 41 | 
|         |                                                                                    |    | 
|PART III |                                                                                    | 41 | 
|ITEM 17. | Financial Statements                                                               | 41 | 
|ITEM 18. | Financial Statements                                                               | 41 | 
|ITEM 19. | Exhibits                                                                           | 42 | 





Page 2 of 62

---

GLOSSARY OF TERMS

The terms defined are used throughout this Annual Report.

TransGlobeorCompanyTransGlobe Energy Corporation,
  a corporation organized and registered under the laws of British Columbia, Canada
  and its subsidiary companies.

BblOne stock tank barrel, of 42 U.S. gallons liquid
  volume, used herein in reference to crude oil or other liquid hydrocarbons.

Boe One barrel of oil equivalent using the ratio of
  one barrel of crude oil, condensate or natural gas liquids to 6 Mcf of
  natural gas, unless defined otherwise.

BoepdOne barrel of oil equivalent per day.

Bopd Barrels of oil per day.

Common Share or Shares The common shares of
  TransGlobe.

Dry Hole Dry Well Non-Productive WellA well found
  to be incapable of producing either oil or natural gas in sufficient quantities
  to justify completion as an oil or natural gas well.

Exploratory WellAn exploratory well is a well drilled
  either in search of a new, as-yet undiscovered oil or natural gas reservoir
  or to greatly extend the known limits of a previously discovered reservoir.

GAAPGenerally accepted accounting principles.

Gross AcresorGross WellsThe total acres or
  wells, as the case may be, in which a working interest is owned. MBblsOne
  thousand barrels of crude oil or other liquid hydrocarbons. MboeOne
  thousand Boes. McfOne thousand cubic feet of natural gas. McfpdOne
  thousand cubic feet of natural gas per day. MMcf One million cubic feet
  of natural gas. MoiibusMoiibus Resource Corporation, acquired by the
  Company in April 1999. MMcfpdOne million cubic feet of natural gas per
  day.

MOMMinistry of Oil and Minerals, Republic of Yemen,
  formerly MOMR, the Ministry of Oil and Mineral Resources.

Net Acres or Net WellsThe sum of the fractional working
  interests owned in gross acres or gross wells.

NGLsNatural gas liquids.

OTC BBThe Over the Counter Bulletin Board operated
  by the National Association of Securities Dealers Inc.

Productive WellA well that is producing oil or natural
  gas or that is capable of production.

Proved Developed ReservesReserves that can be expected
  to be recovered through existing wells with existing equipment and operating
  methods.

Proved ReservesThe estimated quantities of crude oil,
  natural gas and natural gas liquids which geological and engineering data demonstrate
  with reasonable certainty to be recoverable in future years from known reservoirs
  under existing economic and operating conditions.

Proved Undeveloped ReservesReserves that are expected
  to be recovered from new wells on undrilled acreage or from existing wells where
  a relatively major expenditure is required for recompletion.

PSAProduction Sharing Agreement.

Page 3 of 62

---

QQuarter

TSXThe Toronto Stock Exchange.

Undeveloped AcreageLease acreage on which wells have
  not been participated in or completed to a point that would permit the production
  of commercial quantities of oil and natural gas regardless of whether such acreage
  contains proved reserves.

Vintage means Vintage Petroleum, Inc. and its subsidiaries.

Working InterestThe operating interest which gives
  the owner the right to drill, produce and conduct operating activities on the
  property as well as to a share of production.

YOCThe Yemen Company or Yemen Oil Company.

YrYear

PRESENTATION OF INFORMATION

TransGlobe Energy Corporation (the Company) conducts
  its operations directly and through subsidiaries. The term TransGlobe
  as used herein refers, unless the context otherwise requires, to the Company
  and its wholly owned subsidiaries. Unless otherwise specified, all dollar
  amounts described herein are in United States currency. All references to daily
  production are before royalty, unless stated otherwise.

FORWARD LOOKING STATEMENTS

This Report contains forward looking statements within the
  meaning of the Private Securities Litigation Reform Act of 1995(United
  States). These forward looking statements are not guarantees of TransGlobes
  future operational or financial performance and are subject to risks and uncertainties.
  Certain statements in this Report constitute forward looking statements. When
  used in this Annual Report, the words estimate, intend, expect,
  anticipate and similar expressions are intended to identify forward-looking
  statements. Readers are cautioned not to place undue reliance on these statements,
  which speak only as of the date of this Annual Report. These statements are
  subject to risks and uncertainties that could cause results to differ materially
  from those contemplated in such forward-looking statements. Such risks and uncertainties
  include, but are not limited to, those identified under the subheading Risk
  Factors in Item 3 hereof.

Actual operational and financial results may differ materially
  from TransGlobes expectations contained in the 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 fields, changes in
  the price of crude oil and natural gas, adverse technical factors associated
  with exploration, development, product 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 Canadian,
  Yemen; or American tax, energy or other laws or regulations, changes in significant
  capital expenditures, delays in production starting up due to an industry shortage
  of skilled manpower, equipment or materials, and the cost of inflation.





Page 4 of 62

---

PART I

ITEM 1.IDENTITY
  OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2.OFFER
  STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3.KEY
  INFORMATION

A.Selected
  Financial Data

The Company changed its year end in 1999 from September 30
  to December 31. The change in year end was made to accommodate the ability to
  compare the Companys results with those of its peers in the industry with
  the same reporting period. All dollar values are expressed in U.S. dollars,
  unless otherwise stated.

The selected historical financial information presented in
  the table below for the fiscal years ended December 31, 2002 ( Fiscal
  2002). December 31, 2001 (Fiscal 2001), December 31, 2000
  (Fiscal 2000), December 31, 1999 (which was a 15 month fiscal year)
  (Fiscal 1999) and September 30, 1998 (Fiscal 1998),
  is derived from the audited consolidated financial statements of TransGlobe.
  The audited consolidated financial statements of TransGlobe for the years ended
  December 31, 2002, 2001 and 2000 are included in this Filing. The selected historical
  financial information for Fiscal 1999( fifteen month period ended December 31,
  1999) and 1998 presented in the table below are derived from audited financial
  statements of TransGlobe that are not included in this Filing. The selected
  financial information presented below should be read in conjunction with TransGlobes
  audited consolidated financial statements and the notes thereto (Item 17) and
  the Operating and Financial Review and Prospects (Item 5) elsewhere in this
  Filing.

The selected consolidated financial data has been prepared
  in accordance with Canadian Generally Accepted Accounting Principles (GAAP).
  The consolidated financial statements included in Item 17 in this filing are
  also prepared under Canadian GAAP. Included within these financial consolidated
  statements in Note 14 is a reconciliation between Canadian and US GAAP which
  differ only in respect of profit after tax and shareholders equity.

The Company uses the US dollar as the functional currency
  for its consolidated financial statements. The exchange rates for the high,
  low, period average and end of period being the inverse of the rates quoted
  by the Federal Reserve Bank of New York for Canadian dollars per US $1.00 for
  Fiscal 1998 to 2002 and for the three months ending March 31, 2003 are as follows:

|Fiscal Period      | Average (1) |  | High   |  | Low    |  | Period End | 
|------------------ | ----------- |  | ------ |  | ------ |  | ---------- | 
|                   |             |  |        |  |        |  |            | 
|Year Ended         |             |  |        |  |        |  |            | 
|December 31, 2002  | 0.6376      |  | 0.6613 |  | 0.6202 |  | 0.6339     | 
|December 31, 2001  | 0.6339      |  | 0.6289 |  | 0.6259 |  | 0.6278     | 
|December 31, 2000  | 0.6727      |  | 0.6969 |  | 0.6410 |  | 0.6669     | 
|December 31, 1999  | 0.6680      |  | 0.6925 |  | 0.6535 |  | 0.6925     | 
|September 30, 1998 | 0.6895      |  | 0.6563 |  | 0.6528 |  | 0.6530     | 
|                   |             |  |        |  |        |  |            | 
|Months Ended       |             |  |        |  |        |  |            | 
|November 30, 2002  | 0.6407      |  | 0.6613 |  | 0.6258 |  | 0.6390     | 
|December 31, 2002  | 0.6364      |  | 0.6613 |  | 0.6258 |  | 0.6339     | 
|January 31, 2003   | 0.6406      |  | 0.6586 |  | 0.6258 |  | 0.6572     | 
|February 28, 2003  | 0.6460      |  | 0.6739 |  | 0.6258 |  | 0.6739     | 
|March 31, 2003     | 0.6546      |  | 0.6836 |  | 0.6258 |  | 0.6813     | 
|April 30, 2003     | 0.6638      |  | 0.6976 |  | 0.6287 |  | 0.6976     | 

(1) The average of the exchange rates on the last day of each month during the applicable period.

Page 5 of 62

---

TRANSGLOBE ENERGY CORPORATION
  AND SUBSIDIARY COMPANIES
  SELECTED FINANCIAL DATA AS OF AND FOR THE PERIODS ENDED AS SHOWN (IN $000S EXCEPT PER SHARE DATA)

|                                                     |   |         |  |   |         |  |   |         |  |   |               |   |   |            |  
|---------------------------------------------------- | - | ------- |  | - | ------- |  | - | ------- |  | - | ------------- | - | - | ---------- | -
|Selected Income Statement
      Data                 |  
|                                                     |   |         |  |   |         |  |   |         |  |   |               |   |   |            |  
|Amounts in accordancewith
      CanadianGAAP         |  
|                                                     |   |         |  |   |         |  |   |         |  |   |               |   |   |            |  
|                                                     |   | Year    |  |   | Year    |  |   | Year    |  |   | Fifteen Month |   |   |            |  
|                                                     |   | Ended   |  |   | Ended   |  |   | Ended   |  |   | Period Ended  |   |   | Year Ended |  
|                                                     |   | Dec. 31 |  |   | Dec. 31 |  |   | Dec. 31 |  |   | Dec. 31       |   |   | Sept. 30   |  
|                                                     |   | 2002    |  |   | 2001    |  |   | 2000    |  |   | 1999          |   |   | 1998       |  
|                                                     |   |         |  |   |         |  |   |         |  |   |               |   |   |            |  
|Oil and gas revenue net of royalties                 | $ | 13,254  |  | $ | 8,554   |  | $ | 2,403   |  | $ | 1,096         |   | $ | 1,055      |  
|Other income                                         |   | 42      |  |   | 16      |  |   | 279     |  |   | 10            |   |   | 78         |  
|Operating expenses                                   |   | 1,843   |  |   | 1,540   |  |   | 499     |  |   | 304           |   |   | 162        |  
|General and administrative expenses                  |   | 814     |  |   | 567     |  |   | 1,140   |  |   | 547           |   |   | 831        |  
|Interest on long-term debt                           |   | 16      |  |   | 4       |  |   | 14      |  |   | 94            |   |   | 31         |  
|Depletion and depreciation                           |   | 4,277   |  |   | 2,762   |  |   | 635     |  |   | 395           |   |   | 1,227      |  
|Asset write-downs                                    |   | -       |  |   | -       |  |   | -       |  |   | -             |   |   | 6,575      |  
|Income (loss) before income taxes                    |   | 6,346   |  |   | 3,697   |  |   | 394     |  |   | (233          | ) |   | (7,692     | )
|Income taxes                                         |   | 920     |  |   | 635     |  |   | 86      |  |   | -             |   |   | -          |  
|Income (loss) for the period                         | $ | 5,426   |  | $ | 3,062   |  | $ | 308     |  | $ | (233          | ) | $ | (7,692     | )
|Income (loss) per share - basic                      | $ | 0.11    |  | $ | 0.06    |  | $ | 0.01    |  | $ | (0.01         | ) | $ | (0.42      | )
|Approximate amounts in accordance with US
      GAAP |   |         |  |   |         |  |   |         |  |   |               |   |  
|Income (loss) for the period                         | $ | 5,359   |  | $ | 3,062   |  | $ | 163     |  | $ | (233          | ) | $ | (6,274     | )
|Income (loss) per share                              | $ | 0.10    |  | $ | 0.06    |  |   | -       |  | $ | (0.01         | ) | $ | ( 0.34     | )
|                                                     |   |         |  |   |         |  |   |         |  |   |               |   |   |            |  

SELECTED BALANCE SHEET INFORMATION

|Amounts in accordance with
      Canadian GAAP |       
|---------------------------------------------- | ------
|                                               |       
|                                               | 2002  
|                                               | ($)   
|                                               |       
|Working capital (deficiency)                   | 4,749 
|Oil and gas properties  Canada                | 3,651 
|Oil and gas properties  United States         | -     
|Oil and gas properties  Yemen                 | 15,067
|Total assets                                   | 24,386
|                                               |       
|Long-term debt                                 | -     
|Shareholders equity                           | 23,345
|Amounts in accordance with US GAAP             |       
|Oil and gas properties  United States         | -     
|Shareholders equity                           | 23,345
|                                               |       

B.Risk Factors

General Conditions Relating to Oil and Gas Exploration
  and Production Operations

The Companys operations are subject to all the risks
  normally incident to the exploration for and production of oil and gas including
  geological risks, operating risks, political risks, development risks, marketing
  risks, and logistical risks of operating in Yemen.

Industry Risks

The Company is subject to normal industry risks due to the
  relatively small size of the Company, its level of cash flow, and the nature
  of the Companys involvement in the exploration for, and the acquisition,
  development and production of, oil and natural gas. Exploration for oil and
  natural gas involves many risks, which even a combination of experience, knowledge
  and careful evaluation may not be able to overcome. There is no assurance that
  further commercial quantities of oil and natural gas will be discovered by the
  Company.

Page 6 of 62

---

The Companys operations are subject to the risks normally
  incident to the operation and development of oil and natural gas properties
  and the drilling of oil and natural gas wells, including encountering unexpected
  formations or pressures, premature decline of reservoirs, invasion of water
  into producing formations, blow-outs, cratering, fires and oil spills, all of
  which could result in personal injuries, loss of life and damage to the property
  of the Company and others. Although the Company maintains insurance, in amounts
  and coverages which it considers adequate, in accordance with customary industry
  practice, the Company is not fully insured against all of these risks, nor are
  all such risks insurable, and, as a result, liability of the Company arising
  from these risks could have a material adverse effect upon its financial condition.

The operations and earnings of the Company may be affected
  from time to time in varying degrees by political developments and laws and
  regulations, such as forced divestiture of assets, restrictions on production,
  imports and exports; price controls, tax increases and retroactive tax claims,
  expropriations of property; and cancellation of contract rights. Both the likelihood
  of such occurrences and their overall effect upon the Company can vary greatly
  and are not predictable.

The marketability and price of oil and natural gas which may
  be acquired or discovered by the Company may be affected by numerous factors
  beyond the control of the Company. The Company may be affected by the differential
  between the price paid by refiners for light, quality oil and various grades
  of oil produced by the Company. The Company is subject to market fluctuations
  in the prices of oil and natural gas, deliverability uncertainties related to
  the proximity of its reserves to pipeline and processing facilities and extensive
  government regulation relating to prices, taxes, royalties, land tenure, allowable
  production, the export of oil and natural gas and many other aspects of the
  oil and natural gas business. The Companys operations will be further
  affected by the remoteness of, and restrictions on access to, certain properties
  as well as climatic conditions. The Company is also subject to compliance with
  federal, state and local laws and regulations controlling the discharge of materials
  into the environment or otherwise relating to the protection of the environment.
  The Company is not aware of present material liability related to environmental
  matters. However, it may, in the future, be subject to liability for environmental
  offences of which it is presently unaware.

Exploration and Development

The Companys participation in Block 32 and Block S-1
  in Yemen represents a major undertaking. The exploration program in Yemen is
  a high-risk venture with uncertain prospects for success. There are no assurances
  that commercial amounts of oil and natural gas will be discovered in Block S-1.
  There are sixteen wells on Block S-1 and none has proved a sufficient reserve
  size to proceed with a commercial development, although some of the wells have
  tested oil at commercial rates.

Even if commercial amounts of oil are discovered in Block
  S-1, development of it, including the required pipeline and production facilities,
  could take several years. The Companys development plan would likely involve
  drilling several wells in an attempt to demonstrate to financiers an economic
  reserve size exists, and contingent on financing, pipeline and production facilities
  would be constructed to produce the oil. The assumptions in the Companys
  development plan are based on the experience of management and the historical
  operational experience of other companies working in the vicinity. The assumptions
  may not be accurate in the future and therefore the project economics may be
  adversely affected. The harsh operating climate, adverse topography, or unanticipated
  drilling or logistical problems may cause cost overruns or may make a development
  project uneconomic. Future development of either Block 32 or Block S-1 may require
  additional financing which may not be available or, if available, may not be
  on favourable terms.

The operations and earnings of the Company and its subsidiaries
  are also affected by local, regional and global events or conditions that affect
  supply and demand for oil and natural gas. These events or conditions are generally
  not predictable and include, among other things, the development of new supply
  sources; supply disruptions; weather; international political events; technological
  advances; and the competitiveness of alternative energy sources or product substitutes.

Competition

The Company encounters strong competition from other independent
  operators and from major oil companies in acquiring properties suitable for
  development, in contracting for drilling equipment and in securing trained personnel.
  Many of these competitors have financial resources and staffs substantially
  larger than those available to the Company. The availability of a ready market
  for oil and gas discovered by the Company depends on numerous factors beyond
  its control, including the extent of production and imports of oil and gas,
  the demand for its products

Page 7 of 62

---

from Canada, the United States and Republic of Yemen, the
  proximity and capacity of natural gas pipelines and the effect of provincial,
  state or federal regulations.

Title to Properties

The Companys interests in the Canadian producing properties
  and non-producing properties are in the form of direct or indirect interests
  in leases. Such properties are subject to customary royalty interests generally
  contracted for in connection with the acquisition of properties, liens incident
  to operating agreements, liens for current taxes and other burdens and mineral
  encumbrances and restrictions. The Company believes that none of these burdens
  materially interferes with the use of such properties in the operation of the
  Companys business.

As is customary in the oil and gas industry in Canada, title
  is reviewed at the time of acquisition of undeveloped and developed properties.
  A thorough examination of title has been performed with respect to substantially
  all of the Companys producing properties in Canada and the Company believes
  that it has generally satisfactory title to such properties.

The Company participates, in Canada and Yemen, with industry
  partners with access to greater resources from which to meet their joint venture
  capital commitments. Should the Company be unable to meet its commitments, the
  joint venture partners may assume some or all of the Companys deficiency
  and thereby assume a pro-rata portion of the Companys interest in production
  from the joint venture lands. The Company is not a majority interest owner in
  all of its properties and does not have sole control over the future course
  of development in those properties.

Government Regulation

In the areas where the Company conducts activities there are
  statutory laws and regulations governing the activities of oil and gas companies.
  These laws and regulations allow administrative agencies to govern the activities
  of oil companies in the development, production and sale of both oil and gas.
  Changes in these laws and regulations may substantially increase or decrease
  the costs of conducting any exploration or development project. The Company
  believes that its operations comply with all applicable legislation and regulations
  and that the existence of such regulations have no more restrictive effect on
  the Companys method of operations than on similar companies in the industry.

Political Risks Relating to Yemen

Beyond the risks inherent in the oil and gas industry, the
  Company is subject to additional risks resulting from doing business in Yemen.
  While the Company has attempted to reduce many of these risks through agreements
  with the Government of Yemen and others, no assurance can be given that such
  risks have been mitigated. These risks can involve matters arising out of the
  evolving laws and policies of Yemen, the imposition of special taxes or similar
  charges, oil export or pipeline restrictions, foreign exchange fluctuations
  and currency controls, the unenforceability of contractual rights or the taking
  of property without fair compensation, restrictions on the use of expatriates
  in the operations and other matters.

There can be no assurance that the agreements entered into
  with the Government of Yemen and the MOM and others are enforceable or binding
  in accordance with TransGlobes understanding of their terms or that if
  breached, the Company would be able to find a remedy. The Company bears the
  risk that a change of government could occur and a new government may void the
  agreements, laws and regulations that the Company is relying on. Operations
  in Yemen are subject to risks due to the harsh climate, difficult topography
  and the potential for social, political, economic, legal and financial instability.

Reliance Upon Officers

The Company is largely dependent upon the personal efforts
  and abilities of its corporate officers. The loss or unavailability to the Company
  of these individuals may have a materially adverse effect upon the Companys
  business, especially in Yemen.

Multi-jurisdictional Legal Risks

The Company is incorporated under the laws of the Province
  of British Columbia, Canada, and all of the Companys directors and all
  of its officers are residents of Canada. Consequently, it may be difficult for
  United States investors to effect service of process within the United States
  upon the Company or upon those directors or officers, who are not residents
  of the United States, or to realize in the United States upon judgements of
  United

Page 8 of 62

---

States courts predicated upon civil liabilities under the
  Securities Exchange Act of 1934, as amended (United States). Furthermore,
  it may be difficult for investors to enforce judgements of the U.S. courts based
  on civil liability provisions of the U.S. federal securities laws in a Canadian
  court against the Company or any of the Companys non-U.S. resident executive
  officers or directors. There is substantial doubt whether an original lawsuit
  could be brought successfully in Canada against any of such persons or the Company
  predicated solely upon such civil liabilities.

ITEM 4.INFORMATION
  ON THE COMPANY

A.History
  and Development of the Company

TransGlobe Energy Corporation (referred to herein as TransGlobe
  or the Company) and its wholly owned subsidiaries, TransGlobe Oil
  and Gas Corporation, TransGlobe Petroleum International Inc., TransGlobe International
  (Holdings) Inc., and TG Holdings Yemen Inc. (TG Yemen), are primarily
  engaged in the exploration for, development, and production of, oil and gas
  in Canada and the Republic of Yemen.

The address of the Companys registered office is: 
                              28th
  Floor
                             
  666 Burrard Street
                             
  Vancouver, British Columbia
                             
  V6C 2Z7

The address and telephone number of the Companys principal place of
  business is: 
                             
  2900, 330  5th Avenue S.W.
                             
  Calgary, Alberta
                             
  T2P 0L4
                             
  Telephone:            (403)
  264-9888

The Company was incorporated on August 6, 1968 and was organized
  under variations of the name Dusty Mac as a mineral exploration
  and extraction venture under the Company Act in the province of British
  Columbia, Canada. In 1992 the Company entered into the oil and gas exploration
  and development field in the United States and later in the Republic of Yemen
  and Canada and ceased operations as a mining company. The United States oil
  and gas properties were sold in the year 2000 to fund opportunities in Yemen.
  The Company changed its name to TransGlobe Energy Corporation on April 2, 1996.

A description of the Companys operating and financial
  results by country, for the past three years can be found in Item 5. The description
  in Item 5, also includes the amount invested, of the Companys capital
  expenditures and divestitures

B.Business
  Overview

TransGlobe is an independent oil and gas exploration company
  with production operations in Canada and the Republic of Yemen. During 2002,
  the Company participated in the drilling of three wells (one was drilling over
  year end) and seismic acquisition surveys on Block 32, and the drilling of three
  wells (one was drilling over year end) on Block S-1, in Yemen. In Canada, the
  Company drilled three wells resulting in one producing gas well, one producing
  oil well, and one non producing gas well.

A description of the Companys operating and financial
  results by country, for the past three years can be found in Item 5. The description
  in Item 5 also includes the amount invested of the Companys capital expenditures
  and divestitures.

Page 9 of 62

---

C.Organizational
  Structure

TransGlobe Energy Corporation is a Canadian public company with several wholly-owned
  subsidiaries as follows:

|Name of Subsidiary                             | Country of Incorporation                                              | Ownership
|---------------------------------------------- | --------------------------------------------------------------------- | ---------
|TransGlobe Oil & Gas Corporation               | Washington State, United States                                       | 100%     
|TransGlobe Petroleum International Inc.        | Turks & Caicos Islands,
      B.W.I.                                  | 100%     
|TransGlobe International (Holdings)
      Inc. | Turks & Caicos Islands,
      B.W.I.
      Dissolved December 5, 2002 | 100%     
|TG Holdings Yemen Inc.                         | Turks & Caicos Islands,
      B.W.I.                                  | 100%     

TG Holdings Yemen Inc. owns TransGlobes interests in Block 32 and Block S-1 in Yemen.

D.Property,
  Plants and Equipment

TransGlobes major operations and principal activities
  are in the oil and gas exploration and production business. The Company has
  operated in three countries over the past three years: Canada, United States
  of America and the Republic of Yemen.

Republic of Yemen



Block S-1, Republic of Yemen

The Company, The Yemen Company (YOC) and the Yemen
  Ministry of Oil and Minerals (MOM) signed a Production Sharing Agreement
  (PSA) for the Damis S-1 Block (Block S-1) on December
  21, 1997. The PSA was approved by the Yemen Cabinet on May 21, 1998, was ratified
  by the Yemen Parliament on June 14, 1998, and was signed by the President of
  Yemen on June 28, 1998.

On February 12, 1998 the Company signed a farm out agreement
  for Block S-1 with a wholly owned subsidiary of Vintage Petroleum Inc., a large
  US independent exploration and production company based in Tulsa, Oklahoma and
  listed on the New York Stock Exchange. The farm out agreement allowed Vintage
  to earn a 75 percent working interest in Block S-1 by funding the first period
  exploration work commitments under the PSA and spending a minimum of $20 million,
  which Vintage has done. The Company retains a 25% working interest in Block
  S-1. Both the Companys and Vintages working interests are subject
  to the underlying royalties payable to the Republic of Yemen through the MOM
  explained below.

Page 10 of 62

---

Block S-1 Production Sharing Agreement

The Block S-1 PSA grants the Company the exclusive right to
  conduct petroleum operations in Block S-1, subject to certain conditions. Upon
  any commercial development of Block S-1, the Company and Vintage will pay 100%
  of the costs in respect of Block S-1. The Company, Vintage and The Yemen Company,
  an operating arm of the MOM (collectively, the Block S-1 Contractors)
  will share the production sharing oil, as defined in the Block S-1 PSA.

The exploration period of the Block S-1 PSA is segregated
  into two periods of 21⁄2 years. Each 21⁄2 year period may be extended
  for six months by submitting a request to the MOM. During the first exploration
  period of 21⁄2 years, Vintage and TransGlobe were obliged to spend a minimum
  of $11 million to acquire existing data, reprocess the data as necessary and
  re-map the data acquired; process and interpret 150 square kilometers of new
  3D seismic data; and drill and evaluate three exploration wells, which they
  did. During the optional second exploration period, Vintage and TransGlobe were
  also obliged to spend a minimum of $11 million on acquiring and interpreting
  a minimum of 100 square kilometers of new 3D seismic data and drill and evaluate
  three exploration wells, which has been done At the end of the first exploration
  period, Vintage and TransGlobe were required to relinquish to the MOM 25% of
  the Block S-1 area. At the end of the second exploration period, the Block S-1
  Contractors must relinquish the remainder of Block S-1 except for the development
  areas.

Upon any commercial development of Block S-1, the Block S-1
  Contractors (including The Yemen Company) will share revenues and expenses as
  follows: Details of the royalty payable to the MOM relating to Block S-1 (the
  Block S-1 Royalty) are as follows:

| | Production Rate       | Block S-1 Royalty | 
| | --------------------- | ----------------- | 
| |                       |                   | 
| | 0-12,500 bopd         | 3%(1)             | 
| | 12,500 - 25,000 bopd  | 4%(2)             | 
| | 25,000 - 50,000 bopd  | 6%(2)             | 
| | 50,000 - 100,000 bopd | 8%(2)             | 
| | 100,000 + bopd        | 10%(2)            | 
| |                       |                   | 

|Notes:                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|(2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|After payment of the Block S-1 Royalty, Vintage
      and TransGlobe are entitled to recover their costs against the lesser of
      :                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|(a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|(b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|If the costs recoverable in any quarterly period, including costs carried
          forward from previous quarters, exceed the value determined according
          to the above formula, the unrecovered excess is carried forward for
          recovery in the next succeeding quarter or quarters until fully recovered,
          but cannot be recovered after termination of the Block S-1 PSA.
        
        
        
        
        
        
        Page 11 of 62

---

The balance of revenues from oil production is shared by MOM and the Block S-1 Contractors as follows:

| | Production Level (bopd) | MOM   | Block S-1 Contractors(1) | 
| | ----------------------- | ----- | ------------------------ | 
| |                         |       |                          | 
| | 0 - 12,500              | 65%   | 35%                      | 
| | 12,500 - 25,000         | 70%   | 30%                      | 
| | 25,000 - 50,000         | 72.5% | 27.5%                    | 
| | 50,000 - 75,000         | 75%   | 25%                      | 
| | 75,000 - 100,000        | 77.5% | 22.5%                    | 
| | 100,000+                | 80%   | 20%                      | 
| |                         |       |                          | 
| |                         |       |                          | 

|Note: |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1)   | Pursuant to the Block S-1 PSA, The Yemen
        Company will receive 17.5% of the Block S-1 Contractors percentage
        (e.g. 35%) of the production sharing oil and Vintage and TransGlobe will
        receive 82.5% of the remaining production sharing oil from Block S-1.
        The Company and Vintage are responsible for 100% of the costs and expenditures
        incurred during the term of petroleum operations conducted under the Block
        S-1 PSA.

In addition to the Block S-1 Royalty, Vintage and TransGlobe
  are required to pay to the MOM a fixed percentage tax equivalent to 3% of all
  the actual exploration expenditures. The MOM assumes and pays Vintages
  and TransGlobes Yemeni income taxes out of the MOMs share of revenues.
  Also, Vintage and TransGlobe are required to pay to the MOM the following bonuses:

| | Amount of Bonus   | Type of Bonus                                              
| | ----------------- | -----------------------------------------------------------
| |                   |                                                            
| | $2,000,000        | signature bonus payable 1 month after signing Block S-1 PSA
| |                   | (paid)                                                     
| | $150,000 per year | training bonus for training Yemeni employees of the MOM    
| | $150,000 per year | institutional bonus                                        
| | $150,000 per year | social development bonus                                   
| | $1,000,000        | upon a declaration of commerciality                        
| | $1,500,000        | production rate exceeds 25,000 bopd                        
| | $2,000,000        | production rate exceeds 50,000 bopd                        
| | $3,000,000        | production rate exceeds 75,000 bopd                        
| | $5,000,000        | production rate exceeds 100,000 bopd                       
| |                   |                                                            

In 1995 previous management of the Company had signed a local
  agency agreement and fee agreement with De Marino Associates, Inc. and three
  other individuals (the De Marino Group), amended in December 1997.
  The terms of the agreement obligate the Company to pay the De Marino Group a
  cash signing bonus of $1 million upon the signing of the Block S-1 PSA (which
  TransGlobe paid, 75% of which was reimbursed by Vintage) and an additional fee
  of $1.5 million (of which Vintage will pay 75% assuming it earns into Block
  S-1 as expected) if the Company receives a report in a form acceptable to the
  Canadian stock exchanges from independent experts that Block S-1 contains proven
  recoverable reserves of at least 40 million barrels of oil. The fee is payable
  at the option of the Company in cash or Common Shares priced at the closing
  price of the Companys Common Shares on the 10 trading days immediately
  preceding a public announcement by the Company that Block S-1 contains proven
  recoverable reserves of at least 40 million barrels of oil.

In 1995, as amended and restated in December 1997, the Company
  entered into an agency agreement (the Local Agency Agreement) with
  A1 Salam Establishment for Trading and General Agencies (the Al Ahmar
  Group), a corporation incorporated under the laws of the Yemen, under
  which the Al Ahmar Group agreed to perform agency services for the purpose of
  obtaining a PSA from the government of Yemen in respect of Block S-1.

The Local Agency Agreement requires the Company to assign
  to the Al Ahmar Group a 2% interest in the Companys net share of the production
  sharing oil (the crude oil to be shared between the MOM, the Company and
  Vintage under the Block S-1 PSA). The Al Ahmar Group may elect to take delivery
  of its share of production sharing oil or allow the Company to market the Al
  Ahmar Groups share of the production sharing oil and accept payment in
  US dollars.

Page 12 of 62

---



Block S-1 Joint Operating Agreement

On February 11, 1998 the Companys subsidiary TG Holdings
  Yemen Inc. completed a farm out agreement for Block S-1 with Vintage Petroleum
  International Inc. (Vintage), a 100 percent subsidiary of Vintage
  Petroleum Inc., a large U.S. independent exploration and production company
  based in Tulsa, Oklahoma and listed on the New York Stock Exchange. The agreement
  allowed Vintage to earn a 75 percent working interest in Block S-1 by funding
  100 percent of the first exploration period commitments and a minimum of $20,000,000
  of the Block S-1 exploration work, which Vintage has done. After ratification
  of the PSA, Vintage and the Company completed the first period exploration work
  commitments consisting of 150 square kilometers of 3-D seismic and the drilling
  of three exploratory wells.

Further, on February 11, 1998, the Company entered into a
  joint operating agreement (JOA) with Vintage in respect of Block
  S-1. The JOA establishes Vintage as the operator of Block S-1. Vintage assumed
  operatorship of the joint operation in Block S-1 and accepted the liabilities
  and obligations in connection with the interests it had assumed. As operator,
  Vintage carries out all joint operations. Vintage may resign as operator with
  120 days notice. All parties are entitled to withdraw from the JOA. Vintage
  acts as an independent contractor with regard to the terms and conditions of
  the Block S-1 PSA and the JOA.

The JOA provides that only joint operations and certain approved
  exclusive operations may be conducted in furtherance of the Block S-1 PSA. All
  proposed operations on Block S-1 must be open to both the Company and Vintage
  and only where one party declines to participate in a given operation may an
  exclusive operation be permitted in accordance with the required approval process.

If either the Company or Vintage fails to pay its portion
  of the joint operating expenses when such expenses become due, that party will
  be in default under the JOA. If the defaulting party does not pay the amount
  owing plus all interest accrued within 30 days of receiving a notice of default
  from the non-defaulting party, the non-defaulting party may require the defaulting
  party to transfer its entire interest under the JOA and Block S-1 PSA to the
  non-defaulting party. If the non-defaulting party does not elect to acquire
  the defaulting partys interest, the non-defaulting party may continue
  to pay the expenses of the defaulting party in connection with the joint operations
  with debt accruing to the defaulting party. In the alternative, if the non-defaulting
  party does not elect to acquire the defaulting partys interest nor does
  it wish to bear the defaulting partys expenses, then joint operations
  between Vintage and the Company in connection with Block S-1 will be abandoned
  and each party will pay its share of costs associated with abandoning the joint
  operations.

Page 13 of 62

---

Block S-1 Exploration History

The Block S-1 is located near existing pipelines and adjacent
  to the Yemen Hunt Oil Co. Marib al Jawf production area. Block S-1, which initially
  covered an area of 4,484 square kilometers (1.12 million acres), was explored
  previously by Shell Oil between 1990 and 1993 and by a Soviet oil prospecting
  expedition between 1983 and 1990. A total of eight wells were drilled on Block
  S-1, some of which encountered oil shows.

During the 1999 fiscal year Vintage, as operator, reprocessed
  the 360 square kilometers (141 square miles) of existing 3-D seismic data and
  approximately 410 kilometers (255 miles) of existing 2-D seismic data made available
  by the MOM. A new 150 square kilometer (58 square mile) 3-D seismic survey was
  completed by Vintage in May 1999.

In 2000 the Block S-1 Joint Venture Group drilled four exploration
  wells resulting in one oil well (Harmel #1), two gas wells (An Naeem #1 and
  #2) and one dry hole (Fordus #1). The first well, An Naeem #1, encountered
  30.5 meters (100 feet) of net pay in two Alif zones. The well flow tested at
  a combined rate of 40 MMcfpd of gas and 1,020 barrels per day of condensate
  from the lower portion of the Alif zones. No water was recovered during the
  test period. The second exploration well, Harmel #1, tested medium gravity sweet
  crude oil from three shallow horizons previously untested in the region. The
  third exploration well, Fordus #1, was completed in December 2000. Four separate
  zones were tested without recovering any significant hydrocarbons. The well
  was subsequently plugged and abandoned. The fourth exploration well, An Naeem
  #2, was drilled to evaluate the possible existence of an oil rim approximately
  50 meters (165 feet) down dip of the An Naeem #1 well drilled earlier in 2000.
  The An Naeem #2 well encountered approximately 36 meters (120 feet) of net pay
  in the Alif formation. The Alif zone tested at combined flow rates of 27.7 MMcfpd
  of gas and 880 barrels per day of condensate.

In 2001 the Block S-1 Joint Venture Group acquired an additional
  230 square kilometers (90 square miles) of 3-D seismic. The 3-D seismic program
  carried out during 2001 evaluated a trend of the Alif and Lam prospects identified
  on existing 2-D seismic. The trend extends from the adjacent Jannah Hunt, Dhahab
  and Al Nasr oil fields southeast to the Shell discovery at An Nagyah. In 2001,
  the Dhahab and Al Nasr fields were producing in excess of 40,000 Bopd. Approximately
  400 square kilometers of additional 3-D seismic data on the adjacent blocks
  (including the Dhahab and Al Nasr fields) were acquired through data trades
  with Jannah Hunt Oil Company and with a subsidiary of Occidental Petroleum Corporation.
  The first exploration period ended on March 28, 2002 and the Block S-1 Joint
  Venture Group elected to proceed with a second exploration period of 2 1/2 years.
  The An Naeem #2 well drilled in 2000 pre-qualified as a second exploration period
  commitment well. The 2001 3-D seismic survey also qualified as a second exploration
  period commitment.

Block S-1 originally encompassed an area of 4,484 square kilometers
  (approximately 1.12 million acres). Upon entering the second exploration period
  a mandatory 25% relinquishment reduced the area to 3,363 square kilometers (approximately
  861,000 acres). The relinquished lands were not considered prospective for oil
  by the Company.

The 3-D seismic acquired in 2001 was interpreted during the
  first half of 2002 and drilling locations were selected. In September 2002 the
  Block S-1 Joint Venture Group initiated the second drilling campaign on the
  block. Two wells were drilled and tested and one well was still drilling at
  the end of 2002. The first well, Osaylan #1, was drilled to a total depth of
  1,902 meters and was abandoned after encountering minor oil shows. The primary
  target, the Alif reservoir sandstone, was encountered however the logs did not
  indicate hydrocarbons were present. The second exploration well, An Nagyah #2,
  was drilled to a total depth of 1,624 meters and discovered light 46 degree
  oil in the Upper Lam formation. The well was suspended as a potential future
  oil producer after testing up to 1,100 Bopd from the Upper Lam formation. The
  third exploration well, An Naeem #3, was drilled to a total depth of 1,623 meters
  to evaluate a potential oil rim on the An Naeem structure. The An Naeem #3 well
  tested gas and condensate from the Alif zone and did not encounter the anticipated
  oil rim. The fourth well of the program, An Nagyah #3, commenced drilling in
  February 2003 to appraise the light oil discovery made at An Nagyah #2. The
  well was drilled to a total depth of 1,292 meters and encountered the Upper
  Lam sandstones in a structurally higher position than the An Nagyah #2 well.
  Although the Upper Lam sandstones had a thicker gross reservoir section and
  better indicated porosity and permeability than found at An Nagyah #2, the Upper
  Lam was not flow tested as it was entirely above the gas/oil contact found in
  the An Nagyah #2 well. The An Nagyah #3 well did test 240 Bopd of light 42 degree
  oil from a new pool in the Lower Lam. The core and test data indicate the Lower
  Lam reservoir has less porosity and permeability than the Upper Lam reservoir
  and therefore may require stimulation to enhance production. The discovery of
  a new productive horizon in the Lower Lam should augment development economics.
  The fifth well in the program, An Nagyah #4, was drilled to a total depth of
  1,547 meters and tested 1,320 barrels of light oil (45 degrees API) from the
  Upper Lam reservoir. The An Nagyah #4 well encountered a much thicker gross
  sand package and defined a 60 meter (197 feet) total oil column in the Nagyah
  pool. The successful appraisal well at

Page 14 of 62

---

An Nagyah #4 is anticipated to lead to development of the
  field. The diagram below indicates the relative positions of the An Nagyah wells
  and the northward dipping Upper and Lower Lam zones.



The An Nagyah structural closure is mapped by 3-D seismic
  data and the four wells drilled on the structure to date. An estimate of reserves
  can be calculated for the pool now that the gas/oil and the oil/water contacts
  are defined by the wells. TransGlobe management has mapped the Upper Lam oil
  pool over an area of 15 square kilometers (6 square miles). An independent reservoir
  engineering firm has been contracted to determine proven and probable reserves.
  TransGlobe has also contracted an engineering firm with experience in Yemen
  oil development projects to prepare a facility design and preliminary cost estimate
  for the development of the An Nagyah field. The reserves estimates and development
  cost estimates will determine if sufficient reserves have been discovered to
  declare commerciality and proceed with development.

Potential Development Scheme

Management of the Company is optimistic that the An Nagyah
  light oil discovery could provide the Company with its first oil production
  from Block S-1 as early as the second half of 2004. This is contingent upon
  the results of future appraisal drilling, particularly at An Nagyah #4.

The development plan envisions an integrated, phased project
  which includes the light oil discovered at An Nagyah, the natural gas/condensate
  discovery at An Naeem and the shallow medium gravity oil discovery at Harmel
  #1. The An Nagyah discovery could initially produce 6,000 to 10,000 Bopd (1,500
  to 2,500 Bopd to TransGlobe) exported through the Hunt Oil Co. operated pipeline
  system to the tanker loading facility on the Red Sea. The nearest potential
  tie in point to the export pipeline system is approximately 28 kilometers (18
  miles) from An Nagyah.

Natural gas and condensate from the An Naeem discovery would
  be pipelined to An Nagyah. Gas would be separated for injection into the Upper
  Lam formation to maintain reservoir pressure and increase oil recovery. Stabilized
  condensate from An Naeem would be sold with the An Nagyah light oil production
  and used to blend with the medium gravity oil discovered at Harmel. With An
  Nagyah as the anchor project, the Harmel #1 shallow oil well could be placed
  on early production. Initially the Harmel oil would be trucked to the An Nagyah
  facility for blending with An Naeem condensate and sold with the An Nagyah production.

Additional Harmel shallow oil wells could be drilled and placed
  on production until sufficient reservoir information is obtained to properly
  evaluate the merits of a full scale commercial development of the Harmel shallow
  oil discovery. The Harmel #1 well tested medium gravity crude from three shallow
  horizons at a depth of approximately 400 to 700 meters. The horizons were mapped
  on good quality 3-D seismic and display a structural closure of up to 25 square
  kilometers (10 square miles). Should full commercial development proceed, forty
  to eighty additional shallow wells could be required to exploit the large structure.

Page 15 of 62

---

Concurrent with the appraisal and evaluation of a potential
  light oil development scheme at An Nagyah, we are studying the feasibility of
  developing the large gas reserves found in the An Naeem #1, #2 and #3 wells.
  The gas could be utilized in Yemen for electricity generation or exported to
  nearby markets utilizing CNG (Compressed Natural Gas) technology.
  Both possibilities are under investigation. A gas development project of this
  magnitude will require significantly more time to evaluate, design and construct
  than conventional oil production. However it could be a significant addition
  to the Companys longer-term asset portfolio.

The primary focus for 2003 will be the appraisal and testing
  of the An Nagyah light oil discovery which could lead to the declaration of
  a commercial oil project prior to year end. The Lam reservoir encountered at
  An Nagyah is a new producing horizon in Yemen. Its discovery opens up a new
  exploration focus for Block S-1. In addition to the An Nagyah appraisal work,
  the current drilling program results are being integrated into the Companys
  extensive seismic database to define future exploration drilling prospects.

Block 32, Republic of Yemen



In January 1997, the Company entered into a farm-out agreement
  and joint venture concerning an exploration concession, Block 32, in the Republic
  of Yemen. The joint venture now consists of TG Holdings Yemen Inc. (a 100% subsidiary
  of the Company) as to 13.81087%; Ansan Wikfs Hadramaut Ltd. as to 45.18913%;
  and DNO ASA as to 41% (the Block 32 Joint Venture Group). The Company
  has since participated in the acquisition of seismic data and the drilling of
  fourteen wells in Block 32 resulting in seven oil producing wells in the Tasour
  field discovery and seven dry holes.

In 1998, the first oil discovery, Tasour #1 was drilled near
  the southern boundary of Block 32 in the producing Sayun Basin in the Republic
  of Yemen, adjacent to Nexen Inc.s Masila Block Sunah field. The Tasour
  #1 well was suspended as a potential producer and subsequently completed as
  a producing oil well as part of the production development plan in 2000.

An appraisal program consisting of additional 2-D seismic
  data acquisition, reprocessing of older seismic data and the drilling of three
  appraisal wells was carried out during fiscal 1999. The three-well appraisal
  program was completed in October 1999 resulting in one additional oil well (Tasour
  #3), one well cased as a water injector (Tasour W #1) and one dry hole (Tasour
  #2). The Tasour #3 well has been completed as a producing oil well as part of
  the production development plan.

Block 32 Production Sharing Agreement

In August 1999 the MOM revised the terms of the Block 32 Production
  Sharing Agreement (PSA) to encourage development of the Tasour field.
  The new terms significantly improved the economics of the Tasour project. Details
  of the Block 32 original and revised PSA terms as announced in August 1999 are
  summarized in the table below:

Page 16 of 62

---





|Licence
      Terms                   | Original Terms         | Revised Terms August 1999
|------------------------------------- | ---------------------- | -------------------------
|                                      |                        |                          
|Royalty                               | 10%                    | 3%(1)                    
|Cost Recovery                         | 25% (25% amortization) | 60% (50% amortization)   
|Production Sharing                    |                        |                          
|·    0 - 25,000 Bopd                  | 23%                    | 35%(2)                   
|·    25,000 - 50,000
      Bopd       | 21%                    | 21%                      
|Development/Production Period         | 20 + 5 years extension | 20 + 5 years extension   
|Production Bonus                      |                        |                          
|·    Initial production               | $2.0 million           | $2.0 million (paid)      
|·    Production at 50,000
      bopd  | $4.0 million           | $4.0 million             
|·    Production at 100,000
      bopd | $6.0 million           | $6.0 million             
|                                      |                        |                          

|1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | For all levels exceeding 25,000 Bopd the Royalty remains at
      10%                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | If Proven Recoverable Reserves
        exceed 30 million barrels of oil or Monthly Average Daily Net Production
        exceeds 25,000 bopd, the original terms of the PSA prevail and continue
        to apply. The definition of Proven Recoverable Reserves is the same as
        that used in US Securities and Exchange Commission regulations. The Yemen
        Oil Company, a subsidiary of MOM, will receive 5% of the 35% Production
        Sharing oil and the Block 32 Joint Venture Group will receive 95% of the
        35% Production Sharing oil.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|As per the revised Block
        32 PSA terms, after payment of the Block 32 Royalty, the Block 32 Joint
        Venture Group is entitled to recover their costs against the lesser of:                                                                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|(a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | 60% of revenue per quarter; or                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|(b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | the aggregate of:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | (i)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | (ii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | (iii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|If the costs recoverable in any quarterly period, including costs carried
          forward from previous quarters, exceed the value determined according
          to the above formula, the unrecovered excess is carried forward for
          recovery in the next succeeding quarter or quarters until fully recovered,
          but cannot be recovered after termination of the Block 32 PSA.
        The balance of revenues from oil production is shared by the MOM and
          the Block 32 Joint Venture Group as follows:

| | Production level (bopd) | MOM | Block 32 Joint Venture Group | 
| | ----------------------- | --- | ---------------------------- | 
| |                         |     |                              | 
| | 0 to 25,000             | 65% | 35%                          | 
| | 25,000 to 50,000        | 79% | 21%                          | 
| | 50,000 to 75,000        | 81% | 19%                          | 
| | 75,000 to 100,000       | 83% | 17%                          | 
| | 100,000 to 150,000      | 85% | 15%                          | 
| | 150,000 to 200,000      | 87% | 13%                          | 
| | 200,000+                | 90% | 10%                          | 
| |                         |     |                              | 

In addition to the Block 32 Royalty, the Yemeni government
  will receive a production bonus of $2.0 million on commencement of initial production
  and bonuses of $4.0 million, $6.0 million, and $6.0 million should the production
  rate exceed 50,000, 100,000, and 200,000 bopd of oil, respectively. The Yemeni
  government also receives the proceeds of a 3% tax levied on exploration expenditures
  by the Block 32 Joint Venture Group. The Block 32 Joint Venture Group must pay
  to the MOM $200,000 annually for the purpose of training Yemeni employees of
  the MOM. The Block 32 Joint Venture Group must pay to the MOM $200,000 annually
  as an institutional bonus.

Page 17 of 62

---

The Block 32 Joint Venture Group must also pay a 2% gross
  overriding royalty to Highstown International Inc., a private Panama company,
  based on their share of oil revenues (less operating cost deductions), for local
  agents services rendered during the awarding of Block 32.

No additional Yemeni taxes are payable, since the MOM assumes
  and pays the Block 32 Joint Venture Groups Yemeni income taxes out of
  MOMs share of revenues pursuant to the Block 32 PSA.

If any of the Block 32 Joint Venture Group fails to pay its
  portion of the joint operating expenses when such expenses become due, that
  party will be in default under the Block 32 joint operating agreement. The operator
  is authorised at its election to deduct from the proceeds of sale of petroleum
  accruing to the defaulting party, up to any amount owed by such party, including
  accrued interest thereon. If the defaulting party does not pay the amount owing
  plus all interest accrued within 45 days of receiving a notice of default from
  the non-defaulting party(s), the non-defaulting party(s) may require the defaulting
  party to transfer its entire interest under the Block 32 joint operating agreement
  and Block 32 PSA to the non-defaulting party(s). If the non-defaulting party
  does not elect to acquire the defaulting partys interest, the non-defaulting
  party(s) may continue to pay the expenses of the defaulting party in connection
  with the joint operations with debt accruing to the defaulting party. In the
  alternative, if the non-defaulting party(s) do not elect to acquire the defaulting
  partys interest nor do they wish to bear the defaulting partys expenses,
  then joint operations between the other Block 32 Joint Venture Group members
  and the defaulting party in connection with Block 32 will be abandoned and each
  party will pay its share of costs associated with abandoning the joint operations.

On November 15, 2000 the Company announced signing a letter
  agreement to purchase an additional 4% working interest in Block 32 for a total
  of $2.13 million. The transaction was effective January 1, 2000 and increased
  the Companys interest to 13.81087 % on the entire block, including the
  producing Tasour field. The Company made an initial payment of $1.17 million.
  A potential future obligation totalling $960,000 will be due in six payments
  of $160,000 for each cumulative million barrels of gross oil production commencing
  at 7 million barrels to a maximum of 12 million barrels. The purchase also includes
  the proportionate historical cost pools attributable to the interest acquired.
  During 2002 the Company made the first payment of $160,000 and subsequent to
  December 31, 2002 a second and a third payment of $160,000 each were made. The
  Company expects that the remaining payments will be made during 2003.

Block 32 Development

The Block 32 development plan and development area of 570
  square kilometers (approximately 228 square miles) was approved by the Ministry
  of Oil and Minerals (MOM) in the Republic of Yemen on February 5,
  2000. The development area encompassed all of the Tasour structure and eleven
  additional prospects that were identified at the time. The remainder of the
  Block 32 exploration area was relinquished. The approved development/production
  period extends until the year 2020 with an optional five year extension to 2025.

In 2000, the Block 32 Joint Venture Group shot a small seismic
  program, drilled three wells (one of which was drilling over year end 2000)
  and constructed the Tasour central production facility (CPF) and
  a 60 kilometer pipeline to Nexen Inc.s CPF and export facilities. Initial
  field production commenced on November 3, 2000 from three producing wells (Tasour
  #1, #3 and #4).

In 2001, the Block 32 Joint Venture Group shot a 120 kilometer
  2-D seismic program in the third quarter of 2001 and drilled three wells, of
  which one was drilling over year end 2001. The first well, Tasour #5, drilled
  in the first quarter, was completed for production and brought on stream in
  February 2001 at an initial rate of 7,060 Bopd. The second well, Tasour #6,
  was drilled on the east portion of the Tasour structure. It was equipped and
  placed on production at an initial rate of 7,200 Bopd in December 2001. The
  third well, Asswairy #1, commenced drilling in late December 2001.

In 2002, the Block 32 Joint Venture Group drilled three wells
  in 2002, one of which was drilling over the year end. One well encountered oil
  and was placed on production (Tasour #7), one well was dry and abandoned and
  the third well (Tasour #8) was completed as an oil producer early in 2003.

The first well, Asswairy #1, was drilled in early 2002. Although
  several zones with oil shows were tested, no hydrocarbons were recovered so
  the well was abandoned. The second well, Tasour #7, was drilled in September
  to evaluate a potential field extension to the south of the mapped limits of
  the Tasour field (see figure below). The Tasour #7 well encountered the main
  producing zone (Qishn S-1A sandstone) in a structurally higher position than
  the previously mapped crest of the field. The well also encountered a new productive
  zone in an underlying sand, the

Page 18 of 62

---

Qishn S-1C. As can be seen from the cross section and revised
  maps, the size of the Tasour field was enlarged considerably and several new
  development drilling locations in the southern extension were identified. The
  first of the new development wells was successfully completed at Tasour #8 in
  January 2003 at an initial rate of 9,000 Bopd. A second development well targeting
  the southern field extension at Tasour #9 commenced production in April 2003
  at an initial rate of 1,500 Bopd.



The extension of the Tasour field to the southern, bounding
  fault has increased the size of the field to over 20 million barrels. When commerciality
  was declared in 2000 the field proven plus probable reserves were estimated
  at only 6.9 million barrels. This represents a 300% increase in the estimated
  size of the Tasour field. The Tasour field had produced 7.5 million barrels
  by December 31, 2002. The remaining proven plus probable reserves are now estimated
  at 13.3 million barrels (1.836 million barrels to TransGlobe).

The Tasour #7, #8 and #9 wells have changed the structural
  mapping of the Tasour field. The revised structural picture of the field has
  set up a number of potential exploration prospects to the west and the east
  of the Tasour field along the main bounding fault. Additional seismic reprocessing
  and remapping work is underway to select new exploration drilling locations.
  It is anticipated the first of these locations will be drilled in Q-2, 2003
  as a potential extension of the Tasour field to the west (probably named Tasour
  #10).

In addition to the new potential along the main Tasour south
  bounding fault trend, the Block 32 Joint Venture Group shot a 120 kilometer
  2-D seismic program to further delineate prospects on the eastern portion of
  the block. The data was processed in Q-1 2003 and is being interpreted. It is
  expected that some of these prospects will be ready to drill in the future.
  The eastern prospects will not be drilled until at least 2004, depending upon
  the results in and around the Tasour field.

Page 19 of 62

---

Production

In Block 32, TransGlobes working interest production
  increased 37% from an average of 1,131 Bopd in 2001 to an average of 1,545 Bopd
  in 2002, with an exit rate of 1,996 Bopd for the month of December 2002. Production
  increases in 2002 are primarily attributed to the field extension and to the
  new pool discovery drilled at Tasour #7 in September 2002.

With the completion of Tasour #8 in January 2003 the production
  potential of the six wells exceeded the facility capacity. Tasour field production
  was restricted to 16,000 Bopd (2,210 Bopd to TransGlobe) during January and
  February 2003 due to limited export pump capacity. In March production averaged
  17,870 Bopd (2,468 Bopd to TransGlobe) as shut in wells were returned to production
  and two wells were worked over to replace submersible pumps. The Tasour central
  production facility (CPF) was initially designed to process 15,000
  Bopd with expansion capability to match the sales pipeline capacity of 25,000
  Bopd. The facility was expanded in early 2002 to handle additional water and
  oil production. A second facility expansion to increase export pumping capacity
  to greater than 20,000 Bopd was completed in late February 2003. In addition
  to the CPF expansion, a water disposal/injection scheme was initiated in 2002,
  with the majority of the water being injected into Tasour #4. The produced oil
  and water is separated at the Tasour CPF and the sales oil is pumped to the
  Nexen Inc. CPF where it enters the Nexen Inc. export pipeline. The oil is pumped
  to the tanker loading facilities at Riyan on the Indian Ocean for export and
  sale.

The Block 32 PSA allows for the recovery of historical costs
  out of production. With the significantly increased oil production and higher
  oil prices in late 2002 and early 2003 it is expected that all of the historical
  costs will be recovered early in the second quarter of 2003. A diagram of the
  production sharing splits before and after full cost recovery is shown on the
  figure below. In general terms the Block 32 Joint Venture Groups (Contractors)
  share of oil will reduce from 71.1% to an estimated 40% to 50% of production,
  depending upon gross revenue, operating costs and future eligible capital expenditures.
  All qualifying new capital expenditures, such as new seismic or new wells within
  the Block 32 development area, can be recovered out of cost oil. Therefore the
  cost oil portion of production can increase or decrease depending on future
  expenditures.



The 2003 Block 32 Joint Venture budget and work program includes
  drilling two development/appraisal wells, two exploration wells and one contingency
  well. To date, two wells have been drilled resulting in a producing oil well
  at Tasour #8 and an exploratory dry hole at Haibish. The development/appraisal
  well at Tasour #9 commenced drilling in April 2003. It is expected that an exploratory
  well to the west of the Tasour field will be drilled in the June 2003 (Tasour
  #10). Another contingent well could be drilled in the fourth quarter of 2003.

Page 20 of 62

---

Canada



Background

TransGlobe acquired its Canadian operations in April 1999.
  The majority of the Canadian operations are operated by TransGlobe and are focused
  almost exclusively in the southern/central part of the province of Alberta.
  The Canadian operations have been successfully expanded to provide increased
  cash flow and asset value. Although Canadian production is now dwarfed by our
  international production, the Canadian operations will continue to be expanded
  to capitalize on the North American gas market. In addition to developing and
  exploiting our producing areas, the Company has acquired land and has generated
  a number of drillable prospects within its core focus areas.

Drilling activity in Canada was curtailed during 2002 due
  to allocation of resources to the projects in Yemen and due to depressed natural
  gas prices in North America during the first three quarters of 2002. The Company
  drilled three wells in 2002 resulting in two producers at Nevis and one shut-in
  gas well at Morningside.

At Cherhill, the Company completed and tied in a 100% working
  interest gas well drilled in late 2001. The well commenced production in February
  2002 and is currently producing 55 to 60 Boepd.

At Morningside, the Company drilled and completed a marginal
  shallow gas well (58% working interest) which may be pipeline-connected in the
  future. Also at Morningside, the Company plans to install a three mile pipeline
  to connect a 100% working interest gas well which should initially produce 100+
  Boepd. It is expected to be connected by the fall of 2003, pending the successful
  resolution of ongoing landowner negotiations which have delayed the project
  to date.

At Nevis, the Company drilled two wells in the latter half
  of 2002 which were placed on production in early 2003. Additional acreage was
  acquired in the area in late 2002 and early 2003. The Company plans to acquire
  additional acreage in the area and to drill a minimum of two wells with contingency
  for another six to eight wells, all focused on natural gas.

The Company sold minor non-core producing properties at Provost,
  Alberta and Wildmint, British Columbia in 2002.

Page 21 of 62

---

With record cash flow from Yemen in 2002 and early 2003, the
  Company expanded the Canadian budget to focus on natural gas projects. To date,
  the Company acquired mineral rights on 7,200 net acres in 2003 and farmed-in
  on an additional 4,480 (2,240 net) acres. The Company plans to acquire additional
  mineral rights and is negotiating several farm in proposals. The majority of
  the land is located in Central Alberta on three main prospects, of which two
  are new focus areas for the Company.

It is anticipated that the Company will drill a minimum of
  four to six wells, with contingency for an additional six to eight wells. All
  the prospects are focused towards natural gas. It is expected that drilling
  will commence in June. Successful wells could be on production by late 2003
  as all the prospects are near to existing infrastructure and can be accessed
  year round.

United States

The focus of oil and gas exploration and development in North
  America was shifted from United States to Canada with the acquisition of Moiibus
  in 1999. During 2000 and 1999 TransGlobe divested of all its oil and gas properties
  in the United States with proceeds re-invested in Yemen.

Summary of Oil and Gas Sales, Net of Royalties, by Country

|              |  | Year Ended        |  |   | Year Ended        |  |  | Year Ended        | 
|------------- |  | ----------------- |  | - | ----------------- |  |  | ----------------- | 
|              |  | December 31, 2002 |  |   | December 31, 2001 |  |  | December 31, 2000 | 
|              |  |                   |  |   |                   |  |  |                   | 
|Canada        |  | $  1,015,394      |  | $ | $1,553,409        |  |  | $1,151,400        | 
|United States |  | -                 |  |   | -                 |  |  | $   302,827       | 
|Yemen         |  | $12,238,711       |  | $ | $7,000,676        |  |  | $   949,039       | 
|              |  |                   |  |   |                   |  |  |                   | 

Reserves

Outtrim Szabo Associates Ltd. of Calgary, Alberta, independent
  petroleum engineering consultants, evaluated the Companys North American
  reserves at December 31, 2002, December 31, 2001, and December 31, 2000. In
  Canada, proven reserves after royalies declined 21% from year end 2001 to year
  end 2002. The decline is primarily due to production, well performance and the
  divestiture of minor properties during 2002.

The main differences between the reports in 2001 and 2000,
  aside from production, were the natural gas reserve additions as a result of
  successful exploration and exploitation efforts.

The United States properties were sold effective October 31,
  2000.

Fekete Associates Inc. of Calgary, Alberta, independent petroleum
  engineering consultants, evaluated the Companys Block 32 reserves in Yemen
  at December 31, 2002, December 31, 2001 and December 31, 2000. In 2002, TransGlobes
  proven reserves before royalties in the Tasour field (13.81087% working interest)
  in the Republic of Yemen are up 91% from year end 2001 to year end 2002. The
  increase in Yemen reserves is attributable to the excellent field performance,
  field extension and new pool discovery at Tasour #7 on Block 32. The main differences
  between the reports in 2001 and 2000, aside from production, were the increase
  in reserves attributed to overall field performance and successful development
  drilling in the Tasour Field. Although a light oil discovery at An Nagyah #2
  on Block S-1 was announced December 10, 2002, a medium gravity oil pool was
  found at Harmel #1 and a gas-condensate pool at An Naeem #1, #2 and #3, proven
  reserves will not be assigned to Block S-1 until additional appraisal drilling
  and project evaluation are completed.

Page 22 of 62

---





|                    | Reserves, Working Interest
      After Royalties | 
|------------------- | ------------------------------------------------ | 
|                    | December 31, 2002                                | 
|                    |                                                  | 
|                    | Oil &                                            | 
|                    | Liquids                                          | 
|                    | (MBbls)                                          | 
|                    |                                                  | 
|Proven              |                                                  | 
|Canada              | 136.7                                            | 
|United
      States | -                                                | 
|Yemen *             | 1,574.9                                          | 
|Total proven *      | 1,711.6                                          | 
|                    |                                                  | 

* Yemen reserves presented are for TransGlobes working
  interest share in the Block 32 Tasour field only before royalty.
  Net of royalty has not been calculated because it is a production sharing agreement.

Production

The Companys net production after royalties for the last three
  fiscal years was as follows:

|              | Year Ended        |  | Year Ended        |  | Year Ended        | 
|------------- | ----------------- |  | ----------------- |  | ----------------- | 
|              | December 31, 2002 |  | December 31, 2001 |  | December 31, 2000 | 
|              |                   |  |                   |  |                   | 
|              | Oil & NGLS       |  | Gas               |  | Oil & NGLS       | 
|              | (Bbl)             |  | (MMcf)            |  | (Bbl)             | 
|              |                   |  |                   |  |                   | 
|Yemen         | 485,979           |  | -                 |  | 316,236           | 
|Canada        | 11,718            |  | 280               |  | 16,393            | 
|United States | -                 |  | -                 |  | -                 | 
|              |                   |  |                   |  |                   | 
|              | 497,697           |  | 280               |  | 332,629           | 
|              |                   |  |                   |  |                   | 

ITEM 5.OPERATING
  AND FINANCIAL REVIEW AND PROSPECTS

The following discussion and analysis is managements
  opinion of TransGlobes historical financial and operating results and
  should be read in conjunction with the audited consolidated financial statements
  of the Company (See Item 17) for the years ended December 31, 2002, 2001 and
  2000, together with the notes related thereto. All dollar values are expressed
  in U.S. dollars, unless otherwise stated. All references to daily production
  are before royalty, unless stated otherwise.

The Company changed its year end in 1999 to December 31 from
  September 30. The change in year end was made to accommodate the ability to
  compare the Companys results with those of its peers in the industry with
  the same reporting period.

The Companys accounting principles are described in
  Note 1 to Notes to the Consolidated Financial Statements in Item 17. The Company
  prepares its Consolidated Financial Statements in conformity with GAAP in Canada,
  which conform in all material respects to United States GAAP except for those
  items disclosed in Note 14 to Notes to the Consolidated Financial Statements.
  For United States readers the Company has detailed the differences and has also
  provided a reconciliation of the differences between United States and Canadian
  GAAP in Note 14 to the Consolidated Financial Statements.

The preparation of the Companys Consolidated Financial
  Statements requires it make estimates and judgements that affect its reported
  amounts of assets, liabilities, revenue and expenses. On an ongoing basis the
  Company evaluates its estimates, including those related to asset impairment,
  revenue recognition, allowance for doubtful accounts and contingencies and litigation.
  These estimates are based on information that is currently available to the
  Company and on various other assumptions that it believed to be reasonable under
  the circumstances. Actual results could vary from those estimates under different
  assumptions and conditions.

The Company has identified the following critical accounting
  policies that affect the more significant judgements and estimates used in preparation
  of its Consolidated Financial Statements.

Full Cost Accounting  The Company follows the full cost
  method of accounting for its oil and gas operations (as more fully described
  in Note 1 to the Consolidated Financial Statements), as compared to the other
  generally accepted method, successful efforts. Under the full cost method, costs
  associated with drilling successful and unsuccessful wells are capitalized on
  a country-by-country basis. As a consequence the Company may be more

Page 23 of 62

---

exposed to potential impairments if the book value of capitalized
  costs exceeds its future expected cash flows. This may occur if recoverable
  reserve estimates decrease, commodity prices decline or future estimates for
  capital, operating and income taxes increase, to levels that would significantly
  affect anticipated future cash flows.

Oil and Gas Reserves  The process of estimating quantities
  of proved reserves is inherently uncertain and the reserve estimates included
  in this document are only estimates. You should not assume that the present
  value of the Companys future cash flows is the current market value of
  its estimated proved oil and gas reserves. In accordance with GAAP the Company
  bases the estimated future net cash flow from proved reserves on prices and
  costs on the date of estimate. Actual future prices and costs may be materially
  higher or lower than the prices and costs at the date of estimate.

Depletion  The Companys rate of recording depletion
  is dependent upon its estimate of proved reserves. If the estimates of proved
  reserves decline, the rate at which it records its depletion expense increases,
  reducing net income. Such a decline in proved reserves may occur from lower
  product prices, which may make it non-economic to drill for and produce higher
  cost fields.

A.Results of Operations

Net income for 2002 was $5,426,389 ($0.11 per share basic
  and $0.10 per share diluted) compared to a net income of $3,062,237 ($0.06 per
  share, basic and diluted) in 2001 and $307,967 ($0.01 per share, basic and diluted)
  in 2000. Cash flow from operations for 2002 was $9,709,852 ($0.19 per share
  basic and diluted) compared to $5,840,455 ($0.12 per share basic and $0.11 per
  share diluted) in 2001 and $929,529 ($0.02 per share, basic and diluted) in
  2000. The increase in net income and cash flow in 2002 is primarily a result
  of increased production (27%), increased commodity prices and from cost oil
  reallocation with partners in the Republic of Yemen. The increase in net income
  and cash flow in 2001 is primarily a result of a full year of Block 32 production
  in the Republic of Yemen, which commenced production November 3, 2000.

|                      |  |            |  |       |  |            |  |       |  |           |  |       | 
|--------------------- |  | ---------- |  | ----- |  | ---------- |  | ----- |  | --------- |  | ----- | 
|                      |  |            |  |       |  |            |  |       |  |           |  |       | 
|                      |  | 2002       |  | 2001  |  | 2000       | 
|                      |  |            |  |       |  |            |  |       |  |           |  |       | 
|                      |  | $          |  | $/Boe |  | $          |  | $/Boe |  | $         |  | $/Boe | 
|                      |  |            |  |       |  |            |  |       |  |           |  |       | 
|Oil and gas sales     |  | 15,386,359 |  | 24.34 |  | 11,045,880 |  | 22.11 |  | 3,051,704 |  | 24.81 | 
|Royalties             |  | 2,132,254  |  | 3.37  |  | 2,491,795  |  | 4.99  |  | 648,438   |  | 5.27  | 
|Operating expenses    |  | 1,843,273  |  | 2.92  |  | 1,540,369  |  | 3.08  |  | 499,254   |  | 4.06  | 
|                      |  |            |  |       |  |            |  |       |  |           |  |       | 
|Net operating income* |  | 11,410,832 |  | 18.05 |  | 7,013,716  |  | 14.04 |  | 1,904,012 |  | 15.48 | 
|                      |  |            |  |       |  |            |  |       |  |           |  |       | 
|                      |  |            |  |       |  |            |  |       |  |           |  |       | 

|* | Net operating income amounts
        do not reflect Yemen income tax expense which is paid through oil allocations
        with MOM in the Republic of Yemen (2002 - $986,862, $1.56/Boe; 2001 -
        $634,716, $1.27/Boe; 2000 $86,038, $0.70/Boe).
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In 2002 and 2001 the Company operated in two geographic areas,
  segmented as the Republic of Yemen and Canada In 2000 the Company also operated
  in the United States. Managements discussion and analysis will follow
  under each of these segments.

Republic of Yemen

|                      |  | Year Ended        |  | Year Ended        |  | Year Ended        | 
|--------------------- |  | ----------------- |  | ----------------- |  | ----------------- | 
|                      |  | December 31, 2002 |  | December 31, 2001 |  | December 31, 2000 | 
|                      |  |                   |  |                   |  |                   | 
|                      |  | $                 |  | $/Boe             |  | $                 | 
|                      |  |                   |  |                   |  |                   | 
|Oil sales             |  | 14,206,217        |  | 25.18             |  | 9,137,800         | 
|Royalties             |  | 1,967,506         |  | 3.49              |  | 2,137,124         | 
|Operating expenses    |  | 1,394,379         |  | 2.47              |  | 1,133,092         | 
|                      |  |                   |  |                   |  |                   | 
|Net operating income* |  | 10,844,332        |  | 19.22             |  | 5,867,584         | 
|                      |  |                   |  |                   |  |                   | 
|                      |  |                   |  |                   |  |                   | 

|* | Net operating income amounts
        do not reflect Yemen income tax expense which is paid through oil allocations
        with MOM in the Republic of Yemen ($2002 - $986,862, $1.75/Boe; 2001 $634,716,
        $1.54/Boe; 2000 -$86,038, $1.69/Boe).
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

TransGlobe commenced production on Block 32 on November 3,
  2000. Production from the block is shared between the Block 32 Joint Venture
  Group and MOM pursuant to a PSA. The PSA provides for MOM to receive a 3% royalty
  of gross production (10% over 25,000 Bopd) with the remaining 97% of revenue
  split between cost recovery oil and production sharing oil. Cost recovery oil
  is up to a maximum of 60% of the revenue after deducting

Page 24 of 62

---

royalty. Cost recovery oil allows the Block 32 Joint Venture
  Group to recover operating costs and exploration and development expenditures
  as outlined in the PSA. The remaining oil is allocated to production sharing
  oil shared 65% by MOM and 33.25% by the Block 32 Joint Venture Group and 1.75%
  to YOC. The net result of the entire production sharing agreement is that 71.1%
  of the oil is allocated to the Block 32 Joint Venture Group during recovery
  of historical costs. The Block 32 Joint Venture Groups Yemen income taxes
  are paid out of the MOMs share of production sharing oil. These terms
  remain in place until gross proven recoverable reserves exceed 30 million barrels
  of oil or until gross production exceeds 25,000 Bopd.

With significantly increased production, higher oil prices
  and a 91% increase in proven reserves, management expects to have recovered
  all the historical costs early in the second quarter of 2003. Following the
  recovery of the historical exploration and development costs, any new expenditures
  are recovered out of cost oil from production. Operating expenses are recovered
  out of cost oil immediately and future eligible expenditures within the Block
  (such as new wells or facilities) can be recovered out of future production
  within two years of the expenditures. The Block 32 Joint Venture Groups
  share of production following the recovery of historical costs will vary from
  year to year, depending upon gross revenues, operating costs and eligible capital
  expenditures within the PSA area. After recovery of historical costs management
  anticipates that the revenues from the Tasour field that could be allocated
  to cost recovery will exceed any new expenditures. This will result in a lower
  cost oil allocation and a larger production sharing oil allocation. The net
  result is expected to be a reduction of the Block 32 Joint Venture Groups
  total share of oil from 71.1% to an estimated 40% to 50% of production, depending
  upon gross revenue, operating costs and eligible capital expenditures (see diagram
  on Page 20).

Oil production was 1,545 Bopd to TransGlobe in 2002 compared
  to 1,131 Bopd in 2001 and 139 Bopd in 2000 (862 Bopd for the two month period
  produced in 2000) with an average selling price of $25.18 per barrel (2001 -
  $22.14 per barrel, 2000 - $24.34 per barrel). Oil exported for sale (Masila
  blend) is marketed by Nexen Marketing International Ltd. and the price is based
  on an average dated Brent price less a quality/transportation differential between
  the dated Brent and the Masila blend. This differential averaged $0.47 per barrel
  in 2002, $1.49 per barrel in 2001 and $1.35 per barrel in 2000. TransGlobe expects
  2003 gross production from the Tasour field to average 16,000 Bopd (2,210 Bopd
  to TransGlobe), not including production from future drilling success.

A decrease in royalty expense to $1,967,506 in 2002 compared
  to $2,137,124 in 2001 is a direct result of reallocations made between the Block
  32 Joint Venture Group partners for historical cost pool recoveries during 2002.
  TransGlobe received a total reallocation of $1,349,077 in 2002 from the Block
  32 Joint Venture Group. The majority of the 2002 historical cost pool reallocation
  represents the recovery of TransGlobes original farm-in costs on Block
  32 in 1997. It is anticipated that the balance of the historical cost pools
  dating back to 1992 will be recovered in early 2003, which will result in a
  final historical cost pool reallocation between the Block 32 Joint Venture Group
  partners. When the remaining historical costs are recovered in 2003, TransGlobe
  will have a lower interest in the old historical cost pools (8.88302% versus
  13.81087%) and therefore TransGlobe will have a cost sharing reallocation of
  approximately $1,245,000 to the other partners in the Block 32 Joint Venture
  Group. Thereafter all future expenditures paid out of cost oil will be allocated
  at TransGlobes working interest (13.81087%).

The royalty expense is comprised of the MOMs 3% royalty,
  a portion of MOMs share of production sharing oil representing a royalty,
  the YOCs share of production sharing oil and a 2% royalty to the agent
  of the Block 32 Joint Venture Group (less operating cost deductions). Royalties
  averaged $3.49 per barrel for 2002 compared to $5.18 per barrel in 2001. Royalties
  before historical cost pool reallocation would have averaged $5.88 per barrel
  for 2002 with the increase over 2001 attributable to increased oil prices. The
  decrease in royalty expense per barrel in 2001 compared to 2000 is attributable
  to decreased oil prices.

Operating costs of $1,394,379 averaged $2.47 per barrel in
  2002 compared to $2.74 per barrel in 2001. The decreased cost per barrel is
  attributed to the allocation of fixed operating costs over increased production
  volumes. The Transportation and Facilities Usage Contract with Nexen Inc. and
  the MOM allows for an increase in the export pipeline and loading terminal tariff
  following recovery of historical costs. Currently the tariff is approximately
  $0.70 per barrel and it is expected to increase to approximately $1.10 per barrel
  following historical cost recovery in the second quarter of 2003. The increased
  cost per barrel in 2001 as compared to 2000 is a function of overhead costs
  from the operator in Yemen being charged to operating costs, whereas in 2000
  these costs were capitalized in the pre-production phase.

Page 25 of 62

---

Canada

|                     |  | Year Ended        |  | Year Ended        |  | Year Ended        | 
|-------------------- |  | ----------------- |  | ----------------- |  | ----------------- | 
|                     |  | December 31, 2002 |  | December 31, 2001 |  | December 31, 2000 | 
|                     |  |                   |  |                   |  |                   | 
|                     |  | **$**             |  | $/Boe             |  | $                 | 
|                     |  |                   |  |                   |  |                   | 
|Oil sales            |  | 210,827           |  | 22.01             |  | 246,310           | 
|Gas sales (6:1)      |  | 901,138           |  | 16.60             |  | 1,487,615         | 
|NGL sales            |  | 68,177            |  | 16.84             |  | 174,155           | 
|                     |  |                   |  |                   |  |                   | 
|                     |  | 1,180,142         |  | 17.38             |  | 1,908,080         | 
|Royalties            |  | 164,748           |  | 2.43              |  | 354,671           | 
|Operating expense    |  | 448,894           |  | 6.61              |  | 407,277           | 
|                     |  |                   |  |                   |  |                   | 
|Net operating income |  | 566,500           |  | 8.34              |  | 1,146,132         | 
|                     |  |                   |  |                   |  |                   | 

A 19% decrease in gas volumes and a 25% decrease in average
  natural gas prices in 2002 resulted in a 39% decrease in gas sales. Gas production
  averaged 892 Mcfpd in 2002 compared to 1,108 Mcfpd for 2001 and 516 Mcfpd in
  2000. The decrease in production in 2002 is primarily attributed to natural
  production declines, divestiture of minor properties and to shut-in production
  during the year in response to low gas prices in the summer while the increase
  in production in 2001 is due to a full years production from drilling
  and exploitation in 2000. The average natural gas price for 2002 was $2.77 per
  Mcf compared to $3.68 per Mcf for 2001 and $4.03 per Mcf for 2000. To ensure
  continuous gas production during the traditionally weaker summer market, the
  Company has entered into a fixed price natural gas sales contract for 500 GJ/day
  (approximately 500 Mcfpd, or less than 50% of current production) at a price
  of Cdn$7.65/GJ for the period March 1, 2003 to November 1, 2003.

Oil production averaged 26 Bopd in the year 2002 compared
  to 31 Bopd in 2001 and 41 Bopd in 2000. The decrease in 2002 is a result of
  natural production declines and divestiture of minor properties. The average
  oil price in 2002 was $22.01 per barrel compared to $21.61 per barrel in 2001
  and $27.70 per barrel in 2000.

Natural gas liquids production averaged 11 barrels per day
  in 2002 compared to 22 barrels per day in 2001 and 26 barrels per day in 2000.
  Natural gas liquid prices averaged $16.84 per barrel in 2002, $21.51 per barrel
  in 2001 and $22.73 per barrel in 2000.

Royalty expenses averaged $2.43 per Boe in 2002 compared to
  $4.08 per Boe in 2001 and $4.15 per Boe in 2000. In 2002 this reduction is a
  reflection of lower prices and gas cost allowance adjustments.

The Companys operating costs of $448,894 during 2002
  averaging $6.61 per Boe compared to $4.69 per Boe in 2001 and $5.18 per Boe
  in 2000. In 2002 this increase is the result of increased water handling and
  allocating fixed operating costs over lower production volumes.

United States

|                     |  | Year Ended        |  |       |  | Year Ended        |  |       |  | Year Ended        |  |       | 
|-------------------- |  | ----------------- |  | ----- |  | ----------------- |  | ----- |  | ----------------- |  | ----- | 
|                     |  | December 31, 2002 |  |       |  | December 31, 2001 |  |       |  | December 31, 2000 |  |       | 
|                     |  |                   |  |       |  |                   |  |       |  |                   |  |       | 
|                     |  | **$**             |  | $/Boe |  | $                 |  | $/Boe |  | $                 |  | $/Boe | 
|                     |  |                   |  |       |  |                   |  |       |  |                   |  |       | 
|Oil sales            |  | -                 |  | -     |  | -                 |  | -     |  | 400,024           |  | 28.36 | 
|Gas sales (6:1)      |  | -                 |  | -     |  | -                 |  | -     |  | 29,137            |  | 14.70 | 
|NGL sales            |  | -                 |  | -     |  | -                 |  | -     |  | 485               |  | 19.28 | 
|                     |  |                   |  |       |  |                   |  |       |  |                   |  |       | 
|                     |  | -                 |  | -     |  | -                 |  | -     |  | 429,646           |  | 26.67 | 
|Royalties            |  | -                 |  | -     |  | -                 |  | -     |  | 126,819           |  | 7.87  | 
|Operating expense    |  | -                 |  | -     |  | -                 |  | -     |  | 103,158           |  | 6.40  | 
|                     |  |                   |  |       |  |                   |  |       |  |                   |  |       | 
|Net operating income |  | -                 |  | -     |  | -                 |  | -     |  | 199,669           |  | 12.40 | 
|                     |  |                   |  |       |  |                   |  |       |  |                   |  |       | 

The Company sold all its assets in the United States effective
  October 31, 2000. The proceeds were reinvested in the Tasour development.

Oil production averaged 39 Bopd in 2000, with an average oil
  price of $28.36 per barrel. Gas production averaged 32 Mcfpd in 2000, with an
  average natural gas price of $2.45 per Mcf.

Page 26 of 62

---

General And Administrative Expenses

General and administrative expenses (G&A)
  increased 44% in 2002 to $820,691 from $570,609 in 2001, mainly due to an increase
  in salary and consulting costs, office rent, insurance and professional services.
  Management expects G&A to stabilize at this level for 2003.

|                |  | Year Ended        |   |                   |   | Year Ended        |  
|--------------- |  | ----------------- | - | ----------------- | - | ----------------- | -
|                |  | December 31, 2002 |   | December 31, 2001 |   | December 31, 2000 |  
|                |  |                   |   |                   |   |                   |  
|                |  |                   |   |                   |   | $                 |  
|                |  |                   |   |                   |   |                   |  
|Gross G&A       |  | 1,213,094         |   | 1.92              |   | 985,902           |  
|Capitalized G&A |  | (392,403          | ) | (0.66             | ) | (415,293          | )
|                |  |                   |   |                   |   |                   |  
|Net G&A         |  | 820,691           |   | 1.30              |   | 570,609           |  
|                |  |                   |   |                   |   |                   |  

Depletion And Depreciation Expense

Depletion and depreciation expense was $4,277,000 in 2002
  compared to $2,762,000 in 2001 and $635,400 in 2000. The increase in 2002 is
  attributable to the inclusion of additional costs in the depletable base in
  the Republic of Yemen. In Yemen unproven properties in the amount of $7,184,372
  were excluded from costs subject to depletion and depreciation in 2002 (2001
  - $9,080,536; 2000 - $10,113,633). In 2002, this represents a portion of the
  costs incurred in Block S-1. These costs will be included in the depletable
  base as Block S-1 is developed or as impairment is determined.

|                  |  | Year Ended        |  | Year Ended        |  | Year Ended        | 
|----------------- |  | ----------------- |  | ----------------- |  | ----------------- | 
|                  |  | December 31, 2002 |  | December 31, 2001 |  | December 31, 2000 | 
|                  |  |                   |  |                   |  |                   | 
|                  |  | $                 |  | $/Boe             |  | $                 | 
|                  |  |                   |  |                   |  |                   | 
|Republic of Yemen |  | 3,960,000         |  | 7.02              |  | 2,405,000         | 
|Canada            |  | 317,000           |  | 4.67              |  | 357,000           | 
|United States     |  | -                 |  | -                 |  | -                 | 
|                  |  |                   |  |                   |  |                   | 
|                  |  | 4,277,000         |  | 6.77              |  | 2,762,000         | 
|                  |  |                   |  |                   |  |                   | 

Income Taxes

Current income tax expense represents income taxes paid in
  the Republic of Yemen which increased to $986,862 during 2002 from $634,716
  in 2001 and $86,038 in 2000 as a result of increased production and revenues
  in Yemen. Future income tax recovery of $67,168 in 2002 is a result of offsetting
  unrecorded future tax benefits in Canada against the future tax effect of tax
  renunciations to flow through shareholders.

At year end 2002, the Company has non-capital losses and tax
  pools for carry forward against future taxable income in Canada in the amount
  of Cdn$18,674,000 and tax losses in the United States of $13,100,000.

The Company will not record the future tax benefit of these
  tax losses and pools in the consolidated financial statements until additional
  producing reserves are added in Canada.

Capital Expenditures/Dispositions

Capital Expenditures

|                  | Year Ended        |  | Year Ended        |  | Year Ended        | 
|----------------- | ----------------- |  | ----------------- |  | ----------------- | 
|                  | December 31, 2002 |  | December 31, 2001 |  | December 31, 2000 | 
|                  |                   |  |                   |  |                   | 
|Republic of Yemen | $5,435,398        |  | $3,406,363        |  | $4,855,141        | 
|Canada            | 1,041,146         |  | 1,375,888         |  | 1,118,266         | 
|United States     | -                 |  | -                 |  | 17,909            | 
|                  |                   |  |                   |  |                   | 
|                  | $6,476,544        |  | $4,782,251        |  | $5,991,316        | 
|                  |                   |  |                   |  |                   | 

Capital expenditures in the year 2002 in the Republic of Yemen
  were split mainly between Block 32 and Block S-1. On Block 32 expenditures of
  $2,022,323 were incurred on a three well drilling program comprised of Asswairy
  #1, Tasour #7 and Tasour #8, facility expansion, water disposal well, additional
  working interest payment described below and various well workovers. Capital
  expenditures of $1,472,611 in 2001 on Block 32 were incurred on a three well
  drilling program comprised of Tasour #5, Tasour #6 and a portion of Asswairy
  #1, plus a 120 kilometer 2-D

Page 27 of 62

---

seismic program. Capital expenditures of $3,063,495 in 2000
  on Block 32 were incurred for construction of a central processing facility
  and pipeline, a three well drilling program and acquisition of an additional
  4% working interest.

Effective January 1, 2000, the Company entered into an agreement
  to purchase an additional 4% working interest in Block 32 for a total purchase
  price of $2,136,163, increasing the Companys working interest to 13.81087%.
  The Company made an initial payment of $1,176,163. A potential future obligation
  totalling $960,000 will be due in six payments of $160,000 for each cumulative
  million barrels of gross oil production commencing at 7 million barrels to a
  maximum of 12 million barrels. The purchase also includes the proportionate
  historical cost pools attributable to the interest acquired. During 2002 the
  Company made the first payment of $160,000 and subsequent to December 31, 2002
  a second and a third payment of $160,000 each were made. The Company expects
  that the remaining payments will be made during 2003.

On Block S-1 the Company incurred $3,404,599 primarily on
  drilling three wells comprised of Osaylan #1, An Nagyah #2 and An Naeem #3,
  contractual government payments, pre-drilling inventory and geological/geophysical/geochemical
  studies. Capital expenditures on Block S-1 in 2001 were $1,890,684 primarily
  on field acquisition of a 230 square kilometer 3-D seismic program, Harmel #1
  production test and various contractual government payments. Capital expenditures
  on Block S-1 in 2000 were $1,251,646 to participate in drilling An Naeem #2
  and expenditures relating to testing on Harmel #1.

Canadian capital expenditures of $1,041,146 in 2002 relate
  to several mineral lease acquisitions, drilling two wells at Nevis and one well
  at Morningside and tie in costs at Cherhill, Morinville and Morningside areas.
  Canadian capital expenditures in 2001 related to several mineral lease acquisitions,
  drilling of five wells and three recompletions. Capital expenditures in 2000
  in Canada relate to mineral lease acquisitions, seismic and drilling of five
  wells.

Dispositions

In 2002, proceeds on disposal of oil and gas properties represents
  dispositions in Canada of minor properties at Wildmint and Provost.

During the year 2000 the Company sold all its oil and gas
  properties in the United States for net proceeds of $606,059, resulting in a
  gain on sale of $254,132. Proceeds from the sale were utilized to partially
  fund the acquisition of an additional 4% working interest in Block 32, Yemen.

Finding And Development Costs

|                                                     | Three Year |  |            |  |            |  |            | 
|---------------------------------------------------- | ---------- |  | ---------- |  | ---------- |  | ---------- | 
|                                                     | Average    |  | 2002       |  | 2001       |  | 2000       | 
|                                                     |            |  |            |  |            |  |            | 
|Total capitalized costs                              |            |  | $6,476,544 |  | $4,782,251 |  | $5,973,407 | 
|Proved reserve additions                             |            |  |            |  |            |  |            | 
|and revisions
      (MBoe) *                         |            |  | 1,209.7    |  | 946.2      |  | 754.3      | 
|Proved plus probable reserve                         |            |  |            |  |            |  |            | 
|additions and
      revisions (MBoe) *               |            |  | 1,390.2    |  | 700.5      |  | 1,075.3    | 
|Average cost per Boe - proved                        | $5.92      |  | $5.35      |  | $5.05      |  | $7.92      | 
|- proved plus                                        |            |  |            |  |            |  |            | 
|probable                                             | $5.44      |  | $4.66      |  | $6.83      |  | $5.55      | 
|                                                     |            |  |            |  |            |  |            | 
|* Proven working interest reserves before royalties. |            |  |            |  |            |  |            | 



Page 28 of 62

---

Recycle Ratio

|                                           |   | Three Year |  |   |       |  |   |       |  |   |      | 
|------------------------------------------ | - | ---------- |  | - | ----- |  | - | ----- |  | - | ---- | 
|                                           |   | Average    |  |   | 2002  |  |   | 2001  |  |   | 2000 | 
|                                           |   |            |  |   |       |  |   |       |  |   |      | 
|Netback ($/Boe)                            | $ | 13.14      |  | $ | 15.36 |  | $ | 11.69 |  | $ | 7.56 | 
|Proved finding and development
      costs | $ | 5.92       |  | $ | 5.35  |  | $ | 5.05  |  | $ | 7.92 | 
|($/Boe)                                    |   |            |  |   |       |  |   |       |  |   |      | 
|Recycle ratio                              |   | 2.22       |  |   | 2.87  |  |   | 2.31  |  |   | 0.95 | 
|                                           |   |            |  |   |       |  |   |       |  |   |      | 

The recycle ratio measures the efficiency of TransGlobes
  capital program by comparing the cost of finding and developing proved reserves
  before royalties with the netback from production before royalties. The ratio
  is calculated by dividing the netback by the proved finding and development
  cost on a Boe basis. Netback is defined as net sales revenues less operating,
  general and administrative, foreign exchange (gain) loss, interest and current
  income tax expense per Boe of production.

Liquidity And Capital Resources

Funding for the Companys capital expenditures in 2002
  was provided by cash flow from operations and working capital.

At December 31, 2002 the Company had working capital of $4,748,933,
  nil debt and a revolving credit facility of Cdn$2,500,000 and an acquisition/development
  credit facility of Cdn$2,000,000.

The Company expects to fund its 2003 exploration and development
  program (budgeted at $10 million firm and contingent) through the use of working
  capital, cash flow and debt as required. Should cash flow be negatively impacted
  by reduction in production volumes or commodity prices, the Company has significant
  flexibility to adjust its Canadian capital budget of $2.7 million.

In December 2002, the Company announced the approval of a
  Normal Course Issuer Bid to acquire up to 4,855,435 common shares over a 12
  month period expiring December 8, 2003. In 2003 the Company acquired 100,000
  common shares at a price of Cdn$0.60/share. The acquired shares have been returned
  to treasury and cancelled.

Commitments And Contingencies

As part of its normal business, the Company entered into arrangements
  and incurred obligations that will impact the Companys future operations
  and liquidity. The principal commitments of the Company are as follows:

|                                                  |   | 2003    |     |   | 2004    |  |   | 2005    |  |   | 2006    |  |   | 2007   | 
|------------------------------------------------- | - | ------- | --- | - | ------- |  | - | ------- |  | - | ------- |  | - | ------ | 
|                                                  |   |         |     |   |         |  |   |         |  |   |         |  |   |        | 
|Office and equipment leases                       | $ | 112,000 |     | $ | 114,000 |  | $ | 114,000 |  | $ | 114,000 |  | $ | 40,000 | 
|Expected contingent payments                      |   |         |     |   |         |  |   |         |  |   |         |  |   |        | 
|on Block 32 additional interest                   |   |         |     |   |         |  |   |         |  |   |         |  |   |        | 
|acquisition in 2000                               |   | 800,000 | (1) |   | -       |  |   | -       |  |   | -       |  |   | -      | 
|                                                  |   |         |     |   |         |  |   |         |  |   |         |  |   |        | 
|                                                  | $ | 912,000 |     | $ | 114,000 |  | $ | 114,000 |  | $ | 114,000 |  | $ | 40,000 | 
|                                                  |   |         |     |   |         |  |   |         |  |   |         |  |   |        | 
|(1)In 2003, $320,000 has been paid
      to date. |   |         |     |   |         |  |   |         |  |   |         |  |   |        | 

The Block S-1 second exploration period letter of credit issued
  in 2002 in the amount of $1,500,000 was fully released in 2003.

New Accounting Pronouncements

In December 2001, the Canadian Institute of Chartered Accountants
  (CICA) issued Accounting Guideline 13, Hedging Relationships (AcG-13).
  AcG-13 establishes certain conditions for when hedge accounting may applied.
  The guideline is effective for fiscal years beginning on or after July 1, 2003.
  Adoption of AcG-13 is not expected to have a material impact on our financial
  position or results of operations.

In September 2002, the CICA approved Section 3063, Impairment
  of Long-Lived Assets (S.3063). S.3063 establishes standards for the recognition,
  measurement and disclosure of the impairment of long-lived assets, and applies
  to long-lived assets held for use. An impairment loss is recognized when the
  carrying amount of a long-lived asset is not recoverable and exceeds its fair
  value. The new Section is effective for fiscal years beginning on or after

Page 29 of 62

---

April 1, 2003. Adoption of this Section is not expected to
  have a material impact on our financial position or results of operations.

In December 2002, the CICA approved Section 3110, Asset
  Retirement Obligations (S.3110). S.3110 requires liability recognition
  for retirement obligations associated with our property, plant and equipment.
  These obligations are initially measured at fair value, which is the discounted
  future value of the liability. This fair value is capitalized as part of the
  cost of the related asset and amortized to expense over its useful life. The
  liability accretes until we expect to settle the retirement obligation. S. 3110
  is effective for fiscal years beginning on or after January 1, 2004. The total
  impact of our financial statements has not yet been determined.

The following standards and revisions issued by the CICA do
  not impact us:

| | Amendments to S.3025 - Impaired Loans,
      effective for asset foreclosures on or after May 1, 2003                                                                                 
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Section 3475 - Disposal of Long-Lived
        Assets and Discontinued Operations, effective for disposal activities
        initiated by commitments to plans on or after May 1, 2003.

ITEM 6.DIRECTORS,
  SENIOR MANAGEMENT AND EMPLOYEES

A.Directors
  and Senior Management

The names, age, positions, terms of office of the officers and directors of the Company during the year 2002 are as follows:

|NAME, AGE             | POSITION                                   | TERM                
|--------------------- | ------------------------------------------ | --------------------
|Robert A. Halpin, 67  | Board Member                               | 03/21/97 to present 
|                      | Chairman of the Board                      | 01/06/99 to present 
|Geoffrey C. Chase, 61 | Board Member                               | 08/15/00 to present 
|Ross G. Clarkson, 49  | President and Chief Executive Officer      | 12/06/96 to present 
|                      | Board Member                               | 10/11/95 to present 
|Lloyd W. Herrick, 50  | Vice President and Chief Operating Officer | 04/28/99 to present 
|                      | Board Member                               | 04/28/99 to present 
|Erwin L. Noyes, 65    | Vice-President, International Operations   | 11/08/96 to 07/31/00
|                      | Corporate Secretary                        | 12/04/96 to 28/09/99
|                      | Board Member                               | 10/11/95 to present 
|David C. Ferguson, 50 | V.P. Finance, Chief Financial Officer and  | 06/01/01 to present 
|                      | Corporate Secretary                        |                     

There are no family relationships among the directors and
  officers of the Company.

Robert A. Halpin, Director, Chairman of the Board

Mr. Halpin brings to the Company over 45 years experience
  in the petroleum industry world-wide as a self-employed consultant (1993 to
  present); as Vice-President of International Exploration & Production with
  Petro-Canada Resources of Calgary, Alberta (1988 to October, 1993) and in similar
  positions with Trend International Ltd., of Denver, Colorado; Saga Petroleum
  A.S. of Oslo, Norway; Amerada Hess Corporation and American Independent Oil
  Company, both of New York; Chevron Canada Ltd. in Saskatchewan and Manitoba
  and Mobil Oil Corporation in New York, Libya and Alberta. Mr. Halpin was a director
  of Fountain Oil Inc., a public company listed on the Nasdaq Stock Market Inc.,
  from March 1995 to June 1999 and was Chairman of its Board from November 1995
  to February 1997; and was a director of Pacific Tiger Energy Inc., a public
  company listed on the Montreal Exchange, from June 1997 to March 2001 and Chairman
  of its Board from March 1998 to March 2001; and was a director of Syner-Seis
  Technologies Inc., a public company listed on the Canadian Venture Exchange,
  from May 1997 to June 1999.

Ross G. Clarkson, P. Geol., Director, President &
  Chief Executive Officer

Mr. Clarkson was initially retained by the Company as a technical
  advisor to assist its Yemen concession prospect (now Block S-1) and assist in
  negotiations with the Ministry of Oil and Mineral Resources, Republic of Yemen.
  He was appointed as President and Chief Executive Officer of the Company on
  December 4, 1996 and has served as a director of the Company since October 1995.
  Mr. Clarkson was formerly employed (1988 to 1996) as a senior geological advisor
  with Petro-Canada, a major Canadian oil company, and has in excess of 25 years
  domestic and international oil and gas exploration experience, including Resident
  Manager of Petro-Canada (Yemen) Inc. (1990 to 1993); Senior Project Geologist
  with Canadian Occidental Petroleum Ltd., now Nexen Inc., in Yemen in 1987

Page 30 of 62

---

and supervisor of international exploration/geologist with
  Ranger Oil Limited (1979 to 1986). His international familiarity extends to
  Oman and the United Arab Emirates, Indonesia, Thailand, China, Australia, the
  North Sea, South America and Africa.

Lloyd W. Herrick, P. Eng., Director, Vice President,
  Chief Operating Officer

Prior to joining TransGlobe in April 1999 Mr. Herrick was
  President, Chief Executive Officer and member of the Board of Moiibus Resource
  Corporation (Moiibus) (1997 to 1999), a public company which TransGlobe
  acquired in April 1999. He is a professional engineer with more than 25 years
  of oil and gas experience, primarily in North America. Prior to Moiibus, Mr.
  Herrick had been with Ranger Oil Limited since 1982, serving in a variety of
  technical and management/executive positions including Vice President - Canadian
  Production from 1993 onward. Prior thereto, he was a petroleum engineer with
  Rupertsland Resources Ltd. (1981 to 1982) and a production, evaluations engineer
  with Hudsons Bay Oil & Gas Ltd. (1975 to 1981).

Geoffrey C. Chase, P. Eng., Director

Mr. Chase joined the Board in August 2000. He brings over
  35 years of oil and gas operations experience to the Company. Prior to taking
  early retirement, Mr. Chase worked for Ranger Oil Limited for 28 years in numerous
  positions, overseeing both domestic and international operations. In his most
  recent position with Ranger Oil Limited, he was Senior Vice President, Business
  Development, responsible for identifying, assessing and negotiating international
  petroleum development opportunities. In addition to his duties at Ranger, Mr.
  Chase also served on the board of Direct Energy Marketing Ltd., a private gas
  marketing company, and was Chairman of its Board from 1990 to 1994.

Erwin L. Noyes, Director

Mr. Noyes was initially engaged by the Company as a consultant
  to assess its Yemen concessions and to assist with related negotiations. He
  was appointed acting President on November 8, 1996, pending Mr. Clarksons
  appointment as President, and Vice-President, Operations of the Company (on
  a part-time basis) from November 8, 1996 to April 26, 1999 and has served as
  a director since October, 1995. Mr. Noyes title was changed to Vice President,
  International Operations on April 26, 1999 and he retired from the Company on
  July 31, 2000. Mr. Noyes brings to the Company over of 30 years of oil and gas
  exploration and production experience in both domestic and international operations;
  including as General Manager in the Republic of Yemen for Canadian Occidental
  Petroleum Ltd., now Nexen Inc., (1987 to 1991), during which time he managed
  that companys oil exploration program, as a self-employed consultant (1991
  to 1996), and with several Canadian Occidental affiliates, as Production Manager
  in Calgary (1982 to 1986) and as Gas Operations Manager for Canada Cities Service,
  responsible for all gas production/processing, pipeline and facilities construction
  (1978 to 1982).

David C. Ferguson,C.A., Vice President Finance, Chief
  Financial Officer, Corporation Secretary

Mr. Ferguson joined TransGlobe in June 2001. He is a professional
  Chartered Accountant with more than 24 years of financial management/reporting
  experience. From 1999 to 2000 he was Chief Financial Officer with NorthStar
  Drilling Systems Inc., with Myriad Energy Corporation 1998 to 1999 as Chief
  Financial Officer and director, Archean Energy Ltd. as Vice President of Finance
  from 1994 to 1997 and Eagle Resources Ltd. from 1982 to 1994 as Vice President
  of Finance and Controller. Prior to entering the oil and gas industry, Mr. Ferguson
  was with David Dahl & Partners, Chartered Accountants, 1980 to 1982 and
  Touche Ross & Co., Chartered Accountants, 1975-1980.

Page 31 of 62

---

B.Compensation

The following table outlines the compensation paid or payable,
  stock options and Common Shares held for directors and management of TransGlobe
  for the fiscal year ended December 31, 2002.

|                             |   |              |  |                             |  |                  |  |               |  |            |  | Common SharesOwned | 
|---------------------------- | - | ------------ |  | --------------------------- |  | ---------------- |  | ------------- |  | ---------- |  | ------------------ | 
|                             |   |              |  |                             |  |                  |  |               |  |            |  |                   
|                             |   | Compensation |  | Securities Under Option (1) |  |                 
|                             |   |              | 
|Name andPosition withCompany |   | Salary(Cdn$) |  | Other(Cdn$)                 |  | Numberof Options |  | ExercisePrice |  | ExpiryDate |  | Number             | 
|                             |   |              |  |                             |  |                  |  |               |  |            |  |                    | 
|                             |   |              |  |                             |  |                  |  |               |  |            |  |                    | 
|ROBERT A. HALPIN             | $ | Nil          |  | $8,800(3)                   |  | 140,000          |  | $0.22         |  | Jun 18/03  |  | 367,585            | 
|Chairman, Director           |   |              |  |                             |  | 15,000           |  | $0.22         |  | Jan 08/04  |  |                    | 
|                             |   |              |  |                             |  | 120,000          |  | Cdn.$0.50     |  | Apr 16/07  |  |                    | 
|ROSS G. CLARKSON             | $ | 152,500      |  | $153,500(4)                 |  | 307,500          |  | $0.22         |  | Jun 18/03  |  | 1,701,072          | 
|President, Chief             |   |              |  |                             |  | 154,500          |  | Cdn.$0.73     |  | Aug 11/05  |  |                    | 
|Executive Officer,           |   |              |  |                             |  | 250,000          |  | Cdn.$0.50     |  | Apr 16/07  |  |                    | 
|Director                     |   |              |  |                             |  |                  |  |               |  |            |  |                    | 
|LLOYD W. HERRICK             | $ | 152,500      |  | $36,000(4)                  |  | 270,000          |  | $0.22         |  | Apr 28/04  |  | 285,000            | 
|Vice President, Chief        |   |              |  |                             |  | 135,000          |  | Cdn.$0.73     |  | Aug 11/05  |  |                    | 
|Operating Officer,           |   |              |  |                             |  | 250,000          |  | Cdn.$0.50     |  | Apr 16/07  |  |                    | 
|Director                     |   |              |  |                             |  |                  |  |               |  |            |  |                    | 
|ERWIN L. NOYES               | $ | Nil          |  | $8,000(3)                   |  | 257,500          |  | $0.22         |  | Jun 18/03  |  | 130,747            | 
|Director                     |   |              |  |                             |  | 150,000          |  | Cdn.$0.73     |  | Aug 11/05  |  |                    | 
|                             |   |              |  |                             |  | 120,000          |  | Cdn.$0.50     |  | Apr16/07   |  |                    | 
|GEOFFREY C. CHASE            | $ | Nil          |  | $8,000(3)                   |  | 140,000          |  | Cdn.$0.73     |  | Aug 11/05  |  | 153,000            | 
|Director                     |   |              |  |                             |  | 120,000          |  | Cdn.$0.50     |  | Apr 16/07  |  |                    | 
|DAVID C. FERGUSON            | $ | 119,974      |  | $28,320(4)                  |  | 200,000          |  | Cdn.$0.55     |  | Jun 01/06  |  | 110,000            | 
|Vice Pres. Finance,          |   |              |  |                             |  | 200,000          |  | Cdn.$0.50     |  | Apr 16/07  |  |                    | 
|Chief Financial              |   |              |  |                             |  |                  |  |               |  |            |  |                    | 
|Officer, Corporate           |   |              |  |                             |  |                  |  |               |  |            |  |                    | 
|Secretary                    |   |              |  |                             |  |                  |  |               |  |            |  |                    | 

|(1) | There are no outstanding restricted shares or units and the
      Company does not have a long-term incentive plan, pension plan or other
      compensatory plan for its executive officers.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Represents less than one percent of outstanding Common Shares
      of the Company.                                                                                                          
|(3) | Other compensation includes outside director fees.                                                                                                                                           
|(4) | Other compensation includes performance bonuses.                                                                                                                                             

C.Board
  Practices

Directors serve for a term of one year, but are eligible for
  re-election annually by the shareholders. Pursuant to section 111 of the Company
  Act (British Columbia), advance notice of the Companys 2002 Annual
  General Meeting to be held May 29, 2003 was published in the Province newspaper
  on April 2, 2003 inviting written nominations for directors. No such nominations
  have been received by the Company.

The directors have fixed the number of directors to be elected
  at five. The persons named in the following table are management of the Companys
  nominees to the Board of Directors. All of Messrs. Halpin, Clarkson, Herrick,
  Noyes and Chase are ordinarily resident in Canada.

Mr. Ross Clarkson was appointed President and Chief Executive
  Officer of the Company on December 4, 1996, which appointment will continue
  until December 31, 2007. Pursuant to Mr. Clarkson's employment contract effective
  December 1, 2002 with the Company, in return for a full-time commitment to the
  Company, he received a monthly salary of Cdn.$15,000 (approx. U.S. $9,550).
  Mr. Clarkson is entitled to a performance bonus in such amount as may be determined
  by the Compensation Committee. Mr. Clarkson was also entitled to a performance
  bonus under his previous contract payable in fully paid Common Shares of the
  Company, upon the Company's cash flow reaching specified amounts as follows:

Page 32 of 62

---





|Cash Flow*     | Bonus                              
|-------------- | -----------------------------------
|               |                                    
|U.S.$500,000   | 50,000 Common Shares               
|U.S.$2,000,000 | An additional 100,000 Common Shares
|U.S.$5,000,000 | An additional 150,000 Common Shares
|               |                                    

*Cash Flow is defined as that amount determined in the Company's
  annual audited financial statements as "cash flow generated from operations"
  within Canadian generally accepted accounting principles.

Pursuant to the employment contract, the Company issued to
  Mr. Clarkson 250,000 Common Shares during Fiscal 2002.

Mr. Lloyd Herrick was appointed Vice President and Chief Operating
  Officer of the Company on April 28, 1999, which appointment will continue until
  December 31, 2007 unless extended or sooner terminated as provided in his employment
  contract. Pursuant to Mr. Herrick's employment contract effective December 1,
  2002 with the Company, in return for a full-time commitment to the Company,
  he received a monthly salary of Cdn.$15,000 (approx. U.S. $9,550). Mr. Herrick
  is entitled to a performance bonus in such amount as may be determined by the
  Compensation Committee.

Mr. David Ferguson was appointed Vice-President, Finance,
  Chief Financial Officer and Secretary of the Company on June 1, 2001, which
  appointment will continue until December 31, 2007 unless extended or sooner
  terminated as provided in his employment contract. Pursuant to Mr. Ferguson's
  employment contract effective December 1, 2002 with the Company, in return for
  a full-time commitment to the Company, he received a monthly salary of Cdn.$11,800
  (approx. U.S. $7,500). Mr. Ferguson is entitled to a performance bonus in such
  amount as may be determined by the Compensation Committee.

Each of the employment contracts may be terminated by the
  executive officer on 30 days written notice. In addition, if any person together
  with his or its associates acquires beneficial ownership (as defined in the
  contract) of 20% or more of the outstanding Common Shares of the Corporation,
  other than a current insider of the Corporation. Messrs. Clarkson, Herrick and
  Ferguson may, within six months after that event, elect to terminate the contract
  and his employment, and the Company will pay to him a retirement allowance in
  an amount equal to 24 months, of his then current salary and benefits. If the
  executive officer should die during the term of the contract, the Company is
  required to pay his estate an amount equal to six months of his then current
  salary. The employment contracts also provide for the customary medical, dental
  and life insurance benefits and vacation entitlement.

The Companys audit committee consists of Geoffrey Chase
  (Chair), Robert Halpin, and Erwin Noyes, all independent Directors. The audit
  committees mandate is to review and monitor management in carrying out
  its responsibilities to design and implement an effective system of internal
  controls, to review and approve quarterly financial reports and related press
  releases, to review the annual financial statements, and meet with the outside
  auditors independent of management, as defined in the Charter of Audit
  Committee.

The compensation committee is comprised of Robert Halpin (Chair),
  Geoffrey Chase and Erwin Noyes, all independent Directors. The compensation
  committee conducts an annual review of the senior officers and considers appropriate
  development programs, reviews employment and remuneration for senior officers,
  reviews remuneration for directors, and allocation of stock options, as defined
  in the Charter of Compensation Committee.

The governance and nominating committee is comprised of Erwin
  Noyes (Chair), Robert Halpin and Geoffrey Chase, all independent Directors.
  The governance and nominating committees mandate is to identify possible
  new individuals qualified to become Board of Director members, provide a list
  of Board nominees for each annual meting, ensure that each of the Audit, Compensation
  and Governance and Nominating committees adhere to their respective charter
  and review on an annual basis the corporate governance policies and procedures
  of the Company, as defined in the Charter of Governance and Nominating
  Committee.

D.Employees

At December 2002, TransGlobe had seven full time employees
  located in the Calgary head office, working on the properties in both Yemen
  and Canada.

Page 33 of 62

---



E.Share Ownership

Share ownership and stock options granted and outstanding
  to the officers and directors of the Company are outlined in the table in Item
  6.B.

Incentive Stock Options and SARs

Subject to shareholder approval at the May 29, 2003 shareholders
  meeting, the Board of Directors of the Company approved a new Stock option plan
  dated April 15, 2003. The new share option plan (the "2003 Plan") which will
  supersede and replace the existing stock option plan of the Company (the "Old
  Plan"). The Old Plan, as amended, was originally approved by the shareholders
  in April of 1997, with the latest amendments to the plan ratified by shareholders
  on March 22, 2001. As of April 15, 2003, the Company had outstanding options
  (both within and outside the Company's existing option plan) to purchase 3,142,000
  Common Shares. If the 2003 Plan is approved as proposed, the outstanding options
  will remain in effect and be exercisable in accordance with their terms and
  all such options will be deemed to be issued under the terms of the 2003 Plan.
  Approval of the 2003 Plan will also constitute ratification of all outstanding
  share options including any granted, if any, in excess of the maximum number
  of Common Shares issuable under the Old Plan. The new Stock Option Plan dated
  April 15, 2003 is filed as Exhibit 10.8.

The 2003 Plan contains terms and conditions substantially
  the same as those of the Old Plan, except that (i) the Company will be increasing
  the maximum number of Common Shares that may be issued upon the exercise of
  options granted pursuant to the 2003 Plan in order to meet its business objective
  of awarding share options to directors, officers, employees and consultants
  in a total amount up to a maximum of 10% of its total outstanding Common Shares;
  and (ii) the 2003 Plan will provide the Company with the flexibility to effect
  the "cashless" exercise of stock options, by providing to optionees the difference
  (either in cash or Common Shares) between the exercise price of the options
  and the current trading price of the Common Shares.

The Company intends to seek shareholder approval each year
  to increase the maximum number of Common Shares issuable pursuant to the exercise
  of options granted to ensure that up to approximately 10% of the Company's total
  outstanding Common Shares may be issuable pursuant to the 2003 Plan.

The board of directors has approved an amendment to the 2003
  Plan to increase the number of Common Shares reserved for issuance pursuant
  to the 2003 Plan by 2,051,000 Common Shares, which reflects the Common Shares
  issued by the Company since the initial approval of the Old Plan, as well as
  deficits under the Old Plan. Options to purchase a total of 3,142,000 Common
  Shares are outstanding under the Old Plan at April 15, 2003. After the increase
  of 2,051,000 Common Shares, the maximum number of Common Shares which will be
  available for issuance under the 2003 Plan will be equal to 10% of the issued
  and outstanding Common Shares, with 3,142,000 outstanding options, and an additional
  2,045,730 Common Shares available for additional option grants.



|(a) | the maximum number of Common Shares
        that may be issued to insiders pursuant to the 2003 Plan and any other
        Common Share compensation arrangement is 10% of the number of Common Shares
        outstanding;                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                         
|(b) | the maximum number of Common Shares
        that may be issued to insiders under the 2003 Plan and any other Common
        Share compensation arrangement within a one (1) year period is 10% of
        the number of Common Shares outstanding; and  
|    |                                                                                                                                                                                                                                                         
|(c) | the maximum number of Common Shares
        that may be issued to any one insider under the 2003 Plan and any other
        Common Share compensation arrangement within a one (1) year period is
        5% of the number of Common Shares outstanding.

ITEM 7.MAJOR
  SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A.Major Shareholders

To the knowledge of the Company, there are no share holders who own beneficially,
  directly or indirectly, more than 5% of the Common Shares of the Company. In
  2001, the only person who owned beneficially, directly or indirectly, more than
  5% of the Common Shares of the Company was Mr. Tom Kusumoto. Mr. Kusumoto was
  a major shareholder of Moiibus and acquired TransGlobe Common Shares when the
  Company purchased Moiibus in

Page 34 of 62

---

April, 1999. At the time of the Moiibus acquisition, Mr. Kusumoto
  owned beneficially, directly or indirectly, or exercised control or direction
  over 11.0% of the Companys Common Shares. Mr. Kusumoto participated in
  a private placement in August, 1999 increasing his ownership to 13.4%. In August,
  2000 Mr. Kusumoto exercised warrants to purchase Common Shares and had 10.5%
  of the Companys outstanding Common Shares at that time. In October, 2000,
  DHN Services Ltd., a company that holds TransGlobe Common Shares and which Mr.
  Kusumoto exercises control of, reorganized resulting in Mr. Kusumoto owning
  directly or indirectly 7.4% of the Companys Common Shares. Mr Kusumoto
  has advised the Company that during 2002 and 2003 he has sold a portion of his
  shareholdings, such that he currently has less than 5 % of the Common Shares
  of the Company.

To the knowledge of the Company, 21,327,957 Common Shares
  are held by registered shareholders in the United States representing 41.11
  percent of total Common Shares currently outstanding.

To the knowledge of the Directors and Officers of the Company,
  there have been no transfers of Common Shares which have materially affected
  control of the Company since the last Annual and Extraordinary General Meeting
  of Members of the Company held on May 30, 2002.

B.Related Party Transactions

Other than transactions carried out in the normal course of
  business of the Company, no other director or senior officer of the Company
  or of its subsidiaries, nor any of their associates or affiliates has since
  the commencement of the Companys last completed financial year had any
  material interest, direct or indirect, in any other transactions which materially
  affected the Company or in any proposed transaction which has or would materially
  affect the Company.

ITEM 8.FINANCIAL
  INFORMATION

A.Consolidated
  Statements and Other Financial Information

The consolidated financial statements for the year ended December
  31, 2002 have been audited by an independent auditor, are accompanied by an
  audit report, and are attached and incorporated herein.

On May 14, 2003, the Company released its 2003 first quarter
  results for the three month period ended March 31, 2003. These quarterly results
  were filed with the Commission on Form 6-K and are incorporated by reference
  herein.

The Company is not a party to any material legal proceedings
  and none are known to be contemplated, threatened or pending, nor are there
  currently any arbitration proceedings.

The Company has never paid dividends to shareholders nor is
  there a policy in place to do so.

B.Significant Changes

There have been no significant changes to the Company since
  December 31, 2002.





Page 35 of 62

---

ITEM 9.THE
  OFFER AND LISTING

A.Offer
  and Listing Details

The following table sets forth the reported high and low sale
  prices as reported by the principal trading markets in Canada and the United
  States for Fiscal 1998 to 2000, for each of the quarters in Fiscal 2001 and
  2002 and for each of the six months ending April 30, 2003. The Companys
  Common Shares were listed in Canada on the Vancouver Stock Exchange (the VSE)
  from August 15, 1969 to February 3, 1997, on the Alberta Stock Exchange and
  its successor the Canadian Venture Exchange from July 7, 1997 until January
  31, 2000, and on The Toronto Stock Exchange since November 10, 1997. The Companys
  Common Shares were listed in the United States on the NASDAQ Small Cap Market
  from March 1984 until August 31, 1998 and trade on the OTC BB since September
  1, 1998.

|                                     | ASE or TSX         |  | Nasdaq or OTC BB  | 
|------------------------------------ | ------------------ |  | ----------------- | 
|                                     | Price Range (Cdn$) |  | Price Range (US$) | 
|                                     | High               |  | Low               | 
|Fiscal year ended September 30, 1998 | 2.20               |  | 0.18              | 
|Fiscal year ended December 31, 1999  | 0.78               |  | 0.16              | 
|Fiscal year ended December 31, 2000  | 1.63               |  | 0.40              | 
|Quarter ended March 2001             | 0.72               |  | 0.40              | 
|Quarter ended June 2001              | 0.70               |  | 0.40              | 
|Quarter ended September 2001         | 0.56               |  | 0.27              | 
|Quarter ended December 2001          | 0.67               |  | 0.25              | 
|Quarter ended March 2002             | 0.82               |  | 0.40              | 
|Quarter ended June 2002              | 0.60               |  | 0.48              | 
|Quarter ended September 2002         | 0.60               |  | 0.40              | 
|October 2002                         | 0.58               |  | 0.47              | 
|November 2002                        | 0.55               |  | 0.40              | 
|December 2002                        | 0.75               |  | 0.40              | 
|January 2003                         | 0.83               |  | 0.56              | 
|February 2003                        | 0.69               |  | 0.55              | 
|March 2003                           | 0.72               |  | 0.60              | 
|April 2003                           | 0.71               |  | 0.65              | 

B.Plan of
  Distribution

Not applicable.

C.Markets

The authorized capital of the Company consists of 500,000,000
  Common Shares without par value, of which 51,494,801 Common Shares are issued
  and outstanding as of December 31, 2002.

The principal trading markets for the Common Shares are the
  TSX, on which they have been listed since October 1997, and the OTC Bulletin
  Board in the U.S., on which they have been quoted since September 1998. Prior
  to September 1998 the Common Shares were listed on the NASDAQ Small Cap Market.
  The Common Shares were also listed on the Canadian Venture Exchange (CDNX).
  On January 31, 2000 the Common Shares were delisted from the CDNX pursuant to
  the restructuring of the Canadian stock exchanges. After January 31, 2000, TransGlobe
  Common Shares were only listed on the TSX in Canada and on the OTC Bulletin
  Board in the U.S. The Common Shares trade under the symbol TGL in Canada and
  TGLEF in the U.S. Warrants issued pursuant to a Canadian public offering dated
  July 4, 2000 traded on the TSE under the symbol TGL.WT until their expiry on
  January 28, 2002.

ITEM 10.ADDITIONAL
  INFORMATION

A.Share
  Capital

Not applicable.

Page 36 of 62

---



B.Memorandum
  and Articles of Association

The Articles of Association have been previously filed with Form 20-F dated
  March 24, 2000.

C.Material
  Contracts

Other than contracts entered into in the ordinary course of
  business, the Company has not entered into any contracts in the two years prior
  to the date hereof which can reasonably be regarded as presently material to
  the Company.

D.Exchange Controls

There is no law or governmental decree or regulation in Canada
  that restricts the export or import of capital, or affects the remittance of
  dividends, interest or other payments to a non-resident holder of Common Shares
  of the Company, other than withholding tax requirements. See Item 10.E
   Taxation.

There is no limitation imposed by Canadian law or by the charter
  or other constituent documents of the Company on the right of a non-resident
  to hold or vote Common Shares of the Company, other than as provided in the
  Investment Canada Act(Canada) (the Investment Act). The
  following discussion summarizes the principal features of the Investment Act
  for a non-resident who proposes to acquire Common Shares of the Company. It
  is general only, it is not a substitute for independent advice from an investors
  own advisor, and it does not anticipate statutory or regulatory amendments.

The Investment Act generally prohibits implementation of a
  reviewable investment by an individual, government or agency thereof, corporation,
  partnership, trust or joint venture (each an entity) that is not
  a Canadian as defined in the Investment Act (a non-Canadian),
  unless after review the minister responsible for the Investment Act is satisfied
  that the investment is likely to be of net benefit to Canada. An investment
  in Common Shares of the Company by a non-Canadian other than a WTO Investor
  (as defined in the Investment Act and which term includes entities which are
  nationals of or are controlled by nationals of member states of the World Trade
  Organization) when the Company was not controlled by a WTO Investor, would be
  reviewable under the Investment Act if it was an investment to acquire control
  of the Company and the value of the assets of the Company, as determined in
  accordance with the regulations promulgated under the Investment Act, was Cdn$5
  million or more, or if an order for review was made by the federal cabinet on
  the grounds that the investment related to Canadas cultural heritage or
  national identity, regardless of the value of the assets of the Company. An
  investment in Common Shares of the Company by a WTO Investor, or by a non-Canadian
  when the Company was controlled by a WTO Investor, would be reviewable under
  the Investment Act if it was an investment in 2002 to acquire control of the
  Company and the value of the assets of the Company, as determined in accordance
  with the regulations promulgated under the Investment Act, exceeds Cdn$218 million.
  A non-Canadian would acquire control of the Company for the purposes of the
  Investment Act through acquisition of Common Shares if the non-Canadian acquired
  a majority of the Common Shares of the Company. The acquisition of less than
  a majority but one third or more of the Common Shares of the Company would be
  presumed to be an acquisition of control of the Company unless it could be established
  that, on the acquisition, the Company was not controlled in fact by the acquirer
  through the ownership of Common Shares.

Certain transactions relating to Common Shares of the Company
  would be exempt from the Investment Act, including

|(a) | acquisition of Common Shares of the
        Company by a person in the ordinary course of that persons business
        as a trader or dealer in securities,                                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                          
|(b) | acquisition of control of the Company
        in connection with the realization of security granted for a loan or other
        financial assistance and not for a purpose related to the provisions on
        the Investment Act, and                                                 
|    |                                                                                                                                                                                                                                                                                          
|(c) | acquisition of control of the Company
        by reason of an amalgamation, merger, consolidation or corporate reorganization
        following which the ultimate direct or indirect control in fact of the
        Company, through the ownership of Common Shares, remained unchanged.

E.Taxation

The discussion under this heading summarizes the principal
  Canadian federal income tax consequences of acquiring, holding and disposing
  of Common Shares of the Company for a shareholder of the Company who is not
  resident in Canada and who is resident in the United States. It is based on
  the current provisions of the Income Tax Act(Canada) (the Tax
  Act) and the regulations thereunder. The provisions of the Tax Act are
  subject to income tax



Page 37 of 62

---

treaties to which Canada is a party, including the Canada-United
  States Income Tax Convention (1980) (the Convention). This discussion
  is general only and is not a substitute for independent advice from a shareholders
  own tax advisor. Management of the Company considers that the following discussion
  fairly describes the principal and material Canadian federal income tax consequences
  applicable to shareholders of the Company who are residents of the United States
  and are not residents of Canada and do not hold, and are deemed not to hold,
  shares of the Company in connection with carrying on a business in Canada (a
  non-resident).

Generally, dividends paid by Canadian corporations to non-resident
  shareholders are subject to a Canadian withholding tax of 25% of the gross amount
  of such dividends. However, Article X of the Convention reduces to 15% the withholding
  tax on the gross amount of dividends paid to residents of the United States.
  The withholding tax rate on the gross amount of dividends is reduced to 5% of
  the amount of the gross dividend when a U.S. corporation owns at least 10% of
  the voting stock of the Canadian corporation paying the dividends.

A non-resident who holds shares of the Company as capital
  property will not be subject to tax on capital gains realized on the disposition
  of such shares unless such shares are taxable Canadian Property
  within the meaning of the Tax Act and no relief is afforded under any applicable
  tax treaty.

The shares of the Company would be taxable Canadian property
  of a non-resident if at any time during the five year period immediately preceding
  a disposition by the non-resident of such shares not less than 25% of the issued
  shares of any class of the Company belonged (a) to the non-resident, (b) to
  a person with whom the non-resident dealt did not deal at arms length,
  or (c) to the non-resident and any person with whom the non-resident did not
  deal at arms length.

Certain United States Federal Income Tax Consequences

The following is a general discussion of the material United
  States Federal income tax laws for U.S. holders that hold such Common Shares
  as a capital asset, as defined under United States Federal income tax law and
  is limited to discussion of U.S. Holders that own less than 10% of the common
  stock. This discussion does not address all potentially relevant U.S. Federal
  income tax matters and it does not address consequences peculiar to persons
  subject to special provisions of U.S. Federal income tax law, such as those
  described below as excluded from the definition of a U.S. Holder. In addition,
  this discussion does not cover any state, local or foreign tax consequences.

The following discussion is based upon the sections of the
  Internal Revenue Code of 1986, as amended (United States) to the date
  hereof (the Code), Treasury Regulations, published Internal Revenue
  Service (IRS) rulings, published administrative positions of the
  IRS and court decisions that are currently applicable, any or all of which could
  be materially and adversely changed, possibly on a retroactive basis, at any
  time. In addition, this discussion does not consider the potential effects,
  both adverse and beneficial, of any future legislation which, if enacted, could
  be applied, possibly on a retroactive basis, at any time. The following discussion
  is for general information only and it is not intended to be, nor should it
  be construed to be, legal or tax advice to any holder or prospective holder
  of Common Shares of the Company and no opinion or representation with respect
  to the United States Federal income tax consequences to any such holder or prospective
  holder is made. Accordingly, U.S. holders and prospective U.S. holders of Common
  Shares of the Company should consult their own tax advisors about the U.S. Federal,
  state, local, and foreign, tax consequences of purchasing, owning and disposing
  of Common Shares of the Company.

U.S. Holders

As used herein, a U.S. Holder is a holder of Common
  Shares of the Company who or which is a citizen or individual resident (or is
  treated as a citizen or individual resident) of the United States for U.S. federal
  income tax purposes, a corporation or partnership created or organized (or treated
  as created or organized for U.S. federal income tax purposes) in the United
  States, including only the States and District of Columbia, or under the law
  of the United States or any State or Territory or any political subdivision
  thereof, or a trust or estate the income of which is includable in its gross
  income for U.S. federal income tax purposes without regard to its source, if,
  (i) a court within the United States is able to exercise primary supervision
  over the administration of the trust and (ii) one or more United States trustees
  have the authority to control all substantial decisions of the trust. For purposes
  of this discussion, a U.S. Holder does not include persons subject to special
  provisions of U.S. Federal income tax law, such as tax-exempt organizations,
  qualified retirement plans, financial institutions, insurance companies, real
  estate investment trusts, regulated investment companies, broker-dealers and
  Holders who acquired their stock through the exercise of employee stock options
  or otherwise as compensation.

Page 38 of 62

---

Distributions on Common Shares of the Company

U.S. Holders receiving dividend distributions (including constructive
  dividends) with respect to Common Shares of the Company are required to include
  in gross income for United States Federal income tax purposes the gross amount
  of such distributions to the extent that the Company has current or accumulated
  earnings and profits, without reduction for any Canadian income tax withheld
  from such distributions. Such Canadian tax withheld may be credited, subject
  to certain limitations, against the U.S. Holders United States Federal
  income tax liability or, alternatively, may be deducted in computing the U.S.
  Holders United States Federal taxable income by those who itemize deductions.
  (See more detailed discussion at Foreign Tax Credit below). To the
  extent that distributions exceed current or accumulated earnings and profits
  of the Company, they will be treated first as a return of capital up to the
  U.S. Holders adjusted basis in the Common Shares and thereafter as gain
  from the sale or exchange of the Common Shares. Preferential tax rates for long-term
  capital gains are applicable to a U.S. Holder which is an individual, estate
  or trust. There are currently no preferential tax rates for long-term capital
  gains for a U.S. Holder which is a corporation.

Dividends paid on the Common Shares of the Company will not
  generally be eligible for the dividends received deduction provided to corporations
  receiving dividends from certain United States corporations. A U.S. Holder which
  is a corporation may, under certain circumstances, be entitled to a 70% deduction
  of the United States source portion of dividends received from the Company if
  such U.S. Holder owns shares representing at least 10% of the voting power and
  value of the Company. The availability of this deduction is subject to several
  complex limitations which are beyond the scope of this discussion.

Foreign Tax Credit

A U.S. Holder who pays (or has withheld from distributions)
  Canadian income tax with respect to the ownership of Common Shares of the Company
  may be entitled, at the option of the U.S. Holder, to either a deduction or
  a tax credit for such foreign tax paid or withheld. Generally, it will be more
  advantageous to claim a credit because a credit reduces United States Federal
  income taxes on a dollar-for-dollar basis, while a deduction merely reduces
  the taxpayers income subject to tax. This election is made on a year-by-year
  basis and applies to all foreign taxes paid by (or withheld from) the U.S. Holder
  during that year. There are significant and complex limitations which apply
  to the credit, among which is the general limitation that the credit cannot
  exceed the proportionate shares of the U.S. Holders United States income
  tax liability that the U.S. Holders foreign source income bears to his
  or its worldwide taxable income. In the determination of the application of
  this limitation, the various items of income and deduction must be classified
  into foreign and domestic sources. Complex rules govern this classification
  process. There are further limitations on the foreign tax credit for certain
  types of income such as passive income, high withholding tax
  interest, financial services income, shipping income
  and certain other classifications of income. The availability of the foreign
  tax credit and the application of the limitations on the credit are fact specific
  and holders and prospective holders of Common Shares of the Company should consult
  their own tax advisors regarding their individual circumstances.

Disposition of Common Shares of the Company

A U.S. Holder will recognize gain or loss upon the sale of
  Common Shares of the Company equal to the difference, if any, between the amount
  of cash plus the fair market value of any property received, and the Holders
  tax basis in the Common Shares of the Company. This gain or loss will be capital
  gain or loss if the Common Shares are a capital asset in the hands of the U.S.
  Holder. Any capital gain will be a short-term or long-term capital gain or loss
  depending upon the holding period of the U.S. Holder. Gains and losses are netted
  and combined according to special rules in arriving at the overall capital gain
  or loss for a particular tax year. Deductions for net capital losses are subject
  to significant limitations. For U.S. Holders which are individuals, any unused
  portion of such net capital loss may be carried over to be used in later tax
  years until such net capital loss is thereby exhausted. For U.S. Holders which
  are corporations (other than corporations subject to Subchapter S of the Code),
  an unused net capital loss may be carried back three years from the loss year
  and carried forward five years from the loss year to be offset against capital
  gains until such net capital loss is thereby exhausted.

F.Dividends
  and Paying Agents

Not applicable.

G.Statement
  by Experts

Not applicable.

Page 39 of 62

---

H.Documents
  on Display

Documents concerning the Company which are referred to in
  this document may be inspected at the offices of TransGlobe Energy Corporation,
  #2900, 330  5th Avenue S.W., Calgary, Alberta, Canada T2P 0L4.

I.Subsidiary Information

A list of subsidiaries of the Company is identified in Item
  3 above and in Exhibit 21 and in Note 1 of the notes to the consolidated financial
  statements in Item 17.

ITEM 11.QUANTITATIVE
  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 12.DESCRIPTION
  OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.

PART II

ITEM 13.DEFAULTS,
  DIVIDEND ARREARAGES AND DELINQUENCIES

None

ITEM 14.MATERIAL
  MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

The Company has adopted a new shareholder protection rights
  plan agreement dated effective April 16, 2003 (the "Rights Plan") between the
  Company and Computershare Trust Company of Canada (the "Rights Agent"). Capitalized
  terms not otherwise defined in this section shall have the same meaning ascribed
  to such terms in the full text of the Rights Plan. The Rights Plan has been
  adopted by the Board of Directors of the Company and will become effective,
  when ratified by shareholders, on May 29, 2003.

The Rights Plan was adopted by the Company to encourage the
  fair treatment of shareholders if there is an unsolicited Take-over Bid for
  the Voting Shares of the Company. The Rights Plan was also adopted by the Company
  to (i) provide all shareholders of the Company with an equal opportunity to
  share in any premium paid upon an acquisition of control; (ii) allow both the
  shareholders and the Board of Directors adequate time to assess a Take-over
  Bid made for the Voting Shares of the Company in relation to the circumstances
  and prospects of the Company; and (iii) allow a reasonable period of time for
  the Board of Directors to explore and develop alternative courses of action
  in an attempt to maximize shareholder value, if the Board of Directors is of
  the opinion that it is appropriate to do so. The adoption of this plan does
  not affect the duty of the Board of Directors to act in good faith with a view
  to the best interests of the Company and its shareholders.

The Board of Directors is not aware of any specific Take-over
  Bid for the Voting Shares that has been made or is contemplated.

The Board of Directors believes that under the existing statutory
  rules relating to Take-over Bids there is insufficient time for the directors
  to fully assess an offer and to explore and develop alternatives for shareholders
  in the event of a Take-over Bid. The time required to consider and complete
  a change of control transaction must be considered from both the perspective
  of the Company and of potential purchasers. Under the statutory Take-over Bid
  rules, a take-over bid must remain open in most jurisdictions in Canada for
  a minimum of 35 days. The result is that shareholders may fail, in the absence
  of the Rights Plan, to fully assess the circumstances of the Company or to realize
  the maximum value for their Voting Shares. Accordingly, the directors believe
  that the Rights Plan which provides that any bid remain open for a minimum of
  60 days is an appropriate mechanism to ensure that they will be able to discharge
  their responsibilities to assist shareholders in responding to a Take-over Bid.

If a potential acquirer does not meet the requirements of
  a Permitted Bid, then the Rights become operative, with each Right entitling
  a shareholder, in certain circumstances, the ability to acquire one (1) share
  at an exercise price

Page 40 of 62

---

of $0.00001 per share, subject to adjustment in certain events.
  Through the operation of the Rights, the Board of Directors may negotiate with
  the acquirer to ensure the fairness of the terms of a Take-over Bid.

ITEM 15.CONTROLS
  AND PROCEDURES

As required by Section 302(a) of the Sarbanes-Oxley Act of
  2002, our Chief Executive Officer and Chief Financial Officer will be making
  certifications related to the information in our annual report on Form 20-F.
  As part of such certification, the Chief Executive Officer and Chief Financial
  Officer must certify that they are responsible for establishing and maintaining
  disclosure controls and procedures to ensure that material information with
  respect to us is made known to them and that they have evaluated the effectiveness
  of our disclosure controls and procedures as of a date within 90 days prior
  to filing our annual report. Disclosure controls and procedures are intended
  to ensure that information required to be disclosed by us in our annual report
  is recorded, processed, summarized and reported within the time periods required.
  We have adopted or formalized such controls and procedures as we believe are
  necessary and consistent with our business and internal management and supervisory
  practices.

Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer, after
  evaluating the effectiveness of our disclosure controls and procedures (as defined
  in Exchange Act Rules 13a-14(c) and 15d-14(c)) as of a date within 90 days prior
  to the filing date of this report, have concluded that, as of such date, our
  disclosure controls and procedures were adequate and effective to ensure that
  material information relating to us would be made known to them by others within
  the Company.

Changes in Internal Controls

There were no significant changes in our internal controls
  or in other factors that could significantly affect our internal controls subsequent
  to the date of their evaluation, nor do we believe that there are any significant
  deficiencies or material weaknesses in our internal controls. As a result, no
  corrective actions were required or undertaken.

ITEM 16.RESERVED

PART III

ITEM 17.FINANCIAL
  STATEMENTS

INDEX TO FINANCIAL STATEMENTS

|                                               | Page
|---------------------------------------------- | ----
|Auditors Report                               | 46  
|Consolidated Statements of Income and Deficit  | 47  
|Consolidated Balance Sheets                    | 48  
|Consolidated Statements of Cash Flows          | 49  
|Notes to the Consolidated Financial Statements | 50  

The financial statements and Report of the independent Auditors are filed as part of the Companys Annual Report.

ITEM 18.FINANCIAL
  STATEMENTS

See financial statements in Item 17.

Page 41 of 62

---

ITEM 19.EXHIBITS

EXHIBITS AND REPORTS ON FORM 6-K

a)            Exhibits

Exhibits marked with an asterisk have been previously filed
  with the Securities and Exchange Commission by the Company, and are incorporated
  by reference, as indicated.

INDEX TO EXHIBITS

|             |                                                                                                                     | Page
|------------ | ------------------------------------------------------------------------------------------------------------------- | ----
|Exhibit 1*   | Certificate of Incorporation as amended and Memorandum
      and Articles of Incorporation.                         | -   
|Exhibit 4.1  | Employment Agreement of Lloyd W. Herrick dated
      December 1, 2002.                                              | 63  
|Exhibit 4.2  | Employment Agreement of David C. Ferguson dated
      December 1, 2002.                                             | 68  
|Exhibit 4.3  | Employment Agreement of Ross Clarkson dated December
      1, 2002                                                  | 73  
|Exhibit 4.4  | Stock Option Plan dated April 15, 2003                                                                              | 78  
|Exhibit 4.5  | Shareholders Protection and Rights Plan
      April 16, 2003                                                       | 86  
|Exhibit 8    | List of subsidiaries of the Registrant.                                                                             | 122 
|Exhibit 99.1 | Certification Pursuant to 18 U.S.C. 1350 as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | 123 







Page 42 of 62

---



SIGNATURE

Pursuant to the requirements of Section 12 of the Securities
  Exchange Act of 1934, as amended, the Registrant, TRANSGLOBE ENERGY CORPORATION,
  certifies that it meets the requirements for filing on Form 20-F and has duly
  caused this Annual Report to be signed on its behalf by the undersigned, thereunto
  duly authorized.



By:          /s/ Ross
    Clarkson
    Name:    Ross Clarkson
    Title:       President and CEO


Date:      May 13, 2003



**A.CERTIFICATIONS**

I, Ross G. Clarkson, certify that:

1.  I have reviewed this annual report on Form 20-F
  of TransGlobe Energy Corporation;

2.  Based on my knowledge, this annual report does
  not contain any untrue statement of a material fact or omit to state a material
  fact necessary to make the statements made, in light of the circumstances under
  which such statements were made, not misleading with respect to the period covered
  by this annual report;

3.  Based on my knowledge, the financial statements,
  and other financial information included in this annual report, fairly present
  in all material respects the financial condition, results of operations and
  cash flows of the registrant as of, and for, the periods presented in this annual
  report;

4.  The registrant's other certifying officers and
  I are responsible for establishing and maintaining disclosure controls and procedures
  (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
  have:

|a. | designed such disclosure
        controls and procedures to ensure that material information relating to
        the registrant, including its consolidated subsidiaries, is made known
        to us by others within those entities, particularly during the period
        in which this annual report is being prepared;
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                             
|b. | evaluated the effectiveness
        of the registrant's disclosure controls and procedures as of a date within
        90 days prior to the filing date of this annual report (the "Evaluation
        Date"); and                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                             
|c. | presented in this annual
        report our conclusions about the effectiveness of the disclosure controls
        and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                        

5.  The registrant's other certifying officers and
  I have disclosed, based on our most recent evaluation, to the registrant's auditors
  and the audit committee of registrant's board of directors (or persons performing
  the equivalent function):

|a. | all significant deficiencies
        in the design or operation of internal controls which could adversely
        affect the registrant's ability to record, process, summarize and report
        financial data and have identified for the registrant's auditors any material
        weaknesses in internal controls; and
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                               
|b. | any fraud, whether or not
        material, that involves management or other employees who have a significant
        role in the registrant's internal controls; and                                                                                                                                                        



Page 43 of 62

---

6.  The registrant's other certifying officers and I
  have indicated in this annual report whether or not there were significant changes
  in internal controls or in other factors that could significantly affect internal
  controls subsequent to the date of our most recent evaluation, including any
  corrective actions with regard to significant deficiencies and material weaknesses.

|Date: May 16, 2003 | */s/ Ross Clarkson*
|------------------ | -------------------
|                   | President & CEO    



**B.CERTIFICATIONS**

I, David C. Ferguson, certify that:

1.  I have reviewed this annual report on Form 20-F
  of TransGlobe Energy Corporation;

2.  Based on my knowledge, this annual report does
  not contain any untrue statement of a material fact or omit to state a material
  fact necessary to make the statements made, in light of the circumstances under
  which such statements were made, not misleading with respect to the period covered
  by this annual report;

3.  Based on my knowledge, the financial statements,
  and other financial information included in this annual report, fairly present
  in all material respects the financial condition, results of operations and
  cash flows of the registrant as of, and for, the periods presented in this annual
  report;

4.  The registrant's other certifying officers and
  I are responsible for establishing and maintaining disclosure controls and procedures
  (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
  have:

|a. | designed such disclosure
        controls and procedures to ensure that material information relating to
        the registrant, including its consolidated subsidiaries, is made known
        to us by others within those entities, particularly during the period
        in which this annual report is being prepared;
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                             
|b. | evaluated the effectiveness
        of the registrant's disclosure controls and procedures as of a date within
        90 days prior to the filing date of this annual report (the "Evaluation
        Date"); and                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                             
|c. | presented in this annual
        report our conclusions about the effectiveness of the disclosure controls
        and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                        

5.  The registrant's other certifying officers and
  I have disclosed, based on our most recent evaluation, to the registrant's auditors
  and the audit committee of registrant's board of directors (or persons performing
  the equivalent function):

|a. | all significant deficiencies
        in the design or operation of internal controls which could adversely
        affect the registrant's ability to record, process, summarize and report
        financial data and have identified for the registrant's auditors any material
        weaknesses in internal controls; and
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                               
|b. | any fraud, whether or not
        material, that involves management or other employees who have a significant
        role in the registrant's internal controls; and                                                                                                                                                        



Page 44 of 62



---



6.  The registrant's other certifying officers and I have indicated in
  this annual report whether or not there were significant changes in internal
  controls or in other factors that could significantly affect internal controls
  subsequent to the date of our most recent evaluation, including any corrective
  actions with regard to significant deficiencies and material weaknesses.

|Date: May 16, 2003 | */s/ David C. Ferguson*      
|------------------ | -----------------------------
|                   | Vice President, Finance & CFO









Page 45 of 62

---



Auditors Report

To the Shareholders of TransGlobe Energy Corporation:

We have audited the consolidated balance sheets of TransGlobe
  Energy Corporation as at December 31, 2002 and 2001 and the consolidated
  statements of income and deficit and cash flows for each of the years in the
  three year period ended December 31, 2002. These consolidated financial statements
  are the responsibility of the Companys management. Our responsibility
  is to express an opinion on these consolidated financial statements based on
  our audits.

We conducted our audits in accordance with Canadian and United
  States generally accepted auditing standards. These standards require that we
  plan and perform an audit to obtain reasonable assurance whether the financial
  statements are free of material misstatement. An audit includes examining, on
  a test basis, evidence supporting the amounts and disclosures in the financial
  statements. An audit also includes assessing the accounting principles used
  and significant estimates made by management, as well as evaluating the overall
  financial statement presentation. We believe that our audits provide a reasonable
  basis for our opinion.

In our opinion, these consolidated financial statements present
  fairly, in all material respects, the financial position of the Company as at
  December 31, 2002 and 2001 and the results of its operations and its cash flows
  for each of the years in the three year period ended December 31, 2002 in accordance
  with Canadian generally accepted accounting principles. As required by the Company
  Act (British Columbia), we report that, in our opinion, these principles have
  been applied, except for the accounting policy change as described in Note 1
  to the consolidated financial statements, on a consistent basis.

|Calgary, Alberta  | (Signed) Deloitte & Touche LLP
|----------------- | --------------------------------
|February 28, 2003 | Chartered Accountants           

COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA- U.S. REPORTING DIFFERENCES

In the United States of America, reporting standards for auditors
  require the addition of an explanatory paragraph (following the opinion paragraph)
  outlining changes in accounting policies that have been implemented in the financial
  statements. As discussed in Note 1 to the consolidated financial statements,
  in 2002 the Company has adopted the new Canadian Institute of Chartered Accountants
  Handbook recommendations for stock compensation.

|Calgary, Alberta  | (Signed) Deloitte & Touche LLP
|----------------- | --------------------------------
|February 28, 2003 | Chartered Accountants           

Page 46 of 62

---

TRANSGLOBE ENERGY CORPORATIONConsolidated Statements of Income and Deficit

|                                          |   | Year Ended  |   |   | Year Ended  |   |   | Year Ended  |  
|----------------------------------------- | - | ----------- | - | - | ----------- | - | - | ----------- | -
|                                          |   | Dec. 31,    |   |   | Dec. 31,    |   |   | Dec. 31,    |  
|                                          |   | 2002        |   |   | 2001        |   |   | 2000        |  
|                                          |   |             |   |   |             |   |   |             |  
|                                          |   |             |   |   |             |   |   |             |  
|                                          |   |             |   |   |             |   |   |             |  
|REVENUE                                   |   |             |   |   |             |   |   |             |  
|Oil
      and gas sales, net of royalties | $ | 13,254,105  |   | $ | 8,554,085   |   | $ | 2,403,266   |  
|Other
      income                        |   | 42,108      |   |   | 16,470      |   |   | 278,514     |  
|                                          |   |             |   |   |             |   |   |             |  
|                                          |   | 13,296,213  |   |   | 8,570,555   |   |   | 2,681,780   |  
|                                          |   |             |   |   |             |   |   |             |  
|                                          |   |             |   |   |             |   |   |             |  
|EXPENSES                                  |   |             |   |   |             |   |   |             |  
|Operating                                 |   | 1,843,273   |   |   | 1,540,369   |   |   | 499,254     |  
|General
      and administrative          |   | 820,691     |   |   | 570,609     |   |   | 1,087,963   |  
|Foreign
      exchange (gain) loss        |   | (6,988      | ) |   | (3,800      | ) |   | 51,636      |  
|Interest                                  |   | 16,154      |   |   | 4,424       |   |   | 13,522      |  
|Depletion
      and depreciation          |   | 4,277,000   |   |   | 2,762,000   |   |   | 635,400     |  
|                                          |   |             |   |   |             |   |   |             |  
|                                          |   | 6,950,130   |   |   | 4,873,602   |   |   | 2,287,775   |  
|                                          |   |             |   |   |             |   |   |             |  
|                                          |   |             |   |   |             |   |   |             |  
|Net income before income taxes            |   | 6,346,083   |   |   | 3,696,953   |   |   | 394,005     |  
|Income taxes (Note 6)                     |   |             |   |   |             |   |   |             |  
|-
      future                            |   | (67,168     | ) |   | -           |   |   | -           |  
|-
      current                           |   | 986,862     |   |   | 634,716     |   |   | 86,038      |  
|                                          |   |             |   |   |             |   |   |             |  
|                                          |   | 919,694     |   |   | 634,716     |   |   | 86,038      |  
|                                          |   |             |   |   |             |   |   |             |  
|NET INCOME                                |   | 5,426,389   |   |   | 3,062,237   |   |   | 307,967     |  
|                                          |   |             |   |   |             |   |   |             |  
|Deficit, beginning of year                |   | (17,724,698 | ) |   | (20,786,935 | ) |   | (21,429,922 | )
|                                          |   |             |   |   |             |   |   |             |  
|                                          |   |             |   |   |             |   |   |             |  
|Change in accounting policy               |   |             |   |   |             |   |   |             |  
|-
      future income taxes               |   | -           |   |   | -           |   |   | 335,020     |  
|                                          |   |             |   |   |             |   |   |             |  
|Deficit, end of year                      | $ | (12,298,309 | ) | $ | (17,724,698 | ) | $ | (20,786,935 | )
|                                          |   |             |   |   |             |   |   |             |  
|                                          |   |             |   |   |             |   |   |             |  
|Net income per share(Note 8)              |   |             |   |   |             |   |   |             |  
|Basic                                     | $ | 0.11        |   | $ | 0.06        |   | $ | 0.01        |  
|Diluted                                   | $ | 0.10        |   | $ | 0.06        |   | $ | 0.01        |  
|                                          |   |             |   |   |             |   |   |             |  

Page 47 of 62

---

TRANSGLOBE ENERGY CORPORATION Consolidated Balance Sheets

|                                               |   | December 31, 2002 |   |   | December 31, 2001 |  
|---------------------------------------------- | - | ----------------- | - | - | ----------------- | -
|                                               |   |                   |   |   |                   |  
|                                               |   |                   |   |   |                   |  
|ASSETS                                         |   |                   |   |   |                   |  
|Current                                        |   |                   |   |   |                   |  
|Cash                                           | $ | 2,595,170         |   | $ | 1,174,846         |  
|Accounts
      receivable                      |   | 2,984,000         |   |   | 975,773           |  
|Prepaid
      expenses                         |   | 88,837            |   |   | 60,687            |  
|                                               |   |                   |   |   |                   |  
|                                               |   | 5,668,007         |   |   | 2,211,306         |  
|                                               |   |                   |   |   |                   |  
|Capital assets                                 |   |                   |   |   |                   |  
|Canada
      (Note 2)                          |   | 3,651,305         |   |   | 3,044,746         |  
|Republic
      of Yemen (Note 3)               |   | 15,066,835        |   |   | 13,591,437        |  
|                                               |   |                   |   |   |                   |  
|                                               |   | 18,718,140        |   |   | 16,636,183        |  
|                                               |   |                   |   |   |                   |  
|                                               |   |                   |   |   |                   |  
|                                               | $ | 24,386,147        |   | $ | 18,847,489        |  
|                                               |   |                   |   |   |                   |  
|                                               |   |                   |   |   |                   |  
|LIABILITIES                                    |   |                   |   |   |                   |  
|Current                                        |   |                   |   |   |                   |  
|Accounts
      payable and accrued liabilities | $ | 919,074           |   | $ | 828,959           |  
|                                               |   |                   |   |   |                   |  
|Provision for site restoration & abandonment   |   | 122,209           |   |   | 106,209           |  
|                                               |   |                   |   |   |                   |  
|                                               |   |                   |   |   |                   |  
|                                               |   | 1,041,283         |   |   | 935,168           |  
|                                               |   |                   |   |   |                   |  
|                                               |   |                   |   |   |                   |  
|SHAREHOLDERS EQUITY                           |   |                   |   |   |                   |  
|Share capital (Note 5)                         |   | 35,643,173        |   |   | 35,637,019        |  
|Deficit                                        |   | (12,298,309       | ) |   | (17,724,698       | )
|                                               |   |                   |   |   |                   |  
|                                               |   | 23,344,864        |   |   | 17,912,321        |  
|                                               |   |                   |   |   |                   |  
|                                               |   |                   |   |   |                   |  
|                                               | $ | 24,386,147        |   | $ | 18,847,489        |  
|                                               |   |                   |   |   |                   |  

|APPROVED BY THE BOARD      |                           
|-------------------------- | --------------------------
|                           |                           
|Ross Clarkson            | Lloyd Herrick           
|                           |                           
|Ross G. Clarkson, Director | Lloyd W. Herrick, Director

Page 48 of 62

---

TRANSGLOBE ENERGY CORPORATIONConsolidated Statements of Cash Flows

|                                                        |   | Year Ended |   |   | Year Ended |   |   | Year Ended |  
|------------------------------------------------------- | - | ---------- | - | - | ---------- | - | - | ---------- | -
|                                                        |   | Dec. 31,   |   |   | Dec. 31,   |   |   | Dec. 31,   |  
|                                                        |   | 2002       |   |   | 2001       |   |   | 2000       |  
|                                                        |   |            |   |   |            |   |   |            |  
|                                                        |   |            |   |   |            |   |   |            |  
|CASH FLOWS RELATED TO THE                               |   |            |   |   |            |   |   |            |  
|FOLLOWING
      ACTIVITIES:                             |   |            |   |   |            |   |   |            |  
|                                                        |   |            |   |   |            |   |   |            |  
|OPERATING                                               |   |            |   |   |            |   |   |            |  
|Net income                                              | $ | 5,426,389  |   | $ | 3,062,237  |   | $ | 307,967    |  
|Adjustments
      for:                                  |   |            |   |   |            |   |   |            |  
|Depletion
      and depreciation                        |   | 4,277,000  |   |   | 2,762,000  |   |   | 635,400    |  
|Performance
      bonus expense paid in shares (Note 5) |   | 73,631     |   |   | 16,218     |   |   | -          |  
|Interest
      expense paid in common shares (Note 5)   |   | -          |   |   | -          |   |   | 5,294      |  
|Non-cash
      portion of settlement (Note 5)           |   | -          |   |   | -          |   |   | 235,000    |  
|Future
      income taxes                               |   | (67,168    | ) |   | -          |   |   | -          |  
|Gain
      on sale of oil and gas properties            |   | -          |   |   | -          |   |   | (254,132   | )
|                                                        |   |            |   |   |            |   |   |            |  
|Cash flow
      from operations (Note 8)                |   | 9,709,852  |   |   | 5,840,455  |   |   | 929,529    |  
|                                                        |   |            |   |   |            |   |   |            |  
|Changes
      in non-cash working capital (Note 7)      |   | (2,478,700 | ) |   | 621,196    |   |   | (885,137   | )
|                                                        |   |            |   |   |            |   |   |            |  
|                                                        |   | 7,231,152  |   |   | 6,461,651  |   |   | 44,392     |  
|                                                        |   |            |   |   |            |   |   |            |  
|                                                        |   |            |   |   |            |   |   |            |  
|FINANCING                                               |   |            |   |   |            |   |   |            |  
|Issue of
      share capital (Note 5)                   |   | (308       | ) |   | 210,797    |   |   | 4,293,146  |  
|Issue of
      convertible debentures                   |   | -          |   |   | -          |   |   | (8,802     | )
|Issuance
      (repayment) of long-term debt            |   | -          |   |   | (77,634    | ) |   | 77,634     |  
|Change
      in non-cash working capital (Note 7)       |   | -          |   |   | -          |   |   | 19,196     |  
|                                                        |   |            |   |   |            |   |   |            |  
|                                                        |   | (308       | ) |   | 133,163    |   |   | 4,381,174  |  
|                                                        |   |            |   |   |            |   |   |            |  
|                                                        |   |            |   |   |            |   |   |            |  
|INVESTING                                               |   |            |   |   |            |   |   |            |  
|Purchase
      of capital assets                        |   |            |   |   |            |   |   |            |  
|Yemen                                                   |   | (5,435,398 | ) |   | (3,406,363 | ) |   | (4,855,141 | )
|Canada                                                  |   | (1,041,146 | ) |   | (1,375,888 | ) |   | (1,118,266 | )
|United
      States                                     |   | -          |   |   | -          |   |   | (17,909    | )
|Proceeds
      on disposal of oil and gas properties    |   | 133,587    |   |   | -          |   |   | 606,059    |  
|Changes
      in non-cash working capital (Note 7)      |   | 532,437    |   |   | (702,631   | ) |   | 584,999    |  
|                                                        |   |            |   |   |            |   |   |            |  
|                                                        |   | (5,810,520 | ) |   | (5,484,882 | ) |   | (4,800,258 | )
|                                                        |   |            |   |   |            |   |   |            |  
|                                                        |   |            |   |   |            |   |   |            |  
|NET INCREASE IN CASH                                    |   | 1,420,324  |   |   | 1,109,932  |   |   | (374,692   | )
|                                                        |   |            |   |   |            |   |   |            |  
|CASH, BEGINNING OF YEAR                                 |   | 1,174,846  |   |   | 64,914     |   |   | 439,606    |  
|                                                        |   |            |   |   |            |   |   |            |  
|                                                        |   |            |   |   |            |   |   |            |  
|CASH, END OF YEAR                                       | $ | 2,595,170  |   | $ | 1,174,846  |   | $ | 64,914     |  
|                                                        |   |            |   |   |            |   |   |            |  
|                                                        |   |            |   |   |            |   |   |            |  
|Cash flow from operations per share(Note
      8)       |   |            |   |   |            |   |   |            |  
|Basic                                                   | $ | 0.19       |   | $ | 0.12       |   | $ | 0.02       |  
|Diluted                                                 | $ | 0.19       |   | $ | 0.11       |   | $ | 0.02       |  
|                                                        |   |            |   |   |            |   |   |            |  

Page 49 of 62

---

Notes to the Consolidated Financial Statements

1. SIGNIFICANT
  ACCOUNTING POLICIES

Basis of consolidation

These consolidated financial statements include the accounts
  of the Company and its wholly-owned subsidiaries, TransGlobe Oil and Gas Corporation,
  TransGlobe Petroleum International Inc., TransGlobe International (Holdings)
  Inc., and TG Holdings Yemen Inc.

Accounting principles

These consolidated financial statements are prepared in accordance
  with accounting principles generally accepted in Canada, which conform in all
  material respects with accounting principles generally accepted in the United
  States, except as disclosed in Note 14.

Oil and gas properties

The Company follows the full cost method of accounting for
  oil and gas operations whereby all costs associated with the exploration for
  and development of oil and gas reserves are capitalized on a country-by-country
  basis. Such costs include land acquisition costs, geological and geophysical
  expenses, carrying charges on non-producing properties, costs of drilling both
  productive and non-productive wells and overhead charges directly related to
  acquisition, exploration and development activities.

The capitalized costs, together with the costs of production
  equipment, are depleted and depreciated on the unit-of-production method based
  on the estimated gross proven reserves and determined by independent petroleum
  engineers. Oil and gas reserves and production were converted into equivalent
  units of 6,000 cubic feet of natural gas to one barrel of oil based upon relative
  energy content.

Costs of acquiring and evaluating unproved properties and
  major development projects are initially excluded from the depletion and depreciation
  calculation. These costs are assessed periodically to ascertain whether impairment
  has occurred. When proven reserves are assigned or the property is considered
  to be impaired, the cost of the property or the amount of the impairment is
  added to costs subject to depletion and depreciation.

The capitalized costs less accumulated depletion and depreciation,
  future income taxes and the provision for future site restoration costs in each
  cost centre are limited to an amount equal to the estimated future net revenue
  from proven reserves plus the cost (net of impairment) of unproven properties.

The total capitalized costs less accumulated depletion and
  depreciation, future income taxes and the provision for future site restoration
  costs of all cost centres is further limited to an amount equal to the estimated
  future net revenue from proven reserves plus the cost (net of impairment) of
  unproven properties of all costs centres less estimated future site restoration
  costs, general and administrative expenses, financing costs and income taxes.

Proceeds from the sale of oil and gas properties are applied
  against capitalized costs, with no gain or loss recognized, unless such a sale
  would alter the rate of depletion and depreciation by more than 20 percent,
  in which case a gain or loss on disposal is recorded.

Substantially all of the Companys exploration, development
  and production activities are conducted jointly with others and accordingly,
  these consolidated financial statements reflect only the Companys proportionate
  interest in such activities.

Estimated future site restoration costs are provided for using
  the unit-of-production method and remaining proven reserves. Costs are estimated
  by the Company based on current regulations, costs, technology and industry
  standards. The annual charge is included in the provision for depletion and
  depreciation. Actual site restoration expenditures are charged to the accumulated
  provision account as incurred.

Furniture and fixtures are depreciated at declining balance
  rates of 20 to 30 percent.

Page 50 of 62

---

Foreign currency

The Company uses the United States dollar as its reporting
  currency since the majority of the Companys business is transacted in
  United States dollars. The Company and its subsidiaries are considered to be
  integrated operations and the accounts are translated using the temporal method.
  Under this method, monetary assets and liabilities are translated at the rates
  of exchange in effect at the balance sheet date; non-monetary assets at historical
  rates and revenue and expense items at the average rates for the period, other
  than depletion and depreciation which are translated at the same rates of exchange
  as the related asset. The net effect of the foreign currency translation is
  included in current operations.

Cash and cash equivalent

Cash includes actual cash held and short-term investments
  such as treasury bills with maturity of less than three months.

Revenue recognition

The Company records oil and gas revenue at the time of physical
  transfer to purchaser.

Income taxes

Effective January 1, 2000 the Company adopted the Canadian
  Institute of Chartered Accountants accounting recommendations with respect to
  income taxes. The new recommendations were applied retroactively without restatement
  of the prior year consolidated financial statements.

The Company records income taxes using the liability method.
  Under this method, future income tax assets and liabilities are measured using
  the enacted tax rates expected to apply to taxable income in the years in which
  the temporary differences are expected to be recovered or settled.

Flow through shares

The Company has financed a portion of its exploration and
  development activities in Canada through the issue of flow through shares. Under
  the terms of these share issues, the tax attributes of the related expenditures
  are renounced to subscribers. To recognize the foregone tax benefits, share
  capital is reduced and a future income tax liability is recorded as the related
  expenditures are made. The Company has sufficient tax losses for which the future
  tax benefit is not recorded to offset the increase in future taxes due to the
  renouncement of expenditures.

Stock options

The Company has a stock option plan as described in Note 5.
  No compensation expense has been recorded upon the granting of the options at
  market prices. Effective January 1, 2002, the Company adopted CICA 3870 Stock
  Based Compensation and Other Stock Based Payments. As permitted by CICA
  3870, the Company has applied this change prospectively for new awards granted
  on or after January 1, 2002. For 2002 the Company has calculated the impact
  on net earnings and earnings per share on a proforma basis (Note 5(l)). For
  periods prior to January 1, 2002 the Company did not recognize any compensation
  expense when stock options were issued to employees.

Per share amounts

Effective January 1, 2001, the Company retroactively adopted
  the new recommendations of the Canadian Institute of Chartered Accounts with
  respect to the computation, presentation and disclosure of earnings and cash
  flow from operations per share. Under the new standard, the treasury stock method
  is used instead of the imputed earnings method to determine the dilutive effect
  of stock options and warrants.

Net income and cash flow from operations per share are calculated
  using the weighted average number of shares outstanding during the year. Diluted
  net income and cash flow from operations per share are calculated using the
  treasury stock method. The treasury stock method assumes that the proceeds received
  from the exercise of in-the-money stock options are used to repurchase
  common shares at the average market price.

Page 51 of 62

---

Measurement uncertainty

The amounts recorded for depletion and depreciation of property
  and equipment, the provision for site restoration costs and the ceiling test
  calculation are based on estimates of proved reserves, production rates, oil
  and natural gas prices, future costs and other relevant assumptions. By their
  nature, these estimates are subject to measurement uncertainty and the effect
  on the consolidated financial statements of changes in such estimates in future
  periods could be significant.

2. CAPITAL
  ASSETS  CANADA

|                                       |   | 2002       |   |   | 2001      |  
|-------------------------------------- | - | ---------- | - | - | --------- | -
|                                       |   |            |   |   |           |  
|Oil and gas properties                 | $ | 4,618,485  |   | $ | 3,725,222 |  
|Furniture and fixtures                 |   | 201,539    |   |   | 187,243   |  
|Accumulated depletion and depreciation |   | (1,168,719 | ) |   | (867,719  | )
|                                       |   |            |   |   |           |  
|                                       | $ | 3,651,305  |   | $ | 3,044,746 |  
|                                       |   |            |   |   |           |  

During the year the Company capitalized overhead costs relating
  to exploration and development activities of $153,569 (2001 - $156,311).

Depletion and depreciation expense includes $16,000 (2001
  - $24,000) related to the provision for site restoration which is calculated
  based on a total future estimated cost of $319,000 (2001 - $297,000).

3. CAPITAL
  ASSETS  REPUBLIC OF YEMEN

|                                       |   | 2002       |   |   | 2001       |  
|-------------------------------------- | - | ---------- | - | - | ---------- | -
|                                       |   |            |   |   |            |  
|                                       |   |            |   |   |            |  
|Block 32                               | $ | 13,575,336 |   | $ | 11,553,012 |  
|Block S-1                              |   | 8,016,556  |   |   | 4,611,957  |  
|Other                                  |   | 81,943     |   |   | 73,468     |  
|Accumulated depletion and depreciation |   | (6,607,000 | ) |   | (2,647,000 | )
|                                       |   |            |   |   |            |  
|                                       | $ | 15,066,835 |   | $ | 13,591,437 |  
|                                       |   |            |   |   |            |  

The Company commenced production on Block 32 in November 2000.
  This represents the early stages of a major development program contracted under
  the Production Sharing Agreement (PSA) for the next twenty years.
  On Block S-1, the second period of the exploration program will be undertaken
  during 2002, 2003 and 2004. The Company and its partner on Block S-1 have elected
  to enter the second exploration period effective March 28, 2002. Unproven properties
  in the amount of $7,184,372 were excluded from costs subject to depletion and
  depreciation representing a portion of the costs incurred in Block S-1. During
  the year the Company capitalized overhead costs relating to exploration and
  development activities of $238,834 (2001 - $258,982).

Block 32

The PSA provides for the Ministry of Oil and Mineral Resources
  (the MOM) in the Republic of Yemen to receive a royalty of 3% (10%
  over 25,000 barrels of oil per day ("Bopd")) of gross production with the remaining
  97% of revenue split between cost recovery oil and production sharing oil. Cost
  recovery oil is up to a maximum of 60% of 97% of the revenue limited to operating
  costs and allocated recoverable exploration and development expenditures as
  outlined in the PSA. Cost recovery oil is 100% for the account of the Block
  32 Contractor (Joint Venture Partners) to recover operating costs and exploration
  and development expenditures. The remaining production sharing oil is shared
  65% by MOM and 35% by the Block 32 Contractor which is further shared 5% Yemen
  Oil Company ("YOC")/95% Block 32 Contractor. These terms remain in place as
  long as proven recoverable reserves do not exceed 30 million barrels of oil
  (gross) or production of 25,000 Bopd.

Block S-1

The PSA provides MOM with a sliding scale royalty of 3%-10%
  based on daily oil production between 0-100,000 Bopd with the remaining revenue
  split between cost recovery oil and production sharing oil. Cost recovery oil
  is up to a maximum of 50% of after royalty revenue limited to operating costs
  and allocated recoverable exploration and development expenditures, as outlined
  in the PSA, to be utilized 100% by the Block S-1 Contractor. The balance of

Page 52 of 62

---

the revenue is allocated to production sharing oil and is
  shared 65%-80% by MOM and 35%-20% by the Block S-1 Contractor (which is further
  shared 17.5% YOC/82.5% Block S-1 Contractor) based on the production level.

4. LONG-TERM
  DEBT

Effective January 1, 2002, Canadian accounting standards require
  that revolving debt with terms of 364 days or less is to be included in current
  liabilities.

The Company has a Cdn$2,500,000 revolving loan facility and
  a Cdn$2,000,000 non-revolving acquisition/development facility with a Canadian
  chartered bank. The loan facilities bear interest at the banks Canadian
  prime rate plus three quarters of one percent and Canadian prime rate plus one
  percent, respectively, and are secured by a first floating charge debenture
  over all Canadian assets of the Company, a general assignment of book debts
  and certain negative pledges. At December 31, 2002 $nil (2001 - $nil) was drawn
  on these loan facilities.

The Company has a $1,500,000 letter of credit issued in support
  of the commitments of the second exploration period on Block S-1 in the Republic
  of Yemen which is secured by a guarantee obtained from Export Development Canada.
  Subsequent to December 31, 2002 this letter of credit was reduced to $750,000
  (see Note 10).

5. SHARE
  CAPITAL

a)        Authorized

The authorized share capital is 500,000,000 common shares
  with no par value.

b)        Issued

|                                                                        | Number     |  |   |            |  
|----------------------------------------------------------------------- | ---------- |  | - | ---------- | -
|                                                                        | of shares  |  |   | Amount     |  
|                                                                        |            |  |   |            |  
|Balance, December 31, 1999                                              | 33,417,244 |  | $ | 30,471,982 |  
|Tax effect of flow through shares                                       | -          |  |   | (335,020   | )
|Rights offering, net of issue costs (c)                                 | 2,601,283  |  |   | 842,666    |  
|Conversion of convertible debentures, net of
      issue costs (d)      | 4,989,354  |  |   | 739,603    |  
|Issued for consideration of interest on convertible
      debenture (d) | 12,769     |  |   | 5,294      |  
|Prospectus offering, net of issue costs (e)                             | 4,477,612  |  |   | 1,726,469  |  
|Private placement, net of issue costs (f)                               | 875,000    |  |   | 344,899    |  
|Shares issued for settlement agreement, net
      of expenses (g)       | 500,000    |  |   | 232,498    |  
|Exercise of warrants (j)                                                | 2,769,778  |  |   | 1,090,250  |  
|Exercise of stock options (i)                                           | 410,000    |  |   | 90,200     |  
|Exercise of compensation options (e)                                    | 447,761    |  |   | 201,163    |  
|                                                                        |            |  |   |            |  
|Balance, December 31, 2000                                              | 50,500,801 |  |   | 35,410,004 |  
|Exercise of stock options (j)                                           | 125,000    |  |   | 27,500     |  
|Exercise of warrants (f)                                                | 50,000     |  |   | 27,500     |  
|Performance bonus expense paid in shares (i)                            | 50,000     |  |   | 16,218     |  
|Private placement, net of issue costs (h)                               | 519,000    |  |   | 155,797    |  
|                                                                        |            |  |   |            |  
|Balance, December 31, 2001                                              | 51,244,801 |  |   | 35,637,019 |  
|Future tax effect (h)                                                   | -          |  |   | (67,168    | )
|Share issue costs                                                       | -          |  |   | (309       | )
|Performance bonus expense paid in shares (i)                            | 250,000    |  |   | 73,631     |  
|                                                                        |            |  |   |            |  
|Balance, December 31, 2002                                              | 51,494,801 |  | $ | 35,643,173 |  
|                                                                        |            |  |   |            |  

c)In January
  2000, the Company completed a rights offering issuing 2,601,283 shares at $0.36
  per share, for proceeds net of issue costs, of $842,666.

d)On January
  21, 2000 the Company called the convertible debenture for redemption on February
  29, 2000 and issued 4,989,354 common shares at $0.15 per share representing
  the full amount of principal and issued 12,769 common shares to insiders for
  the accrued interest.

Page 53 of 62

---

e)In July
  2000, the Company closed a prospectus offering of 4,477,612 units at Cdn$0.67
  per unit. Each unit consisted of one common share and one-half of a transferrable
  warrant. Each whole warrant entitles the holder to purchase one common share
  of the Company for Cdn$0.85 until January 27, 2001, and Cdn$1.15 until January
  27, 2002. There warrants expired unexercised on January 27, 2002, except for
  99,000 exercised in 2000.

The underwriter received compensation options whereby they
  had an option to exercise 447,761 common shares at Cdn$0.70 per share. All of
  the compensation options were exercised prior to December 31, 2000.

f)In August
  2000, the Company issued 875,000 units in a private placement at $0.40 per unit
  for net proceeds of $344,899 net of issue costs. Each unit consisted of one
  common share and one non-transferrable warrant. Each warrant entitles the holder
  to purchase one common share of the Company for $0.55 per share, expiring on
  August 25, 2001.

The Company extended the expiration date of 775,000 of the
  875,000 warrants whereby the holder exercised 50,000 warrants at $0.55 in exchange
  for a one year extension of 775,000 warrants to August 25, 2002 subject to a
  call whereby the warrants would expire on the earlier of (a) August 25, 2002
  or (b) the 30th calendar day following the period in which the 10-day
  weighted average trading price of the Companys common shares on the Toronto
  Stock Exchange exceeds Cdn$1.0483.

g)In September
  2000, the Company issued 500,000 units valued at $0.47 per unit and paid cash
  in the amount of $75,000 to a shareholder in the State of Florida pursuant to
  a settlement agreement. Each unit consisted of one common share and three non-transferrable
  warrants. The settlement agreement satisfied the shareholders claim relating
  to a 1996 private placement transaction concluded by previous management. Each
  warrant entitles the holder to purchase one common share of the Company for
  $0.47 until September 8, 2002. The valuation of the units and exercise price
  of the warrants represents the market price of the common shares of the Company
  at the time the settlement was negotiated.

h)In December
  2001, the Company issued 519,000 flow through common shares in a private placement
  at Cdn$0.49 per share for net proceeds of US$155,797, subscribed by insiders
  of the Company. The terms of the flow through shares provide that the Company
  renounce Canadian tax deductions in the amount of Cdn$254,310 to the subscribers
  with the entire amount to be expended by the Company by December 31, 2002. As
  at December 31, 2002, the entire amount was spent. As described in Note 1, share
  capital is reduced and future income taxes are increased by the estimated amount
  of the future income taxes payable by the Company ($67,168) as a result of renouncing
  the expenditures to subscribers.

i)Pursuant
  to an employment contract and the Company meeting certain performance criteria,
  the Company issued 250,000 and 50,000 common shares to the President of the
  Company in 2002 and 2001, respectively, recorded at market prices at respective
  dates of issue.

j)        Share purchase
  options

The Company established a stock option plan in April 1997,
  with subsequent amendments (the Plan). The maximum number of common
  shares to be issued upon the exercise of options granted under the Plan is 5,052,580
  common shares. All incentive stock options granted under the Plan will have
  a per-share exercise price not less than the trading market value of the common
  shares at the date of grant and will vest as to 50% of the options, six months
  after the grant date, and as to the remaining 50%, one year from the grant date.

Page 54 of 62

---





|                       |  |           |   |           |  |           |   |           |  |           |   |           | 
|---------------------- |  | --------- | - | --------- |  | --------- | - | --------- |  | --------- | - | --------- | 
|                       |  | 2002      |   | 2001      |  | 2000      |  
|                       |  |           |   |           |  |           |   |           |  |           |   |           | 
|                       |  |           |   | Weighted- |  |           |   | Weighted- |  |           |   | Weighted- | 
|                       |  | Number    |   | Average   |  | Number    |   | Average   |  | Number    |   | Average   | 
|                       |  | of        |   | Exercise  |  | of        |   | Exercise  |  | of        |   | Exercise  | 
|                       |  | Options   |   |           |  | Options   |   | Price     |  | Options   |   | Price     | 
|                       |  |           |   |           |  |           |   |           |  |           |   |           | 
|Options outstanding at |  |           |   |           |  |           |   |           |  |           |   |           | 
|beginning of year      |  | 2,379,500 |   | $0.31     |  | 2,806,500 |   | $0.32     |  | 2,257,000 |   | $0.21     | 
|Granted                |  | 1,400,000 |   | 0.32      |  | 240,000   |   | 0.34      |  | 959,500   |   | 0.50      | 
|Exercised              |  | -         |   | -         |  | (125,000  | ) | 0.22      |  | (410,000  | ) | 0.22      | 
|Expired                |  | (155,000  | ) | 0.22      |  | (542,000  | ) | 0.38      |  | -         |   | -         | 
|                       |  |           |   |           |  |           |   |           |  |           |   |           | 
|Options outstanding at |  |           |   |           |  |           |   |           |  |           |   |           | 
|end of year            |  | 3,624,500 |   | $0.32     |  | 2,379,500 |   | $0.31     |  | 2,806,500 |   | $0.32     | 
|                       |  |           |   |           |  |           |   |           |  |           |   |           | 
|Options exercisable at |  |           |   |           |  |           |   |           |  |           |   |           | 
|end of year            |  | 2,924,500 |   |           |  | 2,239,500 |   |           |  | 1,872,000 |   |           | 
|                       |  |           |   |           |  |           |   |           |  |           |   |           | 

The following table summarizes information about the stock options outstanding
  at December 31, 2002:

|         |  | Options Outstanding |  | Options Exercisable | 
|-------- |  | ------------------- |  | ------------------- | 
|         |  |                     |  |                     | 
|         |  | Number              |  | Weighted-           | 
|         |  | Out-                |  | Average             | 
|Range of |  | standing            |  | Remaining           | 
|Exercise |  | at Dec. 31,         |  | Contractual         | 
|Prices   |  | 2002                |  | Life                | 
|         |  |                     |  |                     | 
|$0.22    |  | 1,285,000           |  | 0.7                 | 
|Cdn0.45  |  | 20,000              |  | 1.8                 | 
|Cdn0.55  |  | 200,000             |  | 3.4                 | 
|Cdn0.39  |  | 40,000              |  | 3.8                 | 
|Cdn0.73  |  | 679,500             |  | 2.6                 | 
|Cdn0.50  |  | 1,400,000           |  | 4.3                 | 
|         |  |                     |  |                     | 
|         |  | 3,624,500           |  | 2.7                 | 
|         |  |                     |  |                     | 

k)        Share purchase warrants

The following table summarizes the share purchase warrants
  exercised and expired during the years ended and as at December 31, 2002 and
  2001:

|          | Number of Warrants |           |           |         
|--------- | ------------------ | --------- | --------- | --------
|          |                    |           |           |         
|Dec. 31,  |                    |           |           | Dec. 31,
|2001      | Granted            | Expired   | Exercised | 2002    
|          |                    |           |           |         
|2,139,806 | -                  | 2,139,806 | -         | -       
|775,000   | -                  | 775,000   | -         | -       
|1,500,000 | -                  | 1,500,000 | -         | -       
|          |                    |           |           |         
|4,414,806 | -                  | 4,414,806 | -         | -       
|          |                    |           |           |         

|          | Number of Warrants |         |           |          
|--------- | ------------------ | ------- | --------- | ---------
|          |                    |         |           |          
|Dec. 31,  |                    |         |           | Dec. 31, 
|2000      | Granted            | Expired | Exercised | 2001     
|          |                    |         |           |          
|2,139,806 | -                  | -       | -         | 2,139,806
|875,000   | -                  | 50,000  | 50,000    | 775,000  
|1,500,000 | -                  | -       | -         | 1,500,000
|          |                    |         |           |          
|4,514,806 | -                  | 50,000  | 50,000    | 4,414,806
|          |                    |         |           |          

Page 55 of 62

---

l)        Stock-based compensation

The Company accounts for its stock-based compensation plans
  using the intrinsic-value of the options granted whereby no costs have been
  recognized in the financial statements for stock options granted to employees
  and directors at market values. Effective January 1, 2002 under Canadian generally
  accepted accounting principles, the impact of using the fair value method on
  compensation costs and recorded net earnings must be disclosed. If the fair
  value method had been used, the Companys net earnings per share would
  approximate the following pro forma amounts (the pro forma amounts shown do
  not include the compensation costs associated with stock options granted prior
  to January 1, 2002):

|                                    |   | 2002      | 
|----------------------------------- | - | --------- | 
|                                    |   |           | 
|Compensation costs                  | $ | 140,000   | 
|Net earnings:                       |   |           | 
|As
      reported                   |   | 5,426,389 | 
|Pro
      forma                     |   | 5,286,389 | 
|Net earnings per common shares:     |   |           | 
|As
      reported - Basic           | $ | 0.11      | 
|-
      Diluted                     | $ | 0.10      | 
|Pro
      forma - Basic and diluted | $ | 0.10      | 
|                                    |   |           | 

The fair value of each option granted on the date of grant
  using the Black-Scholes option-pricing model with weighted average assumptions
  for grants is as follows:

|                            |       | 
|--------------------------- | ----- | 
|Risk free interest rate (%) | 5.05  | 
|Expected lives (years)      | 5.00  | 
|Expected volatility (%)     | 66.35 | 
|Dividend per share          | 0.00  | 
|                            |       | 

6. INCOME
  TAXES

The Company has deductible temporary differences for which
  no future income tax asset has been recorded. Those deductible temporary differences
  are Cdn$2,260,000 in non-capital losses and approximately Cdn$5,645,000 of income
  tax pools in excess of the carrying value of the Companys Canadian capital
  assets. The Company also has $13,100,000 of income tax losses in the United
  States. The Canadian loss carryforwards expire between 2006 and 2010 and the
  United States loss carryforwards expire between 2006 and 2020. In total, these
  temporary differences would generate a future income tax asset of Cdn$3,624,400
  on Canadian operations for which a valuation allowance of an identical amount
  would be recorded.

Current income taxes in the amount of $986,862 (2001 - $634,716)
  represents income taxes incurred and paid under the laws of the Republic of
  Yemen.

The components of expected income tax expense are as follows:

|                                           |   | 2002       |   |   | 2001      |  
|------------------------------------------ | - | ---------- | - | - | --------- | -
|                                           |   |            |   |   |           |  
|                                           |   |            |   |   |           |  
|Computed Canadian expected income tax      |   |            |   |   |           |  
|expense
      at 42.15% (2001  42.67%)    | $ | 2,674,874  |   | $ | 1,577,490 |  
|Non-deductible Crown charges (net of ARTC) |   | 64,036     |   |   | 127,518   |  
|Resource allowance                         |   | (2,773     | ) |   | (99,174   | )
|Lower tax rates in the Republic of Yemen   |   | (1,872,869 | ) |   | (829,858  | )
|Future income taxes recovered              |   | (67,168    | ) |   | -         |  
|Other                                      |   | 123,594    |   |   | (141,260  | )
|                                           |   |            |   |   |           |  
|                                           | $ | 919,694    |   | $ | 634,716   |  
|                                           |   |            |   |   |           |  

Page 56 of 62

---

7. SUPPLEMENTAL
  CASH FLOW INFORMATION

|                                                 |   | 2002       |   |   | 2001     |   |   | 2000       |  
|------------------------------------------------ | - | ---------- | - | - | -------- | - | - | ---------- | -
|                                                 |   |            |   |   |          |   |   |            |  
|                                                 |   |            |   |   |          |   |   |            |  
|Operating activities                             |   |            |   |   |          |   |   |            |  
|Decrease
      (increase) in current assets      |   |            |   |   |          |   |   |            |  
|Accounts
      receivable                        | $ | (2,317,826 | ) | $ | 732,992  |   | $ | (1,085,920 | )
|Prepaid
      expenses                           |   | (28,150    | ) |   | (9,577   | ) |   | 29,652     |  
|Increase
      (decrease) in current liabilities |   |            |   |   |          |   |   |            |  
|Accounts
      payable                           |   | (132,724   | ) |   | (102,219 | ) |   | 171,131    |  
|                                                 |   |            |   |   |          |   |   |            |  
|                                                 | $ | (2,478,700 | ) | $ | 621,196  |   | $ | (885,137   | )
|                                                 |   |            |   |   |          |   |   |            |  
|Financing activities                             |   |            |   |   |          |   |   |            |  
|Decrease
      (increase) in current assets      |   |            |   |   |          |   |   |            |  
|Prepaid
      expenses                           | $ | -          |   | $ | -        |   | $ | 67,364     |  
|Increase
      (decrease) in current liabilities |   |            |   |   |          |   |   |            |  
|Accounts
      payable                           |   | -          |   |   | -        |   |   | (48,168    | )
|                                                 |   |            |   |   |          |   |   |            |  
|                                                 | $ | -          |   | $ | -        |   | $ | 19,196     |  
|                                                 |   |            |   |   |          |   |   |            |  
|Investing activities                             |   |            |   |   |          |   |   |            |  
|Decrease
      (increase) in current assets      |   |            |   |   |          |   |   |            |  
|Accounts
      receivable                        | $ | 309,598    |   | $ | (91,856  | ) | $ | (84,335    | )
|                                                 |   |            |   |   |          |   |   |            |  
|Increase
      (decrease) in current liabilities |   |            |   |   |          |   |   |            |  
|Accounts
      payable                           |   | 222,839    |   |   | (610,775 | ) |   | 669,334    |  
|                                                 |   |            |   |   |          |   |   |            |  
|                                                 | $ | 532,437    |   | $ | (702,631 | ) | $ | 584,999    |  
|                                                 |   |            |   |   |          |   |   |            |  
|                                                 |   |            |   |   |          |   |   |            |  
|Interest paid                                    | $ | 16,154     |   | $ | 4,424    |   | $ | 12,390     |  
|                                                 |   |            |   |   |          |   |   |            |  
|                                                 |   |            |   |   |          |   |   |            |  
|Taxes paid                                       | $ | 986,862    |   | $ | 634,716  |   | $ | 86,038     |  
|                                                 |   |            |   |   |          |   |   |            |  

8. NET INCOME
  AND CASH FLOW PER SHARE

|                                          |   | 2002       |  |   | 2001       |  |   | 2000       | 
|----------------------------------------- | - | ---------- |  | - | ---------- |  | - | ---------- | 
|                                          |   |            |  |   |            |  |   |            | 
|Basic                                     |   |            |  |   |            |  |   |            | 
|Net income
      per share                | $ | 0.11       |  | $ | 0.06       |  | $ | 0.01       | 
|Cash flow
      from operations per share | $ | 0.19       |  | $ | 0.12       |  | $ | 0.02       | 
|Weighted
      average number of shares   |   |            |  |   |            |  |   |            | 
|outstanding                               |   | 51,449,596 |  |   | 50,640,877 |  |   | 44,066,100 | 
|                                          |   |            |  |   |            |  |   |            | 
|Diluted                                   |   |            |  |   |            |  |   |            | 
|Net income
      per share                | $ | 0.10       |  | $ | 0.06       |  | $ | 0.01       | 
|Cash flow
      from operations per share | $ | 0.19       |  | $ | 0.11       |  | $ | 0.02       | 
|Weighted
      average number of shares   |   |            |  |   |            |  |   |            | 
|outstanding                               |   | 51,944,926 |  |   | 51,118,289 |  |   | 46,429,961 | 
|                                          |   |            |  |   |            |  |   |            | 

Page 57 of 62

---

9. SEGMENTED
  INFORMATION

In 2002 the Company operated in two geographic segments, Canada
  and the Republic of Yemen. The capital assets in each geographic segment are
  disclosed in Notes 2 and 3. The Companys revenue in the Republic of Yemen
  is based on a 30 day dated Brent average oil price less pricing quality differential
  and is paid monthly by operator.

The results of operations for the year ended December 31,
  2002 are comprised of the following:

|                                    |   | Republic of Yemen |  |   | Canada    |  |   | Total      |  
|----------------------------------- | - | ----------------- |  | - | --------- |  | - | ---------- | -
|                                    |   |                   |  |   |           |  |   |            |  
|REVENUE                             |   |                   |  |   |           |  |   |            |  
|Oil and gas sales, net of royalties | $ | 12,238,711        |  | $ | 1,015,394 |  | $ | 13,254,105 |  
|                                    |   |                   |  |   |           |  |   |            |  
|EXPENSES                            |   |                   |  |   |           |  |   |            |  
|Operating                           |   | 1,394,379         |  |   | 448,894   |  |   | 1,843,273  |  
|Depletion and depreciation          |   | 3,960,000         |  |   | 317,000   |  |   | 4,277,000  |  
|                                    |   |                   |  |   |           |  |   |            |  
|Segmented operations                | $ | 6,884,332         |  | $ | 249,500   |  |   | 7,133,832  |  
|Other income                        |   |                   |  |   |           |  |   | 42,108     |  
|                                    |   |                   |  |   |           |  |   |            |  
|                                    |   |                   |  |   |           |  |   | 7,175,940  |  
|General and administrative          |   |                   |  |   |           |  |   | 820,691    |  
|Foreign exchange (gain) loss        |   |                   |  |   |           |  |   | (6,988     | )
|Interest                            |   |                   |  |   |           |  |   | 16,154     |  
|Income taxes (Note 6)               |   |                   |  |   |           |  |   | 919,694    |  
|                                    |   |                   |  |   |           |  |   |            |  
|NET INCOME                          |   |                   |  |   |           |  | $ | 5,426,389  |  
|                                    |   |                   |  |   |           |  |   |            |  

The results of operations for the year ended December 31, 2001 are comprised
  of the following:

|                                    |   | Republic of Yemen |  |   | Canada    |  |   | Total     |  
|----------------------------------- | - | ----------------- |  | - | --------- |  | - | --------- | -
|                                    |   |                   |  |   |           |  |   |           |  
|REVENUE                             |   |                   |  |   |           |  |   |           |  
|Oil and gas sales, net of royalties | $ | 7,000,676         |  | $ | 1,553,409 |  | $ | 8,554,085 |  
|                                    |   |                   |  |   |           |  |   |           |  
|EXPENSES                            |   |                   |  |   |           |  |   |           |  
|Operating                           |   | 1,133,092         |  |   | 407,277   |  |   | 1,540,369 |  
|Depletion and depreciation          |   | 2,405,000         |  |   | 357,000   |  |   | 2,762,000 |  
|                                    |   |                   |  |   |           |  |   |           |  
|Segmented operations                | $ | 3,462,584         |  | $ | 789,132   |  |   | 4,251,716 |  
|Other income                        |   |                   |  |   |           |  |   | 16,470    |  
|                                    |   |                   |  |   |           |  |   |           |  
|                                    |   |                   |  |   |           |  |   | 4,268,186 |  
|General and administrative          |   |                   |  |   |           |  |   | 570,609   |  
|Foreign exchange (gain) loss        |   |                   |  |   |           |  |   | (3,800    | )
|Interest                            |   |                   |  |   |           |  |   | 4,424     |  
|Income taxes (Note 6)               |   |                   |  |   |           |  |   | 634,716   |  
|                                    |   |                   |  |   |           |  |   |           |  
|NET INCOME                          |   |                   |  |   |           |  | $ | 3,062,237 |  
|                                    |   |                   |  |   |           |  |   |           |  

Page 58 of 62

---

The results of operations for the year ended December 31, 2000 are comprised
  of the following:

|                                    |   | Republic of |  |   |           |  |   | United  |  |   |           | 
|----------------------------------- | - | ----------- |  | - | --------- |  | - | ------- |  | - | --------- | 
|                                    |   | Yemen       |  |   | Canada    |  |   | States  |  |   | Total     | 
|                                    |   |             |  |   |           |  |   |         |  |   |           | 
|REVENUE                             |   |             |  |   |           |  |   |         |  |   |           | 
|Oil and gas sales, net of royalties | $ | 949,039     |  | $ | 1,151,400 |  | $ | 302,827 |  | $ | 2,403,266 | 
|                                    |   |             |  |   |           |  |   |         |  |   |           | 
|EXPENSES                            |   |             |  |   |           |  |   |         |  |   |           | 
|Operating                           |   | 106,108     |  |   | 289,988   |  |   | 103,158 |  |   | 499,254   | 
|Depletion and depreciation          |   | 242,000     |  |   | 311,000   |  |   | 82,400  |  |   | 635,400   | 
|                                    |   |             |  |   |           |  |   |         |  |   |           | 
|Segmented operations                | $ | 600,931     |  | $ | 550,412   |  | $ | 117,269 |  |   | 1,268,612 | 
|Other income                        |   |             |  |   |           |  |   |         |  |   | 278,514   | 
|                                    |   |             |  |   |           |  |   |         |  |   |           | 
|                                    |   |             |  |   |           |  |   |         |  |   | 1,547,126 | 
|General and administrative          |   |             |  |   |           |  |   |         |  |   | 1,087,963 | 
|Foreign exchange (gain) loss        |   |             |  |   |           |  |   |         |  |   | 51,636    | 
|Interest                            |   |             |  |   |           |  |   |         |  |   | 13,522    | 
|Income taxes                        |   |             |  |   |           |  |   |         |  |   | 86,038    | 
|                                    |   |             |  |   |           |  |   |         |  |   |           | 
|NET INCOME                          |   |             |  |   |           |  |   |         |  | $ | 307,967   | 
|                                    |   |             |  |   |           |  |   |         |  |   |           | 

10. COMMITMENTS
  AND CONTINGENCIES

The Company is committed to office and equipment leases over the next five
  years as follows:

| | 2003 | $112,000 | 
| | ---- | -------- | 
| | 2004 | 114,000  | 
| | 2005 | 114,000  | 
| | 2006 | 114,000  | 
| | 2007 | 40,000   | 

The Company has issued a three year letter of credit in the
  amount of $1,500,000 in support of the commitments of the second exploration
  period on Block S-1 in the Republic of Yemen. This letter of credit is secured
  by a guarantee obtained from Export Development Canada. The Companys obligation
  to Export Development Canada is secured by a first floating charge debenture
  (subordinated to the Banks interest in the Canadian assets and first to
  the foreign assets). The Block S-1 second exploration period commitments were
  fulfilled during 2002 and subsequent to December 31, 2002 the Companys
  letter of credit was reduced to $750,000. It is expected that the remaining
  balance of $750,000 will be released in the first quarter of 2003.

Effective January 1, 2000, the Company entered into an agreement
  to purchase an additional four percent working interest, increasing the Companys
  working interest to 13.81087% in Block 32 for a total purchase price of $2,136,163.
  The Company made an initial payment of $1,176,163. A potential future obligation
  totalling $960,000 will be due in six payments of $160,000 for each cumulative
  million barrels of gross oil production from Block 32 commencing at 7 million
  barrels to a maximum of 12 million barrels. During 2002 the Company made the
  first payment of $160,000 and subsequent to December 31, 2002 a second payment
  of $160,000 was made. The Company expects that the remaining payments will be
  made during 2003.

11. FINANCIAL
  INSTRUMENTS

Carrying values of financial instruments, which include accounts
  receivable, accounts payable and accrued liabilities approximate their fair
  value due to the short-term or the floating interest rate nature of these amounts.

The Company has foreign exchange risk due to the fact that
  it operates internationally using foreign currencies. The Company has commodity
  price risk associated with its sale of crude oil and natural gas.

Page 59 of 62

---



The majority of the accounts receivable are in respect of oil
  and gas operations. The Company generally extends unsecured credit to these
  customers and therefore the collection of accounts receivable may be affected
  by changes in economic or other conditions. Management believes the risk is
  mitigated by the size and reputation of the companies to which they extend credit.
  The Company has not experienced any material credit loss in the collection of
  accounts receivable to date.

12. COMPARATIVE
  FIGURES

Certain of the prior periods comparative figures have
  been reclassified to conform with the current periods presentation.

13. SUBSEQUENT
  EVENT

Subsequent to December 31, 2002, the Company entered into
  a contract to sell 500 gigajoules (GJ) per day of natural gas in Canada from
  March 1 to October 31, 2003 for Cdn$7.65/GJ.

14. DIFFERENCES
  BETWEEN GENERALLY ACCEPTED ACCOUNTING
               PRINCIPLES
  IN CANADA AND THE UNITED STATES

The consolidated financial statements have been prepared in
  accordance with Canadian generally accepted accounting principles (Canadian
  GAAP) which differ in certain respects from those principles and practices that
  the Company would have followed had its consolidated financial statements been
  prepared in accordance with United States generally accepted accounting principles
  and practices (U.S. GAAP).

Escrowed shares

For U.S. GAAP purposes, escrowed shares would be considered
  a separate compensatory arrangement between the Company and the holder of the
  shares. Accordingly, the fair market value of shares at the time the shares
  are released from escrow will be recognized as a charge to income in that year
  with a corresponding increase in share capital. The difference in share capital
  between Canadian GAAP and U.S. GAAP represents the effect of applying this provision
  in 1995 when 187,500 escrow shares were released resulting in an increase in
  share capital of $833,333 with the offset to deficit.

Stock based compensation

In 1995, the United States Financial Accounting Standards
  Board (FASB) issued Statement of Financial Accounting Standards
  (SFAS) No. 123, Accounting for Stock-Based Compensation.
  The Company has a stock-based compensation plan as more fully described in Note
  5. With regard to its stock option plan, the Company applies APB Opinion No.
  25 as interpreted by FASB Interpretation No. 44 in accounting for this plan
  and accordingly no compensation cost has been recognized. Had compensation expense
  been determined based on fair value at the grant dates for the stock option
  grants consistent with the method of SFAS No. 123, the Companys net income
  would have been decreased by $171,000 (December 31, 2001 net income would have
  been decreased by $302,000). Basic net income per share would have been reduced
  to $0.10 and diluted net income per share would be unchanged (2001 basic and
  diluted net income per share would have been reduced to $0.05).

The foregoing information is calculated in accordance with
  the Black-Scholes option pricing model, using the following data and assumptions:
  volatility, as of the date of grant, computed using the prior one to three-year
  monthly average prices of the Companys common shares, which ranged from
  113% to 114%; expected dividend yield  0%; option terms to expiry - 5
  years as defined by the option contracts; risk-free rate of return as of the
  date of grant  5.05% to 6.03%.

Page 60 of 62

---

Gain on sale of oil and gas properties

The Company sold all of its oil and gas properties in the
  United States in the year 2000. The gain on sale under United States GAAP was
  $145,000 less than under Canadian GAAP arising from ceiling test differences.
  Under SEC regulations, the future net revenue as calculated for the ceiling
  test excludes future overhead costs and must be discounted at 10%. This is not
  required under Canadian GAAP. The effect of applying this provision to the Companys
  financial statements in previous years resulted in a higher net book value of
  capital assets in the United States by $145,000.

Flow through shares

The Company records the renouncement of deductions related
  to flow through shares by reducing the share capital and recording a future
  tax liability in the amount of the estimated cost of the tax deductions flowed
  to the shareholders in the period in which the expenditures are renounced. United
  States practice requires that the share capital on flow through shares be stated
  at the quoted market value of the shares at the date of issuance. In addition,
  the temporary difference that arises as a result of the renouncement of the
  deductions, less any proceeds received in excess of the quoted market value
  of the shares is recognized in the determination of income tax expense for the
  period. In 2000, the effect of applying this provision to the Companys
  financial statements would result in an increase in income tax expense and future
  tax liability by $335,020 representing the tax effect of the flow through shares
  and a corresponding decrease to income tax expense and future tax liability
  by $335,020 to record the recognition of the benefit of tax losses available
  to the Company equal to the liability arising from renouncing tax pools to the
  subscribers. In 2002, the effect of applying this provision to the Companys
  financial statements would result in an increase in income tax expense and future
  tax liability by $67,168 representing tax effect of the flow through shares
  and a corresponding decrease to income tax expense and future tax liability
  by $67,168 to record the recognition of the benefit of tax losses available
  to the Company equal to the liability arising from renouncing tax pools to the
  subscriber.

Had the Company followed U.S. GAAP, the shareholders
  equity would have been reported as follows:

|              |   | 2002        |   |   | 2001        |  
|------------- | - | ----------- | - | - | ----------- | -
|              |   | Cdn. GAAP   |   |   | U.S. GAAP   |  
|              |   |             |   |   |             |  
|              |   |             |   |   |             |  
|Share capital | $ | 35,643,173  |   | $ | 36,878,694  |  
|Deficit       |   | (12,298,309 | ) |   | (13,533,830 | )
|              |   |             |   |   |             |  
|              | $ | 23,344,864  |   | $ | 23,344,864  |  
|              |   |             |   |   |             |  

The reconciling items between share capital and deficit for
  Canadian and United States GAAP are $833,333 related to escrowed shares and
  $402,188 related to flow through shares as described above. There are no other
  balance differences.

Had the Company followed U.S. GAAP, the statement of operations
  would have been reported as follows:

|                                            |   | 2002      |  |   | 2001      |  |   | 2000    | 
|------------------------------------------- | - | --------- |  | - | --------- |  | - | ------- | 
|                                            |   |           |  |   |           |  |   |         | 
|                                            |   |           |  |   |           |  |   |         | 
|Net income for the year under Canadian GAAP | $ | 5,426,389 |  | $ | 3,062,237 |  | $ | 307,967 | 
|                                            |   |           |  |   |           |  |   |         | 
|Net income for the year under U.S. GAAP     |   | 5,359,221 |  |   | 3,062,237 |  | $ | 162,967 | 
|                                            |   |           |  |   |           |  |   |         | 
|Net income per share under U.S. GAAP        | $ | 0.10      |  | $ | 0.06      |  | $ | -       | 
|                                            |   |           |  |   |           |  |   |         | 

Recent accounting pronouncements

In August 2001, the FASB approved SFAS No. 143, Accounting
  for Asset Retirement Obligations, which addresses financial accounting
  and reporting for obligations associated with the retirement of tangible long-lived
  assets and the associated asset retirement costs. SFAS No. 143 is effective
  for fiscal years beginning after June 15, 2002. Management does not believe
  that SFAS No. 143 will have a material impact on the Companys financial
  statements.

Page 61 of 62

---

In October 2001, the FASB issued SFAS No. 144, Accounting
  for the Impairment or Disposal of Long-Lived Assets, resolving significant
  implementation issues related to FASB Statement No. 121, Accounting for
  the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
  Of, and supersedes the accounting and reporting provisions of APB Opinion
  No. 30, Reporting the Results of Operations-Reporting the Effects of Disposal
  of a Segment of a Business and Extraordinary, Unusual and Infrequently Occurring
  Events and Transactions, for the disposal of a business segment. SFAS
  No. 144 is effective for the fiscal years beginning after December 15, 2001
  and interim periods within those fiscal years. Management does not believe that
  SFAS No. 144 will have material impact on the Companys financial statements.

In April 2002, the FASB issued SFAS No. 145, Rescission
  of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and
  Technical Corrections. SFAS No. 4, Reporting Gains and Losses from
  Extinguishment of Debt, addressed income statement classification of gains
  and losses from extinguishment of debt. SFAS No. 64 amended SFAS No. 4 and is
  no longer necessary due to the rescission of SFAS No. 4. SFAS No. 145 also amended
  SFAS No. 13 to require sale-leaseback accounting for certain lease modifications
  that have economic effects that are similar to sale-leaseback transactions.
  Management believes that SFAS No. 145 will have no retroactive impact on the
  Companys financial statements.

In June 2002, the FASB issued SFAS No. 146, Accounting
  for Costs Associated with Exit or Disposal Activities, which requires
  the recognition of a liability when incurred for costs associated with an exit
  or disposal activity. Management does not believe that SFAS No. 146 will have
  a material impact on the Companys financial statements.

In December 2002, the FASB issued SFAS No. 148, Accounting
  for Stock-based Compensation Transition and Disclosure - an Amendment of FASB
  Statement No. 123, to provide alternative methods of accounting for stock-based
  employee compensation. SFAS No. 148 is effective for fiscal years ending after
  December 15, 2002 and interim periods beginning after December 15, 2002. In
  addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to
  require prominent disclosures in both annual and interim financial statements
  about the method of accounting for stock-based employee compensation and the
  effect of the method used on reported results. Management does not believe that
  SFAS No. 148 will have a material impact on the Companys financial statements.





Page 62 of 62

---