---



MANAGEMENTS DISCUSSION AND ANALYSIS

***March
  8, 2006***
             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 message
  to the shareholders, the operations review, the audited consolidated financial
  statements of the Company for the years ended December 31, 2005 and 2004, together
  with the notes related thereto. The consolidated financial statements have been
  prepared in accordance with accounting principles generally accepted in Canada
  in the currency of the United States (except where indicated as being another
  currency). The effect of significant differences between Canadian and United
  States accounting principles is disclosed in Note 14 of the consolidated financial
  statements. Additional information relating to the Company, including the Company’s
  Annual Information Form, is on SEDAR at www.sedar.com.

***Forward
  Looking Statements***
            This Management’s
  Discussion and Analysis (MD&A) may include certain statements that may be
  deemed to be “forward-looking statements” within the meaning of
  the U.S. Private Securities Litigation Reform Act of 1995. All statements in
  this annual report, other than statements of historical facts, that address
  future production, reserve potential, exploration drilling, exploitation activities
  and events or developments that the Company expects, are forward-looking statements.
  Although TransGlobe believes the expectations expressed in such forward-looking
  statements are based on reasonable assumptions, such statements are not guarantees
  of future performance and actual results or developments may differ materially
  from those in the forward-looking statements. Factors that could cause actual
  results to differ materially from those in forward-looking statements include,
  but are not limited to, oil and gas prices, well production performance, exploitation
  and exploration successes, continued availability of capital and financing,
  and general economic, market or business conditions.

***Non-GAAP
  Measures***
            This document contains
  the term “cash flow from operations”, which should not be considered
  an alternative to, or more meaningful than “cash flow from operation activities”
  as determined in accordance with Generally Accepted Accounting Principles (GAAP).
  Cash flow from operations is a non-GAAP measure that represents cash generated
  from operating activities before changes in non-cash working capital. We consider
  this a key measure as it demonstrates our ability to generate the cash flow
  necessary to fund future growth through capital investment. Cash flow from operations
  may not be comparable to similar measures used by other companies. 
            Net operating income
  is a non-GAAP measure that represents revenue net of royalties and operating
  expenses. Management believes that net operating income is a useful supplemental
  measure to analyse operating performance and provide an indication of the results
  generated by the Company’s principal business activities prior to the
  consideration of other income and expenses. Net operating income may not be
  comparable to similar measures used by other companies.

***Use
  of Boe Equivalents***
            The calculations
  of barrels of oil equivalent (“Boe”) are based on a conversion rate
  of six thousand cubic feet of natural gas to one barrel of crude oil. Boe may
  be misleading, particularly if used in isolation. A Boe conversion ratio of
  6 Mcf:1 Bbl is based on an energy equivalency conversion method primarily applicable
  at the burner tip and does not represent a value equivalency at the wellhead.

22

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**OVERVIEW**          
  TransGlobe is an independent, public company whose activities are concentrated
  in three main geographic segments: Republic of Yemen, Canada and Arab Republic
  of Egypt. Yemen includes the Company’s exploration, development and production
  of crude oil. Canada includes the Company’s exploration, development and
  production of natural gas, natural gas liquids and crude oil. Egypt includes
  the Company’s exploration for natural gas, natural gas liquids and crude
  oil.

|Selected
      Annual Information                                                                                                                                                                                                                                                     |           |        |        |        |       
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------- | ------ | ------ | ------ | ------
|($000s, except per share amounts,                                                                                                                                                                                                                                                    |           | %      |        | %      |       
|volumes
      and % change)                                                                                                                                                                                                                                                           | 2005      | Change | 2004   | Change | 2003  
|Average production volumes (Boepd)*                                                                                                                                                                                                                                                   | 4,991     | 29     | 3,865  | 47     | 2,635 
|Average sales volumes (Boepd)*                                                                                                                                                                                                                                                        | 4,959     | 31     | 3,796  | 44     | 2,635 
|Average price ($/Boe)                                                                                                                                                                                                                                                                 | 49.92     | 40     | 35.63  | 25     | 28.43 
|                                                                                                                                                                                                                                                                                      |           |        |        |        |       
|Oil and gas sales                                                                                                                                                                                                                                                                     | 90,350    | 83     | 49,495 | 81     | 27,336
|                                                                                                                                                                                                                                                                                      |           |        |        |        |       
|Oil and gas sales, net of royalties                                                                                                                                                                                                                                                   | 58,911    | 86     | 31,630 | 84     | 17,162
|                                                                                                                                                                                                                                                                                      |           |        |        |        |       
|Cash flow from operations**                                                                                                                                                                                                                                                           | 38,077    | 120    | 17,325 | 85     | 9,347 
|Cash flow from operations per share                                                                                                                                                                                                                                                   |           |        |        |        |       
|                                                                                                                                                                                                                                                                                      | - Basic   | 0.66   |        | 0.32   |       
|                                                                                                                                                                                                                                                                                      | - Diluted | 0.63   |        | 0.31   |       
|                                                                                                                                                                                                                                                                                      |           |        |        |        |       
|Net income                                                                                                                                                                                                                                                                            | 19,850    | 235    | 5,919  | -      | 5,905 
|Net income per share                                                                                                                                                                                                                                                                  |           |        |        |        |       
|                                                                                                                                                                                                                                                                                      | - Basic   | 0.34   |        | 0.11   |       
|                                                                                                                                                                                                                                                                                      | - Diluted | 0.33   |        | 0.10   |       
|Total assets                                                                                                                                                                                                                                                                          |           | 86,286 | 43     | 60,522 | 70    
|* The differences in production and sales volumes
      result from inventory changes at Block S-1, Yemen. 
      ** Cash flow from operations is a non-GAAP measure that represents cash
      generated from operating activities before changes in non-cash working
      capital.

23

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Cash
  flow from operations increased by 120% in 2005 compared to 2004 mainly as a
  result of a 31% increase in sales volumes attributed to the pipeline completion
  and development drilling on Block S-1, Yemen, new wells in Canada and a 40%
  increase in commodity prices, which were offset in part by increases in royalties,
  operating costs and taxes associated with the increased volumes and prices,
  as displayed below:

|                                                                                                                                      |          | $ Per Share | %       
|------------------------------------------------------------------------------------------------------------------------------------- | -------- | ----------- | --------
|                                                                                                                                      | $000s   | Diluted     | Variance
|2004
      Cash flow from operations**                                                                                                | 17,325   | 0.31        |         
|Volume variance                                                                                                                       | 17,683   | 0.29        | 102     
|Price variance                                                                                                                        | 23,172   | 0.39        | 134     
|Royalties                                                                                                                             | (13,574) | (0.23)      | (78)    
|Expenses:                                                                                                                             |          |             |         
|Operating                                                                                                                             | (3,189)  | (0.05)      | (18)    
|Cash general and administrative                                                                                                       | (901)    | (0.02)      | (5)     
|Current income
      taxes                                                                                                            | (2,602)  | (0.04)      | (15)    
|Realized foreign exchange gain (loss)                                                                                                 | 247      | -           | 1       
|Settlement of asset retirement obligations                                                                                            | (165)    | -           | (1)     
|Other                                                                                                                                 | 81       | -           | -       
|Change in weighted average number of diluted shares
      outstanding-**                                                              | -        | (0.02)      | -       
|2005
      Cash flow from operations**                                                                                                | 38,077   | 0.63        | 120     
|** Cash flow from operations is a non-GAAP
      measure that represents cash generated from operating activities before
      change

Net income for
  2005 increased 235% mainly as a result of the above cash flow from operations
  increase and reduced stock-based compensation which both increased net income,
  offset in part by increased non-cash expenses for depletion, depreciation and
  accretion and future income tax expense which reduced net income.
            ***Management
  Strategy***
            In 2006, the capital
  budget is focused on growing reserves and production in Yemen and in Canada.
  Also, a portion of the 2006 capital budget will be spent defining leads and
  drilling two exploration wells on Nuqra Block 1 in Egypt.
            
             The success of
  these strategies is subject to numerous risk factors such as (including but
  not limited to) exploration success, fluctuations in commodity prices and foreign
  exchange rates, in addition to credit, operational and safety and environmental
  risks.
            ***Business
  Environment***
            The Company’s
  financial results are significantly influenced by the oil industry business
  environment. Risks include, but are not limited to:

| | • | Crude oil and natural gas prices.                                        
| | - | -------------------------------------------------------------------------
| | • | The price differential and demand related to various crude oil qualities.
| | • | Cost to find, develop, produce and deliver crude oil and natural gas.    
| | • | Availability of equipment and labour to conduct field activities.        
| | • | Availability of pipeline capacity.                                       

24

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Commodity Price and Foreign Exchange
  Benchmarks

|                                                    |        | %      |        | %      |       
|--------------------------------------------------- | ------ | ------ | ------ | ------ | ------
|                                                    | 2005   | Change | 2004   | Change | 2003  
|Dated Brent average oil
      price ($ per barrel)  | 54.57  | 41     | 38.58  | 34     | 28.87 
|WTI average oil price ($ per barrel)                | 56.46  | 36     | 41.42  | 33     | 31.14 
|Edmonton Par average oil price (C$ per barrel)      | 69.29  | 31     | 52.91  | 22     | 43.23 
|AECO average gas price (C$ per thousand cubic feet) | 8.73   | 33     | 6.54   | (2)    | 6.67  
|U.S./Canadian Dollar Year End Exchange Rate         | 1.1630 | (3)    | 1.2020 | (7)    | 1.2965
|U.S./Canadian Dollar
      Average Exchange Rate    | 1.2114 | (7)    | 1.3013 | (7)    | 1.4010

World
  crude oil prices continued to increase significantly in 2005. An active hurricane
  season resulted in substantial interruptions to U.S. Gulf Coast production and
  refineries, which added to fluctuations in oil and gas prices. Oil prices are
  expected to continue to be volatile during 2006 since global demand for oil
  remains very strong and supply uncertainties continue in the Middle East and
  West Africa.

In 2005, TransGlobe
  sold approximately:

• 4% of its
  crude oil at fixed prices.
            • 94% at dated
  Brent minus the selling price differentials.
            • the remaining
  2% at the Edmonton Par price less quality differentials.

Historically high
  natural gas prices continued in 2005. In 2005, prices increased with concern
  over North America’s ability to grow gas supply despite high drilling
  levels. A warm summer across North America and a cold December in the U.S. Northeast
  increased demand for power and two successive hurricanes damaged gas supply
  infrastructure in the U.S. Gulf Coast. Combined with high oil prices these factors
  caused the AECO gas price to average C$8.73/Mcf in 2005, a 33% increase from
  2004. In December 2005 to February 2006 the weather in North America was extremely
  mild which reduced demand for natural gas. As a result, natural gas prices moderated
  to approximately C$6.00 per Mcf at the time of this report.

In 2005, TransGlobe
  sold approximately:
            • 26% of its
  natural gas at fixed prices.
            • the remaining
  74% at AECO Index based pricing.

**OPERATING
  RESULTS*****Daily
  Volumes, Working Interest Before Royalties***

|                                          |                          |       |       |      
|----------------------------------------- | ------------------------ | ----- | ----- | -----
|                                          |                          |       | 2005  | 2004 
|Yemen                                     | - Oil production         | Bopd  | 4,124 | 3,188
|                                          | - Inventory
      change | Bopd  | (32)  | (69) 
|Yemen                                     | - Oil
      sales        | Bopd  | 4,092 | 3,119
|Canada                                    | - Oil and liquids sales  | Bopd  | 220   | 179  
|                                          | - Gas
      sales        | Mcfpd | 3,880 | 2,987
|Canada                                    |                          | Boepd | 867   | 677  
|Total
      Company - daily sales volumes | Boepd                    | 4,959 | 3,796 | 31   

25

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******Consolidated
  Net Operating Results

|                                                                                                                                                                               | Consolidated
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------
|                                                                                                                                                                               | 2005        
|(000s, except
      per Boe amounts)                                                                                                                                          | $           
|Oil and gas sales                                                                                                                                                              | 90,350      
|Royalties                                                                                                                                                                      | 31,439      
|Operating
      expenses                                                                                                                                                       | 10,253      
|Net operating income*                                                                                                                                                          | 48,658      
|* Net operating income amounts do not reflect Yemen
      income tax expense which is paid through oil allocations with MOM in $4.36/Boe,
      2004 - $5,269,000, $3.79/Boe).

***Segmented
  Net Operating Results***
            In 2005 the Company
  had producing operations in two geographic areas, segmented as Yemen and Canada.
  Also, the Company had start-up operations in a third geographic segment, Egypt.
  MD&A will follow under each of these segments.*****Republic
  of Yemen***
            Yemen operating
  results are generated from two non-operated Blocks: Block 32 (13.81087% working
  interest) and Block S-1 (25% working interest).

|                                | 2005   | 2004 
|------------------------------- | ------ | -----
|(000s, except per Boe amounts) | $      | $/Boe
|Oil
      sales                 | 76,300 | 51.09
|Royalties                       | 28,916 | 19.36
|Operating
      expenses        | 8,219  | 5.50 
|Net operating
      income*     | 39,165 | 26.23

|* Net operating income
      amounts do not reflect Yemen income tax expense which is paid through oil
      allocations with MOM in $5.28/Boe, 2004 - $5,269,000, $4.62/Boe.)
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                              
|                                                                                                                                                                              
|                                                                                                                                                                              
|                                                                                                                                                                              
|                                                                                                                                                                              
|                                                                                                                                                                              
|                                                                                                                                                                              
|                                                                                                                                                                              
|                                                                                                                                                                              
|                                                                                                                                                                              

26

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|  | 1.                                                                                         | Block 32:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|- | ------------------------------------------------------------------------------------------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                            | -                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  |                                                                                            | -                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  |                                                                                            | -                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  |                                                                                            | -                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  | 2.                                                                                         | Block S-1:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  |                                                                                            | -                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  |                                                                                            | -                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  |                                                                                            | -                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  |                                                                                            | -                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  |                                                                                            | -                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  |                                                                                            | -                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  |                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|• | Operating expenses on a Boe basis increased
      15% mainly as a result of the following:
|  | 1.                                                                                         | Block 32 operating expenses averaged $5.80 per
      barrel in 2005 compared to $4.11 per barrel in 2004 primarily due to increased
      diesel costs. A diesel topping plant was constructed in 2005 to manufacture
      diesel from produced crude oil which will reduce diesel costs significantly
      on a go forward basis. The plant became operational in December 2005.                                                                                                                        
|  | 2.                                                                                         | An increased percentage of the Yemen production
      was from Block S-1 in 2005 (53% in 2005 compared 21% in 2004) which had
      a higher operating cost per Boe than Block 32. Block S-1 operating costs
      averaged $5.17 per barrel in 2005 compared to $7.96 per barrel in 2004 (first
      half of 2005 was $5.90 per barrel with the second half of 2005 at $4.56
      per barrel). This reduction is a reflection of increased volumes and commissioning
      of the pipeline in June 2005.

|Canada                                |        |       |       |      
|------------------------------------- | ------ | ----- | ----- | -----
|                                      | 2005   | 2004 
|(000s,
      except per Boe amounts) | $      | $/Boe | $     | $/Boe
|Oil sales                             | 1,886  | 52.04 | 1,201 | 38.34
|Gas sales ($ per Mcf)                 | 10,292 | 7.27  | 5,675 | 5.19 
|NGL sales                             | 1,785  | 40.46 | 1,070 | 31.37
|Other sales                           | 87     | -     | 77    | -    
|                                      | 14,050 | 44.41 | 8,023 | 32.40
|Royalties                             | 2,523  | 7.97  | 1,359 | 5.49 
|Operating
      expenses              | 2,034  | 6.43  | 1,615 | 6.52 
|Net operating income                  | 9,493  | 30.01 | 5,049 | 20.39

27

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Net operating income in Canada increased 88% in 2005 primarily as a result of
  the following:

| | • | Sales increased 75% mainly due to:                                                                                                                  
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------
| |   | 1.                                                                                                                                                  
| |   | 2.                                                                                                                                                  
| | • | Royalty costs increased 45% on a Boe basis.
      Royalties as a percentage of revenue were consistent at 18% in 2005 compared
      to 17% in 2004.
| | • | Operating costs decreased 1% on a Boe basis.                                                                                                        

GENERAL AND ADMINISTRATIVE EXPENSES

|                                      | 2005    | 2004  
|------------------------------------- | ------- | ------
|(000s, except
      per Boe amounts) | $       | $/Boe 
|G&A (gross)                           | 4,754   | 2.63  
|Capitalized G&A                       | (1,675) | (0.93)
|Overhead recoveries                   | (258)   | (0.14)
|G&A (net)                             | 2,821   | 1.56  

General and administrative expenses (“G&A”) increased 70% in
  2005 (30% increase on a Boe basis) compared to 2004 as a
  result of the following:

| | • | Personnel and office overhead costs increased due to additional staff.                                                                                                                                          
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | • | Public company costs increased mainly due to the Company preparing for
      the new Sarbanes Oxley compliance requirements.                                                                                    
| | • | Deferred financing cost amortization commenced in Q4-2004.                                                                                                                                                      
| | • | Capitalized general and administrative expenses increased mainly as a
      result of expansion in the Egypt operations and overhead recoveries increased
      due to the increased capital activity in Canada.
| | • | The strengthening of the Canadian dollar against the United States dollar
      increased net G&A costs by $0.08 per Boe through currency conversion.                                                           

**STOCK-BASED COMPENSATION**
             Effective January
  1, 2004 the Company adopted the new accounting standard of Canadian Institute
  of Chartered Accountants (“CICA”) section 3870, Stock-based Compensation
  and Other Stock-based Payments. This Canadian accounting standard requires the
  Company to record a compensation expense over the vesting period based on the
  fair value of options granted to employees and directors. Non-cash stock compensation
  expense amounted to $723,000 ($0.40/Boe) for 2005 compared to $1,310,000 ($0.94/Boe)
  for 2004. The decrease is mainly due to options granted in mid March 2004 which
  were fully expensed by March 2005.

DEPLETION, DEPRECIATION AND ACCRETION EXPENSE (DD&A)

|                                      | 2005   | 2004 
|------------------------------------- | ------ | -----
|(000s, except
      per Boe amounts) | $      | $/Boe
|Republic of Yemen                     | 13,172 | 8.82 
|Canada                                | 3,812  | 12.05
|Arab Republic of Egypt                | 6      | -    
|                                      | 16,990 | 9.39 

28

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In Yemen, DD&A
  on a Boe basis increased 23% in 2005 compared to 2004 primarily as a result
  of an increased asset base as all the remaining costs associated with the Block
  S-1 major development project were included in the depletable base for all 2005
  and increased finding and development costs in Yemen.
             In Yemen (Block
  72) and Egypt (Nuqra Block 1) major development costs of $1,479,000 and $2,457,000
  respectively, were excluded from costs subject to depletion and depreciation.
             In Canada, DD&A
  on a Boe basis increased 37% in 2005 compared to 2004 primarily as a result
  of increased finding and development costs in Canada and the strengthening of
  the Canadian dollar against the United States dollar which increased DD&A
  $0.74 per Boe (8%) through currency conversion.

INCOME TAXES

|($000s)           | 2005  | 2004 
|------------------ | ----- | -----
|Future income tax  | 471   | (285)
|Current income tax | 7,882 | 5,280
|                   | 8,353 | 4,995

The future income expense
  was $1,065,000 in 2005 (2004 - $798,000) which relates to a non-cash expense
  for taxes to be incurred in the future as Canadian tax pools reverse. This was
  offset by the recognition of future tax benefits of $594,000 for 2005 (2004
  - $1,083,000). The Company has recognized all its future tax assets in Canada
  as at December 31, 2005.
            Current income tax expense
  in 2005 of $7,882,000 (2004 - $5,269,000) represents income taxes incurred and
  paid under the laws of Yemen pursuant to the PSA on Block 32 and Block S-1.
  The increase in Yemen is primarily the result of sales volume increases on Block
  S-1, Yemen and oil price increases. The income tax expense in Yemen as a percent
  of revenue was 10% in 2005 compared to 13% in 2004. The decrease in the percent
  is due to Block S-1 being in the cost recovery period which reduces the tax
  paid to the government (8% at Block S-1 compared to 14% at Block 32). In Canada,
  there was no tax paid in 2005 and $11,000 paid in 2004. As at December 31, 2005
  the Company has C $39.8 million in tax pools. It is estimated that C $18.0 million
  of these pools will be available to deduct against 2006 taxable Canadian income.

CAPITAL EXPENDITURES/DISPOSITIONS

|Capital Expenditures   |             |             |             |            |       |       
|---------------------- | ----------- | ----------- | ----------- | ---------- | ----- | ------
|                       |             |             | 2005        |            |       |       
|                       |             | Geological  | Drilling    | Facilities |       |       
|                       | Land and    | and         | and         | and        |       |       
|($000s)               | Acquisition | Geophysical | Completions | Pipelines  | Other | Total 
|Republic of Yemen      |             |             |             |            |       |       
|Block S-1              | -           | 140         | 8,083       | 3,932      | 332   | 12,487
|Block 32               | -           | 195         | 2,767       | 535        | 502   | 3,999 
|Block 72               | 495         | 756         | -           | -          | 202   | 1,453 
|Other                  | -           | -           | -           | -          | -     | -     
|                       | 495         | 1,091       | 10,850      | 4,467      | 1,036 | 17,939
|Canada                 | 1,571       | 190         | 9,531       | 1,006      | 891   | 13,189
|Arab Republic of Egypt | -           | 474         | -           | -          | 1,052 | 1,526 
|                       | 2,066       | 1,755       | 20,381      | 5,473      | 2,979 | 32,654

29

---

In
  Yemen, the Company drilled 7 gross (1.0 net) wells and completed the diesel
  topping plant on Block 32 plus drilled 8 gross (2.0 net) wells and completed
  the pipeline on Block S-1. On Block 72, the Company spent $495,000 to acquire
  its 33% working interest in the Block and another $956,000 primarily on geological
  and geophysical activity to define drilling locations.
            In Canada, the Company
  drilled 26 gross (20.4 net) working interest wells and 5 carried interest to
  payment wells mainly in the Nevis, Morningside and Gadsby areas. This program
  resulted in 21 gas, 7 oil and 3 dry wells for an overall success rate of 90%.
            In Egypt, the Company
  spent $1,526,000 primarily on acquisition costs and geological and geophysical
  activities related to the Nuqra Block to define drilling locations for the 2006
  drilling program.

FINDING AND DEVELOPMENT COSTS

|Proved                                               |        |        |       
|---------------------------------------------------- | ------ | ------ | ------
|($000s,
      except per Boe and $/Boe amounts)     | 2005   | 2004   | 2003  
|Total capital expenditure                            | 32,654 | 26,367 | 14,229
|Net change
      from previous years future capital | 8,418  | 8,796  | 2,159 
|                                                     |        | 41,072 | 35,163
|Reserve additions and revisions (MBoe)               | 2,987  | 4,332  | 2,360 
|Average cost per Boe                                 | 13.75  | 8.12   | 6.94  
|Three year
      average cost per Boe                | 9.57   | 7.42   | 6.40  

|Proved Plus
        Probable                         |        |        |       
|---------------------------------------------------- | ------ | ------ | ------
|($000s,
      except per Boe and $/Boe amounts)     | 2005   | 2004   | 2003  
|Total capital expenditure                            | 32,654 | 26,367 | 14,229
|Net change
      from previous years future capital | 9,449  | 597    | 11,303
|                                                     |        | 42,103 | 26,964
|Reserve additions and revisions (MBoe)               | 1,879  | 4,804  | 4,872 
|Average cost per Boe                                 | 22.41  | 5.61   | 5.24  
|Three year
      average cost per Boe                | 8.19   | 5.37   | 5.47  
|
|
|
|

The finding and
  development costs shown above have been calculated in accordance with Canadian
  National Instrument 51-101, Standards of Disclosure for Oil and Gas Activities
  introduced in 2003.
            The aggregate of
  the exploration and development costs incurred in the most recent financial
  year and the change during that year in estimated future development costs generally
  will not reflect total finding and development costs related to reserves additions
  for that year.

30

---

RECYCLE RATIO

|                                                   | Three Year   |               |         |       
|-------------------------------------------------- | ------------ | ------------- | ------- | ------
|Proved                                             | Average      | 2005          | 2004    | 2003  
|Netback ($/Boe)                                    | $ 15.56      | $ 21.04       | $ 12.46 | $ 9.72
|Proved finding
      and development costs ($/Boe) | $
      9.57 | $
      13.75 | $ 8.12  | $ 6.94
|Recycle ratio                                      | 1.63         | 1.53          | 1.53    | 1.40  
|                                                   |              |               |         |       
|                                                   | Three Year   |               |         |       
|Proved Plus Probable                               | Average      | 2005          | 2004    | 2003  
|Netback ($/Boe)                                    | $ 15.56      | $ 21.04       | $ 12.46 | $ 9.72
|Proved plus Probable finding and development       |              |               |         |       
|costs
      ($/Boe)                                | $
      8.19 | $
      22.41 | $ 5.61  | $ 5.24
|Recycle ratio                                      | 1.90         | 0.94          | 2.22    | 1.85  

The 2005 proved
  recycle ratio was consistent with 2004. The decrease in the 2005 proved plus
  probable recycle ratio to 0.94 compared to 2004 of 2.22 mainly relates to a
  higher finding and development cost.
            The recycle ratio
  measures the efficiency of TransGlobe’s capital program by comparing the
  cost of finding and developing proved reserves with the netback from production.
  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 less operating, general
  and administrative (excluding non-cash items), foreign exchange (gain) loss,
  interest and current income tax expense per Boe of production.

|($000s, except
      volumes and per Boe amounts) | 2005          | 2004      | 2003   
|-------------------------------------------------- | ------------- | --------- | -------
|Net income                                         | 19,850        | 5,919     | 5,905  
|Adjustments for non-cash items:                    |               |           |        
|Depletion, depreciation and
      accretion        | 16,990        | 10,346    | 6,253  
|Stock-based compensation                           | 723           | 1,310     | -      
|Future income taxes                                | 471           | (285)     | (2,448)
|Amortization of deferred
      financing costs     | 291           | 35        | -      
|Gain on sale of property
      and equipment       | -             | -         | (363)  
|Unrealized gain on commodity
      contracts       | (83)          | -         | -      
|Settlement
      of asset retirement obligations   | (165)         | -         | -      
|Netback                                            | 38,077        | 17,325    | 9,347  
|Sales volumes                                      | 1,809,779     | 1,389,920 | 961,588
|Netback per Boe                                    | $
      21.04 | $ 12.46   | $ 9.72 

OUTSTANDING SHARE DATA

Common
  Shares issued and outstanding as at March 8, 2006 are 58,522,439.

31

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SELECTED QUARTERLY INFORMATION

|                                                                                                                                                           | 2005   | 2004  
|---------------------------------------------------------------------------------------------------------------------------------------------------------- | ------ | ------
|($000s, except
      per share amounts and volumes)                                                                                                       | Q-4    | Q-3   
|Average production volumes (Boepd)*                                                                                                                        | 5,132  | 5,285 
|Average sales volumes (Boepd)*                                                                                                                             | 4,935  | 5,533 
|Average price ($/Boe)                                                                                                                                      | 54.58  | 56.57 
|                                                                                                                                                           |        |       
|Oil and gas sales                                                                                                                                          | 24,781 | 28,796
|                                                                                                                                                           |        |       
|Oil and gas sales, net of royalties                                                                                                                        | 14,442 | 19,147
|                                                                                                                                                           |        |       
|Cash flow from operations**                                                                                                                                | 8,603  | 13,142
|Cash flow from operations per share                                                                                                                        |        |       
|- Basic                                                                                                                                                    | 0.15   | 0.23  
|- Diluted                                                                                                                                                  | 0.14   | 0.22  
|                                                                                                                                                           |        |       
|Net income                                                                                                                                                 | 4,331  | 7,539 
|Net income per share                                                                                                                                       |        |       
|- Basic                                                                                                                                                    | 0.07   | 0.13  
|- Diluted                                                                                                                                                  | 0.07   | 0.13  
|* The differences in production and sales volumes
      result from inventory changes at Block S-1, Yemen.                                                 |        |       
|** Cash flow from operations is a non-GAAP measure
      that represents cash generated from operating activities before changes
      in non-cash working

In the first quarter
  of each calendar year the Company’s royalty and income tax rate decreases
  at Block 32, Yemen due to the addition of the recovery of 50% of the capital
  costs from the prior year as well as 50% of the capital costs from the first
  quarter. This results in an increase to cash flow from operations and net income
  in the first quarter of each year. The second through fourth quarters recover
  50% of the capital costs incurred with the balance recovered in the first quarter
  of the following year.
            Cash flow from operations
  and net income increased 43% to $9,070,000 and 487% to $4,507,000, respectively,
  in Q1-2005 compared to Q4-2004 mainly as a result of royalty and income tax
  costs decreasing at Block 32, Yemen in Q1-2005 due to the recovery of 50% of
  the 2004 capital costs from oil production as part of the Block 32 PSA, as discussed
  above.

***Fourth
  Quarter 2005***
            Cash flow from operations
  decreased in 2005 Q-4 by $4,539,000 (35%) compared to 2005 Q-3 mainly as a result
  of the following:

| | • | A 4% decrease in average commodity prices.                                                                                                                                                                                                                   
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | • | An 11% decrease in sales volumes (mainly a result of inventory draw in
      Q-3 and inventory build in Q-4).                                                                                                                                                
| | • | TransGlobe’s percentage of the cost oil on Block S-1 Yemen in Q-4
      2005 was reduced as a result of recovering its historical exploration cost
      pools. This resulted in an approximately $2.0 million reduction in cash
      flows from operations.

**LIQUIDITY
  AND CAPITAL RESOURCES**
            Liquidity describes
  a company’s ability to access cash. Companies operating in the upstream
  oil and gas industry require sufficient cash in order to fund capital programs
  necessary to maintain and increase production and proved reserves, to acquire
  strategic oil and gas assets and repay debt. TransGlobe’s capital programs
  are funded principally by cash provided from operating activities.

32

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The
  following table illustrates TransGlobes sources and uses of cash during
  the years ended December

|Sources
      and Uses of Cash                                                                                                                                    |        |       
|----------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------ | ------
|($000s)                                                                                                                                                          | 2005   | 2004  
|Cash sourced                                                                                                                                                      |        |       
|Cash
      flow from operations*                                                                                                                                  | 38,077 | 17,325
|Issue
      of common shares                                                                                                                                      | 1,218  | 10,006
|                                                                                                                                                                  | 39,295 | 27,331
|                                                                                                                                                                  |        |       
|Cash used                                                                                                                                                         |        |       
|Exploration
      and development expenditures                                                                                                                    | 32,654 | 26,367
|Other                                                                                                                                                             | 155    | 871   
|                                                                                                                                                                  | 32,809 | 27,238
|Net cash                                                                                                                                                          | 6,486  | 93    
|Increase in non-cash
      working capital                                                                                                                        | 747    | 443   
|Increase in cash and cash equivalents                                                                                                                             | 7,233  | 536   
|Cash and cash equivalents
      - beginning of year                                                                                                               | 4,988  | 4,452 
|Cash
      and cash equivalents - end of year                                                                                                                     | 12,221 | 4,988 
|* Cash flow from operations
      is a non-GAAP measure that represents cash generated from operating activities
      before changes in non-cash working capital

Funding for the Companys
  capital expenditures in 2005 was provided by cash flow from operations, working
  equity financing in 2004. 
            Working capital is the
  amount by which current assets exceed current liabilities. At December 31, 2005
  working capital of $9,471,000 (2004 - $2,839,000), zero debt and an unutilized
  loan facility of $7,000,000. Accounts due primarily to higher revenue receivables
  as a result of volume and his was offset by. price increases T increased accounts
  payable primarily to increased capital expenditures in late 2005 related to
  the Canadian drilling program, increased operating and Yemen due to higher volumes,
  offset by reduced Yemen capital payables compared to 2004 mainly due to construction
  on Block S-1 which was completed in June 2005.
             The Company expects
  to fund its approved 2006 exploration and development program of $45.3 million
  flowuse of our credit facilities or equity financing during 2006 are expected
  to be utilized only to accelerate working capital and cash existing projects
  or to finance new opportunities. Fluctuations in commodity prices, product demand,
  foreign exchange and various other risks may impact capital resources.

COMMITMENTS AND CONTINGENCIES

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

|($000s)                          | 2006 | 2007 | 2008 | 2009 | 2010
|--------------------------------- | ---- | ---- | ---- | ---- | ----
|Office and equipment
      leases | 270  | 243  | 339  | 359  | 353 

33

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In September 2005, the
  Company entered into a crude oil costless collar for 15,000 barrels per month
  from January 1, 2006 to December 31, 2006. The transaction consisted of the
  purchase of a $50.00 per barrel dated Brent put (floor) and a $77.93 per barrel
  dated Brent call (ceiling).
            Upon the determination
  that proved recoverable reserves are 40 million barrels or greater for Block
  S-1, Yemen, the Company will be required to pay a finders’ fee to third
  parties in the amount of $281,000.
            Pursuant to the Company’s
  farm-in agreement on the Nuqra Concession in Egypt, the Company is committed
  to spend $6 million before July 1, 2009 to earn its 50% working interest. As
  at December 31, 2005, the Company has spent $2,065,000 of earning expenditures.
  As part of this commitment the Company issued a $2 million letter of credit
  on July 8, 2004 to a division of the Ministry of Oil (Ganoub El Wadi Holding
  Petroleum Company) which expires on February 14, 2007. This letter of credit
  is secured by a guarantee granted by Export Development Canada.
            Pursuant to the PSA for
  Block 72, Yemen, the Contractor (Joint Venture Partners) has a minimum financial
  commitment of $4 million ($1.32 million to TransGlobe) during the first exploration
  period of 30 months for exploration work, including reprocessing of seismic
  data, acquisition of new seismic data and drilling two exploration wells.

CRITICAL ACCOUNTING POLICIES

The preparation of financial
  statements in accordance with generally accepted accounting principles requires
  that management make appropriate decisions with respect to the selection of
  accounting policies and in formulating estimates and assumptions that affect
  the reported amount of assets, liabilities, revenues and expenses. The following
  is included in MD&A to aid the reader in assessing the critical accounting
  policies and practices of the Company. The information will also aid in assessing
  the likelihood of materially different results being reported depending on management’s
  assumptions and changes in prevailing conditions which affect the application
  of these policies and practices. Significant accounting policies are disclosed
  in Note 1 of the consolidated financial statements.

***Oil
  and Gas Reserves***

TransGlobe’s proved
  and probable oil and gas reserves are 100% evaluated and reported on by independent
  petroleum engineering consultants. The estimation of reserves is a subjective
  process. Forecasts are based on engineering data, projected future rates of
  production, estimated commodity price forecasts and the timing of future expenditures,
  all of which are subject to numerous uncertainties and various interpretations.
  The Company expects that its estimates of reserves will change to reflect updated
  information. Reserve estimates can be revised upward or downward based on the
  results of future drilling, testing, production levels and economics of recovery
  based on cash flow forecasts.

***Full
  Cost Accounting for Oil and Gas Activities***

***Depletion
  and Depreciation Expense***          TransGlobe
  follows the Canadian Institute of Chartered Accountants’ guideline on
  full cost accounting in the oil and gas industry to account for oil and gas
  properties. Under this method, all costs associated with the acquisition of,
  exploration for, and the development of natural gas and crude oil reserves are
  capitalized on a country-by-country cost centre basis and costs associated with
  production are expensed. The capitalized costs are depreciated, depleted and
  amortized using the unit-of-production method based on estimated proved reserves.
  Reserve estimates can have a significant impact on earnings, as they are a key
  component in the calculation of depreciation, depletion and amortization. A
  downward revision in a reserve estimate could result in a higher DD&A charge
  to earnings. In addition, if net capitalized costs are determined to be in excess
  of the calculated ceiling, which is based largely on reserve estimates (see
  asset impairment discussion below), the excess must be written off as an expense
  charged against earnings. In the event of a property disposition, proceeds are
  normally deducted from the full cost pool without recognition of a gain or loss
  unless there is a change in the DD&A rate of 20% or greater.

34

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***Unproved
  Properties***
            Certain costs related
  to unproved properties and major development projects are excluded from costs
  subject to depletion and depreciation until the earliest of a portion of the
  property becomes capable of production, development activity ceases or impairment
  occurs. These properties are reviewed quarterly and any impairment is transferred
  to the costs being depleted or, if the properties are located in a cost centre
  where there is no reserve base, the impairment is charged directly to earnings.

***Asset Impairments***
            Under full cost accounting,
  a ceiling test is performed to ensure that unamortized capitalized costs in
  each cost centre do not exceed their fair value. An impairment loss is recognized
  in net earnings when the carrying amount of a cost centre is not recoverable
  and the carrying amount of the cost centre exceeds its fair value. The carrying
  amount of the cost centre is not recoverable if the carrying amount exceeds
  the sum of the undiscounted cash flows from proved reserves. If the sum of the
  cash flows is less than carrying amount, the impairment loss is limited to an
  amount by which the carrying amount exceeds the sum of: 
            i) the fair value of
  reserves; and 
            ii) the costs of unproved
  properties that have been subject to a separate impairment test.

**Income Tax Accounting**
            The Company has recorded
  a future income tax asset in 2005, 2004 and 2003. This future income tax asset
  is an estimate of the expected benefit that will be realized by the use of deductible
  temporary differences in excess of carrying value of the Company’s Canadian
  property and equipment against future estimated taxable income. These estimates
  may change substantially as additional information from future production and
  other economic conditions such as oil and gas prices and costs become available.
            The determination of
  the Company’s income tax liabilities requires interpretation of complex
  laws and regulations often involving multiple jurisdictions. All tax filings
  are subject to audit and potential reassessment after the lapse of considerable
  time. Accordingly, the actual income tax liability may differ significantly
  from that estimated and recorded by management.

***Currency
  Translation***
            The accounts of self-sustaining
  operations are translated using the current rate method, whereby assets and
  liabilities are translated at year-end exchange rates and revenues and expenses
  are translated using average annual exchange rates. Translation gains and losses
  relating to the self-sustaining operations are included as a separate component
  of shareholders’ equity.
            Monetary assets and liabilities
  of the Company that are denominated in foreign currencies are translated into
  its functional currency at the rates of exchange in effect at the period end
  date. Any gains or losses are recorded in the Consolidated Statement of Earnings.

***Derivative
  Financial Instruments***
            Derivative financial
  instruments are used by the Company to manage its exposure to market risks relating
  to commodity prices. The Company’s policy is not to utilize derivative
  financial instruments for speculative purposes.
            Derivative instruments
  that do not qualify as hedges, or are not designated as hedges, are recorded
  at fair values where instruments are recorded in the Consolidated Balance Sheet
  as either an asset or liability with changes in fair value recognized in net
  income. Realized gains or losses from financial derivatives related to commodity
  prices are recognized in natural gas and crude oil revenues as the related sales
  occur. Unrealized gains and losses are recognized in revenues at the end of
  each respective reporting period. The estimation of the fair value of certain
  derivative financial instruments requires considerable judgement. The estimation
  of the fair value of commodity price instruments requires sophisticated financial
  models that incorporate forward price and volatility data. The estimated fair
  value of all derivative instruments is based on quoted market prices and/or
  third party market indications and forecasts.

35

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***Asset
  Retirement Obligations***
            The fair value of estimated
  asset retirement obligations is recognized in the Consolidated Balance Sheet
  when identified and a reasonable estimate of the fair value can be made. Asset
  retirement obligations include those legal obligations where the Company will
  be required to retire tangible long-lived assets such as producing well sites.
  The asset retirement cost, equal to the initially estimated fair value of the
  asset retirement obligation, is capitalized as part of the cost of the related
  long-lived asset. Increases in the asset retirement obligation resulting from
  the passage of time are recorded as accretion in the Consolidated Statement
  of Income. Amounts recorded for asset retirement obligations are based on estimates
  of reserves and on retirement costs which will not be incurred for several years.
  Actual payment to settle the obligations may differ from estimated amounts.
  **NEW ACCOUNTING STANDARDS**
            ***Non-Monetary
  Transaction***
           The Accounting Standards Board
  (AcSB) issued Canadian Institute of Chartered Accountants (CICA) Section 3831
  Non-Monetary Transactions. The standard, which is harmonized with the equivalent
  United States Financial Accounting Standards Board (FASB) Statement 153 Exchanges
  of Non-Monetary Assets, removes the culmination of the earnings process criteria
  and replaces it with the commercial substance criteria as the test for fair
  value measurement. A transaction is determined to have commercial substance
  if it causes an identifiable and measurable change in the economic circumstances,
  or expected cash flows, of the entity. The new requirements are effective for
  non-monetary transactions initiated in periods beginning on or after January
  1, 2006 and, upon adoption, are not expected to materially impact the Consolidated
  Financial Statements. 
            ***Financial
  Instruments, Comprehensive Income and Hedges***
            The AcSB has issued new
  accounting standards for financial instruments standards that comprehensively
  address when an entity should recognize a financial instrument on its balance
  sheet, or how it should measure the financial instrument once recognized. The
  new standards comprise three handbook sections: 
            CICA Section 3855 Financial
  Instruments - Recognition and Measurement establishes the criteria for recognizing
  and measuring financial assets, financial liabilities and non-financial derivatives.
  It also specifies how financial instrument gains and losses are to be presented.
  
            CICA Section 3865 Hedges
  provides optional alternative treatments to Section 3855 for entities which
  choose to designate qualifying transactions as hedges for accounting purposes.
  It will replace Accounting Guideline AcG-13, Hedging Relationships, and build
  on Section 1650, Foreign Currency Translation, by specifying how hedge accounting
  is applied and what disclosures are necessary when it is applied. 
            CICA Section 1530 Comprehensive
  Income introduces a new requirement to temporarily present certain gains and
  losses as part of a new earnings measurement called comprehensive income. 
            All three standards are
  effective for annual and interim periods in fiscal years beginning on or after
  October 1, 2006. The Company is currently assessing the impact of these new
  standards on the Consolidated Financial Statements. 
            ***Implicit
  Variable Interests***
            The EIC issued EIC Abstract
  157 Implicit Variable Interests, which is harmonized with the equivalent United
  States FASB Staff Position (FSP) FIN 46(R)-5 Implicit Variable Interests. Implicit
  variable interests are implied financial interests in an entity and act the
  same as an explicit variable interest except they involve the absorbing and
  or receiving of variability indirectly from the entity rather than directly.
  The Abstract is applicable to the first interim period or annual fiscal period
  beginning after October 17, 2005. The Company does not expect there to be any
  material impact on the Consolidated Financial Statements upon adoption of the
  Abstract.

36

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Conditional Asset
  Retirement ObligationsThe EIC issued
  EIC Abstract 159 Accounting for Conditional Asset Retirement Obligations. The
  Abstract, which is harmonized with the equivalent United States FASB Interpretation
  (FIN) 47 Accounting for Conditional Asset Retirement Obligations, clarifies
  the accounting for conditional asset retirement obligations where the timing
  or method of settlement are conditional on a future event that may or may not
  be within the control of the entity. Although these uncertainties affect the
  fair value of the liability, they do not relieve an entity from the requirement
  to record a liability, if it can be reasonably determined. The Abstract is to
  be applied retroactively to all interim and annual reporting periods ending
  after March 31, 2006. The Company does not expect there to be any material impact
  on the Consolidated Financial Statements upon adoption of the Abstract.RISKS

The Company is exposed
  to a variety of business risks and uncertainties in the international petroleum
  industry including commodity prices, exploration success, production risk, foreign
  exchange, interest rates, government regulation, changes of laws affecting foreign
  ownership, political risk of operating in foreign jurisdictions, taxes, environmental
  preservation and safety concerns.
            Many of these risks are
  not within the control of management, but the Company has adopted several strategies
  to reduce and
  minimize the effects of these factors:

| | • | The Company applies rigorous geological, geophysical and engineering analysis
      to each prospect.                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                               
| | • | The Company utilizes its in-house expertise for all international ventures
      and employs or contracts professionals to handle
      each aspect of the Company’s business.
| |   |                                                                                                                                                                               
| | • | The Company maintains U.S. dollar bank accounts which is its main operating
      currency.                                                                                   
| |   |                                                                                                                                                                               
| | • | The Company maintains a conservative approach to debt financing and currently
      has no long-term debt.                                                                    
| |   |                                                                                                                                                                               
| | • | The Company maintains insurance according to customary industry practice,
      but cannot fully insure against all risks.                                                    
| |   |                                                                                                                                                                               
| | • | The Company conducts its operations to ensure compliance with government
      regulations and guidelines.                                                                    
| |   |                                                                                                                                                                               
| | • | The Company retains independent petroleum engineering consultants to determine
      year-end Company reserves and estimated
      future net revenues.                       
| |   |                                                                                                                                                                               
| | • | The Company manages commodity prices by entering physical fixed price
      sales contracts and other commodity price
      instruments when deemed appropriate.              

DISCLOSURE CONTROLS AND PROCEDURESAs of December 31, 2005, an evaluation was carried out under the supervision,
  and with the participation, of the Company’s management, including the
  Chief Executive Officer and Chief Financial Officer, of the effectiveness of
  the Company’s disclosure controls and procedures. Based on that evaluation,
  the Chief Executive Officer and Chief Financial Officer concluded that as of
  the end of the fiscal year, the design and operation of these disclosure controls
  and procedures were effective to ensure that information required to be disclosed
  by the Company in its annual filings is recorded, processed, summarized and
  reported within the specified time periods.

37

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OUTLOOK

|                                                                                                                                                        | 2006 Production Outlook                |                                    |      |               
|------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------- | ---------------------------------- | ---- | --------------
|                                                                                                                                                        |                                        | 2006                               | 2005 | Change
      *
|Barrels
      of oil equivalent per day                                                                                                                 | 5,300
      to 5,600                   | 4,991                              | 9%  
|* % growth based on mid point of guidance                                                                                                               |                                        |                                    |     
|                                                                                                                                                        |                                        |                                    |      |               
|                                                                                                                                                        | 2006 Cash Flow From Operations Outlook |                                    |     
|($000s)                                                                                                                                                |                                        | 2006                               | 2005 | Change
      *
|Cash flow
      from operations                                                                                                                         | 43,000
      to 45,000                 | 38,077                             | 16% 
|* Based on a dated Brent oil price of $55.00/Bbl
      and an AECO gas price of C$7.50/Mcf, from existing fields in Yemen and planned
      development
|                                                                                                                                                        |                                        |                                    |      |               
|                                                                                                                                                        | Sensitivity                            |                                    |      |               
|                                                                                                                                                        |                                        | 2006 Cash Flow from                |     
|($000s)                                                                                                                                                |                                        | Operations
      Increase/Decrease |     
|$1.00 per barrel change in dated Brent                                                                                                                  | 560                                    |                                    |     
|C
      $1.00 per Mcf change in AECO                                                                                                                    | 1,700                                  |                                    |     
|                                                                                                                                                        |                                        |                                    |      |               
|                                                                                                                                                        | 2006 Capital Budget                    |                                    |      |               
|                                                                                                                                                        |                                        |                                    |      |               
|($000s)                                                                                                                                                |                                        | 2006                               |      |               
|Canada                                                                                                                                                  |                                        | 20,400                             |      |               
|Yemen  - Block S1                                                                                                                                       | 11,900                                 |                                    |     
|-
      Block 32                                                                                                                                        | 3,500                                  |                                    |     
|-
      Block 72                                                                                                                                        | 2,100                                  |                                    |     
|Egypt                                                                                                                                                   |                                        | 7,400                              |      |               
|Total                                                                                                                                                   |                                        | 45,300                             |      |               

TransGlobe plans to continue
  increasing crude oil production in Yemen and natural gas production in Canada
  to deliver near term growth. Potential production growth could come from Block
  72, Yemen, in the medium term and from Nuqra Block 1, Egypt, in the long term.
  For the near term growth, the Company expects to drill 16 wells in Yemen during
  2006 of which six wells will be development wells and ten wells will be exploration
  wells. In Canada, the Company plans on drilling 25-30 wells during 2006 which
  are mainly development wells. The Company plans on drilling two exploratory
  wells in Egypt in late 2006. The Company attaches a significantly higher risk
  to the exploratory wells. The 2006 capital budget of $45.3 million is expected
  to be funded from cash flow and working capital. Equity and debt financing may
  be utilized in the future to accelerate existing projects or to finance new
  opportunities.

38

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MANAGEMENTS REPORT

The consolidated financial
  statements of TransGlobe Energy Corporation were prepared by management within
  acceptable limits of materiality and are in accordance with Canadian generally
  accepted accounting principles. Management is responsible for ensuring that
  the financial and operating information presented in this annual report is consistent
  with that shown in the consolidated financial statements.
           The consolidated financial
  statements have been prepared by management in accordance with the accounting
  policies as described in the notes to the consolidated financial statements.
  Timely release of financial information sometimes necessitates the use of estimates
  when transactions affecting the current accounting period cannot be finalized
  until future periods. When necessary, such estimates are based on informed judgements
  made by management.
           Management has designed
  and maintains an appropriate system of internal controls to provide reasonable
  assurance that all assets are safeguarded and financial records properly maintained
  to facilitate the preparation of consolidated financial statements for reporting
  purposes.
           Deloitte & Touche
  LLP, an independent firm of Chartered Accountants appointed by the shareholders,
  have conducted an examination of the corporate and accounting records in order
  to express their opinion on the consolidated financial statements. The Audit
  Committee, consisting of three independent directors, has met with representatives
  of Deloitte & Touche LLP and management in order to determine if management
  has fulfilled its responsibilities in the preparation of the consolidated financial
  statements. The Board of Directors has approved the consolidated financial statements.

|*/s/ Ross G. Clarkson*
      Ross G. Clarkson 
        President & 
        Chief Executive Officer
      March 8, 2006 | */s/ David C. Ferguson*
      David C. Ferguson
        Vice President, Finance & 
        Chief Financial Officer
|----------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------

39

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