<PAGE>   1
                     U.S. SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549
                                   FORM 10-KSB

(Mark One)

         [X] Annual report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 (Fee required)

         For the fiscal year ended Sept. 30, 1996
                                   --------------

         [ ] Transition report under Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No fee required)

         For the transition period from _________ to _________
                                        
Commission file number     0-11378
                       ---------------------------------------------------------

                        TRANSGLOBE ENERGY CORPORATION
--------------------------------------------------------------------------------
                 (Name of Small Business Issuer in Its Charter)

          BRITISH COLUMBIA                                  N/A
-------------------------------------------   ----------------------------------
    (State or Other Jurisdiction of                    (I.R.S. Employer     
     Incorporation or Organization)                   Identification No.)   

808, 1111 WEST HASTINGS ST. VANCOUVER, B.C.                  V6E 2J3       
-------------------------------------------   ----------------------------------
(Address of Principal Executive Offices)                   (Zip Code)

                                604-683-2568
--------------------------------------------------------------------------------
                (Issuer's Telephone Number, Including Area Code)

Securities registered under Section 12(b) of the Exchange Act:

                                                  Name of Each Exchange      
        Title of Each Class                        on Which Registered
        -------------------                        -------------------

               N/A
--------------------------------------    --------------------------------------

--------------------------------------    --------------------------------------
                                           
         Securities registered under Section 12(g) of the Exchange Act:

                          COMMON SHARES - NO PAR VALUE
--------------------------------------------------------------------------------
                                (Title of Class)


         Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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         No  X
   -----      -----

                                    10KSB-1
<PAGE>   2

         Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form l0-KSB
or any amendment to this Form 10-KSB. [ ]

         State issuer's revenues for its most recent fiscal year: $1,113,274.

         State the aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the stock was sold,
or the average bid and asked prices of such stock, as of a specified date within
the past 60 days. (See definition of affiliate in Rule 12b-2 of the Exchange
Act.)

         December 31, 1996; 10,498,860 Shares X 1 1/32 = $10,826,949

         Note. If determining whether a person is an affiliate will involve an
unreasonable effort and expense, the issuer may calculate the aggregate market
value of the common equity held by non-affiliates on the basis of reasonable
assumptions, if the assumptions are stated.

                   ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
                           DURING THE PAST FIVE YEARS

         Check whether the issuer has filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court.

Yes     No   X
   ----    -----

                    APPLICABLE ONLY TO CORPORATE REGISTRANTS

         State the number of shares outstanding of each of the issuer's classes
of common equity as of the latest practicable date. As of December 31, 1996
11,076,235 shares outstanding.


                       DOCUMENTS INCORPORATED BY REFERENCE

         If the following documents are incorporated by reference, briefly
describe them and identify the part of the Form 10-KSB (e.g., Part I, Part II,
etc.) into which the document is incorporated: ( 1 ) any annual report to
security-holders; (2) any proxy or information statement; and (3) any prospectus
filed pursuant to Rule 424(b) or (c) of the Securities Act of 1933 ("Securities
Act"). The listed documents should be clearly described for identification
purposes (e.g., annual report to security-holders for fiscal year ended December
24, 1990).

                                                                            NONE

         Transitional Small Business Disclosure Format (check one):

Yes     No   X
   ----    -----

                                    10KSB-2
<PAGE>   3


PART   I

Item 1

Business

General

TransGlobe Energy Corporation (referred to herein as "TransGlobe" or the
"Company") and its wholly owned subsidiary TransGlobe Oil and Gas Ltd., is
primarily engaged in the drilling for, and production of, oil and gas in New
Mexico, Texas, Wyoming and Montana. Except as otherwise stated, all references
herein to "the Company" include both TransGlobe and its subsidiary.

The Company was organised under variations of the name "Dusty Mac" in 1968 as a
mineral exploration and extraction venture. In 1992 the Company entered into the
oil and gas exploration and development field. On April 2, 1996 the Company was
renamed "TransGlobe Energy Corporation" and its U.S. subsidiary was renamed
"TransGlobe Oil and Gas Corporation. The Company has made significant
acquisitions in the fiscal year ending September 30, 1996 as described herein.

All of the Company's U.S. oil and gas properties are held by TransGlobe Oil and
Gas Corporation. The Company operates in the Madera field, New Mexico; the East
Grieve field, Wyoming; and the Breeze prospects in Colorado. A more detailed
description of the oil and gas properties can be found under Item 2, Properties.

TransGlobe Energy Corporation holds the Barstow silver claim, located in
Barstow, California.

The Company owns no oil or gas properties in Canada. The Company does not refine
any crude oil, or market at retail, any oil or petroleum products. The Company
does not own any drilling rigs, and generally, all of its drilling activities
are performed by independent drilling contractors on a contract basis.

As of September 30, 1996 the Company's proved reserves totalled 207,511 barrels
of oil and condensate and 6,374 MMcf of gas, which had a pre-tax present value
at constant prices of U.S.$6,931,000 (Item 2, "Properties", "Reserves" and
"Estimated Future Revenues and Present Worth"). The Proved Reserves are
primarily found in two Madera wells, located in New Mexico, and two wells
producing in the South Evetts Field, located in Texas. TransGlobe Oil and Gas
Corporation holds mineral rights on undrilled lands in New Mexico, Texas,
Colorado, Wyoming, and Montana. A summary table of the Company's land position
is found under Item 2, "Properties", "Productive Wells and Acreage".

The Company has submitted a Memorandum of Understanding (MOU) to acquire a
Production 


<PAGE>   4



Sharing Contract on an exploration block in the Republic of Yemen. The Ministry
of Oil has not approved the MOU as of January 1, 1997. The Company is continuing
its discussions with the Ministry of Oil and the Government of Yemen in hopes of
finalising an MOU.

The Company owns 750,000 Class "A" Voting Shares (presently an approximate 15
percent equity interest) in IPC International Power Corporation ("IPC"). The
shares of IPC were purchased for U.S.$750,000, at a price of U.S.$1.00 per
share. The purchase funds were raised by a private placement subscription of
TransGlobe shares (see Part III, Items 7 under "Notes to Financial Statements",
below). IPC owns a 60% equity interest in B.C. Hydro International Power
Development Corp.(BCHIL Power), with the remaining 40% held by BC Hydro
International Ltd., a wholly owned subsidiary of British Columbia Hydro and
Power Authority. BCHIL Power is designing, constructing and will operate a 117
megawatt power station near the town of Raiwind, Punjab Province, Pakistan. The
Raiwind project is currently under construction and is due to be completed and
in operation in early 1997. BCHIL Power holds, directly and indirectly, a 33.8%
interest in the Raiwind project. The Company is currently attempting to sell its
interest in IPC at a profit. As there is no market for the shares of IPC, the
Company will sell its shares by a private sale, subject to the approval of the
directors of IPC.

Operating Hazards and Uninsured Risks:

The Company's operations are subject to all of the risks normally incident to
the exploration for and production of oil and gas, including mechanical
failures, blow-outs, pollution and fires, each of which could result in damage
to or destruction of oil and gas wells or production facilities or damage to
persons and property. While the Company maintains an all risks liability policy
which it believes is adequate, the insurance may not cover all potential
calamities. The occurrence of a significant event not fully insured against
could have a material adverse effect on the Company's financial position.

Title to Properties

The Company's interests in 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, little or no investigation of title
is made at the time of acquisition of undeveloped properties (other than a
preliminary review of local minerals records). Investigations are generally
made, including, in most cases, receiving title opinion of local counsel, before
the commencement of drilling operations. A thorough examination of title has
been performed with respect to substantially all of the Company's producing
properties and the 



<PAGE>   5



Company believes that it has general satisfactory title to such properties.

Employees

At September 30, 1996 the Company had one full time and one part-time employee.
All other personnel engaged in the Company's offices are contracted on a
retainer or day rate basis. The Company employs the services of consulting
geologists and engineers as well as oil field personnel as needed. The
employment of Mr. Coglon as President and CEO of the Company ended November 8,
1996. As of December 4, 1996 the Company hired Mr. Ross Clarkson, a geologist,
as president of the Company on a full time basis. As of November 8, 1996 the
Company hired Mr. Erwin Noyes, who has a petroleum engineering background of
more than 35 years, as Vice President, Operations.

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

Raw Materials

The Company's raw materials are its oil and gas reserves. Reserves of oil and
gas are described in this report under "Reserves".

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.

The Company's future results of operations and the other forward looking
statements contained in this Form 10-KSB involve a number of risks and
uncertainties. In addition to the factory specifically discussed in context
hereafter, among the other factors that could cause actual results to differ
materially are business conditions and growth in the oil and gas industry and
general economy; changes in customer purchasing patterns; competitive factors,
such as those influencing exploration and operating costs and the price and
availability of drilling prospects; and risks associated with potential foreign
operations in Yemen.

Item 2
<PAGE>   6



Description of Property

As more fully described hereafter, during the past fiscal year the Company has
participated in a number of projects.

The Company operates a natural gas and condensate producing property in the
Madera field in south-eastern New Mexico. During the fiscal year the Company
participated in two successful oil wells in the South Evetts Field in Winkler
and Loving Counties, Texas. The Company also participated in two wells in the
East Grieve prospect in Natrona County, Wyoming. As of January 13, 1997 both
East Grieve wells are suspended and require further testing or completion work
before proven reserves can be stated. The Company also unsuccessfully attempted
a re-entry and deepening of a well on the Breeze II prospect in Colorado. The
Company participated in 1996, at a 15% interest, in an unsuccessful test of a
Lodgepole prospect in the Black Dog prospect in Montana.

Productive Wells and Acreage as of September 30, 1996

<TABLE>
<CAPTION>
                              Gross                         Net
                        Oil         Gas               Oil         Gas

<S>                      <C>         <C>              <C>          <C>
Productive Wells*        2           2                0.34         1
Developed Acreage**           1360                           1104
Undeveloped Acreage***      141481                          32446
</TABLE>


A "gross" acre or gross well is an acre or well in which an interest is owned.
The number of gross acres or wells is the total number of acres or well in which
an interest is owned. A "net" acre or well is deemed to exist when the sum of
the fractional interests owned in gross acres or wells equals one. The number of
net acres or wells is the sum of fractional working interests owned by the
Company in gross acres or wells, expressed as whole numbers and fractions
thereof.

*      "Productive wells" are wells producing oil or gas. 
**     "Developed acreage" is acreage assignable to productive wells.
***    "Undeveloped acreage" refers to lease acres on which wells have not been
drilled or completed to a point that would permit the production of commercial
quantities of oil and gas regardless of whether or not such acreage contains
proved reserves.


Production Results. The average sales price and average daily production
(lifting) cost per equivalent unit of oil or gas for the three years ended
September 30, 1996 were as follows:

<TABLE>
<CAPTION>
Fiscal Year       Production        Average Price            Average Production
   Ended          Oil    Gas         Oil       Gas             Cost per Unit
September 30    (Bbl*) (Mcf**)     (Bbl*)    (Mcf**)         (Bbl*)  (Mcf**)
<S>               <C>    <C>         <C>       <C>             <C>      <C> 

</TABLE>

<PAGE>   7


<TABLE>
<S>               <C>     <C>       <C>               <C>         <C>   <C> 
1994              13      434       $17.42            $1.56       6.34  0.62
1995              42    1,064       $17.42            $1.37       4.37  0.39
1996              42    1,095       $19.81            $1.85       3.87  0.54
</TABLE>

*     Barrels ("Bbl")
**    Thousand cubic feet ("Mcf")

Drilling Results. Below is a summary of drilling activity for the three years
ended September 30, 1996.

<TABLE>
<CAPTION>
Wells Drilled (Gross):    Exploratory                   Development
Year                    Productive  Dry             Productive    Dry
<S>                     <C>          <C>               <C>         <C>
1994                    1            1                 0           0
1995                    1            1                 0           0
1996                    1            2                 1           0
</TABLE>

         The development well drilled on the East Grieve property during
September/October 1996 is not yet tested but is assumed it will be productive
based on log results. No other wells were drilling or being tested over the end
of the reporting period.

Madera Gas Field, Lea County, New Mexico

The Madera Federal Prospect in Lea County, New Mexico, is in the area known as
the Permian Basin, covering West Texas and Southeast New Mexico. The Company
acquired its interest in the Madera Prospect in 1993, when it drilled and
completed the Madera Federal "25-1" well in the Atoka Lime Formation. By
drilling and successfully completing the offset well, Madera Federal "30-1", the
Company earned a 56.03% interest in gross 3,424 acres now identified as the
Madera Federal Block, Lea County, New Mexico.

During the fiscal year the "30-1" well produced at an average rate of 1,781 MCF
per day, plus an additional 69 barrels per day of condensate from the Atoka
Limestone. The "30-1" well is currently restricted by obstructions in the
bottomhole assembly. The Company believe that this well is capable of higher
production rates if the well is reworked and the obstructions are removed.

The second well in the Madera Federal field, the "25-1", is pressure depleted in
the Atoka Limestone and is currently suspended. A re-completion program is
planned for January 1997 to attempt to obtain production in uphole zones
identified on electric logs.

A third well, the Madera Federal 12-1 well, drilled earlier to a depth of 12,950
feet, is suspended.


<PAGE>   8



Both the "25-1" and the "30-1" wells encountered shows of light sweet oil in the
Brushy Canyon Sand and the Bone Spring formation. These will require further
evaluation.


South Evetts Prospect, Winkler and Loving Counties, Texas

In early 1995 the Company acquired an interest in the South Evetts Prospect,
Winkler and Loving Counties, Texas.

The South Evetts Prospect is comprised of 12,855 gross acres under lease. POGO
Producing Company is the Operator of the field. TransGlobe has a 21.875% working
interest (15.75% Net Revenue Interest) in the initial test well, University
"20-12", which was drilled to 12,002 feet in Winkler County as well as an 11.84%
working interest in the balance of the POGO acreage. The University "20-12" well
is producing gross 43 barrels of oil per day and gross 41 MCF of gas per day
from the Wolfcamp formation.

On February 14, 1996 POGO commenced the drilling of an offset well, University
"20-11", to a total depth of 12,000 feet. The well was completed in the Wolfcamp
formation as an oil producer and is currently producing gross 43 BOPD and gross
17 MCFD. TransGlobe has a 12.192% working interest (8.778% Net Revenue Interest)
in the "20-11" well.

Block 16 Prospect, Ward County, Texas

The Company owns a 50% working interest in 1,124.5 acres (net 562.25 acres) over
the Block 16 Prospect located on the hingeline between the Central Basin
Platform and the Delaware Basin in Ward County, Texas. The Block 16 prospect
appears to be similar to the South Evetts prospect. The Block 16 Prospect is
still in early stages of development. The Company is seeking a joint venture
partner to assist in the development of this prospect.

Breeze Prospect, Routt County, Colorado

Breeze I

The Breeze I prospect, located in Colorado, was reported in the 1995 annual
report and the Form 20-F filing. The option to participate in the Breeze I
prospect expired on October 31, 1996.

Breeze II

The Breeze II prospect was reported in the 1995 annual report and the Form 20-F
filing. The Company attempted to test the prospect by re-entering and deepening
the Quintana well in September 1996 Problems were encountered while drilling
below the old 8 5/8" casing. The casing is believed to have collapsed while
drilling, necessitating the abandonment of the deepening procedure.


<PAGE>   9



The Company was unsuccessful in the deepening of the Quintana well. TransGlobe
has relinquished its interest in the prospect.

East Grieve Prospect, Natrona County, Wyoming

The East Grieve prospect is a structural/stratigraphic prospect located in the
Southeastern Wind River Basin of central Wyoming, approximately 50 miles west of
Casper.

The Company acquired a 18% working interest in 960 acres over the prospect from
Melange Associates Inc and Coyote Production Co. Anschutz, the Operator with 35%
working interest, drilled an initial test well during March-April 1996. The
primary target was the Muddy sand at approximately 8,200 feet. The drilling of
the 29-1 well proved to be very difficult. Poor hole conditions resulted in the
well being plugged back so a new hole could be drilled from 3000 feet. Upon
reaching total depth the Muddy sand was found to be poorly developed. Anschutz
elected to relinquish its interest in the well rather than proceed with the
casing and testing of the well. TransGlobe acquired the Anschutz 35% interest in
the project at no cost. TransGlobe and Melange elected to case and complete the
well in the Shannon sand, encountered at 4,200 feet. In October 1996 TransGlobe
entered into an agreement with Melange Associates Inc. and Coyote Production Co.
to purchase their 37% working interest for U.S.$250,000 plus 100,000 shares of
TransGlobe Energy with a 1.8% Gross Overriding Royalty interest retained by
Melange/Coyote. The new working interests in the project are TransGlobe 90%,
with the remaining 10% interest held by Mr. John Lucken, Dr. Harold Laycraft,
and Mr. Richard Coglon (all directors of the Company).

TransGlobe, now as operator, completed the 29-1 well in the Shannon sand during
July 1996 at an initial rates as high as 300 BOPD. The well started producing
water during the test period and rapidly turned to 100% water. A water bearing
sand located above the Shannon may be the source of the rapid change from oil to
water production. An attempt at shutting of the water zone by squeezing cement
into the zone has met with limited success. At present the 29-1 well is
suspended due to winter weather and Bureau of Land Management winter access
restrictions. Additional completion work on the 29-1 well will be done in 1997.

A second well, 32-3, was drilled on the East Grieve structure during
September/October 1996. The well encountered 25 feet of Shannon formation sands
approximately 300 feet updip of the 29-1 Shannon sands. The sidewall cores,
electric logs and porosity logs indicate that the sands contain hydrocarbons.
The weather restrictions and BLM access restrictions prevented the testing of
the 32-3 well in 1996. The 32-3 well will be completed and tested in 1997.

The prospect has potential for 10 productive locations based on 40 acre spacing.
The recoverable reserve potential is 1.8 Million barrels of oil based on the
initial studies done by Outtrim Szabo Associates, a reservoir engineering firm.
However, no proven reserves have been booked for East Grieve as the prospect is
still in the early stages of development. If successful, production rates of 100
- 300 Barrels of oil per well, per day, are indicated as possible, based on the
analogous

<PAGE>   10

Government Bridge Field.

East Meridian Prospects, Montana

History

The East Meridian Project is an exploration program focused in the western
(Montana) portion of the Williston Basin. This project consists of 109,374 acres
of leases (24,348 net acres) that are controlled outright, by farmout agreement
and by seismic options on a block that measures 12 miles East to West and 30
miles South to North, covering 360 square miles. TransGlobe has earned a 25%
working interest in the first phase (Block `B') of the project, comprising
51,907 gross acres (12,977 net acres). TransGlobe has elected to participate in
the second phase (Block `A') to earn an additional 57,468 gross acres (14,367
net acres). TransGlobe has earned a 25% working interest in Block `B' and will
earn a 25% working interest in Block `A' by paying 50% of the cost of a 3-D
seismic survey covering the respective lands and by paying for 50% of lease
acquisition costs.

The focus of the project was based on 600 miles of old 2 dimensional seismic
data that suggested the area was under-explored for Paleozoic reservoirs similar
to existing producing fields located on and off the Meridian lands. Meridian
Resources farmed out 50% of their interest to TransGlobe Energy and Collins &
Ware to evaluate the lands.

Within the East Meridian block, on lands not controlled by TransGlobe, there is
production from six or more different pay zones in several fields. The fields
within the block produce from Devonian, Silurian and Ordovician formations.
Cumulative production from some of the best Ordovician, Red River Formation
fields has reached 350,000 to 500,000 BO per well.

In addition to the known reservoirs, management believes that there is a
significant upside reserve potential that is attributable to several exploration
leads that are similar in all geophysical signatures and geologic settings to
the Lodgepole Waulsortian Reef Mounds that were discovered near Dickinson, North
Dakota about 90 miles to the east, by Conoco in 1993.

The acquisition of the 3-D data on the area comprising Block `B' was commenced
in May, 1996 and was completed in August, 1996. The gross cost of acquisition
was approximately U.S.$2,600,000 (TransGlobe net cost of U.S.$1,300,000).
Interpretation of the data is now complete.

Current Status of Meridian Project

Block B

The Company has identified, using the interpretation of the 3-D seismic data,
nineteen Ordovician Red River primary target prospects with secondary reservoirs
which include: 

<PAGE>   11


Mississippian Mission Canyon, Devonian Nisku, Duperow and Dawson Bay reservoirs.
Six Red River prospects have been identified as primary drilling locations. The
Company expects to commence drilling on some of the primary Red River prospects
in 1997.

The Company has identified, using the interpretation of the 3-D seismic data,
five Tyler Channel Sand plays that have not been penetrated by drilling so far
on the acreage block. The Tyler play is as yet un-proven and un-tested in the
East Meridian area. Tyler channel sands produce at the Svenstad and Sumatra
fields in Montana and at the Dickinson field in North Dakota. Two Tyler Sand
prospects have been identified as primary drilling locations. The Company
expects to commence drilling on one of the primary Tyler Sand prospects in 1997.

The Company has identified, using the interpretation of the 3-D seismic data,
four Silurian Interlake erosional remnant plays. This play is un-proven on the
East Meridian Block.

It is the Company's intention over the next twelve months to participate in the
drilling of wells to test the prospects identified by 3-D seismic. The Company
anticipates having sufficient funds to participate as a 25% working interest
partner in the expected 1997 drilling program (see "Notes to Financial
Statements").

Block A

TransGlobe has exercised its option to participate in the west half (Block `A')
of the East Meridian acreage. The option allows TransGlobe to earn a 25%
interest in Block `A' by paying 50% of the cost of acquisition of a 3-D seismic
survey over the lands. The cost of the survey is expected to be similar to the
Block `B' seismic program acquired in May/August 1996 at U.S.$2,600,000.
TransGlobe has paid its share of the lease costs on Block 'A" and anticipates
having sufficient funds available to complete the Block `A' seismic survey. (see
"Notes to Financial Statements").

International Opportunities - Yemen Concession

The Company has investigated oil exploration opportunities in the Republic of
Yemen. An offer for an open exploration block in the Republic of Yemen was
submitted to the Ministry of Oil and Mineral resources in1995. The offer has
neither been accepted nor rejected as of January 7, 1997. If the Company's offer
is accepted, a Memorandum of Understanding would then be signed between the
Ministry of Oil and Mineral Resources. A production Sharing Agreement would then
be negotiated and signed. Finally, the Production Sharing Agreement would be
ratified by the Republic of Yemen parliament. The process of attaining a
Production Sharing Agreement can take as long as two years and therefore is a
longer term project for the Company.

Reserves

The Company causes to be prepared an annual estimate of oil and gas reserves.
Proved reserves 


<PAGE>   12


were added by drilling in the South Evetts field. During the fiscal year 1996
there have been no purchases or sales of reserves or other events that would
materially affect the reserves reported herein. The Company has not filed
reserve estimates with any other United States or Canadian authority or agency,
other than estimates previously filed with the Commission.

The following table set forth the proved reserves of the Company as of September
30, 1996 and September 30, 1995. The Company did not have a reserve report done
in 1994 as the only producing property, the Madera field, was not fully
evaluated. Estimated quantities for the year 1995 were prepared by Williamson
Petroleum Consultants Inc., Midland, Texas. Estimated quantities for the year
1996 were prepared by Outtrim Szabo Associates, Calgary, Canada.

Oil & Condensate (Bbls)

<TABLE>
<CAPTION>
                                            1995                     1996

<S>                                       <C>                     <C>     
   Proved developed reserves
        Madera field, New Mexico          69,120.                 178,732.
        South Evetts, Texas                                         3,246.

   Gas (MMcf)

   Proved developed reserves
        Madera field, New Mexico           1,926.                   5,576.
        South Evetts, Texas                                             2.
</TABLE>

The increase in reserves is primarily attributable to the inclusion of the
Atoka Sand reservoir found in the 25-1 Madera well, which was not previously
reported. The reserves on the 30-1 Madera well were increased slightly. The
original reserve report done by Williamson was based on intermittent,
discontinuous production and was therefore subject to error. Subsequent
production history and pressure performance indicate larger reserves, as
reflected in the 1996 reserve estimates

All of the above stated reserves are located in the United States. The East
Grieve field is not yet considered to be proven reserves by the Company and no
reserves from East Grieve have been included in this report.

Estimated Future Net Revenues and Present Worth

Estimated future net revenues of the Company's net oil and gas reserves at the
date indicated and the present worth thereof employing a ten percent (10%)
discount factor is set forth in the following tabulation:

<TABLE>
<CAPTION>
                                      Future Net Revenues
                                      as of Sept. 30, 1996
                              ------------------------------------
                                   1997                   1998

<S>                           <C>                    <C>     
Proved Developed              U.S.$1,411,284.        U.S.$747,000
Oil and Gas reserves

                                          Present Worth
</TABLE>


<PAGE>   13



<TABLE>
<CAPTION>
                                       as of Sept. 30, 1996
                                       (discounted  at 10%)

<S>                                       <C>       
Proved Developed                          U.S.$6,931,471
Oil and Gas reserves
</TABLE>

The present value of estimated future net revenues set forth above is computed
using the estimated future net revenues and a discount factor of ten percent
(10%) over the projected life of each property. See " Consolidated Financial
Statements".

Future net revenues and present worth values as of September 30, 1996 were
computed using crude oil prices of U.S.$20.03 unescalated. Gas prices of
U.S.$2.25 per Mcf unescalated were used. Future prices to be received from such
production and future production costs may vary, perhaps significantly, from the
prices and costs assumed for purposes of these estimates. The present values
shown above should not be construed as the current market value of the estimated
oil and gas reserves attributable to the Company's properties.

Marketing of Production:

The Company does not refine any petroleum products. All of its production from
the Madera field is sold pursuant to a written agreement at prevailing market
prices. The Company is not obligated to provide a fixed and determinable
quantity of oil and gas in the future under existing contracts or agreements.

The availability of a market for oil and gas produced from the properties of the
Company and the prices received are dependent upon numerous factors, most of
which are beyond the control of the Company. Such factors include the level of
domestic production, the availability of distribution and transportation
facilities and capacity thereon, the availability and price of fuels competitive
with oil and gas, demand for oil and gas and refined products and governmental
regulation and taxation. Such factors make it impracticable to predict with any
degree of certainty future demand for or prices of oil or gas produced by the
Company. Historically the Company has received high demand and prices for its
gas production during the winter months.

Mineral Exploration

There was no change in the Company's inventory of mineral exploration projects
during the fiscal year 1995-96. TransGlobe continues to maintain the Company's
100% interest in the patented claims on the Barstow silver property in
California.

The Barstow property contains drill indicated reserves suited to open pit mining
of 20 million tons of 1.54 oz. silver per ton, and remains open to further
reserve expansion. At the current price level for silver in world markets this
property is not of any immediate development interest. The Company intends to
hold the property as a, low cost asset with possible future mine 


<PAGE>   14



potential. Exploration for potential high grade (supergene) enriched zones on
the Barstow property may be undertaken in future.


Investment Policies

Pending utilisation of funds for drilling and development, the Company's cash
balance is being invested in a Canadian bank in short term interest bearing
deposits.


Office Facilities

The office facility of the Company are leased from Amadeus Consulting Ltd., a
company owned by Dr. Harold Laycraft, who is a director of TransGlobe. The lease
agreement is for Canadian $3723.73 per month and will expire May 31, 1997


Item 3

Legal Proceedings

The Company has been orally advised by the former President and CEO of the
Company Mr. Richard Coglon that he is in the process of preparing and filing a
legal action against the Company for wrongful termination and breach of
contract.

Other than the above mentioned possible proceeding, the Company is not a party
to any other pending legal proceedings, nor is its property the subject of such
a proceeding.


Item 4

Submission of Matters to a Vote of Security-Holders

Not applicable.


PART II


Item 5

Market for Registrant's Common Equity and Related Stockholder Matters

Market Information:

The Company's Common Shares have been listed in the United Sates on the NASDAQ
Small Cap Market since March 1984. "TGLEF" is the Company's current trading
symbol. The 



<PAGE>   15



Company's common shares have been listed on the Vancouver Stock Exchange since
August 15, 1969 under the current symbol "TGL" and less than 5% of the total
trading occurs on the V.S.E. The following table sets forth, for the calendar
periods indicated, the range of high and low prices in U.S. currency for the
Company's Common Shares as reported by the NASDAQ.

<TABLE>
<CAPTION>
Quarter                       High Price              Low Price
                              During Quarter          During Quarter
<S>                           <C>                     <C>  
Oct 1/94 - Dec 31/94          $5.00                   $3.62
Jan 1/95 - Mar 31/95          $4.00                   $2.75
Apr 1/95 - Jun 30/95          $3.625                  $1.25
Jul 1/95 - Sep 30/95          $6.625                  $2.75
Oct 1/95 - Dec 31/95          $5.625                  $2.625
Jan 1/96 - Mar 31/96          $4.8125                 $2.375
Apr 1/96 - Jun 30/96          $5.0625                 $3.375
Jul 1/96 - Sep 30/96          $4.25                   $2.2187
</TABLE>

The quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission, and may not represent actual transactions.

Holders:

According to the records maintained by the Company's register and transfer
agent, on September 30, 1996 there are 690 registered shareholders resident in
the United States holding between them an aggregate of 7,156,298 shares of the
Company, being approximately 91% of the total issued and outstanding shares of
the Company.

Dividends:

The Company has never paid any cash dividends, and presently intends to retain
any earnings to finance the growth of its business.

There are no restrictions under Canadian law or the Company's Articles of
Association on the import or export of capital which affect the remittance of
dividends, interest or other payments to non-resident holders of the Company's
securities. Any cash dividends paid to Shareholders resident in the United
States will be generally subject to Canadian withholding tax at a rate of 15%.
Cash dividends paid to other non-residents of Canada will also generally be
subject to Canadian withholding tax at a maximum rate of 25%, depending upon
applicable tax treaties. Stock dividends paid to non-residents are generally not
subject to Canadian withholding tax provided that they are paid in shares of the
same class of stock as that on which the stock dividends are paid.

Item 6


<PAGE>   16



Management's Discussion and Analysis of Financial Condition and Results of
Operations

Revenues

During the period under review, the Company's oil & gas revenues were
U.S.$1,113,274 compared to U.S.$827,073 for 1995. The revenues were generated
primarily from the Madera No. 30-1 well, New Mexico. The average price received
for Madera gas increased from U.S.$1.37 during 1995 to U.S.$1.85 during 1996 and
the average price received for condensate increased from U.S.$17.42 during 1995
to U.S.$19.86 during 1996. The cold winter of 1995 increased demand for natural
gas resulting in higher prices. A similar situation appears to be developing for
the early part of the 1996/97 winter. The increased prices were enhanced by an
increase in production from 1995 to 1996 from 1,064 to 1,095 Mcf per day (net
average rate) and in oil and condensate production from 42 to 49 BOPD (net
average rate). Operating costs were U.S.$200,378 compared to U.S.$148,645 in
1995. The Company has reduced operating costs on the Madera field in November
1996 by cutting back on non-essential services and by streamlining production
accounting procedures.

Expenses

In 1996 $22,275 was expended on maintaining the Company's mineral resource
properties compared to $12,275 in 1995, and $4,066,487 was expended on oil and
gas properties compared to $1,568,264 in 1995. General administrative expenses
increased to $838,850 from $788,157. Fifteen percent of the shares of IPC
International Power Corporation were acquired at a cost of U.S.$750,000. The
Company has committed to a 50% participation in a 3-D seismic acquisition
program on Block "A" of the East Meridian Project, Montana. The expected net
cost of the acquisition is U.S.$1,300,000. The funds required for the seismic
acquisition were raised through the sale of zero coupon debentures in
October/November 1996. (see notes to Financial Statements).

Net Income (Loss)

The operating activities of the Company recorded a net operating loss of
$770,096 as opposed to a loss of $797,743 during the same period in 1995.
Correspondingly, the Company recorded a loss per common share of $0.10 in 1996
compared to a loss of $0.12 in 1995. A total of 1,740,058 shares were issued
during the period at an average price of U.S.$2.79 per share for a total net
proceeds of $4,857,372.

The Company has continued to build its inventory of U.S. prospects during 1996.
The gross and net undeveloped acreage position of the Company increased
substantially. Funds raised through the sale of zero coupon debentures during
October/November 1996 will be used in ongoing exploration efforts on the
Company's properties. The Company plans to participate in exploratory drilling
of several wells on the East Meridian Project in 1997 and expects substantial
increases in reserves and future net cash flow from this program. The Company
plans to test the East Grieve 


<PAGE>   17



`3-32' well in early 1997 as soon as rig availability and winter access
restrictions allow. Should the testing of East Grieve `3-32' prove encouraging,
the Company plans to drill additional test wells to prove up additional reserves
and increase production. The Company also plans to re-complete the Madera 25-1.
The management of the Company intends to increase the value of the Company
through the acquisition of oil and gas exploration properties in the United
States. The acquisition of an international exploration project will also
continue to be a longer term focus area.

Item 7

Financial Statements

The financial statements called for by this item are set forth below.

Item 8

Changes in and Disagreements with Accountants on Accounting and Financial
Disclosures

Not applicable.

Part III

Pursuant to General Instruction E(3) of Form 10-KSB, the information required by
Part III will be incorporated by reference from the registrant's definitive
proxy statement (to be filed in accordance with Rule 14a-101, Schedule 14C). If
the definitive proxy is not filed within the 120 day period, the information
will be filed as an amendment to the Form 10-KSB, not later than the end of the
120 day period following the end of the Company's fiscal year.

However, as to Item 13, on December 29, 1996, the Company filed a report on Form
12B-25 disclosing that as of at least September 30, 1996, the Company was no
longer a "foreign private issuer" as defined in Rule 3b-4. Present management is
in the process of determining the period of time during which the Company was
not deemed a foreign private issuer. Pursuant to Rule 3a 12-3(b) securities
registered by foreign private issuers are exempt from certain proxy and insider
reporting requirements, including those utilising Forms 3,4 and 5 under Section
16(a) of the Securities Exchange Act; the Company has never received any Form 3,
4 or 5 filings by persons subject to Section 16(a).



<PAGE>   18

AUDITORS' REPORT

To the Shareholders of

Transglobe Energy Corporation (formerly Dusty Mac Oil & Gas Ltd.)

We have audited the consolidated balance sheets of Transglobe Energy Corporation
(formerly Dusty Mac Oil & Gas Ltd.) as at September 30, 1996 and 1995 and the
consolidated statements of operations and deficit and changes in financial
position for each of the years in the three year period ended September 30,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those 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.

In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at September 30, 1996 and
1995 and the results of its operations and the changes in its financial position
for each of the years in the three year period ended September 30, 1996 in
accordance with generally accepted accounting principles in Canada. As required
by the Company Act (British Columbia), we report that, in our opinion, these
principles have been applied on a consistent basis.



KPMG
Chartered Accountants



Abbotsford, Canada
January 8, 1997



<PAGE>   19



TRANSGLOBE ENERGY CORPORATION
(FORMERLY DUSTY MAC OIL & GAS LTD.)

Consolidated Balance Sheets

(Expressed in U.S. dollars)
September 30, 1996 and 1995

<TABLE>
<CAPTION>
====================================================================================
                                                                 1996           1995
------------------------------------------------------------------------------------
<S>                                                       <C>            <C>                         
Assets

Current assets:
   Cash                                                   $   588,664    $   646,692
   Accounts receivable                                        394,776        221,921
   Prepaid drilling costs                                       5,396        110,319
------------------------------------------------------------------------------------
                                                              988,836        978,932

Computer equipment, net of accumulated
  depreciation                                                 12,847         10,602

Investment in IPC International Power Corporation (Note 3)    750,000              -

Natural resource properties:
   Mineral properties (Note 4)                              1,704,226      1,960,396
   Oil and gas properties (Note 5)                         10,771,483      7,235,932
   Investment in Yemen project
     (Note 6)                                                 196,268        179,210
------------------------------------------------------------------------------------
                                                           12,671,977      9,375,538

------------------------------------------------------------------------------------
                                                          $14,423,660    $10,365,072
====================================================================================

Liabilities and Shareholders' Equity

Current liabilities:
   Accounts payable and accruals                          $   437,661    $   406,204
   Current portion of loan payable (Note 7)                    40,251         60,145
------------------------------------------------------------------------------------
                                                              447,912        466,349

Loan payable (Note 7)                                               -         40,251

Shareholders' equity:
   Share capital (Note 8)                                  18,581,646     13,724,274
   Deficit                                                 (4,635,898)    (3,865,802)
------------------------------------------------------------------------------------
                                                           13,945,748      9,858,472

Subsequent events (Note 12)

------------------------------------------------------------------------------------
                                                          $14,423,660    $10,365,072
====================================================================================
</TABLE>

Approved by the Directors:

/s/ ROSS G. CLARKSON
------------------------------

/s/ GEORGE H. LAYCRAFT
------------------------------


See accompanying notes to consolidated financial statements.

<PAGE>   20
TRANSGLOBE ENERGY CORPORATION
(FORMERLY DUSTY MAC OIL & GAS LTD.)
Consolidated Statements of Operations and Deficit

<TABLE>
<CAPTION>
================================================================================
                                                  Year ended September 30
================================================================================
                                          1996          1995          1994
--------------------------------------------------------------------------------
<S>                                    <C>            <C>           <C>      
Oil and gas revenue                  $ 1,113,274   $   827,073  $    278,379

Direct expenses:
    Operating expenses                   200,379       148,645        66,609
    Taxes                                 90,950        68,299        19,111
    Depletion and depreciation           507,866       644,094       113,770
    Write-down of mineral
      properties (Note 4)               (279,240)            -             -
    Write-down of oil and
      gas properties                           -             -      (232,792)
--------------------------------------------------------------------------------
                                       1,078,435       861,038       432,282
--------------------------------------------------------------------------------
                                          34,839       (33,965)     (153,903)

General and administrative
  expenses (Schedule)                    838,850       788,157       784,428

--------------------------------------------------------------------------------
Loss before other income                (804,011)     (822,122)     (938,331)
--------------------------------------------------------------------------------
Other income (loss):
    Exchange income (loss)               (12,887)        2,934         6,014
    Interest                              46,802        21,445        34,068
--------------------------------------------------------------------------------
                                         (33,915)       24,379       (40,082)

--------------------------------------------------------------------------------
Loss                                    (770,096)     (797,743)     (898,249)

Deficit, beginning of year            (3,865,802)   (3,068,059)   (2,169,810)

--------------------------------------------------------------------------------
Deficit, end of year                 $(4,635,898)  $(3,865,802) $ (3,068,059)
================================================================================

Loss per common share                $     (0.10)  $     (0.12) $      (0.16)
================================================================================

Weighted average common shares
  outstanding                          7,899,001     6,659,602     5,620,878
================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>   21



TRANSGLOBE ENERGY CORPORATION
(FORMERLY DUSTY MAC OIL & GAS LTD.)
Consolidated Statements of Changes in Financial Position

<TABLE>
<CAPTION>
===============================================================================
                                                 Year ended September 30
                                           1996           1995          1994
--------------------------------------------------------------------------------
<S>                                   <C>            <C>            <C>         
Operating activities:
   Loss                               $  (770,096)   $  (797,743)   $  (898,249)
   Add (deduct):
      Items not involving cash:
         Depreciation and depletion       513,372        646,745        113,770
         Write-down of oil and
           gas properties                    --             --          232,792
         Write-down of mineral
           properties                     279,240           --             --
      Non-cash operating working
        capital items                     (36,475)       169,107       (203,976)
-------------------------------------------------------------------------------
                                          (13,959)        18,109       (755,663)
Investing activities:
   Computer equipment
     additions                             (7,751)       (13,253)          --
   Natural resource property
     expenditures                      (4,066,487)    (1,568,264)    (4,286,114)
   Investment in Yemen project            (17,058)      (179,210)          --
   Investment in IPC International
     Power Corporation                   (750,000)          --             --
-------------------------------------------------------------------------------
                                       (4,841,296)    (1,760,727)    (4,286,114)

Financing activities:
   Financing costs of
     issuing shares                      (170,058)          --         (307,590)
   Shares issued                        5,027,430      2,074,398      5,131,594
   Increase (decrease) in loan
     payable                              (60,145)       100,396        (18,385)
-------------------------------------------------------------------------------
                                        4,797,227      2,174,794      4,805,619

-------------------------------------------------------------------------------
Increase (decrease) in cash
  during the year                         (58,028)       432,176       (236,158)

Cash, beginning of year                   646,692        214,516        450,674

-------------------------------------------------------------------------------
Cash, end of year                     $   588,664    $   646,692    $   214,516
===============================================================================
</TABLE>

See accompanying notes to consolidated financial statements.


<PAGE>   22

TRANSGLOBE ENERGY CORPORATION
(FORMERLY DUSTY MAC OIL & GAS LTD.)
Notes to Consolidated Financial Statements

(Expressed in U.S. dollars unless otherwise noted)
Three years ended September 30, 1996, 1995 and 1994

================================================================================

NATURE OF OPERATIONS:

    The Company's primary business activity is the exploration and development
    of mineral properties and oil and gas properties.

1.    SIGNIFICANT ACCOUNTING POLICIES:

 (a)  Basis of consolidation:

      These financial statements include the accounts of the Company's
      wholly-owned subsidiaries, Transglobe Energy Corporation (formerly Dusty
      Mac Resources Inc.) and Dusty Mac Oil & Gas International (Canada) Ltd.
      All material intercorporate transactions and balances have been eliminated
      upon consolidation.

 (b)  Accounting principles:

      The 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 11.

 (c)  Revenue recognition:

      Revenue from oil and gas operations is recognized at the time the oil is
      sold or natural gas delivered.

 (d)  Mineral properties:

      The Company records its interest in mineral properties at cost and has
      capitalized exploration costs specifically identifiable to the properties.
      When commercial production is achieved for a specific property, the costs
      capitalized will be amortized against revenue realized on production from
      the property. In the event of the abandonment of a property, the costs
      capitalized for that property are written off to operations. The amounts
      shown for mineral properties represent costs for the acquisition and
      development of the properties incurred to date and do not necessarily
      reflect present or future values.

 (e)  Computer equipment:

      Computer equipment is recorded at cost. Depreciation is provided using the
      declining balance method at 30% per annum.

 (f)  Oil and gas properties:

      The Company follows the full cost method of accounting for oil and gas
      operations. Accordingly all costs associated with the exploration for and
      development of oil and gas reserves, whether productive or unproductive,
      are capitalized. Such costs include land acquisition, geological and
      geophysical expenses, and costs of well equipment.


<PAGE>   23

TRANSGLOBE ENERGY CORPORATION
(FORMERLY DUSTY MAC OIL & GAS LTD.)
Notes to Consolidated Financial Statements

(Expressed in U.S. dollars unless otherwise noted)
Three years ended September 30, 1996, 1995 and 1994

================================================================================

1.  SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

 (f)  Oil and gas properties (continued):

      Costs of acquiring and evaluating unproved properties are initially
      excluded from the costs subject to depletion and depreciation. These
      unproved properties are assessed regularly to ascertain whether impairment
      has occurred. When production commences or the property is considered to
      be impaired, the cost of the property or the amount of the impairment is
      added to the costs subject to depletion and depreciation.

      Depletion and depreciation are provided on costs accumulated on producing
      properties using the unit of production method based on the estimates
      which management considers to be reasonable.

      The net carrying cost of the Company's properties is subject to a cost
      recovery test ("the ceiling test"). Under this test, an estimate is made
      of the ultimate recoverable amount from future net revenue plus the net
      cost of unproved properties, less future overhead, interest cost and
      income taxes. Year end prices are used. If the net carrying cost of the
      oil and gas properties exceeds the ultimate recoverable amount, the excess
      amount is charged against operations.

      Gains or losses are not normally recorded on the disposal of oil and gas
      properties. The proceeds on sale are credited against the capitalized
      costs. If, however, crediting the proceeds to capitalized costs results in
      a significant change in the depletion and depreciation rate, the gain or
      loss is included in income.

 (g)  Investment in IPC International Power Corporation

      The Company has recorded its investment in IPC International Power
      Corporation at cost.

 (h)  Investment in Yemen project:

      The Company has recorded its investment in the Yemen project at cost and
      has capitalized costs specifically identifiable to the project. In the
      event of the abandonment of the project, the costs capitalized will be
      written off to operations. The amounts shown represent costs incurred to
      date, and do not necessarily reflect present or future values.


<PAGE>   24

TRANSGLOBE ENERGY CORPORATION
(FORMERLY DUSTY MAC OIL & GAS LTD.)
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars unless otherwise noted)
Three years ended September 30, 1996, 1995 and 1994

================================================================================

1.  SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

 (i)  Foreign currency translation:

      The Company has adopted the United States dollar as its functional
      currency (Note 2). The Company and its subsidiary 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 assets. The net
      effect of the foreign currency translation is included in current
      operations.

2.  CHANGE IN FUNCTIONAL CURRENCY:

    The consolidated financial statements of the Company have historically been
    expressed in Canadian ("Cdn") dollars. As a result of a significant portion
    of expenses and assets being denominated in United States ("U.S.") dollars,
    the U.S. dollar has become the principal currency of the Company's business.
    Accordingly, the U.S. dollar has been adopted as the functional currency for
    the consolidated financial statements of the Company effective September 30,
    1996. The prior years financial statements have been changed to reflect the
    U.S. dollar as the functional currency.

3.  INVESTMENT IN IPC INTERNATIONAL POWER CORPORATION:

    The Company owns 750,000 shares, which the Company believes to represent a
    15% equity interest in IPC International Power Corporation, a private
    British Columbia corporation having a 60% equity interest in British
    Columbia Hydro International Power Development Corporation The remaining 40%
    equity is held by a wholly-owned subsidiary of British Columbia Hydro and
    Power Authority. A director of the Company, and relatives of a second
    director of the Company, also own equity interests in IPC International
    Power Corporation.


<PAGE>   25

TRANSGLOBE ENERGY CORPORATION
(FORMERLY DUSTY MAC OIL & GAS LTD.)

Notes to Consolidated Financial Statements

(Expressed in U.S. dollars unless otherwise noted)
Three years ended September 30, 1996, 1995 and 1994

================================================================================


4.  MINERAL PROPERTIES:

<TABLE>
<CAPTION>
    ============================================================================
                                                Barstow   Okanagan
                                               Property      Falls       Total
    ----------------------------------------------------------------------------
    <S>                                    <C>          <C>        <C>         
    Balance, September 30, 1994            $  1,669,514 $ 276,830  $  1,946,344
    Advance royalty payments                     10,000         -        10,000
    Exploration costs                             1,937     2,115         4,052
    ----------------------------------------------------------------------------
    Balance, September 30, 1995               1,681,451   278,945     1,960,396
    Advance royalty payments                     20,000         -        20,000
    Exploration cost                              2,775       295         3,070
    Write-down of mineral properties                  -  (279,240)     (279,240)

    ----------------------------------------------------------------------------
    Balance, September 30, 1996            $  1,704,226$        -   $  1,704,226
    ============================================================================
</TABLE>


    Barstow property

    The Company has acquired a group of mining claims in San Bernadino County,
    California, U.S.A.

    The Company is making annual advance royalty payments of $10,000 U.S. per
    year increasing to $20,000 U.S. per year in 1996.

    Okanagan Falls:

    The Company had a number of mineral claims in the Osoyoos Mining Division of
    British Columbia. In 1996, the Company allowed the lease on the claims to
    expire. The costs capitalized were written off to operations.

5.  OIL AND GAS PROPERTIES:

<TABLE>
<CAPTION>
   ================================================================== 
                                                  1996           1995 
   ------------------------------------------------------------------ 
      <S>                               <C>            <C>            
                                                                      
      Proved, explored and impaired                                   
       properties:                                                    
         Acquisition and lease costs      $  3,036,654   $    464,122 
         Exploration and drilling costs      5,398,033      2,262,058 
         Well equipment                        885,027        481,409 
         Less depletion, depreciation                                 
           and write-downs                  (1,498,523)      (990,657)
   ------------------------------------------------------------------ 
                                             7,821,191      2,216,932 
      Unproved properties:                                            
         Acquisition and lease costs         2,270,648      2,522,064 
         Exploration and drilling costs        608,373      2,215,171 
         Well equipment                         71,271        281,765 
   ------------------------------------------------------------------ 
                                             2,950,292      5,019,000 
                                                                      
   ------------------------------------------------------------------ 
                                           $10,771,483  $  7,235,932 
   ================================================================== 
</TABLE>   

<PAGE>   26



TRANSGLOBE ENERGY CORPORATION
(FORMERLY DUSTY MAC OIL & GAS LTD.)

Notes to Consolidated Financial Statements

(Expressed in U.S. dollars unless otherwise noted)
Three years ended September 30, 1996, 1995 and 1994

================================================================================

5.  OIL AND GAS PROPERTIES (CONTINUED):

    Substantially all oil and gas activities are conducted jointly with others
    and accordingly the accounts reflect only the Company's proportionate
    interest in such activities. The Company is committed to paying its share of
    the exploration costs pursuant to the various joint venture agreements it
    has entered. Failure to fulfill the commitments stipulated under the terms
    of an agreement would result in the forfeiture of the Company's interest in
    the property.

6.  INVESTMENT IN YEMEN PROJECT:

    The Company is negotiating for the acquisition of an oil and gas concession
    in the Republic of Yemen. The Company has presented a formal offer to the
    Ministry of Oil and Mineral Resources of the Government of Yemen, in
    relation to a proposed Production Sharing Agreement.

7.  LOAN PAYABLE:

<TABLE>
<CAPTION>
    ============================================================================
                                                          1996             1995
    ----------------------------------------------------------------------------
    <S>                                              <C>             <C>       
    Loan, Mississippi lease acquisition, payable in
      three equal instalments annually of $20,126
      plus interest at 10% per annum                 $  40,251       $  100,396

    Less current portion                               (40,251)         (60,145)

    ----------------------------------------------------------------------------
                                                     $      --       $   40,251
    ============================================================================
</TABLE>


<PAGE>   27
TRANSGLOBE ENERGY CORPORATION
(FORMERLY DUSTY MAC OIL & GAS LTD.)

Notes to Consolidated Financial Statements

(Expressed in U.S. dollars unless otherwise noted)
Three years ended September 30, 1996, 1995 and 1994
================================================================================

8.  SHARE CAPITAL:

    (a) Authorized:

        The authorized capital is 100,000,000 shares with no par value.

    (b) Issued:

<TABLE>
<CAPTION>
        ========================================================================
                                                     Number of            Share
                                                        shares          capital
        ------------------------------------------------------------------------
        <S>                                         <C>             <C>       
        Balance, September 30, 1993                  4,732,427        6,825,872

        Shares issued:
           For cash (net of financing costs
           in the amount of $416,769)                1,509,771        4,824,004
        ------------------------------------------------------------------------
        Balance, September 30, 1994                  6,242,198       11,649,876

        Shares issued:
           For cash                                    914,100        2,074,398

        ------------------------------------------------------------------------
        Balance, September 30, 1995                  7,156,298       13,724,274

        Shares issued:
           For cash (net of financing costs
             in the amount of $170,058)              1,683,058        4,697,816
           For oil and gas property                     50,000          139,500
           For services                                  7,000           20,056

        ------------------------------------------------------------------------
        Balance, September 30, 1996                  8,896,356    $  18,581,646
        ========================================================================
</TABLE>

    (c) Escrow shares:

        As at September 30, 1995, 187,500 of the issued shares were held subject
        to an escrow agreement. During the year ended September 30, 1996 these
        shares were released from escrow.

    (d) Share purchase options:

        The following share purchase options were outstanding at September 30,
        1996:

<TABLE>
<CAPTION>
        ========================================================================
                                  Number of       Option              Expiry
                                   Shares      Price (Cdn $)          Date
        ------------------------------------------------------------------------
        <S>                       <C>              <C>         <C>
        Directors and officers    70,000           $2.70          June 22, 1997

        Directors                 85,000           $3.75       January 16, 1998
        Employees                 98,000           $3.75       January 16, 1998
        Advisory board members    15,000           $3.75       January 16, 1998

        Directors                 53,100           $3.75       January 16, 1999

        ------------------------------------------------------------------------
                                 321,100
        ========================================================================
</TABLE>


<PAGE>   28

TRANSGLOBE ENERGY CORPORATION
(FORMERLY DUSTY MAC OIL & GAS LTD.)

Notes to Consolidated Financial Statements

(Expressed in U.S. dollars unless otherwise noted)
Three years ended September 30, 1996, 1995 and 1994
================================================================================

8.  SHARE CAPITAL (CONTINUED):

    (e) Share purchase warrants:

        The following share purchase warrants were outstanding at September 30,
        1996:

<TABLE>
<CAPTION>
       =========================================================================
                        Number of          Warrant        Effective
                        Shares          Price (Cdn $)     Dates
       -------------------------------------------------------------------------
        <S>             <C>               <C>             <C>
        Warrants         75,000           $4.00           Up to July 11, 1997

        Warrants          1,531           $6.00           Up to October 20,
                                                          1997
 
        Warrants        158,227           $3.61           Up to January 25, 1997
                                          $4.15           Between January 26,
                                                          1997 and January 25,
                                                          1998

        Warrants        100,000           $3.21           Up to January 31, 1997
                                          $3.69           Between January 31,
                                                          1997 and January 31,
                                                          1998

        Warrants        200,000           $4.00 (U.S)     Up to April 1, 1997
        ------------------------------------------------------------------------
                        534,758
        ========================================================================
</TABLE>

9.  INCOME TAXES:

    The Company has available approximately $3,600,000 in loss carry forwards
    and approximately $5,000,000 in Canadian and foreign exploration and
    development expenses for income tax purposes to reduce future years' taxable
    income in Canada. The losses expire between 2000 and 2003. The Company also
    has income tax losses of approximately $2,500,000 available to reduce future
    income taxes payable in the United States expiring between 2007 and 2011.


<PAGE>   29

TRANSGLOBE ENERGY CORPORATION
(FORMERLY DUSTY MAC OIL & GAS LTD.)

Notes to Consolidated Financial Statements

(Expressed in U.S. dollars unless otherwise noted)
Three years ended September 30, 1996, 1995 and 1994
================================================================================

10.  RELATED PARTY TRANSACTIONS:

    The following fees were paid or accrued to directors and officers of the
    Company.

<TABLE>
<CAPTION>
    ============================================================================
                                               1996          1995          1994
    ----------------------------------------------------------------------------
    <S>                                  <C>          <C>              <C>      
    Consulting fees, rent, and 
      secretarial services to 
      companies controlled
      by directors                       $   14,986   $    38,171      $  38,949
                                            =======        ======         ======

    Legal fees to a law firm, of which
      a director is a principal          $       --   $    88,808      $  55,268
                                            =======        ======         ======

    Management fees to directors and
      a former director                  $  114,290   $    50,313      $  23,433
                                            =======        ======         ======

    Consulting fees to directors, 
      officers, a company controlled 
      by a director, and a former 
      officer                            $  100,753   $    80,079      $  13,285
                                            =======        ======         ======

    Wages to an officer                  $   31,890   $        --      $      --
                                            =======        ======         ======
</TABLE>


    Included in accounts receivable are the following amounts due from related
    parties:

      (a) $122,680 (1995 - $143,675); due from Ultra Petroleum Corporation
          ("Ultra"). The Company's Chairman, who is also a director, is a
          director of Ultra. The Company and Ultra are co-venturers in a number
          of oil and gas properties, of which the Company is the operator.

      (b) $ (Nil) (1995 - $18,766); due from Double Arrow Oil & Gas Ltd.
          ("Double Arrow").  The Chairman, who is also a director, and a former
          officer of the Company are directors of Double Arrow. The Company and
          Double Arrow are co-venturers in a number of oil and gas properties.

      (c) $65,104 (1995 - $Nil); due from three directors of the Company.  The
          Company and these directors are co-venturers in an oil and gas
          property.

    Included in accounts payable are the following amounts due to related
    parties:

      (a) $4,717 (1995 - $12,611); due to directors, officers and a company
          controlled by a director for consulting fees.

      (b) $Nil (1995 - $41,889); due to directors for management fees.


<PAGE>   30

TRANSGLOBE ENERGY CORPORATION
(FORMERLY DUSTY MAC OIL & GAS LTD.)

Notes to Consolidated Financial Statements

(Expressed in U.S. dollars unless otherwise noted)
Three years ended September 30, 1996, 1995 and 1994
================================================================================

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

    The consolidated financial statements have been prepared in accordance with
    accounting principles generally accepted in Canada (Canadian basis) 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 accounting principles and practices generally
    accepted in the United States (U.S. basis).

    Had the Company followed the U.S. basis, the oil and gas properties section
    of the balance sheet contained within the consolidated financial statements
    would have been reported as follows:

<TABLE>
<CAPTION>
    ============================================================================
                                                    September 30
                                           1996                     1995
    ----------------------------------------------------------------------------
                                Canadian         U.S.      Canadian        U.S.
                                   basis        basis         basis       basis
    <S>                         <C>           <C>          <C>         <C>      

    Oil and gas properties      10,771,483    9,678,149    7,235,932   6,289,719
    ============================================================================
</TABLE>


    Had the Company followed the U.S. basis, the shareholders' equity section of
    the balance sheet contained within the consolidated financial statements
    would have been reported as follows:

<TABLE>
<CAPTION>
    ============================================================================
                                                    September 30
                                           1996                     1995
    ----------------------------------------------------------------------------
                                Canadian         U.S.      Canadian       U.S.   
                                   basis        basis         basis      basis   
                                                                                
    <S>                     <C>          <C>           <C>          <C>          
    Shareholders' equity                                                        
       Share capital        $ 18,581,646 $ 19,414,979  $ 13,724,274 $14,557,607  
       Exchange gain                                                            
        (Note 11(d))                   -       (3,939)            -       8,948  
       Deficit                (4,635,898)  (6,558,626)   (3,865,802  (5,654,297)
    ----------------------------------------------------------------------------

                            $ 13,945,748  $12,852,414  $  9,858,472 $ 8,912,258
    ============================================================================
</TABLE>


<PAGE>   31

TRANSGLOBE ENERGY CORPORATION
(FORMERLY DUSTY MAC OIL & GAS LTD.)

Notes to Consolidated Financial Statements

(Expressed in U.S. dollars unless otherwise noted)
Three years ended September 30, 1996, 1995 and 1994
================================================================================


11. DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA AND
    THE UNITED STATES (CONTINUED):

    Had the Company followed the U.S. basis, the statement of operations
    contained within the consolidated financial statements would have been
    reported as follows:

<TABLE>
<CAPTION>
    ============================================================================
                                           1996           1995             1994
    ----------------------------------------------------------------------------

    <S>                             <C>           <C>             <C>           
    Loss for year under
      Canadian basis                $  (770,096)  $   (797,743)   $    (898,249)
    Effect of ceiling test 
      discounting (Note 11b)           (147,120)      (658,207)        (288,007)
    Effect of elimination of 
      foreign exchange (gain) 
      loss (Note 11(d))                  12,887         (2,934)          (6,014)
    Effect of charge to income of
      share escrow release 
      (Note 11(c))                           --       (833,333)              --

    ----------------------------------------------------------------------------
    Loss for year under U.S. basis  $  (904,329) $  (2,292,217)  $   (1,192,270)
    ============================================================================

    Loss per share under
      Canadian basis                $     (0.10) $       (0.12)  $        (0.16)
                                      ==========     =========        ==========
    Loss per share under
      U.S. basis                    $     (0.11) $       (0.34)  $        (0.21)
                                      ==========     =========        ==========
</TABLE>

    (a) Accounting for income taxes:

        Under the asset and liability method of Statement of Financial Standards
        No. 109 ("SFAS 109"), deferred income tax assets and liabilities are
        measured using enacted tax rates for the future income tax consequences
        attributable to differences between the financial statement carrying
        amount of existing assets and liabilities and their respective tax
        bases. There is no effect of applying the provision of SFAS 109 on the
        Company's financial statements as the recognition criteria for deferred
        tax assets has not been met.

    (b) Oil and gas properties:

        Under SEC regulations, the future net revenue as calculated for the
        ceiling test exclude future overhead costs and must be discounted at
        10%. This is not required under Canadian generally accepted accounting
        principles. The effect of applying this provision to the Company's
        financial statements, would increase the loss from operations for the
        years ended September 30, 1996, 1995 and 1994 by $147,120, $658,207, and
        $288,007 respectively, and decrease oil and gas properties by the same
        amount.


<PAGE>   32

TRANSGLOBE ENERGY CORPORATION
(FORMERLY DUSTY MAC OIL & GAS LTD.)

Notes to Consolidated Financial Statements

(Expressed in U.S. dollars unless otherwise noted)
Three years ended September 30, 1996, 1995 and 1994
================================================================================

11. DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA AND
    THE UNITED STATES (CONTINUED):

    (c) Escrow 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. On August 24, 1995, 187,500 escrow shares were released.
        The effect of applying this provision to the Company's financial
        statements would increase the loss from operations for the year ended
        September 30, 1995 by $833,333 and increase share capital by the same
        amount.

    (d) Translation of foreign currency:

        U.S. GAAP requires all balance sheet items to be translated at current
        exchange rates and revenue and expense transactions to be translated at
        the weighted average exchange rates for the period. For U.S. GAAP
        purposes, foreign currency adjustments resulting from the translation of
        assets and liabilities of subsidiaries with a functional currency other
        than the U.S. dollar are excluded from net income and reported as a
        separate component of shareholders' equity.

        The Company has included exchange gains (losses) arising from using the
        temporal method as described in Note 1 in net income for the years ended
        September 30, 1996, 1995 and 1994. If the consolidated statements of
        operations and balance sheet had been prepared in accordance with U.S.
        GAAP, the exchange gains (losses) for the years ended September 30,
        1996, 1995 and 1994 of $(3,939), $8,948 and $6,014 respectively, would
        have not been reflected in net income, but reported as a separate
        component of shareholders' equity.


<PAGE>   33

TRANSGLOBE ENERGY CORPORATION
(FORMERLY DUSTY MAC OIL & GAS LTD.)

Notes to Consolidated Financial Statements

(Expressed in U.S. dollars unless otherwise noted)
Three years ended September 30, 1996, 1995 and 1994
================================================================================

12. SUBSEQUENT EVENTS:

    Subsequent to September 30, 1996 the following transactions occurred:

    (a) The Company issued $4,072,219 of zero coupon convertible debentures.
        These debentures have a term of five years and are convertible, at the
        option of the holder, into common shares of the Company. Of these
        debentures, $2,500,553 have now been converted into common shares. The
        Company issued 2,721,771 common shares at an average price of $0.92 per
        share pursuant to these conversions.

    (b) The Company granted director, officer and employee stock options in the
        aggregate amount of 610,000 common shares exercisable at a price of
        $2.25 (Cdn) per share.

13. RECLASSIFICATION:

    Certain of the prior year's figures have been reclassified to conform to the
    presentation adopted in the current year.


<PAGE>   34

TRANSGLOBE ENERGY CORPORATION
(FORMERLY DUSTY MAC OIL & GAS LTD.)
Schedule of General Administrative Expenses

<TABLE>
<CAPTION>
================================================================================
                                                   Year ended September 30
                                               1996          1995          1994
--------------------------------------------------------------------------------
<S>                                     <C>           <C>           <C>        
Consulting                              $    67,708   $    52,137   $    99,966
Depreciation                                  5,506         2,651            -- 
Filing fees                                  42,852        38,884        10,156
Interest and bank charges                     7,779        12,528         2,033
Office                                       95,812       104,859       141,478
Professional fees                            91,424       114,282       112,947
Promotion and advertising                    69,752        96,821        52,094
Public relations                             30,000            --        49,264
Rent and secretarial services                40,421        41,389        29,332
Transfer fees                                14,579         8,211        12,857
Travel                                       86,916       194,536       200,414
Wages, management fees
  and benefits                              286,101       121,859        73,887

--------------------------------------------------------------------------------
                                         $  838,850    $  788,157    $  784,428
================================================================================
</TABLE>


<PAGE>   35

                                   SIGNATURES

Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.

TransGlobe Energy Corporation

Dated: January 13, 1997      by: /s/ ROSS G. CLARKSON
                                 --------------------------------
                                 Ross G. Clarkson
                                 President and Chief Executive Officer
                                 
Pursuant to the requirements Of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.


<TABLE>
<CAPTION>
  Signature                  Title                                  Date
  
<S>                          <C>                              <C> 
  /s/ ROSS G. CLARKSON       President and Chief Executive    January 13, 1997
  ------------------------   Officer and Director             
  Ross G. Clarkson


  /s/ GEORGE H. LAYCRAFT     Chairman of the Board            January 13, 1997
  ------------------------
  George H. Laycraft

  /s/ ERWIN NOYES            Vice President Operations        January 13, 1997
  ------------------------   and Director
  Erwin Noyes

  /s/ JOHN LUCKEN            Director                         January 13, 1997
  ------------------------ 
  John Lucken


  /s/ RICHARD L. COLGON      Director                         January 13, 1997
  ------------------------
  Richard L. Colgon
</TABLE>