---









Managements Discussion and Analysis of

TRANSGLOBE ENERGY CORPORATION

for the year ended December 31, 2007

(Amended and Restated)







| | 1 | 
| | - | 

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TRANSLGOBE ENERGY CORPORATIONMANAGEMENTS
DISCUSSION AND ANALYSIS (Amended and Restated)

March 6, 2008 (except as to discontinued operations and
subsequent events which are as of February 10, 2009)

The following restated and amended discussion and analysis (the
Restated 2007 MD&A) is managements opinion of TransGlobe Energy
Corporations (TransGlobe or the Company) historical financial and operating
results as at March 6, 2008 (except as to the treatment of discontinued
operations and subsequent events which are as of February 10, 2009). The
Restated MD&A should be read in conjunction with the audited consolidated
financial statements and the notes thereto of the Company for the years ended
December 31, 2007 and 2006, as amended and restated as at February 10, 2009 (the
Restated 2007 Financial Statements). 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 16 of the consolidated
financial statements. Additional information relating to the Company, including
the Companys Annual Information Form, is available on SEDAR at www.sedar.com.
The Companys annual report on Form 40-F may be found in the Electronic Data
Gathering, Analysis and Retrieval (EDGAR) database at www.sec.gov.

Restatement

As was announced on April 30, 2008, the Company sold its
Canadian oil and natural gas interests to a third party for the purchase price
of C$56.7 million, before normal closing adjustments. By reason of this
disposition, the Company is required, as part of normal course compliance with
Canadian GAAP, to restate the results of its prior periods, including in respect
of its results for the 12-month period ended December 31, 2007. The specific
purpose of such restatement is to account for the Canadian operations as
discontinued operations. The Company has similarly restated the results of its
prior, comparative periods in respect of its financial statements filed for the
three months ended March 31, 2008, the three and six months ended June 30, 2008
and the three and nine months ended September 30, 2008.

As was also recently announced, the Company has entered into an
agreement with a syndicate of underwriters respecting the purchase for resale,
on a bought deal basis, of 5,798,000 common shares (Common Shares) of the
Company at C$3.45 per Common Share (the Offering) to raise gross proceeds of
approximately C$20.0 million. In order to comply with Canadian generally
accepted accounting standards, the Company is required to file the Restated 2007
Financial Statements in conjunction with filing the preliminary prospectus for
the Offering, and incorporate the Restated 2007 Financial Statements in such
preliminary prospectus. Accordingly, the Restated 2007 Financial Statements and
the Restated 2007 MD&A have been filed as at today's date - rather than
being filed in conjunction with the filing of the audited financial statements
for the 12-month period ended December 31, 2008.

No attempt has been made in this Restated 2007 MD&A to
modify or update other events occurring or disclosures presented in the MD&A
as originally filed, except as required to reflect the effects of the
restatements discussed in the foregoing.

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 expressed 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.

| | 2 | 
| | - | 

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TRANSLGOBE ENERGY CORPORATIONMANAGEMENTS
DISCUSSION AND ANALYSIS (Amended and Restated)

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 operating 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, current income taxes (paid through production sharing)
and operating expenses. Management believes that net operating income is a
useful supplemental measure to analyze operating performance and provide an
indication of the results generated by the Companys principal business
activities prior to the consideration of other income and expenses. 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 (Mcf) of natural gas to one
barrel (Bbl) of crude oil. Boes 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.

OVERVIEW

TransGlobe is an independent, public company whose continuing
  operations are concentrated in two main geographic areas: the Arab Republic
  of Egypt (Egypt) and the Republic of Yemen (Yemen) and
  discontinued operations in Canada. Egypt and Yemen include 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. Please refer to Operating Results from Discontinued Operations
  for the MD&A on the Canadian segment.

| | 3 | 
| | - | 

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TRANSLGOBE ENERGY CORPORATIONMANAGEMENTS
DISCUSSION AND ANALYSIS (Amended and Restated)

Selected Annual Information

($000s, except per-share, price and volume amounts)
    
    
    
    
    %
    
    
    
    
    
    %2007
    
    
    Change
    
    
    2006
    
    
    Change
    
    
    2005Total OperationsAverage production volumes (Boepd)*
    
    5,651
    
    
    11
    
    
    5,093
    
    
    2
    
    
    4,991Average sales volumes (Boepd)*
    
    5,692
    
    
    12
    
    
    5,077
    
    
    2
    
    
    4,959Average price ($/Boe)
    
    65.80
    
    
    12
    
    
    58.92
    
    
    18
    
    
    49.92Oil and gas sales
    
    136,709
    
    
    25
    
    
    109,190
    
    
    21
    
    
    90,350Oil and gas sales, net of royalties and other
    
    87,911
    
    
    25
    
    
    70,097
    
    
    19
    
    
    58,911Cash flow from operations**
    
    52,141
    
    
    12
    
    
    46,763
    
    
    23
    
    
    38,077Cash flow from operations per share- Basic
    
    0.87
    
    
    
    
    
    0.80
    
    
    
    
    
    0.66- Diluted
    
    0.86
    
    
    
    
    
    0.77
    
    
    
    
    
    0.63Net income
    
    12,802
    
    
    (51
    )
    
    26,195
    
    
    32
    
    
    19,850Net income per share- Basic
    
    0.21
    
    
    
    
    
    0.45
    
    
    
    
    
    0.34- Diluted
    
    0.21
    
    
    
    
    
    0.43
    
    
    
    
    
    0.33Total assets
    
    204,219
    
    
    75
    
    
    116,473
    
    
    35
    
    
    86,286Long-term debt
    
    51,958
    
    
    
    
    
    -
    
    
    
    
    
    -Reserves***Total
      Proved (MMBoe)
    
    11.9
    
    
    27
    
    
    9.3
    
    
    19
    
    
    7.8Total Proved plus Probable (MMBoe)
    
    16.4
    
    
    41
    
    
    11.7
    
    
    11
    
    
    10.5


|*   | The differences in production and sales volumes result
      from inventory changes.                                                                             
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
|**  | Cash flow from operations is a non-GAAP measure that
      represents cash generated from operating activities before changes in non-
      cash working capital.
|*** | Working interest before
royalties.                                                                                                                               

| | 4 | 
| | - | 

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TRANSLGOBE ENERGY CORPORATIONMANAGEMENTS
DISCUSSION AND ANALYSIS (Amended and Restated)

($000s, except per-share, price and volume amounts)
    
    
    
    
    %
    
    
    
    
    
    %2007
    
    
    Change
    
    
    2006
    
    
    Change
    
    
    2005Continuing OperationsAverage production volumes (Boepd)*Average sales volumes (Boepd)*
    
    4,258
    
    
    5
    
    
    4,046
    
    
    (1
    )
    
    4,092Average price ($/Boe)
    
    72.17
    
    
    14
    
    
    63.10
    
    
    24
    
    
    51.09Oil and gas sales
    
    112,171
    
    
    20
    
    
    93,189
    
    
    22
    
    
    76,300Oil and gas sales, net of royalties and other
    
    67,628
    
    
    19
    
    
    56,836
    
    
    20
    
    
    47,384Cash flow from continuing operations**
    
    36,070
    
    
    (1
    )
    
    36,501
    
    
    28
    
    
    28,584Cash flow from continuing operations per
      share- Basic
    
    0.61
    
    
    
    
    
    0.62
    
    
    
    
    
    0.49- Diluted
    
    0.60
    
    
    
    
    
    0.60
    
    
    
    
    
    0.47Net income from continuing operations
    
    8,380
    
    
    (64
    )
    
    23,332
    
    
    72
    
    
    13,542Net income from continuing operations per share- Basic
    
    0.14
    
    
    
    
    
    0.40
    
    
    
    
    
    0.23- Diluted
    
    0.14
    
    
    
    
    
    0.39
    
    
    
    
    
    0.22Reserves***Total
      Proved (MMBoe)
    
    9.4
    
    
    34
    
    
    7.0
    
    
    32
    
    
    5.3Total Proved plus Probable (MMBoe)
    
    12.6
    
    
    58
    
    
    8.0
    
    
    18
    
    
    6.8


|*   | The differences in production and sales volumes result
      from inventory changes.                                                                                       
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|**  | Cash flow from continuing operations is a non-GAAP
      measure that represents cash generated from operating activities before
      changes in non-cash working capital.
|*** | Working interest before
royalties.                                                                                                                                         

In 2007, production per day increased 11% over the previous
year, mainly from increases realized in Canada and the newly acquired Egyptian
properties effective September 25, 2007. During the year, TransGlobe spent $37.0
million on exploration and development activities and drilled 26 successful
wells.

TransGlobe replaced 222% of production in 2007 and increased
proved reserves by 2.6 MMBoe, including the Egypt Acquisition that closed in
September.

Cash flow from operations increased by 12% in 2007 compared with
  2006, mainly as a result of higher realized prices, larger production volumes
  in Canada, and from the September 2007 acquisition of Egyptian assets (the Egypt
  Acquisition), offset by higher royalties, operating costs and taxes paid.

| | 5 | 
| | - | 

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TRANSLGOBE ENERGY CORPORATIONMANAGEMENTS
DISCUSSION AND ANALYSIS (Amended and Restated)

|2007 Variances                                 |  |         |   |  |            |   |  |          |  
|---------------------------------------------- |  | ------- | - |  | ---------- | - |  | -------- | -
|                                               |  |         |   |  | $Per Share |   |  | %        |  
|                                               |  | $000s   |   |  | Diluted    |   |  | Variance |  
|2006 Net Income                                |  | 26,195  |   |  | 0.43       |   |  |          |  
|Cash items                                     |  |         |   |  |            |   |  |          |  
|Volume variance                                |  | 14,772  |   |  | 0.24       |   |  | 56       |  
|Price variance                                 |  | 12,747  |   |  | 0.21       |   |  | 49       |  
|Royalties                                      |  | (9,705  | ) |  | (0.16      | ) |  | (37      | )
|Expenses:                                      |  |         |   |  |            |   |  |          |  
|Operating                                      |  | (4,161  | ) |  | (0.07      | ) |  | (16      | )
|Realized derivative gain
      (loss)          |  | (881    | ) |  | (0.01      | ) |  | (3       | )
|Cash
      general and administrative          |  | (2,177  | ) |  | (0.04      | ) |  | (8       | )
|Current income taxes                           |  | (3,501  | ) |  | (0.06      | ) |  | (13      | )
|Realized
      foreign exchange gain (loss)    |  | (17     | ) |  | -          |   |  | -        |  
|Settlement of asset retirement obligations     |  | (149    | ) |  | -          |   |  | (1       | )
|Interest on long-term debt                     |  | (1,450  | ) |  | (0.02      | ) |  | (6       | )
|Other income                                   |  | (100    | ) |  | -          |   |  | -        |  
|Total cash items variance                      |  | 5,378   |   |  | 0.09       |   |  | 21       |  
|Non-cash items                                 |  |         |   |  |            |   |  |          |  
|Unrealized derivative gain (loss)              |  | (7,015  | ) |  | (0.12      | ) |  | (27      | )
|Depletion, depreciation and accretion          |  | (12,231 | ) |  | (0.19      | ) |  | (47      | )
|Future income taxes                            |  | 218     |   |  | -          |   |  | 1        |  
|Stock-based compensation (non-cash)            |  | 82      |   |  | -          |   |  | -        |  
|Settlement of asset retirement obligations     |  | 149     |   |  | -          |   |  | 1        |  
|Amortization of
      deferred financing costs |  | 26      |   |  | -          |   |  | -        |  
|Total non-cash items variance                  |  | (18,771 | ) |  | (0.31      | ) |  | (72      | )
|2007 Net
      Income                          |  | 12,802  |   |  | 0.21       |   |  | (51      | )

Net income for 2007 decreased 51% from 2006 mainly due to
higher depletion, depreciation and accretion costs resulting from the write-down
necessitated by two dry wells drilled in the Nuqra Block in Egypt, higher
per-unit-of-production charges in Canada and Yemen, as well as a $7.1 million
non-cash unrealized derivative loss on commodity contracts.

CORPORATE ACQUISITION

On September 25, 2007, TransGlobe Petroleum International
Inc.(TGPI), a wholly-owned subsidiary of TransGlobe Energy Corporation,
acquired all the shares of Dublin International Petroleum (Egypt) Limited
(Dublin) and Drucker Petroleum Inc. (Drucker) for US$59 million, plus
working capital adjustments, as at July 1, 2007. Dublin and Drucker together
hold a 70% working interest in the West Gharib Production Sharing Concession
(PSC). TransGlobe has assumed operatorship of the West Gharib PSC on September
25, 2007.

The West Gharib PSC is located onshore in the western Gulf of
Suez rift basin of Egypt. The eight approved West Gharib development leases
encompass 178 square kilometers (approximately 44,059 acres) and are valid for
20 years, expiring between 2019 and 2026. One additional development lease at
East Hoshia, was subsequently approved by the Egyptian General Petroleum
Corporation (EGPC) on January 31, 2008. Eight of the nine development leases
(excluding the Hana development lease) are encumbered with a 25% financial
interest through an investment agreement between Dublin and a private company.
The 25% financial interest is non-voting but otherwise is treated as a 25%
participating interest partner.

On February 5, 2008, TGPI acquired all the shares of GHP
Exploration (GHP) for US$40.2 million, plus working capital adjustments, as at
September 30, 2007. GHP holds a 30% working interest in the West Gharib PSC.

With the acquisition of GHP, the Company holds a 100% working
  interest in the West Gharib PSC, with an effective working interest of 100%
  in the Hana development lease and an effective working interest of 75% in the
  eight non-Hana development leases.

| | 6 | 
| | - | 

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TRANSLGOBE ENERGY CORPORATIONMANAGEMENTS
DISCUSSION AND ANALYSIS (Amended and Restated)

Management Strategy and Outlook for 2008

In 2008, TransGlobes strategy is to focus on expanding its
international asset base. Historically, TransGlobe has experienced higher growth
rates and a higher return on investment from its international properties. To
enhance this trend, the Company will allocate all its capital and human
resources to explore and develop its international properties and to increase
its international asset base. Accordingly, management has decided to divest of
the Canadian assets and re-deploy the capital into new international ventures.

2008 Outlook Highlights

- Production is expected to average between 6,900 and 7,100 Boepd.
- Exploration and development spending is budgeted to be $58.6 million, a
  40% increase over 2007 (allocated 60% to Egypt and 40% to Yemen).
- Based on price assumptions of $80.00/Bbl of Brent oil and C$7.00/Mcf of
  natural gas, cash flow from operations is expected to be between $53.0 million
  and $57.0 million.
- In February 2008, the Company acquired a further 30% interest in the West
  Gharib PSC for $40.2 million plus working capital adjustments. The acquisition
  added approximately 900 Bopd of production to the Companys total output.
- In February 2008, the Company commenced the sale process for its Canadian
  assets, with an anticipated sale date early in the second quarter of 2008,
  subject to a satisfactory price being achieved. The Company has engaged
  Tristone Capital as financial advisor in this potential sale.

2008 Production Outlook

The production forecast for 2008 is an average of between 6,900
and 7,100 Boepd, including the recent acquisition of an additional 900 Bopd of
production in the West Gharib PSC. A number of projects are underway that are
anticipated to increase oil production during 2008. The 2008 forecast
incorporates the divestment at April 1, 2008 of TransGlobes Canadian production
totalling approximately 1,400 Boepd. TransGlobe is planning to participate in a
total of 28 exploration and development wells in Egypt and Yemen during the
year. Also included in the forecast are anticipated production increases from
development wells in West Gharib. However, the Company has not included any
assumptions of production increases from exploration success or development
drilling in Yemen. The Company will update its 2008 forecast quarterly or upon
completion of significant facilities and/or developments.

Production Forecast

|                                  | 2008        | 2007  | Change*
|--------------------------------- | ----------- | ----- | -------
|                                  |             |       |        
|Barrels of oil equivalent per day | 6,900-7,100 | 5,651 | 24     

* % growth based on mid-point of guidance

2008 Cash Flow From Operations Outlook

This outlook was developed using the above production forecast,
a dated Brent oil price of $80.00/Bbl and a natural gas price of C$7.00/Mcf.

|2008 Cash Flow From Operations Outlook |             |      |        
|-------------------------------------- | ----------- | ---- | -------
|($ million)                            | 2008        | 2007 | Change*
|                                       |             |      |        
|Cash flow from operations**            | 53.0  57.0 | 52.1 | 6      

*    % growth based on mid-point of guidance.
** Cash flow from operations is a non-GAAP measure that represents cash
generated from operating activities before changes in non-cash working capital.

While production is forecast to grow by 24% year-over-year, cash
  flow is only increasing by 6% mainly as a result of higher interest charges
  resulting from an elevated debt level and lower average netbacks received from
  the West Gharib medium-gravity oil production.

| | 7 | 
| | - | 

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TRANSLGOBE ENERGY CORPORATIONMANAGEMENTS
DISCUSSION AND ANALYSIS (Amended and Restated)

Variations in production and commodity prices during 2008 could
significantly change this outlook. An estimate of the price sensitivity on the
production forecast is shown below. During January and February 2008, the dated
Brent oil price averaged $93.52/Bbl, and the price for natural gas averaged
approximately C$7.23/Mcf. For each dollar of change in dated Brent oil prices,
the Companys annual cash flow changes by approximately $0.4 million.

|2008 Capital Budget |  |      |  |  |  | 
|------------------- |  | ---- |  |  |  | 
|($ million)         |  | 2008 |  |  |  | 
|Egypt               |  | 33.3 |  |  |  | 
|Yemen               |  | 23.8 |  |  |  | 
|Canada              |  | 1.5  |  |  |  | 
|Total               |  | 58.6 |  |  |  | 

Total capital expenditures of $58.6 million will be applied to
the drilling of up to 18 (16 development and 2 exploration) wells in Egypt and
up to 12 wells in Yemen, evenly divided into development wells and exploration
wells. The Company attaches a significantly higher risk to the exploratory
wells. The 2008 capital budget is expected to be funded from cash flow and
working capital. The Company may use additional debt or equity financing in the
future to accelerate existing projects or to finance new opportunities.

Business Environment

The Companys financial results are significantly influenced by
fluctuations in commodity prices, including price differentials, and the
U.S./Canadian dollar exchange rate. The following table shows select market
benchmark prices and foreign exchange rates:

%
    
    %2007
    Change
    2006
    Change
    2005Dated Brent average oil price ($/Bbl)
    72.60
    12
    64.88
    19
    54.57WTI average oil price ($/Bbl)
    72.27
    9
    66.09
    17
    56.46Edmonton Par average oil price (C$/Bbl)
    77.06
    5
    73.30
    6
    69.29AECO average gas price (C$/MMBtu)
    6.45
    (1)
    6.51
    (25)
    8.73U.S./Canadian Dollar year-end exchange rate
    0.9913
    (15)
    1.1654
    -
    1.1630U.S./Canadian
      Dollar average exchange rate
    1.0740
    (5)
    1.1343
    (6)
    1.2114


World crude oil prices continued to increase significantly in
2007, with global demand for oil remaining strong and outpacing supply
increases. As well, geopolitical concerns, mainly in Iraq, Nigeria and Venezuela
continued to affect supply uncertainties.

In 2007, TransGlobe sold approximately 95% of its crude oil at
dated Brent minus the selling price differentials and the remaining 5% at the
Edmonton Par price less quality differentials.

Demand for natural gas was relatively weak during the year and
  natural gas prices remained relatively flat over 2006. In 2007, TransGlobe sold
  its natural gas at AECO Index-based pricing and fixed pricing.

| | 8 | 
| | - | 

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TRANSLGOBE ENERGY CORPORATIONMANAGEMENTS
DISCUSSION AND ANALYSIS (Amended and Restated)

OPERATING RESULTS

Daily Volumes, Working Interest Before Royalties and Other

|                                            |  |       |  |  | 2007  |  |  | 2006  |  |  | %
      Change |  
|------------------------------------------- |  | ----- |  |  | ----- |  |  | ----- |  |  | -------------- | -
|Egypt         -
      Oil sales*            |  | Bopd  |  |  | 432   |  |  | -     |  |  | -              |  
|Yemen        - Oil sales                    |  | Bopd  |  |  | 3,826 |  |  | 4,046 |  |  | (5             | )
|Total continuing operations                 |  |       |  |  |       |  |  |       |  |  |                |  
|- daily sales volumes                       |  | Bopd  |  |  | 4,258 |  |  | 4,046 |  |  | 5              |  
|Canada        -
      Oil and liquids sales |  | Bopd  |  |  | 402   |  |  | 331   |  |  | 22             |  
|- Gas sales                                 |  | Mcfpd |  |  | 6,193 |  |  | 4,204 |  |  | 47             |  
|Canada                                      |  | Boepd |  |  | 1,434 |  |  | 1,031 |  |  | 39             |  
|Total Company 
      daily sales volumes   |  | Boepd |  |  | 5,692 |  |  | 5,077 |  |  | 12             |  

|* | Egypt represents the operating results for the period of
      September 25, 2007 to December 31, 2007. In that period, production
      averaged 1,607 Bopd for a yearly average of 432
Bopd.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Consolidated Net Operating Results From Continuing
Operations

|                                     |  | Consolidated | 
|------------------------------------ |  | ------------ | 
|                                     |  | 2007         | 
|(000s, except per
      Boe amounts) |  | $            | 
|Oil and gas sales                    |  | 112,171      | 
|Royalties and other                  |  | 44,543       | 
|Current income taxes                 |  | 12,630       | 
|Operating expenses                   |  | 11,056       | 
|Net operating income                 |  | 43,942       | 

Segmented Net Operating Results

In 2007, the Company had continuing operations in two
geographic areas, segmented into Egypt and Yemen and discontinued operations in
Canada. The MD&A for the continuing operations will follow. Please refer to
Operating Results from Discontinued Operations for the MD&A on the
Canadian segment.

Egypt

|                                     |  | 2007   |  |  | 2006  | 
|------------------------------------ |  | ------ |  |  | ----- | 
|(000s, except per
      Boe amounts) |  | $      |  |  | $/Boe | 
|Oil sales                            |  | 10,731 |  |  | 68.13 | 
|Royalties and other                  |  | 4,202  |  |  | 26.67 | 
|Current income tax                   |  | 1,735  |  |  | 11.02 | 
|Operating expenses                   |  | 722    |  |  | 4.59  | 
|Net operating income                 |  | 4,072  |  |  | 25.85 | 

With the Egypt Acquisition completed late in the third quarter
  of 2007, production of 1,607 Bopd from the West Gharib PSC is included in TransGlobes
  results (September 25, 2007 to December 31, 2007). Calculated as an annual average,
  the added production from this acquisition totaled 432 Bopd for 2007. The average
  selling price during that period for this production was $68.13/Bbl, which represents
  a gravity/quality adjustment of approximately $17.86/Bbl to an average dated
  Brent price for the period of $85.99/Bbl.

| | 9 | 
| | - | 

---

TRANSLGOBE ENERGY CORPORATIONMANAGEMENTS
DISCUSSION AND ANALYSIS (Amended and Restated)

Yemen

Yemen operating results are generated from two non-operated
Blocks: Block 32 (13.81087% working interest) and Block S-1 (25% working
interest).

|                                     |  | 2007    |  |  | 2006  | 
|------------------------------------ |  | ------- |  |  | ----- | 
|(000s, except per
      Boe amounts) |  | $       |  |  | $/Boe | 
|Oil sales                            |  | 101,440 |  |  | 72.64 | 
|Royalties and other                  |  | 40,341  |  |  | 28.89 | 
|Current income tax                   |  | 10,895  |  |  | 7.80  | 
|Operating expenses                   |  | 10,334  |  |  | 7.40  | 
|Net operating income                 |  | 39,870  |  |  | 28.55 | 

Net operating income in Yemen increased 1% in 2007 primarily as
a result of an oil sales increase over the prior year of 9%. While oil prices
grew by 15% over the prior year, sales volumes dropped by 5% primarily as a
result of lower sales from Block 32 due to natural declines associated with the
Tasour field.

Royalty and current income tax expenses increased 13% mainly
due to higher commodity prices. Royalties as a percentage of revenue (royalty
rate) increased to 40% in 2007 compared to 39% in 2006 while current income tax
as a percentage of revenue increased to 11% compared to 10% in 2006.

Operating expenses on a Boe basis increased 35% to $7.40/Bbl in
2007 compared with $5.49 in 2006.

- Block 32 operating expenses increased to $9.40/Bbl in 2007 compared with
  $5.18/Bbl in 2006 primarily due to declining oil production in the Tasour
  field and overall cost increases.
- Block S-1 operating costs increased to $6.48/Bbl in 2007 compared with
  $5.66/Bbl in 2006 mainly due to overall cost increases.

SELECTED QUARTERLY INFORMATION

|                                    |  | 2007   |   |  | 2006   | 
|----------------------------------- |  | ------ | - |  | ------ | 
|($000s, except per-share, price and |  |        |   |  |        | 
|volume amounts)                     |  | Q-4    |   |  | Q-3    | 
|Average production volumes (Boepd)* |  | 6,837  |   |  | 5,227  | 
|Average sales volumes (Boepd)*      |  | 6,837  |   |  | 5,227  | 
|Average price ($/Boe)               |  | 75.83  |   |  | 67.04  | 
|                                    |  |        |   |  |        | 
|Oil and gas sales                   |  | 47,699 |   |  | 32,240 | 
|                                    |  |        |   |  |        | 
|Oil and gas sales, net of royalties |  |        |   |  |        | 
|and other                           |  | 29,343 |   |  | 20,764 | 
|                                    |  |        |   |  |        | 
|Cash flow from operations**         |  | 13,944 |   |  | 13,373 | 
|Cash flow from operations per share |  |        |   |  |        | 
|- Basic                             |  | 0.23   |   |  | 0.22   | 
|- Diluted                           |  | 0.23   |   |  | 0.22   | 
|                                    |  |        |   |  |        | 
|Net income                          |  | (719   | ) |  | 5,198  | 
|Net income per share                |  |        |   |  |        | 
|- Basic                             |  | (0.02  | ) |  | 0.09   | 
|- Diluted                           |  | (0.01  | ) |  | 0.08   | 

|*  | The differences in production and sales volumes result
      from inventory changes.                                                                            
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
|** | Cash flow from operations is a non-GAAP measure that
      represents cash generated from operating activities before changes in
      non-cash working capital.

| |    | 
| | -- | 
| | 10 | 

---

TRANSLGOBE ENERGY CORPORATIONMANAGEMENTS
DISCUSSION AND ANALYSIS (Amended and Restated)

|                                    |  | 2007   |   |  | 2006   | 
|----------------------------------- |  | ------ | - |  | ------ | 
|($000s, except per-share, price and |  |        |   |  |        | 
|volume amounts)                     |  | Q-4    |   |  | Q-3    | 
|Average production volumes (Boepd)* |  | 5,333  |   |  | 3,830  | 
|Average sales volumes (Boepd)*      |  | 5,333  |   |  | 3,830  | 
|Average price ($/Boe)               |  | 83.14  |   |  | 74.72  | 
|                                    |  |        |   |  |        | 
|Oil and gas sales                   |  | 40,788 |   |  | 26,326 | 
|                                    |  |        |   |  |        | 
|Oil and gas sales, net of royalties |  |        |   |  |        | 
|and other                           |  | 23,600 |   |  | 15,793 | 
|                                    |  |        |   |  |        | 
|Cash flow from operations**         |  | 9,334  |   |  | 9,257  | 
|Cash flow from operations per share |  |        |   |  |        | 
|- Basic                             |  | 0.16   |   |  | 0.16   | 
|- Diluted                           |  | 0.15   |   |  | 0.15   | 
|                                    |  |        |   |  |        | 
|Net (loss) income                   |  | (2,302 | ) |  | 4,166  | 
|Net income (loss) per share         |  |        |   |  |        | 
|- Basic                             |  | (0.04  | ) |  | 0.07   | 
|- Diluted                           |  | (0.04  | ) |  | 0.07   | 

|*  | The differences in production and sales volumes result
      from inventory changes.                                                                            
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
|** | Cash flow from operations is a non-GAAP measure that
      represents cash generated from operating activities before changes in
      non-cash working capital.

Cash flow from operations increased in the reporting period by
$0.6 million (4%) compared with the third quarter of 2007 mainly as a result of
a 31% increase in sales volumes and a 13% hike in average commodity prices,
offset by increased royalties, taxes and operating costs.

Net income decreased 114% in the fourth quarter of 2007
compared with the prior quarter mainly as a result of a derivative loss on
commodity contracts of $6.8 million ($0.11 per diluted share).

Comparing the second quarter of 2007 with the first quarter of
that year, net income decreased 61% due to the write-off in the second quarter
of Egypt capital related to the costs of drilling two dry holes at Nuqra ($0.06
per diluted share).

COMMODITY CONTRACTS

TransGlobe uses financial derivatives as part of its risk management
  approach to manage commodity price fluctuations and stabilize cash flows for
  future exploration and development programs. The Company has fair valued these
  financial derivative contracts. As at December 31, 2007, the estimated fair
  value of these contracts is a liability of $7.1 million, which results in an
  unrealized loss of $7.1 million being recorded to the income statement for the
  year ended December 31, 2007 (2006 - $0.1 million). The estimated fair market
  value at December 31, 2007 was based on a dated Brent oil price of $96.02/Bbl.

| | 11 | 
| | -- | 

---

TRANSLGOBE ENERGY CORPORATIONMANAGEMENTS
DISCUSSION AND ANALYSIS (Amended and Restated)

The Company has entered into the following financial derivative
contracts:

Period
    Volume
    Type
    Dated BrentPricingPut - CallCrude OilMay 1, 2007-December 31, 2007
    15,000 Bbls/month
    Financial Collar
    $57.50-$79.80September 1,
      2007-August 31, 2008
    15,000 Bbls/month
    Financial Collar
    $60.00-$78.55January 1, 2008-December 31,
      2008
    12,000 Bbls/month
    Financial Collar
    $60.00-$81.20January 1,
      2009-December 31, 2009
    12,000 Bbls/month
    Financial Collar
    $60.00-$82.10November 1, 2007-March 31, 2008
    5,000 Bbls/month
    Financial Collar
    $65.00-$89.35September 1,
      2008-January 31, 2009
    11,000 Bbls/month
    Financial Collar
    $60.00-$88.80February 1, 2009-December 31,
      2009
    6,000 Bbls/month
    Financial Collar
    $60.00-$86.10January 1, 2010-August 31, 2010
    12,000 Bbls/month
    Financial Collar
    $60.00-$84.25Natural GasApril 1, 2007-October 31, 2007
    2,500 GJ/day
    Physical
    C$6.97


The hedging program was expanded significantly in September
2007 to protect the cash flows from the added risk of commodity price exposure
following a marked increase in TransGlobes debt levels resulting from the Egypt
Acquisition.

The total volumes hedged per year are listed below:

|     |  | 2008    |  |  | 2009    |  |  | 2010   | 
|---- |  | ------- |  |  | ------- |  |  | ------ | 
|Bbls |  | 323,000 |  |  | 221,000 |  |  | 96,000 | 
|Bopd |  | 885     |  |  | 605     |  |  | 263    | 

GENERAL AND ADMINISTRATIVE EXPENSES

|                                     |  | 2007   |   |  | 2006  |  
|------------------------------------ |  | ------ | - |  | ----- | -
|(000s, except per
      Boe amounts) |  | $      |   |  | $/Boe |  
|G&A (gross)                          |  | 7,971  |   |  | 3.84  |  
|Stock-based compensation             |  | 1,086  |   |  | 0.52  |  
|Capitalized G&A                      |  | (1,947 | ) |  | (0.94 | )
|Overhead recoveries                  |  | (367   | ) |  | (0.18 | )
|G&A (net)                            |  | 6,743  |   |  | 3.24  |  

General and administrative expenses (G&A) increased 44%
in 2007 (29% increase on a Boe basis) compared with 2006 mainly as a result of
increased staffing levels and higher fees caused by compliance requirements
(Sarbanes-Oxley). With higher production levels in 2008, G&A costs per Boe
are expected to decrease.

DEPLETION, DEPRECIATION AND ACCRETION EXPENSE

|                                         |  | 2007   |  |  | 2006  | 
|---------------------------------------- |  | ------ |  |  | ----- | 
|(000s, except per
      Boe amounts)     |  | $      |  |  | $/Boe | 
|Egypt                                    |  | 3,144  |  |  | 19.96 | 
|Write-off of dryhole costs (Nuqra Block) |  | 4,111  |  |  | -     | 
|Yemen                                    |  | 12,157 |  |  | 8.71  | 
|Corporate                                |  | 156    |  |  | -     | 
|                                         |  | 19,568 |  |  | 12.59 | 

| | 12 | 
| | -- | 

---

TRANSLGOBE ENERGY CORPORATIONMANAGEMENTS
DISCUSSION AND ANALYSIS (Amended and Restated)

In Egypt, depletion, depreciation and accretion expense
(DD&A) increased to $7.2 million in 2007 due to $4.1 million in dry-hole
costs related to the Nuqra Block written off during the year. As well,
production from the West Gharib PSC resulted in a $3.1 million charge to
DD&A in 2007. The DD&A of $3.1 million is due to the fact that DD&A
is depleted on proved reserves, while the purchase price for the Egypt
Acquisition was based on proved plus probable reserves.

In Yemen, DD&A on a Boe basis increased 11% in 2007
compared with 2006 primarily as a result of less reserve additions in Yemen than
in the prior year.

In Egypt and Yemen, unproven property costs of $9.2 million and
$5.0 million, respectively, were excluded from costs subject to depletion and
depreciation.

INCOME TAXES

|($000s)                                               |  | 2007   |  |  | 2006  | 
|----------------------------------------------------- |  | ------ |  |  | ----- | 
|Current income
      tax               
      - Egypt |  | 1,735  |  |  | -     | 
|-Yemen                                                |  | 10,895 |  |  | 9,129 | 
|                                                      |  | 12,630 |  |  | 9,129 | 

Current income tax expense in 2007 represents income taxes
incurred and paid under the laws of Egypt pursuant to the West Gharib PSC and
Yemen pursuant to the PSAs on Block 32 and Block S-1. The increase in Egypt is
the result of the addition of the West Gharib concession in 2007. The income tax
in Egypt as a percent of Egypt revenue was 16% in 2007. The year-over-year
increase in Yemen is primarily the result of higher revenue from that country.
The income tax expense in Yemen as a percent of Yemen revenue was 11% in 2007
and 10% in 2006.

CAPITAL EXPENDITURES/DISPOSITIONS

Capital Expenditures

|($000s)                          |  | 2007   |  |  | 2006   |  |  | %    | 
|-------------------------------- |  | ------ |  |  | ------ |  |  | ---- | 
|Egypt                            |  | 6,904  |  |  | 5,365  |  |  | 29   | 
|Yemen                            |  | 18,437 |  |  | 26,585 |  |  | (31) | 
|Corporate                        |  | 21     |  |  | 186    |  |  | (89) | 
|                                 |  | 25,362 |  |  | 32,136 |  |  | (21) | 
|Acquisition of private companies |  | 54,823 |  |  | -      |  |  | -    | 
|Total                            |  | 80,185 |  |  | 32,136 |  |  | 150  | 

In Egypt, the Company drilled two wells in the West Gharib area
and two exploration wells in the Nuqra Block. Late in the third quarter, the
Company acquired the shares two private companies (Dublin and Drucker) that hold
a working interest in the West Gharib PSC and valued the property, plant and
equipment of the acquired companies at $54.8 million. Goodwill of $4.3 million
was recorded. Subsequent to year-end, TransGlobe increased its interest in the
PSC by a further 30% through the corporate acquisition of GHP Exploration (West
Gharib) Ltd.

In Yemen, the Company drilled five wells and re-entered one well
  on Block S-1; drilled five wells on Block 32; one well on Block 72; and commenced
  a 3-D seismic program on Block 72 to be completed in the first quarter of 2008.
  The construction and commissioning of the expanded An Nagyah Central Production
  Facility (CPF)was completed, with all An Nagyah oil now
  being processed through the CPF.

| | 13 | 
| | -- | 

---

TRANSLGOBE ENERGY CORPORATIONMANAGEMENTS
DISCUSSION AND ANALYSIS (Amended and Restated)

FINDING AND DEVELOPMENT COSTS AND FINDING, DEVELOPMENT AND
NET ACQUISITION COSTS

Canadian National Instrument 51-101, Standards of Disclosure
for Oil and Gas Activities, specifies how finding and development (F&D)
costs should be calculated. Canadian National Instrument 51-101 requires that
exploration and development costs incurred in the year along with the change in
estimated future development costs be aggregated and then divided by the
applicable reserve additions. The calculation specifically excludes the effects
of acquisitions and dispositions on both reserve and costs. TransGlobe believes
that the provisions of Canadian National Instrument 51-101 do not fully reflect
TransGlobes ongoing reserve replacement costs. Since acquisitions can have a
significant impact on TransGlobes annual reserve replacement cost, to not
include these amounts could result in an inaccurate portrayal of TransGlobes
cost structure. Accordingly, TransGlobe has also reported finding, development
and acquisition (FD&A) costs that will incorporate all acquisitions net of
any dispositions during the year.

|Proved                                                     |  |        |   |  |        |   |  |        | 
|---------------------------------------------------------- |  | ------ | - |  | ------ | - |  | ------ | 
|($000s,
      except volumes and per Boe amounts)          |  | 2007   |   |  | 2006   |   |  | 2005   | 
|Total capital expenditure                                  |  | 37,015 |   |  | 51,555 |   |  | 32,654 | 
|Acquisitions (including goodwill and future capital)       |  | 62,821 |   |  | -      |   |  | -      | 
|Net change from previous years future capital             |  | (2,467 | ) |  | (1,154 | ) |  | 8,418  | 
|                                                           |  | 97,369 |   |  | 50,401 |   |  | 41,072 | 
|Reserve additions and revisions
      (MBoe)               |  |        |   |  |        |   |  |        | 
|Exploration and development                                |  | 1,634  |   |  | 3,371  |   |  | 2,987  | 
|Acquisitions                                               |  | 2,953  |   |  | -      |   |  | -      | 
|Total
      reserve additons (Mboe)                        |  | 4,587  |   |  | 3,371  |   |  | 2,987  | 
|                                                           |  |        |   |  |        |   |  |        | 
|Average cost per Boe                                       |  |        |   |  |        |   |  |        | 
|F&D                                                        |  | 21.14  |   |  | 14.95  |   |  | 13.75  | 
|FD&A                                                       |  | 21.23  |   |  | 14.95  |   |  | 13.75  | 
|                                                           |  |        |   |  |        |   |  |        | 
|Three-year average cost per Boe                            |  |        |   |  |        |   |  |        | 
|F&D                                                        |  | 15.77  |   |  | 11.85  |   |  | 9.57   | 
|FD&A                                                       |  | 17.25  |   |  | 11.85  |   |  | 9.57   | 
|                                                           |  |        |   |  |        |   |  |        | 
|Proved Plus Probable                                       |  |        |   |  |        |   |  |        | 
|($000s, except volumes and per Boe amounts)                |  | 2007   |   |  | 2006   |   |  | 2005   | 
|Total capital expenditure                                  |  | 37,015 |   |  | 51,555 |   |  | 32,654 | 
|Acquisitions (including goodwill and
      future capital) |  | 68,716 |   |  | -      |   |  | -      | 
|Net change from previous years
      future capital       |  | (6,587 | ) |  | 3,943  |   |  | 9,449  | 
|                                                           |  | 99,144 |   |  | 55,498 |   |  | 42,103 | 
|Reserve additions and revisions
      (MBoe)               |  |        |   |  |        |   |  |        | 
|Exploration and development                                |  | 1,537  |   |  | 3,025  |   |  | 1,879  | 
|Acquisitions                                               |  | 5,264  |   |  | -      |   |  | -      | 
|Total reserve additons (MBoe)                              |  | 6,801  |   |  | 3,025  |   |  | 1,879  | 
|                                                           |  |        |   |  |        |   |  |        | 
|Average cost per Boe                                       |  |        |   |  |        |   |  |        | 
|F&D                                                        |  | 19.79  |   |  | 18.35  |   |  | 22.41  | 
|FD&A                                                       |  | 14.58  |   |  | 18.35  |   |  | 22.41  | 
|                                                           |  |        |   |  |        |   |  |        | 
|Three-year average cost per Boe                            |  |        |   |  |        |   |  |        | 
|F&D                                                        |  | 19.88  |   |  | 12.83  |   |  | 8.19   | 
|FD&A                                                       |  | 16.81  |   |  | 12.83  |   |  | 8.19   | 

Note: 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.

| | 14 | 
| | -- | 

---

TRANSLGOBE ENERGY CORPORATIONMANAGEMENTS
DISCUSSION AND ANALYSIS (Amended and Restated)

RECYCLE RATIO

|                                        |  | Three   |  |  |       |  |  |       |  |  |       | 
|--------------------------------------- |  | ------- |  |  | ----- |  |  | ----- |  |  | ----- | 
|Proved                                  |  | Year    |  |  |       |  |  |       |  |  |       | 
|                                        |  | Average |  |  | 2007  |  |  | 2006  |  |  | 2005  | 
|Netback ($/Boe)                         |  | 23.86   |  |  | 25.10 |  |  | 25.23 |  |  | 21.04 | 
|Proved F&D costs ($/Boe)                |  | 15.77   |  |  | 21.14 |  |  | 14.95 |  |  | 13.75 | 
|Proved FD&A costs ($/Boe)               |  | 17.25   |  |  | 21.23 |  |  | 14.95 |  |  | 13.75 | 
|F&D Recycle ratio                       |  | 1.51    |  |  | 1.19  |  |  | 1.69  |  |  | 1.53  | 
|FD&A Recycle ratio                      |  | 1.38    |  |  | 1.18  |  |  | 1.69  |  |  | 1.53  | 
|                                        |  |         |  |  |       |  |  |       |  |  |       | 
|                                        |  | Three   |  |  |       |  |  |       |  |  |       | 
|Proved Plus Probable                    |  | Year    |  |  |       |  |  |       |  |  |       | 
|                                        |  | Average |  |  | 2007  |  |  | 2006  |  |  | 2005  | 
|Netback ($/Boe)                         |  | 23.86   |  |  | 25.10 |  |  | 25.23 |  |  | 21.04 | 
|Proved plus Probable F&D costs ($/Boe)  |  | 19.88   |  |  | 19.79 |  |  | 18.35 |  |  | 22.41 | 
|Proved plus Probable FD&A costs ($/Boe) |  | 16.81   |  |  | 14.58 |  |  | 18.35 |  |  | 22.41 | 
|F&D Recycle ratio                       |  | 1.20    |  |  | 1.27  |  |  | 1.38  |  |  | 0.94  | 
|FD&A Recycle ratio                      |  | 1.42    |  |  | 1.72  |  |  | 1.38  |  |  | 0.94  | 

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 costs or finding, development and
acquisition costs 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.

|($000s, except
      volumes and per Boe amounts)   |  | 2007   |   |  | 2006   |   |  | 2005   |  
|--------------------------------------------------- |  | ------ | - |  | ------ | - |  | ------ | -
|Net income                                          |  | 12,802 |   |  | 26,195 |   |  | 19,850 |  
|Adjustments for non-cash items:                     |  |        |   |  |        |   |  |        |  
|Depletion,
      depreciation and accretion         |  | 31,172 |   |  | 18,941 |   |  | 16,990 |  
|Stock-based compensation                            |  | 1,086  |   |  | 1,168  |   |  | 723    |  
|Future income
      taxes                           |  | 45     |   |  | 263    |   |  | 471    |  
|Amortization of deferred
      financing costs      |  | 153    |   |  | 179    |   |  | 291    |  
|Unrealized loss
      (gain) on commodity contracts |  | 7,098  |   |  | 83     |   |  | (83    | )
|Settlement of
      asset retirement obligations    |  | (215   | ) |  | (66    | ) |  | (165   | )
|Netback                                             |  | 52,141 |   |  | 46,763 |   |  | 38,077 |  
|Sales volumes
      (MBoe)                          |  | 2,078  |   |  | 1,853  |   |  | 1,810  |  
|Netback ($/Boe)                                     |  | 25.10  |   |  | 25.23  |   |  | 21.04  |  

OUTSTANDING SHARE DATA

As at December 31, 2007 TransGlobe had 59,626,539 common shares
issued and outstanding.

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 to repay debt.
TransGlobes capital programs are funded principally by cash provided from
operating activities.

The following table illustrates TransGlobes sources and
  uses of cash during the years ended December 31, 2007 and 2006:

| | 15 | 
| | -- | 

---

TRANSLGOBE ENERGY CORPORATIONMANAGEMENTS
DISCUSSION AND ANALYSIS (Amended and Restated)

Sources and Uses of Cash

|($000s)                                        |  | 2007   |   |  | 2006   |  
|---------------------------------------------- |  | ------ | - |  | ------ | -
|Cash sourced                                   |  |        |   |  |        |  
|Cash flow from continuing
      operations*    |  | 36,070 |   |  | 36,501 |  
|Increase
      in long-term debt               |  | 63,000 |   |  | -      |  
|Exercise of options                            |  | 605    |   |  | 297    |  
|Other                                          |  | 218    |   |  | -      |  
|                                               |  | 99,893 |   |  | 36,798 |  
|Cash used                                      |  |        |   |  |        |  
|Exploration and
      development expenditures |  | 25,362 |   |  | 32,136 |  
|Bank
      financing costs                     |  | 1,097  |   |  | 438    |  
|Acquisition of private
      companies         |  | 68,001 |   |  | -      |  
|Repayment
      of long-term debt              |  | 5,000  |   |  | -      |  
|Purchase of common shares                      |  | 472    |   |  | -      |  
|Other                                          |  | -      |   |  | 106    |  
|                                               |  | 99,932 |   |  | 32,680 |  
|Net cash from continuing operations            |  | (39    | ) |  | 4,118  |  
|Net cash from discontinued operations          |  | 4,418  |   |  | (9,158 | )
|Changes in non-cash working capital            |  | (486   | ) |  | 1,655  |  
|Change in cash and cash equivalents            |  | 3,893  |   |  | (3,385 | )
|Cash and cash equivalents  beginning of year  |  | 8,836  |   |  | 12,221 |  
|Cash and cash
      equivalents  end of year  |  | 12,729 |   |  | 8,836  |  

|* | 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 and the Egypt
Acquisition in the third quarter of 2007 was provided by cash flow from
operations, working capital and long-term debt.

Working capital is the amount by which current assets exceed
current liabilities. At December 31, 2007, the Company had working capital of
$5.5 million (2006 - $4.4 million). Accounts receivable grew primarily as a
result of the Egypt Acquisition. Accounts payable remained consistent: lower
drilling activity in Yemen and Canada was offset by the addition of the accounts
payable added to the Companys balance sheet with the Egypt Acquisition.

During the year, the Company increased its borrowing base from
$25.0 million to $50.0 million under the Revolving Credit Agreement and
established a new Term Loan of $13.0 million. At December 31, the Revolving
Credit Agreement was fully drawn and $8.0 million was drawn against the Term
Loan.

|($000s)                           |  | December 31, 2007 |   |  | December 31, 2006 | 
|--------------------------------- |  | ----------------- | - |  | ----------------- | 
|Revolving Credit Agreement        |  | 50,000            |   |  | -                 | 
|Term
      Loan Agreement         |  | 8,000             |   |  | -                 | 
|                                  |  | 58,000            |   |  | -                 | 
|Unamortized transaction costs     |  | (1,315            | ) |  | -                 | 
|                                  |  | 56,685            |   |  | -                 | 
|                                  |  |                   |   |  |                   | 
|Current portion of long-term debt |  | 4,727             |   |  | -                 | 
|Long-term debt                    |  | 51,958            |   |  | -                 | 

The Company expects to fund its approved 2008 exploration and
development program of $58.6 million through the use of working capital and cash
flow. The use of additional debt or equity financing during 2008 may also be
utilized to accelerate existing projects or to finance new opportunities.
Fluctuations in commodity prices, product demand, foreign exchange rates,
interest rates and various other risks may impact capital resources.

Subsequent to year-end, the Company increased its Term Loan of
  $8.0 million to $48.0 million. The Company plans to repay a portion of the long-term
  debt with any proceeds resulting from the disposition of the Canadian assets
  in 2008.

| | 16 | 
| | -- | 

---

TRANSLGOBE ENERGY CORPORATIONMANAGEMENTS
DISCUSSION AND ANALYSIS (Amended and Restated)

COMMITMENTS AND CONTINGENCIES

As part of its normal business, the Company entered into
arrangements and incurred obligations that will impact the Companys future
operations and liquidity, some of which are reflected as liabilities in the
Consolidated Financial Statements at year-end. The principal commitments of the
Company are in the form of debt repayments, lease commitments relating corporate
offices and equipment, abandonment obligations, and minimum work commitments
under various international agreements.

Additional discussion of Companys debt repayment obligations
and significant commitments can be found in notes 5 and 13 to the Consolidated
Financial Statements. A discussion of the Companys derivative commodity
contracts can be found in the Commodity Contracts section of the MD&A.

The following table includes the Companys expected future
payment commitments as at December 31, 2007 and estimated timing of such
projects.

($000s)
      
      Payment Due by Period1,2Less than
      
      
      1-3
      
      
      4-5
      
      
      More thanTotal
      
      
      1 year
      
      
      years
      
      
      years
      
      
      5 yearsLong-term debt:Term Loan Agreement
      
      8,000
      
      
      4,727
      
      
      3,273
      
      
      -
      
      
      -Revolving Credit
        Agreement
      
      50,000
      
      
      -
      
      
      50,000
      
      
      -
      
      
      -Office and equipment leases
      
      1,189
      
      
      372
      
      
      796
      
      
      21
      
      
      -Abandonment obligations3
      
      3,563
      
      
      346
      
      
      684
      
      
      2,047
      
      
      486Minimum work commitments4
      
      13,700
      
      
      -
      
      
      5,300
      
      
      8,400
      
      
      -Total
      
      76,452
      
      
      5,445
      
      
      60,053
      
      
      10,468
      
      
      486


|1. | Payments exclude ongoing operating costs related to
      certain leases, interest on long-term debt and payments made to settle
      derivative contracts.                                                                                                                                                              
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                           
|2. | Payments denominated in foreign currencies have been
      translated at December 31, 2007 exchange rate.                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                           
|3. | The abandonment obligation represents managements
      probability weighted, undiscounted best estimate of the cost and timing of
      future dismantlement, site restoration and abandonment obligations based
      on engineering estimates and in accordance with existing legislation and
      industry practice.
|   |                                                                                                                                                                                                                                                                                                                           
|4. | Minimum work commitments include contracts awarded for
      capital projects and those commitments related to exploration and drilling
      obligations.                                                                                                                                                                

OPERATING RESULTS FROM DISCONTINUED OPERATIONS

The following applies to the Canadian operations only. The sale
of the Canadian operations closed April 30, 2008. The Canadian operations have
been accounted for as discontinued operations in accordance with Canadian GAAP
on a retroactive basis and the results at December 31, 2007 and 2006 and for the
years then ended have been restated accordingly.

|Canada                               |  |        |  |  |       |  |  |        |  |  |       | 
|------------------------------------ |  | ------ |  |  | ----- |  |  | ------ |  |  | ----- | 
|                                     |  | 2007   |  |  | 2006  | 
|(000s, except per
      Boe amounts) |  | $      |  |  | $/Boe |  |  | $      |  |  | $/Boe | 
|Oil sales                            |  | 5,147  |  |  | 66.82 |  |  | 3,178  |  |  | 58.45 | 
|Gas sales ($ per Mcf)                |  | 15,018 |  |  | 6.64  |  |  | 9,478  |  |  | 6.18  | 
|NGL sales                            |  | 3,954  |  |  | 56.49 |  |  | 3,266  |  |  | 49.24 | 
|Other sales                          |  | 419    |  |  | -     |  |  | 79     |  |  | -     | 
|                                     |  | 24,538 |  |  | 46.85 |  |  | 16,001 |  |  | 42.51 | 
|Royalties and other                  |  | 4,255  |  |  | 8.12  |  |  | 2,740  |  |  | 7.28  | 
|Operating expenses                   |  | 4,212  |  |  | 8.04  |  |  | 2,999  |  |  | 7.97  | 
|Net operating income                 |  | 16,071 |  |  | 30.69 |  |  | 10,262 |  |  | 27.26 | 

| | 17 | 
| | -- | 

---

TRANSLGOBE ENERGY CORPORATIONMANAGEMENTS
DISCUSSION AND ANALYSIS (Amended and Restated)

Net operating income in Canada increased 57% in 2007 primarily
as a result of a 39% increase in production and a commodity price increase of
10% per Boe.

Royalty costs increased 12% on a Boe basis. Royalties as a
percentage of revenue in 2007 were consistent with the prior year at 17%. The
Alberta government discontinued the Alberta Royalty Tax Credit program effective
January 1, 2007. As a result, the Companys royalties increased by C$0.5 million
in 2007.

Operating expenses per Boe remained consistent in 2007 with
those recorded for 2006.

On October 25, 2007, the Government of Alberta announced
changes to the royalty program in Alberta. The proposed changes are scheduled to
become effective January 1, 2009 and are not expected to impact TransGlobes
cash flow in 2008.

DD&A

($000s, except per
        Boe amounts)
      2007
      2006$
      $/Boe
      $
      $/BoeCanada
      11,604
      22.17
      7,136
      18.96


In Canada, DD&A on a Boe basis increased 16% in 2007
compared to 2006 primarily as a result of increased finding and development
costs in Canada.

In Canada, unproven property costs of $3.9 million were
excluded from costs subject to depletion and depreciation.

|Income taxes               |      |     
|-------------------------- | ---- | ----
|($000s)                    | 2007 | 2006
|                           |      |     
|Future income tax - Canada | 45   | 263 

The future income expense relates to a non-cash expense for
taxes to be incurred in the future as Canadian tax pools reverse.

No income tax was paid in Canada in 2007. At December 31, 2007,
the Company has C$54 million in Canadian tax pools.

|Capital Expenditures |        |        |     
|-------------------- | ------ | ------ | ----
|($000s)              | 2007   | 2006   | %   
|                     |        |        |     
|Canada               | 11,653 | 19,419 | (40)

In Canada, the Company drilled a total of 18 (7.2 net) wells in
Central Alberta. The Company also carried out completion and testing work on
thirteen wells, completed facility work in Nevis to optimize production, and
acquired lands on several new prospects.

SUBSEQUENT EVENTS

On February 5, 2008, TransGlobe Energy Corporation announced
  the closing of the acquisition of privately-held GHP Exploration (West Gharib)
  Ltd. (GHP). TransGlobe acquired all the shares of GHP for $40.2
  million, plus working capital adjustments, effective September 30, 2007. The
  acquisition is funded from bank debt and cash on hand. GHP holds a 30% interest
  in the West Gharib Concession area in Egypt.

| | 18 | 
| | -- | 

---

TRANSLGOBE ENERGY CORPORATIONMANAGEMENTS
DISCUSSION AND ANALYSIS (Amended and Restated)

Also on February 5, 2008, the Company increased its Term Loan
Agreement of $8.0 million to $48.0 million. The Term Loan repayment terms
increased to $4.8 million per quarter, commencing June 30, 2008.

On April 15, 2008, the Company entered into an agreement with a
third party for the sale of its Canadian oil and natural gas interests. The sale
price of the assets was C$56.7 million, subject to normal closing adjustments.
The sale closed on April 30, 2008. The Canadian operations have been accounted
for as discontinued operations in accordance with Canadian GAAP on a retroactive
basis and the consolidated financial statements as at December 31, 2007 and 2006
and for the years then ended, have been restated accordingly. Results of the
Canadian operations have been included in the financial statements up to the
closing date of the sale (the date control was transferred to the purchaser).
The Company used the cash proceeds from the sale and cash on hand to repay $55.0
million of debt.

On August 18, 2008, TransGlobe completed an oil and gas
property acquisition in Egypt for the 25% financial interest in the eight
non-Hana development leases. The total cost of the acquisition was $18.5
million, subject to closing adjustments to the effective date of June 1, 2008.
This property acquisition was funded from bank debt of $15.0 million on cash on
hand. In addition, the Company could pay up to an additional $7.0 million if
incremental reserve thresholds are reached in the East Hoshia (up to $5.0
million) and in South Rahmi (up to $2.0 million) development leases. The value
of the net assets acquired has been assigned to property and equipment. As a
result of this property acquisition, TransGlobe now holds a 100% working
interest in the West Gharib Concession in Egypt.

On February 4, 2009, the Company announced it has entered into
an agreement with a syndicate of underwriters, under which the members of the
syndicate have agreed to purchase for resale, on a bought deal basis, 5,798,000
common shares of the Company at C$3.45 per Common Share to raise gross proceeds
of approximately C$20.0 million. Closing of the Offering, which is subject to
customary conditions and regulatory approvals, including approval of the Toronto
Stock Exchange and the NASDAQ, is expected to occur on or about February 24,
2009. TransGlobe has also granted the underwriters an over-allotment option to
purchase, on the same terms, up to an additional 869,700 Common Shares. This
option is exercisable, in whole or in part, by the underwriters, in their sole
discretion, at any time up to 30 days after closing. The maximum gross proceeds
raised under the Offering will be approximately C$23.0 million, should the
over-allotment option be exercised in full.

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 reserve evaluators. 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.

| | 19 | 
| | -- | 

---

TRANSLGOBE ENERGY CORPORATIONMANAGEMENTS
DISCUSSION AND ANALYSIS (Amended and Restated)

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
depleted, depreciated 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 depletion,
depreciation 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.

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 2007 and
2006. 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 Income and Retained Earnings.

| | 20 | 
| | -- | 

---

TRANSLGOBE ENERGY CORPORATIONMANAGEMENTS
DISCUSSION AND ANALYSIS (Amended and Restated)

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 revenues as
they 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 judgment. 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.

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.

CHANGES IN ACCOUNTING POLICIES

The following accounting pronouncements had an impact on the
financial statements of the Company in 2007:

Financial Instruments, Comprehensive Income, Hedges and
Equity

Effective January 1, 2007, the Company adopted the new
recommendations of the Canadian Institute of Chartered Accountants (CICA) under
CICA Handbook Section 1530, Comprehensive Income, Section 1651,
Foreign Currency Translation, Section 3251,Equity, Section 3855,
Financial Instruments  Recognition and Measurement, Section 3861,
Financial Instruments Disclosure and Presentation and Section
3865, Hedges. These new Handbook Sections provide requirements for the
recognition and measurement of financial instruments in the balance sheet,
reporting gains or losses in the financial statements and the use of hedge
accounting.

Under Section 3855, all financial instruments are initially measured
  in the balance sheet at fair value. Subsequent measurement of the financial
  instruments is based on their classification. The Company has classified each
  financial instrument into one of these five categories: held-for-trading, held-to-maturity
  investments, loans and receivables, available-for-sale financial assets or other
  financial liabilities. Loans and receivables, held-to-maturity investments and
  other financial liabilities are measured at amortized cost using the effective
  interest rate method. For all financial assets and financial liabilities that
  are not classified as held-for-trading, the transaction costs that are directly
  attributable to the acquisition or issue of a financial liability are adjusted
  to the fair value initially recognized for that financial instrument. These
  costs are expensed using the effective-interest-rate method and are recorded
  within interest expense. Held-for-trading financial assets are measured at fair
  value and changes in fair value are recognized in net income. Available-for-sale
  financial instruments are measured at fair value with changes in fair value
  recorded in other comprehensive income until the instrument is derecognized
  or impaired. All derivative instruments are recorded in the balance sheet at
  fair value unless they qualify for the expected purchase, sale and usage exemption.
  All changes in their fair value are recorded in income unless cash flow hedge
  accounting is used, in which case changes in fair value are recorded in other
  comprehensive income.

| | 21 | 
| | -- | 

---

TRANSLGOBE ENERGY CORPORATIONMANAGEMENTS
DISCUSSION AND ANALYSIS (Amended and Restated)

As a result of the adoption of these new standards, the Company
has classified its derivative commodity contracts and cash and cash equivalents
as held-for-trading, which are measured at fair value with changes being
recognized in net income. Accounts receivable are classified as loans and
receivables; operating bank loans, accounts payable and accrued liabilities, and
long-term debt, including interest payable, are classified as other liabilities,
all of which are measured at amortized cost. The classification of all financial
instruments is the same at inception and at December 31, 2007. The Company has
elected to classify all derivatives and embedded derivatives as held-for
trading, which are measured at fair value with changes being recognized in net
income, and the Company has maintained its policy not to use hedge accounting.
The Company elected January 1, 2003 as the transition date for embedded
derivatives.

Section 1530 establishes standards for reporting and presenting
comprehensive income which is defined as the change in equity from transactions
and other events from non-owner sources. Other comprehensive income refers to
items recognized in comprehensive income but that are excluded from net income
calculated in accordance with generally accepted accounting principles. Due to
the issuance of Section 1530, Section 1650 has been replaced by Section 1651
which establishes new standards for presentation of exchange gains and losses
arising from the translation of self-sustaining foreign operation in Other
Comprehensive Income. Therefore, the Company has restated prior periods to
include cumulative translation adjustment on self-sustaining operations as Other
Comprehensive Income.

Section 3251, Equity, which replaces Section 3250,
Surplus, establishes standards for the presentation of equity and changes
in equity during the reporting period. The main feature of this section is a
requirement for an entity to present separately each of the changes in equity
during the period, including comprehensive income, as well as components of
equity at the end of the period.

NEW ACCOUNTING STANDARDS

The Company has assessed new and revised accounting
pronouncements that have been issued that are not yet effective and determined
that the following may have an impact on the Company:

Capital Disclosures

The Accounting Standards Board (AcSB) issued Canadian Institute
of Chartered Accountants (CICA) Section 1535, Capital Disclosures. The
main features of this section are to establish requirements for an entity to
disclose qualitative information about its objectives, policies and processes
for managing capital,quantitative data about what it regards as capital,
andwhether it has complied with any externally imposed capital
requirements and, if not, the consequences of such non-compliance. The new
requirements are effective for annual and interim periods beginning on or after
October 1, 2007, and, upon adoption, are not expected to materially impact the
Consolidated Financial Statements.

Accounting Changes

Effective January 1, 2007, the Company adopted the revised
recommendations of Section 1506, Accounting Changes.The new
recommendations permit voluntary changes in accounting policy only if they
result in financial statements which provide more reliable and relevant
information. Accounting policy changes are applied retrospectively unless it is
impractical to determine the period or cumulative impact of the change.
Corrections of prior period errors are applied retrospectively and changes in
accounting estimates are applied prospectively by including these changes in
earnings. The guidance was effective for all changes in accounting policies,
changes in accounting estimates and corrections of prior period errors initiated
in periods beginning on or after January 1, 2007.

The only impact of adopting this section is to provide disclosure
  of when an entity has not applied a new source of GAAP that has been issued
  but is not yet effective. This is the case with Section 3862, Financial Instruments
  Disclosures, and Section 3863, Financial Instruments Presentations,which
  are required to be adopted for fiscal years beginning on or after October 1,
  2007. The Company will adopt these standards on January 1, 2008 and it is expected
  the only effect on the Company will be incremental disclosures regarding the
  significance of financial instruments for the entitys financial position
  and performance; and the nature, extent and management of risks arising from
  financial instruments to which the entity is exposed.

| | 22 | 
| | -- | 

---

TRANSLGOBE ENERGY CORPORATIONMANAGEMENTS
DISCUSSION AND ANALYSIS (Amended and Restated)

Goodwill and Intangible Assets

In February 2008, the Canadian Institute of Chartered
Accountants (CICA) issued Section 3064, Goodwill and intangible assets,
replacing Section 3062, Goodwill and other intangible assetsand Section
3450,

Research and development costs. Various changes have
been made to other sections of the CICA Handbook for consistency purposes. The
new Section will be applicable to financial statements relating to fiscal years
beginning on or after October 1, 2008. Accordingly, the Company will adopt the
new standards for its fiscal year beginning January 1, 2009. It establishes
standards for the recognition, measurement, presentation and disclosure of
goodwill subsequent to its initial recognition and of intangible assets by
profit-oriented enterprises. Standards concerning goodwill are unchanged from
the standards included in the previous Section 3062. The Company is currently
evaluating the impact of the adoption of this new Section on its Consolidated
Financial Statements.

International Financial Reporting Standards

In January 2006, the Accounting Standards Board (AcSB)
adopted a strategic plan for the direction of accounting standards in Canada. On
February 13, 2008, the AcSB has confirmed that effective for interim and annual
financial statements related to fiscal years beginning on or after January 1,
2011, International Financial Reporting Standards (IFRS) will replace Canadas
current Generally Accepted Accounting Principles (GAAP) for all publicly
accountable profit-oriented enterprises. The Company is currently evaluating the
impact of this changeover on its consolidated financial statements.

RISKS

TransGlobes results are affected by a variety of business
risks and uncertainties in the international petroleum industry including but
not limited to:

|• | Financial risks                                 
|- | ------------------------------------------------
|  | o                                               
|  | o                                               
|  | o                                               
|• | Operational risks                               
|  | o                                               
|  | o                                               
|  | o                                               
|  | o                                               
|• | Environmental, health, safety and security
risks
|  | o                                               
|  | o                                               
|  | o                                               
|  | o                                               
|  | o                                               
|• | Reputational risks                              

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:

Financial risks

Commodity price risk

TransGlobe mitigates its exposure to financial risks through
  the use of various financial instruments and physical contracts. The use of
  derivative instruments is governed under formal policies and is subject to limits
  established by the Board of Directors.

| | 23 | 
| | -- | 

---

TRANSLGOBE ENERGY CORPORATIONMANAGEMENTS
DISCUSSION AND ANALYSIS (Amended and Restated)

The Company uses financial derivatives to manage commodity
price fluctuations and stabilize cash flows for future exploration and
development programs. To mitigate its price risk, the Company entered into a
number of costless collar contracts. The Company also enters into physical fixed
price gas sales contracts when deemed appropriate.

Foreign currency exchange and interest rate risk

The Companys operations are exposed to fluctuations in foreign
currency exchange rates. Variations in the foreign currency exchange rate could
have a significant positive or negative impact. The Company manages its foreign
currency exchange risk by maintaining foreign currency bank accounts and
receivable accounts to offset foreign currency payables and planned
expenditures.

Fluctuations in interest rates could result in a significant
change in the amount the Company pays to service variable-interest U.S.
dollar-denominated debt. No derivative contracts were entered into during the
year to mitigate this risk.

Credit Risk

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

In Egypt, the Company sold all of its 2007 production to one
purchaser. In Yemen, the Company sold all of its 2007 Block 32 production to one
purchaser and all of its 2007 Block S-1 production to one purchaser. In Canada,
the Company sold primarily all of its 2007 gas production to one purchaser and
primarily all of its 2007 oil production to another single purchaser.

Operational Risks

TransGlobe mitigates operational risk through a number of
policies and processes. As part of its capital approval process, the Company
applies rigorous geological, geophysical and engineering analysis to each
prospect. The Company utilizes its in-house expertise for all international
ventures or employs and contracts professionals to handle each aspect of the
Companys business. The Company retains independent reserve evaluators to
determine year-end Company reserves and estimated future net revenues.

The Company also mitigates operational risks by maintaining a
comprehensive insurance program according to customary industry practice, but
cannot fully insure against all risks.

Environmental, Health, Safety and Security Risks

To mitigate environmental risks, the Company conducts its
operations to ensure compliance with respective government regulations and
guidelines,. At this time, it is not possible to predict either the nature of
the Kyoto Protocol requirements or impact on the Company.

Security risks are managed through security policies designed
to protect TransGlobes personnel and assets. The Company has a Whistleblower
protection policy, which protects employees if they raise any concerns regarding
TransGlobes operations, accounting or internal control matters.

Reputational Risks

TransGlobe takes a proactive approach to the identification and
  management of issues that affect the Companys reputation and has established
  policies such as a code of conduct for the Company in order to mange these issues.

| | 24 | 
| | -- | 

---

TRANSLGOBE ENERGY CORPORATIONMANAGEMENTS
DISCUSSION AND ANALYSIS (Amended and Restated)

DISCLOSURE CONTROLS AND PROCEDURES

As of December 31, 2007, 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.

INTERNAL CONTROL OVER FINANCIAL REPORTING

TransGlobes Management has designed and implemented internal
controls over financial reporting, as defined under Multilateral Instrument
52-109 of the Canadian Securities Administrators. As Public Accounting Oversight
Board Release 2007-005, the private companies acquired on September 25, 2007 are
excluded from this scope for 2007 but will be included for 2008.

Internal controls over financial reporting is a process
designed under the supervision of the Chief Executive Officer and the Chief
Financial Officer and effected by the Board of Directors, management and other
personnel to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with Canadian generally accepted accounting principles, including a
reconciliation to U.S. generally accepted accounting principles, focusing in
particular on controls over information contained in the annual and interim
financial statements.

Due to its inherent limitations, internal controls over
financial reporting may not prevent or detect misstatements on a timely basis. A
system of internal controls over financial reporting, no matter how well
conceived or operated, can provide only reasonable, not absolute, assurance that
the objectives of the internal controls over financial reporting are met. Also,
projections of any evaluation of the effectiveness of internal control over
financial reporting to future periods are subject to the risk that the controls
may become inadequate because of changes in conditions, or that the degree of
compliance with policies or procedures may deteriorate.

As at the date of this report, management is not aware of any
change in the Companys internal control over financial reporting that has
materially affected, or is reasonably likely to materially affect, the Companys
internal control over financial reporting.

Management has assessed the effectiveness of the Companys
internal control over financial reporting based on the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) framework on Internal Control
 Integrated Framework. Management has excluded from its assessment the internal
control over financial reporting at Dublin and Drucker, which were acquired on
September 25, 2007 and whose financial statements constitute 55 percent and 35
percent of net and total assets, respectively, 8 percent of revenues, and 9
percent of net income of the Consolidated Financial Statement amounts as of and
for the year ended December 31, 2007. Subject to the foregoing, as at the date
of this report management is not aware of any change in the Companys internal
control over financial reporting that has materially affected, or is reasonably
likely to materially affect, the Companys internal control over financial
reporting.

Based on this assessment, management believes that the internal
  controls over financial reporting provide reasonable assurance regarding the
  preparation and presentation of the Consolidated Financial Statements as at
  December 31, 2007.

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