---

| | D AV I D C . F E R G U S O N 
      Vice President, Finance, 
      CFO and Corporate Secretary |  | 
| | ----------------------------------------------------------------------------------------------- |  | 



M A N A G E M E N T  S  D I S C U S S
  I O N  A N D  A N A L Y S I S

M A R C H  6 ,  2 0 0 8

The following discussion and analysis is managements opinion
  of TransGlobe Energy Corporations (TransGlobe or the Company)
  historical financial and operating results and 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. 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.

F O R WA R D - L O O K I N G  S
  TAT E M E N T S

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.

N O N - G A A P  M E A S U R E S

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.

U S E  O F  B O E  E Q
  U I VA L E N T S

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.

O V E R V I E W

TransGlobe is an independent, public company whose activities
  are concentrated in three main geographic areas: the Arab Republic of Egypt
  (Egypt), the Republic of Yemen (Yemen) and 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.



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S E L E C T E D  A N N U A L  I
  N F O R M AT I O N

($000s, except per-share, price and volume amounts)
      
      %
      
      %2007
      Change
      2006
      Change
      2005Average 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.                                                                                                                                  

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.



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2 0 0 7  VA R I A N C E S

|                                            |          | $ 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.

C O R P O R AT E  A
  C Q U I S I T I O N

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 Petroleum Minister 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.



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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 working interest of 100% in the Hana development
  lease and an effective working interest of 75% in the eight non-Hana development
  leases.

M A N A G E M E N T  S T R A T E
  G Y  A N D  O U T L O O K  F O R  2 0 0 8

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.

2 0 0 8  O U T L O O K  H I
  G H L I G H T S

- 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/Bbl of Brent oil and Cdn$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 satisfactory price being achieved. The Company has engaged Tristone
      Capital as financial advisor in this potential sale

2 0 0 8  P R O D U C T I O N  O
  U T L O O K

The production forecast for 2008 is an average of between 6,900
  to 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

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2 0 0 8  C A S H  F L
  O W  F R O M  O P E R AT I O N S  O U T L O O K

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.

Variations in production and commodity prices during 2008 could
  significantly change this outlook. An estimate of the price sensitivity05
  06 07 05 06 07 05 06 07on 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.

B U S I N E S S  E N V I R O N M
  E N T

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






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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.

O P E R AT I N G  R
  E S U LT S

D A I LY  V O L U M E S , 
  W O R K I N G  I N T E R E S T  B E F O R E  R OYA LT I E S 
  A N D  O T H E R

2007
      2006
      % ChangeEgypt - Oil sales*
      Bopd
      432
      -
      -Yemen - Oil sales
      Bopd
      3,826
      4,046
      (5)Canada - Oil and liquids sales
      Bopd
      402
      331
      22- Gas sales
      Mcfpd
      6,193
      4,204
      47Canada
      Boepd
      1,434
      1,031
      39Total 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.

C O N S O L I D AT E D****N E T  O P E R AT I N G  R E S U LT S

Consolidated2007
      2006($000s, except per
        Boe amounts)
      $
      $/Boe
      $
      $/BoeOil and gas sales
      136,709
      65.80
      109,190
      58.92Royalties and other
      48,798
      23.49
      39,093
      21.09Current income taxes
      12,630
      6.08
      9,129
      4.93Operating expenses
      15,268
      7.35
      11,107
      5.99Net operatingincome
      60,013
      28.88
      49,86
      26.91




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S E G M E N T E D  N E T  O
  P E R AT I N G  R E S U LT S

In 2007, the Company had producing operations in three geographic
  areas, segmented into Egypt, Yemen and Canada. The following will discuss each
  segment separately.

E G Y P T

2007
      2006($000s, except per
        Bbl amounts)
      $
      $/Bbl
      $
      $/BblOil 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.

Y E M E N

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
        Bbl amounts)
      $
      $/Bbl
      $
      $/BblOil sales
      101,440
      72.64
      93,189
      63.10Royalties and other
      40,341
      28.89
      36,353
      24.62Current income tax
      10,895
      7.80
      9,129
      6.18Operating expenses
      10,334
      7.40
      8,108
      5.49Net operating income
      39,870
      28.55
      39,599
      26.81


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.

C A N A D A

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






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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.

S E L E C T E D  Q
  U A R T E R LY  I N F O R M A T I O N

2007
      2006($000s, except per-share,price and volume amounts)
      Q-4
      Q-3
      Q-2
      Q-1
      Q-4
      Q-3
      Q-2
      Q-1Average production volumes (Boepd)*
      6,837
      5,227
      5,353
      5,175
      5,475
      4,952
      4,915
      5,026Average sales volumes (Boepd)*
      6,837
      5,227
      5,353
      5,341
      5,313
      4,952
      5,522
      4,515Average price ($/Boe)
      75.83
      67.04
      63.68
      53.58
      55.30
      61.88
      62.17
      55.93Oil and gas sales
      47,699
      32,240
      31,016
      25,754
      27,032
      28,190
      31,238
      22,730Oil and gas sales, net of royaltiesand other
      29,343
      20,764
      20,553
      17,251
      17,647
      18,542
      18,600
      15,308Cash flow from operations**
      13,944
      13,373
      12,814
      12,010
      10,448
      12,662
      12,356
      11,297Cash flow from operations per share- Basic
      0.23
      0.22
      0.22
      0.20
      0.18
      0.22
      0.21
      0.19- Diluted
      0.23
      0.22
      0.21
      0.20
      0.17
      0.21
      0.20
      0.19Net income
      (719)
      5,198
      2,343
      5,980
      4,726
      7,366
      7,246
      6,857Net income per share- Basic
      (0.02)
      0.09
      0.04
      0.10
      0.08
      0.13
      0.12
      0.12- Diluted
      (0.01)
      0.08
      0.04
      0.10
      0.08
      0.12
      0.12
      0.11


|*  | 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 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 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).

25

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C O M M O D I T Y  C O N T R A C
  T S

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.

The Company has entered into the following financial derivative
  contracts:

|Period                                   | Volume            | Type             | Dated Brent Pricing
|---------------------------------------- | ----------------- | ---------------- | -------------------
|                                         |                   |                  | Put - Call         
|Crude Oil                                |                   |                  |                    
|May 1, 2007-December 31,
      2007      | 15,000 Bbls/month | Financial Collar | $57.50-$79.80      
|September
      1, 2007-August 31, 2008  | 15,000 Bbls/month | Financial Collar | $60.00-$78.55      
|January 1, 2008-December
      31, 2008  | 12,000 Bbls/month | Financial Collar | $60.00-$81.20      
|January 1,
      2009-December 31, 2009  | 12,000 Bbls/month | Financial Collar | $60.00-$82.10      
|November 1, 2007-March 31,
      2008    | 5,000 Bbls/month  | Financial Collar | $65.00-$89.35      
|September
      1, 2008-January 31, 2009 | 11,000 Bbls/month | Financial Collar | $60.00-$88.80      
|February 1, 2009-December
      31, 2009 | 6,000 Bbls/month  | Financial Collar | $60.00-$86.10      
|January 1, 2010-August
      31, 2010    | 12,000 Bbls/month | Financial Collar | $60.00-$84.25      
|Natural Gas                              |                   |                  |                    
|April 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   

G E N E R A L  A N D  A D M I N I S T R AT I V E 
    E X P E N S E S


2007
      2006($000s, except per Boe amounts)
      $
      $/Boe
      $
      $/Boe05 06 07
      
      05
      06 07G&A (gross)
      7,971
      3.84
      5,914
      3.19Stock-based compensation
      1,086
      0.52
      1,168
      0.63Capitalized G&A
      (1,947)
      (0.94)
      (1,999)
      (1.08)Overhead recoveries
      (367)
      (0.18)
      (409)
      (0.22)G&A (net)
      6,743
      3.24
      4,674
      2.52


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.





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D E P L E T I O N , 
  D E P R E C I A T I O N  A N D  A C C R E T I O N  E X P E N
  S E

2007
      2006($000s, except per
        Boe amounts)
      $
      $/Boe
      $
      $/BoeEgypt
      3,144
      19.96
      37
      -Write-off of dryhole costs
        (Nuqra Block)
      4,111
      -
      -
      -Yemen
      12,157
      8.71
      11,623
      7.87Canada
      11,760
      22.45
      7,281
      19.3431,172
      12.40
      18,941
      10.22


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 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 Egypt, Yemen and Canada, unproven property costs of $9.2 million,
  $5.0 million and $3.9 million, respectively were excluded from costs subject
  to depletion and depreciation.

I N C O M E  TA X E
  S

|($000s)                           | 2007   | 2006 
|--------------------------------- | ------ | -----
|Current income tax - Egypt        | 1,735  | -    
|- Yemen                           | 10,895 | 9,129
|                                  | 12,630 | 9,129
|Future income tax 
      - Canada | 45     | 263  
|                                  | 12,675 | 9,392

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

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

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C A P I TA L  E X
  P E N D I T U R E S  /  D I S P O S I T I O N S

C A P I TA L  E X P E N D I T U
  R E S

($000s)
      2007
      2006
      %Egypt
      6,904
      5,365
      29Yemen
      18,437
      26,585
      (31)Canada
      11,674
      19,605
      (41)37,015
      51,555
      (28)Acquisition
      54,823
      -
      -Total
      91,838
      51,555
      78


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,($/Boe)
  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. Subsequentto 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.

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.





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F I N D I N G  A N
  D  D E V E L O P M E N T  C O S T S  A N D  F I N D I N
  G ,  D E V E L O P M E N T  
  A N D  N E T  A C Q U I S I T I O N  C O S T S

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 reserves 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.






|($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  

P R O V E D  P L U S  P R O
  B A B L E

|($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.

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R E C Y C L E  R AT
  I O

P R O V E D

Three YearAverage
      2007
      2006
      2005Netback ($/Boe)
      23.86
      25.10
      25.23
      21.04Proved F&D costs ($/Boe)
      15.77
      21.14
      14.95
      13.75Proved FD&A costs ($/Boe)
      17.25
      21.23
      14.95
      13.75F&D Recycle ratio
      1.51
      1.19
      1.69
      1.53FD&A Recycle ratio
      1.38
      1.18
      1.69
      1.53


P R O V E D  P L U S  P R O
  B A B L E

Three YearAverage
      2007
      2006
      2005Netback ($/Boe)
      23.86
      25.10
      25.23
      21.04Proved plus Probable F&D costs ($/Boe)
      19.88
      19.79
      18.35
      22.41Proved plus Probable FD&A costs ($/Boe)
      16.81
      14.58
      18.35
      22.41F&D Recycle ratio
      1.20
      1.27
      1.38
      0.94FD&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.

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


O U T S T A N D I N G  S
  H A R E  D A T A

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

L I Q U I D I T Y 
  A N D  C A P I T A L  R E S O U R C E S

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.



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

S O U R C E S  A N D  U S E S  O F  C
  A S H

|($000s)                                             | 2007    | 2006   
|--------------------------------------------------- | ------- | -------
|Cash sourced                                        |         |        
|Cash flow from operations*                          | 52,141  | 46,763 
|Increase
      in long-term debt                    | 63,000  | -      
|Exercise of options                                 | 605     | 297    
|Other                                               | 218     | -      
|                                                    | 115,964 | 47,060 
|Cash used                                           |         |        
|Exploration and development
      expenditures      | 37,015  | 51,555 
|Bank financing
      costs                          | 1,097   | -      
|Acquisition                                         | 68,001  | -      
|Repayment
      of long-term debt                   | 5,000   | -      
|Purchase of common shares                           | 472     | -      
|Other                                               | -       | 545    
|                                                    | 111,585 | 52,100 
|Net cash                                            | 4,379   | (5,040)
|Increase 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.

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C O M M I T M E N T S  A
  N D  C O N T I N G E N C I E S

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 payments.

Payment
        Due by Period1,2Less Than
      1-3
      4-5
      More than($000s)
      Total
      1
        Year
      Years
      Years
      5
        YearsLong-term debtTerm 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


1Payments exclude ongoing operating costs related
  to certain leases, interest on long-term debt and payments made to settle derivative
  contracts. 2Payments demoninated in foreign currencies have been translated
  at the December 31, 2007 exchange rate.3The 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.4Minimum work commitments include contracts awarded for capital projects
  and those commitments related to exploration and drilling obligations.

S U B S E Q U E N T  E
  V E N T S

On February 1, 2008, the Company announced that it had engaged
  a financial advisor to assist in the sale of its Canadian assets. While it is
  likely that this process will lead to the disposition of all or a portion of
  the Canadian assets, there is no assurance that this will be the case, nor is
  any forecast given as to the form of action that will be taken. Any proceeds
  from a potential sale of the Canadian assets will be applied to reduce debt.

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 was funded from bank debt and cash on hand. GHP holds a 30% interest
  in the West Gharib Concession area in Egypt.

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.

C R I T I C A L  A
  C C O U N T I N G  P O L I C I E S

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.



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O I L  A N D  G A S  R
  E S E R V E S

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.

F U L L  C O S T  A C C O U
  N T I N G  F O R  O I L  A N D  G A S  A C T I V I
  T I E S

Depletion and Depreciation ExpenseTransGlobe 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 PropertiesCertain 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 ImpairmentsUnder 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.

I N C O M E  TA X  A C C O
  U N T I N G

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.

C U R R E N C Y  T R A N S L AT
  I O N

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.

D E R I VAT I V E  F I N A N C I
  A L  I N S T U M E N T S

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 estimated fair value of all derivative
  instruments is based on quoted market prices and/or third party market indications
  and forecasts.

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A S S E T  R E T I R E M E N T 
  O B L I G AT I O N S

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.

C H A N G E S  I N 
  A C C O U N T I N G  P O L I C I E S

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

F I N A N C I A L  I N S T R U M
  E N T S ,  C O M P R E H E N S I V E  I N C O M E ,  H E D G
  E S  A N D  E Q U I T Y

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 Presentationand 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 asset or 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.

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.



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N E W  A C C O U N T I N G 
  S TA N D A R D S

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:

C A P I TA L  D I S C L O S U R
  E S

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, and
  whether 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.

A C C O U N T I N G  C H A N G E
  S

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.

G O O D W I L L  A N D  I N
  TA N G I B L E  A S S E T S

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

I N T E R N AT I O N A L  F
  I N A N C I A L  R E P O R T I N G  S TA N D A R D S

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.

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R I S K S

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                                         
|- | --------------------------------------------------------
|  | -                                                       
|  | -                                                       
|  | -                                                       
|• | Operational risks                                       
|  | -                                                       
|  | -                                                       
|  | -                                                       
|  | -                                                       
|• | Environmental, health, safety and security
        risks
|  | -                                                       
|  | -                                                       
|  | -                                                       
|  | -                                                       
|  | -                                                       
|• | 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:

F I N A N C I A L  R I S K S

Commodity price riskTransGlobe 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.

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 riskThe 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 RiskThe 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.



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O P E R AT I O N A L  R I S K S

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.

E N V I R O N M E N TA L ,  H E
  A LT H ,  S A F E T Y  A N D  S E C U R I T Y  R I S K S

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.

R E P U TAT I O N A L  R I S K S

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.

D I S C L O S U R E 
  C O N T R O L S  A N D  P R O C E D U R E S

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.

I N T E R N A L  C
  O N T RO L  O V E R  F I N A N C I A L  R E P O RT I N G

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 per 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.

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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