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FOR: TRANSGLOBE ENERGY CORPORATION

TSX SYMBOL:
 TGL
NASDAQ SYMBOL:
 TGA

TransGlobe Energy Corporation Announces Second Quarter 2009 Financial and Operating Results

Aug 06, 2009 - 07 00 ET

CALGARY, ALBERTA--(Marketwire - Aug. 6, 2009) - TransGlobe Energy Corporation (TSX:TGL) (NASDAQ:TGA) ("TransGlobe" or the "Company") is pleased to announce its financial and operating results for the three and six-month periods ended June 30, 2009. All dollar values are expressed in United States dollars unless otherwise stated. The conversion to barrels of oil equivalent ("Boe") of natural gas to oil is made on the basis of six thousand cubic feet of natural gas being equivalent to one barrel ("Bbl") of crude oil. With the sale of TransGlobe's Canadian assets having closed on April 30, 2008, the results from the Canadian segment of operations are being presented as "discontinued operations" in this document.

HIGHLIGHTS

- Achieved record production levels in Q2-2009 of 9,619 barrels of oil per day ("Bopd"), a nine percent increase over Q1-2009;

- Increased funds flow from operations by 63% over Q1-2009 to $14.1 million ($0.22 per share);

- Recorded a net loss of $4.4 million ($0.07 per share), which includes a $3.4 million ($0.05 per share) unrealized derivative loss on commodity contracts;

- Repaid $5.0 million of long-term debt; and

- Funded capital expenditures entirely with funds flow from operations.

Corporate Summary

The Company delivered solid financial and operating results by significantly growing production and increasing funds flow during the continued challenges facing the world economy.

Funds flow in the second quarter was $14.1 million ($0.22 per share) and is on track with 2009 guidance. Crude oil prices rose steadily during the second quarter and averaged $58.79/Bbl for the Dated Brent reference price, after reaching the lowest levels seen in recent years in the first quarter. Accordingly, the Company has revised the budget price assumptions for the average Dated Brent price from $45.00/Bbl to $60.00/Bbl for the balance of the year. TransGlobe anticipates total funds flow for 2009 to be approximately $43.0 million, an increase of 33% over the guidance provided during the first quarter of 2009.

During the quarter, production averaged a record 9,619 Bopd, with over 3,000 Bopd contributed by the new Hana West pool in the Arab Republic of Egypt ("Egypt"). TransGlobe is lowering its production guidance for 2009 to a range of 8,800 to 9,200 Bopd. The five percent reduction is primarily due to the deferral of some non-operated Yemen capital projects to 2010 and to an increased exploration focus at West Gharib in 2009. Production averaged 8,542 Bopd during July. Scheduled and un-scheduled pump replacements resulted in approximately 700 Bopd of shut-in Hana West production during July. This work has now been completed and production restored.

TransGlobe repaid $5.0 million of long-term debt in the second quarter. This was possible in part by balancing capital outlays with funds flow from operations during 2009. This conservative approach will be maintained throughout the remainder of 2009 and the Company's focus will continue to be the exploration and development of its Egypt assets. The debt-to-funds-flow ratio currently stands at 1.2:1 (trailing 12 months).

A conference call to discuss TransGlobe's second quarter results presented in this report will be held on Thursday, August 6, 2009 at 2:30 PM Mountain Time (4:30 PM Eastern Time) and is accessible to all interested parties by dialing 1-416-641-6108 or toll-free 1-866-226-1793 (see also TransGlobe's news release dated July 30, 2009). The webcast may be accessed at http://events.onlinebroadcasting.com/transglobe/080609/index.php.

/T/

FINANCIAL AND OPERATING RESULTS
(US$000s, except per share, price, volume amounts and % change)


                       Three Months Ended June 30  Six Months Ended June 30
                       -----------------------------------------------------
                                                %                         %
Financial                    2009     2008 Change      2009     2008 Change
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Oil and gas revenue        42,557   77,283    (45)   70,936  137,703    (48)
Oil and gas revenue, net
 of royalties and other    26,462   41,629    (36)   45,522   77,544    (41)
Derivative loss on
 commodity contracts       (3,481) (20,434)   (83)   (3,681) (24,345)   (85)
Operating expense           5,201    4,901      6    10,407   10,690     (3)
General and
 administrative expense     2,363    2,865    (18)    4,869    5,137     (5)
Depletion, depreciation
 and accretion expense     14,415    9,145     58    26,432   19,849     33
Income taxes                5,631   11,574    (51)    8,805   18,724    (53)
Funds flow from
 operations(1)             14,117   18,485    (24)   22,758   36,358    (37)
 Basic per share             0.22     0.31             0.36     0.61
 Diluted per share           0.22     0.31             0.36     0.61
Net loss                   (4,361)  (5,365)   (20)   (9,315)    (907)   927
 Basic per share            (0.07)   (0.09)           (0.15)   (0.02)
 Diluted per share          (0.07)   (0.09)           (0.15)   (0.02)
Capital expenditures        8,480    4,522     88    17,406   11,927     46
Acquisitions                    -      241   (100)        -   44,459   (100)
Long-term debt             52,551   42,197     25    52,551   42,197     25
Common shares outstanding
 Basic (weighted average)  65,328   59,775      9    63,529   59,744      6
 Diluted (weighted
  average)                 65,328   59,775      9    63,529   59,744      6
Total assets              229,658  205,535     12   229,658  205,535     12
----------------------------------------------------------------------------
(1) Funds flow from operations is a non-GAAP measure that represents cash
    generated from operating activities before changes in non-cash working
    capital.

Operating
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Average production volumes
 (Boepd) (6:1)              9,619    7,706     25     9,206    7,776     18
 Oil and liquids (Bopd)     9,619    7,370     31     9,206    7,034     31
  Average price ($ per Bbl) 48.62   112.45    (57)    42.57   101.92    (58)
 Gas (Mcfpd)                    -    2,016   (100)        -    4,449   (100)
  Average price ($ per Mcf)     -     9.88   (100)        -     8.78   (100)
Operating expense
 ($ per Boe)                 5.94     7.00    (15)     6.25     7.55    (17)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Financial from Continuing Operations (excludes Canadian Operations)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Oil revenue                42,557   74,616    (43)   70,936  126,680   (44)
Oil and gas revenue, net
 of royalties and other    26,462   39,541    (33)   45,522   68,889   (34)
Operating expense           5,201    4,465     16    10,407    8,388    24
Depletion and
 depreciation expense      14,415    9,145     58    26,432   17,171    54
Funds flow from continuing
 operations(1)             14,117   16,841    (16)   22,758   30,005   (24)
 Basic per share             0.22     0.28             0.36     0.50
 Diluted per share           0.22     0.28             0.36     0.50
Net loss from continuing
 operations                (4,361) (11,449)   (62)   (9,315)  (9,096)    2
 Basic per share            (0.07)   (0.19)           (0.15)   (0.15)
 Diluted per share          (0.07)   (0.19)           (0.15)   (0.15)
Capital expenditures        8,480    4,913     73    17,406   11,178    56
----------------------------------------------------------------------------
(1) Funds flow from continuing operations is a non-GAAP measure that
    represents cash generated from continuing operating activities before
    changes in non-cash working capital.


Operating from Continuing Operations (excludes Canadian Operations)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Average production volumes
 (Bopd)                     9,619    7,283     32     9,206    6,803     35
 Oil and liquids (Bopd)     9,619    7,283     32     9,206    6,803     35
  Average price ($ per Bbl) 48.62   112.59    (57)    42.57   102.32    (58)
Operating expense
 ($ per Bbl)                 5.94     6.74    (12)     6.25     6.77     (8)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

/T/

OPERATIONS UPDATE

ARAB REPUBLIC OF EGYPT

West Gharib, Arab Republic of Egypt (100% working interest, TransGlobe operated)

Operations and Exploration

Two wells were drilled during the second quarter, resulting in a dry hole (plugged and suspended) at Hana West #6 and a potential oil well undergoing testing at East Hoshia #3. A deep exploration well was drilling at East Hoshia #4 at quarter-end.

Hana West #6 was drilled to a total depth of 6,900 feet, encountering minor oil shows in the targeted lower Rudeis C zones. The well was plugged back and suspended pending a review of a sidetrack location to encounter the Asl C in a higher structural position.

East Hoshia #3 was drilled to a total depth of 9,320 feet targeting prospect in the Nubia reservoir. The well did not encounter the Nubia in a structurally favorable position and was subsequently plugged and suspended as a potential Thebes oil well on May 31. The well was re-entered and completed as a potential Thebes oil well in July. The well will be placed on test during August to evaluate the Thebes potential. The East Hoshia #3 well appears to be a separate accumulation, approximately 2.4 kilometers southwest of the East Hoshia prospect tested on wells #2 and #4.

East Hoshia #4 commenced drilling on June 6 and reached a total depth of 8,500 feet on July 23. The well is being completed as a potential Thebes oil well to test a 500 foot fractured carbonate section in the Thebes formation. Test results are expected by late August.

The drilling rig has moved to Hana West #7 to appraise the southern extension of the Hana West pool. A continuous exploration and development drilling program is planned for the balance of 2009.

The Company initiated extended water injection tests at Hana in July 2008 and at Hoshia in September 2008 to evaluate potential waterfloods for the respective fields. A positive pressure and oil production response was measured in the offsetting producers in the Hana field during the first quarter of 2009. Based on reservoir simulation work and positive field performance to date, the Company is moving forward with plans to design and implement full-field enhanced recovery projects at both Hana and Hoshia.

TransGlobe completed a 360+ km2 3-D seismic acquisition program covering the East Hoshia, Hoshia, North Hoshia, Arta and East Arta development areas in October 2008. The processed data was received at year-end and interpretation is proceeding.

Production

Production from West Gharib averaged 6,384 Bopd to TransGlobe during the second quarter, up 1,020 Bopd over the previous quarter and representing a 70% increase in total field production from Q2-2008. The production increase is primarily due to the successful appraisal drilling at Hana West and improved pump performance at Hana and Hoshia.

Production averaged 5,395 Bopd during July, which was primarily impacted by pump replacements (scheduled and un-scheduled) which resulted in approximately 700 Bopd of shut-in Hana West production. This work has now been completed and production restored.

/T/

Quarterly West Gharib Production (Bopd)
                                              2009               2008
----------------------------------------------------------------------------
                                          Q-2       Q-1       Q-4       Q-3
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Gross production rate                   6,384     5,364     3,405     3,278
TransGlobe working interest             6,384     5,364     3,405     3,096
TransGlobe net (after royalties)        4,132     3,491     2,228     1,872
TransGlobe net (after royalties and
 tax)(1)                                3,234     2,726     1,742     1,367
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(1) Under the terms of the West Gharib Production Sharing Concession,
    royalties and taxes are paid out of the government's share of production
    sharing oil.

/T/

Nuqra Block 1, Arab Republic of Egypt (71.43% working interest, TransGlobe operated)

Operations and Exploration

The Company has entered the second exploration extension period, effective July 18, 2009. The second exploration period has a three-year term (expiry date of July 17, 2012) with a commitment to spend $5.0 million and drill two exploration wells. Prior to entering the second extension period, 25% of the original concession area (approximately 1.9 million acres) was relinquished. Effective July 18, 2009, the Nuqra concession area is approximately 3.7 million acres. The relinquished lands were not considered prospective by the Company.

TransGlobe has identified a prospect that appears to be similar to the oil discovery announced by a nearby operator at Al Baraka #1 and #2 on the Kom Ombo Concession, located immediately west of the Nuqra Concession. The Company has discussed rig-sharing possibilities with the adjacent operators to facilitate a potential 2010 drilling program.

YEMEN EAST- Masila Basin

Block 32, Republic of Yemen (13.81% working interest)

Operations and Exploration

No wells were drilled during the quarter.

Production

Production from Block 32 averaged 6,188 Bopd (855 Bopd to TransGlobe) during the quarter, representing a 1% decrease from the previous quarter.

Production averaged approximately 5,757 Bopd (795 Bopd to TransGlobe) during July.

/T/

Quarterly Block 32 Production (Bopd)

                                               2009                2008
----------------------------------------------------------------------------
                                          Q-2       Q-1       Q-4       Q-3
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Gross production rate                   6,188     6,257     5,966     7,275
TransGlobe working interest               855       864       824     1,005
TransGlobe net (after royalties)          656       606       477       514
TransGlobe net (after royalties and
 tax)(1)                                  597       523       382       378
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(1) Under the terms of the Block 32 PSA, royalties and taxes are paid out of
    the government's share of production sharing oil.

/T/

Block 72, Republic of Yemen (33% working interest)

Operations and Exploration

The Block 72 joint venture partnership entered the second 30-month exploration period in January which carries a commitment of one exploration well. Under the terms of the Block 72 Production Sharing Agreement ("PSA"), there was no acreage relinquishment at the end of the first exploration period.

Block 84, Republic of Yemen (33% working interest)

Operations and Exploration

The PSA for Block 84 was signed with the Ministry of Oil and Minerals ("MOM") on April 13, 2008. The PSA is awaiting final approval and ratification.

YEMEN WEST- Marib Basin

Block S-1, Republic of Yemen (25% working interest)

Operations and Exploration

The operator has delayed development drilling planned for the An Nagyah field until late 2009/early 2010. The drilling services are being re-tendered to capture the benefits expected from reduced demand for equipment in the upstream oil industry.

The operator of the Block S-1 joint venture group has continued discussions with MOM regarding a potential development project to produce and sell known deposits of gas at the An Naeem discovery on Block S-1.

A joint (Blocks 75 and S-1) 340 km2 3-D seismic acquisition program primarily focused on Block 75 commenced in March 2009. It is expected that field acquisition will be completed in September, to be followed by processing and interpretation. Exploration drilling could occur in 2010.

Production

Production from Block S-1 averaged 9,520 Bopd (2,380 Bopd to TransGlobe) during the second quarter, representing a decrease of 7% over the prior quarter. Approximately 600 Bopd (150 Bopd to TransGlobe) of production was curtailed during the quarter to minimize gas flaring during un-scheduled repairs to the gas injection compressors. The second compressor was put back on line in early July.

Production averaged approximately 9,406 Bopd (2,352 Bopd to TransGlobe) during July.

/T/

Quarterly Block S-1 Production (Bopd)

                                             2009                 2008
----------------------------------------------------------------------------
                                          Q-2       Q-1       Q-4       Q-3
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Gross field production rate             9,520    10,240    10,656    11,336
TransGlobe working interest             2,380     2,560     2,664     2,834
TransGlobe net (after royalties)        1,230     1,777     1,541     1,450
TransGlobe net (after royalties
 and tax)(1)                              901     1,603     1,236     1,067
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Under the terms of the Block S-1 PSA royalties and taxes are paid out of
    the government's share of production sharing oil.

/T/

Block 75, Republic of Yemen (25% working interest)

Operations and Exploration

The PSA for Block 75 was ratified and signed into law effective March 8, 2008. A joint (Block 75 and S-1) 340 km2 3-D seismic acquisition program primarily focused on Block 75 commenced in March 2009. It is expected that field acquisition will be completed in September, to be followed by processing and interpretation. Exploration drilling could occur in 2010.

Management's Discussion and Analysis

August 4, 2009

Management's discussion and analysis ("MD&A") should be read in conjunction with the unaudited interim financial statements for the three and six months ended June 30, 2009 and 2008 and the audited financial statements and MD&A for the year ended December 31, 2008 included in the Company's annual report. 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 otherwise noted). Additional information relating to the Company, including the Company's Annual Information Form, is on SEDAR at www.sedar.com. The Company's annual report on Form 40-F may be found on EDGAR at www.sec.gov.

READER ADVISORIES

Forward-Looking Statements

This 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. Such statements relate to possible future events. All statements other than statements of historical fact may be forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as "seek", "anticipate", "plan", "continue", "estimate", "expect", "may", "will", "project", "predict", "potential", "targeting", "intend", "could", "might", "should", "believe" and similar expressions. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. Although TransGlobe's forward-looking statements are based on the beliefs, expectations, opinions and assumptions of the Company's management on the date the statements are made, such statements are inherently uncertain and provide no guarantee of future performance. Actual results may differ materially from TransGlobe's expectations as reflected in such forward-looking statements as a result of various factors, many of which are beyond the control of the Company. These factors include, but are not limited to, unforeseen changes in the rate of production from TransGlobe's oil and gas properties, changes in price of crude oil and natural gas, adverse technical factors associated with exploration, development, production or transportation of TransGlobe's crude oil and natural gas reserves, changes or disruptions in the political or fiscal regimes in TransGlobe's areas of activity, changes in tax, energy or other laws or regulations, changes in significant capital expenditures, delays or disruptions in production due to shortages of skilled manpower, equipment or materials, economic fluctuations, and other factors beyond the Company's control. TransGlobe does not assume any obligation to update forward-looking statements if circumstances or management's beliefs, expectations or opinions should change, and investors should not attribute undue certainty to, or place undue reliance on, any forward-looking statements. Please consult TransGlobe's public filings at www.sedar.com and www.sec.gov for further, more detailed information concerning these matters.

Use of Barrel of Oil Equivalents

The calculation of barrels of oil equivalent ("Boe") is based on a conversion rate of six thousand cubic feet of natural gas ("Mcf") to one barrel ("Bbl") of crude oil. Boe's 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.

Non-GAAP Measures

Funds Flow from Operations

This document contains the term "funds flow from operations" and "funds flow from continuing 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"). Funds flow from operations and funds flow from continuing operations are non-GAAP measures that represent cash generated from operating activities before changes in non-cash working capital. Management considers this a key measure as it demonstrates TransGlobe's ability to generate the cash flow necessary to fund future growth through capital investment. Funds flow from operations and funds flow from continuing operations may not be comparable to similar measures used by other companies.

/T/

Reconciliation of Funds Flow from Operations and Funds Flow from Continuing
Operations

                                     Three Months Ended    Six Months Ended
                                                June 30             June 30
----------------------------------------------------------------------------
($000s)                                  2009      2008      2009      2008
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash flow from operating activities    15,052     9,573    22,941    25,889
Changes in non-cash working capital
 from continuing operations              (657)    8,763      (118)   10,408
Changes in non-cash working capital
 from discontinued operations            (278)      149       (65)       61
----------------------------------------------------------------------------
Funds flow from operations             14,117    18,485    22,758    36,358
Less: Funds flow from discontinued
 operations                                 -     1,644         -     6,353
----------------------------------------------------------------------------
Funds flow from continuing operations  14,117    16,841    22,758    30,005
----------------------------------------------------------------------------
----------------------------------------------------------------------------

/T/

Netback

Netback is a non-GAAP measure that represents sales net of royalties (all government interests, net of income taxes), operating expenses and current taxes. Management believes that netback 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. Netback may not be comparable to similar measures used by other companies.

TRANSGLOBE'S BUSINESS

TransGlobe is a Canadian-based, public company whose continuing activities are concentrated in two main geographic areas, the Arab Republic of Egypt ("Egypt") and the Republic of Yemen ("Yemen"). Egypt and Yemen include the Company's exploration, development and production of crude oil. TransGlobe disposed of its Canadian oil and gas operations in 2008 to reposition itself as a 100% oil, Middle East / North Africa growth company.

/T/

SELECTED QUARTERLY FINANCIAL INFORMATION

                                         2009                  2008
($000s, except per share, price
 and volume amounts)                  Q-2      Q-1      Q-4     Q-3     Q-2
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total Operations
 Average sales volumes (Boepd)      9,619    8,788    6,893   6,935   7,706
 Average price ($/Boe)              48.62    35.88    46.18  104.55  110.21
 Oil and gas sales                 42,557   28,379   29,285  66,707  77,283
 Oil and gas sales, net of
  royalties and other              26,462   19,060   18,272  36,577  41,629

 Cash flow from operating
  activities                       15,052    7,889   11,252  20,652   9,573
 Funds flow from operations(1)     14,117    8,641    6,134  16,775  18,485
 Funds flow from operations per
  share
  - Basic                            0.22     0.14     0.10    0.28    0.31
  - Diluted                          0.22     0.14     0.10    0.27    0.31

 Net (loss) income                 (4,361)  (4,954)   7,640  24,790  (5,365)
 Net (loss) income per share
  - Basic                           (0.07)   (0.08)    0.14    0.41   (0.09)
  - Diluted                         (0.07)   (0.08)    0.13    0.41   (0.09)

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Continuing Operations
 Average sales volumes (Bopd)       9,619    8,788    6,893   6,935   7,283
 Average price from continuing
  operations ($/Bbl)                48.62    35.88    45.97  104.55  112.59
 Oil sales                         42,557   28,379   29,151  66,707  74,616
 Oil sales, net of royalties and
  other                            26,462   19,060   17,765  36,577  39,541

 Cash flow from operating
  activities                       14,774    8,102   11,010  20,483   8,078
 Funds flow from continuing
  operations(1)                    14,117    8,641    5,579  16,775  16,841
 Funds flow from continuing
  operations per share
  - Basic                            0.22     0.14     0.09    0.28    0.28
  - Diluted                          0.22     0.14     0.09    0.27    0.28

 Net (loss) income                 (4,361)  (4,954)   7,482  24,787 (11,449)
 Net (loss) income per share
  - Basic                           (0.07)   (0.08)    0.13    0.41   (0.19)
  - Diluted                         (0.07)   (0.08)    0.12    0.41   (0.19)

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total assets                      229,658  238,145  228,238 234,501 205,535
Cash and cash equivalents          23,952   22,041    7,634   8,593  11,673
Total long-term debt, including
 current portion                   52,551   57,347   57,230  57,127  42,197
Debt-to-funds flow ratio              1.2      1.1      1.0     0.9     0.7
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Funds flow from operations and funds flow from continuing operations are
    non-GAAP measures that represent cash generated from operating
    activities and continuing operating activities, respectively, before
    changes in non-cash working capital.

/T/

During the second quarter of 2009, TransGlobe has:

- Maintained a strong financial position, with the ability to finance capital programs with funds flow from continuing operations;

- Achieved record production from continuing operations of 9,619 Bopd in Q2-2009 (Q2-2008 - 7,283 Bopd), as a result of drilling successes on the West Gharib Concession in Egypt;

- Repaid $5.0 million of long-term debt;

- Reported a debt-to-funds flow ratio of 1.2 at June 30, 2009 (June 30, 2008 - 0.7);

- Hedged 15% of its expected production in the remaining six months of 2009 at an average floor price of $54.00/Bbl and an average ceiling price of $72.06/Bbl, providing an increased level of certainty to fund its capital programs;

- Increased funds flow 63% over Q1-2009;

- Reported a decrease in funds flow from continuing operations of 16% from Q2-2008 due to a 57% decrease in commodity prices, partially offset by a 32% increase in sales volumes from continuing operations; and

- Reported a net loss from continuing operations in Q2-2009 of $4.4 million (Q2-2008 - $11.4 million loss) mainly due to unrealized derivative losses, lower commodity prices in the quarter and higher depletion and depreciation expense in Egypt.

/T/

2009 VARIANCES
                                                 $ Per Share     
                                    $    000s        Diluted     % Variance
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Q2-2008 net loss                       (5,365)         (0.09)
----------------------------------------------------------------------------
Cash items
Volume variance                        10,495           0.17           (196)
Price variance                        (42,554)         (0.64)           793
Royalties                              18,980           0.28           (354)
Expenses:
 Operating                               (736)         (0.01)            14
 Realized derivative loss               3,270           0.05            (61)
 Cash general and administrative          530           0.01            (10)
 Current income taxes                   5,943           0.09           (111)
 Realized foreign exchange gain           932           0.01            (17)
Interest on long-term debt                455           0.01             (8)
Other income                              (39)             -              1
Cash flow from discontinued 
 operations                            (6,287)         (0.09)           117
----------------------------------------------------------------------------
Total cash items variance              (9,011)         (0.12)           167
----------------------------------------------------------------------------
Non-cash items
Unrealized derivative loss             13,683           0.20           (255)
Depletion and depreciation             (5,270)         (0.08)            98
Stock-based compensation                  (28)             -              1
Amortization of deferred financing
 costs                                  1,427           0.02            (27)
Non-cash income from discontinued
 operations                               203              -             (4)
----------------------------------------------------------------------------
Total non-cash items variance          10,015           0.14           (187)
----------------------------------------------------------------------------

Q2-2009 net loss                       (4,361)         (0.07)           (20)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

/T/

The net loss was reduced by $1.0 million in Q2-2009 compared with Q2-2008 due in part to a significant decrease in the realized and unrealized derivative loss on commodity contracts and increases in production volumes, as well as lower royalties and taxes. This was offset by lower commodity prices and increased depletion and depreciation expense.

BUSINESS ENVIRONMENT

The Company's financial results are significantly influenced by fluctuations in commodity prices, including price differentials. The following table shows select market benchmark prices and foreign exchange rates:

/T/

                                          2009                2008
----------------------------------------------------------------------------
                                      Q-2     Q-1     Q-4      Q-3      Q-2
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Dated Brent average oil price
 ($/Bbl)                            58.79   44.40   54.91   114.78   121.38
U.S./Canadian Dollar average
 exchange rate                      1.167   1.245   1.213    1.042    1.010
----------------------------------------------------------------------------
----------------------------------------------------------------------------

/T/

The price of Dated Brent oil averaged $58.79/Bbl in Q2-2009, a decrease of 52% from the Q2-2008 price of $121.38/Bbl. Financial market instability and a worldwide recession resulted in a steep decline in the price of Dated Brent oil in Q4-2008, with lower price levels continuing into 2009.

The current global financial crisis has reduced liquidity in financial markets, restricted access to capital and caused significant volatility in commodity prices. These issues are expected to negatively impact the economy for the remainder of 2009. TransGlobe's management believes the Company is well positioned to weather the current world-wide economic crisis because of its manageable debt levels, positive cash generation from operations, and the availability of cash and cash equivalents.

In light of the current economic environment, TransGlobe has reduced its capital spending in 2009 compared with 2008 and continues to review costs and efficiency opportunities in the organization. The Company designed its 2009 budget to be flexible, allowing spending to be adjusted as commodity prices change and forecasts are reviewed. To enhance the Company's liquidity and to fund capital projects in Egypt, the Company raised $16.3 million in gross proceeds by issuing 5,798,000 common shares in February 2009.

SIGNIFICANT ACQUISITIONS AND DISPOSITIONS

Corporate Acquisition

On February 5, 2008, the Company acquired all the shares of GHP Exploration (West Gharib) Ltd. ("GHP") for total consideration of $40.2 million, plus transaction costs and working capital adjustments, effective September 30, 2007. This acquisition was funded by bank debt and cash on hand. GHP holds a 30% working interest in the West Gharib Concession area in Egypt. With the acquisition of GHP, the Company holds 100% working interest in the West Gharib Production Sharing Concession ("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. TransGlobe is the operator of the West Gharib Concession.

Property Acquisition

On August 18, 2008, TransGlobe completed an oil and gas property acquisition in Egypt for the remaining 25% financial interest in the eight non-Hana development leases in the West Gharib Concession. The total cost of the acquisition was $18.0 million. In addition, the Company could pay up to a maximum of $7.0 million if incremental reserve thresholds are reached in the East Hoshia (up to $5.0 million) and in the South Rahmi (up to $2.0 million) development leases, to be evaluated annually. As at December 31, 2008, no additional fees are due in 2009. Following this acquisition, TransGlobe now holds 100% working interest in the West Gharib Concession in Egypt.

Discontinued Operations

TransGlobe sold its Canadian segment of operations on April 30, 2008 to allow the Company to focus on the development of its Middle East/North Africa assets. The sale price of the assets was C$56.7 million, subject to normal closing adjustments. Accordingly, the Canadian segment has been reclassified as discontinued operations in the Consolidated Financial Statements. This is further discussed in the MD&A section entitled "Operating Results From Discontinued Operations".

OPERATING RESULTS AND NETBACK

Daily Volumes, Working Interest Before Royalties and Other

/T/

                                     Three Months Ended    Six Months Ended
                                                June 30             June 30
----------------------------------------------------------------------------
                                         2009    2008(1)     2009    2008(1)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Egypt   - Oil sales         Bopd        6,384     3,352     5,877     2,892
Yemen   - Oil sales         Bopd        3,235     3,931     3,329     3,911
----------------------------------------------------------------------------
Total continuing operations
- Daily sales volumes       Bopd        9,619     7,283     9,206     6,803
----------------------------------------------------------------------------
Canada  - Oil and liquids
          sales(2)           Bopd           -        87         -       231
        - Gas sales(2)      Mcfpd           -     2,016         -     4,449
----------------------------------------------------------------------------
Canada                      Boepd           -       423         -       973
----------------------------------------------------------------------------

Total Company -
 daily sales volumes        Boepd       9,619     7,706     9,206     7,776
----------------------------------------------------------------------------
----------------------------------------------------------------------------

(1) Egypt includes the operating results of GHP for the period February 5,
    2008 to June 30, 2008. In that period, production averaged 1,082 Bopd
    for a year-to-date average of 874 Bopd.
(2) Canada includes the operating results for the period January 1, 2008 to
    April 30, 2008. In that period, production averaged 1,463 Boepd.


Netback from Continuing Operations

Consolidated                                  Six Months Ended June 30
----------------------------------------------------------------------------
                                              2009               2008
----------------------------------------------------------------------------
(000s, except per Bbl amounts)              $     $/Bbl         $     $/Bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Oil sales                              70,936     42.57   126,680    102.32
Royalties and other                    25,414     15.25    57,791     46.68
Current taxes                           8,805      5.28    18,806     15.19
Operating expenses                     10,407      6.25     8,388      6.77
----------------------------------------------------------------------------

Netback                                26,310     15.79    41,695     33.68
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Consolidated                                 Three Months Ended June 30
----------------------------------------------------------------------------
                                              2009                 2008
----------------------------------------------------------------------------
(000s, except per Bbl amounts)              $     $/Bbl         $     $/Bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Oil sales                              42,557     48.62    74,616    112.59
Royalties and other                    16,095     18.39    35,075     52.93
Current taxes                           5,631      6.43    11,574     17.46
Operating expenses                      5,201      5.94     4,465      6.74
----------------------------------------------------------------------------

Netback                                15,630     17.86    23,502     35.46
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Egypt

                                              Six Months Ended June 30
----------------------------------------------------------------------------
                                              2009                 2008
----------------------------------------------------------------------------
(000s, except per Bbl amounts)              $     $/Bbl         $     $/Bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Oil sales                              40,926     38.47    48,610     92.35
Royalties and other                    14,385     13.52    20,913     39.73
Current taxes                           5,784      5.44     8,639     16.41
Operating expenses                      5,454      5.13     2,037      3.87
----------------------------------------------------------------------------

Netback                                15,303     14.38    17,021     32.34
----------------------------------------------------------------------------
----------------------------------------------------------------------------


                                             Three Months Ended June 30
----------------------------------------------------------------------------
                                              2009                2008
----------------------------------------------------------------------------
(000s, except per Bbl amounts)              $     $/Bbl         $     $/Bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Oil sales                              25,531     43.95    30,984    101.58
Royalties and other                     9,009     15.51    13,352     43.77
Current taxes                           3,588      6.18     5,515     18.08
Operating expenses                      2,667      4.59     1,326      4.35
----------------------------------------------------------------------------

Netback                                10,267     17.67    10,791     35.38
----------------------------------------------------------------------------
----------------------------------------------------------------------------

/T/

The netback per Bbl in Egypt decreased 50% and 56% in the three and six months ended June 30, 2009, respectively, compared with the same periods of 2008, mainly as a result of oil prices decreasing by 57% and 58%, respectively. The oil price decreases were partially offset by lower royalty and tax rates and a 90% and 103% increase in sales volumes for the three and six months ended June 30, 2009, respectively, compared with the same periods of 2008. The average selling price during the three months ended June 30, 2009 was $43.95/Bbl, which represents a gravity/quality adjustment of approximately $14.84/Bbl to an average dated Brent price for the period of $58.79/Bbl.

- Royalties and taxes as a percentage of revenue decreased to 49% in the three and six months ended June 30, 2009, compared with 61% in the same periods of 2008. Royalty and tax rates fluctuate in Egypt due to changes in the cost oil whereby the PSC allows for recovery of operating and capital costs through a reduction in government take.

- Operating costs for the three months ended June 30, 2009 increased 6% to $4.59/Bbl (2008 - $4.35/Bbl) while operating costs for the six months ended June 30, 2009 increased 33% to $5.13/Bbl (2008 - $3.87/Bbl), reflecting a higher number of workovers on the West Gharib PSC and increased staffing levels over 2008.

/T/

Yemen

                                           Six Months Ended June 30
----------------------------------------------------------------------------
                                             2009                 2008
----------------------------------------------------------------------------
(000s, except per Bbl amounts)            $       $/Bbl         $     $/Bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Oil sales                            30,010       49.81    78,070    109.68
Royalties and other                  11,029       18.30    36,878     51.81
Current taxes                         3,021        5.01    10,167     14.28
Operating expenses                    4,953        8.22     6,351      8.92
----------------------------------------------------------------------------

Netback                              11,007       18.28    24,674     34.67
----------------------------------------------------------------------------
----------------------------------------------------------------------------

                                           Three Months Ended June 30
----------------------------------------------------------------------------
                                            2009                  2008
----------------------------------------------------------------------------
(000s, except per Bbl amounts)            $       $/Bbl         $     $/Bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Oil sales                            17,026       57.84    43,632    121.97
Royalties and other                   7,086       24.07    21,723     60.73
Current taxes                         2,043        6.94     6,059     16.94
Operating expenses                    2,534        8.61     3,139      8.77
----------------------------------------------------------------------------

Netback                               5,363       18.22    12,711     35.53
----------------------------------------------------------------------------
----------------------------------------------------------------------------

/T/

In Yemen, the netback per Bbl decreased 49% and 47% in the three and six months ended June 30, 2009, respectively, compared with the same periods of 2008 primarily as a result of oil prices decreasing by 53% and 55%, respectively, partially offset by lower royalty and tax rates.

- Royalty and current tax costs decreased 67% and 70% in the three and six months ended June 30, 2009, respectively, mainly as a result of lower commodity prices. Royalties and taxes as a percentage of revenue decreased to 54% in Q2-2009 compared with 64% in Q2-2008. Royalty and tax rates fluctuate in Yemen due to changes in the amount of cost sharing oil, whereby the Block 32 and Block S-1 Production Sharing Agreements ("PSAs") allow for the recovery of operating and capital costs through a reduction in Ministry of Oil and Minerals' take of oil production.

- Operating expenses on a per Bbl basis for the three and six months ended June 30, 2009 decreased 2% and 8%, respectively, due to lower costs on Block 32 associated with the utilization of solution gas to replace diesel for power generation.

DERIVATIVE COMMODITY CONTRACTS

TransGlobe uses hedging arrangements as part of its risk management strategy to manage commodity price fluctuations and stabilize cash flows for future exploration and development programs. The hedging program was expanded significantly in Q3-2007 due to a marked increase in debt levels and again in Q1-2009 and Q2-2009 to protect the cash flows from the added risk of commodity price exposure and in order to comply with the covenants set forth by the Company's lending institutions.

The estimated fair value of unrealized commodity contracts is reported on the Consolidated Balance Sheets, with any change in the unrealized positions recorded to income. The fair values of these transactions are based on an approximation of the amounts that would have been paid to, or received from, counter-parties to settle the transactions outstanding as at the Consolidated Balance Sheet date with reference to forward prices and market values provided by independent sources. The actual amounts realized may differ from these estimates.

From a corporate perspective, the weak oil prices in the first six months of 2009 had a negative impact on the Company's revenue; however, these prices resulted in $0.7 million of realized gains recorded on the derivative commodity contracts compared with $4.9 million of realized losses in the first six months of 2008. The mark-to-market valuation of TransGlobe's future derivative commodity contracts decreased from a $2.8 million asset at December 31, 2008 to a $1.5 million liability at June 30, 2009 due to the strengthening of commodity prices since December 31, 2008, thus resulting in a $4.3 million unrealized loss on future derivative commodity contracts being recorded in the period.

/T/

                                     Three Months Ended    Six Months Ended
                                                June 30             June 30
----------------------------------------------------------------------------
($000s)                                  2009      2008      2009      2008
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Realized cash (loss) gain on commodity
 contracts(1)                            (103)   (3,373)      668    (4,877)
Unrealized loss on commodity
 contracts(2)                          (3,378)  (17,061)   (4,349)  (19,468)
----------------------------------------------------------------------------

Total derivative loss on commodity
 contracts                             (3,481)  (20,434)   (3,681)  (24,345)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Realized cash gain (loss) represents actual cash settlements or receipts
    under the respective contracts.
(2) The unrealized loss on derivative commodity contracts represents the
    change in fair value of the contracts during the period.

/T/

If the Dated Brent oil price remains at the level experienced at the end of Q2-2009, the derivative liability will be realized over the next two years. However, a 10% decrease in Dated Brent oil prices would result in a $1.4 million decrease in the derivative commodity contract liability, thus decreasing the unrealized loss by the same amount. Conversely, a 10% increase in Dated Brent oil prices would increase the unrealized loss on commodity contracts by $1.6 million. The following commodity contracts are outstanding at June 30, 2009.

/T/

                                                                      Dated
                                                              Brent Pricing
Period                       Volume             Type               Put-Call
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Crude Oil
 July 1, 2009-
  December 31, 2009   12,000 Bbls/month   Financial Collar    $60.00-$82.10
 July 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
 July 1, 2009-
  December 31, 2009   12,000 Bbls/month   Financial Collar    $40.00-$55.00
 January 1, 2010-
  August 31, 2010      9,000 Bbls/month   Financial Collar    $40.00-$80.00
 July 1, 2009-
  December 31, 2009   10,000 Bbls/month    Financial Floor    $60.00
----------------------------------------------------------------------------
----------------------------------------------------------------------------

The total volumes hedged for the balance of 2009 and the following years
are:

                                                  Six months
                                                        2009           2010
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Bbls                                                 240,000        168,000
Bopd                                                   1,304            460
----------------------------------------------------------------------------
----------------------------------------------------------------------------

/T/

At June 30, 2009, $1.4 million of the derivative commodity contracts were classified as current liabilities and $0.2 million of the derivative commodity contracts were classified as long-term liabilities.

/T/

GENERAL AND ADMINISTRATIVE EXPENSES (G&A)

                                              Six Months Ended June 30
----------------------------------------------------------------------------
                                              2009               2008
----------------------------------------------------------------------------
(000s, except per Bbl amounts)              $     $/Bbl         $     $/Bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
G&A (gross)                             5,317      3.19     5,260      3.72
Stock-based compensation                  970      0.58       766      0.54
Capitalized G&A                        (1,412)    (0.85)     (842)    (0.59)
Overhead recoveries                        (6)        -       (47)    (0.03)
----------------------------------------------------------------------------

G&A (net)                               4,869      2.92     5,137      3.64
----------------------------------------------------------------------------
----------------------------------------------------------------------------

                                            Three Months Ended June 30
----------------------------------------------------------------------------
                                              2009                2008
----------------------------------------------------------------------------
(000s, except per Bbl amounts)              $     $/Bbl         $     $/Bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
G&A (gross)                             2,418      2.76     2,751      3.92
Stock-based compensation                  480      0.55       452      0.64
Capitalized G&A                          (535)    (0.61)     (334)    (0.48)
Overhead recoveries                         -         -        (4)    (0.01)
----------------------------------------------------------------------------

G&A (net)                               2,363      2.70     2,865      4.07
----------------------------------------------------------------------------
----------------------------------------------------------------------------

/T/

General and administrative expenses decreased 18% (34% on a Boe basis) and 5% (20% on a Boe basis) in the three and six months ended June 30, 2009, respectively, compared with the same periods in 2008. The G&A per Boe is lower mainly as a result of increased production from the West Gharib Concession.

INTEREST ON LONG-TERM DEBT

Interest expense for the three and six months ended June 30, 2009 decreased to $0.7 million and $1.3 million, respectively (2008 - $2.6 million and $4.3 million, respectively). Interest expense includes interest on long-term debt and amortization of transaction costs associated with long-term debt. In the three months ended June 30, 2009, the Company expensed $0.2 million of transaction costs (2008 - $1.6 million). The Company had $53.0 million of debt outstanding at June 30, 2009 (June 30, 2008 - $43.0 million). The long-term debt bears interest at the Eurodollar Rate plus three percent.

/T/

DEPLETION AND DEPRECIATION ("DD&A")

                                             Six Months Ended June 30
----------------------------------------------------------------------------
                                              2009                2008
----------------------------------------------------------------------------
(000s, except per Bbl amounts)              $     $/Bbl         $      $/Bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Egypt                                  21,403     20.12    10,921      20.75
Yemen                                   4,937      8.19     6,173       8.67
Corporate                                  92         -        77          -
----------------------------------------------------------------------------

                                       26,432     15.86    17,171      13.87
----------------------------------------------------------------------------
----------------------------------------------------------------------------

                                               Three Months Ended June 30
----------------------------------------------------------------------------
                                              2009                2008
----------------------------------------------------------------------------
(000s, except per Bbl amounts)              $     $/Bbl         $     $/Bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Egypt                                  11,930     20.53     5,994     19.65
Yemen                                   2,436      8.28     3,111      8.70
Corporate                                  49         -        40         -
----------------------------------------------------------------------------

                                       14,415     16.47     9,145     13.80
----------------------------------------------------------------------------
----------------------------------------------------------------------------

/T/

In Egypt, DD&A increased to $11.9 million and $21.4 million in the three and six months ended June 30, 2009, respectively (2008 - $6.0 million and $10.9 million, respectively) due to DD&A charges on new production from the West Gharib PSC in Egypt. The high DD&A costs per Boe result from the fact that DD&A is depleted on proved reserves, while the purchase price for the Egypt acquisitions was based on proved plus probable reserves. This DD&A rate in Egypt per Boe will decrease as the probable reserves are converted to proved reserves.

In Yemen, DD&A on a Boe basis for the three and six months ended June 30, 2009 decreased 5% and 6%, respectively, over 2008, due to reserve additions on Block S-1 and Block 32 at year-end 2008.

In Egypt, unproven properties of $9.7 million (2008 - $9.9 million) relating to Nuqra ($7.9 million) and West Gharib ($1.8 million) were excluded from the costs subject to depletion and depreciation in the quarter. In Yemen, unproven property costs of $9.1 million (2008 - $6.8 million) relating to Block 72, Block 75 and Block 84 were excluded from the costs subject to depletion and depreciation in the quarter.

/T/

CAPITAL EXPENDITURES

                                                   Six Months Ended June 30
----------------------------------------------------------------------------
($000s)                                                 2009           2008
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Egypt                                                 12,932          6,513
Yemen                                                  4,316          4,581
Corporate                                                158             84
----------------------------------------------------------------------------
                                                      17,406         11,178
Acquisition                                                -         36,602
----------------------------------------------------------------------------

Total                                                 17,406         47,780
----------------------------------------------------------------------------
----------------------------------------------------------------------------

/T/


In Egypt, total capital expenditures in the first six months of 2009 were $12.9 million. The Company drilled seven wells, resulting in four oil wells at Hana West, one dry hole at Hana West, one oil well at East Hoshia and one water source well at Hana.

In Yemen, total capital expenditures in Q2-2009 were $4.3 million. The Company drilled one oil well at the Tasour field on Block 32 and undertook a joint 3-D seismic acquisition program on Block S1 and Block 75.

OUTSTANDING SHARE DATA

As at June 30, 2009, the Company had 65,327,839 common shares issued and outstanding.

In the first quarter of 2009, the Company issued 5,798,000 common shares at C$3.45 per common share for gross proceeds of C$20.0 million (US$16.3 million).

The Company has received regulatory approval to purchase, from time to time, as it considers advisable, up to 5,558,322 common shares under a Normal Course Issuer Bid which commenced August 1, 2008 and will terminate July 31, 2009. During the six months ended June 30, 2009, the Company did not repurchase any common shares. During the year ended December 31, 2008, the Company repurchased and cancelled 300,000 common shares at an average price of C$3.87 per share. The excess of the purchase price over the book value in the amount of $0.9 million was charged to retained earnings during the year.

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. A key measure that TransGlobe uses to measure the Company's overall financial strength is debt-to-funds flow from operating activities (calculated on a 12-month rolling basis). TransGlobe's debt-to-funds flow from operating activities ratio, a key short-term leverage measure, remained strong at 1.2 times at June 30, 2009. This was within the Company's target range of no more than 2.0 times. At March 31, 2009, the Company's bank facility was re-determined at $60.0 million. The next review is scheduled for September 30, 2009.

The following table illustrates TransGlobe's sources and uses of cash during the periods ended June 30, 2009 and 2008:

/T/

Sources and Uses of Cash

                                                   Six Months Ended June 30
----------------------------------------------------------------------------
($000s)                                                 2009           2008
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash sourced
 Funds flow from continuing operations(1)             22,758         30,005
 Increase in long-term debt                                -         40,000
 Exercise of options                                      80            514
 Issuance of common shares, net of share issuance
  costs                                               15,127              -
----------------------------------------------------------------------------
                                                      37,965         70,519
Cash used
 Capital expenditures                                 17,406         11,178
 Acquisition                                               -         44,459
 Repayment of long-term debt                           5,000         55,000
 Bank financing costs                                      -          1,184
 Options surrendered for cash payments                     -            256
 Other                                                     -             21
----------------------------------------------------------------------------
                                                      22,406        112,098
----------------------------------------------------------------------------
Net cash from continuing operations                   15,559        (41,579)
Net cash from discontinued operations                     65         53,647
Changes in non-cash working capital                      694        (13,124)
----------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents      16,318         (1,056)
Cash and cash equivalents - beginning of period        7,634         12,729
----------------------------------------------------------------------------

Cash and cash equivalents - end of period             23,952         11,673
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Funds flow from continuing operations is a non-GAAP measure that
    represents cash generated from operating activities before changes in
    non-cash working capital.

/T/

Working capital is the amount by which current assets exceed current liabilities. At June 30, 2009, the Company had working capital of $35.8 million (December 31, 2008 - $24.0 million) including discontinued operations. Cash and cash equivalents increased due to the share issuance in Q1-2009 of $16.3 million, before expenses.

The Company expects to fund its approved 2009 exploration and development program of $35.2 million ($17.8 million remaining) and contractual commitments through the use of working capital and cash generated by operating activities. The use of new financing during 2009 may also be utilized to accelerate existing projects, retire existing debt or to finance new opportunities. Fluctuations in commodity prices, product demand, foreign exchange rates, interest rates and various other risks may impact capital resources.

At June 30, 2009, TransGlobe has a $60.0 million Revolving Credit Agreement of which $53.0 million is drawn.

/T/

                                                     June 30,   December 31,
($000s)                                                 2009           2008
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Revolving Credit Agreement                            53,000         58,000
Unamortized transaction costs                           (449)          (770)
----------------------------------------------------------------------------
                                                      52,551         57,230
----------------------------------------------------------------------------

Current portion of long-term debt                          -              -
----------------------------------------------------------------------------

Long-term debt                                        52,551         57,230
----------------------------------------------------------------------------
----------------------------------------------------------------------------

/T/

COMMITMENTS AND CONTINGENCIES

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

/T/

($000s)                           Payment Due by Period(1)(2)
----------------------------------------------------------------------------
               Recognized                                              More
             in Financial  Contractual  Less than     1-3     4-5      than
               Statements   Cash Flows     1 year   years   years   5 years
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Accounts
 payable
 and accrued         Yes-
 liabilities    Liability       13,890     13,890       -       -         -
Long-term
 debt:
 Revolving
  Credit             Yes-
  Agreement     Liability       53,000          -  53,000       -         -
Office and
 equipment
 leases                No          680        361     319       -         -
Minimum work
 commitments(3)        No       12,720      1,400   2,500   8,820         -
----------------------------------------------------------------------------
Total                           80,290     15,651  55,819   8,820         -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Payments exclude ongoing operating costs related to certain leases,
    interest on long-term debt and payments made to settle derivatives.
(2) Payments denominated in foreign currencies have been translated at
    June 30, 2009 exchange rates.
(3) Minimum work commitments include contracts awarded for capital projects
    and those commitments related to exploration and drilling obligations.

/T/

Pursuant to the East Hoshia Development Lease in Egypt, the Company has completed its commitment to drilling three exploration wells and incurred funds in excess of its $4.0 million production guarantee. Subject to final government approval (pending), the East Hoshia Development Lease is scheduled for a continuation review prior to November 30, 2010, at which time non-productive lands could be relinquished.

Pursuant to the Concession agreement for Nuqra Block 1 in Egypt, the Contractor (Joint Venture Partners) has a minimum financial commitment of $5.0 million ($4.4 million to TransGlobe) and a work commitment of two exploration wells in the second exploration extension. The second 36-month extension period commenced on July 18, 2009. The Contractor has met the second extension financial commitment of $5.0 million in the prior periods. At the request of the government, the Company provided a $4.0 million production guarantee from the West Gharib Concession prior to entering the second extension period.

Pursuant to the PSA for Block 72 in Yemen, the Contractor (Joint Venture Partners) has a minimal financial commitment of $2.0 million ($0.7 million to TransGlobe) during the second exploration period. The second 30-month exploration period commenced on January 12, 2009.

Pursuant to the PSA for Block 75 in Yemen, the Contractor (Joint Venture Partners) has a minimum financial commitment of $7.0 million ($1.8 million to TransGlobe) for the signature bonus and first exploration period work program consisting of seismic acquisition and one exploration well. The first 36-month exploration period commenced March 8, 2008. The Company issued a $1.5 million letter of credit (expiring November 15, 2011) to guarantee the Company's performance under the first exploration period. The letter is secured by a guarantee granted by Export Development Canada.

Pursuant to the bid awarded for Block 84 in Yemen, the Contractor (Joint Venture Partners) has a minimum financial commitment of $4.1 million ($1.4 million to TransGlobe) for the signature bonus and a $16.0 million ($5.3 million to TransGlobe) first exploration period work program, consisting of seismic acquisition and four exploration wells. The first 42-month exploration period will commence if the PSA is finalized and ratified by the government of Yemen.

Pursuant to the August 18, 2008 asset purchase agreement for a 25% financial interest in eight development leases on the West Gharib Concession in Egypt, the Company has committed to paying the vendor a success fee to a maximum of $7.0 million if incremental reserve thresholds are reached in the East Hoshia (up to $5.0 million) and South Rahmi (up to $2.0 million) development leases, to be evaluated annually. As at December 31, 2008, no additional fees are due in 2009.

In the normal course of its operations, the Company may be subject to litigations and claims. Although it is not possible to estimate the extent of potential costs, if any, management believes that the ultimate resolution of such contingencies would not have a material adverse impact on the results of operations, financial position or liquidity of the Company.

OPERATING RESULTS FROM DISCONTINUED OPERATIONS

The following applies to the Canadian operations only, the sale of which closed April 30, 2008. The Canadian operations and results have been accounted for as discontinued operations.

/T/

                                               Six Months Ended June 30
----------------------------------------------------------------------------
                                              2009                2008
----------------------------------------------------------------------------
(000s, except per Boe amounts)              $     $/Boe         $     $/Boe
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net operating results
 Oil sales                                  -         -     2,189     96.36
 Gas sales ($ per Mcf)                      -         -     7,113      8.78
 NGL sales                                  -         -     1,606     82.73
 Other sales                                -         -       115         -
----------------------------------------------------------------------------
                                            -         -    11,023     62.25
 Royalties and other                        -         -     2,368     13.37
 Operating expenses                         -         -     2,302     13.00
----------------------------------------------------------------------------

Netback                                     -         -     6,353     35.88
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Depletion, depreciation and accretion       -         -     2,678     15.12
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Future income taxes                         -         -        82         -
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Capital expenditures                        -                 749
----------------------------------------------------------------------------
----------------------------------------------------------------------------

                                             Three Months Ended June 30
----------------------------------------------------------------------------
                                              2009               2008
----------------------------------------------------------------------------
(000s, except per Boe amounts)              $     $/Boe         $     $/Boe
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net operating results
 Oil sales                                  -         -       557    115.56
 Gas sales ($ per Mcf)                      -         -     1,813      9.88
 NGL sales                                  -         -       243     77.66
 Other sales                                -         -        54         -
----------------------------------------------------------------------------
                                            -         -     2,667     69.22
Royalties and other                         -         -       579     15.03
Operating expenses                          -         -       436     11.32
----------------------------------------------------------------------------

Netback                                     -         -     1,652     42.88
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Depletion, depreciation and accretion       -         -         -         -
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Future income taxes                         -         -         -         -
----------------------------------------------------------------------------
----------------------------------------------------------------------------

/T/

MANAGEMENT STRATEGY AND OUTLOOK FOR 2009

TransGlobe is committed to maintaining its strong financial position to support capital programs and provide shareholders with an enhanced return on investment during the current challenging economic environment. Management has taken action to preserve the Company's strong balance sheet through reduced capital spending, cost efficiency opportunities and raising $15.1 million (C$18.6 million), after share issue costs, in Q1-2009 through an issuance of common shares.

The 2009 outlook provides information as to management's expectation for results of operations for 2009. Readers are cautioned that the 2009 outlook may not be appropriate for other purposes. The Company's expected results are sensitive to fluctuations in the business environment and may vary accordingly. This outlook contains forward-looking statements that should be read in conjunction with the Company's disclosure under "Forward-Looking Statements", outlined on the first page of this MD&A.

2009 Outlook Highlights

- Production is expected to average between 8,800 and 9,200 Bopd (mid-point 9,000 Bopd), a 23% increase over the 2008 average production;

- Exploration and development spending is budgeted to be $35.2 million, a 20% decrease from 2008 (allocated 75% to Egypt and 25% to Yemen) funded from funds flow from operations and cash on hand; and

- Using the mid-point of production expectations and an average Dated Brent oil price assumption for the second half of 2009 of $60.00/Bbl, funds flow from operations is expected to be $43.0 million for the year.

2009 Production Outlook

TransGlobe's revised production guidance for 2009 is 8,800 to 9,200 Bopd (mid-point 9,000 Bopd), down 5% from the Q1-2009 guidance of 9,300 to 9,700 Bopd (mid-point 9,500 Bopd), primarily due to the deferral of some non-operated Yemen projects to 2010 and an increased exploration focus at West Gharib in 2009. Production averaged 8,542 Bopd during July, which was impacted by scheduled and un-scheduled pump replacements which resulted in approximately 700 Bopd of shut-in Hana West production. This work has now been completed and production restored. The current guidance for 2009 represents a 20% to 25% increase over the 2008 average production of 7,342 Boepd. Production from the West Gharib fields in Egypt is expected to average approximately 5,600 to 6,000 Bopd during 2009, with the balance of approximately 3,200 Bopd coming from the Yemen properties.

/T/

Production Forecast
                                     2009 Guidance  2008 Actual  % Change(1)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Barrels of oil equivalent per day      8,800-9,200        7,342          23
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) % growth based on mid-point of outlook.

/T/

2009 Funds Flow From Operations Outlook

This outlook was developed using the above revised production forecast and an average Dated Brent oil price of $60.00/Bbl for the final two quarters of 2009.

/T/

2009 Funds Flow From Operations Outlook
($ million)                          2009 Guidance  2008 Actual  % Change(1)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Funds flow from operations(2)                 43.0         59.3         (27)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) % growth based on mid-point of outlook.
(2) Funds flow from operations is a non-GAAP measure that represents cash
    generated from operating activities before changes in non-cash working
    capital.

/T/

While production is forecast to grow by 23% year-over-year, funds flow from operations is expected to decrease by 27%, mainly as a result of lower oil prices. Variations in production and commodity prices during the second half of 2009 could significantly change this outlook. An increase in the oil price of $5.00/Bbl would increase anticipated funds flow by approximately $2.5 million for the year, whereby a decrease in the oil price of $5.00/Bbl would decrease anticipated funds flow by approximately $1.8 million for the year.

/T/

2009 Capital Budget                         Six Months Ended
                                               June 30, 2009           2009
($ million)                                           Actual  Annual Budget
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Egypt                                                   12.9           26.0
Yemen                                                    4.3            9.0
Corporate                                                0.2            0.2
----------------------------------------------------------------------------

Total                                                   17.4           35.2
----------------------------------------------------------------------------
----------------------------------------------------------------------------

/T/

During the remainder of 2009, TransGlobe will shift its focus to maximize the value of its assets in Egypt. In Egypt, the Company will continue to direct its efforts on the new Hana West discovery, on East Hoshia and on waterflood projects at Hana and Hoshia. The Company plans to drill between four and five wells on the West Gharib PSC during the remaining six months of 2009. In Yemen, the Company is conducting an extensive seismic program and has deferred its drilling plans to 2010. The 2009 capital budget is expected to be funded from funds flow and working capital. In Q2-2009, TransGlobe funded 100% of its capital expenditures through funds flow from operations. The Company has designed its 2009 budget to be flexible, allowing spending to be adjusted as commodity prices change and forecasts are reviewed.

CHANGES IN ACCOUNTING POLICIES

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 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 is applicable to financial statements relating to fiscal years beginning on or after October 1, 2008. Accordingly, the Company adopted 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 adoption of this Standard did not have an impact on the Consolidated Financial Statements.

Credit Risk and Fair Value of Financial Assets and Liabilities

In January 2009, the CICA issued EIC-173, Credit Risk and the Fair Value of Financial Assets and Financial Liabilities. The EIC provides guidance on how to take into account credit risk of an entity and counterparty when determining the fair value of financial assets and financial liabilities, including derivative instruments. This standard is effective for the Company's fiscal periods ending on or after January 20, 2009 with retrospect application. The application of this EIC did not have a material effect on the Company's financial statements.

New Accounting Standards

a) Business Combinations

In December 2008, the CICA issued Section 1582, Business Combinations, which will replace CICA Section 1581 of the same name. Section 1582 establishes principles and requirements of the acquisition method for business combinations and related disclosures. This statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after January 2011 with earlier application permitted. The Company is currently evaluating the impact of this changeover on its Consolidated Financial Statements.

b) Non-Controlling Interests

In December 2008, the CICA issued Sections 1601, Consolidated Financial Statements, and 1602, Non-Controlling Interests. Section 1601 establishes standards for the preparation of consolidated financial statements. Section 1602 provides guidance on accounting for a non-controlling interest in a subsidiary in consolidated financial statements subsequent to a business combination. These standards are effective on or after the beginning of the first annual reporting period beginning on or after January 2011 with earlier application permitted. These standards currently do not impact the Company as it has full controlling interest of all of its subsidiaries.

c) Financial Instruments Disclosures

In June 2009, the CICA issued amendments to CICA Handbook Section 3862, Financial Instruments - Disclosures. The amendments include enhanced disclosures related to the fair value of financial instruments and the liquidity risk associated with financial instruments. The amendments will be effective for annual financial statements for fiscal years ending after September 30, 2009. The amendments are consistent with recent amendments to financial instrument disclosure standards in International Financial Reporting Standards ("IFRS"). The Company will include these additional disclosures in its annual Consolidated Financial Statements for the year ending December 31, 2009.

d) International Financial Reporting Standards

On February 13, 2008 the Canadian Accounting Standards Board has confirmed that effective for interim and annual financial statements related to fiscal years beginning on or after January 1, 2011, IFRS will replace Canada's current GAAP for all publicly accountable profit-oriented enterprises.

The Company commenced its IFRS transition project in 2008 and has completed the project awareness and engagement phase of the IFRS transition project. Corporate governance over the project has been established and a steering committee and project team have been formed. The steering committee is comprised of members of management and executive and is responsible for final approval of project recommendations and deliverables to the Audit Committee and Board. Communication, training and education are an important aspect of the Company's IFRS conversion project. Internal and external training and education sessions have been carried out and will continue throughout each phase of the project.

The project team is completing the diagnostic assessment phase by performing comparisons of the differences between Canadian GAAP and IFRS. The Company has determined that the most significant impact of IFRS conversion is to property and equipment. IFRS does not prescribe specific oil and gas accounting guidance other than for costs associated with the exploration and evaluation phase. The Company currently follows full cost accounting as prescribed in Accounting Guideline 16, Oil and Gas Accounting - Full Cost. Conversion to IFRS may have a significant impact on how the Company accounts for costs pertaining to oil and gas activities, in particular those related to the pre-exploration and development phases. In addition, the level at which impairment tests are performed and the impairment testing methodology will differ under IFRS. IFRS conversion will also result in other impacts, some of which may be significant in nature. The impact on the Company's Consolidated Financial Statements cannot reasonably be determined at this time.

In July 2009, the International Accounting Standards Board ("IASB") approved an exposure draft which allows additional exemptions for entities adopting IFRS for the first time. The Company expects to utilize the deemed cost for oil and gas asset exemption which would allow the Company to allocate their oil and gas asset balance, as determined under full cost accounting, to the IFRS categories of exploration and evaluation assets and development and producing properties. This exemption would relieve the Company from significant adjustments resulting from retrospective adoption of IFRS. The Company will assess the other approved exemptions in this exposure draft for utilization during the assessments on key IFRS transition issues.

The project team is currently presenting preliminary accounting assessments on key IFRS transition issues for the steering committee's initial review and evaluation. These assessments will need to be further analyzed and evaluated in the implementation phase of the Company's project. At this time, the impact on the Company's financial position and results of operations is not reasonably determinable or estimable for any of the IFRS conversion impacts identified.

Concurrently, the project team is working on the design, planning and solution development phase. In this phase, the focus is on determining the specific qualitative and quantitative impact the application of IFRS requirement has on the Company. The project team members continue to work with representatives from the various operational areas to develop recommendations including first time adoption exemptions available upon initial transition to IFRS. The results from the consultations with the various operational areas are used to draft accounting policies. One of the sections in each of the draft accounting policy is the disclosure section which includes the financial statements disclosure as required by IFRS. First time adoption exemptions were analyzed by the project team and a schedule is being drafted for the steering committee to review and evaluate the exemptions. A detailed implementation plan and timeline is being developed which also includes the development of a training plan.

In addition, the Company is monitoring the IASB's active projects and all changes to IFRS prior to January 1, 2011 will be incorporated as required.

INTERNAL CONTROLS 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. 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.


/T/

Consolidated Statements of Income (Loss) and Retained Earnings 

(Unaudited - Expressed in thousands of U.S. Dollars, except per 
 share amounts)

                                    Three Months Ended     Six Months Ended
                                               June 30              June 30
                                       2009       2008      2009       2008
----------------------------------------------------------------------------
----------------------------------------------------------------------------
REVENUE
 Oil sales, net of royalties
  and other                   $      26,462  $  39,541  $ 45,522  $  68,889
 Derivative loss on commodity
  contracts (Note 14a)               (3,481)   (20,434)   (3,681)   (24,345)
 Other income                            32         71        32        134
----------------------------------------------------------------------------
                                     23,013     19,178    41,873     44,678
----------------------------------------------------------------------------

EXPENSES
 Operating                            5,201      4,465    10,407      8,388
 General and administrative           2,363      2,865     4,869      5,137
 Foreign exchange gain                 (958)       (26)     (654)       (13)
 Interest on long-term debt             722      2,604     1,329      4,285
 Depletion and depreciation
  (Note 4)                           14,415      9,145    26,432     17,171
----------------------------------------------------------------------------
                                     21,743     19,053    42,383     34,968
----------------------------------------------------------------------------

Income (loss) before income
 taxes                                1,270        125      (510)     9,710
----------------------------------------------------------------------------

Income taxes - current                5,631     11,574     8,805     18,806
----------------------------------------------------------------------------
NET LOSS FROM CONTINUING
 OPERATIONS                          (4,361)   (11,449)   (9,315)    (9,096)

NET INCOME FROM DISCONTINUED
 OPERATIONS (Note 5)                      -      6,084         -      8,189
----------------------------------------------------------------------------
NET LOSS                             (4,361)    (5,365)   (9,315)      (907)

Retained earnings, beginning
 of period                           83,476     62,245    88,430     57,787
----------------------------------------------------------------------------
RETAINED EARNINGS, END OF
 PERIOD                      $       79,115  $  56,880  $ 79,115  $  56,880
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Net loss from continuing
 operations per share (Note 12)
 Basic                        $       (0.07) $   (0.19) $  (0.15) $   (0.15)
 Diluted                              (0.07)     (0.19)    (0.15)     (0.15)
Net income from discontinued
 operations per share (Note 12)
 Basic                                    -       0.10         -       0.13
 Diluted                                  -       0.10         -       0.13
Net loss per share (Note 12)
 Basic                                (0.07)     (0.09)    (0.15)     (0.02)
 Diluted                              (0.07)     (0.09)    (0.15)     (0.02)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.


Consolidated Statements of Comprehensive Loss

(Unaudited - Expressed in thousands of U.S. Dollars)

                                     Three Months Ended    Six Months Ended
                                                June 30             June 30
                                         2009      2008      2009      2008
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net loss                             $ (4,361) $ (5,365) $ (9,315) $   (907)
Other comprehensive loss:
 Foreign currency translation
  adjustment                                -       916         -      (886)
----------------------------------------------------------------------------
COMPREHENSIVE LOSS                   $ (4,361) $ (4,449) $ (9,315) $ (1,793)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.


Consolidated Balance Sheets

(Unaudited - Expressed in thousands of U.S. Dollars)

                                                       As at          As at
                                                     June 30,   December 31,
                                                        2009           2008
----------------------------------------------------------------------------
----------------------------------------------------------------------------

ASSETS
Current
 Cash and cash equivalents                    $       23,952 $        7,634
 Accounts receivable                                  25,774         28,701
 Derivative commodity contracts (Note 14a)                 -          2,336
 Prepaid expenses                                      1,048            822
 Assets of discontinued operations (Note 5)              400            764
----------------------------------------------------------------------------
                                                      51,174         40,257
----------------------------------------------------------------------------

Derivative commodity contracts (Note 14a)                  -            472
Property and equipment (Note 4)                      170,304        179,329
Goodwill (Note 6)                                      8,180          8,180
----------------------------------------------------------------------------
                                              $      229,658 $      228,238
----------------------------------------------------------------------------
----------------------------------------------------------------------------

LIABILITIES
Current
 Accounts payable and accrued liabilities     $       13,847 $       15,852
 Income taxes payable                                     79             79
 Derivative commodity contracts (Note 14a)             1,375              -
 Liabilities of discontinued operations
  (Note 5)                                                43            342
----------------------------------------------------------------------------
                                                      15,344         16,273
Derivative commodity contracts (Note 14a)                166              -
Long-term debt (Note 7)                               52,551         57,230
----------------------------------------------------------------------------
                                                      68,061         73,503
----------------------------------------------------------------------------

Commitments and contingencies (Note 15)

SHAREHOLDERS' EQUITY
Share capital (Note 8)                                65,781         50,532
Contributed surplus (Note 10)                          5,821          4,893
Accumulated other comprehensive income
 (Note 11)                                            10,880         10,880
Retained earnings                                     79,115         88,430
----------------------------------------------------------------------------
                                                     161,597        154,735
----------------------------------------------------------------------------
                                             $       229,658 $      228,238
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.


Approved on behalf of the Board:

Ross G. Clarkson, Director               Fred J. Dyment, Director


Consolidated Statements of Cash Flows 

(Unaudited - Expressed in thousands of U.S. Dollars)

                                   Three Months Ended      Six Months Ended
                                              June 30               June 30
                                      2009       2008       2009       2008
----------------------------------------------------------------------------
----------------------------------------------------------------------------

CASH FLOWS RELATED TO THE
 FOLLOWING ACTIVITIES:

OPERATING
 Net loss                         $ (4,361) $  (5,365) $  (9,315) $    (907)
 Net income from discontinued
  operations                             -      6,084          -      8,189
----------------------------------------------------------------------------
Net loss from continuing
 operations                         (4,361)   (11,449)    (9,315)    (9,096)
Adjustments for:
 Depletion and depreciation         14,415      9,145     26,432     17,171
 Amortization of deferred
  financing charges                    205      1,632        322      1,696
 Stock-based compensation (Note 9)     480        452        970        766
 Unrealized derivative loss on
  commodity contracts                3,378     17,061      4,349     19,468
Changes in non-cash working
 capital                               657     (8,763)       118    (10,408)
----------------------------------------------------------------------------
Cash provided by continuing
 operations                         14,774      8,078     22,876     19,597
Cash provided by discontinued
 operations                            278      1,495         65      6,292
----------------------------------------------------------------------------
                                    15,052      9,573     22,941     25,889
----------------------------------------------------------------------------

FINANCING
 Increase in long-term debt              -          -          -     40,000
 Repayments of long-term debt       (5,000)   (55,000)    (5,000)   (55,000)
 Deferred financing costs                -        (36)         -     (1,184)
 Options surrendered for cash
  payments (Note 8)                      -          -          -       (256)
 Issue of common shares for cash
  (Note 8)                               -        112     16,392        514
 Issue costs for common shares
 (Note 8)                              (19)         -     (1,185)         -
Changes in non-cash working
 capital                               207        322       (879)       596
----------------------------------------------------------------------------
                                    (4,812)   (54,602)     9,328    (15,330)
----------------------------------------------------------------------------

INVESTING
 Exploration and development
  expenditures                      (8,480)    (4,897)   (17,406)   (11,178)
 Acquisition                             -       (241)         -    (44,459)
 Changes in non-cash working
  capital                              151       (148)     1,455     (2,976)
----------------------------------------------------------------------------
 Cash used by continuing
  operations                        (8,329)    (5,286)   (15,951)   (58,613)
 Cash provided by discontinued
  operations                             -     50,081          -     47,019
----------------------------------------------------------------------------
                                    (8,329)    44,795    (15,951)   (11,594)
Effect of exchange rate changes
 on cash and cash equivalents            -        (28)         -        (21)
----------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH
 AND CASH EQUIVALENTS                1,911       (262)    16,318     (1,056)

CASH AND CASH EQUIVALENTS,
 BEGINNING OF PERIOD                22,041     11,935      7,634     12,729
----------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF 
 PERIOD                           $ 23,952  $  11,673  $  23,952  $  11,673
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Supplemental Disclosure of Cash
 Flow
 Information
 Cash interest paid               $    517  $     972  $   1,007  $   2,584
 Cash taxes paid                     5,631     11,574      8,805     18,806
 Cash is comprised of cash on hand
  and balances with banks           23,952     11,673     23,952     11,673
 Cash equivalents                        -          -          -          -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.

/T/

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As at June 30, 2009 and December 31, 2008 and for the periods ended June 30, 2009 and 2008

(Unaudited - Expressed in U.S. Dollars)

1. BASIS OF PRESENTATION

The interim consolidated financial statements include the accounts of TransGlobe Energy Corporation and its subsidiaries ("TransGlobe" or the "Company") as at June 30, 2009 and December 31, 2008 and for the three and six-month periods ended June 30, 2009 and 2008, and are presented in accordance with Canadian generally accepted accounting principles ("Canadian GAAP") on the same basis as the audited consolidated financial statements as at and for the year ended December 31, 2008, except as outlined in Note 2. These interim financial statements do not contain all the disclosures required for annual financial statements. Accordingly, these interim consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto in TransGlobe's annual report for the year ended December 31, 2008. In these interim consolidated financial statements, unless otherwise indicated, all dollars are expressed in United States (U.S.) dollars. All references to US$ or to $ are to United States dollars and references to C$ are to Canadian dollars.

2. CHANGES IN ACCOUNTING POLICIES

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 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 is applicable to financial statements relating to fiscal years beginning on or after October 1, 2008. Accordingly, the Company adopted 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 adoption of this Standard did not have an impact on the Consolidated Financial Statements.

Credit Risk and Fair Value of Financial Assets and Liabilities

In January 2009, the CICA issued EIC-173, Credit Risk and the Fair Value of Financial Assets and Financial Liabilities. The EIC provides guidance on how to take into account credit risk of an entity and counterparty when determining the fair value of financial assets and financial liabilities, including derivative instruments. This standard is effective for the Company's fiscal periods ending on or after January 20, 2009 with retrospect application. The application of this EIC did not have a material effect on the Company's financial statements.

New Accounting Standards

a) Business Combinations

In December 2008, the CICA issued Section 1582, Business Combinations, which will replace CICA Section 1581 of the same name. Section 1582 establishes principles and requirements of the acquisition method for business combinations and related disclosures. This statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after January 2011 with earlier application permitted. The Company is currently evaluating the impact of this changeover on its Consolidated Financial Statements.

b) Non-Controlling Interests

In December 2008, the CICA issued Sections 1601, Consolidated Financial Statements, and 1602, Non-Controlling Interests. Section 1601 establishes standards for the preparation of consolidated financial statements. Section 1602 provides guidance on accounting for a non-controlling interest in a subsidiary in consolidated financial statements subsequent to a business combination. These standards are effective on or after the beginning of the first annual reporting period beginning on or after January 2011 with earlier application permitted. These standards currently do not impact the Company as it has full controlling interest of all of its subsidiaries.

c) Financial Instruments Disclosures

In June 2009, the CICA issued amendments to CICA Handbook Section 3862, Financial Instruments - Disclosures. The amendments include enhanced disclosures related to the fair value of financial instruments and the liquidity risk associated with financial instruments. The amendments will be effective for annual financial statements for fiscal years ending after September 30, 2009. The amendments are consistent with recent amendments to financial instrument disclosure standards in International Financial Reporting Standards ("IFRS"). The Company will include these additional disclosures in its annual Consolidated Financial Statements for the year ending December 31, 2009.

d) International Financial Reporting Standards

On February 13, 2008 the Canadian Accounting Standards Board has confirmed that effective for interim and annual financial statements related to fiscal years beginning on or after January 1, 2011, IFRS will replace Canada's current GAAP for all publicly accountable profit-oriented enterprises.

The Company has determined that the most significant impact of IFRS conversion is to property and equipment. IFRS does not prescribe specific oil and gas accounting guidance other than for costs associated with the exploration and evaluation phase. The Company currently follows full cost accounting as prescribed in Accounting Guideline 16, Oil and Gas Accounting - Full Cost. Conversion to IFRS may have a significant impact on how the Company accounts for costs pertaining to oil and gas activities, in particular those related to the pre-exploration and development phases. In addition, the level at which impairment tests are performed and the impairment testing methodology will differ under IFRS. IFRS conversion will also result in other impacts, some of which may be significant in nature. The impact on the Company's Consolidated Financial Statements cannot be reasonably determined at this time.

3. ACQUISITIONS

Corporate Acquisition

GHP Exploration (West Gharib) Ltd.

On February 5, 2008, TransGlobe acquired all of the common shares of GHP Exploration (West Gharib) Ltd. ("GHP") for cash consideration of $44.1 million, net of cash acquired. The results of GHP's operations have been included in the consolidated financial statements since that date. GHP holds a 30% interest in the West Gharib Concession area in Egypt. TransGlobe funded the acquisition from bank debt of $40.0 million and cash on hand.

The acquisition has been accounted for using the purchase method with TransGlobe as the acquirer, and the purchase price was allocated to the fair value of the assets acquired and the liabilities assumed as follows:

/T/

Cost of acquisition (000s)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash paid, net of cash acquired                                    $ 44,095
Transaction costs                                                        99
----------------------------------------------------------------------------
                                                                   $ 44,194
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Allocation of purchase price (000s)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Property and equipment                                             $ 36,602
Goodwill                                                              3,602
Working capital, net of cash acquired                                 3,990
----------------------------------------------------------------------------
                                                                   $ 44,194
----------------------------------------------------------------------------
----------------------------------------------------------------------------

/T/

The above allocation of the purchase price is final and reflects the post-closing adjustments settled in the three-month period ended June 30, 2008.

Property Acquisition

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 on the West Gharib Concession. The total cost of the acquisition was $18.0 million, adjusted to the effective date of June 1, 2008. 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 the South Rahmi (up to $2.0 million) development leases. As at December 31, 2008, no additional fees are due in 2009. The value of the net assets acquired has been assigned to property and equipment. Following this property acquisition, TransGlobe holds 100% working interest in the West Gharib Concession in Egypt.

4. PROPERTY AND EQUIPMENT

The Company capitalized overhead costs relating to exploration and development activities during the three and six months ended June 30, 2009 of $0.4 million and $1.2 million, respectively, in Egypt (2008 - $0.4 million and $0.5 million, respectively) and $0.1 million and $0.2 million, respectively, in Yemen (2008 - $0.01 million and $0.03 million, respectively).

Unproven property costs excluded from the costs subject to depletion and depreciation for the three months ended June 30, 2009 totalled $9.7 million in Egypt (2008 - $9.9 million) and $9.1 million in Yemen (2008 - $6.8 million).

Future development costs for proved reserves included in the depletion calculations for the three months ended June 30, 2009 totalled $1.9 million in Egypt (2008 - $2.3 million) and $11.0 million in Yemen (2008 - $6.9 million).

5. DISCONTINUED OPERATIONS

On April 30, 2008, the Company sold its Canadian oil and natural gas interests for C$56.7 million, subject to normal closing adjustments. The Canadian operations have been accounted for as discontinued operations in accordance with Canadian GAAP. 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.

Discontinued operations as at June 30, 2009 included current assets of $0.1 million, property and equipment of $0.3 million, and current liabilities of $0.04 million. Discontinued operations at December 31, 2008 included current assets of $0.5 million, property and equipment of $0.3 million, and current liabilities of $0.3 million.


/T/

                                      Three Months Ended   Six Months Ended

                                                 June 30            June 30
(000s)                                    2009      2008     2009      2008
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Revenue
 Oil and gas sales, net of royalties
  and other                                  -   $ 2,088        -   $ 8,655

Expenses
 Operating                                   -       436        -     2,302
 Depletion, depreciation and
  accretion                                  -         -        -     2,678
----------------------------------------------------------------------------
                                             -       436        -     4,980
Gain on disposition, net of tax              -     4,432              4,432
----------------------------------------------------------------------------
Income from discontinued operations
 before taxes                                -     6,084        -     8,107
Future income tax recovery                   -         -        -        82
----------------------------------------------------------------------------
Net income from discontinued
 operations                                  -   $ 6,084        -   $ 8,189
----------------------------------------------------------------------------
----------------------------------------------------------------------------

/T/

In Canada, the Company capitalized overhead costs relating to exploration and development activities during the six months ended June 30, 2008 of $0.4 million. Unproven property costs of $1.8 million were excluded from the costs subject to depletion and depreciation for 2008. Depletion, depreciation and accretion was not recorded while the assets were classified as held for sale.

6. GOODWILL

Changes in the carrying amount of the Company's goodwill, arising from acquisitions, are as follows:

/T/

                                     Six Months Ended            Year Ended
(000s)                                  June 30, 2009     December 31, 2008
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance, beginning of period                  $ 8,180               $ 4,313
Changes during the period                           -                 3,867
----------------------------------------------------------------------------
Balance, end of period                        $ 8,180               $ 8,180
----------------------------------------------------------------------------
----------------------------------------------------------------------------

7. LONG-TERM DEBT

                                                As at                 As at
(000s)                                  June 30, 2009     December 31, 2008
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Revolving Credit Agreement                   $ 53,000              $ 58,000
Unamortized transaction costs                    (449)                 (770)
----------------------------------------------------------------------------
                                               52,551                57,230
----------------------------------------------------------------------------
Current portion of long-term debt                   -                     -
----------------------------------------------------------------------------
                                             $ 52,551              $ 57,230
----------------------------------------------------------------------------
----------------------------------------------------------------------------

/T/

As at June 30, 2009, the Company has a $60.0 million Revolving Credit Agreement of which $53.0 million is drawn. The Revolving Credit Agreement expires on September 19, 2010 and is secured by a first floating charge debenture over all assets of the Company, a general assignment of book debts, security pledge of the Company's subsidiaries and certain covenants. The Revolving Credit Agreement bears interest at the Eurodollar Rate plus three percent. During the three and six months ended June 30, 2009, the average effective interest rate was 4.6% and 4.4%, respectively (2008 - 6.6% and 7.0%, respectively). In the three and six months ended June 30, 2009, the Company incurred $Nil (2008 - $0.04 million and $1.2 million, respectively) in fees to draw on its Revolving Credit Agreement.

The future debt payments on long-term debt, as of June 30, 2009, are as follows:

/T/

(000s)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
2009                                                               $      -
2010                                                                 53,000
----------------------------------------------------------------------------
----------------------------------------------------------------------------

/T/

8. SHARE CAPITAL

Authorized

The Company is authorized to issue an unlimited number of common shares with no par value.

/T/

Issued

                                     Six Months Ended            Year Ended
                                        June 30, 2009     December 31, 2008
----------------------------------------------------------------------------
(000s)                                Shares   Amount       Shares   Amount
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance, beginning of period          59,500 $ 50,532       59,627 $ 50,128
Share issuance                         5,798   16,312            -        -
Stock options exercised                   30       80          173      512
Stock options surrendered for
 cash payments                             -        -            -     (256)
Stock-based compensation on
 exercise                                  -       42            -      403
Repurchase of common shares                -        -         (300)    (255)
Share issue costs                          -   (1,185)           -        -
----------------------------------------------------------------------------
Balance, end of period                65,328 $ 65,781       59,500 $ 50,532
----------------------------------------------------------------------------
----------------------------------------------------------------------------

/T/

In the first quarter of 2009, the Company issued 5,798,000 common shares at C$3.45 per common share for gross proceeds of C$20.0 million (net C$18.6 million).

The Company has received regulatory approval to purchase, from time to time, as it considers advisable, up to 5,558,322 common shares under a Normal Course Issuer Bid which commenced August 1, 2008 and will terminate July 31, 2009. During the three and six months ended June 30, 2009, the Company did not repurchase any common shares. During the year ended December 31, 2008, the Company repurchased and cancelled 300,000 common shares at an average price of C$3.87 per share. The excess of the purchase price over the book value in the amount of $0.9 million was charged to retained earnings during the year.

9. STOCK OPTION PLAN

/T/

Stock options

                                     Six Months Ended            Year Ended
                                        June 30, 2009     December 31, 2008
----------------------------------------------------------------------------
                                             Weighted-             Weighted-
                                    Number    Average     Number    Average
                                        of   Exercise         of   Exercise
(000s, except per share amounts)   Options      Price    Options      Price
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Options outstanding, beginning
 of period                           5,600     $ 3.73      2,936     $ 4.11
 Granted                                45       2.29      3,457       3.45
 Exercised for common shares           (30)      2.44       (173)      2.25
 Surrendered for cash payments           -          -       (150)      2.66
 Forfeited/expired                    (179)      4.55       (470)      4.93
----------------------------------------------------------------------------
Options outstanding, end of period   5,436     $ 3.70      5,600     $ 3.73
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Options exercisable, end of period   2,174     $ 4.17      1,758     $ 4.17
----------------------------------------------------------------------------
----------------------------------------------------------------------------

/T/

Stock-based compensation

Stock-based compensation expense of $0.5 million and $1.0 million has been recorded in the Consolidated Statements of Income (Loss) and Retained Earnings for the three and six months ended June 30, 2009, respectively (2008 - $0.5 million and $0.8 million, respectively). The fair value of all common stock options granted is estimated on the date of grant using the lattice-based binomial option pricing model. The weighted average fair value of the options granted during 2009 and the assumptions used in their determination are noted below:

/T/

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Weighted average fair market value per option (C$)                     1.04
Risk-free interest rate (percent)                                      1.86
Expected volatility (percent)                                         44.81
Expected dividend yield (percent)                                         0
Expected forfeiture rate (non-executive employees)
 (percent)                                                               12
Early exercise (Year 1/Year 2/Year 3/Year 4/Year 5)       0%/10%/20%/30%/40%
----------------------------------------------------------------------------
----------------------------------------------------------------------------

/T/

Options granted vest annually over a three-year period and expire five years after the grant date.

10. CONTRIBUTED SURPLUS

/T/

                                     Six Months Ended            Year Ended
(000s)                                  June 30, 2009     December 31, 2008
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Contributed surplus, beginning
 of period                                    $ 4,893               $ 3,562
Stock-based compensation expense                  970                 1,734
Transfer to common shares on
 exercise of options                              (42)                 (403)
----------------------------------------------------------------------------
Contributed surplus, end of period            $ 5,821               $ 4,893
----------------------------------------------------------------------------
----------------------------------------------------------------------------

/T/

11. ACCUMULATED OTHER COMPREHENSIVE INCOME

The balance of accumulated other comprehensive income consists of the following:

/T/

                                     Six Months Ended            Year Ended
(000s)                                  June 30, 2009     December 31, 2008
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Accumulated other comprehensive
 income, beginning of period                 $ 10,880              $ 11,766
Other comprehensive income (loss):
 Foreign currency translation
  adjustment                                        -                  (886)
----------------------------------------------------------------------------
Accumulated other comprehensive
 income, end of period                       $ 10,880              $ 10,880
----------------------------------------------------------------------------
----------------------------------------------------------------------------

/T/

12. PER SHARE AMOUNTS

In calculating the net (loss) income per share, net (loss) income from continuing operations per share and net income from discontinued operations per share, basic and diluted, the following weighted average shares were used:

/T/

                                      Three Months Ended   Six Months Ended

                                                 June 30            June 30
(000s)                                    2009      2008     2009      2008
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Weighted average number of
 shares outstanding                     65,328    59,775   63,529    59,744
Dilutive effect of stock options             -         -        -         -
----------------------------------------------------------------------------
Weighted average number of
 diluted shares outstanding             65,328    59,775   63,529    59,744
----------------------------------------------------------------------------
----------------------------------------------------------------------------

/T/

The treasury stock method assumes that the proceeds received from the exercise of "in-the-money" stock options are used to repurchase common shares at the average market price. In calculating the weighted average number of diluted common shares outstanding for the three and six-month periods ended June 30, 2009 and 2008, the Company excluded all stock options outstanding as there was a net loss in the periods then ended.

13. CAPITAL DISCLOSURES

The Company's objectives when managing capital are to ensure the Company will have the financial capacity, liquidity and flexibility to fund the ongoing exploration and development of its oil and gas assets. The Company relies on cash flow to fund its capital investments. However, due to long lead cycles of some of its developments and corporate acquisitions, the Company's capital requirements may exceed its cash flow generated in any one period. This requires the Company to maintain financial flexibility and liquidity. The Company sets the amount of capital in proportion to risk and manages to ensure that the total of the long-term debt is not greater than two times the Company's funds flow from operations for the trailing twelve months. For the purposes of measuring the Company's ability to meet the above stated criteria, funds flow from operations is defined as the net income or loss (including net income or loss from discontinued operations) before any deduction for depletion, depreciation and accretion, amortization of deferred financing charges, non-cash stock-based compensation, and non-cash derivative (gain) loss on commodity contracts.

The Company defines and computes its capital as follows:

/T/

                                                As at                 As at
(000s)                                  June 30, 2009     December 31, 2008
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Shareholders' equity                        $ 161,597             $ 154,735
Long-term debt, including the
 current portion                               52,551                57,230
Cash and cash equivalents                     (23,952)               (7,634)
----------------------------------------------------------------------------
Total capital                               $ 190,196             $ 204,331
----------------------------------------------------------------------------
----------------------------------------------------------------------------

The Company's debt-to-funds flow ratio is computed as follows:

                                                12 Months Trailing
----------------------------------------------------------------------------
(000s)                                  June 30, 2009     December 31, 2008
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Long-term debt, including the
 current portion                             $ 52,551              $ 57,230
----------------------------------------------------------------------------

Cash flow from operating activities          $ 54,845              $ 57,793
Changes in non-cash working capital            (9,178)                1,474
----------------------------------------------------------------------------
Funds flow from operations                   $ 45,667              $ 59,267
----------------------------------------------------------------------------
Ratio                                             1.2                   1.0
----------------------------------------------------------------------------
----------------------------------------------------------------------------

/T/

The Company's financial objectives and strategy as described above have remained substantially unchanged over the last two completed fiscal years. These objectives and strategy are reviewed on an annual basis. The Company believes that its ratios are within reasonable limits, in light of the relative size of the Company and its capital management objectives.

The Company is also subject to financial covenants in its revolving credit agreement. The key financial covenants are as follows:

- Interest coverage ratio of greater than 3.5 to 1.0, calculated as EBITDAX to interest expense, for the immediately preceding four consecutive fiscal quarters. For the purposes of the financial covenant calculations EBITDAX shall mean Consolidated Net Income before interest, income taxes, depreciation, depletion, amortization, and accretion, unrealized derivative losses on commodity contracts and stock based compensation expense.

- Indebtedness to EBITDAX of less than 2.0 to 1.0. For the purposes of the financial covenant calculation, indebtedness shall mean the balance of the Revolving Credit Facility, letters of credit and any amounts payable in connection with a realized derivative loss.

- Current ratio (current assets to current liabilities, excluding the current portion of long-term debt) of greater than 1.0 to 1.0.

The Company is in compliance with all financial covenants at June 30, 2009.

14. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

Carrying Values and Estimated Fair Values of Financial Assets and Liabilities

The Company has classified its cash and cash equivalents as assets held-for-trading and its derivative commodity contracts as financial assets or liabilities held-for-trading, which are both measured at fair value with changes being recognized in net income. Accounts receivable are classified as loans and receivables; accounts payable and accrued liabilities, liabilities of discontinued operations, and long-term debt are classified as other liabilities, all of which are measured at amortized cost.

Carrying value and fair value of financial assets and liabilities are summarized as follows:

/T/

                                                        June 30, 2009
----------------------------------------------------------------------------
Classification (000s)                         Carrying Value     Fair Value
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Financial assets held-for-trading                   $ 23,952       $ 23,952
Loans and receivables                                 25,774         25,774
Financial liabilities held-for-trading                 1,541          1,541
Other liabilities                                     66,441         66,890
----------------------------------------------------------------------------
----------------------------------------------------------------------------

/T/

Credit Risk

Credit risk is the risk of loss if the counter parties do not fulfill their contractual obligations. 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.

Trade and other receivables from continuing operations are analyzed in the table below. With respect to the trade and other receivables that are not impaired and past due, there are no indications as of the reporting date that the debtors will not meet their payment obligations.

/T/

(000s)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Trade and other receivables at June 30, 2009
----------------------------------------------------------------------------
Neither impaired nor past due                                      $ 16,344
Impaired (net of valuation allowance)                                     -
Not impaired and past due in the following period:
 Within 30 days                                                           -
 31-60 days                                                           3,226
 61-90 days                                                           2,784
 Over 90 days                                                         3,420
----------------------------------------------------------------------------
----------------------------------------------------------------------------

/T/

In Egypt, the Company sold all of its 2009 production to one purchaser. In Yemen, the Company sold all of its 2009 Block 32 production to one purchaser and all of its 2009 Block S-1 production to one purchaser.

Market Risk

Market risk is the risk or uncertainty arising from possible market price movements and their impact on the future performance of a business. The market price movements that the Company is exposed to include oil prices (commodity price risk), foreign currency exchange rates and interest rates, all of which could adversely affect the value of the Company's financial assets, liabilities and financial results.

a) Commodity Price Risk

The Company's operational results and financial condition are partially dependent on the commodity prices received for its oil production. Commodity prices have fluctuated significantly during recent years.

Any movement in commodity prices would have an effect on the Company's financial condition. Therefore, the Company has entered into various financial derivative contracts to manage fluctuations in commodity prices in the normal course of operations. The following contracts are outstanding at June 30, 2009:

/T/

                                                                Dated Brent
                                                                    Pricing
Period                            Volume               Type        Put-Call
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Crude Oil
---------
 July 1, 2009-
  December 31, 2009    12,000 Bbls/month   Financial Collar   $60.00-$82.10
 July 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
 July 1, 2009-
  December 31, 2009    12,000 Bbls/month   Financial Collar   $40.00-$55.00
 January 1, 2010-
  August 31, 2010       9,000 Bbls/month   Financial Collar   $40.00-$80.00
 July 1, 2009-
  December 31, 2009    10,000 Bbls/month   Financial Floor    $60.00
----------------------------------------------------------------------------
----------------------------------------------------------------------------

/T/

The estimated fair value of unrealized commodity contracts is reported on the Consolidated Balance Sheet, with any change in the unrealized positions recorded to income. The fair values of these transactions are based on an approximation of the amounts that would have been paid to, or received from, counter-parties to settle the transactions outstanding as at the Consolidated Balance Sheet date with reference to forward prices and market values provided by independent sources. The actual amounts realized may differ from these estimates.

When assessing the potential impact of commodity price changes on its financial derivative commodity contracts, the Company believes 10% volatility is a reasonable measure. The effect of a 10% increase in commodity prices on the derivative commodity contracts would increase the net loss, for the three and six months ended June 30, 2009, by $1.6 million. The effect of a 10% decrease in commodity prices on the derivative commodity contracts would decrease the net loss, for the three and six months ended June 30, 2009, by $1.4 million.

b) Foreign Currency Exchange Risk

As the Company's business is conducted primarily in U.S. dollars and its financial instruments are primarily denominated in U.S. dollars, the Company's exposure to foreign currency exchange risk relates to certain cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities denominated in Canadian dollars. When assessing the potential impact of foreign currency exchange risk, the Company believes 10% volatility is a reasonable measure. The Company estimates that a 10% increase in the value of the Canadian dollar against the U.S. dollar would result in a decrease in the net loss for the three and six months ended June 30, 2009, of approximately $0.4 million, and conversely a 10% decrease in the value of the Canadian dollar against the U.S. dollar would increase the net loss by said amount for the same periods. The Company does not utilize derivative instruments to manage this risk.

c) Interest Rate Risk

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 2009 to mitigate this risk. When assessing interest rate risk applicable to the Company's variable-interest, U.S.-dollar-denominated debt the Company believes 1% volatility is a reasonable measure. The effect of interest rates increasing by 1% would increase the Company's net loss, for the three and six months ended June 30, 2009, by $0.1 million and $0.3 million, respectively. The effect of interest rates decreasing by 1% would decrease the Company's net loss, for the three and six months ended June 30, 2009, by $0.1 million and $0.3 million, respectively.

Liquidity Risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. 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.

The Company actively maintains credit facilities to ensure it has sufficient available funds to meet current and foreseeable financial requirements at a reasonable cost. The following are the contractual maturities of financial liabilities at June 30, 2009:

/T/

(000s)                     Payment Due by Period (1)(2)
----------------------------------------------------------------------------
                  Recognized
                          in                Less                       More
                   Financial  Contractual   than       1-3     4-5     than
                  Statements   Cash Flows   1 year   years   years  5 years
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Accounts
 payable and
 accrued
 liabilities   Yes-Liability     $ 13,890 $ 13,890 $     - $     -      $ -
Long-term debt:
 Revolving
  Credit
  Agreement    Yes-Liability       53,000        -  53,000       -        -
Office and
 equipment
 leases                   No          680      361     319       -        -
Minimum work
 commitments(3)           No       12,720    1,400   2,500   8,820        -
----------------------------------------------------------------------------
Total                            $ 80,290 $ 15,651 $55,819 $ 8,820      $ -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Payments exclude ongoing operating costs related to certain leases,
    interest on long-term debt and payments made to settle derivatives.
(2) Payments denominated in foreign currencies have been translated at
    June 30, 2009 exchange rates.
(3) Minimum work commitments include contracts awarded for capital projects
    and those commitments related to exploration and drilling obligations.

/T/

The Company actively monitors its liquidity to ensure that its cash flows, credit facilities and working capital are adequate to support these financial liabilities, as well as the Company's capital programs. In addition, the Company raised gross proceeds of $16.3 million in the first quarter of 2009 through a share issuance.

The existing banking arrangements at June 30, 2009 consist of a Revolving Credit Facility of $60.0 million of which $53.0 million is drawn.

The table below shows cash outflow for financial derivative instruments based on forward-curve prices for Dated Brent oil of $68.06/Bbl at June 30, 2009:

/T/

(000s)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Less than 1 year                                                    $ 1,375
1-3 years                                                               166
----------------------------------------------------------------------------
----------------------------------------------------------------------------

/T/

15. COMMITMENTS AND CONTINGENCIES

The Company is subject to certain office and equipment leases (Note 14).

Pursuant to the East Hoshia Development Lease in Egypt, the Company has completed its commitment to drilling three exploration wells and incurred funds in excess of its $4.0 million production guarantee. Subject to final government approval (pending), the East Hoshia Development Lease is scheduled for a continuation review prior to November 30, 2010, at which time non-productive lands could be relinquished.

Pursuant to the Concession agreement for Nuqra Block 1 in Egypt, the Contractor (Joint Venture Partners) has a minimum financial commitment of $5.0 million ($4.4 million to TransGlobe) and a work commitment of two exploration wells in the second exploration extension. The second 36-month extension period commenced on July 18, 2009. The Contractor has met the second extension financial commitment of $5.0 million in the prior periods. At the request of the government, the Company provided a $4.0 million production guarantee from the West Gharib Concession prior to entering the second extension period.

Pursuant to the Production Sharing Agreement ("PSA") for Block 72 in Yemen, the Contractor (Joint Venture Partners) has a minimal financial commitment of $2.0 million ($0.7 million to TransGlobe) during the second exploration period. The second 30-month exploration period commenced on January 12, 2009.

Pursuant to the PSA for Block 75 in Yemen, the Contractor (Joint Venture Partners) has a minimum financial commitment of $7.0 million ($1.8 million to TransGlobe) for the signature bonus and first exploration period work program consisting of seismic acquisition and one exploration well. The first 36-month exploration period commenced March 8, 2008. The Company issued a $1.5 million letter of credit (expiring November 15, 2011) to guarantee the Company's performance under the first exploration period. The letter is secured by a guarantee granted by Export Development Canada.

Pursuant to the bid awarded for Block 84 in Yemen, the Contractor (Joint Venture Partners) has a minimum financial commitment of $4.1 million ($1.4 million to TransGlobe) for the signature bonus and a $16.0 million ($5.3 million to TransGlobe) first exploration period work program consisting of seismic acquisition and four exploration wells. The first 42-month exploration period will commence if the PSA is finalized and ratified by the government of Yemen.

Pursuant to the August 18, 2008 asset purchase agreement for a 25% financial interest in eight development leases on the West Gharib Concession in Egypt, the Company has committed to paying the vendor a success fee to a maximum of $7.0 million if incremental reserve thresholds are reached in the East Hoshia (up to $5.0 million) and South Rahmi (up to $2.0 million) development leases, to be evaluated annually. As at December 31, 2008, no additional fees are due in 2009.

In the normal course of its operations, the Company may be subject to litigations and claims. Although it is not possible to estimate the extent of potential costs, if any, management believes that the ultimate resolution of such contingencies would not have a material adverse impact on the results of operations, financial position or liquidity of the Company.

16. SEGMENTED INFORMATION

/T/

                         Egypt               Yemen               Total
----------------------------------------------------------------------------
                                  Six Months Ended June 30
(000s)               2009      2008      2009      2008      2009      2008
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Revenue
 Oil sales, net
  of royalties
  and other      $ 26,541  $ 27,697  $ 18,981  $ 41,192  $ 45,522  $ 68,889
 Other income           -        33         -         -         -        33
----------------------------------------------------------------------------
Total revenue      26,541    27,730    18,981    41,192    45,522    68,922
----------------------------------------------------------------------------

Segmented expenses
 Operating
  expenses          5,454     2,037     4,953     6,351    10,407     8,388
 Depletion and
  depreciation     21,403    10,921     4,937     6,173    26,340    17,094
 Income taxes       5,784     8,639     3,021    10,167     8,805    18,806
----------------------------------------------------------------------------
Total segmented
 expenses          32,641    21,597    12,911    22,691    45,552    44,288
----------------------------------------------------------------------------
Segmented (loss)
 income          $ (6,100)  $ 6,133   $ 6,070  $ 18,501       (30)   24,634
----------------------------------------------------------------------------

Non-segmented
 expenses
 Derivative loss
  on commodity
  contracts (Note
  14a)                                                      3,681    24,345
 General and
  administrative                                            4,869     5,137
 Interest on
  long-term debt                                            1,329     4,285
 Depreciation                                                  92        77
 Foreign exchange
  gain                                                       (654)      (13)
 Other income                                                 (32)     (101)
----------------------------------------------------------------------------
Total
 non-segmented
 expenses                                                   9,285    33,730
----------------------------------------------------------------------------
Net loss from
 continuing
 operations                                                (9,315)   (9,096)
Net income from
 discontinued
 operations
 (Note 5)                                                       -     8,189
----------------------------------------------------------------------------
Net loss                                                 $ (9,315)   $ (907)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Capital
 expenditures
 Exploration
  and
  development    $ 12,932   $ 6,513   $ 4,316   $ 4,581  $ 17,248  $ 11,094
Corporate                                                     158        84
Corporate acquisitions                                          -    36,602
----------------------------------------------------------------------------
Total capital expenditures                               $ 17,406  $ 47,780
----------------------------------------------------------------------------
----------------------------------------------------------------------------



                         Egypt               Yemen               Total
----------------------------------------------------------------------------
                                Three Months Ended June 30
(000s)               2009      2008      2009      2008      2009      2008
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Revenue
 Oil sales, net
  of royalties
  and other      $ 16,522  $ 17,632   $ 9,940  $ 21,909  $ 26,462  $ 39,541

 Other income           -         2         -         -         -         2
----------------------------------------------------------------------------
Total revenue      16,522    17,634     9,940    21,909    26,462    39,543
----------------------------------------------------------------------------

Segmented
 expenses
 Operating
  expenses          2,667     1,326     2,534     3,139     5,201     4,465
 Depletion and
  depreciation     11,930     5,994     2,436     3,111    14,366     9,105
 Income taxes       3,588     5,515     2,043     6,059     5,631    11,574
----------------------------------------------------------------------------
Total segmented
 expenses          18,185    12,835     7,013    12,309    25,198    25,144
----------------------------------------------------------------------------
Segmented (loss)
 income          $ (1,663)  $ 4,799   $ 2,927   $ 9,600     1,264    14,399
----------------------------------------------------------------------------

Non-segmented
 expenses
 Derivative loss
  on commodity
  contracts (Note
  14a)                                                      3,481    20,434
 General and
  administrative                                            2,363     2,865
 Interest on
  long-term debt                                              722     2,604
 Depreciation                                                  49        40
 Foreign exchange
  gain                                                       (958)      (26)
 Other income                                                 (32)      (69)
----------------------------------------------------------------------------
Total
 non-segmented
 expenses                                                   5,625    25,848
----------------------------------------------------------------------------
Net loss from
 continuing
 operations                                                (4,361)  (11,449)
Net income from
 discontinued
 operations
 (Note 5)                                                       -     6,084
----------------------------------------------------------------------------
Net loss                                                 $ (4,361) $ (5,365)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Capital
 expenditures
 Exploration
  and
  development     $ 5,623   $ 3,195   $ 2,771   $ 1,634   $ 8,394   $ 4,829

 Corporate                                                     86        68
----------------------------------------------------------------------------
Total capital
 expenditures                                             $ 8,480   $ 4,897
----------------------------------------------------------------------------
----------------------------------------------------------------------------

                  Jun. 30   Dec. 31   Jun. 30   Dec. 31   Jun. 30   Dec. 31
                     2009      2008      2009      2008      2009      2008
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Property and
 equipment      $ 120,201 $ 128,672  $ 49,288  $ 49,909 $ 169,489 $ 178,581
Goodwill            8,180     8,180         -         -     8,180     8,180
Other              30,984    27,517    11,354     6,430    42,338    33,947
----------------------------------------------------------------------------
Segmented
 assets         $ 159,365 $ 164,369  $ 60,642  $ 56,339   220,007   220,708
Non-segmented
 assets                                                     9,251     6,766
Discontinued operations                                       400       764
----------------------------------------------------------------------------
Total assets                                            $ 229,658 $ 228,238
----------------------------------------------------------------------------
----------------------------------------------------------------------------

/T/



FOR FURTHER INFORMATION PLEASE CONTACT:

TransGlobe Energy Corporation
Anne-Marie Buchmuller
Manager, Investor Relations & Assistant Corporate Secretary
Tel:(403) 268-9868 or Cell: (403) 472-0053
E-mail: investor.relations@trans-globe.com
Web site: www.trans-globe.com