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Release

TransGlobe Energy Corporation Second Interim Report for the Three and Six Months Ended June 30, 2005

CALGARY, ALBERTA--(CCNMatthews - July 28, 2005) - TransGlobe Energy Corporation (TSX:TGL) (AMEX:TGA) ("TransGlobe" or the "Company") is pleased to announce its financial and operating results for the three and six months ended June 30, 2005. All dollar values are expressed in United States dollars unless otherwise stated. Conversion of natural gas to oil is made on the basis of 6,000 cubic feet of natural gas being equivalent to one barrel of oil.

HIGHLIGHTS

- Net income in Q2-2005 of $3,474,000 ($0.06 per share)

- Cash flow in Q2-2005 of $7,263,000 ($0.12 per share)

- Working capital of $7,784,000 with no debt

- Block S-1 pipeline completed

- Block 72 Production Sharing Agreement ("PSA") fully approved

- Canadian drilling 100% successful (7 wells drilled)

- Expansion of Capital Budget to $38 million

Corporate Summary

The Company's total production during the first six months of 2005 averaged 4,772 Boepd, a 55% increase from the first six months of 2004 (3,077 Boepd). Increases in Block S-1 production were offset by natural declines in Block 32. Also, in Canada there was reduced production during the second quarter due to gas plant annual maintenance shut downs. Total Company production during the second half of 2005 is expected to average 6,300 Boepd with increases expected from Block S-1, from Canada and with flat production expected from Block 32. The Company plans to participate in an additional 30 wells during the remainder of 2005. Exploration operations are now progressing on Block 72 in Yemen and the Nuqra Block in Egypt. It is anticipated these projects will begin drilling in the second half of 2006.



FINANCIAL AND OPERATING UPDATE
($000's except per share, price and volume amounts)

Three Months Ended Six Months Ended
June 30 June 30
Financial 2005 2004 Change 2005 2004 Change
---------------------------------------------------------------------
---------------------------------------------------------------------
Oil and gas
sales 17,911 9,670 85% 36,774 17,567 109%
Oil and gas
sales, net of
royalties 11,778 5,779 104% 25,322 11,647 117%
Operating
expense 2,371 1,352 75% 4,822 2,479 95%
General and
administrative
expense 525 440 19% 1,258 759 66%
Stock-based
compensation 99 368 (73)% 450 478 (6)%
Depletion,
depreciation
and accretion
expense 3,768 1,934 95% 7,702 3,548 117%
Income taxes 1,544 1,220 27% 3,125 1,779 76%
Cash flow from
operations 7,263 2,749 164% 16,331 6,636 146%
Basic per share 0.13 0.05 0.28 0.12
Diluted per
share 0.12 0.05 0.27 0.12
Net income 3,474 447 677% 7,980 2,610 206%
Basic per share 0.06 0.01 0.14 0.05
Diluted per
share 0.06 0.01 0.13 0.05
Capital
expenditures 8,605 5,591 54% 12,245 7,651 60%
Working capital 7,784 1,780 337%
Common shares
outstanding
Basic (weighted
average) 57,497 54,072 6%
Diluted
(weighted
average) 60,076 56,519 6%


Production and Sales Volumes
---------------------------------------------------------------------
---------------------------------------------------------------------
Total
production
(Boepd) (6:1)(1) 4,658 3,389 37% 4,772 3,077 55%
Total sales
(Boepd) (6:1)(1) 4,375 3,103 41% 4,678 2,931 60%
Oil and liquids
sales (Bopd) 3,835 2,751 39% 4,096 2,588 58%
Average price
($ per barrel) 46.05 34.64 33% 44.46 33.12 34%
Gas sales
(Mcfpd) 3,243 2,114 53% 3,494 2,061 70%
Average price
($ per Mcf) 6.22 5.09 22% 5.99 5.18 16%
Operating
expense ($ per
Boe) 5.96 4.79 24% 5.69 4.65 22%

(1) Difference in production and sales volumes result from inventory
changes at Block S-1, Yemen

 


OPERATIONS UPDATE

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

Operations and Exploration

During the quarter, one producing Lam oil well (An Nagyah #15) was drilled and one exploration well (Wadi Markhah #1) was drilling at quarter end. The An Nagyah #15 well was tested from a 747 meter horizontal Lam A section at a rate of 2,625 barrels of light (43 degree API) oil per day, 84 barrels of water per day and 2.3 million cubic feet of natural gas per day on a 48/64 inch choke at 575 psi flowing pressure. This is the third horizontal well drilled in the An Nagyah field.

The exploration well, Wadi Markhah #1, which commenced drilling on April 26, 2005, was drilled to a total depth of 2,404 meters. The well was cased to evaluate hydrocarbon shows in the Azal, Lam, Shuqra and Kohlan/Basement formations. Four zones encountered light oil (Kholan/Basement, Shuqra, Lam and Azal). The Basement/Kholan and the Shuqra tested oil in non-commercial quantities and the Lam was not tested as logs indicated the tests would probably produce non-commercial oil also. The upper portion of the well (Azal formation) behind surface casing has been suspended. The light 38 degree API oil and gas shows observed in the upper Azal formation are expected to be tested at a later date utilizing a workover completion rig. The Wadi Markhah well results have provided encouragement for further exploration in the southern portion of Block S-1. Additional 3-D seismic over the south portion of the Block will be required prior to new exploration drilling.

A development horizontal well is currently being drilled at An Nagyah #16. It is expected that 2 to 3 more wells will be drilled prior to year end. The majority of the wells will be horizontal development/appraisal wells in the An Nagyah field area to optimize field recoveries and to increase production rates. In addition to An Nagyah Lam A horizontal development wells, it is expected that a horizontal well will be drilled to develop the Lam B oil pool tested in the An Nagyah #3 well. The Company currently has sixteen exploration prospects mapped and anticipates that several of these will be drilled over the next year.

Production equipment was installed at Harmel #1 and Harmel #2 in late March. The initial Harmel #1 production rate of approximately 100 bopd has declined to a rate of less than 25 Bopd. The Harmel #2 well encountered a poorer quality reservoir and has less productive capacity than the Harmel #1 well. Although the production rates are disappointing, it is expected that new wells will be drilled targeting deeper prospects (Alif and Basement) on the Harmel structure. These wells could provide additional reservoir information on the shallow medium gravity oil (22 degree API) pool. The Harmel pool (600 to 800 meters in depth) encompasses fifteen square miles as defined by 3-D seismic and represents a potentially significant accumulation of oil in place. The shallow zones require several more wells (vertical and/or horizontal) to fully evaluate the economic viability of the oil accumulation.

The 3-D seismic survey shot in 1999 in the An Naeem area was reprocessed during the second quarter of 2005. Remapping the An Naeem area has identified several drillable prospects. One of the more interesting prospects is the re-emergence of a potential oil rim on the An Naeem field. Occidental (Block 20) and Jannah Hunt (Block 18) have recently announced Alif oil discoveries on what appears to be a structurally lower extension of the An Naeem gas condensate discoveries (An Naeem #1, #2 and #3) made on Block S-1. Based on preliminary remapping of the reprocessed An Naeem 3-D seismic, the potential Alif oil pool could extend on to Block S-1. The offsetting oil discoveries have improved the potential of a number of Alif exploration targets around the An Naeem structural complex previously thought to be gas condensate prospects. In addition to the Alif prospects there are several Basement prospects now identified on the better quality reprocessed seismic data. TransGlobe encountered oil shows in fractured Basement at Harmel #1, which is a key indicator of Basement oil potential in other areas of Yemen.

Production

Production from Block S-1 averaged 8,164 Bopd (2,041 Bopd to TransGlobe) during the second quarter, up from 7,332 Bopd during the first quarter, due to increased trucking and production capacity. The 30 kilometer (18 mile) pipeline connecting the producing An Nagyah field with the Jannah Hunt operated Halewah production facility and export pipeline was completed on June 30, 2005. Startup and commissioning commenced on July 1 with oil arriving at the Halewah facilities on July 5. With the pipeline operational and additional development horizontal wells scheduled, it is expected that production will reach 10,000 to 12,000 Bopd (2,500 to 3,000 Bopd to TransGlobe) for the balance of the year. Operating costs are expected to reduce by approximately $1.50 per barrel with the pipeline operational and with trucking operations ceased. The pipeline has an ultimate capacity of 80,000 Bopd so that future discoveries can be placed on stream quickly.



Quarterly 2005 An Nagyah Production (Bopd) Q-1 Q-2
--------------------------------------------------------------------
--------------------------------------------------------------------
Gross field production rate 7,332 8,164
TransGlobe working interest 1,833 2,041
TransGlobe net (after royalties) 1,284 1,421
TransGlobe net (after royalties and tax)(1) 1,146 1,247
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(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.

 


Block 32, Republic of Yemen (13.81087% working interest)

Operations and Exploration

During the quarter, the Tasour #18 development well was drilled to a total depth of 2,103 meters and completed as a producing Qishn oil well. The well encountered three upper Qishn sands (S1-A, S1-B and S1-C) in a structurally high position above the original field oil water contact. The well was completed and placed on production as a Qishn S-1C oil producer with an initial production rate of 3,000 Bpd (410 Bpd to TransGlobe) of oil and 1,550 Bpd of water. The remaining zones (S-1B and the main Tasour field S1-A) will be completed in the future to optimize production and to improve field oil recovery. The drilling rig has moved to a non-owned adjacent block for a two to three well program before returning to Block 32 for additional drilling in the fourth quarter of 2005.

A second drilling rig is currently drilling Tasour #19 to appraise the southwest portion of the Tasour field and to evaluate a potential Basement exploration prospect located south of the main Tasour field. The Basement prospect was identified on the 3-D seismic acquired over the Tasour field in 2004 and is analogous to recent Basement oil discoveries in the Masila basin (Nexen's Block 14, Total's Block 10 and recently DNO's Block 43). The Qishn sands were encountered in a structural position above the original field oil/water contact indicating that Tasour #19 could be utilized as a Qishn producer should the Basement prove to be non-productive. It is expected that Tasour #19 will be drilled and evaluated by mid August.

In addition to the Tasour #19 well (Basement exploration/Qishn development) currently drilling, it is expected that a minimum of two additional exploration wells will be drilled prior to year end. Planned wells include a Qishn test at North Hemiar to evaluate a potential oil leg to the Nexen North Hemiar Qishn gas well and a new prospect identified on the new 2-D seismic program acquired north and west of Tasour.

Production

The Tasour field averaged 13,838 Bopd (1,911 Bopd to TransGlobe) during the second quarter 2005, down from 16,167 Bopd in the first quarter, due to natural declines. Late in the second quarter, Tasour #18 was placed on production at a rate of approximately 3,000 Bopd from the Qishn S-1C sand. With the addition of one more development well (Tasour #19) in the third Quarter, it is expected that Tasour production should average approximately 15,000 to 16,000 Bopd (2,070 to 2,210 Bopd to TransGlobe) for the balance of the year. In late 2004, the Joint Venture Group approved the purchase of a diesel topping plant which is on target to be operational during the third quarter of 2005. The diesel topping plant will produce diesel fuel from a portion of the Tasour crude oil. This is expected to stabilize diesel costs and maintain low operating costs which should extend the life of the field.



Quarterly 2005 Tasour Production (Bopd) Q-1 Q-2
--------------------------------------------------------------------
--------------------------------------------------------------------
Gross field production rate 16,167 13,838
TransGlobe working interest 2,233 1,911
TransGlobe net (after royalties) 1,567 1,060
TransGlobe net (after royalties and tax)(1) 1,357 775
--------------------------------------------------------------------
--------------------------------------------------------------------
(1) Under the terms of the Block 32 PSA royalties and taxes are paid
out of the government's share of production sharing oil

 


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

The Block 72 PSA was ratified by the Yemen parliament on June 18, 2005 and became law following the Presidential decree on July 12, 2005. Block 72 encompasses 1,822 square kilometers (approximately 450,234 acres) and is located in the western Masila Basin adjacent to the billion barrel Nexen Masila Block. The Block 72 Joint Venture Group plans to carry out a seismic acquisition program and the drilling of two exploration wells during the first exploration period of thirty months. An initial 150 kilometer 2-D seismic program is expected to commence in the fourth quarter of 2005, with additional seismic and drilling expected in 2006. Any discoveries made on Block 72 would follow a similar development program to Block 32 whereby a separate oil processing facility and a pipeline would be constructed to connect to the Nexen export pipeline.

Nuqra Block 1, Arab Republic of Egypt (50% working interest, Operator)

TransGlobe has recently completed the reprocessing of 3,190 kilometers of existing 2-D seismic data on the Nuqra Block. Mapping of the reprocessed data and preparations for the new seismic acquisition program are underway. A new 800 kilometer 2-D seismic acquisition program has been awarded and is expected to commence in the fourth quarter 2005. The seismic acquisition program was bid jointly with Centurion Energy who holds the exploration concession adjacent to the Nuqra block. The seismic crew is being mobilized and will start on the Centurion block in the third quarter, prior to the Nuqra program. A joint field geological survey with Centurion is also underway to investigate surface outcrops and oil seeps in the Nuqra area. The exploration of the Nuqra Block is being fast tracked and will probably exceed the PSA requirements. It is anticipated that TransGlobe will complete the seismic acquisition by the first quarter of 2006 and will be preparing for a two well drilling program in late 2006. This would complete all the first period and second period PSA commitments ahead of schedule.

Canada

Operations and Exploration

The Canadian 2005 drilling program commenced on May 2nd following spring break-up. Despite wet surface conditions in Alberta, the Company has drilled 7 wells (6.7 net wells) to date, resulting in 4 (3.7 net) gas wells, 2 net oil wells and 1 net potential gas well. All the wells have been drilled in the Nevis/Gadsby area of central Alberta. In June, the Company drilled its first Coal Bed Methane ("CBM") well in the Nevis area targeting the Horseshoe Canyon coals. The well will be completed and placed on production during the third quarter. If this initial CBM test proves commercial production, the Company has shallow mineral rights in 8 sections of land where an additional 31 CBM wells could be drilled.

The original 2005 budget of 10-15 wells has been expanded significantly to 30-35 wells with an increased land acquisition budget due to the successful well results to date and the strong commodity prices. The drilling will be primarily focused in central Alberta. In 2005, the Company acquired an additional 11,400 net acres. Mineral rights were acquired on two new exploration areas which should be tested later in 2005.

Production

Production in the second quarter averaged 706 Boepd, down from the 821 Boepd in the first quarter due to natural declines and gas plant turnarounds (annual maintenance taking typically two weeks) at Nevis, Twining, Camao and Cherhill. Production has increased significantly and is expected to average 1,280 Boepd in July due to the addition of three of the seven wells drilled in 2005, two workovers and facility modifications. The remaining four wells drilled in the second quarter are expected to be completed and placed on production during the balance of the third quarter. Based on existing wells drilled to date, it is expected that production will average between 1,300 and 1,500 Boepd for the balance of the year, taking into account initial production declines associated with new wells. This estimate does not include any additions that could come from the new drilling campaign planned for August through December.



Quarterly 2005 Canadian Production (Boepd) Q-1 Q-2
--------------------------------------------------------------------
--------------------------------------------------------------------
TransGlobe working interest 821 706
TransGlobe net (after royalties) 673 600
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--------------------------------------------------------------------

 


MANAGEMENT'S DISCUSSION AND ANALYSIS

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, 2005 and 2004, the audited financial statements and MD&A for the year ended December 31, 2004 included in the Company's annual report. Additional information relating to the Company, including the Company's Annual Information Form, is on SEDAR at www.sedar.com. All dollar values are expressed in U.S. dollars, unless otherwise stated. The calculations of barrels of oil equivalent ("Boe") are based on a conversion rate of six thousand cubic feet of natural gas to one barrel of crude oil.

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

NON-GAAP MEASURES

Cash flow from operations is a non-GAAP measure that represents cash generated from operating activities before changes in non-cash working capital. We consider this a key measure as it demonstrates our ability to generate the cash flow necessary to fund future growth through capital investment. Cash flow from operations may not be comparable to similar measures used by other companies.

Net operating income is a non-GAAP measure that represents revenue net of royalties and operating expenses. Management believes that net operating income is a useful supplemental measure to analyse operating performance and provide an indication of the results generated by the Company's principal business activities prior to the consideration of other income and expenses. Net operating income may not be comparable to similar measures used by other companies.

OUTLOOK

TransGlobe has projected a 2005 capital budget of $38 million, up from the initial budget of $32 million.

- In the first six months of 2005, the Company spent $12.2 million of the capital budget.

- A remaining portion of the capital budget will be spent on the following:

-- Drilling and Central Production Facility ("CPF") at Block S-1, Yemen;

-- Drilling and diesel topping plant facilities at Block 32, Yemen;

-- Seismic reprocessing and new seismic acquisition in Egypt;

-- Seismic acquisition in Q4 at Block 72, Yemen;

-- Drilling, facilities and land acquisitions in Canada.

TransGlobe has updated cash flow from operations and production estimates for 2005 based on current results and future plans for the balance of the year. The cash flow from operations estimate for 2005 has increased 31% from the previous estimate and is expected to be $42 million ($0.70 per share). This is based on estimated average production volumes of 5,400 to 5,800 Boepd for the year, off slightly from previous estimates (7%), and commodity prices for the balance of 2005 at an average dated Brent oil price of $50.00 per Bbl and an average AECO gas price of C$7.00 per Mcf.

SELECTED QUARTERLY FINANCIAL INFORMATION

In the first quarter of each calendar year the Company's royalty and income tax rate decreases at Block 32, Yemen due to the addition of the recovery of 50% of the capital costs from the prior year as well as 50% of the capital costs from the first quarter. This results in an increase to cash flow from operations and net income in the first quarter of each year. The second through fourth quarters recover 50% of the capital costs incurred with the balance recovered in the first quarter of the following year. The result is a decrease to cash flow from operations and net income compared to the first quarter. A comparison of the second quarter results to the previous year second quarter results may be more relevant.

In Q2-2005 compared to Q1-2005, cash flow from operations decreased 20% to $7,263,000 and net income decreased 23% to $3,474,000 mainly as a result of:

- Increased royalty and income tax costs at Block 32, Yemen due to the higher cost recovery at Block 32 in Q1-2005, as described above;

- Decreased sales volumes due to an inventory buildup at Block S-1, Yemen, natural declines at Block 32, Yemen and scheduled plant turnarounds in Canada;

- Offset in part by increased sales price.



($000's, except per
share, price and June 30 Mar. 31 Dec. 31 Sept. 30 June 30
volume amounts) 2005 2005 2004 2004 2004
---------------------------------------------------------------------
---------------------------------------------------------------------
Average
production
volumes (Boepd)(1) 4,658 4,887 4,979 4,303 3,389
Average sales
volumes (Boepd)(1) 4,375 4,985 5,384 3,918 3,103
Average price
($/Boe) 44.99 42.04 37.45 37.12 34.25

Oil and gas sales 17,911 18,863 18,548 13,380 9,670

Oil and gas sales,
net of royalties 11,778 13,544 11,756 8,227 5,779

Cash flow from
operations 7,263 9,070 6,326 4,363 2,749
Cash flow from
operations per
share
- Basic 0.13 0.16 0.12 0.08 0.05
- Diluted 0.12 0.15 0.11 0.08 0.05

Net income 3,474 4,507 768 2,541 447
Net income per
share
- Basic 0.06 0.08 0.01 0.05 0.01
- Diluted 0.06 0.08 0.01 0.04 0.01

Total assets 66,168 61,232 60,522 44,478 38,798
---------------------------------------------------------------------
---------------------------------------------------------------------
(1) Difference in production and sales volumes result from inventory
changes at Block S-1, Yemen

 


RESULTS OF OPERATIONS

In Q2-2005 compared to Q2-2004, cash flow from operations increased 164% to $7,263,000 ($0.13 per basic share and $0.12 per diluted share) compared to $2,749,000 ($0.05 per share, basic and diluted) mainly as a result of:

- increased sales volumes of 41% from drilling success in both Yemen and Canada;

- increased commodity prices of 31%;

- offset in part by increased royalties, operating costs and taxes associated with the increased volumes and pricing.

In Q2-2005 compared to Q2-2004, net income increased 677% to $3,474,000 ($0.06 per share, basic and diluted) compared to $447,000 ($0.01 per share, basic and diluted) mainly as a result of:

- the above items affecting cash flow also increased net income;

- decreased stock-based compensation, a non-cash expense;

- increased depletion, depreciation and accretion associated with the increased volumes.



OPERATING RESULTS

Daily Volumes, Working Interest Before Royalties

Three Months Six Months
Ended June 30 Ended June 30
---------------------------------------------------------------------
2005 2004 2005 2004
---------------------------------------------------------------------
Yemen - Oil production Bopd 3,952 2,904 4,008 2,599
- Inventory Change Bopd (283) (286) (92) (145)
---------------------------------------------------------------------
Yemen - Oil sales Bopd 3,669 2,618 3,916 2,454
Canada - Oil and liquids Bopd 166 133 181 134
- Gas sales Mcfpd 3,243 2,114 3,494 2,061
---------------------------------------------------------------------
Total sales Boepd 4,375 3,103 4,678 2,931
---------------------------------------------------------------------
---------------------------------------------------------------------


Consolidated Net Operating Results

Consolidated
---------------------------------------------------------------------
Six Months Six Months
Ended Ended
June 30, 2005 June 30, 2004
---------------------------------------------------------------------
($000's, except per Boe amounts) $ $/Boe $ $/Boe
---------------------------------------------------------------------
Oil and gas sales 36,774 43.43 17,567 28.23
Royalties 11,452 13.52 5,920 9.48
Operating expenses 4,822 5.69 2,479 3.87
---------------------------------------------------------------------
Net operating income(1) 20,500 24.22 9,168 14.88
---------------------------------------------------------------------
---------------------------------------------------------------------


Consolidated
---------------------------------------------------------------------
Three Months Three Months
Ended Ended
June 30, 2005 June 30, 2004
---------------------------------------------------------------------
($000's, except per Boe amounts) $ $/Boe $ $/Boe
---------------------------------------------------------------------
Oil and gas sales 17,911 44.99 9,670 34.25
Royalties 6,133 15.41 3,891 13.78
Operating expenses 2,371 5.96 1,352 4.79
---------------------------------------------------------------------
Net operating income(1) 9,407 23.62 4,427 15.68
---------------------------------------------------------------------
---------------------------------------------------------------------
(1) Net operating income amounts do not reflect Yemen income tax
expense which is paid through oil allocations with the Ministry
of Oil and Minerals (MOM) in the Republic of Yemen (Q2-2005
$1,693,000, $4.25/Boe, Q2-2004 - $1,208,000, $4.28/Boe), (Q1 and
Q2-2005 - $3,067,000, $3.62/Boe, Q1 and Q2-2004 - $1,767,000,
$3.31/Boe).

 


Segmented Net Operating Results

In 2005 the Company operated in two geographic areas, segmented as the Republic of Yemen and Canada. Also, the Company has start-up operations in a third geographic segment, Arab Republic of Egypt. MD&A will follow under each of these segments.



Republic of Yemen
Six Months Ended Six Months Ended
June 30, 2005 June 30, 2004
---------------------------------------------------------------------
($000's, except per
Boe amounts) $ $/Boe $ $/Boe
---------------------------------------------------------------------
Oil sales 31,609 44.60 14,867 33.29
Royalties 10,598 14.95 5,459 12.22
Operating expenses 3,952 5.58 1,915 4.29
---------------------------------------------------------------------
Net operating income(1) 17,059 24.07 7,493 16.78
---------------------------------------------------------------------


Three Months Ended Three Months Ended
June 30, 2005 June 30, 2004
---------------------------------------------------------------------
($000's, except per
Boe amounts) $ $/Boe $ $/Boe
---------------------------------------------------------------------
Oil sales 15,413 46.17 8,290 34.81
Royalties 5,757 17.24 3,648 15.32
Operating expenses 1,901 5.70 1,053 4.42
---------------------------------------------------------------------
Net operating income(1) 7,755 23.23 3,589 15.07
---------------------------------------------------------------------

(1) Net operating income amounts do not reflect Yemen income tax
expense which is paid through oil allocations with MOM in the
Republic of Yemen (Q2-2005 - $1,693,000, $5.07/Boe, Q2-2004 -
$1,208,000, $5.07/Boe), (Q1 and Q2-2005 - $3,067,000, $4.32/Boe,
Q1 and Q2-2004 - $1,767,000, $3.96/Boe).

 


Net operating income in Yemen increased 128% in the first six months of 2005 and 116% in the three months ended June 30 compared to the same periods of 2004 primarily as a result of the following:

- Oil sales increased 113% for the six months and 86% for the three months ended June 30, 2005 compared to the same periods of 2004 mainly as a result of the following:

1. Sales volumes increased 60% for the six months and 40% for the three months ended June 30, 2005 compared to the same periods of 2004 primarily as a result of:

-- Block S-1 production commencing at the end of Q1-2004;

-- Block S-1 production increases over the past year due to drilling success and trucking capacity increases;

-- offset by natural declines at Block 32.



Daily Volumes, Working Six Months Ended Six Months Ended
Interest Before Royalties June 30, 2005 June 30, 2004
---------------------------------------------------------------------
Bopd Bopd Change
---------------------------------------------------------------------
Block S-1 - production 1,937 285 580%
- inventory change (92) (145)
---------------------------------------------------------------------
Block S-1 - sales 1,845 140 1,218%
Block 32 - sales 2,071 2,314 (11)%
---------------------------------------------------------------------
Total sales 3,916 2,454 60%
---------------------------------------------------------------------


Daily Volumes, Working Three Months Ended Three Months Ended
Interest Before Royalties June 30, 2005 June 30, 2004
---------------------------------------------------------------------
Bopd Bopd Change
---------------------------------------------------------------------
Block S-1 - production 2,041 565 261%
- inventory change (283) (286)
---------------------------------------------------------------------
Block S-1 - sales 1,758 279 530%
Block 32 - sales 1,911 2,339 (18)%
---------------------------------------------------------------------
Total sales 3,669 2,618 40%
---------------------------------------------------------------------

 


2. Oil prices increased 34% for the six months and 33% for the three months ended June 30, 2005 compared to the same periods of 2004.

- Royalty costs increased 94% for the six months and 58% for the three months ended June 30, 2005 compared to the same periods of 2004 as a result of increased volumes and prices. Royalties as a percent of revenue decreased from 37% to 34% for the six months and from 44% to 37% for the three months ended June 30, 2005 compared to the same periods of 2004 as a result of a significant increase in Block S-1 production which has a lower royalty rate during the maximum cost recovery phase (30% in Q1 and Q2-2005) compared to Block 32 (45% - Q2-2005, 30% - Q1-2005). In the first quarter of each calendar year the Company's royalty and income tax rate decreases at Block 32, Yemen due to the addition of the recovery of 50% of the capital costs from the prior year as well as 50% of the capital costs from the first quarter.

- Operating expenses on a Boe basis increased 30% for the six months and 29% for the three months ended June 30, 2005 compared to the same periods in 2004 mainly as a result of the following:

1. Block 32 operating expenses increased to $5.03 per barrel in the first six months of 2005 compared to $3.98 per barrel in same period of 2004 primarily due to increased diesel costs ($1.53 per bbl in the six months ended June 30, 2005 compared to $0.71 per bbl in the same period of 2004). A plant is being constructed in 2005 to manufacture diesel from produced crude oil which will reduce the cost of purchased diesel. The plant is expected to be commissioned in the third quarter of 2005.

2. Block S-1 had significantly higher operating costs during the initial trucking phase, averaging $5.90 per barrel during the six months ended June 30, 2005. This is a reflection of higher costs associated with trucking and higher fixed costs per barrel until volumes are increased when full scale production commences in 2005. Average cost per barrel is expected to be significantly reduced for the remainder of the year. The pipeline was commissioned at the end of Q2-2005 which will allow increased production for the remainder of 2005 and will eliminate trucking costs.

Canada



Six Months Ended Six Months Ended
June 30, 2005 June 30, 2004
---------------------------------------------------------------------
($000's, except per
Boe amounts) $ $/Boe $ $/Boe
---------------------------------------------------------------------
Oil sales 823 46.56 394 34.17
Gas sales ($ per Mcf) 3,788 5.99 1,942 5.18
NGL sales 527 35.25 338 26.13
Other sales 27 - 26 -
---------------------------------------------------------------------
5,165 37.42 2,700 31.05
Royalties 854 6.18 461 5.31
Operating expense 870 6.30 564 6.49
---------------------------------------------------------------------
Net operating income 3,441 24.94 1,675 19.25
---------------------------------------------------------------------


Three Months Ended Three Months Ended
June 30, 2005 June 30, 2004
---------------------------------------------------------------------
($000's, except per
Boe amounts) $ $/Boe $ $/Boe
---------------------------------------------------------------------
Oil sales 401 48.53 206 37.49
Gas sales ($ per Mcf) 1,834 6.22 979 5.09
NGL sales 253 37.31 177 26.49
Other sales 10 - 18 -
---------------------------------------------------------------------
2,498 38.89 1,380 31.23
Royalties 376 5.85 243 5.50
Operating expense 470 7.30 299 6.79
---------------------------------------------------------------------
Net operating income 1,652 25.74 838 18.94
---------------------------------------------------------------------

 


Net operating income in Canada increased 105% in the six months and 97% in the three months ended June 30, 2005 compared to the same periods of 2004 primarily as a result of the following:

- Sales increased 91% for the six months and 81% for the three months ended June 30 compared to the same periods of 2004 mainly as a result of the following:

1. Sales volumes increased 60% for the six months and 46% for the three months ended June 30 as a direct result of the 2004 drilling program.

2. Commodity prices increased 21% for the six months and 25% for the three months ended June 30 on a Boe basis.

- Royalty costs on a Boe basis increased 16% for the six months and 6% for the three months ended June 30, 2005 compared to the same periods in 2004. Royalties as a percent of revenue were consistent at 17% in the six months ended June 30, 2005 and 2004.

- Operating costs remained consistent on a Boe basis decreasing 3% for the six months and increasing 8% for the three months ended June 30, 2005 compared to the same periods of 2004.



GENERAL AND ADMINISTRATIVE EXPENSES (G&A)

Six Months Ended Six Months Ended
June 30, 2005 June 30, 2004
---------------------------------------------------------------------
($000's, except
Boe amounts) $ $/Boe $ $/Boe
---------------------------------------------------------------------
G&A (gross) 1,790 2.12 1,174 2.20
Capitalized G&A (454) (0.54) (366) (0.69)
Overhead recoveries (78) (0.09) (49) (0.09)
---------------------------------------------------------------------
G&A (net) 1,258 1.49 759 1.42
---------------------------------------------------------------------


Three Months Ended Three Months Ended
June 30, 2005 June 30, 2004
---------------------------------------------------------------------
($000's, except
Boe amounts) $ $/Boe $ $/Boe
---------------------------------------------------------------------
G&A (gross) 842 2.12 676 2.40
Capitalized G&A (262) (0.66) (202) (0.72)
Overhead recoveries (55) (0.14) (34) (0.12)
---------------------------------------------------------------------
G&A (net) 525 1.32 440 1.56
---------------------------------------------------------------------

 


General and administrative expenses increased 66% in the six months ended June 30, 2005 (5% increase on a Boe basis) compared to the same period of 2004 as a result of the following:

- Personnel and office overhead costs increased due to additional staff;

- Public company costs increased mainly due to the Company preparing for the new Sarbanes Oxley compliance requirements;

- Deferred financing costs increased due to the amortization of the loan agreement entered into in Q4-2004; and

- The strengthening of the Canadian dollar against the US dollar increased G&A costs by $0.11 per Boe.

STOCK-BASED COMPENSATION

Effective January 1, 2004 the Company adopted the new accounting standard of the Canadian Institute of Chartered Accountants ("CICA") section 3870, "Stock-based Compensation and Other Stock-based Payments". This Canadian accounting standard requires the Company to record a compensation expense over the vesting period based on the fair value of options granted to employees and directors. Non-cash stock-based compensation expense amounted to $450,000 for the six months ended June 30, 2005 compared to $478,000 for the same period in 2004 and $99,000 for the three months ended June 30, 2005 compared to $368,000 for the same period in 2004. The decrease is mainly due to options granted in mid March 2004 which have been fully expensed.



DEPLETION, DEPRECIATION AND ACCRETION EXPENSE (DD&A)

Six Months Ended Six Months Ended
June 30, 2005 June 30, 2004
---------------------------------------------------------------------
($000's, except per
Boe amounts) $ $/Boe $ $/Boe
---------------------------------------------------------------------
Republic of Yemen 6,328 8.93 2,672 5.98
Canada 1,374 9.95 876 10.07
---------------------------------------------------------------------
7,702 9.10 3,548 6.65
---------------------------------------------------------------------


Three Months Ended Three Months Ended
June 30, 2005 June 30, 2004
---------------------------------------------------------------------
($000's, except per
Boe amounts) $ $/Boe $ $/Boe
---------------------------------------------------------------------
Republic of Yemen 3,083 9.23 1,534 6.44
Canada 685 10.66 400 9.04
---------------------------------------------------------------------
3,768 9.47 1,934 6.85
---------------------------------------------------------------------

 


In Yemen, DD&A on a Boe basis increased 49% in the six months and 43% in the three months ended June 30, 2005 compared to the same periods of 2004 primarily as a result of an increased asset base as all the remaining costs associated with the Block S-1 major development project were included in the depletable base, offset by a decreased depletion rate (production over reserves). In Q2-2004, major development project costs of $8,612,000 were excluded from the costs subject to depletion and depreciation representing a portion of the costs incurred in Block S-1.

In Canada, DD&A on a Boe basis increased 18% to $10.66 per Boe in Q2-2005 compared to $9.04 per Boe in Q2-2004 primarily as a result of:

- Strengthening of the Canadian dollar against the United States dollar which increased DD&A $0.99 per Boe (11%) through currency conversion.

INCOME TAXES

Current income tax expense in Q2-2005 of $1,693,000 (Q2-2004 - $1,220,000) represents income taxes incurred and paid under the laws of the Republic of Yemen pursuant to the PSA's on Block 32 and Block S-1. The increase is mainly a result of production start up on Block S-1 and increased oil prices. The income tax rate on the Yemen revenue was 11% in Q2-2005 compared to 15% in Q2-2004. The decrease in the rate is due to Block S-1 being in cost recovery which reduces the tax rate paid to the government (8% at Block S-1 compared to 14% at Block 32).

The future income tax recovery of $149,000 in Q2-2005 relates the recognition of a portion of the future income tax benefits in Canada. Before considering the recognition of the tax benefits, the future income tax expense was $207,000 for the six months ended June 30, 2005 which relates to a non-cash expense for taxes to be incurred in the future as Canadian tax pools reverse. The Company has unrecognized future tax benefits in Canada in the amount of $437,000 which may be recognized in the future with continued drilling successes in Canada.



CAPITAL EXPENDITURES/DISPOSITIONS

Three Months Ended Six Months Ended
June 30 June 30
($000's) 2005 2004 2005 2004
---------------------------------------------------------------------
Republic of Yemen 4,184 2,941 6,674 4,201
Canada 3,895 2,650 4,807 3,450
Arab Republic of Egypt 526 - 764 -
---------------------------------------------------------------------
Total capital expenditures 8,605 5,591 12,245 7,651
---------------------------------------------------------------------

 


Capital expenditures in 2005 are mainly comprised of the following:

Block 32, Yemen ($2,184,000)

- Drilling costs associated with Tasour #15, #16, #17, #18, and #19;

- Construction costs of the diesel topping plant;

- Acquisition costs for the seismic program.

Block S-1, Yemen ($4,483,000)

- Drilling costs associated with An Nagyah #14 and #15, Malaki and Markhah;

- Costs associated with the commercial development of the An Nagyah field including construction of the pipeline;

- Workover costs for the re-completion of An Nagyah #2 and #3;

- Acidization and production testing equipment costs for Harmel #1 and #2 .

Other, Yemen ($7,000)

- Block 72 geological and geophysical activity.

Canada ($4,807,000)

- Costs associated with the drilling of 7 wells , completions and tie-ins, mainly in the Nevis/Gadsby area;

- Costs associated with the completions and tie-ins as part of the 2004 exploration and development program;

- Other costs related to oil and gas lease acquisitions and seismic acquisitions for future drilling associated with the 2005 and 2006 exploration and development program;

- Leasehold improvements and office furniture for the new head office.

Nuqra Block 1, Egypt ($764,000)

- Mainly costs associated with geological and geophysical activity.

OUTSTANDING SHARE DATA

Common Shares issued and outstanding as at June 30, 2005 are 57,995,939.

LIQUIDITY AND CAPITAL RESOURCES

Funding for the Company's capital expenditures in the second quarter of 2005 was provided by cash flow from operations and working capital.

At June 30, 2005 the Company had working capital of $7,784,000, zero debt and an unutilized loan facility of $7,000,000. Accounts receivable decreased due mainly to Block S-1 revenue receivables decreasing $912,000. Block S-1 had two months of production receivable at December 31, 2004 compared to one month of production receivable at June 30, 2005. Oil inventory increased due to Block S-1 inventory increasing to 42,000 barrels at June 30, 2005 from 25,000 barrels at December 31, 2004. Accounts payable decreased due primarily to costs billed in late 2004 related to the An Nagyah facility and pipeline at Block S-1, Yemen that were paid in Q1 of 2005.

The Company expects to fund the balance of its 2005 exploration and development program (remaining budget of $25.8 million) through the use of working capital and cash flow. The use of the Company's credit facility during 2005 is not expected. If debt were to be utilized it is anticipated to remain within conservative guidelines of a debt to cash flow ratio of less than 0.25:1. Equity financing is not currently required although it may be utilized in the future to accelerate existing projects or to finance new opportunities. Fluctuations in commodity prices, product demand, foreign exchange rates, interest rates and various other risks may impact capital resources.

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:



Six Twelve Months
Months --------------------------------
($000's) 2005 2006 2007 2008 2009
---------------------------------------------------------------------
Office and equipment
leases $130 $ 255 $ 230 $ 322 $ 341
---------------------------------------------------------------------

 


In March 2005, the Company entered into a contract to sell 2,000 gigajoules (GJ) per day (approximately 2,000 Mcfpd) of natural gas in Canada from April 1 to April 30, 2005 and from June 1 to October 31, 2005 for Cdn$6.95/GJ.

Upon the determination that proved recoverable reserves are 40 million barrels or greater for Block S-1, Yemen, the Company will be required to pay a finders' fee to third parties in the amount of $281,000.

Pursuant to the Company's farm-in agreement on the Nuqra Concession in Egypt, the Company is committed to spend $6 million over the next 5 years to earn its 50% working interest. As part of this commitment the Company issued a $2 million letter of credit on July 8, 2004 to Ganoub El Wadi Holding Petroleum Company which expires on February 14, 2007. This letter of credit is secured by a guarantee granted by Export Development Canada.



Consolidated Statements of Income and Retained Earnings (Deficit)

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

Three Months Six Months
Ended June 30 Ended June 30
2005 2004 2005 2004
---------------------------------------------------------------------

REVENUE
Oil and gas sales,
net of royalties $ 11,778 $ 5,779 $ 25,322 $ 11,647
Other income 4 - 9 3
---------------------------------------------------------------------
11,782 5,779 25,331 11,650
---------------------------------------------------------------------

EXPENSES
Operating 2,371 1,352 4,822 2,479
General and
administrative 525 440 1,258 759
Stock-based compensation 99 368 450 478
Foreign exchange
(gain) loss 1 18 (6) (3)
Depletion, depreciation
and accretion 3,768 1,934 7,702 3,548
---------------------------------------------------------------------
6,764 4,112 14,226 7,261
---------------------------------------------------------------------

Income before income
taxes 5,018 1,667 11,105 4,389
---------------------------------------------------------------------

Income taxes - future (149) - 58 -
- current 1,693 1,220 3,067 1,779
---------------------------------------------------------------------
1,544 1,220 3,125 1,779
---------------------------------------------------------------------

NET INCOME 3,474 447 7,980 2,610

Retained Earnings
(Deficit), beginning
of period 3,821 (4,441) (685) (6,604)
---------------------------------------------------------------------
RETAINED EARNINGS
(DEFICIT), END OF
PERIOD $ 7,295 $ (3,994) $ 7,295 $ (3,994)
---------------------------------------------------------------------
---------------------------------------------------------------------

Net income per share (Note 5)
- Basic $ 0.06 $ 0.01 $ 0.14 $ 0.05
- Diluted $ 0.06 $ 0.01 $ 0.13 $ 0.05
---------------------------------------------------------------------
---------------------------------------------------------------------


Consolidated Balance Sheets

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

June 30, 2005 December 31, 2004
---------------------------------------------------------------------

ASSETS
Current
Cash and cash equivalents $ 7,230 $ 4,988
Accounts receivable 5,401 6,029
Oil inventory 631 389
Prepaid expenses 172 274
---------------------------------------------------------------------
13,434 11,680
---------------------------------------------------------------------
Property and equipment
Republic of Yemen 26,146 26,054
Canada 22,389 19,111
Arab Republic of Egypt 1,755 992
---------------------------------------------------------------------
50,290 46,157
---------------------------------------------------------------------
Future income tax assets 2,197 2,299
Deferred financing costs 247 386
---------------------------------------------------------------------

$ 66,168 $ 60,522
---------------------------------------------------------------------
---------------------------------------------------------------------

LIABILITIES
Current
Accounts payable and accrued
liabilities $ 5,650 $ 8,841

Asset retirement obligations (Note 3) 1,067 902
---------------------------------------------------------------------
6,717 9,743
---------------------------------------------------------------------

SHAREHOLDERS' EQUITY
Share capital (Note 4) 48,243 47,296
Contributed surplus 1,810 1,593
Cumulative translation adjustment 2,103 2,575
Retained earnings (deficit) 7,295 (685)
---------------------------------------------------------------------
59,451 50,779
---------------------------------------------------------------------

$ 66,168 $ 60,522
---------------------------------------------------------------------
---------------------------------------------------------------------


Consolidated Statements of Cash Flows

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

Three Months Six Months
Ended June 30 Ended June 30
2005 2004 2005 2004
---------------------------------------------------------------------
CASH FLOWS RELATED TO THE
FOLLOWING ACTIVITIES:

OPERATING
Net income $ 3,474 $ 447 $ 7,980 $ 2,610
Adjustments for:
Depletion,
depreciation and
accretion 3,768 1,934 7,702 3,548
Stock-based
compensation 99 368 450 478
Future income taxes (149) - 58 -
Amortization of
deferred financing
charges 71 - 141 -
---------------------------------------------------------------------
Cash flow from
operations, before
changes in working
capital 7,263 2,749 16,331 6,636
Change in non-cash
working capital (277) (67) 1,795 (1,576)
---------------------------------------------------------------------
6,986 2,682 18,126 5,060
---------------------------------------------------------------------

FINANCING
Issue of common
shares for cash 502 2 714 87
Deferred financing costs - - (2) -
Changes in non-cash
working capital - - (24) -
---------------------------------------------------------------------
502 2 688 87
---------------------------------------------------------------------

INVESTING
Exploration and
development expenditures
Republic of Yemen (4,184) (2,941) (6,674) (4,201)
Canada (3,895) (2,650) (4,807) (3,450)
Arab Republic of Egypt (526) - (764) -
Changes in non-cash
working capital 862 1,429 (4,298) 1,426
---------------------------------------------------------------------
(7,743) (4,162) (16,543) (6,225)
---------------------------------------------------------------------

Effect of exchange
rate changes on cash
and cash equivalents (21) - (29) -
---------------------------------------------------------------------

NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS (276) (1,478) 2,242 (1,078)
CASH AND CASH
EQUIVALENTS, BEGINNING
OF PERIOD 7,506 4,852 4,988 4,452
---------------------------------------------------------------------
CASH AND CASH
EQUIVALENTS, END
OF PERIOD $ 7,230 $ 3,374 $ 7,230 $ 3,374
---------------------------------------------------------------------
---------------------------------------------------------------------

Supplemental
Disclosure of Cash
Flow Information:
Cash interest paid $ - $ - $ - $ -
Cash taxes paid -
Republic of Yemen $ 1,693 $ 1,220 $ 3,067 $ 1,779
---------------------------------------------------------------------
---------------------------------------------------------------------

 


Notes to the Consolidated Financial Statements

(Unaudited - Expressed in U.S. Dollars)

1. Basis of presentation

The interim consolidated financial statements of TransGlobe Energy Corporation ("TransGlobe" or the "Company") for the three month and the six month periods ended June 30, 2005 and 2004 have been prepared by management in accordance with accounting principles generally accepted in Canada on the same basis as the audited consolidated financial statements as at and for the year ended December 31, 2004, except as outlined in Note 2. These interim consolidated financial statements do not include all the note disclosures required for annual financial statements and therefore they 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, 2004.

2. Change in accounting policy

Effective January 1, 2005, CICA Accounting Guideline AcG-15 "Consolidation of Variable Interest Entities" was adopted by the Company. AcG-15 defines a variable interest entity ("VIE") as a legal entity in which either the total equity at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support provided by other parties or the equity owners lack a controlling financial interest. The guideline requires the enterprise which absorbs the majority of a VIE's expected gains or losses, the primary beneficiary, to consolidate the VIE.

The adoption of AcG-15 had no effect on the Company's financial position or results of operations.

3. Asset retirement obligations

The following table presents the reconciliation of the beginning and ending obligations associated with the retirement of oil and gas properties:



(000's)
---------------------------------------------------------------------
Asset retirement obligations, December 31, 2004 $ 902
Liabilities incurred during period 151
Liabilities settled during period -
Accretion 31
Foreign exchange gain (17)
---------------------------------------------------------------------
Asset retirement obligations, June 30, 2005 $ 1,067
---------------------------------------------------------------------
---------------------------------------------------------------------

 


At June 30, 2005, the estimated total undiscounted amount required to settle the asset retirement obligations was $1,589,000 (2004 - $1,331,000). These obligations will be settled at the end of the useful lives of the underlying assets, which currently extend up to 10 years into the future. This amount has been discounted using a credit-adjusted risk-free interest rate of 6.5%.

4. Share capital

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



Continuity of common shares (000's) Shares Amount
---------------------------------------------------------------------
Balance, December 31, 2004 57,176 $ 47,296
Share options exercised 820 714
Transfer from contributed surplus
related to share options exercised 233
---------------------------------------------------------------------
Balance, June 30, 2005 57,996 $ 48,243
---------------------------------------------------------------------
---------------------------------------------------------------------


Weighted Average
Number of Per Share
Continuity of stock options (000's) Options Exercise Price
---------------------------------------------------------------------
Balance, December 31, 2004 3,462 $ 1.13
Granted 255 5.55
Exercised (820) 0.76
---------------------------------------------------------------------
Balance, June 30, 2005 2,897 $ 1.19
---------------------------------------------------------------------
---------------------------------------------------------------------

 


Stock-based compensation

Compensation expense of $450,000 has been recorded in the Consolidated Statements of Income and Retained Earnings (Deficit) in 2005 (2004 - $478,000). The fair value of all common share options granted are estimated on the date of grant using the Black-Scholes option-pricing model. The weighted average fair value of options granted during 2005 and the assumptions used in their determination are as noted below:



Three Months Ended Six Months Ended
June 30, 2005 June 30, 2005
---------------------------------------------------------------------
Weighted average fair
market value per option
(Cdn$) 2.75 2.90
Risk-free interest rate (percent) 3.53 3.60
Expected life (years) 4.00 4.00
Volatility (percent) 66.00 65.37
Expected annual dividend per share - -
---------------------------------------------------------------------
---------------------------------------------------------------------

 


5. Per share amounts

The weighted average number of common shares and diluted common shares outstanding during the six months ended June 30, 2005 was 57,497,000 (2004 - 54,072,000) and 60,076,000 (2004 - 56,519,000), respectively, and during the three months ended June 30, 2005 was 57,741,000 (2004 - 54,096,000) and 60,084,000 (2004 - 56,554,000), respectively.



6. Segmented information

Three Months Six Months
Ended June 30 Ended June 30
---------------------------------------------------------------------
(000's) 2005 2004 2005 2004
---------------------------------------------------------------------
Oil and gas sales,
net of royalties
Republic of Yemen $ 9,656 $ 4,642 $ 21,011 $ 9,408
Canada 2,122 1,137 4,311 2,239
---------------------------------------------------------------------
11,778 5,779 25,322 11,647
---------------------------------------------------------------------
Operating expenses
Republic of Yemen 1,901 1,053 3,952 1,915
Canada 470 299 870 564
---------------------------------------------------------------------
2,371 1,352 4,822 2,479
---------------------------------------------------------------------
Depletion, depreciation
and accretion
Republic of Yemen 3,083 1,534 6,328 2,672
Canada 685 400 1,374 876
---------------------------------------------------------------------
3,768 1,934 7,702 3,548
---------------------------------------------------------------------
Segmented income before
the following:
Republic of Yemen 4,672 2,055 10,731 4,821
Canada 967 438 2,067 799
---------------------------------------------------------------------
5,639 2,493 12,798 5,620
Other income 4 - 9 3
General and administrative 525 440 1,258 759
Stock-based compensation 99 368 450 478
Foreign exchange (gain) loss 1 18 (6) (3)
Income taxes 1,544 1,220 3,125 1,779
---------------------------------------------------------------------
Net income $ 3,474 $ 447 $ 7,980 $ 2,610
---------------------------------------------------------------------
---------------------------------------------------------------------

 


7. Commitments

In March 2005, the Company entered into a contract to sell 2,000 gigajoules (GJ) per day (approximately 2,000 Mcfpd) of natural gas in Canada from April 1 to April 30, 2005 and from June 1 to October 31, 2005 for Cdn$6.95/GJ.

The above includes certain statements that may be deemed to be "forward-looking statements" within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. All statements in this release, other than statements of historical facts, that address future production, reserve potential, exploration drilling, exploitation activities and events or developments that the Company expects are forward-looking statements. Although TransGlobe believes the expectations expressed in such forward-looking statements are based on reasonable assumptions, such statements are not guarantees of future performance and actual results or developments may differ materially from those in the forward-looking statements. Factors that could cause actual results to differ materially from those in forward-looking statements include oil and gas prices, well production performance, exploitation and exploration successes, continued availability of capital and financing, and general economic, market or business conditions.



TRANSGLOBE ENERGY CORPORATION

s/s Ross Clarkson

Ross G. Clarkson,
President & CEO

 

TransGlobe Energy Corporation
Ross G. Clarkson
President & C.E.O.
(403) 264-9888
(403) 264-9898 (FAX)

or

TransGlobe Energy Corporation
Lloyd W. Herrick
Vice President & C.O.O.
(403) 264-9888
(403) 264-9898 (FAX)
Email: trglobe@trans-globe.com
Website: www.trans-globe.com

or

Executive Offices
#2500, 605 -5th Avenue, S.W.,
Calgary, AB T2P 3H5

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