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TransGlobe Energy Corporation Announces Fourth Quarter and Year-End 2012 Financial and Operating Results

Thursday, March 7, 2013 5:00 AM


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CALGARY, ALBERTA -- (Marketwire) -- 03/07/13 -- TransGlobe Energy Corporation ("TransGlobe" or the "Company") (TSX:TGL) (NASDAQ:TGA) is pleased to announce its financial and operating results for the three months and year ended December 31, 2012. All dollar values are expressed in United States dollars unless otherwise stated.

HIGHLIGHTS

2012

--  Production increased to 17,496 barrels of oil per day ("Bopd") from an
    average 12,132 Bopd in 2011, a growth rate of 44%; 
--  Funds flow from operations increased to $153.5 million ($2.03/share
    diluted) based on average Brent oil pricing of $111.56 in 2012 from $120
    million in 2011, a growth rate of 28%; 
--  Net earnings increased to $87.7 million ($1.16/share diluted) from $81.4
    million in 2011, a growth rate of 8%; 
--  Year-end 2012 Proved plus Probable ("2P") reserves increased 10% to 48.7
    MMBbl, representing a production replacement for the year of 170%; 
--  Finding and development costs in 2012 of $4.46/Bbl (2P) with a recycle
    ratio of 4.95; 
--  Finding, development and acquisition costs in 2012 of $7.36/Bbl (2P)
    with a recycle ratio of 3.00; 
--  Raised gross proceeds of Cdn $97.8 million through a convertible
    debenture offering in February; 
--  Closed the EP Energy and Cepsa acquisitions in June and July; 
--  Awarded 4 exploration concessions in EGPC bid round in November; and 
--  Collected $76.1 million in Egyptian receivables in Q4 reducing the total
    receivables outstanding in Egypt at year end to $220 million from $243
    million in Q3 

2013

--  2013 Guidance: 
    --  Production of 21,000 to 24,000 Bopd, a 28% increase over 2012 using
        the mid-point of 22,500 Bopd; 
    --  Funds Flow of $161.0 million, based on an average Dated Brent oil
        price of $100.0/Bbl and using the mid-point production of 22,500
        Bopd; 
--  January production 17,144 Bopd; February production 18,085 Bopd; and
    18,500 Bopd to date in March 

A conference call to discuss TransGlobe's 2012 fourth quarter and year-end results presented in this news release will be held Thursday, March 7, 2013 at 9:00 AM Mountain Time (11:00 AM Eastern Time) and is accessible to all interested parties by dialing 1-416-340-8527 or toll-free 1-877-240-9772 (see also TransGlobe's news release dated March 4 2013). The webcast may be accessed at http://events.digitalmedia.telus.com/transglobe/030713/index.php.

                       TransGlobe Energy Corporation's                      
             Annual General and Special Meeting of Shareholders             
               Wednesday, May 8, 2013 at 3:00 PM Mountain Time              
                              Bow Glacier Room                              
 Centennial Place West, 3rd Floor, 250 - 5th Street S.W., Calgary, Alberta, 
                                   Canada                                   
                                                                            
FINANCIAL AND OPERATING RESULTS                                             
                 Three months ended December 31      Year ended December 31 
----------------------------------------------------------------------------
Financial             2012     2011    % Change    2012    2011    % Change 
----------------------------------------------------------------------------
Oil and gas sales  173,864  109,919          58 633,992 449,794          41 
Oil and gas                                                                 
 sales, net of                                                              
 royalties          92,281   60,609          52 317,666 247,754          28 
Derivative loss                                                             
 on commodity                                                               
 contracts               -     (208)          -    (125)   (807)         85 
Production and                                                              
 operating                                                                  
 expense            17,343   10,258          69  52,367  36,662          43 
General and                                                                 
 administrative                                                             
 expense             7,377    5,302          39  28,206  18,893          49 
Depletion,                                                                  
 depreciation and                                                           
 amortization                                                               
 expense            12,430    8,818          41  46,946  35,081          34 
Income taxes        22,415   16,426          36  88,075  69,572          27 
Funds flow from                                                             
 operations (i)     46,839   26,469          77 153,498 119,976          28 
 Basic per share      0.63     0.36                2.09    1.65             
 Diluted per                                                                
  share               0.57     0.35                2.03    1.60             
Net earnings        34,836   30,519          14  87,734  81,392           8 
Net earnings -                                                              
 diluted            32,156   30,519           5  87,734  81,392           8 
 Basic per share      0.48     0.42                1.20    1.12             
 Diluted per                                                                
  share               0.39     0.41                1.16    1.09             
Capital                                                                     
 expenditures       20,150   10,575          91  51,651  70,119         (26)
Acquisitions          (719)  73,836           -  27,259  73,836         (63)
Working Capital    262,217  139,983          87 262,217 139,983          87 
Long-term debt                                                              
 (including                                                                 
 current portion)   16,885   57,609         (71) 16,885  57,609         (71)
Convertible                                                                 
 debentures         98,742        -           -  98,742       -           - 
Common shares                                                               
 outstanding                                                                
 Basic (weighted                                                            
  average)          73,768   73,035           1  73,380  72,529           1 
 Diluted                                                                    
  (weighted                                                                 
  average)          82,210   75,102           9  75,523  74,937           1 
Total assets       653,425  525,806          24 653,425 525,806          24 
----------------------------------------------------------------------------
(i) Funds flow from operations is a measure that represents cash generated  
 from operating activities before changes in non-cash working capital and   
 may not be comparable to measures used by other companies.                 
                                                                            
Operating                                                                   
----------------------------------------------------------------------------
Average                                                                     
 production                                                                 
 volumes (Bopd)     17,875   12,054          48  17,432  12,132          44 
Average sales                                                               
 volumes (Bopd)     19,148   12,054          59  17,496  12,132          44 
Average price ($                                                            
 per Bbl)            98.70    99.12           -   99.01  101.58          (3)
Production and                                                              
 operating                                                                  
 expense ($ per                                                             
 Bbl)                 9.84     9.25           6    8.18    8.28          (1)
----------------------------------------------------------------------------

Operations Update

ARAB REPUBLIC OF EGYPT

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

Operations and Exploration

Four wells were drilled during the fourth quarter resulting in three (Hoshia) oil wells and one (Fadl) dry well.

Subsequent to year-end four additional oil wells have been drilled in the Arta/East Arta area.

One drilling rig is currently drilling in the Arta/East Arta area of the West Gharib concession.

Production

Production from West Gharib averaged 11,563 Bopd to TransGlobe during the fourth quarter, a 5% (619 Bopd) decrease from the previous quarter. Production during the fourth quarter was impacted by an illegal eight day labor protest at the start of the October which deferred approximately 100,000 barrels of production.

Production averaged 12,270 Bopd during January, 13,232 Bopd during February and approximately 13,400 Bopd to date in March. Production increases in February and March are attributed to new wells, production optimization and increased take away capacity attributed to the West Bakr K station trucking terminal.

The Company commissioned a truck receiving terminal at the West Bakr K station to receive West Gharib production in late December. The new K station receiving terminal is designed to receive the majority of the Hana/Hana West production from West Gharib, which is then shipped via the West Bakr pipeline to the GPC receiving terminal. By diverting up to 2,500 Bopd of Hana/Hana West production through the West Bakr pipeline system, West Gharib is able to utilize a portion of the Hana/Hana West capacity at the GPC truck terminal to deliver additional West Gharib production. West Gharib production was curtailed in 2012 due to GPC truck terminal constraints. Additional unidentified constraints could be experienced in the GPC processing facilities when the combined production approaches the 20,000+ Bopd level. The Company is working with GPC to identify bottlenecks and optimize throughput. Currently West Gharib and West Bakr are delivering approximately 18,000 Bopd into the GPC system.

The Phase 2 expansions of the new Hoshia and Arta South multi-well batteries ("MWB") were completed in early 2013. In addition, a new MWB located in the North West corner of East Arta will be commissioned in early March, 2013 and plans have been finalized for a new Arta Main MWB in the central part of Arta, targeting a Q4-2013 startup.

The Company continues to progress a number of longer term infrastructure projects in the West Gharib/West Bakr fields to deliver West Gharib production to GPC by pipeline and thereby eliminate oil trucking outside the West Gharib field area.

Quarterly West Gharib Production                                            
 (Bopd)                                               2012                  
----------------------------------------------------------------------------
                                           Q-4       Q-3       Q-2       Q-1
----------------------------------------------------------------------------
Gross production rate                   11,563    12,182    12,356    12,065
TransGlobe working interest             11,563    12,182    12,356    12,065
TransGlobe net (after royalties)         6,697     6,757     6,847     6,581
TransGlobe net (after royalties and                                         
 tax) (i)                                4,884     4,741     4,805     4,536
----------------------------------------------------------------------------
(i) 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.                                                            

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

Operations and Exploration

The Company drilled two wells during the fourth quarter resulting in one oil well in the K field and one dry hole in the M field.

Subsequent to the quarter, the Company has drilled two oil wells in the K field and one oil well in the M field.

The rig is currently moving to drill in H field.

To date the Company has drilled and completed four directional wells in the K field targeting multiple stacked Asl sands below the main Asl A zone with wells being completed in the lower-most oil formations. Depending on the performance of the respective wells/pools they may be recompleted or possibly commingled with additional Asl sands not currently producing. All four wells encountered oil pay in the main Asl A sand with an average true vertical depth ("tvd") net oil pay of approximately 113 feet per well and oil pay in the Asl B sand with an average tvd net oil pay of approximately 65 feet per well. The Asl A sands appear to be relatively un-swept in the main Asl A reservoir. The wells encountered the Asl B reservoir in a structurally favorable position and have a common oil water contact. One of the four wells was completed as an Asl B oil well and was placed on production at an initial pumping rate of approximately 800 Bopd in mid February. Additional oil pay was encountered in the thinner Asl D, E & F sands depending on the structural position of the respective wells. One well is completed in the Asl D, one well in the Asl E and one well in the Asl E and F sands with an overall average production pumping rate of approximately 240 Bopd per well. The Asl formations are high quality, unconsolidated sandstone reservoirs which typically produce sand with the oil during the initial production phase resulting in an increased frequency of pump changes and sand cleanouts.

Additional vertical K field wells targeting the main Asl A pool are planned to recover un-swept oil in the K field. The Asl A pool has produced approximately 28 million barrels of oil since being discovered in 1980, or approximately 17% of the internally estimated 169 million barrels in place. At year-end 2012, approximately 4.5 million barrels of proved plus probable ("2P") remaining reserves were assigned to the Asl A pool which, combined with historical production, equates to an ultimate recovery factor of approximately 19%. Management believes an additional 10 to 20% recovery factor for the K field Asl A pool is possible primarily through infill and down-spaced drilling opportunities. This could increase the ultimate recovery to the 30-40% range which is a more typical recovery factor for a high quality sandstone reservoir with an active water drive.

It is expected that the drilling rig will continue working in West Bakr throughout 2013.

Production

Production from West Bakr averaged 4,730 Bopd to TransGlobe during the fourth quarter, a 3% (140 Bopd) increase from the previous quarter.

Production averaged 4,126 Bopd in January and 4,199 Bopd in February. January and February production was significantly impacted by a higher than normal number of pump changes and sand cleanouts. In addition, a significant producer in the M field was down during most of January and February due to remedial work required to address an increase in water production. The well will be placed back on production this week along with a new oil well in the M field early next week. West Bakr production has averaged approximately 4,500 Bopd to-date in March, and is expected to be in the 5,000 to 5,500 Bopd range by month end.

The Company expects to achieve improved pump performance similar to the West Gharib operations as equipment is repaired or replaced with better quality components over the balance of 2013.

Quarterly West Bakr Production                                              
 (Bopd)                                               2012                  
----------------------------------------------------------------------------
                                           Q-4       Q-3       Q-2       Q-1
----------------------------------------------------------------------------
Gross production rate                    4,730     4,590     4,230     4,358
TransGlobe working interest              4,730     4,590     4,230     4,358
TransGlobe net (after royalties)         1,569     1,268     1,244     1,239
TransGlobe net (after royalties and                                         
 tax) (i)                                1,230       939       941       926
----------------------------------------------------------------------------
(i) Under the terms of the West Bakr Production Sharing Concession,         
    royalties and taxes are paid out of the Government's share of production
    sharing oil.                                                            

East Ghazalat Block, Arab Republic of Egypt (50% working interest)

Operations and Exploration

No wells were drilled during the fourth quarter. The operator has contracted drilling rigs for five wells in 2013. Drilling is expected to commence in March.

Production

Production from East Ghazalat averaged 467 Bopd to TransGlobe during the fourth quarter which represents the first full quarter of production from the Western desert for the Company.

TransGlobe's production averaged 405 Bopd in January and 324 Bopd in February. Three of the four producing Safwa wells are on pump and the fourth well continues to flow at reduced rates. It is expected that the flowing well will be placed on pump in 2013 when it is no longer capable of flowing to surface.

Production is trucked to a receiving terminal at the Dapetco operated South Dabaa facility approximately 35 kilometers southwest of Safwa.

Quarterly East Ghazalat Production                                          
 (Bopd)                                               2012                  
----------------------------------------------------------------------------
                                           Q-4       Q-3       Q-2       Q-1
----------------------------------------------------------------------------
Gross production rate                      934       163         -         -
TransGlobe working interest                467        82         -         -
TransGlobe net (after royalties)           235        41         -         -
TransGlobe net (after royalties and                                         
 tax) (i)                                  187        33         -         -
----------------------------------------------------------------------------
(i) Under the terms of the East Ghazalat Production Sharing Concession,     
    royalties and taxes are paid out of the Government's share of production

South Alamein, Arab Republic of Egypt (100% working interest, operated)

Operations and Exploration

The Company has approved a budget for 2013 which includes an initial eight well drilling program and the development of the Boraq 2 oil discovery. The 2013 drilling program includes two Boraq appraisal wells with the balance of the program focused on exploration prospects in South Alamein.

The Company is waiting for military surface access approvals, which have been delayed. The Company is encouraged by the continued support from EGPC and the Ministry of Oil and is cautiously optimistic that the necessary approvals will be forthcoming over the next quarter or two.

It is difficult to provide a timeline for first oil production from the Boraq discovery. The Company had assumed a Q4-2013 startup of production for budget purposes with an average production rate of 460 Bopd for 2013.

South Mariut, Arab Republic of Egypt (60% working interest, operated)

Operations and Exploration

Al Azayem #1, the first well of a planned three well exploration program, commenced drilling in the fourth quarter and reached a total depth of 16,391 feet in January 2013. The well was plugged and abandoned. The primary Cretaceous reservoirs did not contain hydrocarbons. The Jurassic section of well encountered a gross section of approximately 4,000 feet of Jurassic shale and tight carbonates. The Jurassic shale had good hydrocarbon indicators recorded while drilling. Analysis of the drill cuttings will be carried out to determine source rock properties. The total well cost of approximately $9 million ($5.4 million to TransGlobe) was lower than the budgeted $9.6 million cost for a 14,500 foot test.

The rig is currently drilling the HL-5 prospect (Al Nahda #1) approximately 15 kilometers north of the Al Azayem prospect. The 10,500 foot Al Nahda #1 well is targeting an independent Cretaceous structure (four stacked zones) defined on 3-D seismic. The Al Nahda #1 exploration well is programmed to take approximately 40 days to drill at a budgeted cost of $4.3 million ($2.6 million to TransGlobe). As disclosed in the January 11, 2013 press release, the Al Nahda (HL-5) prospect was independently evaluated as of December 31, 2012 by DeGolyer and MacNaughton Canada Limited "DMCL". The Al Nahda #1 well is targeting a combined four potential reservoirs that have an unrisked Mean Gross Prospective Resource volume of 20.2 million barrels.

The third exploration well is the CT-4 prospect (Al Hammam #1), located along the coastal trend approximately 50 kilometers west of Al Nahda #1. The Al Hammam #1 well is targeting a Cretaceous horst block defined on 2-D seismic data. The well is programmed to reach total depth of approximately 8,500 feet at a budgeted cost of approximately $3.4 million ($2.1 million to TransGlobe). It is expected that this well will commence drilling in March using a smaller (1,500 horsepower) drilling rig.

EGPC BID ROUND RESULTS

During the quarter, EGPC announced that TransGlobe was the successful bidder on four concessions (100% working interest) in the 2011 EGPC bid round which closed on March 29, 2012. It is expected that the new concessions will be awarded in late 2013 following the ratification process which culminates when each concession is passed into law by the People's Assembly (Parliament).

North West Gharib (100% WI)

The Company's primary objective was obtaining the 655 square kilometer (162,000 acre) North West Gharib concession which surrounds and immediately offsets the Company's core West Gharib/West Bakr producing concessions (approx. 45,000 acres). At North West Gharib the Company expects to commence drilling shortly after ratification and final approval of the concession into law. The Company has identified more than 79 drilling locations based on existing well and seismic data for the area. The Company would also acquire 3D seismic data on portions of the concession not covered by 3D seismic, to develop additional exploration targets.

South West Gharib (100% WI)

The 195 square kilometer (48,000 acre) South West Gharib concession is located immediately south of the North West Gharib concession. The Company will acquire 3D seismic over the entire concession prior to drilling exploration wells in the first exploration phase.

South East Gharib (100% WI)

The 508 square kilometer (125,000 acre) South East Gharib concession is located immediately south of the South West Gharib concession. The Company will acquire extensive 2D and 3D seismic over this area prior to drilling exploration wells in the first exploration phase.

South Ghazalat (100% WI)

The 1,883 square kilometer (465,000 acre) South Ghazalat concession is located in the Western Desert to the West of the company's East Ghazalat concession in the prolific Abu Gharadig basin. The Company will acquire extensive 3D seismic over this area prior to drilling exploration wells in the first exploration phase.

YEMEN EAST- Masila Basin

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

Operations and Exploration

No wells were drilled during the fourth quarter.

Production

Production sales from Block 32 averaged 3,271 Bopd (452 Bopd to TransGlobe) during the quarter. The reported gross sales production rate represents the amount of oil that was lifted and sold during the quarter. It is expected that sales production rates and the field production rates will vary quarter to quarter depending on the timing of tanker liftings during the respective quarter.

The actual field production during the fourth quarter averaged 2,442 Bopd (337 Bopd to TransGlobe) which is approximately 4% lower than the previous quarter due to natural declines.

Field production averaged approximately 2,484 Bopd (343 Bopd to TransGlobe) during January and 2,390 Bopd (330 Bopd to TransGlobe) during February.

Quarterly Block 32 Production and                                           
 Sales (Bopd)                                         2012                  
----------------------------------------------------------------------------
                                           Q-4       Q-3       Q-2       Q-1
----------------------------------------------------------------------------
Gross field production rate              2,442     2,532     2,575     2,704
Gross sales production rate              3,271     1,501     2,839     2,151
TransGlobe working interest                452       207       392       297
TransGlobe net (after royalties)           253       123       232       166
TransGlobe net (after royalties and                                         
 tax) (i)                                  185        96       179       120
----------------------------------------------------------------------------
(i) Under the terms of the Block 32 Production Sharing Agreement, royalties 
    and taxes are paid out of the Government's share of production sharing  
    oil.                                                                    

Block 72, Republic of Yemen (20% working interest)

Operations and Exploration

No new wells were drilled during the fourth quarter. The joint venture partners have approved the Gabdain #3 exploration well, subject to the resolution of logistic/security issues in the area. The current exploration phase of the PSA has been extended to October 12, 2013.

Gabdain #3 is targeting a large fractured basement prospect originally drilled at Gabdain #1 in 2010. Gabdain #1 tested approximately 170 Bopd light oil from the Kholan formation with 85% drawdown (which overlies the basement) during a two-day production test. Test rates are not necessarily indicative of long-term performance. The basement fractures at Gabdain #1 were tight and non-productive. The Gabdain #3 well is located approximately five kilometers from Gabdain #1 and is targeting fractures in the basement. It is expected that the 3,500 meter (11,500 feet) exploration well will cost approximately $11.5 million ($2.3 million to TransGlobe).

YEMEN WEST- Marib Basin

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

Operations and Exploration

No wells were drilled during the fourth quarter.

Production

Production sales from Block S-1 averaged 7,748 Bopd (1,937 Bopd to TransGlobe) during the quarter. The reported gross sales production rate represents the amount of oil that was lifted and sold during the quarter. It is expected that sales production rates and the field production rates will vary quarter to quarter depending on the timing of tanker liftings during the respective quarter.

Field production averaged 3,112 Bopd during the quarter (778 Bopd to TransGlobe). Production was shut-in following the shutdown of the Marib export pipeline which was damaged by local tribes on November 11, 2012 and remained shut-in for the balance of the quarter. Prior to the November 11 shut-in, the An Nagyah field produced an average of 6,852 Bopd (1,713 Bopd to TransGlobe) during the month of October.

Production has remained shut-in during January, February and March.

Quarterly Block S-1 Production and                                          
 Sales (Bopd)                                         2012                  
----------------------------------------------------------------------------
                                           Q-4       Q-3       Q-2       Q-1
----------------------------------------------------------------------------
Gross field production rate              3,112     3,860         -         -
Gross sales production rate              7,748       252         -         -
TransGlobe working interest              1,937        63         -         -
TransGlobe net (after royalties)         1,273        41         -         -
TransGlobe net (after royalties and                                         
 tax) (i)                                1,105        36         -         -
----------------------------------------------------------------------------
(i) Under the terms of the Block S-1 Production Sharing Agreement, royalties
    and taxes are paid out of the Government's share of production sharing  
    oil.                                                                    

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

Operations and Exploration

No wells were drilled during the quarter.

Future drilling has been suspended pending resolution of logistics and security concerns.

READER ADVISORIES

Forward-Looking Statements

Certain statements or information contained herein may constitute forward-looking statements or information under applicable securities laws, including, but not limited to, management's assessment of future plans and operations, anticipated increases to the Company's reserves and production, the possible sale of the Company's assets in Yemen, collection of accounts receivable from the Egyptian Government, drilling plans and the timing thereof, commodity price risk management strategies, adapting to the current political situations in Egypt and Yemen, reserve estimates, management's expectation for results of operations for 2013, including expected 2013 average production, funds flow from operations, the 2013 capital program for exploration and development, the timing and method of financing thereof, method of funding drilling commitments, and commodity prices and expected volatility thereof. Statements relating to "reserves" are deemed to be forward-looking statements, as they involve the implied assessment, based on certain estimates and assumptions, that the reserves described can be profitably produced in the future.

Forward-looking statements or information relate to the Company's future events or performance. All statements other than statements of historical fact may be forward-looking statements or information. Such statements or information 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.

Forward-looking statements or information necessarily involve risks including, without limitation, risks associated with oil and gas exploration, development, exploitation, production, marketing and transportation, loss of markets, economic and political instability, volatility of commodity prices, currency fluctuations, imprecision of reserve estimates, environmental risks, competition from other producers, inability to retain drilling rigs and other services, incorrect assessment of the value of acquisitions, failure to realize the anticipated benefits of acquisitions, delays resulting from or inability to obtain required regulatory approvals and ability to access sufficient capital from internal and external sources. The recovery and reserve estimates of the Company's reserves provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered. Events or circumstances may cause actual results to differ materially from those predicted, as a result of the risk factors set out and other known and unknown risks, uncertainties, and other factors, many of which are beyond the control of the Company.

In addition, forward-looking statements or information are based on a number of factors and assumptions which have been used to develop such statements and information in order to provide shareholders with a more complete perspective on the Company's future operations. Such statements and information may prove to be incorrect and readers are cautioned that such statements and information may not be appropriate for other purposes. Although the Company believes that the expectations reflected in such forward-looking statements or information are reasonable, undue reliance should not be placed on forward-looking statements or information because the Company can give no assurance that such expectations will prove to be correct. In addition to other factors and assumptions which may be identified herein, assumptions have been made regarding, among other things: the impact of increasing competition; the general stability of the economic and political environment in which the Company operates; the timely receipt of any required regulatory approvals; the ability of the Company to obtain qualified staff, equipment and services in a timely and cost efficient manner; drilling results; the ability of the operator of the projects which the Company has an interest in to operate the field in a safe, efficient and effective manner; the ability of the Company to obtain financing on acceptable terms; field production rates and decline rates; the ability to replace and expand oil and natural gas reserves through acquisition, development and exploration; the timing and costs of pipeline, storage and facility construction and expansion and the ability of the Company to secure adequate product transportation; future commodity prices; currency, exchange and interest rates; the regulatory framework regarding royalties, taxes and environmental matters in the jurisdictions in which the Company operates; and the ability of the Company to successfully market and receive payment for its oil and natural gas products.

Readers are cautioned that the foregoing list is not exhaustive of all factors and assumptions which have been used. As a consequence, actual results may differ materially from those anticipated in the forward-looking statements. Additional information on these and other factors that could affect the Company's operations and financial results are included in reports on file with Canadian securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com), EDGAR website (www.sec.gov) and at the Company's website (www.trans-globe.com). Furthermore, the forward-looking statements or information contained herein are made as at the date hereof and the Company does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.

The reader is further cautioned that the preparation of financial statements in accordance with IFRS requires management to make certain judgments and estimates that affect the reported amounts of assets, liabilities, revenues and expenses. Estimating reserves is also critical to several accounting estimates and requires judgments and decisions based upon available geological, geophysical, engineering and economic data. These estimates may change, having either a negative or positive effect on net earnings as further information becomes available, and as the economic environment changes.

MANAGEMENT STRATEGY AND OUTLOOK

The 2013 outlook provides information as to management's expectation for results of operations for 2013. Readers are cautioned that the 2013 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".

2013 Outlook Highlights

--  Production is expected to average between 21,000 Bopd and 24,000 Bopd, a
    20% to 37% increase over the 2012 average production; 
--  Exploration and development spending is budgeted to be $129.0 million
    excluding acquisitions, a 152% increase from 2012, to be funded from
    funds flow from operations and cash-on-hand; and 
--  Funds flow from operations is estimated at $161.0 million, representing
    an increase of 5% from 2012, using mid-point production guidance and an
    average oil price assumption of $100.00 per barrel Dated Brent oil
    price. 

2013 Updated Production Outlook

Production for 2013 is expected to average between 21,000 and 24,000 Bopd, representing a 20% to 37% increase over the 2012 average production of 17,496 Bopd. The spread in the estimated production is due to a number of variables outside of the Company's control such as Government approvals relating to the start of South Alamein production, development drilling results in Egypt and the repair of the export pipeline for Block S-1 in Yemen.

Production Forecast                                                         
                                 2013 Guidance    2012 Actual       % Change
----------------------------------------------------------------------------
Barrels of oil per day          21,000 -24,000         17,496        20 - 37
----------------------------------------------------------------------------
----------------------------------------------------------------------------

2013 Updated Funds Flow From Operations Outlook

Funds flow from operations is estimated at $161.0 million ($2.13/share) based on an annual average Dated Brent oil price of $100/Bbl and using the mid-point of the production guidance. Variations in production and commodity prices during 2013 could significantly change this outlook. An increase or decrease in the average Dated Brent oil price of $10/Bbl for the year would result in a corresponding change in anticipated 2013 funds flow by approximately $17.0 million or $0.23/share.

                                                                            
Funds Flow Forecast                                                         
($ millions)                     2013 Guidance    2012 Actual      % Change 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Funds Flow from operations               161.0          153.5             5 
----------------------------------------------------------------------------
Brent oil price ($ per bbl)             100.00         111.56           (10)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
2013 Capital Budget                                                         
($ millions)                                                            2013
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Egypt                                                                  124.0
Yemen                                                                    5.0
----------------------------------------------------------------------------
Total                                                                  129.0
----------------------------------------------------------------------------
----------------------------------------------------------------------------

The 2013 capital program is split 58:42 between development and exploration, respectively. The Company plans to participate in 51 wells in 2013. It is anticipated that the Company will fund its 2013 capital budget from funds flow from operations and working capital.

The Company will begin to explore the possibility of selling its Yemen assets in 2013, since these assets are unlikely to significantly influence the Company's future production and reserves.

Additional Measures

Funds Flow from Operations

This document contains the term "funds flow from operations", which should not be considered an alternative to or more meaningful than "cash flow from operating activities" as determined in accordance with IFRS. Funds flow from operations is a measure that represents 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 may not be comparable to similar measures used by other companies.

Reconciliation of Funds Flow from Operations                                
($000s)                                                  2012           2011
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash flow from operating activities                    93,992         63,630
Changes in non-cash working capital                    59,506         56,346
----------------------------------------------------------------------------
Funds flow from operations(i)                         153,498        119,976
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) Funds flow from operations does not include interest costs. Interest    
    expense is included in financing costs on the Consolidated statements of
    Earnings and Comprehensive Income. Cash interest paid is reported as a  
    financing activity on the Consolidated Statements of Cash Flows.        

Debt-to-funds flow ratio

Debt-to-funds flow is a measure that is used to set the amount of capital in proportion to risk. The Company's debt-to-funds flow ratio is computed as long-term debt, including the current portion, plus convertible debentures over funds flow from operations for the trailing twelve months. Debt-to-funds flow may not be comparable to similar measures used by other companies.

Netback

Netback is a 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, publicly traded, oil exploration and production company whose activities are concentrated in two main geographic areas: the Arab Republic of Egypt ("Egypt") and the Republic of Yemen ("Yemen").

BUSINESS ACQUISITIONS

On June 7, 2012, the Company closed a Share Purchase Agreement to acquire 100% of the common shares of a wholly-owned subsidiary of EP Energy LLC, which holds, through wholly-owned subsidiaries, a non-operated 50% working interest in the South Alamein Production Sharing Concession ("PSC") in Egypt and an operated 60% working interest in the South Mariut PSC in Egypt. The transaction was structured as an all-cash deal, effective April 1, 2012, funded through working capital and the proceeds of the issuance of convertible debentures. Total consideration for the transaction was $22.9 million, which represents an initial $15.0 million base purchase price plus $7.9 million in consumable drilling equipment inventory (which is classified as exploration and evaluation assets), working capital and other closing adjustments.

On July 26, 2012, the Company closed a Share Purchase Agreement to acquire 100% of the common shares of Cepsa Egypt SA B.V. ("Cepsa Egypt"), a wholly-owned subsidiary of Compania Espanola De Petroleos, S.A.U. ("Cepsa"). Cepsa Egypt holds an operated 50% working interest in the South Alamein PSC in Egypt. In conjunction with the EP Energy LLC business combination that was completed in the second quarter of 2012, this transaction brought the Company's working interest in the South Alamein concession to 100%. The transaction was structured as an all-cash deal, effective July 1, 2012, funded through working capital. Total consideration for the transaction was $4.5 million, which represents an initial $3.0 million base purchase price plus $1.5 million in consumable drilling equipment inventory (which is classified as exploration and evaluation assets), working capital and other closing adjustments.

SELECTED ANNUAL INFORMATION                                                 
                                                                            
                                                                            
($000s, except per share, price and               %               %         
 volume amounts)                        2012 Change     2011 Change     2010
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operations                                                                  
  Average sales volumes (Bopd)        17,496     44   12,132     22    9,960
  Average price ($/Bbl)                99.01     (3)  101.58     37    73.97
  Oil and gas sales                  633,992     41  449,794     67  268,901
  Oil and gas sales, net of                                                 
   royalties                         317,666     28  247,754     58  157,220
  Cash flow from operating                                                  
   activities                         93,992     48   63,630     12   56,969
  Funds flow from operations(i)      153,498     28  119,976     59   75,460
    - Basic per share                   2.09            1.65            1.14
    - Diluted per share                 2.03            1.60            1.10
  Net earnings                        87,734      8   81,392    101   40,565
    - Basic per share                   1.20            1.12            0.61
    - Diluted per share                 1.16            1.09            0.59
----------------------------------------------------------------------------
----------------------------------------------------------------------------
  Total assets                       653,425     24  525,806     52  345,625
  Cash and cash equivalents           82,974     89   43,884    (24)  57,782
  Convertible debentures              98,742      -        -      -        -
  Total long-term debt, including                                           
   current portion                    16,885    (71)  57,609    (33)  86,420
  Debt-to-funds flow ratio(ii)           0.8             0.5             1.1
----------------------------------------------------------------------------
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Reserves                                                                    
  Total Proved (MMBbl)(iii)             32.8     16     28.2     37     20.5
  Total Proved plus Probable                                                
   (MMBbl)(iii)                         48.7     10     44.2     45     30.4
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i)  Funds flow from operations is a measure that represents cash generated 
     from operating activities before changes in non-cash working capital,  
     and may not be comparable to measures used by other companies.         
(ii) Debt-to-funds flow ratio is a measure that represents total long-term  
     debt (including the current portion) plus convertible debentures over  
     funds flowfrom operations for the trailing 12 months, and may not be   
     comparable to measures used by other companies.                        
(iii)As determined by the Company's independent reserves evaluator, DeGolyer
     and MacNaughton Canada Limited ("DeGolyer") of Calgary, Alberta, in    
     their reports dated January 18, 2013 and January 10, 2012 with         
     effective dates of December 31, 2012 and December 31, 2011,            
     respectively. The reports of DeGolyer have been prepared in accordance 
     with the standards contained in the Canadian Oil and Gas Evaluation    
     Handbook prepared jointly by The Society of Petroleum Evaluation       
     Engineers (Calgary Chapter) and the Canadian Institute of Mining,      
     Metallurgy & Petroleum (Petroleum Society), as amended from time to    
     time.                                                                  

In 2012 compared with 2011, TransGlobe,

--  Increased Proved reserves by 16% to 32.8 MMBbl and Proved plus Probable
    reserves by 10% to 48.7 MMBbl, representing production replacements of
    172% and 170%, respectively, primarily from the development of its
    operated West Gharib and West Bakr concessions in Egypt; 
    
--  Increased total sales volumes by 44%, as a result of a 56% increase in
    sales volumes from Egypt offset by a 43% decline in sales volumes in
    Yemen; 
    
--  Increased funds flow from operations by 28% primarily due to increased
    production; 
    
--  Increased net earnings to $87.7 million due to an increase in net sales
    revenue of $69.9 million, which was partially offset by a combined
    increase of $51.5 million in operating costs, current income taxes,
    depletion and depreciation expense, general and administrative expenses
    and finance costs. The increase in finance costs is due to the issuance
    of the convertible debentures in February 2012, whereas the other
    increased costs were the result of increased activity due to the
    Company's growth through the acquisitions completed in 2012, along with
    the first full year of operations at West Bakr; 
    
--  Issued convertible unsecured subordinated debentures with an aggregate
    principal amount of $97.9 million; and 
    
--  Decreased long-term debt by $40.7 million which assisted in maintaining
    a strong debt-to-funds flow ratio of 0.8 at December 31, 2012 (0.5 at
    December 31, 2011). 
    
                                                                            
2012 TO 2011 NET EARNINGS VARIANCES                                         
                                                     $ Per Share            
                                               $000s     Diluted  % Variance
----------------------------------------------------------------------------
----------------------------------------------------------------------------
2011 net earnings                             81,392        1.09            
----------------------------------------------------------------------------
Cash items                                                                  
Volume variance                              195,595        2.57         241
Price variance                              (11,397)      (0.15)        (14)
Royalties                                  (114,286)      (1.52)       (140)
Expenses:                                                                   
  Production and operating                  (15,705)      (0.21)        (19)
  Cash general and administrative            (7,765)      (0.10)        (10)
  Exploration                                  1,193        0.02           1
  Current income taxes                      (14,586)      (0.19)        (18)
  Realized foreign exchange gain (loss)        (142)           -           -
  Realized derivative gain (loss)                630        0.01           1
  Issue costs for convertible debentures     (4,630)      (0.06)         (6)
  Interest on long-term debt                 (4,212)      (0.06)         (5)
Other income                                    (15)           -           -
----------------------------------------------------------------------------
Total cash items variance                     24,680        0.31          31
----------------------------------------------------------------------------
Non-cash items                                                              
Unrealized derivative loss                        52           -           -
Unrealized foreign exchange loss                 557        0.01           1
Depletion and depreciation                  (11,865)      (0.16)        (15)
Unrealized loss on financial instruments       (425)      (0.01)         (1)
Gain on acquisition                         (13,187)      (0.17)        (16)
Impairment loss                               12,071        0.16          15
Stock-based compensation                     (1,440)      (0.02)         (2)
Deferred income taxes                        (3,917)      (0.05)         (5)
Deferred lease inducement                      (108)           -           -
Amortization of deferred financing costs        (76)           -           -
----------------------------------------------------------------------------
Total non-cash items variance               (18,338)      (0.24)        (23)
----------------------------------------------------------------------------
2012 net earnings                             87,734        1.16           8
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Net earnings increased to $87.7 million in 2012 compared to $81.4 million in 2011, which was mostly due to a significant increase in production volumes, which was partially offset by higher royalties and income taxes and increases in operating costs, depletion and depreciation expense, general and administrative expenses and finance costs. The increase in finance costs is due to the issuance of the convertible debentures in February 2012, whereas the other increased costs were the result of increased activity due to the Company's growth through the acquisitions completed in 2012, along with the first full year of operations at West Bakr.

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:

                                                              2012      2011
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Dated Brent average oil price ($/Bbl)                       111.56    111.27
U.S./Canadian Dollar average exchange rate                  0.9994    0.9918
----------------------------------------------------------------------------
----------------------------------------------------------------------------

The average price of Dated Brent oil was relatively unchanged in 2012 compared with 2011. All of the Company's production is priced based on Dated Brent and shared with the respective governments through PSCs. When the price of oil increases, it takes fewer barrels to recover costs (cost recovery barrels) which are assigned 100% to the Company. The contracts provide for cost recovery per quarter up to a maximum percentage of total revenue. If the eligible cost recovery is less than the maximum defined cost recovery, the difference is defined as "excess". In Egypt, the Contractor's share of excess ranges between 0% and 30% depending on the contract. In Yemen, the excess is treated as production sharing oil. If the eligible cost recovery exceeds the maximum allowed percentage, the unclaimed cost recovery is carried forward to the next quarter. Typically maximum cost recovery or cost oil ranges from 25% to 30% in Egypt and 50% to 60% in Yemen. The balance of the production after maximum cost recovery is shared with the respective governments (production sharing oil). Depending on the contract, the government receives 70% to 86% of the production sharing oil or profit oil. Production sharing splits are set in each contract for the life of the contract. Typically the government's share of production sharing oil increases when production exceeds pre-set production levels in the respective contracts. During times of increased oil prices, the Company receives less cost oil and may receive more production sharing oil. For reporting purposes, the Company records the respective government's share of production as royalties and taxes (all taxes are paid out of the Government's share of production).

During the political change in Egypt, business processes and operations have generally proceeded as normal. The Company continues to expand its footprint in Egypt as evidenced by the closing of recent business acquisitions. While exploration and development activities have generally been uninterrupted, the Company has continued to experience delays in the collection of accounts receivable from the Egyptian Government due to the economic impact caused by the instability in the country. The Company is in continual discussions with the Egyptian Government to determine solutions to the delayed cash collections, and expects to recover the accounts receivable balance in full. The Company collected $157.0 million in accounts receivable from the Egyptian Government during 2012, including $76.1 million in the fourth quarter.

SELECTED QUARTERLY FINANCIAL INFORMATION                                    
                                                                            
                                                      2012                  
----------------------------------------------------------------------------
($000s, except per share,                                                   
price and volume amounts)                  Q-4       Q-3       Q-2       Q-1
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Average sales volumes (Bopd)            19,148    17,124    16,978    16,720
Average price ($/Bbl)                    98.70     96.88     95.84    104.78
Oil sales                              173,864   152,624   148,078   159,426
Oil sales, net of royalties             92,281    74,540    73,633    77,212
Cash flow from operating activities     65,250     2,368    24,603     1,771
Funds flow from operations(i)           46,839    35,397    35,174    36,088
Funds flow from operations per share                                        
  - Basic                                 0.63      0.49      0.48      0.49
  - Diluted                               0.57      0.47      0.43      0.48
Net earnings                            34,836    11,774    30,149    10,975
Net earnings - diluted                  32,156    11,774    20,821    10,975
Net earnings per share                                                      
  - Basic                                 0.48      0.16      0.41      0.15
  - Diluted                               0.39      0.16      0.25      0.15
Total assets                           653,425   635,529   620,937   648,012
Cash and cash equivalents               82,974    45,732    72,230   127,313
Convertible debentures                  98,742   102,920    95,043   105,835
Total long-term debt, including                                             
 current portion                        16,885    31,878    37,855    57,910
Debt-to-funds flow ratio(ii)               0.8       1.0       1.0       1.2
----------------------------------------------------------------------------
----------------------------------------------------------------------------
SELECTED QUARTERLY FINANCIAL INFORMATION                                    
                                                                            
                                                      2011                  
----------------------------------------------------------------------------
($000s, except per share,                                                   
price and volume amounts)                  Q-4       Q-3       Q-2       Q-1
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Average sales volumes (Bopd)            12,054    13,406    11,826    11,218
Average price ($/Bbl)                    99.12    104.00    105.57     97.06
Oil sales                              109,919   128,265   113,615    97,995
Oil sales, net of royalties             60,609    71,769    62,513    52,863
Cash flow from operating activities      2,330     3,456    54,354     3,490
Funds flow from operations(i)           26,469    37,980    30,597    24,930
Funds flow from operations per share                                        
  - Basic                                 0.36      0.52      0.42      0.35
  - Diluted                               0.35      0.51      0.40      0.34
Net earnings                            30,519    26,110    21,874     2,889
Net earnings - diluted                  30,519    26,110    21,874     2,889
Net earnings per share                                                      
  - Basic                                 0.42      0.36      0.30      0.04
  - Diluted                               0.41      0.35      0.29      0.04
Total assets                           525,806   465,262   420,956   404,184
Cash and cash equivalents               43,884   105,007   122,659    86,353
Convertible debentures                       -         -         -         -
Total long-term debt, including                                             
 current portion                        57,609    57,303    56,998    56,731
Debt-to-funds flow ratio(ii)               0.5       0.5       0.6       0.7
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i)  Funds flow from operations is a measure that represents cash generated 
     from operating activities before changes in non-cash working capital   
     and may not be comparable to measures used by other companies.         
(ii) Debt-to-funds flow ratio is measure that represents total long-term    
     debt (including the current portion) plus convertible debentures over  
     funds flow from operations from the trailing 12 months and may not be  
     comparable to measures used by other companies.                        

During the fourth quarter of 2012, TransGlobe has:

--  Experienced a significant increase in cash flow from operating
    activities compared with prior quarters due to increased collections on
    accounts receivable (collected $76.1 million in Egypt and $12.4 million
    in Yemen in Q4-2012); 
    
--  Maintained a strong financial position, reporting a debt-to-funds flow
    ratio of 0.8 at December 31, 2012; 
    
--  Reported net earnings of $34.8 million; 
    
--  Achieved record quarterly funds flow from operations of $46.8 million,
    an increase of 77% from Q4-2011, which was principally due to a 59%
    increase in sales volumes; and 
    
--  Spent $19.8 million on capital programs, which was funded entirely with
    funds flow from operations.

The accounting for the convertible debentures continued to have a significant impact on important components of the Company's financial statements. The Company reported an increase in net earnings of $23.1 million from the third quarter of 2012, $12.1 million of which was due to:

--  The recording of an unrealized gain on convertible debentures of $2.9
    million recognized in the fourth quarter of 2012, combined with an
    unrealized loss of $4.4 million recognized on the convertible debentures
    in the third quarter of 2012; and 
    
--  An earnings increase of $4.8 million from Q3-2012 to Q4-2012 related to
    foreign exchange on the convertible debentures. 
    
OPERATING RESULTS AND NETBACK                                               
                                                                            
Daily Volumes, Working Interest before Royalties and Other (Bopd)           
                                                                            
Sales Volumes                                                               
                                                              2012      2011
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Egypt                                                       16,656    10,671
Yemen                                                          840     1,461
----------------------------------------------------------------------------
Total Company                                               17,496    12,132
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
Netback                                                                     
                                                                            
Consolidated                                                                
                                                    2012                2011
----------------------------------------------------------------------------
(000s, except per Bbl amounts)               $     $/Bbl         $     $/Bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Oil sales                              633,992     99.01   449,794    101.58
Royalties                              316,326     49.40   202,040     45.63
Current taxes                           88,603     13.84    74,017     16.71
Production and operating expenses       52,367      8.18    36,662      8.28
----------------------------------------------------------------------------
Netback                                176,696     27.59   137,075     30.96
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
Egypt                                                                       
                                                    2012                2011
----------------------------------------------------------------------------
(000s, except per Bbl amounts)               $     $/Bbl         $     $/Bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Oil sales                              600,536     98.51   391,884    100.61
Royalties                              303,651     49.81   176,033     45.20
Current taxes                           84,935     13.93    66,630     17.11
Production and operating expenses       43,247      7.09    27,407      7.04
----------------------------------------------------------------------------
Netback                                168,703     27.68   121,814     31.26
----------------------------------------------------------------------------
----------------------------------------------------------------------------

The netback per Bbl in Egypt decreased 11% in 2012 compared with 2011, which is a result of oil prices decreasing by 2% combined with higher royalty and tax rates principally associated with production from West Bakr. In 2012, the average selling price was $13.05/Bbl lower than the average Dated Brent oil price for the year of $111.56/Bbl which is a result of a gravity/quality adjustment as well as a contracted discounted price for West Bakr crude in 2012.

Royalties and taxes as a percentage of revenue increased to 65% in 2012, compared with 62% in 2011. This increase is due to the fact that 2011 included only West Gharib production, whereas 2012 includes West Gharib and West Bakr production. West Bakr production is subject to higher Government take in accordance with the West Bakr PSC and a lower contracted price as compared to West Gharib.

Production and operating expenses on a per Bbl basis remained consistent in 2012 compared with 2011.

Yemen                                                                       
                                                    2012                2011
----------------------------------------------------------------------------
(000s, except per Bbl amounts)               $     $/Bbl         $     $/Bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Oil sales                               33,456    108.82    57,910    108.60
Royalties                               12,675     41.23    26,007     48.77
Current taxes                            3,668     11.93     7,387     13.85
Production and operating expenses        9,120     29.66     9,255     17.36
----------------------------------------------------------------------------
Netback                                  7,993     26.00    15,261     28.62
----------------------------------------------------------------------------
----------------------------------------------------------------------------

In Yemen, the Company experienced a 9% netback reduction on a per Bbl basis in 2012 compared with 2011. Operating expenses on a per Bbl basis increased substantially (71%) in 2012 compared to 2011 as a result of production being shut-in on Block S-1 from the beginning of the year until July 27, 2012, and again from November 11, 2012 to the end of the year. While production volumes were down, the Company continued to incur the majority of the operating costs on Block S-1 which significantly increased operating expenses per Bbl.

Partially offsetting the increased operating expenses per Bbl was a decrease of 15% in royalties and taxes on a per Bbl basis. The Block S-1 operating costs incurred during the shut-in period from the beginning of 2012 through to July 27, 2012 accumulated in cost recovery pools, which allowed the Company to achieve full cost recovery in accordance with the PSC during the time that Block S-1 was producing in the year. Cost recovery is paid out through a reduction of Government take, which has resulted in a decrease in royalties and taxes on a per Bbl basis in 2012 compared to 2011.

DERIVATIVE COMMODITY CONTRACTS

TransGlobe uses hedging arrangements from time to time 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 is actively monitored and adjusted as deemed necessary to protect the cash flows from the risk of commodity price exposure.

As there are no outstanding derivative commodity contracts at December 31, 2012, no assets or liabilities have been recognized on the Consolidated Balance Sheet for the current year. As at December 31, 2012, no production is hedged in future periods.

GENERAL AND ADMINISTRATIVE EXPENSES ("G&A")                                 
                                                   2012                2011 
----------------------------------------------------------------------------
(000s, except Bbl amounts)                  $     $/Bbl         $     $/Bbl 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
G&A (gross)                            27,545      4.30    17,946      4.05 
Stock-based compensation                4,502      0.70     3,062      0.69 
Capitalized G&A and overhead                                                
 recoveries                            (3,841)    (0.60)   (2,115)    (0.48)
----------------------------------------------------------------------------
G&A (net)                              28,206      4.40    18,893      4.26 
----------------------------------------------------------------------------
----------------------------------------------------------------------------

G&A expenses (net) increased 49% (3% on a per Bbl basis) in 2012 compared with 2011. The increase is principally due to increased staffing, administration and insurance costs associated with West Bakr, along with increased costs associated with acquisitions completed in 2012 (South Alamein and South Mariut).

The increase in stock-based compensation is due partly to an increase in the total value of new options granted during 2012 as compared to those granted during 2011, combined with an increase in the number of options granted and the expense recorded on share appreciation rights in 2012 compared with 2011.

FINANCE COSTS

Finance costs for the year ended December 31, 2012 increased to $13.9 million compared with $5.0 million in 2011. Finance costs include interest on long-term debt and convertible debentures, issue costs on convertible debentures and amortization of transaction costs associated with long-term debt. The overall increase in finance costs is due to higher debt levels associated with the convertible debentures combined with the costs of issuing the convertible debentures.

----------------------------------------------------------------------------
(000s)                                                        2012      2011
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Interest expense                                            $8,006    $3,794
Issue costs for convertible debentures                       4,630         -
Amortization of deferred financing costs                     1,265     1,189
----------------------------------------------------------------------------
Finance costs                                              $13,901    $4,983
----------------------------------------------------------------------------
----------------------------------------------------------------------------

The Company had $18.5 million ($16.9 million net of unamortized deferred financing costs) of long-term debt outstanding at December 31, 2012 (December 31, 2011 - $60.0 million). The long-term debt that was outstanding at December 31, 2012 bore interest at LIBOR plus an applicable margin that varies from 3.75% to 4.75% depending on the amount drawn under the facility.

In February 2012, the Company sold, on a bought-deal basis, C$97.8 million ($97.9 million) aggregate principal amount of convertible unsecured subordinated debentures with a maturity date of March 31, 2017. Transaction costs of $4.6 million relating to the issuance of the convertible debentures were expensed in the year ended December 31, 2012. The debentures are convertible at any time and from time to time into common shares of the Company at a price of C$15.10 per common share. The debentures are not redeemable by the Company on or before March 31, 2015 other than in limited circumstances in connection with a change of control of TransGlobe. After March 31, 2015 and prior to March 31, 2017, the debentures may be redeemed by the Company at a redemption price equal to the principal amount plus accrued and unpaid interest, provided that the weighted-average trading price of the common shares for the 20 consecutive trading days ending five trading days prior to the date on which notice of redemption is provided is not less than 125 percent of the conversion price (or C$18.88 per common share). Interest of 6% is payable semi-annually in arrears on March 31 and September 30. The first semi-annual interest payment was made on September 30, 2012 which included 39 days prior to March 31, 2012. At maturity or redemption, the Company has the option to settle all or any portion of principal obligations by delivering to the debenture holders sufficient common shares to satisfy these obligations.

DEPLETION AND DEPRECIATION ("DD&A")                                         
                                                    2012                2011
----------------------------------------------------------------------------
(000s, except per Bbl amounts)               $     $/Bbl         $     $/Bbl
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Egypt                                   44,442      7.29    31,035      7.97
Yemen                                    2,095      6.81     3,585      6.72
Corporate                                  409         -       461         -
----------------------------------------------------------------------------
                                        46,946      7.33    35,081      7.92
----------------------------------------------------------------------------
----------------------------------------------------------------------------

In Egypt, DD&A decreased 9% on a per Bbl basis in the year ended December 31, 2012 compared to 2011. This decrease is mostly due to proved plus probable reserve additions during the third and fourth quarters of 2012.

In Yemen, DD&A increased 1% on a per Bbl basis in the year ended December 31, 2012 compared to 2011. This increase is mostly due to a smaller reserve base over which capital costs are being depleted compared to 2011.

CAPITAL EXPENDITURES                                                        
                                                                            
($000s)                                                       2012      2011
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Egypt                                                       50,220    63,177
Yemen                                                        1,239     5,495
Acquisitions                                                27,259    74,814
Corporate                                                      192     1,447
----------------------------------------------------------------------------
Total                                                       78,910   144,933
----------------------------------------------------------------------------
----------------------------------------------------------------------------

In Egypt, total capital expenditures in 2012 were $50.2 million (2011 - $63.2 million). During 2012, the Company drilled 24 wells in West Gharib (13 at Arta, seven at East Arta, three at Hoshia and one at Fadl). The Company also drilled seven wells at West Bakr and two wells at East Ghazalat. Production was constrained at West Gharib during 2012 due to volume constraints at the processing facility. As a result, the capital cost per well drilled at West Gharib was lower in 2012 as the Company chose not to proceed with the completion and equipping of some of the new wells. The wells are scheduled for completion in 2013, now that some of the production constraints have been removed.

On June 7, 2012, the Company closed a Share Purchase Agreement to acquire 100% of the common shares of a wholly-owned subsidiary of EP Energy LLC which holds, through wholly-owned subsidiaries, a non-operated 50% interest in the South Alamein PSC in Egypt and an operated 60% working interest in the South Mariut PSC in Egypt. The transaction was structured as an all-cash deal, effective April 1, 2012, funded through working capital and the proceeds of the issuance of convertible debentures. Total consideration for the transaction was $22.9 million, which represents a $15.0 million base purchase price plus $7.9 million in working capital and other closing adjustments.

On July 26, 2012, the Company closed a Share Purchase Agreement to acquire 100% of the common shares of Cepsa Egypt, a wholly-owned subsidiary of Cepsa. Cepsa Egypt holds an operated 50% working interest in the South Alamein PSC in Egypt. As a result, the Company now holds a 100% working interest in the South Alamein concession through two wholly-owned subsidiaries. The Cepsa transaction was structured as an all-cash deal, effective July 1, 2012, funded through working capital. Total consideration for the transaction was $4.5 million, which represents a $3.0 million base purchase price plus $1.5 million in consumable drilling inventory (which is classified as exploration and evaluation assets), working capital and other closing adjustments.

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

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

Proved                                                                      
($000s, except volumes and $/Bbl amounts)          2012      2011       2010
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total capital expenditure                        51,651    70,119     65,342
Acquisitions                                     27,305    39,497          -
Dispositions                                          -         -          -
Net change from previous year's future capital   (4,706)   (6,165)     4,776
----------------------------------------------------------------------------
                                                 74,250   103,451     70,118
----------------------------------------------------------------------------
Reserve additions and revisions (MBbl)                                      
Exploration and development                      10,999     4,672      4,845
Acquisitions, net of dispositions                     -     7,448          -
----------------------------------------------------------------------------
Total reserve additions (MBbl)                   10,999    12,120      4,845
----------------------------------------------------------------------------
Average cost per Bbl                                                        
F&D                                                4.27     13.45      14.47
FD&A                                               6.75      8.54      14.47
Three-year weighted average cost per Bbl                                    
F&D                                                8.77      8.76       8.06
FD&A                                               8.86      7.85       8.10
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Note:                                                                       
The aggregate of the exploration and development costs incurred in the most 
recent financial year and the change during that year in estimated future   
development costs generally will not reflect total finding and development  
costs related to reserves additions for that year.                          
                                                                            
Proved Plus Probable                                                        
($000s, except volumes and $/Bbl amounts)           2012     2011       2010
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total capital expenditure                         51,651   70,119     65,342
Acquisitions                                      27,305   39,497          -
Dispositions                                           -        -          -
Net change from previous year's future capital     1,191  (14,256)    42,546
----------------------------------------------------------------------------
                                                  80,147   95,360    107,888
----------------------------------------------------------------------------
Reserve additions and revisions (MBbl)                                      
Exploration and development                       10,888    6,612      9,895
Acquisitions, net of dispositions                      -   11,586          -
----------------------------------------------------------------------------
Total reserve additions (MBbl)                    10,888   18,198      9,895
----------------------------------------------------------------------------
Average cost per Bbl                                                        
 F&D                                                4.46     7.07      10.90
 FD&A                                               7.36     5.24      10.90
Three-year weighted average cost per Bbl                                    
 F&D                                                7.42     8.04       8.00
 FD&A                                               7.27     6.79       7.83
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Note:                                                                       
The aggregate of the exploration and development costs incurred in the most 
recent financial year and the change during that year in estimated future   
development costs generally will not reflect total finding and development  
costs related to reserves additions for that year.                          
                                                                            
RECYCLE RATIO                                                               
                                    Three-Year                              
                                      Weighted                              
Proved                                 Average      2012      2011      2010
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Netback ($/Bbl)(i)                       22.85     22.08     26.24     20.07
Proved F&D costs ($/Bbl)                  8.77      4.27     13.45     14.47
Proved FD&A costs ($/Bbl)                 8.86      6.75      8.54     14.47
----------------------------------------------------------------------------
----------------------------------------------------------------------------
F&D Recycle ratio                         2.61      5.17      1.95      1.39
FD&A Recycle ratio                        2.58      3.27      3.07      1.39
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) Netback, for the purposes of calculating the recycle ratio, is defined  
    as net sales less operating, exploration, G&A (excluding non-cash       
    items), foreign exchange (gain) loss, interest and current income tax   
    expense per Bbl of production.                                          
                                          Three-Year                        
                                            Weighted                        
Proved Plus Probable                         Average    2012    2011    2010
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Netback ($/Bbl)(i)                             22.85   22.08   26.24   20.07
Proved plus Probable F&D costs ($/Bbl)          7.42    4.46    7.07   10.90
Proved plus Probable FD&A costs ($/Bbl)         7.27    7.36    5.24   10.90
----------------------------------------------------------------------------
----------------------------------------------------------------------------
F&D Recycle ratio                               3.08    4.95    3.71    1.84
FD&A Recycle ratio                              3.14    3.00    5.01    1.84
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) Netback, for the purposes of calculating the recycle ratio, is defined  
    as net sales less operating, exploration, G&A (excluding non-cash       
    items), realized foreign exchange (gain) loss, cash finance costs and   
    current income tax expense per Bbl of production.                       

The recycle ratio variances between 2012 and 2011 are driven primarily by changes in F&D and FD&A costs on a per Bbl basis, combined with a reduction in netback per Bbl. In 2011, FD&A costs per Bbl were less than F&D costs per Bbl as a result of the West Bakr acquisition, which added reserves at a cost of $5.47/Bbl on a Proved basis and $4.20/Bbl on a Proved plus Probable basis including future capital costs. The Company completed two acquisitions during 2012, neither of which contributed reserves on a Proved or Proved plus Probable basis. As such, FD&A costs per Bbl are higher than F&D costs per Bbl in 2012.

Due to the nature of international projects, the Company considers the three-year weighted average recycle ratios to provide a more useful measure of the Company's ability to successfully add reserves on an economic basis. The three-year weighted average ratios are consistent with Company expectations and with prior periods.

The recycle ratio measures the efficiency of TransGlobe's capital program by comparing the cost of finding and developing both proved reserves and proved plus probable reserves with the netback from production. The ratio is calculated by dividing the netback by the proved and proved plus probable finding and development cost on a per Bbl basis.

Recycle Netback Calculation                                                 
($000s, except volumes and per Bbl amounts)        2012      2011      2010 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net earnings                                     87,734    81,392    40,565 
Adjustments for non-cash items:                                             
 Depletion, depreciation and amortization        46,946    35,081    28,140 
 Stock-based compensation                         4,502     3,062     2,360 
 Deferred income taxes                             (528)   (4,445)    1,894 
 Amortization of deferred financing costs         1,265     1,189       836 
 Amortization of deferred lease inducement          458       350         - 
 Unrealized (gain) loss on commodity contracts      125       177      (816)
 Unrealized foreign exchange (gain) loss           (141)      416         - 
 Unrealized (gain) loss on financial                                        
  instruments                                       425         -         - 
 Impairment of exploration and evaluation                                   
  assets                                             76    12,147         - 
 Gain on acquisition                                  -   (13,187)        - 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Recycle netback(i)                              140,862   116,182    72,979 
Sales volumes (MBbl)                              6,380     4,428     3,635 
----------------------------------------------------------------------------
Recycle netback per Bbl(i)                        22.08     26.24     20.07 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) Netback, for the purposes of calculating the recycle ratio, is defined  
    as net sales less operating, exploration, G&A (excluding non-cash       
    items), foreign exchange (gain) loss, interest and current income tax   
    expense per Bbl of production.                                          

OUTSTANDING SHARE DATA

As at December 31, 2012, the Company had 73,793,638 common shares issued and outstanding and 5,110,001 options issued and outstanding, which are exercisable in accordance with their terms into a maximum of 5,110,001 common shares of the Company.

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 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 evaluate the Company's overall financial strength is debt-to-funds flow from operations (calculated on a 12-month trailing basis). TransGlobe's debt-to-funds flow from operations ratio, a key short-term leverage measure, remained strong at 0.8 times at December 31, 2012 (December 31, 2011 - 0.5). This was within the Company's target range of no more than 2.0 times.

The following table illustrates TransGlobe's sources and uses of cash during the years ended December 31, 2012 and 2011:

Sources and Uses of Cash                                                    
($000s)                                                      2012      2011 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash sourced                                                                
  Funds flow from operations(i)                           153,498   119,976 
  Transfer from restricted cash                             1,445     1,161 
  Issue of convertible debentures                          97,851         - 
  Exercise of options                                       3,333     1,946 
  Issuance of common shares, net of share issuance costs        -    71,583 
  Other                                                       639       772 
----------------------------------------------------------------------------
                                                          256,766   195,438 
Cash used                                                                   
  Capital expenditures                                     51,651    70,118 
  Deferred financing costs                                    440         - 
  Acquisitions                                             27,259    73,836 
  Repayment of long-term debt                              41,550    30,000 
  Finance costs                                            11,367     3,550 
  Other                                                       592       315 
----------------------------------------------------------------------------
                                                          132,859   177,819 
----------------------------------------------------------------------------
                                                          123,907    17,619 
Changes in non-cash working capital                       (84,817)  (31,517)
----------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents           39,090   (13,898)
Cash and cash equivalents - beginning of year              43,884    57,782 
----------------------------------------------------------------------------
Cash and cash equivalents - end of year                    82,974    43,884 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) Funds flow from operations is a measure that represents cash generated  
    from operating activities before changes in non-cash working capital,   
    and may not be comparable to measures used by other companies.          

Funding for the Company's capital expenditures was provided by funds flow from operations. The Company funded its 2012 exploration and development program of $51.4 million and contractual commitments through the use of working capital and cash generated by operating activities. Fluctuations in commodity prices, product demand, foreign exchange rates, interest rates and various other risks including timely collections of accounts receivable from the Egyptian Government may impact capital resources.

Working capital is the amount by which current assets exceed current liabilities. At December 31, 2012, the Company had working capital of $262.2 million (December 31, 2011 - $140.0 million). The increase to working capital in 2012 is due almost entirely to increases in accounts receivable and cash, combined with a decrease in accounts payable. The majority of the Company's accounts receivable are due from Egyptian General Petroleum Company ("EGPC"), and the recent political changes in the country have increased the Company's credit risk. The Company is in continual discussions with EGPC and the Egyptian Government to determine solutions to the delayed cash collections, and expects to recover the entire accounts receivable balance in full. During the fourth quarter of 2012, collections of accounts receivable outpaced billings, resulting in a decrease in accounts receivable from Q3-2012 to Q4-2012 of $22.5 million. Subsequent to December 31, 2012, the Company collected $40.5 million of the receivables that were outstanding in Egypt at year end.

In February 2012, the Company sold, on a bought-deal basis, C$97.8 million ($97.9 million) aggregate principal amount of convertible unsecured subordinated debentures with a maturity date of March 31, 2017. Transaction costs of $4.6 million relating to the issuance of the convertible debentures were expensed during the year ended December 31, 2012. The debentures are convertible at any time and from time to time into common shares of the Company at a price of C$15.10 per common share. The debentures are not redeemable by the Company on or before March 31, 2015 other than in limited circumstances in connection with a change of control of TransGlobe. After March 31, 2015 and prior to March 31, 2017, the debentures may be redeemed by the Company at a redemption price equal to the principal amount plus accrued and unpaid interest, provided that the weighted-average trading price of the common shares for the 20 consecutive trading days ending five trading days prior to the date on which notice of redemption is provided is not less than 125 percent of the conversion price (or C$18.88 per common share). Interest of 6% is payable semi-annually in arrears on March 31 and September 30. The first semi-annual interest payment was made on September 30, 2012 which includes 39 days prior to March 31, 2012. At maturity or redemption, the Company has the option to settle all or any portion of principal obligations by delivering to the debenture holders sufficient common shares to satisfy these obligations.

At December 31, 2012, TransGlobe had $71.0 million available under a Borrowing Base Facility of which $18.5 million was drawn. As repayments on the Borrowing Base Facility are not expected to commence until 2014, the entire balance is presented as a long-term liability on the Consolidated Balance Sheets. Repayments will be made as required according to the scheduled reduction of the facility.

                                                December 31,   December 31, 
($000s)                                                 2012           2011 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Bank debt                                             18,450         60,000 
Deferred financing costs                              (1,565)        (2,391)
----------------------------------------------------------------------------
Long-term debt (net of deferred financing                                   
 costs)                                               16,885         57,609 
----------------------------------------------------------------------------
----------------------------------------------------------------------------

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:

($000s)                                    Payment Due by Period (1 2)      
----------------------------------------------------------------------------
                     Recognized                                             
                     in Financial                                       More
                     Statements                    Less                 than
                                     Contractual   than    1-3     4-5     5
                                      Cash Flows 1 year  years   years years
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Accounts payable and                                                        
 accrued liabilities Yes - Liability      48,587 48,587      -       -     -
Long-term debt       Yes - Liability      18,450      - 18,450       -     -
Convertible          Yes - Liability      98,742      -      -  98,742     -
 debentures                                                                 
Office and equipment No                   14,728  6,819  2,324   2,072 3,513
 leases (3)                                                                 
Minimum work         No                    4,350  4,350      -       -     -
 commitments (4)                                                            
----------------------------------------------------------------------------
Total                                    184,857 59,756 20,774 100,814 3,513
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Payments exclude ongoing operating costs, finance costs and payments    
    made to settle derivatives.                                             
(2) Payments denominated in foreign currencies have been translated at      
    December 31, 2012 exchange rates.                                       
(3) Office and equipment leases includes all drilling rig contracts.        
(4) Minimum work commitments include contracts awarded for capital projects 
    and those commitments related to exploration and drilling obligations.  

Pursuant to the PSC for Block 75 in Yemen, the Contractor (Joint Interest Partners) has a remaining minimum financial commitment of $3.0 million ($0.8 million to TransGlobe) for one exploration well in the first exploration period, which has been extended to March 9, 2014.

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 $2.0 million if incremental reserve thresholds are reached in the South Rahmi development lease, to be evaluated annually. Based on the Company's annual Reserve Report effective December 31, 2012, no additional fees are due in 2013.

Pursuant to the June 7, 2012 share purchase agreement for a 60% operated interest in the South Mariut concession in Egypt, the Contractor (Joint Interest Partners) has a minimum financial commitment of $9.0 million ($5.4 million to TransGlobe) for three exploration wells ($3.0 million each) which were commitments from the original exploration period and were carried into the first three-year extension period, which expires on April 5, 2013. The Company issued three $3.0 million letters of credit to guarantee performance under this extension period and finished drilling the first of three planned wells subsequent to December 31, 2012 which has reduced the letters of credit to $6.0 million ($3.6 million to TransGlobe). There is a further two-year extension available under the terms of the PSC.

Pursuant to the June 7, 2012 and July 26, 2012 share purchase agreements for a combined 100% operated interest in the South Alamein PSC in Egypt, the Company has a commitment to drill one well (all financial commitments have been met) prior to the termination of the final two-year extension period, which expires on April 5, 2014.

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.

The Company is not aware of any material provisions or other contingent liabilities as at December 31, 2012.

OFF BALANCE SHEET ARRANGEMENTS

The Company has certain lease arrangements, all of which are reflected in the Commitments and Contingencies table, which were entered into in the normal course of operations. All leases have been treated as operating leases whereby the lease payments are included in operating expenses or G&A expenses depending on the nature of the lease. No asset or liability value has been assigned to these leases in the balance sheet as of December 31, 2012.

Consolidated Statements of Earnings and Comprehensive Income                
                                                                            
(Expressed in thousands of U.S. Dollars, except per share amounts)          
                                                                            
                                                             2012      2011 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
REVENUE                                                                     
Oil sales, net of royalties                              $317,666  $247,754 
Derivative gain (loss) on commodity contracts                (125)     (807)
Finance revenue                                               452       467 
----------------------------------------------------------------------------
                                                          317,993   247,414 
----------------------------------------------------------------------------
                                                                            
EXPENSES                                                                    
  Production and operating                                 52,367    36,662 
  General and administrative                               28,206    18,893 
  Foreign exchange (gain) loss                               (105)      310 
  Finance costs                                            13,901     4,983 
  Exploration                                                 368     1,561 
  Depletion, depreciation and amortization                 46,946    35,081 
  Unrealized (gain) loss on financial instruments             425         - 
  Impairment of exploration and evaluation assets              76    12,147 
  Gain on acquisition                                           -   (13,187)
----------------------------------------------------------------------------
                                                          142,184    96,450 
----------------------------------------------------------------------------
                                                                            
Earnings before income taxes                              175,809   150,964 
----------------------------------------------------------------------------
                                                                            
Income tax expense (recovery) - current                    88,603    74,017 
  - deferred                                                 (528)   (4,445)
----------------------------------------------------------------------------
                                                           88,075    69,572 
----------------------------------------------------------------------------
NET EARNINGS AND COMPREHENSIVE INCOMEFOR THE YEAR         $87,734   $81,392 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
Earnings per share                                                          
  Basic                                                     $1.20     $1.12 
  Diluted                                                   $1.16     $1.09 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
Consolidated Balance Sheets                                                 
                                                                            
(Expressed in thousands of U.S. Dollars)                                    
                                                                            
                                                        As at          As at
                                                 December 31,   December 31,
                                                         2012           2011
----------------------------------------------------------------------------
----------------------------------------------------------------------------
ASSETS                                                                      
Current                                                                     
  Cash and cash equivalents                           $82,974        $43,884
  Accounts receivable                                 221,017        162,225
  Derivative commodity contracts                            -            125
  Prepaids and other                                    6,813          7,441
----------------------------------------------------------------------------
                                                      310,804        213,675
Non-Current                                                                 
  Restricted cash                                         782          2,226
  Intangible exploration and evaluation assets         48,414         17,453
  Property and equipment                                                    
    Petroleum properties                              280,895        280,524
    Other assets                                        4,350          3,748
  Goodwill                                              8,180          8,180
----------------------------------------------------------------------------
                                                     $653,425       $525,806
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
LIABILITIES                                                                 
Current                                                                     
  Accounts payable and accrued liabilities            $48,587        $73,692
----------------------------------------------------------------------------
                                                       48,587         73,692
Non-Current                                                                 
  Long-term debt                                       16,885         57,609
  Convertible debentures                               98,742              -
  Deferred taxes                                       52,363         52,891
  Other long-term liabilities                             988          1,122
----------------------------------------------------------------------------
                                                      217,565        185,314
----------------------------------------------------------------------------
                                                                            
SHAREHOLDERS'EQUITY                                                         
  Share capital                                       158,721        154,263
  Contributed surplus                                  11,714          8,538
  Retained earnings                                   265,425        177,691
----------------------------------------------------------------------------
                                                      435,860        340,492
----------------------------------------------------------------------------
                                                     $653,425       $525,806
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
Consolidated Statement of Changes in Shareholders'Equity                    
                                                                            
(Expressed in thousands of U.S. Dollars)                                    
                                                                            
                                                             2012      2011 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
Share Capital                                                               
  Balance, beginning of year                             $154,263   $80,106 
  Stock options exercised                                   3,333     1,946 
  Share issuance                                                -    75,594 
  Share issue costs                                             -    (4,011)
  Transfer from contributed surplus on exercise of                          
   options                                                  1,125       628 
----------------------------------------------------------------------------
  Balance, end of year                                   $158,721  $154,263 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
Contributed Surplus                                                         
  Balance, beginning of year                               $8,538    $5,785 
  Share-based compensation expense                          4,301     3,381 
  Transfer to share capital on exercise of options         (1,125)     (628)
----------------------------------------------------------------------------
  Balance, end of year                                    $11,714    $8,538 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
Retained Earnings                                                           
  Balance, beginning of year                             $177,691   $96,299 
  Net earnings and total comprehensive income              87,734    81,392 
----------------------------------------------------------------------------
  Balance, end of year                                   $265,425  $177,691 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
Consolidated Statements of Cash Flows                                       
                                                                            
(Expressed in thousands of U.S. Dollars)                                    
                                                                            
                                                  Year Ended     Year Ended 
                                                December 31,   December 31, 
                                                        2012           2011 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
CASH FLOWS RELATED TO THE FOLLOWING                                         
 ACTIVITIES:                                                                
                                                                            
OPERATING                                                                   
  Net earnings for the year                          $87,734        $81,392 
  Adjustments for:                                                          
    Depletion, depreciation and amortization          46,946         35,081 
    Deferred lease inducement                            458            350 
    Impairment of exploration and evaluation                                
     costs                                                76         12,147 
    Stock-based compensation                           4,502          3,062 
    Finance costs                                     13,901          4,983 
    Income tax expense                                88,075         69,572 
    Gain on acquisition                                    -        (13,187)
    Unrealized (gain) loss on commodity                                     
     contracts                                           125            177 
    Unrealized (gain) loss on financial                                     
     instruments                                         425              - 
    Unrealized (gain) loss on foreign currency                              
     translation                                        (141)           416 
  Income taxes paid                                  (88,603)       (74,017)
  Changes in non-cash working capital                (59,506)       (56,346)
----------------------------------------------------------------------------
Net cash generated by (used in) operating                                   
 activities                                           93,992         63,630 
----------------------------------------------------------------------------
                                                                            
INVESTING                                                                   
  Additions to intangible exploration and                                   
   evaluation assets                                  (5,384)        (6,991)
  Additions to petroleum properties                  (45,386)       (61,266)
  Additions to other assets                             (881)        (1,861)
  Business acquisitions                              (27,259)       (73,836)
  Changes in restricted cash                           1,445          1,161 
  Changes in non-cash working capital                (25,311)        24,690 
----------------------------------------------------------------------------
Net cash generated by (used in) investing                                   
 activities                                         (102,776)      (118,103)
----------------------------------------------------------------------------
                                                                            
FINANCING                                                                   
  Issue of common shares for cash                      3,333         77,540 
  Issue costs for common shares                            -         (4,011)
  Financing costs                                       (440)             - 
  Interest paid                                       (6,737)        (3,550)
  Issue of convertible debentures                     97,851              - 
  Issue costs for convertible debentures              (4,630)             - 
  Repayments of long-term debt                       (41,550)       (30,000)
  Increase (decrease) in other long-term                                    
   liabilities                                          (592)           772 
  Changes in non-cash working capital                      -            139 
----------------------------------------------------------------------------
Net cash generated by (used in) financing                                   
 activities                                           47,235         40,890 
----------------------------------------------------------------------------
Currency translation differences relating to                                
 cash and cash equivalents                               639           (315)
----------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH                                    
 EQUIVALENTS                                          39,090        (13,898)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR          43,884         57,782 
----------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR               $82,974        $43,884 
----------------------------------------------------------------------------
----------------------------------------------------------------------------

TransGlobe Energy Corporation is a Calgary-based, growth-oriented oil and gas exploration and development company focused on the Middle East/North Africa region with production operations in the Arab Republic of Egypt and the Republic of Yemen. TransGlobe's common shares trade on the Toronto Stock Exchange under the symbol TGL and on the NASDAQ Exchange under the symbol TGA.

Cautionary Statement to Investors:

This news release 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. In particular, this press release contains forward-looking statements regarding the Company's appraisal, development and evaluation plans and the focus of the Company's exploration budget. In addition, information and statements relating to "resources" are deemed to be forward-looking information and statements, as they involve the implied assessment, based on certain estimates and assumptions, that the resources described exist in the quantities predicted or estimated, and that the resources described can be profitably produced in the future.

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. With respect to forward-looking statements contained in this press release, assumptions have been made regarding, among other things: the Company's ability to obtain qualified staff and equipment in a timely and cost-efficient manner; the regulatory framework governing royalties, taxes and environmental matters in the jurisdictions in which the Company conducts and will conduct its business; future capital expenditures to be made by the Company; future sources of funding for the Company's capital programs; geological and engineering estimates in respect of the Company's reserves and resources; and the geography of the areas in which the Company is conducting exploration and development activities. TransGlobe does not assume any obligation to update forward-looking statements if circumstances or management's beliefs, expectations or opinions should change, other than as required by law, 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/edgar.shtml for further, more detailed information concerning these matters, including additional risks related to TransGlobe's business.

Contacts:
TransGlobe Energy Corporation
Investor Relations
Scott Koyich
(403) 264-9888
investor.relations@trans-globe.com
www.trans-globe.com

(Source: Market Wire )
(Source: Quotemedia)

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