Condensed Consolidated Interim Statements of Earnings and Comprehensive Income

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

		Three Months Ended						Nine Months Ended
		September 30						September 30
	Notes	2014			2013			2014			2013
REVENUE
Oil sales, net of royalties	5	$	67,848		$	78,531		$	222,254		$	234,120
Finance revenue	6	92			59			274			288
Other revenue	7	—			—			9,250			—
		67,940			78,590			231,778			234,408
EXPENSES
Production and operating		18,245			16,923			56,848			48,984
General and administrative		7,715			6,966			21,567			20,385
Foreign exchange (gain) loss		(4,160		)	1,874			(4,149		)	(1,854		)
Finance costs	6	1,973			2,638			5,723			7,052
Exploration		39			114			704			292
Depletion, depreciation and amortization		11,666			12,013			37,064			35,253
Unrealized (gain) loss on financial instruments	13	(1,420		)	1,634			106			(10,454		)
Impairment of exploration and evaluation assets		—			226			—			19,936
		34,058			42,388			117,863			119,594
Earnings before income taxes		33,882			36,202			113,915			114,814
Income tax expense (recovery) - current		14,750			22,566			52,747			66,682
- deferred		(30		)	(2,708		)	(885		)	(3,487		)
		14,720			19,858			51,862			63,195
NET EARNINGS AND COMPREHENSIVE
INCOME FORTHE PERIOD		$	19,162		$	16,344		$	62,053		$	51,619
Earnings per share	17
Basic		$	0.26		$	0.22		$	0.83		$	0.70
Diluted		$	0.18		$	0.22		$	0.75		$	0.52

See accompanying notes to the Condensed Consolidated Interim Financial Statements.

Q3-2014 1

Condensed Consolidated Interim Balance Sheets

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

		As at		As at
	Notes	September 30, 2014		December 31, 2013
ASSETS
Current
Cash and cash equivalents	8	$	77,939	$	122,092
Accounts receivable		216,326		148,284
Prepaids and other		9,669		8,460
Product inventory	9	864		1,525
		304,798		280,361
Non-Current
Restricted cash		1,548		1,546
Deferred financing costs		1,841		2,678
Intangible exploration and evaluation assets	10	98,072		89,991
Property and equipment
Petroleum properties	11	300,941		288,756
Other assets	11	4,926		4,288
Goodwill		8,180		8,180
		$	720,306	$	675,800
LIABILITIES
Current
Accounts payable and accrued liabilities		$	35,734	$	38,392
		35,734		38,392
Non-Current
Convertible debentures	13	83,229		87,539
Deferred taxes		47,978		48,863
Other long-term liabilities		698		816
		167,639		175,610
SHAREHOLDERS' EQUITY
Share capital	15	163,884		160,561
Contributed surplus		17,783		15,692
Retained earnings		371,000		323,937
		552,667		500,190
		$	720,306	$	675,800

See accompanying notes to the Condensed Consolidated Interim Financial Statements.

Approved on behalf of the Board:

Signed by:

“Ross G. Clarkson”	“Fred J. Dyment”
Ross G. Clarkson	Fred J. Dyment
Director	Director

2 Q3-2014

Condensed Consolidated Interim Statements of Changes in Shareholders’ Equity

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

		Three Months Ended						Nine Months Ended
		September 30						September 30
	Notes	2014			2013			2014			2013
Share Capital
Balance, beginning of period	15	$	162,723		$	159,401		$	160,561		$	158,721
Stock options exercised	15	873			219			2,479			719
Transfer from contributed surplus on exercise of options	15	288			77			844			257
Balance, end of period		$	163,884		$	159,697		$	163,884		$	159,697
Contributed Surplus
Balance, beginning of period		$	17,202		$	14,344		$	15,692		$	11,714
Stock-based compensation expense	16	869			1,429			2,935			4,239
Transfer to share capital on exercise of options		(288		)	(77		)	(844		)	(257		)
Balance, end of period		$	17,783		$	15,696		$	17,783		$	15,696
Retained Earnings
Balance, beginning of period		$	355,599		$	300,700		$	323,937		$	265,425
Net earnings and total comprehensive income		19,162			16,344			62,053			51,619
Dividends	18	(3,761		)	—			(14,990		)	—
Balance, end of period		$	371,000		$	317,044		$	371,000		$	317,044

See accompanying notes to the Condensed Consolidated Interim Financial Statements.

Q3-2014 3

Condensed Consolidated Interim Statements of Cash Flows

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

		Three Months Ended						Nine Months Ended
		September 30						September 30
	Notes	2014			2013			2014			2013
CASH FLOWS RELATED TO THE FOLLOWING
ACTIVITIES:
OPERATING
Net earnings for the period		$	19,162		$	16,344		$	62,053		$	51,619
Adjustments for:
Depletion, depreciation and amortization		11,666			12,013			37,064			35,253
Deferred lease inducement		113			110			331			338
Impairment of exploration and evaluation costs		—			226			—			19,936
Stock-based compensation	16	1,580			1,462			4,308			4,024
Finance costs	6	1,973			2,638			5,723			7,052
Income tax expense		14,720			19,858			51,862			63,195
Unrealized (gain) loss on financial instruments	13	(1,420		)	1,634			106			(10,454		)
Unrealized (gain) loss on foreign currency translation		(4,159		)	1,764			(4,143		)	(1,906		)
Income taxes paid		(14,750		)	(22,566		)	(52,747		)	(66,682		)
Changes in non-cash working capital	20	(32,008		)	(11,448		)	(71,002		)	(12,093		)
Net cash generated by (used in) operating activities		(3,123		)	22,035			33,555			90,282
INVESTING
Additions to intangible exploration and evaluation assets	10	(5,453		)	(4,621		)	(9,155		)	(9,137		)
Additions to petroleum properties	11	(20,004		)	(17,526		)	(47,267		)	(50,432		)
Additions to other assets	11	(555		)	(271		)	(1,445		)	(337		)
Changes in restricted cash		(1		)	(466		)	(2		)	(467		)
Changes in non-cash working capital	20	2,205			7,978			(334		)	2,461
Net cash generated by (used in) investing activities		(23,808		)	(14,906		)	(58,203		)	(57,912		)
FINANCING
Issue of common shares for cash	15	873			219			2,479			719
Financing costs		—			(16		)	—			(2,221		)
Interest paid		(1,955		)	(4,112		)	(6,011		)	(7,670		)
Increase in long-term debt		—			23,550			—			23,550
Dividends paid	18	(3,761		)	—			(14,990		)	—
Increase (decrease) in other long-term liabilities		(139		)	(138		)	(409		)	(423		)
Net cash generated by (used in) financing activities		(4,982		)	19,503			(18,931		)	13,955
Currency translation differences relating to cash and cash equivalents		(205		)	95			(574		)	(1,137		)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(32,118		)	26,727			(44,153		)	45,188
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		110,057			101,435			122,092			82,974
CASH AND CASH EQUIVALENTS, END OF PERIOD		$	77,939		$	128,162		$	77,939		$	128,162

See accompanying notes to the Condensed Consolidated Interim Financial Statements.

4 Q3-2014

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

As at September 30, 2014 and December 31, 2013 and for the periods ended September 30, 2014 and 2013

(Unaudited - Expressed in U.S. Dollars)

1. CORPORATE INFORMATION

TransGlobe Energy Corporation is a publicly listed company incorporated in Alberta, Canada and its shares are listed on the Toronto Stock Exchange (“TSX”) and NASDAQ Exchange (“NASDAQ”). The address of its registered office is 2300, 250 – 5th Street SW, Calgary, Alberta, Canada, T2P 0R4. TransGlobe Energy Corporation together with its subsidiaries (“TransGlobe” or the “Company”) is engaged primarily in oil exploration, development and production and the acquisition of properties.

2. BASIS OF PREPARATION

Statement of compliance

These Condensed Consolidated Interim Financial Statements have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting using accounting policies consistent with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) effective as of September 30, 2014. These Condensed Consolidated Interim Financial Statements do not contain all the disclosures required for full annual financial statements and should be read in conjunction with the December 31, 2013 Consolidated Financial Statements.

These Condensed Consolidated Interim Financial Statements were authorized for issue by the Board of Directors on November 10, 2014.

Basis of measurement

The accounting policies used in the preparation of these Condensed Consolidated Interim Financial Statements were the same as those used in the preparation of the most recent Annual Financial Statements for the year ended December 31, 2013, except for the new accounting policies described in Note 3.

The Company prepared these Condensed Consolidated Interim Financial Statements on a going concern basis, which contemplates the realization of assets and liabilities in the normal course of business as they become due. Accordingly, these Condensed Consolidated Interim Financial Statements have been prepared on a historical cost basis, except for cash and cash equivalents and convertible debentures that have been measured at fair value.

Functional and presentation currency

In these Condensed Consolidated Interim Financial Statements, unless otherwise indicated, all dollar amounts are presented and expressed in United States (U.S.) dollars, which is the Company’s functional currency. All references to $ are to United States dollars and references to C$ are to Canadian dollars and all values are rounded to the nearest thousand except when otherwise indicated.

3. CHANGES IN ACCOUNTING POLICIES

IFRS 10 (revised) "Consolidated Financial Statements"

In October 2012, the IASB issued amendments to IFRS 10 to define investment entities, provide an exception to the consolidation of investment entities by a parent company, and prescribe fair value measurement to measure such entities. These amendments are effective for annual periods beginning on or after January 1, 2014; accordingly, the Company adopted this standard for the year ending December 31, 2014. The adoption of this standard had no material impact on the Condensed Consolidated Interim Financial Statements.

IFRS 12 (revised) "Disclosure of interests in other entities"

In October 2012, the IASB issued amendments to IFRS 12 to prescribe disclosures about significant judgments and assumptions used to determine whether an entity is an investment entity as well as other disclosures regarding the measurement of such entities. These amendments are effective for annual periods beginning on or after January 1, 2014; accordingly, the Company adopted this standard for the year ending December 31, 2014. The adoption of this standard had no material impact on the Condensed Consolidated Interim Financial Statements.

IAS 32 (revised) “Financial Instruments: Presentation”

In December 2011, the IASB issued amendments to IAS 32 to address inconsistencies when applying the offsetting criteria. These amendments clarify some of the criteria required to be met in order to permit the offsetting of financial assets and financial liabilities. These amendments are effective for annual periods beginning on or after January 1, 2014; accordingly, the Company has adopted this standard for the year ending December 31, 2014. The adoption of this standard had no material impact on the Condensed Consolidated Interim Financial Statements.

IFRIC 21 (new) "Levies"

In May 2013, the IASB issued IFRIC 21, "Levies", which was developed by the IFRS Interpretations Committee ("IFRIC"). IFRIC 21 clarifies that an entity recognizes a liability for a levy when the activity that triggers payment, as identified by the relevant legislation, occurs. The interpretation also clarifies that no liability should be recognized before the specified minimum threshold to trigger that levy is reached. IFRIC 21 is effective for annual periods beginning on or after January 1, 2014; accordingly, the Company has adopted this standard for the year ending December 31, 2014. The adoption of this standard had no material impact on the Condensed Consolidated Interim Financial Statements.

Q3-2014 5

4. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

Fair Values of Financial Instruments

The Company has classified its cash and cash equivalents as assets at fair value through profit or loss and its convertible debentures as financial liabilities at fair value through profit or loss, which are both measured at fair value with changes being recognized through earnings. Accounts receivable and restricted cash are classified as loans and receivables; accounts payable and accrued liabilities, and long-term debt are classified as other liabilities, all of which are measured initially at fair value, then at amortized cost after initial recognition.

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

	September 30, 2014				December 31, 2013
	Carrying		Fair		Carrying		Fair
Classification (000s)	Value		Value		Value		Value
Financial assets at fair value through profit or loss	$	77,939	$	77,939	$	122,092	$	122,092
Loans and receivables	217,874		217,874		149,830		149,830
Financial liabilities at fair value through profit or loss	83,229		83,229		87,539		87,539
Other liabilities	35,734		35,734		38,392		38,392

Assets and liabilities at September 30, 2014 that are measured at fair value are classified into levels reflecting the method used to make the measurements. Fair values of assets and liabilities included in Level 1 are determined by reference to quoted prices in active markets for identical assets and liabilities. Assets and liabilities in Level 2 include valuations using inputs other than quoted prices for which all significant inputs are observable, either directly or indirectly. Level 3 valuations are based on inputs that are unobservable and significant to the overall fair value measurement.

The Company’s cash and cash equivalents and convertible debentures are assessed on the fair value hierarchy described above. TransGlobe’s cash and cash equivalents and convertible debentures are classified as Level 1. Assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the placement within the fair value hierarchy level. There were no transfers between levels in the fair value hierarchy in the period.

Credit risk

Credit risk is the risk of loss if the counterparties do not fulfill their contractual obligations. The Company’s exposure to credit risk primarily relates to cash equivalents and accounts receivable, the majority of which are in respect of oil operations. The Company generally extends unsecured credit to these parties and therefore the collection of these amounts may be affected by changes in economic or other conditions. The Company has not experienced any material credit losses in the collection of accounts receivable to date.

Trade and other receivables are analyzed in the table below. The majority of these receivables are due from the Egyptian Government. The political transition and resultant economic malaise in the country that began in 2011 combined with the Company's increased production during this period have resulted in irregular collection of accounts receivable from the Egyptian Government and generally a larger receivable balance, which has increased TransGlobe's credit risk. Despite these factors, the Company still expects to collect in full all outstanding receivables.

(000s)
Trade receivables at September 30, 2014
Neither impaired nor past due	$	38,578
Impaired (net of valuation allowance)
Not impaired and past due in the following period:
Within 30 days	20,057
31-60 days	21,283
61-90 days	22,163
Over 90 days	114,245

In Egypt, the Company sold all of its 2014 and 2013 production to one purchaser. In Yemen, the Company sold all of its 2014 Block 32 production to one purchaser, and all of its 2013 Block 32 production to another purchaser. Block S-1 production was sold to one purchaser in 2014 and 2013. Management considers such transactions normal for the Company and the international oil industry in which it operates.

The Company manages its credit risk on cash equivalents by investing only in term deposits with reputable Canadian and international banking institutions.

6 Q3-2014

5. OIL REVENUE

	Three Months Ended September 30				Nine Months Ended September 30
(000s)	2014		2013		2014		2013
Oil sales	$	123,317	$	161,900	$	420,665	$	474,461
Less: Royalties	55,469		83,369		198,411		240,341
Oil sales, net of royalties	$	67,848	$	78,531	$	222,254	$	234,120

6. FINANCE REVENUE AND COSTS

Finance revenue relates to interest earned on the Company’s bank account balances and term deposits.

Finance costs recognized in earnings were as follows:

	Three Months Ended September 30				Nine Months Ended September 30
(000s)	2014		2013		2014		2013
Interest expense	$	1,691	$	2,357	$	4,886	$	6,226
Amortization of deferred financing costs	282		281		837		826
Finance costs	$	1,973	$	2,638	$	5,723	$	7,052

7. OTHER REVENUE

On April 14, 2014, TransGlobe announced the termination of the arrangement agreement dated March 15, 2014 to merge with Caracal Energy Inc. ("Caracal") by way of an exchange of shares. Caracal advised TransGlobe that it had received an unsolicited cash offer to acquire all of the outstanding common shares of Caracal, and that the unsolicited offer constituted a "Superior Proposal" under the terms of the arrangement agreement. Accordingly, Caracal terminated the agreement and paid TransGlobe the reverse termination fee of $9.3 million in accordance with the terms of the agreement. The reverse termination fee has been presented as other revenue on the Condensed Consolidated Interim Statement of Earnings and Comprehensive Income.

8. CASH AND CASH EQUIVALENTS

(000s)	September 30, 2014		December 31, 2013
Cash	$	67,939	$	82,051
Cash equivalents	10,000		40,041
	$	77,939	$	122,092

9. PRODUCT INVENTORY

Product inventory consists of crude oil held in storage, which is valued at the lower of cost or net realizable value. As determined on a concession by concession basis, cost is the Company's expenses related to the operation and depletion associated with the production of the crude oil that is held in storage.

10. INTANGIBLE EXPLORATION AND EVALUATION ASSETS

(000s)
Balance at December 31, 2013	$	89,991
Additions	9,155
Transfers to petroleum properties	(1,074		)
Balance at September 30, 2014	$	98,072

Q3-2014 7

11. PROPERTY AND EQUIPMENT

(000s)	Petroleum Properties		Other Assets		Total
Balance at December 31, 2013	$	444,128	$	10,821	$	454,949
Additions	47,267		1,445		48,712
Transfers from exploration and evaluation assets	1,074		—		1,074
Balance at September 30, 2014	$	492,469	$	12,266	$	504,735
Accumulated depletion, depreciation, and amortization at	$	155,372	$	6,533	$	161,905
December 31, 2013
Depletion, depreciation and amortization for the period	36,156		807		36,963
Balance at September 30, 2014	$	191,528	$	7,340	$	198,868
Net Book Value
At December 31, 2013	$	288,756	$	4,288	$	293,044
At September 30, 2014	$	300,941	$	4,926	$	305,867

12. LONG-TERM DEBT

The Company’s interest-bearing loans and borrowings are measured at amortized cost. As at September 30, 2014, the only significant interest-bearing loans and borrowings related to the Borrowing Base Facility, under which the Company has borrowing capacity of $100.0 million. The Borrowing Base Facility has a term that extends to December 31, 2017, and is secured by a pledge over certain bank accounts, a pledge over the Company’s subsidiaries and a fixed and floating charge over certain assets. The credit facility bears interest at the LIBOR rate plus an applicable margin, which ranges from 5.0% to 5.5% and is dependent on the amount drawn. The Company incurs standby interest charges on amounts available but not drawn under the Borrowing Base Facility, which significantly impacts the effective interest rate in periods when there are small or no borrowings under the facility. The unutilized portion of the facility bears interest at 50% of the applicable margin. The amount of the Borrowing Base may fluctuate over time and is determined principally by the net present value of the Company’s Proved and Probable reserves over the term of the Borrowing Base Facility, up to a pre-defined commitment amount which is subject to pre-determined semi-annual reductions in accordance with the terms of the Borrowing Base Facility. Accordingly, for each balance sheet date, the timing of repayment is estimated based on the most recent redetermination of the Borrowing Base and repayment schedules may change in future periods.

Deferred financing costs related to the Borrowing Base Facility have been presented as an asset on the Company's Condensed Consolidated Interim Balance Sheets as at September 30, 2014 and December 31, 2013 since there were no amounts drawn on the Borrowing Base Facility as at these dates. Deferred financing costs are amortized based on the borrowing capacity available in the Borrowing Base Facility.

13. CONVERTIBLE DEBENTURES

(000s)
Balance at December 31, 2013	$	87,539
Fair value adjustment	106
Foreign exchange adjustment	(4,416		)
Balance at September 30, 2014	$	83,229

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. The debentures are convertible at any time and from time to time into common shares of the Company at a price of C$14.67 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$18.34 per common share). The conversion price of the convertible debentures will adjust for any amounts paid out as dividends on the common shares of the Company, provided that the dividend payment causes the conversion price to change by 1% or more. Interest of 6% is payable semi-annually in arrears on March 31 and September 30. 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.

The convertible debentures are classified as financial instruments at fair value through profit or loss, and as such are measured at fair value with changes in fair value included in earnings. Fair value is determined based on market price quotes from the exchange on which the convertible debentures are traded as at the period end date. As at September 30, 2014 the convertible debentures were trading at a price of C$95.43 for a C$100.00 par value debenture. As a result, the Company has recognized a net expense of $0.1 million for the nine months ended September 30, 2014.

8 Q3-2014

14. COMMITMENTS AND CONTINGENCIES

The Company is subject to certain office, equipment and drilling rig leases.

Pursuant to the PSC for North West Gharib in Egypt, the Company has a minimum financial commitment of $35.0 million ($25.1 million remaining) and a work commitment to drill 30 wells and acquire 200 square kilometers of 3-D seismic during the initial-three year exploration period, which commenced on November 7, 2013.

Pursuant to the PSC for South East Gharib in Egypt, the Company has a minimum financial commitment of $7.5 million ($6.7 million remaining)and a work commitment to drill two wells, acquire 200 square kilometers of 3-D seismic and acquire 300 kilometers of 2-D seismic during the initial three-year exploration period, which commenced on November 7, 2013.

Pursuant to the PSC for South West Gharib in Egypt, the Company has a minimum financial commitment of $10.0 million ($9.1 million remaining)and a work commitment to drill four wells and acquire 200 square kilometers of 3-D seismic during the initial three-year exploration period, which commenced on November 7, 2013.

Pursuant to the PSC for South Ghazalat in Egypt, the Company has a minimum financial commitment of $8.0 million ($7.2 million remaining) and a work commitment to drill two wells and acquire 400 square kilometers of 3-D seismic during the initial three-year exploration period, which commenced on November 7, 2013.

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, 2015.

In the normal course of its operations, the Company may be subject to litigation proceedings 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 September 30, 2014.

15. SHARE CAPITAL

Authorized

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

Issued

	Nine Months Ended			Year Ended
	September 30, 2014			December 31, 2013
000’s	Shares	Amount		Shares	Amount
Balance, beginning of period	74,600	$	160,561	73,794	$	158,721
Stock options exercised	619	2,479		806	372
Share-based compensation on exercise	—	844		—	1,468
Balance, end of period	75,219	$	163,884	74,600	$	160,561

16. SHARE-BASED PAYMENTS

Stock option plan

The Company operates a stock option plan to provide equity-settled share-based remuneration to directors, officers and employees. The number of Common Shares that may be issued pursuant to the exercise of options awarded under the stock option plan and all other Security Based Compensation Arrangements of the Company is 10% of the common shares outstanding from time to time. All incentive stock options granted under the Plan have a per-share exercise price equal to the weighted average trading price of the common shares for the five trading days prior to the date of grant. Each tranche of an award with different vesting dates is considered a separate grant for the calculation of fair value and the resulting fair value is amortized over the vesting period of the respective tranches.

Q3-2014 9

The following table summarizes information about the stock options outstanding and exercisable at the dates indicated:

	Nine Months Ended			Year Ended
	September 30, 2014			December 31, 2013
			Weighted-			Weighted-
	Number		Average	Number		Average
	of		Exercise	of		Exercise
(000s except per share amounts)	Options		Price (C$)	Options		Price (C$)
Options outstanding, beginning of period	5,871		9.51	5,110		8.19
Granted	1,208		7.34	2,175		9.17
Exercised	(619	)	4.45	(806	)	3.50
Forfeited	(343	)	10.91	(608	)	5.59
Options outstanding, end of period	6,117		9.55	5,871		9.51
Options exercisable, end of period	3,150		10.31	2,621		8.80

Compensation expense of $2.9 million was recorded in general and administrative expenses in the Condensed Consolidated Interim Statements of Earnings and Comprehensive Income and Changes in Shareholders’ Equity during the nine month period ended September 30, 2014 (2013 - $4.2 million) in respect of equity-settled share-based payment transactions. The fair value of all common stock options granted is estimated on the date of grant using the lattice-based trinomial option pricing model.

All options granted vest annually over a three-year period and expire five years after the grant date. During the nine month period ended September 30, 2014, employees exercised 619,000 (2013 – 178,000) stock options. The fair value related to these options was $0.8 million, (2013 - $0.3 million) at time of grant and has been transferred from contributed surplus to share capital. As at September 30, 2014 and December 31, 2013, the entire balance in contributed surplus was related to previously recognized share-based compensation expense on equity-settled stock options.

Restricted share unit, performance share unit and deferred share unit plans

In May 2014, the Company implemented a restricted share unit ("RSU") plan, a performance share unit ("PSU") plan and a deferred share unit ("DSU") plan. RSUs may be issued to directors, officers and employees of the Company, and each RSU entitles the holder to a cash payment equal to the fair market value of a TransGlobe common share on the vesting date of the RSU. All RSUs granted vest annually over a three-year period, and all must be settled within 30 days of their respective vesting dates.

PSUs are similar to RSUs, except that the number of PSUs that ultimately vest is dependent on achieving certain performance targets and objectives as set by the board of directors. Depending on performance, vested PSUs can range between 50% and 150% of the original PSU grant. All PSUs granted vest on the third anniversary of their grant date, and all must be settled within 60 days of their vesting dates.

DSUs are similar to RSUs, except that they become fully vested on the date of grant and may only be issued to directors of the Company. Distributions under the DSU plan do not occur until the retirement of the DSU holder from the Company's board of directors.

The number of RSUs, PSUs and DSUs outstanding as at September 30, 2014:

	Restricted		Performance	Deferred
	Share		Share	Share
(000s, except per share amounts)	Units		Units	Units
Units outstanding, beginning of period	—		—	—
Granted	367		281	144
Forfeited	(10	)	—	—
Units outstanding, end of period	357		281	144

Compensation expense of $1.4 million was recorded in general and administrative expenses in the Condensed Consolidated Interim Statements of Earnings and Comprehensive Income and Changes in Shareholders' Equity during the nine month period ended September 30, 2014 in respect of share units granted under the three plans described above. The expense related to the share units granted under these plans is measured at fair value using the lattice-based trinomial pricing model and is recognized over the vesting period, with a corresponding liability recognized on the Condensed Consolidated Interim Balance Sheet. Until the liability is ultimately settled, it is re-measured at each reporting date with changes to fair value recognized in earnings.

Share appreciation rights plan

In addition to the Company’s stock option plan, the Company had issued share appreciation rights (“units”) under a share appreciation rights plan, which was cancelled effective January 30, 2014. Share appreciation rights are similar to stock options except that the holder does not have the right to purchase the underlying share of the Company and instead receives cash. Units granted under the share appreciation rights plan vested one-third on each of the first, second and third anniversaries of the grant date. Share appreciation rights granted had an expiry five years after the grant date. The following table summarizes information about the share appreciation rights outstanding and exercisable at the dates indicated:

10 Q3-2014

	Nine Months Ended			Year Ended
	September 30, 2014			December 31, 2013
			Weighted-			Weighted-
	Number		Average	Number		Average
	of		Exercise	of		Exercise
(000s, except per share amounts)	Units		Price (C$)	Units		Price (C$)
Units outstanding, beginning of period	70		5.62	153		7.80
Granted	—		—	—		—
Exercised	(60	)	4.61	—		—
Forfeited	(10	)	11.65	(83	)	9.64
Units outstanding, end of period	—		—	70		5.62
Units exercisable, end of period	—		—	70		5.62

For the nine month periods ended September 30, 2014 and September 30, 2013, immaterial compensation expense recoveries were recorded in general and administrative expenses in the Condensed Consolidated Interim Statements of Earnings and Comprehensive Income in respect of cash-settled share-based payment transactions.

17. PER SHARE AMOUNTS

The earnings used in the calculation of basic and diluted earnings per share are as follows:

	Three Months Ended					Nine months ended
	September 30					September 30
(000s)	2014			2013		2014			2013
Net earnings	$	19,162		$	16,344	$	62,053		$	51,619
Dilutive effect of convertible debentures	(4,228		)	—		(307		)	(9,137		)
Diluted net earnings	$	14,934		$	16,344	$	61,746		$	42,482

In calculating the earnings per share, basic and diluted, the following weighted average shares were used:

	Three Months Ended		Nine months ended
	September 30		September 30
(000s)	2014	2013	2014	2013
Weighted average number of shares outstanding	75,068	73,898	74,799	73,863
Dilutive effect of stock options	671	1,777	817	1,650
Dilutive effect of convertible debentures	6,663	—	6,663	6,474
Weighted-average number of diluted shares outstanding	82,402	75,675	82,279	81,987

In determining diluted earnings per share, the Company assumes that the proceeds received from the exercise of “in-the-money” stock options are used to repurchase common shares at the average market price. In calculating the weighted average number of diluted common shares outstanding for the three and nine month periods ended September 30, 2014, the Company excluded 6,023,500 and 4,433,100 stock options (2013 – 5,232,300 and 4,619,800, respectively) as their exercise price was greater than the average common share market price in the respective periods.

The convertible debentures are dilutive in any period in which earnings per share is reduced by the effect of adjusting net earnings for the impact of the convertible debentures, and adjusting the weighted-average number of shares outstanding for the potential shares issuable on conversion of the convertible debentures.

18. DIVIDENDS

The Company paid total dividends of $0.20 per common share during the nine months ended September 30, 2014, including a quarterly dividend of $0.05 per common share that was paid in cash on September 30, 2014. On November 10, 2014, the Board of Directors declared a quarterly dividend of $0.05 per common share, which is payable in cash on December 31, 2014 to shareholders of record on December 15, 2014.

Q3-2014 11

19. SEGMENTED INFORMATION

The Company has two reportable operating segments: the Arab Republic of Egypt and the Republic of Yemen. The Company, through its operating segments, is engaged primarily in oil exploration, development and production and the acquisition of properties.

In presenting information on the basis of operating segments, segment revenue is based on the geographical location of assets which is also consistent with the location of the segment customers. Segmented assets are also based on the geographical location of the assets. There are no inter-segment sales.

The accounting policies of the operating segments are the same as the Company’s accounting policies.

	Egypt						Yemen						Total
	Nine months ended						Nine months ended						Nine months ended
	September 30						September 30						September 30
(000s)	2014			2013			2014			2013			2014			2013
Revenue
Oil sales, net of royalties	$	211,570		$	228,263		$	10,684		$	5,857		$	222,254		$	234,120
Finance revenue	7			153			1			3			8			156
Total segmented revenue	211,577			228,416			10,685			5,860			222,262			234,276
Segmented expenses
Production and operating	47,904			42,921			8,944			6,063			56,848			48,984
Depletion, depreciation and amortization	35,401			34,109			1,321			869			36,722			34,978
Income taxes – current	51,749			65,695			998			987			52,747			66,682
Income taxes – deferred	(1,786		)	(921		)	901			(2,566		)	(885		)	(3,487		)
Impairment loss	—			19,936			—			—			—			19,936
Total segmented expenses	133,268			161,740			12,164			5,353			145,432			167,093
Segmented earnings	$	78,309		$	66,676		$	(1,479	)	$	507		76,830			67,183
Non-segmented expenses(income)
Exploration													704			292
General and administrative													21,567			20,385
Foreign exchange (gain) loss													(4,149		)	(1,854		)
Depreciation and amortization													342			275
Unrealized loss on financial instruments													106			(10,454		)
Other revenue													(9,250		)	—
Finance revenue													(266		)	(132		)
Finance costs													5,723			7,052
Total non-segmented expenses													14,777			15,564
Net earnings for the period													$	62,053		$	51,619
Capital expenditures
Exploration and development	$	55,851		$	57,070		$	1,384		$	2,706		$	57,235		$	59,776
Corporate													632			130
Total capital expenditures													$	57,867		$	59,906

12 Q3-2014

	Egypt					Yemen						Total
	Three Months Ended					Three Months Ended						Three Months Ended
	September 30					September 30						September 30
(000s)	2014		2013			2014			2013			2014			2013
Revenue
Oil sales, net of royalties	$	65,328	$	76,725		$	2,520		$	1,806		$	67,848		$	78,531
Finance revenue	2		19			1			—			3			19
Total segmented revenue	65,330		76,744			2,521			1,806			67,851			78,550
Segmented expenses
Production and operating	15,612		14,840			2,633			2,083			18,245			16,923
Depletion, depreciation and amortization	11,371		11,679			171			235			11,542			11,914
Income taxes – current	14,596		22,369			154			197			14,750			22,566
Income taxes – deferred	127		(1,917		)	(157		)	(791		)	(30		)	(2,708		)
Impairment loss	—		226			—			—			—			226
Total segmented expenses	41,706		47,197			2,801			1,724			44,507			48,921
Segmented earnings	$	23,624	$	29,547		$	(280	)	$	82		23,344			29,629
Non-segmented expenses(income)
Exploration												39			114
General and administrative												7,715			6,966
Foreign exchange (gain) loss												(4,160		)	1,874
Depreciation and amortization												124			99
Unrealized (gain) loss on financial instruments												(1,420		)	1,634
Finance revenue												(89		)	(40		)
Finance costs												1,973			2,638
Total non-segmented expenses												4,182			13,285
Net earnings for the period												$	19,162		$	16,344
Capital expenditures
Exploration and development	$	25,406	$	20,977		$	400		$	1,329		$	25,806		$	22,306
Corporate												206			112
Total capital expenditures												$	26,012		$	22,418

Q3-2014 13

The carrying amounts of reportable segment assets and liabilities are as follows:

September 30, 2014
(000s)	Egypt		Yemen		Total
Assets
Intangible exploration and evaluation assets	$	79,557	$	18,515	$	98,072
Property and equipment
Petroleum properties	267,921		33,020		300,941
Other assets	2,706		—		2,706
Goodwill	8,180		—		8,180
Other	225,102		3,784		228,886
Segmented assets	583,466		55,319		638,785
Non-segmented assets					81,521
Total assets					$	720,306
Liabilities
Accounts payable and accrued liabilities	$	28,007	$	2,659	$	30,666
Deferred taxes	39,104		8,874		47,978
Segmented liabilities	67,111		11,533		78,644
Non-segmented liabilities					88,996
Total liabilities					$	167,640
December 31, 2013
(000s)	Egypt		Yemen		Total
Assets
Intangible exploration and evaluation assets	$	72,295	$	17,696	$	89,991
Property and equipment
Petroleum properties	255,082		33,674		288,756
Other assets	2,359		—		2,359
Goodwill	8,180		—		8,180
Other	182,155		3,484		185,639
Segmented assets	520,071		54,854		574,925
Non-segmented assets					100,875
Total assets					$	675,800
Liabilities
Accounts payable and accrued liabilities	$	28,269	$	2,939	$	31,208
Deferred taxes	40,891		7,972		48,863
Segmented liabilities	69,160		10,911		80,071
Non-segmented liabilities					95,539
Total liabilities					$	175,610

14 Q3-2014

20. SUPPLEMENTAL CASH FLOW INFORMATION

Changes in non-cash working capital consisted of the following:

	Three Months Ended						Nine months ended
	September 30						September 30
(000s)	2014			2013			2014			2013
Operating activities
(Increase) decrease in current assets
Accounts receivable	$	(33,601	)	$	(17,359	)	$	(68,041	)	$	(18,659	)
Prepaids and other	1,633			(713		)	(915		)	(699		)
Product inventory	61			(561		)	560			(561		)
Increase (decrease) in current liabilities
Accounts payable and accrued liabilities	(101		)	7,185			(2,606		)	7,826
	$	(32,008	)	$	(11,448	)	$	(71,002	)	$	(12,093	)
Investing Activities
(Increase) decrease in current assets
Prepaids and other	$	(427	)	$	3,287		$	(33	)	$	30
Increase (decrease) in current liabilities
Accounts payable and accrued liabilities	2,632			4,691			(301		)	2,431
	$	2,205		$	7,978		$	(334	)	$	2,461

Q3-2014 15