MANAGEMENT’S DISCUSSION AND ANALYSIS

November 4, 2010

Management’s discussion and analysis (“MD&A”) should be read in conjunction with the unaudited interim financial statements for the three months and nine months ended September 30, 2010 and 2009 and the audited financial statements and MD&A for the year ended December 31, 2009 included in the Company’s annual report. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in Canada in the currency of the United States (except where otherwise noted). Additional information relating to the Company, including the Company’s Annual Information Form, is on SEDAR at www.sedar.com. The Company’s annual report and Form 40-F may be found on EDGAR at www.sec.gov.

READER ADVISORIES

Forward-Looking Statements

This MD&A may include certain statements that may be deemed to be “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Such statements relate to possible future events. All statements other than statements of historical fact may be forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as “seek”, “anticipate”, “plan”, “continue”, “estimate”, “expect”, “may”, “will”, “project”, “predict”, “potential”, “targeting”, “intend”, “could”, “might”, “should”, “believe” and similar expressions. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. Although TransGlobe’s forward-looking statements are based on the beliefs, expectations, opinions and assumptions of the Company’s management on the date the statements are made, such statements are inherently uncertain and provide no guarantee of future performance. Actual results may differ materially from TransGlobe’s expectations as reflected in such forward-looking statements as a result of various factors, many of which are beyond the control of the Company. These factors include, but are not limited to, unforeseen changes in the rate of production from TransGlobe’s oil and gas properties, changes in price of crude oil and natural gas, adverse technical factors associated with exploration, development, production or transportation of TransGlobe’s crude oil and natural gas reserves, changes or disruptions in the political or fiscal regimes in TransGlobe’s areas of activity, changes in tax, energy or other laws or regulations, changes in significant capital expenditures, delays or disruptions in production due to shortages of skilled manpower, equipment or materials, economic fluctuations, and other factors beyond the Company’s control. TransGlobe does not assume any obligation to update forward-looking statements, other than as required by law, if circumstances or management’s beliefs, expectations or opinions should change and investors should not attribute undue certainty to, or place undue reliance on, any forward-looking statements. Please consult TransGlobe’s public filings at www.sedar.com and www.sec.gov for further, more detailed information concerning these matters.

Non-GAAP 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 Generally Accepted Accounting Principles (“GAAP”). Funds flow from operations is a non-GAAP 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

	Three Months Ended September 30		Nine Months Ended September 30
($000s)	2010	2009	2010	2009
Cash flow from operating activities	12,297	1,264	32,178	24,205
Changes in non-cash working capital	7,238	11,339	23,457	11,156
Funds flow from operations	19,535	12,603	55,635	35,361

            Debt-to-funds flow ratio
Debt-to-funds flow is a non-GAAP 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, 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 non-GAAP measure that represents sales net of royalties (all government interests, net of income taxes), operating expenses and current taxes. Management believes that netback is a useful supplemental measure to analyze operating performance and provide an indication of the results generated by the Company’s principal business activities prior to the consideration of other income and expenses. Netback may not be comparable to similar measures used by other companies.

TRANSGLOBE’S BUSINESS

TransGlobe is a Canadian-based, 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”). Egypt and Yemen include the Company’s exploration, development and production of crude oil. TransGlobe disposed of its Canadian oil and gas operations in 2008 to reposition itself as a 100% oil, Middle East/North Africa growth company.

6 Q3 2010

MANAGEMENT’S DISCUSSION AND ANALYSIS

SELECTED QUARTERLY FINANCIAL INFORMATION

	2010			2009							2008
($000s, except per share, price and	Q-3	Q-2	Q-1	Q-4	Q-3		Q-2		Q-1		Q-4
volume amounts)
Average sales volumes (Bopd)	10,138	9,206	9,694	8,656	8,864		9,619		8,788		6,893
Average price ($/Bbl)	71.27	73.46	70.66	62.84	57.41		48.62		35.88		46.18
Oil sales	66,470	61,540	61,651	50,044	46,818		42,557		28,379		29,285
Oil sales, net of royalties and other	38,980	35,638	37,404	28,788	28,495		26,462		19,060		18,272
Cash flow from operating activities	12,297	15,627	4,254	12,594	1,264		15,052		7,889		11,252
Funds flow from operations*	19,535	17,027	19,073	9,703	12,603		14,117		8,641		6,134
Funds flow from operations per share
- Basic	0.29	0.26	0.29	0.15	0.19		0.22		0.14		0.10
- Diluted	0.28	0.25	0.29	0.15	0.19		0.22		0.14		0.10
Net income (loss)	8,805	9,438	11,598	2,516	(1,618	)	(4,361	)	(4,954	)	7,640
Net income (loss) per share
- Basic	0.13	0.14	0.18	0.04	(0.02	)	(0.07	)	(0.08	)	0.14
- Diluted	0.13	0.14	0.17	0.04	(0.02	)	(0.07	)	(0.08	)	0.13
Total assets	275,885	263,345	248,446	228,882	228,964		229,658		238,145		228,238
Cash and cash equivalents	15,412	21,437	18,845	16,177	14,804		23,952		22,041		7,634
Total long-term debt, including current portion	46,045	49,977	49,888	49,799	52,686		52,551		57,347		57,230
Debt-to-funds flow ratio**	0.7	0.9	0.9	1.1	1.3		1.2		1.1		1.0

*	Funds flow from operations is a non-GAAP measure that represents cash generated from operating activities before changes in non-cash working capital.
**	Debt-to-funds flow ratio is a non-GAAP measure that represents total current and long-term debt over funds flow from operations for the trailing 12 months.

During the third quarter of 2010, TransGlobe has:

• Maintained a strong financial position, reporting a debt-to-funds flow ratio of 0.7 at September 30, 2010 (September 30, 2009 - 1.3);
• Funded capital programs entirely with funds flow from operations;
• Reported a 55% increase in funds flow from operations due to a 24% increase in commodity prices along with a 14% increase in sales volumes compared to Q3-2009; and
• Reported net income in Q3-2010 of $8.8 million (Q3-2009 – $1.6 million net loss) mainly due to higher commodity prices and production volumes in the quarter compared with the same period in 2009, along with lower depletion and depreciation expense.

2010 VARIANCES

	$000s		$	Per Share Diluted		% Variance
Q3-2009 net loss	(1,618	)		(0.02	)
Cash items
Volume variance	8,400			0.11		519
Price variance	11,252			0.16		695
Royalties	(9,168	)		(0.13	)	(567	)
Expenses:
Operating	263			-		16
Realized derivative loss	442			0.01		27
Cash general and administrative	(127	)		-		(8	)
Current income taxes	(3,624	)		(0.05	)	(224	)
Realized foreign exchange gain	(208	)		-		(13	)
Interest on long-term debt	(324	)		-		(20	)
Other income	27			-		2
Total cash items variance	6,933			0.10		427
Non-cash items
Unrealized derivative gain	(815	)		(0.01	)	(49	)
Depletion and depreciation	4,752			0.06		294
Stock-based compensation	(236	)		-		(15	)
Amortization of deferred financing costs	(211	)		-		(13	)
Total non-cash items variance	3,490			0.05		217
Q3-2010 net income	8,805			0.13		644

Net income increased to $8.8 million in Q3-2010 compared to a loss of $1.6 million in Q3-2009, which was mostly due to significant increases in commodity prices and production volumes along with a decrease in depletion and depreciation, which was partially offset by higher royalties and income taxes.

Q3 2010 7

MANAGEMENT’S DISCUSSION AND ANALYSIS

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:

	2010			2009
	Q-3	Q-2	Q-1	Q-4	Q-3
Dated Brent average oil price ($/Bbl)	76.86	78.30	76.10	74.56	68.27
U.S./Canadian Dollar average exchange rate	1.039	1.028	1.016	1.056	1.098

The price of Dated Brent oil averaged 13% higher in Q3-2010 compared with Q3-2009. Global markets are currently in a period of economic recovery with improved liquidity and access to capital, in addition to strengthening oil prices. TransGlobe’s management believes the Company is well positioned to take advantage of the improving economy due to its increasing production, manageable debt levels, positive cash generation from operations and the availability of cash and cash equivalents.

The Company designed its 2010 budget to be flexible, allowing spending to be adjusted as commodity prices change and forecasts are reviewed.

OPERATING RESULTS AND NETBACK

Daily Volumes, Working Interest Before Royalties and Other (Bopd)

	Three Months Ended		Nine Months Ended
	September 30		September 30
	2010	2009	2010	2009
Egypt - Oil sales	7,601	5,747	7,029	5,833
Yemen - Oil sales	2,537	3,117	2,652	3,257
Total Company - daily sales volumes	10,138	8,864	9,681	9,090

Netback

Consolidated

	Nine Months Ended September 30
	2010		2009
(000s, except per Bbl amounts)	$	$/Bbl	$	$/Bbl
Oil sales	189,661	71.76	117,754	47.45
Royalties and other	77,639	29.38	43,737	17.62
Current taxes	27,619	10.45	14,966	6.03
Operating expenses	18,742	7.09	17,378	7.00
Netback	65,661	24.84	41,673	16.80

	Three Months Ended September 30
	2010		2009
(000s, except per Bbl amounts)	$	$/Bbl	$	$/Bbl
Oil sales	66,470	71.27	46,818	57.41
Royalties and other	27,490	29.47	18,323	22.47
Current taxes	9,785	10.49	6,161	7.56
Operating expenses	6,708	7.19	6,971	8.55
Netback	22,487	24.12	15,363	18.83

Egypt

	Nine Months Ended September 30
	2010		2009
(000s, except per Bbl amounts)	$	$/Bbl	$	$/Bbl
Oil sales	133,676	69.66	68,265	42.87
Royalties and other	51,782	26.99	23,969	15.05
Current taxes	20,461	10.66	9,658	6.07
Operating expenses	11,800	6.15	9,695	6.09
Netback	49,633	25.86	24,943	15.66

8 Q3 2010

MANAGEMENT’S DISCUSSION AND ANALYSIS

Egypt (continued)

	Three Months Ended September 30
	2010		2009
(000s, except per Bbl amounts)	$	$/Bbl	$	$/Bbl
Oil sales	48,551	69.43	27,339	51.71
Royalties and other	18,999	27.17	9,584	18.13
Current taxes	7,447	10.65	3,874	7.33
Operating expenses	4,313	6.17	4,241	8.02
Netback	17,792	25.44	9,640	18.23

The netback per Bbl in Egypt increased 40% and 65% in the three and nine months ended September 30, 2010, respectively, compared with the same periods of 2009, mainly as a result of oil prices increasing by 34% and 62%, respectively, partially offset by higher royalty and tax rates. The average selling price during the three months ended September 30, 2010 was $69.43/Bbl, which represents a gravity/quality adjustment of approximately $7.43/Bbl to the average Dated Brent oil price for the period of $76.86/Bbl.

Royalties and taxes as a percentage of revenue increased to 54% in the three and nine months ended September 30, 2010, compared with 49% in the same period of 2009. Royalty and tax rates fluctuate in Egypt due to changes in the cost oil whereby the Production Sharing Contract (“PSC”) allows for recovery of operating and capital costs through a reduction in government take.

Operating expenses on a per Bbl basis for the three and nine months ended September 30, 2010 decreased 23% and increased 1%, respectively, compared with the same periods of 2009. This is mainly due to a significant increase in production in Egypt during the three and nine month periods ended September 30, 2010 compared with the same periods in 2009, along with more workovers performed in the third quarter of 2009 compared to the third quarter of 2010.

Yemen

	Nine Months Ended September 30
	2010		2009
(000s, except per Bbl amounts)	$	$/Bbl	$	$/Bbl
Oil sales	55,985	77.33	49,489	55.66
Royalties and other	25,857	35.71	19,768	22.23
Current taxes	7,158	9.89	5,308	5.97
Operating expenses	6,942	9.59	7,683	8.64
Netback	16,028	22.14	16,730	18.82

		Three Months Ended September 30
	2010		2009
(000s, except per Bbl amounts)	$	$/Bbl	$	$/Bbl
Oil sales	17,919	76.77	19,479	67.92
Royalties and other	8,491	36.38	8,739	30.47
Current taxes	2,338	10.02	2,287	7.97
Operating expenses	2,395	10.26	2,730	9.52
Netback	4,695	20.11	5,723	19.96

In Yemen, the netback per Bbl increased 1% and 18% in the three and nine months ended September 30, 2010, respectively, compared with the same periods in 2009 primarily as a result of oil prices increasing by 13% and 39%, respectively, partially offset by higher royalty and tax rates.

Royalties and taxes as a percentage of revenue increased to 60% and 59% in the three and nine months ended September 30, 2010, respectively, compared with 57% and 51%, respectively, in 2009. Royalty and tax rates fluctuate in Yemen due to changes in the amount of cost sharing oil, whereby the Block 32 and Block S-1 Production Sharing Agreements (“PSAs”) allow for the recovery of operating and capital costs through a reduction in Ministry of Oil and Minerals’ take of oil production.

Operating expenses on a per Bbl basis for the three and nine months ended September 30, 2010 increased 8% and 11%, respectively, mostly due to lower volumes compared to the same periods in 2009.

DERIVATIVE COMMODITY CONTRACTS

TransGlobe uses hedging arrangements as part of its risk management strategy to manage commodity price fluctuations and stabilize cash flows for future exploration and development programs. In July 2010 the Company bought out two financial collar contracts that had been set to expire on August 31, 2010. Furthermore, in the first week of October 2010 the Company purchased two new financial floor contracts, which both carry volumes of 10,000 Bbl/month, that are effective from January 1, 2011 to December 31, 2011.

The estimated fair value of unrealized commodity contracts is reported on the Consolidated Balance Sheets, with any change in the unrealized positions recorded to income. The fair values of these transactions are based on an approximation of the amounts that would have been paid to, or received from, counter-parties to settle the transactions outstanding as at the Consolidated Balance Sheet date with reference to forward prices and market values provided by independent sources. The actual amounts realized may differ from these estimates. The realized loss on commodity contracts in the first nine months of 2010 relates mostly

Q3 2010 9

MANAGEMENT’S DISCUSSION AND ANALYSIS

to the purchase of a new financial floor derivative commodity contract for $0.4 million, compared with $0.2 million in realized gains for the same period in 2009 as a result of depressed oil prices in the first nine months of last year. The mark-to-market valuation of TransGlobe’s future derivative commodity contracts increased in value by $0.5 million between December 31, 2009 and September 30, 2010, moving from a $0.5 million liability at December 31, 2009 to an almost even position at September 30, 2010, thus resulting in a $0.5 million unrealized gain on future derivative commodity contracts being recorded in the period.

	Three Months Ended				Nine Months Ended
	September 30				September 30
($000s)	2010		2009		2010		2009
Realized cash (loss) gain on commodity contracts*	(35	)	(477	)	(452	)	191
Unrealized gain (loss) on commodity contracts**	(186	)	629		520		(3,720	)
Total derivative gain (loss) on commodity contracts	(221	)	152		68		(3,529	)

*	Realized cash gain (loss) represents actual cash settlements, receipts and premiums paid under the respective contracts.
**	The unrealized loss on derivative commodity contracts represents the change in fair value of the contracts during the period.

If the Dated Brent oil price remains at the level experienced at the end of Q3-2010, the derivative asset will be realized over the next year. However, a 10% decrease in Dated Brent oil prices would result in a $0.2 million increase in the derivative commodity contract asset, thus increasing the unrealized gain by the same amount. Conversely, a 10% increase in Dated Brent oil prices would not have a material effect on the unrealized gain on commodity contracts. The following commodity contracts are outstanding immediately following September 30, 2010:

			Dated Brent
Period	Volume	Type	Pricing Put
Crude Oil
July 1, 2010-December 31, 2010	10,000 Bbl/month	Financial Floor	$60.00
July 1, 2010-December 31, 2010	20,000 Bbl/month	Financial Floor	$65.00
January 1, 2011-December 31, 2011*	20,000 Bbl/month	Financial Floor	$65.00
* Contract was purchased in October 2010.

Including the contracts purchased in October 2010, the total volumes hedged for the balance of 2010 and following years are:

	Three Months
	2010	2011
Bbls	90,000	240,000
Bopd	978	658

At September 30, 2010, all of the derivative commodity contracts were classified as current assets.

GENERAL AND ADMINISTRATIVE EXPENSES (“G&A”)

	Nine Months Ended September 30
	2010				2009
(000s, except per Bbl amounts)	$		$/Bbl		$		$/Bbl
G&A (gross)	9,739		3.68		8,259		3.33
Stock-based compensation	1,670		0.63		1,493		0.60
Capitalized G&A and overhead recoveries	(1,991	)	(0.75	)	(2,247	)	(0.90	)
G&A (net)	9,418		3.56		7,505		3.03

			Three Months Ended September 30
	2010				2009
(000s, except per Bbl amounts)	$		$/Bbl		$		$/Bbl
G&A (gross)	3,006		3.22		2,844		3.49
Stock-based compensation	759		0.81		523		0.64
Capitalized G&A and overhead recoveries	(766	)	(0.82	)	(731	)	(0.90	)
G&A (net)	2,999		3.21		2,636		3.23

G&A expenses (net) increased 14% (1% decrease on a per Bbl basis) and 25% (17% on a per Bbl basis) in the three and nine months ended September 30, 2010, respectively, compared with the same periods in 2009 partly due to a strengthening Canadian dollar which accounted for approximately 41% and 51% of the increases, respectively, as the majority of TransGlobe’s G&A costs are incurred in Canadian dollars. The remainder of the increase was due to increased insurance, staffing and office costs.

INTEREST ON LONG-TERM DEBT

Interest expense for the three and nine months ended September 30, 2010 increased to $1.1 million and $2.1 million, respectively (2009 - $0.6 million and $1.9 million, respectively). Interest expense includes interest on long-term debt and amortization of transaction costs associated with long-term debt. In the three and nine months ended September 30, 2010, the Company expensed $0.3 million and $0.5 million, respectively, of transaction costs (2009 - $0.1 million and $0.5 million, respectively). The Company had $50.0 million of debt outstanding at September 30, 2010 (September 30, 2009 - $53.0 million). The long-term debt that was outstanding at September 30, 2010 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 previous quarters long-term debt bore interest at the Eurodollar rate plus three percent under the terms of the previous credit facility that was terminated in July 2010 and replaced with a new Borrowing Base Facility.

10 Q3 2010

MANAGEMENT’S DISCUSSION AND ANALYSIS

DEPLETION AND DEPRECIATION (“DD&A”)

	Nine Months Ended September 30
	2010		2009
(000s, except per Bbl amounts)	$	$/Bbl	$	$/Bbl
Egypt	18,186	9.48	33,150	20.82
Yemen	5,752	7.94	7,331	8.24
Corporate	183	-	143	-
	24,121	9.13	40,624	16.37

	Three Months Ended September 30
	2010		2009
(000s, except per Bbl amounts)	$	$/Bbl	$	$/Bbl
Egypt	7,468	10.68	11,747	22.22
Yemen	1,893	8.11	2,394	8.35
Corporate	79	-	51	-
	9,440	10.12	14,192	17.40

In Egypt, DD&A decreased 52% and 54% on a per Bbl basis for the three and nine month periods ended September 30, 2010, respectively, due to significant increases to Proved reserves at year-end 2009.

In Yemen, DD&A decreased 3% and 4% on a per Bbl basis for the three and nine months ended September 30, 2010, respectively, due to Proved reserve additions at year-end 2009.

In Egypt, unproven properties of $13.9 million (2009 - $9.9 million) relating to Nuqra ($8.0 million), West Gharib ($1.8 million) and East Ghazalat ($4.1 million) were excluded from the costs subject to DD&A in the quarter. In Yemen, unproven property costs of $11.0 million (2009 - $10.6 million) relating to Block 72 and Block 75 were excluded from the costs, subject to DD&A in the quarter.

CAPITAL EXPENDITURES

	Nine Months Ended September 30
($000s)	2010	2009
Egypt	42,484	21,491
Yemen	4,636	6,345
Corporate	266	169
Total	47,386	28,005

In Egypt, total capital expenditures in the first nine months of 2010 were $42.5 million (2009 - $21.5 million). The Company drilled 20 wells, resulting in 16 oil wells (four at Hana, three at Arta, three at East Arta, two at North Hoshia, one at each of Hana West and Hoshia, and two at East Ghazalat), in addition to two dry holes at East Ghazalat, one at Hoshia and one at West Hoshia.

In Yemen, total capital expenditures in 2010 were $4.6 million (2009 - $6.3 million). Three oil development wells were drilled in the first nine months of 2010 at Block S-1, along with one oil development well and one dry hole at Block 32.

OUTSTANDING SHARE DATA

As at September 30, 2010, the Company had 66,917,172 common shares issued and outstanding.

The Company received regulatory approval to purchase, from time-to-time, as it considers advisable, up to 6,116,905 common shares under a Normal Course Issuer Bid which commenced September 7, 2009 and expired September 6, 2010. During the nine months ended September 30, 2010 and during the year ended December 31, 2009, the Company did not repurchase any common shares.

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 operating activities (calculated on a 12-month trailing basis). TransGlobe’s debt-to-funds flow from operating activities ratio, a key short-term leverage measure, remained strong at 0.7 times at September 30, 2010. This was within the Company’s target range of no more than 2.0 times.

Q3 2010 11

MANAGEMENT’S DISCUSSION AND ANALYSIS

The following table illustrates TransGlobe’s sources and uses of cash during the periods ended September 30, 2010 and 2009:

Sources and Uses of Cash

	Nine Months Ended September 30
($000s)	2010		2009
Cash sourced
Funds flow from operations*	55,635		35,361
Exercise of options	7,406		80
Increase in long-term debt	55,916
Issuance of common shares, net of share issuance costs	-		15,109
	118,957		50,550
Cash used
Capital expenditures	47,386		28,005
Deferred financing costs	4,277		-
Transfer to restricted cash	1,890
Repayment of long-term debt	55,916		5,000
Options surrendered for cash payments	-		13
	109,469		33,018
Net cash from operations	9,488		17,532
Changes in non-cash working capital	(10,253	)	(10,362	)
Increase in cash and cash equivalents	(765	)	7,170
Cash and cash equivalents – beginning of period	16,177		7,634
Cash and cash equivalents – end of period	15,412		14,804
* Funds flow from operations is a non-GAAP measure that represents cash generated from operating activities before changes in non-cash working capital.

Funding for the Company’s capital expenditures was provided by funds flow from operations. The Company expects to fund its 2010 exploration and development program of $71.0 million ($24.0 million remaining) and contractual commitments through the use of working capital and cash generated by operating activities. The use of new financing during 2010 may also be utilized to finance new opportunities. Fluctuations in commodity prices, product demand, foreign exchange rates, interest rates and various other risks may impact capital resources.

Working capital is the amount by which current assets exceed current liabilities. At September 30, 2010, the Company had working capital of $47.9 million (December 31, 2009 – deficiency of $11.8 million). The working capital deficiency as at December 31, 2009 was primarily the result of the reclassification of long-term debt as a current liability. On July 22, 2010, the Company entered into a new Borrowing Base Facility. Therefore, as at September 30, 2010 the credit facility was classified as long-term which eliminated the working capital deficiency. While the reclassification of bank debt accounts for the majority of the increase in working capital, other increases to working capital in 2010 are the result of increased accounts receivable due to higher oil prices and higher sales volumes. These receivables are not considered to be impaired; however, to mitigate this risk, the Company entered into an insurance program on a portion of the receivable balance.

At June 30, 2010, TransGlobe had a $60.0 million Revolving Credit Agreement of which $50.0 million was drawn. Amounts drawn under the Revolving Credit Agreement were set to become due September 25, 2010. On July 22, 2010, the Company entered into a new five-year $100.0 million Borrowing Base Facility and paid out the original Revolving Credit Agreement. As repayments on the new Borrowing Base Facility are not expected to commence until 2012, the entire balance is presented as a long-term liability on the consolidated balance sheets. Repayments will be made on a semi-annual basis according to the scheduled reduction of the facility. As of September 30, 2010, the Company has incurred financing costs related to the new Borrowing Base Facility in the amount of $4.3 million.

($000s)	September 30, 2010		December 31, 2009
Bank debt	50,000		50,000
Deferred financing costs	(3,955	)	(201	)
	46,045		49,799
Current portion of long-term debt (net of deferred financing costs)	-		49,799
Long-term debt (net of deferred financing costs)	46,045		-

12 Q3 2010

MANAGEMENT’S DISCUSSION AND ANALYSIS

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 Period1,2
	Recognized										More
	in Financial		Contractual		Less than						than
	Statements		Cash Flows		1 year		1-3 years		4-5 years		5 years
Accounts payable and accrued liabilities	Yes-Liability	$	27,364	$	27,364	$	-	$	-	$	-
Long-term debt:
Borrowing Base Facility	Yes-Liability		50,000		-		29,557		20,443		-
Office and equipment leases	No		11,051		1,567		3,034		1,916		4,534
Minimum work commitments3	No		4,953		-		4,953		-		-
Total		$	93,368	$	28,931	$	37,544	$	22,359	$	4,534

1	Payments exclude ongoing operating costs related to certain leases, interest on long-term debt and payments made to settle derivatives.
2	Payments denominated in foreign currencies have been translated at September 30, 2010 exchange rates.
3	Minimum work commitments include contracts awarded for capital projects and those commitments related to exploration and drilling obligations.

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

Pursuant to the PSA for Block 72 in Yemen, the Contractor (Joint Venture Partners) has a minimum financial commitment of $2.0 million ($0.1 million to TransGlobe) to drill one exploration well during the second exploration period. The second, 30-month exploration period commenced on January 12, 2009. The Contractor has entered into a farm-in agreement with TOTAL E&P Yemen which has reduced TransGlobe’s interest in the concession to 20%.

Pursuant to the PSA for Block 75 in Yemen, the Contractor (Joint Venture Partners) has a remaining minimum financial commitment of $3.0 million ($0.8 million to TransGlobe) for one exploration well. The first, 36-month exploration period commenced March 8, 2008. The Company issued a $1.5 million letter of credit (expiring November 15, 2011) to guarantee the Company’s performance under the first exploration period. The letter is secured by a guarantee granted by Export Development Canada.

Pursuant to the August 18, 2008 asset purchase agreement for a 25% financial interest in eight development leases on the West Gharib Concession in Egypt, the Company has committed to paying the vendor a success fee to a maximum of $7.0 million if incremental reserve thresholds are reached in the East Hoshia (up to $5.0 million) and South Rahmi (up to $2.0 million) development leases, to be evaluated annually. As at December 31, 2009, no additional fees are due in 2010.

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.

MANAGEMENT STRATEGY AND OUTLOOK FOR 2010

The 2010 outlook provides information as to management’s expectation for results of operations for 2010. Readers are cautioned that the 2010 outlook may not be appropriate for other purposes. The Company’s expected results are sensitive to fluctuations in the business environment and may vary accordingly. This outlook contains forward-looking statements that should be read in conjunction with the Company’s disclosure under “Forward-Looking Statements”, outlined on the first page of this MD&A.

2010 Outlook Highlights

• Production is expected to average approximately 10,000 Bopd, an 11% increase over the 2009 average production;
• Exploration and development capital budget increased during the third quarter to $71.0 million from $63.0 million (allocated 84% to Egypt, 14% to Yemen and 2% to other) funded from funds flow from operations and cash on hand; and
• Using the 10,000 Bopd production forecast and an average oil price assumption for the remainder of the year of $75.00/Bbl, funds flow from operations is expected to be $75.0 million for the year.

2010 Production Outlook

TransGlobe’s production guidance for 2010 is expected to average approximately 10,000 Bopd, representing an 11% increase over the 2009 average production of 8,980 Bopd. This target includes increased production from Hana, Hana West, Hoshia, Arta and East Arta in Egypt, and production from the development drilling program on Block S-1 in Yemen. Production from Egypt is expected to average approximately 7,300 Bopd during 2010, with the balance of approximately 2,700 Bopd coming from the Yemen properties. TransGlobe’s target exit rate for 2010 is 11,000 Bopd.

Production Forecast

	2010 Guidance	2009 Actual	% Change*
Barrels of oil per day	10,000	8,980	11

Q3 2010 13

MANAGEMENT’S DISCUSSION AND ANALYSIS

2010 Funds Flow From Operations Outlook

This outlook was developed using the above production forecast and an average Dated Brent oil price of $75.00/Bbl for the remainder of the year.

2010 Funds Flow From Operations Outlook
($ million, except % change)	2010 Guidance	2009 Actual	% Change
Funds flow from operations*	75.0	45.1	66
* Funds flow from operations is a non-GAAP measure that represents cash generated from operating activities before changes in non-cash working capital.

Due in part to higher expected prices and higher production, funds flow from operations is expected to increase by 66% in 2010. One of the key factors in the increased funds flow in 2010 is due to a better oil price differential to average Dated Brent benchmark price in Egypt. Price differentials to average Dated Brent in Egypt narrowed from 24% in 2009 to 10% in 2010. Variations in production and commodity prices during 2010 could significantly change this outlook. An increase in the Dated Brent oil price of $10.00/Bbl for the remainder of the year would increase anticipated funds flow by approximately $3.0 million to $78.0 million for the year, while a $10.00/Bbl decrease in the Dated Brent oil price would result in anticipated funds flow decreasing by approximately $3.0 million to $72.0 million for the year.

2010 Capital Budget	Nine Months Ended
	September 30, 2010	2010
($ million)	Actual	Annual Budget
Egypt	42.5	60.0
Yemen	4.6	10.0
Corporate	0.3	1.0
Total	47.4	71.0

The 2010 capital program is split 64:36 between development and exploration, respectively. The Company plans to participate in 40 wells in 2010. The Company will fund its entire 2010 capital budget from funds flow and working capital. The Company designed its 2010 budget to be flexible, allowing spending to be adjusted as commodity prices change and forecasts are reviewed.

CHANGES IN ACCOUNTING POLICIES

New Accounting Policies

The Company adopted a share appreciation rights plan in March 2010. Under the share appreciation rights plan, all liabilities must be settled in cash and, consequently, are classified as liability instruments and measured at their intrinsic value less any unvested portion. Unvested share appreciation rights accrue evenly over the vesting period. The intrinsic value is determined as the difference between the market value of the Company’s common shares and the exercise price of the share appreciation rights. This obligation is revalued each reporting period and the change in the obligation is recognized as stock-based compensation expense (recovery).

New Accounting Standards

a) Business Combinations

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

b) Non-Controlling Interests

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

c) International Financial Reporting Standards (“IFRS”)

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

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

14 Q3 2010

MANAGEMENT’S DISCUSSION AND ANALYSIS

The Company completed the diagnostic assessment phase by performing comparisons of the differences between Canadian GAAP and IFRS and has assessed the effects of adoption. The Company determined that the most significant impact of IFRS conversion is to property and equipment. IFRS does not prescribe specific oil and gas accounting guidance other than for costs associated with the exploration and evaluation phase. The Company currently follows full cost accounting as prescribed in Accounting Guideline 16, Oil and Gas Accounting – Full Cost. Conversion to IFRS will have a significant impact on how the Company accounts for costs pertaining to oil and gas activities, in particular those related to the pre-exploration and development phases. In addition, the level at which impairment tests are performed and the impairment testing methodology will differ under IFRS, although the Company does not expect to experience an impairment loss on oil and gas assets on transition to IFRS. IFRS conversion will also result in other impacts, including but not limited to the calculation of share-based payments expense and depletion expense on oil and gas assets, which may be significant in nature. The Company continues to focus on analyzing and developing implementation strategies and processes for the key IFRS transition issues identified. Where applicable, key IFRS transition alternatives are being considered and evaluated. The Company continues to perform accounting assessments on less critical IFRS transition issues and has commenced analysis of IFRS financial statement presentation and disclosure requirements. These assessments will need to be further analyzed and evaluated throughout the implementation phase of the Company’s project as new transactions may have different GAAP versus IFRS treatment, and ongoing changes to IFRS may have an impact on the conversion.

In July 2009, the International Accounting Standards Board (“IASB”) approved additional exemptions that will allow entities to allocate their oil and gas asset balance as determined under full cost accounting to the IFRS categories of exploration and evaluation assets and development and producing properties. Under the exemption, exploration and evaluation assets are measured at the amount determined under an entity’s previous GAAP. For assets in the development or production phases, the amount is also measured at the amount determined under an entity’s previous GAAP; however, such values must be allocated to the underlying IFRS transitional assets on a pro-rata basis using either reserve values or reserve volumes as of the entity’s IFRS transition date. This exemption will relieve entities from significant adjustments resulting from retrospective adoption of IFRS. The Company will utilize this exemption.

Concurrently, the project team is working on the design, planning and solution development phase. In this phase, the focus is on determining the specific qualitative and quantitative impact the application of IFRS requirements has on the Company. The project team members continue to work with representatives from the various operational areas to develop recommendations including first-time adoption exemptions available upon initial transition to IFRS. The results from the consultations with the various operational areas are used to draft accounting policies. One of the sections in each of the draft accounting policies is the disclosure section which includes the financial statement disclosure as required by IFRS. The project team has analyzed first-time adoption exemptions and documented which exemptions it intends to utilize, pending approval from the steering committee. These exemptions include the oil and gas asset exemption described above, along with the cumulative translation differences exemption which allows the cumulative translation differences for all foreign operations to be deemed to be zero at the date of transition, and the share-based payments exemption which allows for IFRS requirements to apply only to those options that were unvested at the date of transition. A detailed implementation plan and timeline has been developed, which also includes the development of a training plan. Furthermore, in the last quarter of 2010 the Company will continue to work on the development of processes and systems to ensure that IFRS comparative data is captured, and to position it for reporting under IFRS in 2011.

During the third quarter of 2010 the Company completed its draft opening balance sheet under IFRS, which is as at January 1, 2010. Transition to IFRS on the opening balance sheet date does not result in a material adjustment to the Company’s property and equipment. The valuation and expensing of share-based payments will be done using a tranche method under IFRS whereas under previous GAAP entire stock option issuances were valued as a whole and expensed on a straight line over the lives of the options. This results in an accelerated expensing of the share-based payments as the fair value is weighted more heavily toward the periods closer to the date of issuance of the stock options. The adjustment for the change in treatment of share-based payments results in an increase in contributed surplus with a corresponding decrease in retained earnings. Furthermore, cumulative translation adjustments have been deemed to be zero on transition, resulting in a decrease in accumulated other comprehensive income along with a corresponding increase in retained earnings. The Company also continues to work on calculating adjustments for the first three quarters of 2010. While quantification of the impact is in progress but cannot currently be estimated accurately, the Company expects depletion and depreciation expense to decrease under IFRS as compared to Canadian GAAP as a result of the depletion rate being calculated based on proved and probable reserves under IFRS compared to proved reserves only under previous GAAP. At this time, any other potential adjustments to the Company’s financial position and results of operations for the first three quarters in 2010 cannot be reliably determined or estimated.

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

INTERNAL CONTROLS OVER FINANCIAL REPORTING

TransGlobe’s management designed and implemented internal controls over financial reporting, as defined under National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, of the Canadian Securities Administrators. Internal controls over financial reporting is a process designed under the supervision of the Chief Executive Officer and the Chief Financial Officer and effected by the Board of Directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with Canadian generally accepted accounting principles, including a reconciliation to U.S. generally accepted accounting principles, focusing in particular on controls over information contained in the annual and interim financial statements. Due to its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements on a timely basis. A system of internal controls over financial reporting, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the internal controls over financial reporting are met. Also, projections of any evaluation of the effectiveness of internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.

As at the date of this report, management is not aware of any change in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Q3 2010 15