TransGlobe Energy Corporation

FAQS

FREQUENTLY ASKED QUESTIONS

Q: How do your Production Sharing Agreements (PSAs) work?

Q: How much of TransGlobe’s production is crude oil?

Q: What price does TransGlobe receive for its oil?

Q: What percentage of its properties does TransGlobe operate?

Q: What are TransGlobe’s reserves and how are they determined?

Q. How do TransGlobe’s hedging policies work and what are your hedges currently in place?

Q: How do your Production Sharing Agreements (PSAs) work?

A: In many countries, including Egypt and Yemen, oil companies are governed by PSAs. PSAs are a different approach from North American practices, where oil and natural gas producers obtain working interest leases over mineral rights and then pay royalties and/or taxes to applicable governments and/or the freehold mineral rights holder.

All of the Company’s international projects are governed by production sharing contracts between the host government and the contractor (joint venture partners). In Egypt and Yemen, TransGlobe enters into a separate PSA for each block in which it has interests. Not only is each PSA a separate contract with the government, it must also be passed into law to become effective. This process generally takes six to twelve months after signing.

The government and the contractors each take their share of production based on the terms and conditions of the respective contracts. While PSAs vary in detail, they all determine the proportion of oil or natural gas produced by a company that is payable to the government. This proportion represents the government’s fiscal take and is roughly comparable with taxes and royalties as are customary in North America. The Company’s share of all taxes and royalties is paid out of the government’s share of production. The apportionment into a company’s share and the government’s share is based on a formula that is different in each PSA, but in general follows the principle of the graph depicted below:

SUMMARY OF INTERNATIONAL PRODUCTION SHARING AGREEMENTS ("PSA")

Country	Egypt			Yemen
Block	East Ghazalat	West Gharib	Nuqra #1	32	72	S-1	75
Basin	Western Desert	Gulf of Suez	Nuqra	Masila	Masila	Marib	Marib
Year acquired	2010	2007	2004	1997	2004/2005	1998	2007
Status	Exploration	Development	Exploration	Development	Exploration	Development	Exploration
Operator	Vegas	TransGlobe	TransGlobe	DNO	DNO	OXY	OXY
TransGlobe WI (%)	50%	100%	71.43%*	13.81087%	33%	25%	25%
Block Area (sq km)	858	214	14,250	591	1,822	1,152	1,050
Block Area (acres)	212,000	52,900	3,650,000	146,070	450,234	284,700	262,500
Expiry date	June 2010	2019-2026	July 2012	Nov. 2020	Jan. 2011	Oct. 2023	March 2011
Extensions:    Exploration	1st Extension 24 months 2nd Extension 24 months	N/A	2nd Extension 36 months	N/A	N/A	N/A	2nd Phase 36 months
Development	20 yr + 5 yr	+ 5 yr	20 yr + 5 yr	5 yr	20 yr + 5 yr	5 yr	20 yr + 5 yr

* TransGlobe pays 88.57% of costs to first oil production. TransGlobe recovers carried costs from partner’s share of production.

SUMMARY OF INTERNATIONAL PSA TERMS

All of the Company’s international blocks are production sharing contracts between the host government and the Contractor (joint venture partners). The government and the Contractor take their share of production based on the terms and conditions of the respective contracts. The Contractors’ share of all taxes and royalties are paid out of the Governments’ share of production.

The PSAs provide for the Government to receive a percentage gross royalty on the gross production. The remaining oil production, after deducting the gross royalty, is split between cost sharing oil and production sharing oil. Cost sharing oil is up to a maximum percentage as defined in the specific PSA. Cost oil is assigned to recover approved operating and capital costs spent on the specific project. Each PSA is ring fenced for cost recovery and production sharing purposes. The remaining production sharing oil (total production, less gross royalty, less cost oil) is shared between the government and the Contractor as defined in the specific PSAs.

The following tables summarizes the Company’s international PSA terms for the first production tranche for each block. All the PSAs have different terms for production levels above the first tranche, which are unique to each PSA. The Government’s share of production increases and the Contractor’s share of production decreases as the production volumes go to the next production tranche.

 

Country	Egypt			Yemen
Block	East Ghazalat	West Gharib	Nuqra #1	32* (original)	72	S-1	75
First Production Tranche (MBopd)	0 - 5	0 - 5 / 5 - 10	0 - 25	0 - 25	0 - 25	0 - 12.5	0 - 25
Gross Royalty %	0%	0%	0%	3% / (10%)	3%	3%	3%
Max Cost Oil %	25%	30%	40%	60% / (25%)	50%	50%	50%
Excess Cost Oil %	0%	30%	Prod. Sharing	Prod. Sharing	Prod. Sharing	Prod. Sharing	Prod. Sharing
Depreciation per Quarter
Operating	100%	100%	100%	100%	100%	100%	100%
Capital	5%	6.25%	6.25%	12.5%	12.5%	12.5%	12.5%
Production Sharing Oil:
Contractor	20%	30% / 27.5%	30%	33.25% / (23%)	32.4%	28.88%	34.2%
Government	80%	70% / 72.5%	70%	66.75% / (77%)	67.6%	71.13%	65.8%

* Block 32 terms will revert to original PSA terms if production exceeds 25,000 Bopd or Proved reserves exceed 30 million barrels. Reserves are audited every two years by an independent evaluator. At November 2008, Proved reserves were less than 30 million barrels. The next reserve audit is November 2010.

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Q: How much of TransGlobe’s production is crude oil?

A: All of TransGlobe’s production as of early 2009 is crude oil. The oil TransGlobe produces in Egypt ranges from 16º to 28º API, while the Company’s oil produced in Yemen ranges from 28º to 41º API.

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Q: What price does TransGlobe receive for its oil?

A: TransGlobe’s oil production is benchmarked against Dated Brent prices. Brent is the widely used North Sea benchmark light (38º API), sweet crude oil and Dated Brent is a type of spot sales contract that has been priced with a known loading date. In general, the Company’s oil produced in Egypt is sold at a discount of approximately 17 percent to Dated Brent, while its Yemen oil achieves prices very close to the benchmark.

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Q: What percentage of its properties does TransGlobe operate?

A: In Egypt, TransGlobe holds a 100 percent working interest and is the operator at West Gharib.  TransGlobe has a 71.43 percent working interest in a large exploration licence at Nuqra (TransGlobe operated).  The Company holds a 50 percent working interest in East Ghazalat.

TransGlobe does not operate its Yemen properties, where experienced partners operate the fields.

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Q: What are TransGlobe’s reserves and how are they determined?

The Company’s reserves are reviewed annually – as is customary in the oil and natural gas industry – following the conclusion of the fiscal year, which is also the calendar year. All of TransGlobe’s reserves were independently evaluated by a third-party engineering firm, DeGolyer and MacNaughton, headquartered in Dallas, Texas. The independent year-end reserve report is commissioned, reviewed and approved by the Company's Reserves Committee.

As at December 31, 2009, TransGlobe had a total of 24.2 million barrels of Proved plus Probable reserves and 30.5 million barrels of Proved plus Probable plus Possible reserves.

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Q. How do TransGlobe’s hedging policies work and what are your hedges currently in place?

TransGlobe uses hedging arrangements as part of its risk management strategy to manage commodity price fluctuations and stabilize cash flows for future exploration and development programs.  The hedging program was expanded significantly in September 2007 to protect the cash flows from the added risk of commodity price exposure following a marked increase in TransGlobe’s debt levels resulting from its acquisitions in Egypt (late 2007/early 2008).

The following table outlines TransGlobe’s hedges in place at March 31, 2010:

Period	Volume	Type	Dated Brent Pricing Put-Call
Crude Oil
April 1, 2010-August 31, 2010	12,000 Bbls/month	Financial Collar	$60.00-$84.25
April 1, 2010-August 31, 2010	9,000 Bbls/month	Financial Collar	$40.00-$80.00
April 1, 2010-December 31, 2010	10,000 Bbls/month	Financial Floor	$60.00
April 1, 2010-December 31, 2010	20,000 Bbls/month	Financial Floor	$65.00

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