Tanganyika Oil Company Ltd.
TSX VENTURE : TYK
OMX : TYKS

Tanganyika Oil Company Ltd.

May 14, 2008 02:30 ET

Tanganyika Announces First Quarter 2008 Results

CALGARY, ALBERTA--(Marketwire - May 14, 2008) - Tanganyika Oil Company Ltd. (the "Company") (TSX VENTURE:TYK)(OMX:TYKS) today announces interim operating and financial results for the first quarter ended March 31, 2008. Unless otherwise stated, all figures contained in this report are in United Stated Dollars.



Three Months Ended March 31, 2008 and March 31, 2007

Three Three Twelve
months months months
ended ended ended
March 31, March 31, December 31,
Financial Highlights 2008 2007 2007
---------------------------------------
Revenue 26,307,164 4,664,463 35,912,560
Net profit (loss) - Continuing
operations 825,893 (5,048,489) (21,972,725)
Per share (basic) 0.014 (0.091) (0.389)
Per share (diluted) 0.014 (0.091) (0.389)
Profit (loss) - Discontinued
operations (2) 0 1,737,892 45,006,004
Per share (basic) 0.000 0.031 0.798
Per share (diluted) 0.000 0.031 0.795
Profit (loss) for the period 825,893 (3,310,597) 23,033,279
Per share (basic) 0.014 (0.059) 0.408
Per share (diluted) 0.014 (0.059) 0.407
Cash Flow from Continuing
operations (1) 13,568,358 (99,764) 3,662,197
Per share (basic) 0.234 (0.002) 0.065
Per share (diluted) 0.234 (0.002) 0.065
Cash Flow from Discontinued
operations (1, 2) 0 316,102 69,312,772
Per share (basic) 0.000 0.006 1.228
Per share (diluted) 0.000 0.006 1.224
Total Assets 368,884,410 233,843,925 287,561,314
Working Capital, including cash 112,643,728 78,808,106 53,424,460
Working Capital, excluding cash 12,386,065 9,611,059 11,122,248
Weighted Average shares
outstanding (basic) 57,932,343 55,775,159 56,427,858
Weighted Average shares
outstanding (diluted) 58,049,186 56,581,573 56,626,839

Operational Highlights
Average daily production -
Company net (bbl/d)
Syria - Oudeh 1,788 1,099 1,140
Syria - Tishrine-Sheikh Mansour 2,351 124 468
-------------------------------------------------------------------------
Total Syria 4,139 1,223 1,608
-------------------------------------------------------------------------
Average sales price ($/bbl)
Syria
Oudeh 68.83 36.39 52.64
Tishrine 70.00 35.34 55.87
Operational costs ($/bbl)
Syria (3) 10.49 9.02 10.53

(1) Cash flow from operations is a non-GAAP measure that represents cash
generated from operating activities before changes in non-cash working
capital.

(2) On September 25, 2007 the Company sold its interest in West Gharib
Concession in Egypt. Financial results related to these assets have
been recorded as Discontinued Operations in the companies financial
statements.

(3) Gross field production cost, before deduction of operating expenses
related to base crude production, divided by gross field production.


The accompanying unaudited interim financial statements of the Company have been prepared by and are the responsibility of the Company's management.

PRESIDENT'S MESSAGE

Tanganyika is pleased to report that record production levels and realized oil prices have resulted in the Company recording positive earnings from continuing operations during the first quarter of 2008.

Gross field production grew by over 32% during the first quarter of 2008, averaging 13,399 bopd. Average realized oil prices were over $68/bbl during the first quarter up 88% from the average price realized price in the first quarter of 2007 of $36/bbl. World oil prices have continued to strengthen subsequent to quarter end, reaching record highs. These production gains have been recorded during one of the coldest winters in recent history confirming the success of the Company's winterization program and electrical system improvements that occurred during 2007. Production growth has continued subsequent to quarter end with average gross field production of over 15,500 bopd during April 2008.

Production increases are in line with the 2008 production guidance provided by the Company that projected average gross field production rates of between 17,500 and 20,000 bopd during 2008 and a targeted 2008 exit rate of between 21,400 and 27,000 bopd. The pace of production increases is expected to accelerate with the addition of three new drilling rigs, bringing the total number of rigs under contract to the Company to six. Two of the additional three new rigs are now actively drilling on the Company's Syrian oil fields. The third rig is currently in transit to Syria from China. The 2008 drilling plan envisions three rigs actively drilling in each of the Company's development areas.

Drilling results in both Oudeh and Tishrine were positive during the first quarter of 2008. The Oudeh developmental drilling program continued to add production by focusing on lower viscosity areas within the proven Shiranish B reservoir. Additional drilling rigs are expected to provide the catalyst for accelerated production growth at Oudeh. The Tishrine drilling program continues to appraise and develop the West Tishrine extensions that were first reported during the third quarter of 2007. The southwest extension of the West Tishrine field added a significant updip area now recognized in the Company's reserve base. A second new discovery area is the northern down-dip extensions in the Chilou B - Jaddala reservoir of the West Tishrine field. Both West Tishrine extension areas continue to positively impact production, reserves and validate the trapping model making further appraisal on the Tishrine anticline very exciting for the Company.

An additional four steam generators have arrived in Syria. Three were operational by the end of the first quarter. The fourth is currently being mobilized. Having ten steam generators provides the Company with a strong platform from which it may continue to expand its enhanced oil recovery pilot program.

As expected, 2008 is proving to be a pivotal year for the Company as we demonstrate our ability to convert our world class reserve base into proven producing assets capable of generating strong earnings and operating cash flow.

Signed "Gary S. Guidry"

President and CEO

May 8, 2008

MANAGEMENT'S DISCUSSION AND ANALYSIS

(Amounts in United States Dollars unless otherwise indicated)

Three months ended March 31, 2008 and March 31, 2007

Management's discussion and analysis ("MD&A") of Tanganyika Oil Company Ltd.'s (the "Company" or "Tanganyika") financial condition and results of operations should be read in conjunction with the consolidated financial statements for the three months ended March 31, 2008 and March 31, 2007 and the audited consolidated financial statements for the period ended December 31, 2007 and related notes therein prepared in accordance with Canadian generally accepted accounting principles ("Canadian GAAP"). The Quarter ended March 31, 2007 included for comparison purposes has not been reviewed by our external auditor's. The effective date of this MD&A is May 12, 2008.

Additional information relating to the Company is available on SEDAR at www.sedar.com and on the Company's web-site at www.tanganyikaoil.com.

Overview

Tanganyika is a Canadian-based company whose common shares are traded on the TSX Venture Exchange under the symbol "TYK". Effective February 14, 2007, the Company's Swedish Depository Receipts commenced trading on the OMX Nordic Exchange under the symbol "TYKS". Additional information about the Company and its business activities, including the Company's Annual Information Form ("AIF"), is available on SEDAR at www.sedar.com or on the Company's website at www.tanganyikaoil.com.

The Company is an international oil and gas exploration and development company based in Canada primarily focused on its exploration and development properties in Syria.

Syria

Oudeh Block

The Company acquired its interest in the Oudeh Block ("Oudeh") in 2003 pursuant to a Contract for Development and Production of Petroleum with the Government of Syria (the 'Government"). The objective of the contract, which has a term of 20 years with a provision for a five year extension, is to increase oil recovery and crude oil production within the block by applying enhanced oil recovery ("EOR") techniques. The Company began EOR through the use of thermal (steam) technology during 2006.

The Company has an interest in all incremental production above the base crude oil production ("BCP") level from all new and existing wells from the time the contract was signed. The BCP level declines at a rate of five percent per annum calculated on a monthly basis. A table of Oudeh BCP levels for 2008 and 2009 is below. Under the terms of the contract, the Syrian Petroleum Company ("SPC") is responsible for reimbursing the Company for all operating costs attributable to the BCP.

After deduction of the BCP, a royalty of 12.5 percent is deducted and submitted to the Government. The remaining production is then shareable among the Company and SPC as follows:

- 30 percent of the shareable crude oil production from the block is designated as profit oil and is split among the Company and SPC. The profit oil is split 30 percent to the Company and 70 percent to SPC.

- Up to 70 percent of the shareable crude oil production is available as cost oil to the Company to recover exploration, development and operating costs (other than operating costs associated with the BCP that have been recovered directly from SPC). To the extent that these costs exceed the proceeds from the sale of cost oil in any quarter, the excess can be carried forward into subsequent quarters.

- If the costs are less than the proceeds of the cost oil, the excess proceeds are split between the Company and SPC in the same manner as profit oil.

All Syrian taxes are the responsibility of SPC from its share of profit and excess cost oil.

Tishrine-Sheikh Mansour Fields

The Company acquired its interest in the Tishrine-Sheikh Mansour Fields ("Tishrine") in November 2004 pursuant to a Contract for Development and Production of Petroleum with the Government. The contract was ratified in February 2005 and the Company assumed operations on the fields in September 2005. The objective of the contract, which has a term of 20 years with a provision for a five year extension, is to apply EOR techniques to increase crude oil production and recoverability. The Company began EOR through the use of thermal (steam) technology during 2006.

The Company has an interest in all incremental production above the BCP level from all new and existing wells from the time the contract was signed. The BCP level declines at a rate of five percent per annum calculated on a monthly basis. A table of Tishrine BCP levels for 2008 and 2009 is below. Under the terms of the contract, SPC is responsible for reimbursing the Company for all operating costs attributable to the BCP.

After deduction of the BCP, a royalty of 12.5 percent is deducted and submitted to the Government. The remaining production is then shareable among the Company and SPC as follows:

- 52 percent of the shareable crude oil production from the block is designated as profit oil and is split among the Company and SPC. The profit oil is split 30 percent to the Company and 70 percent to SPC.

- Up to 48 percent of the remaining crude oil production is available as cost oil to the Company to recover exploration, development and operating costs (other than operating costs associated with the BCP that have been recovered directly from SPC). To the extent that these costs exceed the proceeds from the sale of cost oil in any quarter, the excess can be carried forward into subsequent quarters.

- If the costs are less than the proceeds of the cost oil, the excess proceeds are split between the Company and SPC in the same manner as profit oil.

All Syrian taxes are the responsibility of SPC from its share of profit and excess cost oil.

Base Crude Production (BCP)



--------------------------------------------------------------------------
(bbl/d) 2008 2009
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
--------------------------------------------------------------------------
Oudeh 860 850 830 820 828 808 790 780
--------------------------------------------------------------------------
Tishrine-Sheikh
Mansour 5,714 5,643 5,513 5,444 5,496 5,368 5,244 5,179
--------------------------------------------------------------------------


Operational Update

Syria - Additional Drilling Rigs

The Company has increased its drilling capacity, adding three additional new drilling rigs to the three existing rigs under contract. Two of the three additional rigs have commenced drilling activities in Syria. The third additional rig is presently in transit from China to Syria and will commence drilling during the second quarter. The pace of the Company's drilling activity is planned to dramatically increase with the addition of these three rigs, bringing the total rig capacity to six rigs. The Company's plan is to dedicate three rigs to each development area.

Syria - Tishrine

Average gross field production during the first quarter of 2008 was 9,947 bopd (Company net: 2,351 bopd). This represents a 36% increase in gross field production over the fourth quarter of 2007 (267% increase on a net production basis). The Company is very encouraged by Tishrine's growing production and reserve base. The expectation is that production growth will accelerate with the additional drilling rig capacity added during the first quarter of 2008.

The Company's first quarter drilling continued to focus on two new development areas: the southwest updip extension of the West Tishrine field and the northern down-dip extension of the West Tishrine Field. Eleven wells completed drilling or were spud during the first quarter. Both areas continue to provide very encouraging results. Initial oil production rates have exceeded 400 bopd in several of the wells. It is expected that the new wells may be expected to have initial sustainable rates of between 150 to 180 bopd. The 2008 Tishrine drilling program is aimed at continuing to develop and appraise these exciting new West Tishrine extensions as well as appraising the 35 kilometer long anticline with up to 5 potentially productive geologic horizons.

First quarter results indicate that dewatering of the Jaddala formation in West Tishrine continues to positively impact oil production. Decreasing water cuts continue to be registered on several structurally low wells in the field since dewatering began. It is expected that oil production will continue to improve over the next several months as dewatering of the Jaddala formation at West Tishrine continues with the use of deep water disposal wells into formations below the Jaddala formation.

The reliability of the electrical power supply in Tishrine during the winter months was excellent, demonstrating the success of upgrading the electric infrastructure in the field. In addition, the winterization programs proved very successful over one of the coldest winters in recent years. The Company continued production growth during the first quarter with minimal cold weather related production restrictions.

Syria - Oudeh

Average gross field production during the first quarter of 2008 was 3,452 barrels of oil per day (bopd) (Company net: 1,788 bopd). This represents a 25% increase in gross field production over the fourth quarter of 2007 (36% increase on a net production basis).

The Company's first quarter drilling program was primarily focused on new development wells in the Shiranish reservoir. The wells were specifically drilled in the lower viscosity areas of the field. A total of five wells completed drilling or spud during the first quarter of 2008. All of the wells were drilled in the Southwest area of the field, encountering excellent Shiranish B reservoir quality, lower viscosity and excellent productive capability. The 2008 Oudeh drilling program is aimed at continuing to develop proven reserves in areas demonstrating lower viscosity oil characteristics. Production is expected to grow at an accelerated rate once Oudeh has three drilling rigs dedicated to its drilling program. The new wells drilled during the first quarter contributed an average of over 100 bopd by the end of the quarter. Steam injection continued through the first quarter of 2008, positively impacting production.

Like Tishrine, the winterization program for Oudeh proved successful. Heat and insulation had been installed at field satellite stations and the main processing station. In addition, the new heated insulated processing tank was successful. The new 11 kilometer export pipeline and heater station is expected to be in service during the second quarter of 2008.

Syria - Thermal Operations

The pace of the steam pilot at both Oudeh and Tishrine continued to accelerate during the first quarter of 2008. Four new steam generators have been delivered to the fields in Syria, bringing the total number of steam generators available for use in Syria to ten. All of the generators are currently steaming wells. Plans are in place for a gas sweetening plant to be installed at Oudeh during 2008 to ensure the quality of the gas supply to the steam generators. The engineering for the plant is complete and the procurement process is ongoing.

The steam pilot in Tishrine now includes 20 wells:

- Estimated gross cold production from these wells, assuming continued cold production, was 617 bopd

- Actual gross thermal production was 2,590 bopd during March 2008 from these same wells

- The steam pilot continues to focus on the Tishrine West field.

The steam pilot in Oudeh now includes 13 wells:

- Estimated gross cold production from these wells, assuming continued cold production, was 480 bopd

- Actual gross thermal production was 694 bopd during March 2008 from these same wells

- Thermally enhanced production is expected to increase during the second quarter of 2008 as the Company overcomes mechanical issues related to the Oudeh thermal project and moves toward regular high-quality steam injection cycles. The company experienced problems during the quarter primarily related to thermal packer and insulated tubing failures, and the resolution of these failures is underway

- Given the viscosity of the oil in the steamed wells at Oudeh, it is expected that successive steam cycles will yield progressively higher rates of production

North Africa

During the second quarter of 2006, the Company acquired a 50 percent interest in a private entity which holds certain rights associated with the development of oil and gas properties located in North Africa in exchange for 372,954 common shares having a deemed value of $3.5 million. As part of the acquisition, the Company agreed to fund 100 percent of the private entity's work program obligations to a maximum of $2 million. The Company has an option to acquire the remaining 50 percent interest in the private entity within 60 days after the date a development lease is issued in respect of the oil and gas properties for a purchase price of common shares of the Company having a deemed value of $6 million. The Government has yet to issue the development lease and the Company continues to evaluate the carrying value of this property.

Company Reserves

DeGolyer and MacNaughton Canada Limited have independently evaluated the proved and probable crude oil reserves attributable to Tanganyika's participating interests in its Syrian properties. The following table shows the estimated share of Tanganyika's crude oil reserves in its Syrian properties using forecast prices and costs. The complete Statement of Reserves Data and Other Oil and Gas Information can be found on SEDAR and on the Company's website.



--------------------------------------------------------------------------
Forecast Prices and Costs
--------------------------------------------------------------------------
December 31, 2007 December 31, 2006
--------------------------------------------------------------------------
Net Net
Present Present
Value of Value of
Future Future
Crude Oil Net Crude Oil Net
(million Revenue- (million Revenue-
barrels) 10% barrels) 10%
------------ Discount ------------ Discount
Gross Net ($ millions) Gross Net ($ millions)
--------------------------------------------------------------------------
Proved 185.0 67.7 1,370.0 168.3 88.8 603.0
--------------------------------------------------------------------------
Proved plus
Probable 851.4 328.5 5,726.0 764.8 428.7 2,336.0
--------------------------------------------------------------------------
Proved plus
Probable and
Possible 1,250.7 435.7 6,456.0 1,033.3 603.8 3,469.0
--------------------------------------------------------------------------

--------------------------------------------
Percent Increase (Decrease)
--------------------------------------------
Net
Present
Value of
Future
Crude Oil Net
Reserves Revenue-
------------- 10%
Gross Net Discount
--------------------------------------------
Proved 10% (24)% 127%
--------------------------------------------
Proved plus
Probable 11% (23)% 145%
--------------------------------------------
Proved plus
Probable and
Possible 21% (28)% 86%
--------------------------------------------


The net present value of future net revenue attributable to Tanganyika's Syrian reserves increased over 120% during 2007 on both a proven and proven plus probable basis (forecast prices and costs). This increase is attributed to both an increase in the gross Syrian reserves and an increase in forecast world oil prices. The 2006 reserve report used forecast future realized prices during the term of Tanganyika's Syrian production sharing agreements ranging from $33.49 to $48.54/bbl. In line with increased world oil prices, the 2007 reserve report now forecasts future realized prices during the term of Tanganyika's Syrian production sharing agreements ranging from $64.16 to $89.64/bbl. The drop in Tanganyika's net reserves recorded during 2007 is a result of these improved world oil prices. As prices increase, future barrels that are required for Tanganyika to recover its costs under the production sharing agreement terms are decreased and thus lower net reserves are recorded even though the value of the reserves increased significantly.



Selected Quarterly Information

Three Months Ended
31-Mar 31-Dec 30-Sep 30-Jun 31-Mar 31-Dec 30-Sep 30-Jun
2008 2007 2007 2007 2007 2006 2006 2006
--------------------------------------------------------------------------
Total
revenues
($ 000) 26,307 17,379 7,041 7,035 4,457 4,638 7,217 5,128
Earnings
(loss) -
continuing
operations
($ 000) 826 (4,411) (6,858) (5,656) (5,048) (1,909) (6,721) (5,577)
Per share
basic -
continuing
operations
$/share 0.014 (0.078) (0.121) (0.100) (0.091) (0.037) (0.137) (0.121)
Per share
diluted -
continuing
operations
$/share 0.014 (0.078) (0.121) (0.100) (0.091) (0.037) (0.137) (0.121)
Earnings
(loss) -
discontinued
operations
($ 000) (2) - (1,513) 42,732 2,051 1,736 1,499 2,606 1,369
Per share
basic -
discontinued
operations
$/share (2) - (0.027) 0.754 0.036 0.031 0.029 0.053 0.030
Per share
diluted -
discontinued
operations
$/share (2) - (0.027) 0.751 0.036 0.031 0.029 0.052 0.029
Earnings
(loss)
($ 000) 826 (5,924) 35,874 (3,605) (3,311) (410) (4,115) (4,208)
Per share
basic
$/share 0.014 (0.104) 0.633 (0.064) (0.059) (0.008) (0.084) (0.091)
Per share
diluted
$/share 0.014 (0.104) 0.630 (0.064) (0.059) (0.008) (0.084) (0.091)
Cash flow
from
continuing
operations
($ 000)
(1) 13,568 3,714 (794) (982) (98) 6,756 (4,862) (5,733)
Per share
basic
$/share 0.234 0.065 (0.014) (0.017) (0.002) 0.133 (0.099) (0.124)
Per share
diluted
$/share 0.234 0.065 (0.014) (0.017) (0.002) 0.131 (0.099) (0.124)
Company
total
net
production -
continuing
operations
(bbl/d) 4,139 2,192 1,447 1,563 1,224 1,506 1,456 846
Company
total
net
production -
continuing
operations
(bbl) 377,000 202,000 133,000 142,000 110,000 139,000 133,000 77,000

(1) Cash generated from operating activities before changes in non-cash
working capital

(2) On September 25, 2007 the Company sold its interest in West Gharib
Concession in Egypt. Results for these assets have been recorded as
Discontinued Operations.


The Company's financial performance is primarily driven by oil production levels and world oil prices. Both average Company net production and average world oil prices were at their highest levels during the first quarter of 2008 resulting in the first profitable quarter for Tanganyika. It is expected that Tanganyika's future financial performance will be affected by Company net production levels and world oil prices. The Company does not have any hedging programs that would impact realized oil prices.

Results of Operations

The profit from continuing operations recorded during the quarter ended March 31, 2008 represents the first quarter in which Tanganyika has recorded positive earnings. Record high net oil production combined with record high realized oil prices to result in a $0.8 million profit from continuing operations during the first quarter of 2008, in comparison to a loss of $5.1 million during the first quarter of 2007. EBITDA (from continuing operations) of $9.0 million was recorded during the first quarter of 2008, an increase of $9.9 million in comparison to the first quarter of 2007.

Net oil production increased by 336% in comparison to the first quarter of 2007. Oudeh's average realized oil price was 89% higher in the first quarter of 2008 than in the first quarter of 2007 and Tishrine's average realized oil price in the first quarter of 2008 was 98% higher than in the first quarter of 2007.

Stock based compensation charges increased $0.6 million as the Company continues to utilize its stock option plan as a method of recruiting, retaining and motivating key personnel. A $2.9 million foreign exchange loss was recorded during the first quarter of 2008 due to the strengthening of the US dollar in comparison to the Canadian dollar between the date that the Company completed its $CDN 75 million private placement in March and the period end.

Tanganyika is in the early stages of appraising and developing its Syrian oil fields. The Company continues to add operating, technical and support staff as required for expanding the development and appraisal programs. The reserves potential identified by the work programs and capital deployed in Syria has been reflected in the significant growth in reserves recognized by the third party reserves evaluators. This is discussed in more detail in the Company's NI 51-101 reserves report as of December 31, 2007 that is filed on SEDAR (www.sedar.com).



Production
Three Three
months months Year
ended ended ending
March 31, March 31, December 31,
2008 2007 2007
--------------------------------------------------------------------------
Production:
Syria:Oudeh
Gross field production (bbl) 314,175 225,779 926,361
Gross field production (bbl/d) 3,452 2,509 2,538
Company net production (bbl) (1) 162,689 98,949 416,029
Company net (bbl/day) 1,788 1,099 1,140
Syria:Tishrine-Sheikh Mansour
Gross field production (bbl) 905,219 547,470 2,434,923
Gross field production (bbl/d) 9,947 6,083 6,671
Company net production (bbl) (1) 213,902 11,166 170,999
Company net (bbl/day) 2,351 124 468
--------------------------------------------------------------------------
Syria Total
Total Company gross Syria (bbl) 1,219,394 773,249 3,361,284
Total Company gross Syria (bbl/d) 13,399 8,592 9,209
Total Company net Syria (bbl) 376,591 110,115 587,028
Total Company net Syria (bbl/d) 4,139 1,223 1,608
--------------------------------------------------------------------------

(1) Company net share of Syria's Oudeh and Tishrine production represents
the Company's share of cost and profit oil after deduction of royalty
and base crude production (i.e. incremental production).


Syrian gross production increased 32% during the first quarter of 2008 in comparison to the fourth quarter of 2007 (926,538 bbl). This increase in gross production resulted in an 87% increase in Tanganyika net production in comparison to the fourth quarter of 2007 (201,586 bbl). Net production increases are not proportionate to the increases in gross production due to the cost pools that Tanganyika has accumulated to date from appraisal, development and enhanced oil recovery programs in Syria. The terms of the Syrian PSAs allow for 70% of incremental oil production to be utilized by Tanganyika for cost recovery purposes at Oudeh and 48% of incremental production to be utilized by Tanganyika for cost recovery purposes at Tishrine. As Tanganyika continues to aggressively develop and appraise these fields, we expect continued significant increases in Company net production as gross Syrian production increases.



Oil Sales

Three Three
months months Year
ended ended ending
March 31, March 31, December 31,
2008 2007 2007
--------------------------------------------------------------------------
Sales of oil ($):
Syria: Oudeh 11,197,183 3,600,278 23,424,301
Tishrine 14,973,930 394,630 11,102,845
--------------------------------------------------------------------------
Total 26,171,113 3,994,908 34,527,146
--------------------------------------------------------------------------
Average oil sales price ($ per bbl):
Syria: Oudeh 68.83 36.39 52.64
Syria: Tishrine 70.00 35.34 55.87
--------------------------------------------------------------------------


Sales revenue for the three months ended March 31, 2008 was 555% higher than the oil sales revenue during the first three months of 2007 and 51% higher than oil sales revenue recorded during the fourth quarter of 2007 ($17,349,015).

Tanganyika recorded record high oil sales revenue during the first quarter of 2008 as a result of two factors:

- Record high quarterly net oil production from Syria, and;

- High world oil prices and Syria realized oil prices.

World oil prices have continued to strengthen subsequent to quarter end and all futures markets indicate prices will remain strong during 2008.



Production Costs

Three Three
months months Year
ended ended ending
March 31, March 31, December 31,
2008 2007 2007
--------------------------------------------------------------------------
Production Costs
Syria
Gross production costs (1) $12,795,214 $6,972,633 $35,387,795
Gross production volumes (1) 1,219,394 773,249 3,361,284
Cost per bbl $ 10.49 $ 9.02 $ 10.53
--------------------------------------------------------------------------

(1) Syria gross production costs and gross production volumes represent
100 percent costs and volumes before any deductions relating to the
base crude production.


Production costs from continuing operations for the three months ended March 31, 2008 averaged $10.49 per barrel as compared to $9.02 per barrel for the three months ended March 31, 2007. Average per barrel production costs are expected to improve as oil production rates increase. Expected per barrel operating expense declines due to increased production levels were offset by several factors including: increased diesel prices, increased electricity costs and stimulation costs. The price of diesel per litre increased over the last few months from approximately $.25/litre to $.93/litre as subsidies during the first quarter were eliminated for commercial users. The increase in diesel had a negative impact on operating costs of approximately $1.36 per bbl. Electricity rates have increased approximately four fold for commercial users in Syria. The increase in power has had a negative impact of approximately $.49 per bbl in the first quarter.



Base Crude Production Recoverable Costs

BCP Operating Expense- BCP Operating Expense-
Recovery during the period Receivable at
-------------------------- -----------------------
December 31, March 31, December 31, March 31,
2007 2008 2007 2008
---------------------- -----------------------
Oudeh 3,627,000 810,000 5,340,000 5,072,000
Tishrine 11,672,000 2,943,000 18,089,000 17,030,000
---------------------------------------------- -----------------------
Total 15,299,000 3,753,000 23,429,000 22,102,000
---------------------------------------------- -----------------------


Under the terms of the Syrian production sharing agreements for Oudeh and Tishrine, the Company is responsible for paying 100 percent of production costs and is entitled to reimbursement of the portion of costs attributable to BCP. During the first quarter of 2008, the Company received a $5.1 million payment from SPC, $1.1 million for Oudeh and $4.0 million for Tishrine, related to the reimbursement of BCP operating expenses.

Depletion

Depletion for the three month period ended March 31, 2008 was $8.1 million compared to $4.2 million for the three month period ended March 31, 2007. During the first quarter of 2008, depletion was approximately $6.66 per barrel for Syria in comparison to $5.42 per barrel in the first quarter of 2007. The Company uses the full cost method of accounting for its oil and gas activities. In accordance with full cost accounting guidelines, all costs associated with exploration and development are capitalized on a country by country basis whether or not such activities were successful. The total capitalized costs and estimated future development costs are amortized using the unit of production method based on proved oil and gas reserves. Accordingly, revisions or changes to estimated proved reserves will impact the depletion expense.

Interest and Other Income

Interest income was $0.1 million for the three months ended March 31, 2008 compared to $0.7 million for the three month period ended March 31, 2007. The interest in 2007 was due to the surplus cash from a private placement in November 2006. The Company completed a private placement on March 14, 2008 in which they raised approximately $73.3 million USD net of placement costs.

General and Administration

General and administration costs for the three months ended March 31, 2008 were $3.6 million compared to $2.9 million for the three month period ended March 31, 2007. The increase in year to date general and administration costs are mainly driven by additional personnel employed in Syria as the Company ramps up its Syrian development program. Tanganyika continues to recruit operational and administrative personnel for its Syrian operations. The Company currently employees over 450 persons distributed among four offices in Canada and Syria. Key drivers of this increased headcount are the increase in rig count and steam generation capacity.

Stock-based Compensation

The Company uses the fair value method of accounting for stock options granted to directors, officers and employees whereby the fair value of all stock options granted is recorded as a charge to operations. Stock based compensation for the three months ended March 31, 2008 was $1.6 million and $1.0 million for the three months ended March 31, 2007. The Company continues to utilize its stock option plan as a method of recruiting, retaining and motivating key personnel.



Oil and Gas Interests

March 31, 2008
-----------------------------------------
Accumulated
Cost depletion Net book value
-----------------------------------------
Oil and Gas Interests 243,548,429 39,170,347 204,378,082
-----------------------------------------
-----------------------------------------

December 31, 2007
-----------------------------------------
Accumulated
Cost depletion Net book value
-----------------------------------------
Oil and Gas Interests 218,536,023 31,049,827 187,486,196
-----------------------------------------
-----------------------------------------



Oil and gas assets have increased $25.0 million as a result of development and appraisal drilling and investment in oil, water and gas handling facilities on both the Oudeh and Tishrine oil fields. Investment in oil and gas assets will increase during 2008 due primarily to the increased number of drilling rigs.

Liquidity and Capital Resources

At March 31, 2008 the Company had a cash balance of $100.3 million compared to $69.2 million at March 31, 2007.

Tanganyika has historically relied on private placements as a primary source of funds for acquisition, exploration and development. During the first quarter of 2008, 5.0 million shares were issued with gross proceeds of approximately $75.0 million. Previously, in 2006, 10.3 million shares were issued with gross proceeds of approximately $134.5 million.

As production increases in Syria, cash flow from operations will increasingly provide the required capital for exploration and development expenditures. However, due to potential impacts of price, production rates, pace of development, and the costs of materials and services the Company may not generate sufficient cash flow from operations to entirely fund the entire appraisal and development programs out of operating cash flow and existing cash on hand. Accordingly, the Company may in the future consider issuances of equity securities, debt or the divestiture of assets, to assist with financing its exploration and development activities.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements.

Outstanding Share Data

As at May 12, 2008 the Company had 61,986,196 common shares outstanding and 3,205,517 stock options outstanding under its stock-based compensation plan.

Related Party Transactions

The Company has entered into transactions with related parties, which were measured at the exchange amounts. Significant related party transactions were as follows:

a) During the three months ended March 31, 2008, the Company paid $68,926 (March 31, 2007 - $46,901) to Namdo Management Services Ltd., a private corporation owned by Lukas H. Lundin, a director of the Company, pursuant to a services agreement.

b) During the three months ended March 31, 2007, the Company received $40,054 (March 31, 2007 - $59,111) from Pearl Exploration and Production Ltd. ("Pearl") for administrative and other services. The Company and Pearl had certain officers in common during the first quarter of 2008 and continue to have directors in common.

c) During the three months ended March 31 2008, the Company received $1,820 (March 31, 2007 - $nil) from Africa Oil Corp ("AOC") for administrative and other services. The Company and AOC had certain officers and directors in common during the first quarter 2008 and continue to have directors in common.

Critical Accounting Estimates

The preparation of financial statements in conformity with Canadian GAAP requires management to make judgments, assumptions and estimates that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses for the period reported. The significant accounting policies used by the Company are disclosed in the Notes to the Consolidated Financial Statements. Management believes that the most critical accounting policies that may have an impact on the Company's financial results relate to the accounting for its oil and gas interests. Amounts recorded for depletion and the impairment test are based on estimates of proved reserves, production rates, oil prices, future costs and other relevant assumptions. Actual results could differ materially from such estimates.

Proved Oil and Gas Reserves

Under National Instrument 51-101 ("NI 51-101") detailed rules have been developed to provide uniform reserves recognition criteria within the oil and gas industry in Canada. However, the process of estimating oil and gas reserves is inherently judgmental. Technical reserves estimates are made using available geological and reservoir data as well as production performance data. As new data becomes available, reserves estimates may change. Reserves estimates are also impacted by economic conditions, primarily commodity prices. As economic conditions change, production may be added or may become uneconomical and no longer qualify for reserves recognition.

Depletion

The Company uses the full cost method of accounting for its oil and gas activities. In accordance with the full cost accounting guideline, all costs associated with exploration and development are capitalized on a country by country basis whether or not such activities were successful. The total capitalized costs and estimated future development costs are amortized using the unit-of-production method based on proved oil and gas reserves. Accordingly, revisions or changes to estimated proved reserves will impact the depletion expenses.

Impairment of Oil and Gas Interests

The Company's capitalized oil and gas interests are subject to impairment tests on a country by country basis. Impairment is indicated if the undiscounted estimated future cash flows from proved reserves at oil and gas prices in effect at the balance sheet date plus the cost of unproved properties less any impairment is less than the carrying value of the oil and gas interests. The impairment test requires management to make assumptions regarding cash flows into the distant future and is based on estimates of proved reserves.

New Accounting Pronouncements and Changes in Accounting Policies

As disclosed in the December 31, 2007 annual audited Consolidated Financial Statements, on January 1, 2008, the Company adopted the following Canadian Institute of Chartered Accountants handbook Sections 3031 "Inventories", section 3862 "Financial Instruments - Disclosures", section 3863 "Financial Instruments - Presentation", and section 1535 "Capital Disclosures".

Section 1535 establishes disclosure requirements about an entity's capital and how it is managed. The purpose is to enable users of the financial statements to evaluate the Company's objectives, policies and processes for managing capital.

Sections 3862 and 3863 replaced section 3861, Financial Instruments - Disclosure and Presentation, revising and enhancing its disclosure requirements, and carrying forward unchanged its presentation requirements. These new sections place increased emphasis on disclosures about the nature and extent of risks arising from financial instruments and how the Company manages those risks.

Section 3031, Inventories, replaced section 3030, Inventories. This new standard provides more extensive guidance on measurement, and expands disclosure requirements to increase transparency. The Corporation's accounting policy for inventories is consistent with measurement requirements in the new standard and therefore results of the Corporation will not be impacted; however, additional disclosures will be required in relation to inventories carried at net realizable value, the amount of inventories recognized as an expense, and the amount of any write downs of inventories.

Risks and Uncertainties

The Company is exposed to a number of risks and uncertainties inherent in exploring for, developing and producing crude oil and natural gas. These risks and uncertainties are disclosed in detail in the Company's December 31, 2007 Annual Report and Annual Information Form.

Controls and Procedures

Disclosure controls and procedures

The Chief Executive Officer and the Chief Financial Officer are responsible for establishing and maintaining the Company's disclosure controls and procedures. They are assisted in this responsibility by the Company's management team. Disclosure controls and procedures have been designed to ensure that information required to be disclosed by the Company is accumulated and communicated to our management as appropriate to allow timely decisions regarding required disclosures.

It should be noted that while the Chief Executive Officer and Chief Financial Officer believe that the Company's disclosure controls and procedures provide a reasonable level of assurance and that they are effective, they do not expect that the disclosure controls will prevent all errors and fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

Internal control over financial reporting

The Chief Executive Officer and the Chief Financial Officer are responsible for designing internal controls over financial reporting, or causing them to be designed under their supervision, in order to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with Canadian GAAP.

An evaluation of the design effectiveness of the Company's internal controls over financial reporting as at December 31, 2007, was performed under the supervision of the Chief Executive Officer and the Chief Financial Officer, with the assistance of the management team. The Chief Executive Officer and the Chief Financial Officer have concluded, as at the date of this MD&A, that the Company's internal controls over financial reporting have been designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with Canadian GAAP.

The Company's internal controls over financial reporting may not prevent or detect all errors, misstatements and fraud. The design of internal controls must also take into account resource constraints. A control system, including the Company's internal controls over financial reporting, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

During 2008, there have been no changes in the Company's internal control over financial reporting that have materially affected, or are reasonably likely to have materially affected, the Company's internal control over financial reporting.

Forward Looking Statements

This MD&A may contain forward-looking statements and information. Forward-looking statements are statements that are not historical fact and are generally identified by words such as believes, anticipates, expects, estimates or similar words suggesting future outcomes. By their nature, forward-looking statements and information involve assumptions, inherent risks and uncertainties, many of which are difficult to predict, and are usually beyond the control of management, that could cause actual results to be materially different from those expressed by these forward-looking statements and information. Risks and uncertainties include, but are not limited to, risk with respect to general economic conditions, regulations and taxes, civil unrest, corporate restructuring and related costs, capital and operating expenses, pricing and availability of financing and currency exchange rate fluctuations. Readers are cautioned that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking statements.

Non-GAAP Measures

Certain measures in this MD&A do not have any standardized meaning as prescribed Canadian GAAP such as Cash Flow from Operations, EBITDA and Cash Flows and therefore are considered non-GAAP measures. These measures may not be comparable to similar measures presented by other issuers. These measures have been described and presented in this MD&A in order to provide shareholders and potential investors with additional information regarding the Company's liquidity and its ability to generate funds to finance its operations. Management's use of these measures has been disclosed further in this MD&A as these measures are discussed and presented.

Outlook

The investment Tanganyika has made to date on Syrian operations in acquiring and processing 3D seismic on both Oudeh and Tishrine, conducting successful cyclical steam pilots and its ongoing appraisal and development drilling led to increased oil reserve figures for the third consecutive year in 2007.

With an increased investment in drilling rigs, workover rigs and steam generation capacity, 2008 activities are focused on increasing production rates from proved developed reserves, converting existing undeveloped proved and probable reserves into production and continuing to appraise and better define the hydrocarbon potential of both Oudeh and Tishrine. Production has been continuously increasing over the past two quarters and the Company believes continued production increases may be expected during 2008. The outlook for realized oil prices is positive and offsets the increased energy costs that are facing all industries. Ongoing facilities investments will aim to stabilize the electricity supply, improve the quality of the gas fuel supply, improve water handling and injection and decrease the susceptibility of production to cold winter surface temperatures. Ongoing recruiting efforts will be focused on attracting experienced international heavy oil personnel to the Company.



KEY DATA
Three months Three months Year ended
ended Mar 31, ended Mar 31, December 31,
2008 2007 2007
--------------------------------------------------------------------------
Return on equity, % (1) 0.30% -1.64% 10.40%
Return on capital employed, % (2) 0.34% -1.63% 10.84%
Debt/equity ratio, % (3) 0% 0% 0%
Equity ratio, % (4) 86% 86% 84%
Share of risk capital, % (5) 86% 86% 84%
Yield, % (6) 0% 0% 0%

(1) Return on equity is defined as the Company's net results divided by
average shareholders' equity (the average over the financial period).
(2) Return on capital employed is defined as the Company's profit before
tax and minority interest plus interest expense plus/less exchange
differences on financial loans divided by the total average capital
employed (the average balance sheet total less non interest-bearing
liabilities).
(3) Debt/equity ratio is defined as the Company's interest-bearing
liabilities in relation to shareholders' equity.
(4) Equity ratio is defined as the Company's shareholders' equity,
including minority interest, in relation to balance sheet total.
(5) Share of risk capital is defined as the sum of the Company's
shareholders' equity and deferred taxes, including minority interest,
in relation to balance sheet total.
(6) Yield is defined as dividend in relation to quoted share price at the
end of the financial period.


Since the Company has no interest bearing debt, the interest coverage ratio and operating cash flow/interest ratio have not been included as they are not meaningful.



DATA PER SHARE

Three months Three months Year ended
ended Mar 31, ended Mar 31, December 31,
2008 2007 2007
--------------------------------------------------------------------------
Shareholders' equity, USD (1) 5.13 3.60 4.25
Operating cash flow including
discontinued operations,
USD (2) 0.30 0.08 0.26
Cash flow from operations
including discontinued
operations (3) 0.23 0.05 0.20
Earnings including
discontinued operations (4) 0.014 (0.059) 0.408
Earnings including
discontinued operations
(fully diluted) (5) 0.014 (0.059) 0.408
Dividend - - -
Quoted price at the end of
the financial period 17.30 19.64 18.25
P/E-ratio (6) 1,213.5 (330.9) 44.7
Number of shares at
financial period end 61,971,196 56,107,996 56,938,696
Weighted average number of
shares for the financial
period (7) 57,932,343 55,775,159 56,427,858
Weighted average number of
shares for the financial
period (fully diluted) (5, 7) 58,049,186 56,581,573 56,626,839

(1) Shareholders' equity per share defined as the Company's equity divided
by the number of shares at period end.
(2) Operating cash flow per share defined as the Company's operating
income less production costs and less current taxes divided by the
weighted average number of shares for the financial period.
(3) Cash flow from operations per share defined as cash flow from
operations in accordance with the consolidated summarized cash flow
statements divided by the weighted average number of shares for the
financial period.
(4) Earnings per share defined as the Company's net results divided by the
weighted average number of shares for the financial period.
(5) Earnings per share defined as the Company's net results divided by the
weighted average number of shares for the financial period after
considering the dilution effect of outstanding options and warrants.
(6) P/E-ratio defined as quoted price at the end of the period divided by
earnings per share.
(7) Weighted average number of shares for the financial period is defined
as the number of shares at the beginning of the financial period with
new issue of shares weighted for the proportion of the period they are
in issue.


Tanganyika Oil Company Ltd.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(expressed in U.S. dollars)
March 31, December 31,
2008 2007
ASSETS $ $
----------- -----------
Current assets
Cash 100,257,663 42,302,212
Restricted cash (Note 2) 780,474 148,271
Advances to contractors 6,178,490 6,727,904
Accounts receivable and other assets 49,076,780 45,829,461
Inventory 5,826,121 2,462,836
Prepaid expenses 1,473,505 1,694,757
----------- -----------
163,593,033 99,165,441
Oil and gas interests (note 5) 204,378,082 187,486,196
Property, plant and equipment 913,295 909,677
----------- -----------
368,884,410 287,561,314
----------- -----------
----------- -----------
LIABILITIES
Current liabilities
Accounts payable and other accrued
liabilities 50,949,305 45,740,981
----------- -----------
50,949,305 45,740,981
SHAREHOLDERS' EQUITY
Share capital (Note 6) 316,265,183 242,458,322
Contributed surplus (Note 7) 10,342,837 8,860,819
Accumulated other comprehensive income 689,624 689,624
Deficit (9,362,539) (10,188,432)
----------- -----------
317,935,105 241,820,333
----------- -----------
368,884,410 287,561,314
----------- -----------
----------- -----------

Approved by the Directors:

(signed) "William A. Rand" (signed) "Keith Hill"
Director Director


Tanganyika Oil Company Ltd.
Consolidated Statements of Changes in Shareholders' Equity
(Unaudited)
(expressed in U.S. dollars)

Accumulated
Other
Comprehensive
Share Contributed income
Capital Surplus Deficit (loss) Total
--------------------------------------------------------------------------

As at
December
31,
2006 $228,236,373 $ 6,201,643 $(33,221,711) $ (175,745) $201,040,560
Issue
of
shares 3,111,695 - - - 3,111,695
Stock-
based
compen-
sation 895,785 104,813 - - 1,000,598
Loss for
the
period - - (3,310,597) - (3,310,597)
----------------------------------------------------------------
As at
March
31, 2007 232,243,853 6,306,456 (36,532,308) (175,745) 201,842,256
----------------------------------------------------------------

Issue of
shares 8,161,105 - - - 8,161,105
Stock-
based
compen-
sation 2,053,365 2,554,363 - - 4,607,728
Profit for
the period - - 26,343,876 - 26,343,876
Discontinued
operations
(Note 4) - - - 865,369 865,369
----------------------------------------------------------------
As at
December
31, 2007 242,458,322 8,860,819 (10,188,432) 689,624 241,820,333
----------------------------------------------------------------

Issue of
shares 73,712,470 - - - 73,712,470
Stock-
based
compen-
sation 94,391 1,482,018 - - 1,576,409
Profit for
the period - - 825,893 - 825,893
----------------------------------------------------------------
As at
March
31, 2008 $316,265,183 $10,342,837 $ (9,362,539) $ 689,624 $317,935,105
----------------------------------------------------------------


Tanganyika Oil Company Ltd.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Unaudited)
(expressed in U.S. dollars)

Three Three
months months Year
ended ended ended
March 31, March 31, December 31,
2008 2007 2007
----------- ----------------- -----------
(restated - note 4)
Revenue
Sale of oil 26,171,113 3,994,908 34,527,146
Interest income 136,051 669,555 1,385,414
----------- ----------------- -----------
26,307,164 4,664,463 35,912,560
----------- ----------------- -----------
Expenses
Production costs 9,042,654 1,864,251 20,088,262
Depletion 8,120,520 4,178,728 19,369,735
General and
administration 3,594,371 2,863,731 13,834,551
Stock-based
compensation
(note 8) 1,576,409 1,000,598 5,608,326
Interest and bank
charges 101,781 36,245 150,514
Depreciation 114,687 165,983 656,861
Foreign exchange
(gain) loss 2,930,849 (396,584) (1,822,964)
----------- ----------------- -----------
25,481,271 9,712,952 57,885,285
----------- ----------------- -----------
Profit (loss) for
the period before
discontinued
operations 825,893 (5,048,489) (21,972,725)
Discontinued
operations (note 4) - 1,737,892 45,006,004
----------- ----------------- -----------
Profit (loss) for
the period 825,893 (3,310,597) 23,033,279
Deficit - beginning
of period (10,188,432) (33,221,711) (33,221,711)
----------- ----------------- -----------
Deficit - end of
period (9,362,539) (36,532,308) (10,188,432)
----------- ----------------- -----------
----------- ----------------- -----------
Other comprehensive
income - - -
----------- ----------------- -----------
Comprehensive income
(loss) for the period 825,893 (3,310,597) 23,033,279
----------- ----------------- -----------
----------- ----------------- -----------
Profit (loss) per share -
Continuing operations
Basic 0.014 (0.091) (0.389)
Diluted 0.014 (0.091) (0.389)
Profit per share -
Discontinued operations
Basic - 0.031 0.798
Diluted - 0.031 0.795
Weighted average number
of shares outstanding
Basic 57,932,343 55,775,159 56,427,858
Diluted 58,049,186 56,581,573 56,626,839


Tanganyika Oil Company Ltd.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(expressed in U.S. dollars)

Three Three
months months Year
ended ended ended
March 31, March 31, December 31,
2008 2007 2007
----------- ----------------- -----------
(restated - note 4)
Cash flows from operating
activities
Profit (loss) for the
period excluding
discontinued operations 825,893 (5,048,489) (21,972,725)
Items not affecting cash
Stock-based compensation 1,576,409 1,000,598 5,608,326
Depreciation 114,687 165,983 656,861
Depletion 8,120,520 4,178,728 19,369,735
Realized foreign
exchange loss (gain) 2,930,849 (396,584) (1,822,964)
----------- ----------------- -----------
13,568,358 (99,764) 1,839,233
Funds provided from
discontinued operations - 2,347,803 7,782,239
----------- ----------------- -----------
13,568,358 2,248,039 9,621,472
Changes in non-cash
operating working
capital
Changes in non-cash
working capital
related to
operations (2,553,959) (10,168,379) (22,478,501)
Discontinued
operations (Note 4) - (1,264,787) 6,579,489
----------- ----------------- -----------
(2,553,959) (11,433,166) (15,899,012)
----------- ----------------- -----------
11,014,399 (9,185,127) (6,277,540)
----------- ----------------- -----------
Cash flows from
investing activities
Additions to oil and
gas interests (25,012,406) (20,701,838) (119,406,790)
Additions to property,
plant and equipment (118,305) (69,499) (509,816)
Pledge for bank
guarantee released - - 900,000
Cash security for
letters of credit (632,203) - (148,271)
Changes in non-cash
working capital
related to investing
activities 1,922,345 4,279,876 9,665,009
Discontinued
operations (Note 4) - (766,914) 54,951,044
----------- ----------------- -----------
(23,840,569) (17,258,375) (54,548,824)
----------- ----------------- -----------
Cash flows from
financing activities
Issuance of common
shares 73,712,470 3,111,695 11,272,799
Effect of exchange
rate changes on cash
and cash equivalents
denominated in foreign
currency (2,930,849) 396,584 1,822,964
----------- ----------------- -----------
Increase (decrease)
in cash 57,955,451 (22,935,223) (47,730,601)
Cash - beginning of
period 42,302,212 90,032,813 90,032,813
----------- ----------------- -----------
Cash - end of period 100,257,663 67,097,590 42,302,212
----------- ----------------- -----------
----------- ----------------- -----------
Supplementary
information
Interest paid $ Nil $ Nil $ Nil
Taxes paid $ Nil $ Nil $ Nil


Tanganyika Oil Company Ltd.

Notes to the Consolidated Financial Statements

For the Three months ended March 31, 2008 and March 31, 2007

(Unaudited)

(in US Dollars)

1. Basis of Presentation

The interim consolidated financial statements for Tanganyika Oil Company Ltd. (collectively with its subsidiaries, the "Company") have been prepared in accordance with accounting principles generally accepted in Canada, using the same accounting policies and methods of computation as set out in note 2 to the audited consolidated financial statements in the Company's Annual Report for the period ended December 31, 2007. The disclosures provided herein are incremental to those included with the audited consolidated financial statements. The interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the period ended December 31, 2007.

2. Restricted Cash

Restricted cash includes outstanding balances relating to letters of credit issued to various suppliers for operations in Syria. At March 31, 2008, an amount of $780,474 (December 31, 2007 - $148,271) is restricted as security for letters of credit.

3. Changes in Accounting Policy

On January 1, 2008, the Company adopted four new accounting standards that were issued by the Canadian Institute of Chartered Accountants: Handbook Section 3031, Inventories, Handbook Section 1535, Capital Disclosures, Section 3862, Financial Instruments - Disclosures, and Section 3863, Financial Instruments - Presentation. These standards have been applied prospectively; accordingly, comparative amounts for prior periods have not been restated.

(a) Inventories

Section 3031, Inventories, which replaced section 3030, Inventories provides more extensive guidance on measurement, and expands disclosure requirements to increase transparency. The adoption of this standard has had no impact on the Company's Consolidated Financial Statements.

(b) Capital Disclosures and Financial Instruments - Presentation and Disclosure

Sections 3862 and 3863 replaced section 3861, Financial Instruments - Disclosure and Presentation, revising and enhancing its disclosure requirements, and carrying forward unchanged its presentation requirements. These new sections place increased emphasis on disclosures about the nature and extent of risks arising from financial instruments and how the Company manages those risks. The adoption of this standard has had no impact on the Company's Consolidated Financial Statements.

Section 1535 establishes disclosure requirements about the Company's capital and how it is managed. The purpose is to enable users of the financial statements to evaluate the Company's objectives, policies and processes for managing capital (See Note 11).

4. Discontinued Operations

The assets and liabilities related to discontinued operations have been reclassified as assets or liabilities of discontinued operations on the Consolidated Balance sheets. Operating results related to these assets and liabilities have been included in Discontinued Operations on the Consolidated Statements of Operations and Comprehensive Income.

On September 5, 2007, the Company entered into an agreement with a third party for the sale of its West Gharib oil and gas interests. The sale price of the interests was $70.0 million, including estimated net working capital of $10.9 million. The transaction is subject to a final statement of adjustments, scheduled to be completed in May, 2008. Tanganyika has provided indemnities to the purchaser commensurate with a transaction of this type.

The sale closed September 25, 2007. The Company no longer owns any West Gharib oil and gas assets. The West Gharib assets have been accounted for as discontinued operations in accordance with GAAP. Results of the operations have been included in the financial statements up to the closing date of the sale (the date control was transferred to the purchaser).

The Company recorded an estimated gain on disposition of $40.0 million during the twelve months ended December 31, 2007. The gain recorded on disposition is subject to change as a result of the final closing statement of adjustments.



Three Months Ended Twelve Months Ended
March 31, March 31, December 31,
2008 2007 2007

Revenue
Sale of oil - 2,812,097 9,256,198
Interest income - 8,296 19,160
Other income - 33,438 64,383
------------------- -------------------
- 2,853,831 9,339,741
Expenses
Production costs - 432,106 1,314,011
Depletion - 579,656 1,792,743
Depreciation - 30,255 89,780
General and administration - 73,919 243,006
Foreign exchange gain - (416) (496)
Other expenses - 419 981
------------------- -------------------
- 1,115,939 3,440,025
------------------- -------------------
- 1,737,892 5,899,716
Gain on disposition - - 39,971,657
------------------- -------------------
Income - 1,737,892 45,871,373
------------------- -------------------
Comprehensive loss - cumulative
translation adjustment - - (865,369)
------------------- -------------------
Profit of discontinued operations - 1,737,892 45,006,004
------------------- -------------------


5. Oil and Gas Interests
March 31, 2008
----------------------------------------
Accumulated
Cost depletion Net book value
----------------------------------------
Oil and Gas Interests 243,548,429 39,170,347 204,378,082
----------------------------------------
----------------------------------------

December 31, 2007
----------------------------------------
Accumulated
Cost depletion Net book value
----------------------------------------
Oil and Gas Interests 218,536,023 31,049,827 187,486,196
----------------------------------------
----------------------------------------


6. Share Capital

(a) The authorized and issued share capital is as follows:

Authorized - Unlimited number of common shares without par value

Issued and outstanding:



March 31, 2008
--------------------------------------------------------------------------
Number Amount
--------------------------------------------------------------------------
Balance, beginning of year 56,938,696 $ 242,458,322
Private placements, net 5,000,000 73,291,772

Exercise of options 32,500 515,089
--------------------------------------------------------------------------
Balance, end of period 61,971,196 $ 316,265,183
--------------------------------------------------------------------------
--------------------------------------------------------------------------


During the period ended March 31, 2008, the Company completed a private placement consisting of 5,000,000 common shares at CDN $15.00 for net proceeds of $73.3 million.

7. Contributed Surplus



March 31, December 31,
2008 2007
--------------------------------------------------------------------------
Balance, beginning of year 8,860,819 6,201,643
Stock based compensation 1,576,409 5,608,326
Transfer to share capital on exercise of options (94,391) (2,949,150)

--------------------------------------------------------------------------
Balance, end of period 10,342,837 8,860,819
--------------------------------------------------------------------------
--------------------------------------------------------------------------


8. Stock Option Information

March 31, 2008
--------------------------------------------------------------------------
Weighted
Average
Outstanding Exercise
Options Price CDN$
--------------------------------------------------------------------------
Outstanding, beginning of year 2,743,850 17.18
Granted 646,100 12.92
Exercised (32,500) 12.97
Cancelled or expired (101,333) 18.11
--------------------------------------------------------------------------
Outstanding, end of period 3,256,117 16.35
--------------------------------------------------------------------------
--------------------------------------------------------------------------


Employee stock options are measured at their fair value on the date of the grant and recognized on a straight line basis as an expense over the vesting period, if any, applicable to the options. The fair value of the options granted to consultants is recognized immediately.

The weighted average estimated fair value of the options granted during the period ended March 31, 2008 was $4.78 per option, determined using the Black-Scholes option pricing model with the following assumptions:



--------------------------------------------------------------------------
March 31, December 31,
2008 2007
--------------------------------------------------------------------------
Risk-free rate 3.526% 4.15% - 4.85%
Expected life 2.25 years 1 - 3 years
Estimated volatility in the market price of
common shares 60% 45% - 55%
Expected dividend rate 0% 0%
--------------------------------------------------------------------------


9. Related Party Transactions

The Company has entered into transactions with related parties, which were measured at the exchange amounts. Significant related party transactions were as follows:

a) During the three months ended March 31, 2008, the Company paid $68,926 (March 31, 2007 - $46,901) to Namdo Management Services Ltd., a private corporation owned by Lukas H. Lundin, a director of the Company, pursuant to a services agreement.

b) During the three months ended March 31, 2007, the Company received $40,054 (March 31, 2007 - $59,111) from Pearl Exploration and Production Ltd. ("Pearl") for administrative and other services. The Company and Pearl had certain officers in common during the first quarter of 2008 and continue to have directors in common.

c) During the three months ended March 31 2008, the Company received $1,820 (March 31, 2007 - $nil) from Africa Oil Corp ("AOC") for administrative and other services. The Company and AOC had certain officers and directors in common during the first quarter 2008 and continue to have officers and directors in common.

10. Supplemental Cash Flow Information



Three Three Twelve
months months months
ending ending ending
March 31, March 31, December 31,
2008 2007 2007
--------------------------------------------------------------------------
Changes in non-cash
Working capital:
Accounts receivable and other
assets and advances (2,697,905) (8,466,614) (25,948,106)
Inventory (3,363,285) - (2,462,836)
Prepaid expenses 221,252 (156,997) (1,220,935)
Accounts payable and accrued
liabilities 5,208,324 2,735,108 16,818,384
-------------------------------------
(631,614) (5,888,503) (12,813,493)

Changes in non-cash working
capital relating to:
Operating activities (2,553,959) (10,168,379) (22,478,501)
Investing activities 1,922,345 4,279,876 9,665,009
-------------------------------------
(631,614) (5,888,503) (12,813,492)
-------------------------------------


11. Capital Structure

The Company's objective when managing capital is to maintain an appropriate debt to equity ratio consistent with the stage of development of the Company's proven, producing oil and gas reserve base.

The Company's capital structure is comprised of Shareholders' Equity. As oil production increases in Syria, cash flow from operations is expected to increasingly provide required capital for exploration and development activities. However, due to potential impacts of price, production rates, pace of development, and the costs of materials and services the Company may not generate sufficient cash flow from operations to entirely fund the entire Syrian appraisal and development programs out of operating cash flow and existing cash on hand. Accordingly, the Company will evaluate the stage of development of its proven and producing oil reserves and consider issuing equity or debt to provide additional financing for its planned exploration and development activities. The Company issued equity during the first quarter of 2008 (See Note 6).

12. Summary of Significant Differences Between Canadian GAAP and International Financial Reporting Standards (IFRS)

The Company's consolidated financial statements have been prepared in accordance with Canadian GAAP, which differ in certain material respects from International Financial Reporting Standards ("IFRS"). The principal difference between Canadian GAAP and IFRS from a measurement perspective, as applied to the Company's consolidated financial statements is asset impairment.

a) Impairment of oil and gas interests

Under Canadian GAAP, each cost centre should be assessed for impairment as at each annual balance sheet date or whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. An impairment loss should be recognized when the carrying amount of a cost centre is not recoverable and exceeds its fair value. The carrying amount is not recoverable if the carrying amount exceeds the sum of the undiscounted cash flows expected to result from its use and eventual disposition. Unproved properties and major development projects are included in this recoverability test. A cost centre impairment loss should be measured as the amount by which the carrying amount of assets capitalized in a cost centre exceeds the sum of: the fair value of proved and probable reserves; and the costs (less any impairment) of unproved properties that have been subject to a separate test for impairment and contain no probable reserves. IFRS requires (i) an impairment to be recognized when the recoverable amount of an asset (cash generating unit) is less than the carrying amount; (ii) the impairment loss is determined as the excess of the carrying amount above the recoverable amount (the higher of fair value less costs to sell and value in use, calculated as the present value of future cash flows from the asset); and (iii) the reversal of an impairment loss when the recoverable amount changes. The differences in accounting policy described above had no impact on these financial statements.

b) Oil and gas interest

The Company follows the full cost method of accounting for oil and gas interest, as set out in AcG 16 issued by the CICA. Under this method, all costs related to exploration and development of oil and gas reserves are capitalized and accumulated in country-by-country cost centres. For purposes of reporting in accordance with IFRS, the Company has early adopted IFRS 6, Exploration For and Evaluation of Mineral Resources, which permits an entity to continue applying its existing policy in respect of exploration and evaluation costs. Under IFRS, once commercial reserves are established and technically feasibility for extraction is demonstrated, the related capitalized costs are allocated to cash generating units. This difference in accounting policy had no impact on the Company's financial statements. The Company's Syrian assets are considered to be in the exploration and evaluation stage as the Company is still determining the technical feasibility and commercial viability of these assets. Accordingly, the Company continues to account for the Syrian assets under its existing accounting policies.

c) Impairment of long lived assets

Under Canadian GAAP, a long-lived asset should be tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. An impairment loss should be recognized when the carrying amount of a long-lived asset is not recoverable and exceeds its fair value. Under IFRS, the carrying amounts of the Company's assets, other than oil and gas properties, are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the assets' recoverable amounts are estimated. An impairment loss is recognized when the carrying amount of an asset exceeds its recoverable amount. Impairment losses, if any, are recognized in the income statement. Under Canadian GAAP, the carrying amount of a long-lived asset is not recoverable if the carrying amount exceeds the sum of the undiscounted cash flows expected to result from its use and eventual disposition. This assessment is based on the carrying amount of the asset at the date it is tested for recoverability, whether it is in use or under development. Under IFRS, the recoverable amount of the Company's assets other than oil and gas properties is the greater of their net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the cash generating unit to which the asset belongs. In respect of impairment of assets other than oil and gas properties, under Canadian GAAP, an impairment loss is not reversed if the fair value subsequently increases. For IFRS, an impairment loss may be reversed if there has been a change in the estimates used to determine the recoverable value. An impairment loss, on assets other than oil and gas properties, is only reversed to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized. The differences in accounting policy described above had no impact on these financial statements.

13. Presentation

Certain figures for prior years have been reclassified in the financial statements to conform to the current year's presentation.



SUPPLEMENTARY INFORMATION

1. LIST OF DIRECTORS AND OFFICERS AT MARCH 31, 2008
a. Directors
Lukas H. Lundin (4)
Gary S. Guidry (4)
Bryan Benitz (1, 2, 3)
John H. Craig (2, 3)
Hakan Ehrenblad
Keith Hill (1, 4)
William A. Rand (1, 2, 3)

(1) Audit Committee
(2) Corporate Governance Committee
(3) Compensation Committee
(4) Reserves Committee

b. Officers:
Lukas H. Lundin, Chairman
Gary S. Guidry, President and CEO
Ian Gibbs, CFO
Diane Phillips, Corporate Secretary

2. FINANCIAL INFORMATION
The report for the second quarter 2008 will be published on or before
August 14, 2008.

3. OTHER INFORMATION
Address (Corporate Office)
#700, 444 -- 7th Avenue S.W.
Calgary, Alberta T2P 0X8
Canada

Telephone: 1.403.663.2999
Fax: 1.403.261.1007

Website: www.tanganyikaoil.com
The corporate number of the Company is 318368-8


Contact Information

  • Tanganyika Oil Company Ltd.
    Gary S. Guidry
    President and CEO
    (403) 663-2999
    (403) 261-1007 (FAX)
    Website: www.tanganyikaoil.com