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

Tanganyika Oil Company Ltd.

February 29, 2008 00:05 ET

Tanganyika Announces Fourth Quarter 2007 Results

CALGARY, ALBERTA--(Marketwire - Feb. 29, 2008) - Tanganyika Oil Company Ltd. (the "Company") (TSX VENTURE:TYK)(OMX:TYKS) today announces interim operating and financial results for the fourth quarter ended December 31, 2007. Unless otherwise stated, all figures contained in this report are in United Stated Dollars.



Three and Twelve Months Ended December 31, 2007 and December 31, 2006

Three Three Twelve Twelve
months months months months
ended ended ended ended
December December December December
Financial Highlights 31, 2007 31, 2006 31, 2007 31, 2006
--------------------------------------------------
Revenue 17,379,337 4,637,632 35,912,560 20,498,234
Net profit (loss) -
Continuing operations (4,411,153) (1,908,889) (21,972,725) (16,317,959)
Per share (basic) (0.078) (0.037) (0.389) (0.342)
Per share (diluted) (0.078) (0.037) (0.389) (0.342)
Profit (loss) -
Discontinued
operations (2) (1,513,137) 1,498,865 45,006,004 8,117,509
Per share (basic) (0.027) 0.029 0.798 0.170
Per share (diluted) (0.027) 0.029 0.795 0.169
Profit (loss) for the
period (5,924,290) (410,024) 23,033,279 (8,200,450)
Per share (basic) (0.104) (0.008) 0.408 (0.172)
Per share (diluted) (0.104) (0.008) 0.407 (0.172)
Cash Flow from
Continuing
operations(1) 3,527,834 5,313,842 3,662,197 (4,890,837)
Per share (basic) 0.062 0.104 0.065 (0.103)
Per share (diluted) 0.062 0.103 0.065 (0.103)
Cash Flow from
Discontinued
operations (1)(2) (647,768) (27,859) 69,312,772 866,994
Per share (basic) (0.011) (0.001) 1.228 0.018
Per share (diluted) (0.011) (0.001) 1.224 0.018
Total Assets 287,561,314 231,531,927 287,561,314 231,531,927
Working Capital,
including cash 53,424,460 95,672,786 53,424,460 95,672,786
Working Capital,
excluding cash 11,122,248 5,639,973 11,122,248 5,639,973
Weighted Average shares
outstanding (basic) 56,902,011 50,934,854 56,427,858 47,702,202
Weighted Average shares
outstanding (diluted) 56,945,164 51,507,220 56,626,839 48,076,905

Operational Highlights
Average daily
production - Company
net (bbl/d)
Syria - Oudeh 1,311 954 1,140 892
Syria - Tishrine-Sheikh
Mansour 881 552 468 289
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Total Syria 2,192 1,506 1,608 1,181
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Average sales price
($/bbl)
Syria
Oudeh 70.54 35.32 52.64 47.39
Tishrine 71.09 23.07 55.87 36.41
Operational costs
($/bbl)
Syria (3) 12.60 10.56 10.53 8.31

(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.


NOTICE OF NO AUDITOR REVIEW OF INTERIM FINANCIAL STATEMENTS

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

The Company's independent auditor has not performed a review of these financial statements in accordance with standards established by the Canadian Institute of Chartered Accountants for a review of interim financial statements by an entity's auditor.

PRESIDENT'S MESSAGE

Tanganyika is pleased to report that strong production growth has resumed from its Syrian oil fields. Gross field production grew by over 13% during the fourth quarter, averaging 10,070 bopd. This growth continued subsequent to year end with January gross field production averaging over 12,500 bopd and gross field production currently averaging over 13,500 bopd during February. 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.

Tanganyika continued to increase reserves across all categories during 2007. The Company recorded a 10% increase in gross proven reserves to 185 million barrels, an 11% increase in gross proven plus probable reserves to 851 million and a 21% increase in gross proven plus probable and possible reserves to 1.25 billion barrels. These significant reserve increases resulted from a combination of activities conducted by the Company including:

- To date 3D seismic acquisition and interpretation across all major fields (Oudeh: 210km2, Tishrine: 331km2, Sheikh Mansour: 156 km2)

- Continued appraisal and developmental drilling success during 2007 (Oudeh: 18 wells drilled, Tishrine: 35 wells drilled)

- Extending the field limits of recoverable reserves at both West Tishrine and Oudeh

- Demonstrating economic production in a new reservoir at Tishrine (Chilou A)

- Demonstrating EOR potential from downspacing

- Expanding the thermal (steam) EOR pilot tests at the Oudeh and Tishrine fields (Oudeh steam pilot expanded to 10 wells by the end of 2007, Tishrine steam pilot expanded to 17 wells by the end of 2007)

The Company continues to appraise and develop the West Tishrine extensions that were first reported during the third quarter. 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 have positively impacted production, reserves and validate the trapping model making further appraisal on the Tishrine anticline very exciting for the Company.

The increases in production and reserves provide the Company with increased confidence as it expands both the thermal (steam) EOR pilot and drilling program during 2008. The first of three new drilling rigs has arrived and is being commissioned in the field. The first additional rig is expected to commence drilling before the end of February. The second additional drilling rig is now being commissioned for use in the field. Construction of the third additional drilling rig is being completed in China and is expected to be shipped to Syria during March. It is expected that these three additional drilling rigs will increase the Company's drilling rig count to six by the end of the first quarter.

An additional four steam generators have arrived in Syria and are being mobilized in the field to commence steaming operations. These four additional steam generators will increase the number of steam generators operating in Syria to ten in total.

We are expecting 2008 to be an exciting year as we aim to surpass the 20,000 bopd milestone in gross production.

Gary S. Guidry, President and CEO

February 22, 2008


MANAGEMENT'S DISCUSSION AND ANALYSIS

(Amounts in United States Dollars unless otherwise indicated)

Three and Twelve months ended December 31, 2007 and December 31, 2006

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 twelve months ended December 31, 2007 and the audited consolidated financial statements for the period ended December 31, 2006 and related notes therein prepared in accordance with Canadian generally accepted accounting principles ("Canadian GAAP"). The effective date of this MD&A is February 22, 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 Stockholmsborsen (Stockholm Stock 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 ("PSA") 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 wells in existence at 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 2007 and 2008 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 ("PSA") 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 wells in existence at 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 2007 and 2008 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) 2007 2008
---------------------------------------------------------------------------
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
---------------------------------------------------------------------------
Oudeh 915 884 873 862 860 841 830 820
---------------------------------------------------------------------------
Tishrine-Sheikh Mansour 6,074 5,933 5,795 5,723 5,714 5,643 5,513 5,444
---------------------------------------------------------------------------


Operational Update

Syria - Oudeh

Average gross field production during the fourth quarter of 2007 was 2,762 barrels of oil per day (bopd) (Company net: 1,311 bopd). Year to date gross field production averaged 2,538 bopd (Company net: 1,140 bopd).

The Company's fourth quarter drilling 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 were drilled or spud during the fourth quarter of 2007 bringing the total number of wells drilled in Oudeh to 18 during 2007. Four of the wells drilled in the eastern main Oudeh pool area. The fifth well was drilled in the Southwest area of the field, encountering excellent Shiranish B reservoir quality, lower viscosity and excellent productive capability.

The new wells drilled during the fourth quarter contributed an average of 605 bopd by the end of the year. Steam injection was resumed in Oudeh during August, 2007, positively impacting fourth quarter production.

Like Tishrine, the winterization program for Oudeh proved successful. Heat and insulation has 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 by the end of the first quarter 2008.

Syria - Tishrine

Average gross field production during the fourth quarter of 2007 was 7,309 bopd (Company net: 881 bopd). Year to date gross field production averaged 6,671 bopd (Company net: 468 bopd). The reliability of the electrical power supply and success of the Company's winterization program in Tishrine were evident as production rose during the fourth quarter despite very cold surface temperatures. Twelve wells completed drilling or were spud during the fourth quarter, bringing the total number of wells drilled or spud in 2007 to 35.

The Company's fourth quarter drilling was primarily focused 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. Both areas continue to provide very encouraging results with the wells in the Southwest extension producing approximately 1,725 bopd from 7 wells by the end of the fourth quarter, and the northern down-dip wells producing approximately 2,181 bopd from 6 wells by the end of the fourth quarter. 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.

Fourth quarter results indicate that dewatering of the Jaddala in West Tishrine has already begun to positively impact oil production. Decreasing water cuts are being 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 at West Tishrine continues with the use of deep water disposal wells into formations below the Jaddala.

The reliability of the electrical power supply in Tishrine during the third and fourth quarters was excellent, demonstrating the upgrading the electric infrastructure in the field was successful. In addition, the winterization programs proved very successful over one of the coldest winters in recent years. The Company continued production growth during the fourth quarter and subsequent to yearend with minimal cold weather related production restrictions.

Syria - Thermal Operations

The pace of the steam pilot at both Oudeh and Tishrine accelerated during the second half of 2007. Four of the eight new steam generators have been delivered and commissioned in Syria, bringing the total number of steam generators available for use in Syria to six. All six of the generators are currently steaming wells. An additional four steam generators are scheduled for delivery in Syria before the end of the first quarter of 2008. 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 Oudeh now includes 7 wells:

- Targeted higher viscosity wells after resuming the steam pilot in August 2007

- Estimated gross cold production from these wells, prior to steam stimulation, was 376 bopd

- Actual gross thermal production was 745 bopd during December 2007 from these same wells

- 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

The steam pilot in Tishrine now includes 20 wells:

- Estimated gross cold production from these wells, prior to steam stimulation, was 692 bopd

- Actual gross thermal production was 2,105 bopd during December 2007 from these same wells

Egypt

On September 25, 2007, the Company completed the sale of its interests in the West Gharib concession area in Egypt to TransGlobe Energy Corporation ("TransGlobe"). Pursuant to the purchase and sale agreement, TransGlobe has acquired all of the shares of Tanganyika subsidiaries holding the West Gharib interests in consideration for US $59 million plus estimated working capital adjustments effective July 1, 2007 of approximately US $10.9 million bringing the total consideration to approximately US $70.0 million. Tanganyika, through its subsidiaries, held a 70% interest in one Development Lease and a 45% working interest in seven additional Development Leases comprising the West Gharib Production Sharing Concession. This 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.

North Africa

During the second quarter of 2006, the Company acquired a 50 percent interest in an 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. It is anticipated that a decision will be reached by the Government regarding the potential issuance of a development lease during the first half of 2008.

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
--------------------------------------------------------------------
Percent Increase
December 31, 2007 December 31, 2006 (Decrease)
--------------------------------------------------------------------
Net Net
Present Present
Value of Value of Net
Future Future Present
Crude Oil Net Crude Oil Net Value of
Reserves Revenue Reserves Revenue Future
(million - 10% (million - 10% Crude Oil Net
barrels) Discount barrels) Discount Reserves Revenue
----------- ($mil- ----------- ($mil- ---------- - 10%
Gross Net lions) Gross Net lions) Gross Net Discount
---------------------------------------------------------------------------
Proved 185.0 67.7 1,370.0 168.3 88.8 603.0 10% (24)% 127%
---------------------------------------------------------------------------
Proved
plus
Prob-
able 851.4 328.5 5,726.0 764.8 428.7 2,336.0 11% (23)% 145%
---------------------------------------------------------------------------
Proved
plus
Prob-
able
and
Poss-
ible 1,250.7 435.7 6,456.0 1,033.3 603.8 3,469.0 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.



Selected Quarterly Information

Three Months Ended

31-Dec 30-Sep 30-Jun 31-Mar
2007 2007 2007 2007
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Total revenues ($ 000) 17,379 7,041 7,035 4,457
Earnings (loss) - continuing operations
($ 000) (4,411) (6,858) (5,656) (5,048)
Per share basic - continuing operations
$/share (0.078) (0.121) (0.100) (0.091)
Per share diluted - continuing
operations $/share (0.078) (0.121) (0.100) (0.091)
Earnings (loss) - discontinued
operations ($ 000) (2) (1,513) 42,732 2,051 1,736
Per share basic - discontinued
operations $/share (2) (0.027) 0.754 0.036 0.031
Per share diluted - discontinued
operations $/share (2) (0.027) 0.751 0.036 0.031
Earnings (loss) ($ 000) (5,924) 35,874 (3,605) (3,311)
Per share basic $/share (0.104) 0.633 (0.064) (0.059)
Per share diluted $/share (0.104) 0.630 (0.064) (0.059)
Cash flow from continuing ($ 000) (1) 3,528 (547) 382 299
Per share basic $/share 0.062 (0.010) 0.007 0.005
Per share diluted $/share 0.062 (0.010) 0.007 0.005
Company total net production -
continuing operations (bbl/d) 2,192 1,447 1,563 1,224
Company total net production -
continuing operations (bbl) 202,000 133,000 142,000 110,000


Three Months Ended

31-Dec 30-Sep 30-Jun 31-Mar
2006 2006 2006 2006
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Total revenues ($ 000) 4,638 7,217 5,128 3,515
Earnings (loss) - continuing operations
($ 000) (1,909) (6,721) (5,577) (2,111)
Per share basic - continuing operations
$/share (0.037) (0.137) (0.121) (0.048)
Per share diluted - continuing
operations $/share (0.037) (0.137) (0.121) (0.048)
Earnings (loss) - discontinued
operations ($ 000) (2) 1,499 2,606 1,369 2,643
Per share basic - discontinued
operations $/share (2) 0.029 0.053 0.030 0.060
Per share diluted - discontinued
operations $/share (2) 0.029 0.052 0.029 0.059
Earnings (loss) ($ 000) (410) (4,115) (4,208) 532
Per share basic $/share (0.008) (0.084) (0.091) 0.012
Per share diluted $/share (0.008) (0.084) (0.091) 0.012
Cash flow from continuing ($ 000) (1) 5,314 (4,971) (4,189) (1,045)
Per share basic $/share 0.104 (0.101) (0.091) (0.024)
Per share diluted $/share 0.103 (0.101) (0.091) (0.024)
Company total net production -
continuing operations (bbl/d) 1,506 1,456 846 914
Company total net production -
continuing operations (bbl) 139,000 133,000 77,000 82,000

(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 fourth quarter of 2007. Revenues were further positively impacted during the fourth quarter of 2007 due to oil price adjustments related to 2006 and 2007 that were recorded during the quarter (further discussion below in Oil Sales). 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 Company incurred a consolidated loss from continuing operations during the fourth quarter of 2007 of $4.4 million ($0.078 per share) compared to a consolidated net loss from continuing operations of $1.9 million ($0.037 per share) for the three month period ended December 31, 2006. The Company had a consolidated net loss on continuing operations of $22.0 million ($0.389 per share) for the twelve month period ending December 31, 2007 compared to a consolidated net loss of $16.3 million ($0.342 per share) for the twelve month period ended December 31, 2006.

The loss for the quarter and twelve months ended December 31, 2007 reflects Tanganyika's early stage of development and continuing appraisal of its Syrian oil fields. Production levels have yet to reach a level sufficient to generate operating income. Continuing from 2006, the Company has added operating, technical and support staff as required for expanding the development and appraisal programs on the fields in Syria. 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.



Production

Three Three Twelve Twelve
months months months months
ended ended ended ended
December December December December
31, 2007 31, 2006 31, 2007 31, 2006
---------------------------------------------------------------------------
Production:
Syria:Oudeh
Gross field production (bbl) 254,100 210,547 926,361 811,607
Gross field production (bbl/d) 2,762 2,289 2,538 2,224
Company net production (bbl) (1) 120,572 87,730 416,029 325,448
Company net (bbl/day) 1,311 954 1,140 892
Syria:Tishrine-Sheikh Mansour
Gross field production (bbl) 672,438 645,050 2,434,923 2,372,645
Gross field production (bbl/d) 7,309 7,011 6,671 6,500
Company net production (bbl) (1) 81,014 50,814 170,999 105,649
Company net (bbl/day) 881 552 468 289
---------------------------------------------------------------------------
Syria Total
Total Company gross Syria (bbl) 926,538 855,597 3,361,284 3,184,252
Total Company gross Syria (bbl/d) 10,071 9,300 9,209 8,724
Total Company net Syria (bbl) 201,586 138,544 587,028 431,097
Total Company net Syria (bbl/d) 2,192 1,506 1,608 1,181
---------------------------------------------------------------------------

1) Company net share of Syria's Oudeh and Tishrine production represents
the Company's share of oil after the deduction of cost and profit oil after
deduction of base crude production, royalties and SPC's share of profit
oil.


Gross production increased 13% during the fourth quarter of 2007 at both Oudeh and Tishrine. This increase in gross production resulted in a 51% increase in Tanganyika net production in comparison to the third quarter of 2007. 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 Twelve Twelve
months months months months
ended ended ended ended
December December December December
31, 2007 31, 2006 31, 2007 31, 2006
---------------------------------------------------------------------------
Sales of oil ($):
Syria: Oudeh 10,040,356 3,098,276 23,424,301 15,423,194
Tishrine 7,308,659 1,172,300 11,102,845 3,847,021
---------------------------------------------------------------------------
Total 17,349,015 4,270,576 34,527,146 19,270,215
---------------------------------------------------------------------------
Average oil sales price
($ per bbl):
Syria: Oudeh (1) 70.54 35.32 52.64 47.39
Syria: Tishrine (1) 71.09 23.07 55.87 36.41
---------------------------------------------------------------------------



Tanganyika recorded record high oil sales revenue during the fourth quarter of 2007 as a result of three factors:

- Record high quarterly net oil production from Syria;

- High world oil prices and Syria realized oil prices, and;

- A sales price adjustment recorded as a result of an independent third party review of the oil pricing mechanism under both Syrian PSAs.

Tanganyika recorded a $3.1 million adjustment, increasing oil sales revenue during the fourth quarter of 2007. The adjustment relates to oil sales volumes shipped between July 2006 and September 2007. Provisional pricing was agreed to by Tanganyika and SPC in the second quarter of 2006, pending a new pricing mechanism calculated by an independent third party, taking into consideration the quality characteristics of the oil produced from Oudeh and Tishrine compared to the Syrian Heavy Export Blend at Tartous. The provisional pricing set Oudeh prices at 80% of Syrian Heavy and Tishrine at 70% of Syrian Heavy. The independent third party completed and issued their report analyzing the quality characteristics between the oil produced from Oudeh and Tishrine in comparison to Syrian Heavy crude. The analysis was based on refining value differentials. Based on the price differential formula included in the report, Oudeh and Tishrine crude is expected to be priced in the range of 85-93% of Syrian Heavy value.



Production Costs

Three Three Twelve Twelve
months months months months
ended ended ended ended
December December December December
31, 2007 31, 2006 31, 2007 31, 2006
---------------------------------------------------------------------------
Production Costs
Syria
Gross production
costs (1) $ 11,673,764 $ 9,036,000 $ 35,387,795 $ 26,451,000
Gross production
volumes (1) 926,538 855,597 3,361,284 3,184,252
Cost per bbl $ 12.60 $ 10.56 $ 10.53 $ 8.31
---------------------------------------------------------------------------


Production costs in Syria for the three months ended December 31, 2007 increased to $12.60 per barrel as compared to $10.56 per barrel for the three months ended December 31, 2006. For the twelve months of 2007 production costs averaged $10.53 as compared to $8.31 for the twelve months of 2006. Fourth quarter of 2007 operating expenses per barrel were higher than the annual average due to several factors, including: increased diesel costs, year end inventory adjustments and increased labor costs. Diesel prices charged to Tanganyika have increased dramatically during the fourth quarter of 2007. The Company previously received the benefit of local Syrian prices for diesel used in its operations. Starting in the fourth quarter of 2007, the Company is being charged international diesel prices. International diesel prices are approximately four times higher than Syrian diesel prices. The company resumed using natural gas to fire the steam generators where possible at Oudeh and the expected consumption during the first half of 2008 is expected to dramatically decrease. The diesel consumption will be further reduced in 2008 with the planned construction of a gas sweetening plant allowing all steam generation to utilize natural gas. Average per barrel production costs are expected to improve as oil production rates increase.



Base Crude Production Recoverable Costs

BCP Operating Expense - BCP Operating Expense -
Recovery during the year Receivable at December 31,
------------------------ --------------------------
------------------------ --------------------------
2006 2007 2006 2007
------------------------ --------------------------
Oudeh 7,977,000 3,627,000 6,289,000 5,340,000
Tishrine 5,548,000 11,672,000 5,548,000 18,089,000
---------------------------------------------- --------------------------
Total 13,525,000 15,299,000 11,837,000 23,429,000
---------------------------------------------- --------------------------


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. The Company began recognizing BCP operating cost recoveries during the fourth quarter of 2006 when SPC approved the Oudeh BCP recovery allocation method. The Tishrine BCP recovery allocation method was approved during 2007. Subsequent to year end, the Company received a $5 million payment from SPC related to the BCP Operating Expense Receivable noted above.

Depletion

Depletion for the three month period ended December 31, 2007 was $6,184,000 compared to $6,860,000 for the three month period ended December 31, 2006. For the twelve months ended December 31, 2007 depletion for the period was $19,370,000 compared to $9,401,000 for the twelve months ended December 31, 2006. During the fourth quarter of 2007, depletion was approximately $6.66 per barrel for Syria. 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 $30,000 for the three months ended December 31, 2007 compared to $341,000 for the three month period ended December 31, 2006. For the twelve months ended December 31, 2007 interest income was $1,385,000 compared to $1,224,000 for the twelve months ended December 31, 2006. Interest income is earned on surplus cash balances. The private placement completed during November 2006 and the sales of the Company's West Gharib interests in September 2007 generated surplus cash balances.

General and Administration

General and administration costs for the three months ended December 31, 2007 were $5,180,000 compared to $4,284,000 for the three month period ended December 31, 2006. For the twelve months ended December 31, 2007 general and administration costs were $13,835,000 compared to $11,967,000 for the twelve months ended December 31, 2006.The increase in general and administration costs are mainly driven by additional personnel employed in Syria as the Company expands its Syrian development program. Tanganyika continues to recruit operational and administrative personnel for its Syrian operations. The Company currently employees over 400 people, distributed among four offices in Canada and Syria. Key drivers of this increased headcount are the anticipated 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 December 31, 2007 was $1,350,000 and $200,000 for the three months ended December 31, 2006. For the twelve months ended December 31, 2007 stock based compensation was $5,608,000 compared to $1,505,000 for the twelve months ended December 31, 2006. The Company continues to utilize its stock option plan as a method of recruiting, retaining and motivating key personnel.



Oil and Gas Interests

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

December 31, 2006
----------------------------------------------
Accumulated
Cost depletion Net book value
----------------------------------------------
Oil and Gas Interests 99,129,233 11,680,092 87,449,141
----------------------------------------------
----------------------------------------------


Syria's oil and gas assets have increased $119,407,000 as a result of development and appraisal drilling and investment in oil, water and gas handling facilities.

Liquidity and Capital Resources

At December 31, 2007 the Company had a cash balance of $42.3 million compared to $90.0 million at December 31, 2006.

Excluding the $70 million dollars raised through the disposition of Tanganyika's interest in the West Gharib concession in Egypt, the Company has consumed $117.7 million of cash during the twelve months of 2007. Tanganyika's has planned a $206 million capital budget for 2008 focused on continued appraisal of the Oudeh and Tishrine field and development drilling focused on production growth. The pace of capital expenditure is anticipated to increase with the planned mobilization of three additional drilling rigs in the first quarter of 2008.

Tanganyika has historically relied on private placements as a primary source of funds for acquisition, exploration and development. During 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 Syrian appraisal and development programs out of operating cash flow and existing cash on hand. Accordingly, the Company expects that during the first quarter of 2008 it will issue equity to provide additional financing for its planned exploration and development activities.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements.

Outstanding Share Data

As at February 22, 2008 the Company had 56,938,696 common shares outstanding and 3,089,950 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 twelve months ended December 31, 2007, the Company paid $202,000 (December 31, 2006 - $265,000) 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 twelve months ended December 31, 2007, the Company paid $19,000 (December 31, 2006 - $37,000) to Cassels Brock and Blackwell LLP, a legal firm in which a director of the Company is a partner, for various legal and consulting services.

c) During the twelve months ended December 31, 2007, the Company received $192,589 (2006 - $216,752) from Pearl Exploration and Production Ltd. ("Pearl") for administrative and other services. The Company and Pearl had certain officers in common during 2007 and continue to have directors in common.

d) During the twelve months ended, 2007, the Company received $33,250 (2006 - $nil) from Africa Oil Corp ("AOC") for administrative and other services. The Company and AOC had certain officers and directors in common during 2007 and continue to have officers and 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

Effective January 1, 2007 the Company adopted the Canadian Institute of Chartered Accountants Handbook Section 1530 "Comprehensive income", Section 3251 "Equity", Section 3865 "Hedges" and Section 3855 "Financial instruments - recognition and measurement". As required by the new standards, prior periods have not been restated, except to reclassify the foreign currency translation balance as described under "comprehensive income". The adoption of these Handbook sections had no impact on opening retained earnings or accumulated other comprehensive income.

Comprehensive income

This standard introduces a new "Statement of comprehensive income" and establishes accumulated other comprehensive income as a separate component of shareholders' equity. Comprehensive income is defined as the change in equity from transactions and other events from non-owner sources and includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. Other comprehensive income comprises revenues, expenses, gains and losses that, in accordance with GAAP, are recognized in comprehensive income but excluded from net income. Amounts included in accumulated other comprehensive income are reclassified to net income when realized. Upon adoption of Section 1530, cumulative translation adjustments relating to self-sustaining foreign operations were reclassified to accumulated other comprehensive income and comparative amounts have been restated.

Equity

The equity section establishes standards for the presentation of equity and changes in equity during the reporting period.

Hedges

This section prescribes new hedge accounting standards. Hedge accounting continues to be optional. At the inception of the hedge, the Company must formally document the designation of the hedge, the risk management objectives, the hedging relationships between the hedged items and the hedging instruments and the methods for testing the hedge's effectiveness. The Company assesses at inception and throughout its term whether the hedging instruments are highly effective in offsetting changes in fair values or cash flows of hedged items.

Financial instruments

The accounting standard on financial instruments establishes the recognition and measurement criteria for financial assets, liabilities and derivatives. All financial instruments are required to be measured at fair value on initial recognition while measurement in subsequent periods depends on its classification as "held-for-trading", "available-for-sale", "held-to-maturity", "loans and receivables" or "other financial liabilities" as defined by the standard.

Financial instruments "held-for-trading" are measured at fair value with changes to fair value recognized in net income, "available-for-sale" are measured at fair value with changes to fair value recognized in other comprehensive income and "held-to-maturity", "loans and receivables" and "other financial liabilities" are measured at amortized cost using the effective interest rate method of amortization.

Cash and cash equivalents are classified as "held-for-trading" and are measured at carrying value, which approximates fair value due to their short term nature. Accounts receivable and other current assets are classified as "loans and receivables". Accounts payable and accrued liabilities, corporate income taxes payable, crude oil sales prepayment facility, long term debt and other long term liabilities are classified as "other liabilities".

Future Accounting Standard Changes

The following is an overview of accounting standard changes that the Corporation will be required to adopt in future years:

Capital Disclosures and Financial Instruments - Presentation and Disclosure

The CICA issued three new accounting standards: section 1535, Capital Disclosures, section 3862, Financial Instruments - Disclosures, and section 3863, Financial Instruments - Presentation. These new standards will be effective for fiscal years beginning on or after October 1, 2007 and the Corporation will adopt them on January 1, 2008. The Corporation is in the process of evaluating the disclosure and presentation requirements of the new standards.

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

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

Inventories

The CICA issued section 3031, Inventories, which will replace section 3030, Inventories. This new standard is effective for fiscal years beginning on or after July 1, 2007, and the Corporation will adopt this section on January 1, 2008. Section 3031 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 it is not anticipated that the results of the Corporation will 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 include, but are not limited to, the following:

- Fluctuations in crude oil or natural gas prices and exchange rates which could have a material effect on the Company's operations and financial condition and the value of its oil and gas reserves;

- Political or economic developments which may adversely affect the Company's operations, including, but not limited to, a change in crude oil or natural gas pricing policies, a change in taxation policies, the imposition of currency controls, the risk of war, terrorism, expropriation, nationalization, renegotiation or nullification of existing concessions and contracts, and the imposition of United Nations or United States sanctions;

- Risks and hazards including the possibilities of fire, explosion, blowouts, sour gas releases, pipeline ruptures and oil spills, each of which could result in substantial damage to oil and natural gas wells, production facilities, other property, the environment or personal injury;

- Uncertainties with respect to estimating the volume of reserves that may be developed and produced in the future which may differ materially from actual results;

- Environmental regulation which imposes, among other things, restrictions, liabilities and obligations in connection with water and air pollution control, waste management, permitting requirements and restrictions on operations in environmentally sensitive areas;

- Competition within the oil and gas industry, which is highly competitive in all aspects of the business, including the acquisition of oil and gas interests, the marketing of oil and natural gas, acquiring or gaining access to necessary drilling and other equipment and supplies;

- Increased competition from alternative forms of energy, fuel and related products that could have a material adverse effect on the Company's business, prospects and results of operations;

- Cost of capital risks associated with securing needed capital at an acceptable rate to carry out the Company's operations and development; and

- The ability to retain current employees or to attract and retain new key employees which could have a materially adverse effect on the Company's growth and profitability.

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.

An evaluation of the design and operating effectiveness of the disclosure controls and procedures was performed as at December 31, 2007. The Chief Executive Officer and Chief Financial Officer have concluded, as at the date of this MD&A, that the Company's disclosure controls and procedures were effective as at December 31, 2007 and in respect of the 2007 year-end reporting period.

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 2007, 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 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. 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 Three Twelve Twelve
months months months months
ended ended ended ended
December December December December
31, 2007 31, 2006 31, 2007 31, 2006
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Return on equity, % (1) -2.43% -0.26% 10.40% -6.04%
Return on capital employed, % (2) -2.48% -0.30% 10.84% -6.42%
Debt/equity ratio, % (3) 0% 0% 0% 0%
Equity ratio, % (4) 84% 87% 84% 87%
Share of risk capital, % (5) 84% 87% 84% 87%
Yield, % (6) 0% 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 Three Twelve Twelve
months months months months
ended ended ended ended
December December December December
31, 2007 31, 2006 31, 2007 31, 2006
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Shareholders' equity, USD (1) 4.25 3.61 4.25 3.61
Operating cash flow
including discontinued
operations, USD (2) 0.16 0.25 0.26 0.34
Cash flow from operations
including discontinued
operations (3) 0.06 0.15 0.20 0.11
Earnings including
discontinued operations (4) (0.104) (0.008) 0.408 (0.172)
Earnings including
discontinued operations
(fully diluted) (5) (0.104) (0.008) 0.408 (0.172)
Dividend - - - -
Quoted price at the end of
the financial period 18.25 19.96 18.25 19.96
P/E-ratio (6) (175.3) (116.1) 44.7 (116.1)
Number of shares at
financial period end 56,938,696 55,632,696 56,938,696 55,632,696
Weighted average number of
shares for the financial
period (7) 56,902,011 50,934,854 56,427,858 47,702,202
Weighted average number of
shares for the financial
period (fully diluted)
(5,7) 56,945,164 51,507,220 56,626,839 48,076,905

(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 SHEET
(Unaudited)
(expressed in U.S. dollars)

December 31, December 31,
2007 2006
------------ ------------
(restated - note 5)

ASSETS $ $
Current assets
Cash and cash equivalents 42,302,212 90,032,813
Restricted cash (Note 3) 148,271 900,000
Advances to contractor's 6,727,904 5,835,066
Accounts receivable and other assets
(Note 6) 45,829,461 20,774,193
Inventory 2,462,836 -
Prepaid expenses 1,694,757 473,822
Discontinued operations (Note 5) - 8,148,259
------------ ------------
99,165,441 126,164,153

Oil and gas interests (note 7) 187,486,196 87,449,141
Property, plant and equipment (Note 8) 909,677 1,056,722
Discontinued operations (Note 5) - 16,861,911
------------ ------------
287,561,314 231,531,927
------------ ------------
------------ ------------

LIABILITIES
Current liabilities
Accounts payable and other accrued
liabilities 45,740,981 28,922,597
Discontinued operations (Note 5) - 1,568,770
------------ ------------
45,740,981 30,491,367

SHAREHOLDERS' EQUITY

Share capital (Note 9) 242,458,322 228,236,373
Contributed surplus (Note 10) 8,860,819 6,201,643
Accumulated comprehensive income (loss)
(Note 4) 689,624 (175,745)
Deficit (10,188,432) (33,221,711)
------------ ------------
241,820,333 201,040,560
------------ ------------

287,561,314 231,531,927
------------ ------------
------------ ------------

Approved by the Directors:

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


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


Share Capital Contributed Surplus
--------------------------------------------------------------------------

As at January 1, 2006 $ 89,905,794 $ 5,782,777
Issue of shares 137,244,557 -
Stock-based compensation 1,086,022 418,866
Loss for the period - -
-------------------------------------
As at December 31, 2006 228,236,373 6,201,643
-------------------------------------

Issue of shares 11,272,800 -
Stock-based compensation 2,949,150 2,659,176
Profit for the period - -
-------------------------------------
As at December 31, 2007 $ 242,458,322 $ 8,860,819
-------------------------------------

Comprehensive
Deficit income (loss) Total
--------------------------------------------------------------------------

As at January 1, 2006 $ (25,021,261) $ (175,745) $ 70,491,565
Issue of shares - - 137,244,557
Stock-based compensation - - 1,504,888
Loss for the period (8,200,450) - (8,200,450)
---------------------------------------------
As at December 31, 2006 (33,221,711) (175,745) 201,040,560
---------------------------------------------

Issue of shares - - 11,272,800
Stock-based compensation - - 5,608,326
Profit for the period 23,033,279 865,369 23,898,648
---------------------------------------------
As at December 31, 2007 $ (10,188,432) $ 689,624 $ 241,820,333
---------------------------------------------


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

Three Three
months months Year Year
ended ended ended ended
December December December December
31, 2007 31, 2006 31, 2007 31, 2006
---------- ---------- ---------- ----------
(restated - (restated -
note 5) note 5)

Revenue
Sale of oil 17,349,015 4,270,578 34,527,146 19,270,217
Interest income 30,322 341,148 1,385,414 1,224,247
Other income - 25,906 - 3,770
---------- ---------- ---------- ----------
17,379,337 4,637,632 35,912,560 20,498,234
---------- ---------- ---------- ----------
Expenses
Production costs 8,503,412 (6,341,887) 20,088,262 13,454,414
Depletion 6,183,504 6,860,106 19,369,735 9,401,292
General and
administration 5,180,138 4,283,869 13,834,551 11,966,944
Stock-based
compensation (note 11) 1,349,568 199,696 5,608,326 1,504,888
Interest and bank
charges (17,548) (60,003) 150,514 35,089
Depreciation 405,915 162,929 656,861 520,942
Foreign exchange (gain)
loss 185,501 1,441,811 (1,822,964) (67,376)
---------- ---------- ---------- ----------
21,790,490 6,546,521 57,885,285 36,816,193
---------- ---------- ---------- ----------

Profit (loss) for
the period before
discontinued
operations (4,411,153) (1,908,889) (21,972,725) (16,317,959)

Discontinued
operations (note 5) (1,513,137) 1,498,865 45,006,004 8,117,509
---------- ---------- ---------- ----------
Profit (loss) for
the period (5,924,290) (410,024) 23,033,279 (8,200,450)

Deficit - beginning
of period (4,264,142) (32,811,687) (33,221,711) (25,021,261)
---------- ---------- ---------- ----------

Retained earnings
(deficit) - end
of period (10,188,432) (33,221,711) (10,188,432) (33,221,711)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------

Other comprehensive
income - - - -
---------- ---------- ---------- ----------
Comprehensive income
(loss) for the
period (5,924,290) (410,024) 23,033,279 (8,200,450)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------

Profit (loss) per share
- Continuing operations
Basic (0.078) (0.037) (0.389) (0.342)
Diluted (0.078) (0.037) (0.389) (0.342)
Profit (loss) per share -
Discontinued operations
Basic (0.027) 0.029 0.798 0.170
Diluted (0.027) 0.029 0.795 0.169
Weighted average number of
shares outstanding
Basic 56,902,011 50,934,854 56,427,858 47,702,202
Diluted 56,945,164 51,507,220 56,626,839 48,076,905


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

Three Three
months months Year Year
ended ended ended ended
December December December December
31, 2007 31, 2006 31, 2007 31, 2006
---------- ---------- ---------- ----------
(restated - (restated -
note 5) note 5)
Cash flows
from operating
activities
Profit (loss)
for the period
excluding
discontinued
operations (4,411,153) (1,908,889) (21,972,725) (16,317,959)
Items not
affecting cash
Stock-based
compensation 1,349,568 199,696 5,608,326 1,504,888
Depreciation 405,915 162,929 656,861 520,942
Depletion 6,183,504 6,860,106 19,369,735 9,401,292
---------- ---------- ---------- ----------
3,527,834 5,313,842 3,662,197 (4,890,837)
Funds provided
from
discontinued
operations - 2,133,193 7,782,239 10,131,687
---------- ---------- ---------- ----------
3,527,834 7,447,035 11,444,436 5,240,850

Changes in
non-cash
operating
working
capital
Changes in
non-cash
working
capital
related to
operations (4,045,128) (8,672,507) (22,478,501) (6,863,181)
Discontinued
operations
(Note 5) - 282,992 6,579,489 (28,470)
---------- ---------- ---------- ----------
(4,045,128) (8,389,515) (15,899,012) (6,891,651)
---------- ---------- ---------- ----------
(517,294) (942,480) (4,454,576) (1,650,801)
---------- ---------- ---------- ----------
Cash flows
from investing
activities
Additions to
oil and gas
interests (33,108,297) (25,089,502) (119,406,790) (63,422,856)
Additions to
property,
plant and
equipment (20,730) (522,257) (509,816) (974,426)
Pledge for
bank guarantee
released (148,271) 6,651,761 751,729 15,826,382
Changes in
non-cash
working
capital
related to
investing
activities (1,531,468) 1,642,660 9,665,009 1,599,181
Discontinued
operations
(Note 5) (647,768) (2,444,044) 54,951,044 (9,236,223)
---------- ---------- ---------- ----------
(35,456,534) (19,761,382) (54,548,824) (56,207,942)
---------- ---------- ---------- ----------
Cash flows
from financing
activities
Issuance of
common shares 626,187 82,587,334 11,272,799 133,727,620
---------- ---------- ---------- ----------
626,187 82,587,334 11,272,799 133,727,620
---------- ---------- ---------- ----------
Increase
(decrease) in
cash (35,347,641) 61,883,472 (47,730,601) 75,868,877

Cash -
beginning of
period 77,649,853 28,149,341 90,032,813 14,163,936
---------- ---------- ---------- ----------

Cash - end of
period 42,302,212 90,032,813 42,302,212 90,032,813
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------

Supplementary
information
Interest paid $ Nil $ Nil $ Nil $ Nil
Taxes paid $ Nil $ Nil $ Nil $ Nil


Tanganyika Oil Company Ltd.

Notes to the Consolidated Financial Statements

For the Three and Twelve months ended December 31, 2007 and December 31, 2006 (Unaudited)

(in US Dollars)

1. Nature of Operations

Tanganyika Oil Company Ltd. (collectively with its subsidiaries, the "Company") was incorporated in 1986 and is primarily engaged in the exploration, development and operation of oil and gas interests in the Oudeh Block, and Tishrine and Sheikh Mansour Fields in the Syrian Arab Republic.

2. Summary of Significant Accounting Policies

The consolidated financial statements of the Company are prepared in accordance with accounting principles generally accepted in Canada ("Canadian GAAP"). Significant measurement differences and their impact on these financial statements as a result of differences between Canadian GAAP and International Financial Reporting Standards are set out in note 16.

The significant accounting policies used in these consolidated financial statements are as follows:

a) 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, 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, 2006.

b) Use of Estimates

The preparation of financial statements in conformity with Canadian GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are subject to measurement uncertainty. Actual results could differ from and affect the results reported in these consolidated financial statements.

In the accounting for oil and gas interests, amounts recorded for depletion and amounts used for impairment test calculations are based on estimates of oil and gas reserves and future cash flows, including development costs. By their nature, the estimates of reserves and the related future cash flows are subject to measurement uncertainty and the impact on the consolidated financial statements of future periods could be material.

c) Foreign Currency Translation

The Company's reporting currency is U.S. dollars.

Monetary assets and liabilities denominated in foreign currencies are translated into U.S. dollars at exchange rates prevailing at the balance sheet date and non-monetary assets and liabilities are translated at rates in effect on the date of the transaction. Revenues and expenses are translated at the average rate of exchange in effect during the period other than depreciation which is translated at historical rates. Exchange gains or losses arising from translation are included in operations.

d) Joint Interests

The Company's activities in Egypt under the concession agreement with the Egyptian government were conducted jointly with others. The parties shared all revenues and costs associated with the concession agreement. These financial statements reflect only the Company's proportionate share of these revenues and costs. The Company disposed of its interest in the West Gharib Block in Egypt during 2007 (refer to Discontinued Operation - note 5).

e) Oil and Gas Interests

The Company follows the full cost method of accounting for its oil and gas interests. In accordance with Accounting Guideline 16 (AcG 16) issued by the CICA, all costs relating to the exploration for and development of oil and gas reserves are capitalized in country-by-country cost centres and charged against income as set out below. Capitalized costs include expenditures for geological and geophysical surveys, concession acquisition, drilling exploration and development wells, gathering and production facilities and other development expenditures.

Capitalized costs along with estimated future capital costs to develop proved reserves are depleted on a unit-of-production basis using estimated proved oil and gas reserves. Costs of acquiring and evaluating unproved properties are excluded from costs subject to depletion until it is determined whether proved reserves are attributable to the properties or impairment occurs. Unproved properties are evaluated for impairment on at least an annual basis. If an unproved property is considered to be impaired, the amount of the impairment is added to costs subject to depletion.

The Company engages independent reservoir engineers in order to determine its share of reserves.

Proceeds from the sale of oil and gas interests are offset against the related capitalized costs and any excess of net proceeds over capitalized costs is included in operations. Gains or losses from the sale of oil and gas interests in the producing stage are recognized only when the effect of crediting the proceeds to capitalized costs would result in a change of 20 percent or more in the depletion rate.

The net amount at which oil and gas interests are carried is subject to a cost recovery test (the "ceiling test"). The ceiling test is a two-stage process which is performed at least annually. The first stage is a recovery test whereby undiscounted estimated future cash flows from proved reserves at oil and gas prices in effect at the balance sheet date ("forecast prices") plus the cost of unproved properties less any impairment is compared to the net book value of the oil and gas interests to determine if the assets are impaired. An impairment loss exists if the net book value of the oil and gas interests exceeds such undiscounted estimated cash flows. The second stage determines the amount of the impairment loss to be recorded. The impairment is measured as the amount by which the net book value of the oil and gas interests exceeds the future estimated discounted cash flows from proved plus probable reserves at the forecast prices. Any impairment is recorded as additional depletion cost.

The Company has no significant asset retirement obligations associated with its oil and gas interests.

f) Revenue Recognition

Revenue from the sale of petroleum and natural gas are recorded when title passes to an external party.

g) Cash

Cash comprises cash in banks less outstanding cheques.

h) Inventory

Product inventory is value at the lower of average cost and net realizable value on a first-in, first-out basis.

i) Property, Plant & Equipment

Property, plant and equipment are recorded at cost less accumulated depreciation. Depreciation is calculated on a straight-line basis over the estimated useful life based on the original cost less any expected residual value. The Company uses periods of three to five years as the estimated useful life for property, plant and equipment.

j) Earnings per Share

Earnings per share are presented for basic and diluted earnings. Basic per share information is computed by dividing the net profit or loss by the weighted average number of common shares outstanding during the year. The weighted average number of shares for fully diluted earnings per share information is calculated using the treasury stock method whereby it is assumed that proceeds obtained upon exercise of options and warrants would be used to purchase common shares at the average market price during the period. Under the treasury stock method, options and warrants have a dilutive effect only when the average market price of the common shares during the period exceeds the exercise price of the options or warrants (they are "in-the-money"). Exercise of in-the-money options and warrants is assumed at the beginning of the year or date of issuance, if later. Should the Company have a net loss for the period, options and warrants would be anti-dilutive and therefore will have no effect on the determination of loss per share.

k) Stock-based Compensation

The Company has a stock option plan as described in note 11. The Company uses the fair value method, utilizing the Black-Scholes option pricing model, for valuing stock options granted to directors, officers, consultants and employees. The estimated fair value is recognized over the applicable vesting period, except for stock options granted to consultants which are expensed immediately, as stock-based compensation expense and an increase to contributed surplus. When the stock options are exercised, the proceeds received and the applicable amounts in contributed surplus are credited to share capital.

l) Income Taxes

The Company follows the liability method of accounting for income taxes. Under this method, future income tax liabilities and assets are recognized for the estimated tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases. Future tax liabilities and assets are measured using enacted or substantially enacted tax rates. The effect on future tax liabilities and assets of a change in tax rates is recognized in income in the period that the change occurs.

m) Future Accounting Standard Changes

The following is an overview of accounting standard changes that the Corporation will be required to adopt in future years:

Capital Disclosures and Financial Instruments - Presentation and Disclosure

The CICA issued three new accounting standards: section 1535, Capital Disclosures, section 3862, Financial Instruments - Disclosures, and section 3863, Financial Instruments - Presentation. These new standards will be effective for fiscal years beginning on or after October 1, 2007 and the Corporation will adopt them on January 1, 2008. The Corporation is in the process of evaluating the disclosure and presentation requirements of the new standards.

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

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

Inventories

The CICA issued section 3031, Inventories, which will replace section 3030, Inventories. This new standard is effective for fiscal years beginning on or after July 1, 2007, and the Corporation will adopt this section on January 1, 2008. Section 3031 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 it is not anticipated that the results of the Corporation will 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.

3. Restricted Cash

The Company has provided cash security for certain letters of guarantee and credit issued to third parties.

As at December 31, 2007, the Company has received from the Syrian Petroleum Company (SPC) payment for all pledged amounts previously issued against a letter of guarantee in favour of SPC in connection with the Syrian production sharing agreements (December 31, 2006 - $900,000). The Company has performed its obligations in relation to the letter of guarantee.

Restricted cash also includes outstanding balances relating to letters of credit issued to various suppliers for operations in Syria. At December 31, 2007, an amount of $148,271 (December 31, 2006 - $nil) is restricted as security for letters of credit.

4. Changes in Accounting Policy

On January 1, 2007, the Company adopted three new accounting standards that were issued by the Canadian Institute of Chartered Accountants: Handbook Section 1530, Comprehensive Income, Handbook Section 3861, Financial Instruments -Presentation and Disclosure and Handbook Section 3855, Financial Instruments -Recognition and Measurement. These standards have been applied prospectively; accordingly, comparative amounts for prior periods have not been restated.

(a) Comprehensive income

Section 1530 introduces comprehensive income, which consists of net income and other comprehensive income. Other comprehensive income represents changes in shareholders' equity during a period arising from transactions and other events and circumstances from non-owner sources and includes unrealized gains and losses on financial assets classified as available-for-sale. The components of comprehensive income are disclosed in the interim consolidated statement of shareholders' equity.

(b) Financial instruments - presentation and disclosure; recognition and measurement

Section 3861 establishes standards for the presentation and disclosure of financial instruments. Section 3855 establishes standards for recognizing and measuring financial assets, financial liabilities and non-financial derivatives. It requires that financial assets and financial liabilities, including derivatives, be measured at fair value on initial recognition and recorded on the balance sheet. Measurement in subsequent period depends on whether the financial instrument has been classified as held-for-trading, available-for-sale, held-to-maturity, loans and receivables or other financial liabilities.

Financial assets and liabilities held-for-trading are measured at fair value with changes in those fair values recognized in net income. Financial assets and financial liabilities considered held-to-maturity, loans and receivables, and other financial liabilities are measured at amortized cost using the effective interest method of amortization. Available-for-sale financial assets are measured at fair value with unrealized gains and losses recognized in other comprehensive income. Investments in equity instruments classified as available-for-sale that do not have a quoted market price in an active market are measured at cost.

Derivative instruments, including embedded derivatives, are recorded on the balance sheet at fair value. Changes in the fair values of derivative instruments are recognized in net income with the exception of derivatives designated as effective cash flow hedges. The Company has no such designated hedges.

5. 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.

Discontinued operations at December 31, 2006 included cash of $3.7 million, accounts receivable of $4.4 million, oil and gas interests of $16.3 million, property plant and equipment of $0.6 million, accounts payable of $3.0 million.



Three Months Ended Twelve Months Ended
December December December December
31, 2007 31, 2006 31, 2007 31, 2006

Revenue
Sale of oil - 2,779,283 9,256,198 12,192,784
Interest income - 9,909 19,160 11,273
Other income - 15,916 64,383 87,664
-------------------- ---------------------
- 2,805,108 9,339,741 12,291,721

Expenses

Production costs - 593,415 1,314,011 1,863,009
Depletion - 605,956 1,792,743 1,917,058
Depreciation - 28,372 89,780 97,120
General and admininstration - 78,527 243,006 263,340
Foreign exchange loss
(gain) - (246) (496) (741)
Other expenses - 219 981 34,426
-------------------- ---------------------
- 1,306,243 3,440,025 4,174,212
-------------------- ---------------------
- 1,498,865 5,899,716 8,117,509
Gain on disposition (647,768) - 39,971,657 -
-------------------- ---------------------
Income (loss) (647,768) 1,498,865 45,871,373 8,117,509
-------------------- ---------------------
Comprehensive loss -
cumulative
translation adjustment (865,369) - (865,369) -
-------------------- ---------------------
Comprehensive income (1,513,137) 1,498,865 45,006,004 8,117,509
-------------------- ---------------------


6. Amounts Receivable and Other Assets

At December 31, 2007, amounts receivable and other assets include trade receivable balances of $21,352,106 (December 31, 2006 - $6,256,484) from the national oil companies, SPC, in respect of the production and delivery of oil. In accordance with the terms of the agreements in Syria, the Company sells all oil to SPC. Management does not believe that this concentration of credit risk will result in any loss to the Company based on past payment experience.

In addition to the trade receivables, at December 31, 2007 amounts receivable and other assets includes $23,428,398 (December 31, 2006 - $11,837,395) receivable from SPC related to recoveries of based crude production operating costs for Oudeh and Tishrine.

7. Oil and Gas Interests



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

December 31, 2006
----------------------------------------------
Accumulated
Cost depletion Net book value
----------------------------------------------
Oil and Gas Interests 99,129,233 11,680,092 87,449,141
----------------------------------------------
----------------------------------------------


The depletion and ceiling test calculations have excluded the cost of unproved properties of $4,194,948 (December 31, 2006 - $4,256,882) and included the cost of future development costs of $1,081,461,000 related to the Company's Syrian oil and gas interests (December 31, 2006 - $848,000,000).

The Company performs a ceiling test annually in accordance with the Canadian Institute of Chartered Accountants' full cost accounting guidelines. No impairment provision was required for the period ended December 31, 2007 (December 31, 2006 - $nil).



First five years of pricing ($/bbl): Brent North Syrian Heavy
--------------------------------------------------------------------------
2008 90.00 79.20
--------------------------------------------------------------------------
2009 86.62 76.14
--------------------------------------------------------------------------
2010 84.87 74.69
--------------------------------------------------------------------------
2011 83.32 73.32
--------------------------------------------------------------------------
2012 82.78 72.85
--------------------------------------------------------------------------


8. Property, Plant and Equipment



December 31, 2007
----------------------------------------------
Accumulated
Cost depletion Net book value
----------------------------------------------
Property, Plant & Equipment 2,674,584 1,764,907 909,677
----------------------------------------------
----------------------------------------------

December 31, 2006
----------------------------------------------
Accumulated
Cost depletion Net book value
----------------------------------------------
Property, Plant & Equipment 2,164,768 1,108,046 1,056,722
----------------------------------------------
----------------------------------------------


9. Share Capital

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

Authorized - Unlimited number of common shares without par value

Issued and outstanding:



December 31, 2007 December 31, 2006
---------------------------------------------------------------------------
Number Amount Number Amount
---------------------------------------------------------------------------
Balance, beginning of
year 55,632,696 $ 228,236,373 44,347,475 $ 89,905,794
Private placements, net - - 10,300,000 130,679,517
North Africa Acquisition - - 372,954 3,501,862
Exercise of options 1,306,000 14,221,949 612,267 4,149,200
---------------------------------------------------------------------------
Balance, end of period 56,938,696 $ 242,458,322 55,632,696 $ 228,236,373
---------------------------------------------------------------------------
---------------------------------------------------------------------------


(b) During the year ended December 31, 2007, the Company had the following issuances of shares:

(i) options to purchase 1,306,000 common shares for cash were exercised at prices ranging from CDN $6.90 to $17.51 per share.

(c) During the year ended December 31, 2006, the Company had the following issuances of shares:

(i) the Company completed a private placement consisting of 4,300,000 common shares at CDN $13.83 (SEK 92) per share for net proceeds of $49.7 million; and

(ii) the Company completed a private placement consisting of 6,000,000 common shares at CDN $15.91 (SEK 97) per share for net proceeds of $81.0 million.

(iii) options to purchase 612,267 common shares for cash were exercised at prices ranging from CDN $1.95 to $11.00 per share.

10. Contributed Surplus



December 31, 2007 December 31, 2006
--------------------------------------------------------------------------
Balance, beginning of year 6,201,643 5,782,777
Stock based compensation 5,608,326 1,504,888
Transfer to share capital on exercise
of options (2,949,150) (1,086,022)
--------------------------------------------------------------------------
Balance, end of period 8,860,819 6,201,643
--------------------------------------------------------------------------
--------------------------------------------------------------------------


11. Stock Option Information

The Company has a stock option plan (the "plan") for directors, officers, consultants and employees of the Company and its subsidiaries. A total of 5.5 million stock options are authorized to be issued under the plan. The plan is administered by the Board of Directors. In accordance with the policies of the TSX Venture Exchange, the option price, when granted, reflects the current trading values of the Company's shares and all of the options are subject to a four month "hold" period. The exercise period of the options is fixed by the Board of Directors and is not to exceed the maximum period permitted by the TSX Venture Exchange. Vesting rights are determined at the discretion of the Board of Directors.

The continuity of incentive stock options issued and outstanding is as follows:



December 31, 2007 December 31, 2006
---------------------------------------------------------------------------
Weighted Weighted
Average Average
Outstanding Exercise Outstanding Exercise
Options Price CDN$ Options Price CDN$
---------------------------------------------------------------------------
Outstanding, beginning of
year 2,104,000 11.94 1,444,767 6.81
Granted 2,198,350 17.58 1,455,500 13.93
Exercised (1,306,000) 9.40 (612,267) 5.69
Cancelled or expired (252,500) 17.17 (184,000) 9.38
---------------------------------------------------------------------------
Outstanding, end of period 2,743,850 17.18 2,104,000 11.94
---------------------------------------------------------------------------


The following table summarizes information about stock options outstanding at December 31, 2007:



Options Outstanding: Options Exercisable:
--------------------------------------------------------------------------
Weighted Weighted
average average
remaining remaining
contractual contractual
Exercise Price Number of life Number of life
($Canadian/share) Options in years Options in years
--------------------------------------------------------------------------
$ 10.65 15,000 0.49 15,000 0.49
$ 11.00 32,500 0.62 32,500 0.62
$ 11.50 15,000 4.98 - -
$ 13.00 87,500 0.75 87,500 0.75
$ 13.90 6,000 4.95 - -
$ 14.00 40,000 0.87 40,000 0.87
$ 14.66 322,500 4.88 - -
$ 14.99 244,100 4.95 - -
$ 16.43 137,000 2.28 32,500 2.28
$ 16.75 100,000 4.68 - -
$ 17.51 625,000 3.93 225,000 3.93
$ 17.95 29,000 4.63 - -
$ 18.25 458,000 4.38 - -
$ 19.20 236,750 2.72 70,000 2.72
$ 20.00 171,000 4.30 - -
$ 20.35 224,500 4.58 - -
---------- ---------
2,743,850 502,500
---------- ---------
---------- ---------


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 estimated fair value of the options granted during the period ended December 31, 2007 ranged from CDN $2.04 to CDN $7.78 per option, determined using the Black-Scholes option pricing model with the following assumptions:



--------------------------------------------------------------------------
December 31, 2007 December 31, 2006
--------------------------------------------------------------------------
Risk-free rate 4.15% - 4.85% 3.79% - 4.27%
Expected life 1 - 3 years 2 - 3 years
Estimated volatility in the market
price of common shares 45% - 55% 36% - 50%
Expected dividend rate 0% 0%
--------------------------------------------------------------------------
--------------------------------------------------------------------------


12. 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 twelve months ended December 31, 2007, the Company paid $202,000 (December 31, 2006 - $265,000) 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 twelve months ended December 31, 2007, the Company paid $19,000 (December 31, 2006 - $37,000) to Cassels Brock and Blackwell LLP, a legal firm in which a director of the Company is a partner, for various legal and consulting services.

c) During the twelve months ended December 31, 2007, the Company received $192,589 (2006 - $216,572) from Pearl Exploration and Production Ltd. ("Pearl") for administrative and other services. The Company and Pearl had certain officers in common during 2007 and continue to have directors in common.

d) During the twelve months ended, 2007, the Company received $33,250 (2006 - $nil) from Africa Oil Corp ("AOC") for administrative and other services. The Company and AOC had certain officers and directors in common during 2007 and continue to have officers and directors in common.

13. Supplemental Cash Flow Information




Three Three Twelve Twelve
months months months months
ending ending ending ending
December December December December
31, 2007 31, 2006 31, 2007 31, 2006
--------------------------------------------------------------------------
Changes in non-cash
Working capital:
Accounts receivable
and other assets and
advances (10,966,851) (15,578,724) (25,948,106) (22,287,869)
Inventory (2,462,836) - (2,462,836) -
Prepaid expenses (395,814) 198,721 (1,220,935) (223,297)
Accounts payable and
accrued liabilities 8,248,904 8,350,156 16,818,384 17,247,166
---------------------------------------------------
(5,576,597) (7,029,847) (12,813,493) (5,264,000)
Changes in non-cash
working capital
relating to:
Operating activities (4,045,128) (8,672,507) (22,478,501) (6,863,181)
Investing activities (1,531,468) 1,642,660 9,665,009 1,599,181
---------------------------------------------------
(5,576,596) (7,029,847) (12,813,492) (5,264,000)
---------------------------------------------------


14. Income Taxes

The differences between the income tax provision calculated using enacted combined federal and provincial rates and the reported income tax provision are as follows:



December 31, December 31,
2007 2006
--------------------------------------------------------------------------
32.12% 33.62%
--------------------------------------------------------------------------
Income tax expense computed at Canadian
statutory tax rates 7,398,289 (2,665,146)

Non-taxable gain on sale of interest in West
Gharib
Concession - Egypt (12,838,896) -

Unrecognized losses (benefits) of tax
concession in Syria and Egypt 2,904,535 1,387,031
Permanent differences 1,816,637 498,224
Change in valuation allowance 566,451 97,954
Change in tax rates and other 152,983 681,937
--------------------------------------------------------------------------
- -
--------------------------------------------------------------------------
--------------------------------------------------------------------------


Future income tax assets and liabilities are recognized for temporary differences between the carrying amount of the balance sheet items and their corresponding tax values as well as for the benefit of losses available to be carried forward to future years for tax purposes that are likely to be realized.

Significant components of the Company's future tax assets and liabilities, after applying enacted corporate income tax rates, are as follows:



December 31, 2007 December 31, 2006

Future income tax assets:
Fixed assets and mineral properties 165,245 121,828
Non-capital losses carried forward 4,444,358 3,526,426
Other 1,029,208 1,424,105
--------------------------------------------------------------------------
5,638,811 5,072,359
Valuation allowance (5,638,811) (5,072,359)
--------------------------------------------------------------------------
Future income tax assets, net - -
--------------------------------------------------------------------------
--------------------------------------------------------------------------


The Company has available losses for Canadian income tax purposes of $17,760,000 which may be carried forward to reduce taxable income of future years. A summary of these losses is provided below:



Non-capital losses expiring in:
--------------------------------------------------------------------------
2008 $ 1,444,000
2009 1,035,000
2010 1,757,000
2011 2,135,000
2012 2,297,000
2013 5,340,000
2014 3,768,000
--------------------------------------------------------------------------
$ 17,776,000


Syrian Income Tax

The Company is tax protected by SPC under the terms of the Syrian concession agreement. In accordance with the terms of the concession agreement, the Company determines the liability for income tax which would otherwise be payable in connection with its Syrian operations. Any such tax determined in connection with the Company's Syrian operations is paid by SPC from their share of production and the Company retains no liability for payment of income or other taxes.

15. Contingencies and Commitments

a) Under the terms of the Syrian Oudeh production sharing agreement, the Company had a minimum financial obligation of $5 million for drilling, workovers and other activities during the Technical Evaluation Phase. The Company has met these minimum financial obligations. If the Company proceeds to the Field Development Phase, as it plans to do, it must undertake to drill a minimum of five wells per calendar year until either (i) a total of 75 wells are drilled, (ii) the total number of wells recommended under the field development plan are drilled, if less than 75, or (iii) the Company and SPC agree that further drilling is not technically or economically justifiable.

b) Under the terms of the Syrian Tishrine-Sheikh Mansour production sharing agreement, the Company had minimum financial commitments during the technical evaluation phase of $9 million for drilling, workovers and other activities. The Company has completed all of the minimum work obligations and financial commitments under the technical evaluation phase for both Tishrine ($6 million) and Sheikh Mansour ($3 million). Following the technical evaluation phase, the Company proceeded to the EOR field implementation phase. The Company has met all minimum financial obligations of $13 million under the EOR phase for the Tishrine and Sheikh Mansour fields. All work commitments under the EOR phase have been completed in the Tishrine. The only remaining work commitment to be completed is one thermal pilot that is planned for 2008 in Sheikh Mansour.

If the Company proceeds to the Field Development Phase, as it plans to do, it must undertake to drill a minimum of five wells per calendar year until either (i) a total of 75 wells are drilled, (ii) the total number of wells recommended under the field development plan are drilled, if less than 75, or (iii) the Company and SPC agree that further drilling is not technically or economically justifiable.

c) The Company is a defendant in a lawsuit filed for non-payment of rent and abandonment of premises in March 1990. The amount of the claim is CDN$ 513,000 including costs and has not been accrued by the Company.

d) On February 14, 2007, a statement of claim was filed in the Court of Queen's Bench of Alberta, Canada by a former employee of the Company regarding the terms of his termination of employment. Statements of Defence have been filed on behalf of the Company, and Affidavits of Records have been exchanged. The next step will be examinations for discovery, which we expect will be scheduled for April or May 2008. The amount of the former employee's claim is approximately CDN$ 175,000, plus interest and fees and has not been accrued by the Company.

e) Under the terms of the Company's lease agreements the Company is committed to the following payments:



--------------------------------------------------------------------------
Subsequent
2008 2009 2010 2011 2012 to 2012 Total
--------------------------------------------------------------------------
Office lease 795,275 840,760 840,760 893,308 945,855 3,546,956 7,862,914
--------------------------------------------------------------------------


16. 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.



SUPPLEMENTARY INFORMATION

1. LIST OF DIRECTORS AND OFFICERS AT December 31, 2007

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 audited report for the year-ended December 31, 2007
will be published on or before March 30, 2008.

3. SPECIAL AND ANNUAL GENERAL MEETING
The Special and Annual General Meeting is scheduled for
April 24, 2008 in Calgary, Alberta, Canada.

4. 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.tanganikaoil.com