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

Tanganyika Oil Company Ltd.

August 14, 2008 02:30 ET

Tanganyika Announces Second Quarter 2008 Results

CALGARY, ALBERTA--(Marketwire - Aug. 14, 2008) - Tanganyika Oil Company Ltd. (the "Company") (TSX VENTURE:TYK)(OMX:TYKS) today announces interim operating and financial results for the second quarter ended June 30, 2008. Unless otherwise stated, all figures contained in this report are in United States Dollars.



Three and Six Months Ended June 30, 2008 and June 30, 2007

Three Three Six Six Twelve
months months months months months
ended ended ended ended ended
Financial June 30, June 30, June 30, June 30, December 31,
Highlights 2008 2007 2008 2007 2007
-------------------------------------------------------------
Revenue 51,907,079 6,827,869 78,214,243 11,492,332 35,912,560
Net profit
(loss)
- Continuing
operations 28,978,026 -5,655,090 29,803,919 -10,703,579 -21,972,725
Per share
(basic) 0.467 (0.100) 0.497 (0.191) (0.389)
Per share
(diluted) 0.462 (0.100) 0.494 (0.191) (0.389)
Profit (loss)
- Discontinued
operations
(2) 554,961 2,049,716 554,961 3,787,608 45,006,004
Per share
(basic) 0.009 0.036 0.009 0.068 0.798
Per share
(diluted) 0.009 0.036 0.009 0.067 0.795
Profit (loss)
for the
period 29,532,987 -3,605,374 30,358,880 -6,915,971 23,033,279
Per share
(basic) 0.476 (0.064) 0.506 (0.123) 0.408
Per share
(diluted) 0.471 (0.064) 0.504 (0.123) 0.407
Cash Flow from
Continuing
operations
(1) 38,178,351 -979,109 51,746,709 -1,078,873 1,839,233
Per share
(basic) 0.616 (0.017) 0.863 (0.019) 0.065
Per share
(diluted) 0.608 (0.017) 0.858 (0.019) 0.065
Cash Flow from
Discontinued
operations
(1)(2) 554,961 1,141,716 554,961 1,457,818 69,312,772
Per share
(basic) 0.009 0.020 0.009 0.026 1.228
Per share
(diluted) 0.009 0.020 0.009 0.026 1.224
Total Assets 409,203,672 238,792,822 409,203,672 238,792,822 287,561,314
Working
Capital,
including
cash 129,564,365 61,163,592 129,564,365 61,163,592 53,424,460
Working
Capital,
excluding
cash 31,757,433 22,242,415 31,757,433 22,242,415 11,122,248
Weighted
Average
shares
outstanding
(basic) 62,018,257 56,317,754 59,975,300 56,047,956 56,427,858
Weighted
Average
shares
outstanding
(diluted) 62,757,689 56,707,530 60,291,870 56,397,497 56,626,839

Operational
Highlights

Average daily
production
- Company
gross (bbl/d)
Syria - Oudeh 3,632 2,440 3,542 2,474 2,538
Syria -
Tishrine-Sheikh
Mansour 13,038 6,826 11,493 6,457 6,671
------------------------------------------------------------------------
Total Syria 16,670 9,266 15,035 8,931 9,209
------------------------------------------------------------------------
Average daily
production
- Company
net (bbl/d)
Syria - Oudeh 1,919 1,067 1,854 1,083 1,140
Syria -
Tishrine-Sheikh
Mansour 4,106 496 3,228 311 468
------------------------------------------------------------------------
Total Syria 6,025 1,563 5,082 1,394 1,608
------------------------------------------------------------------------
Average sales
price ($/bbl)
Syria
Oudeh 92.94 46.75 82.19 41.52 52.64
Tishrine 98.78 40.98 89.61 39.86 55.87
Operational
costs ($/bbl)
Syria (3) 8.83 10.27 9.57 9.67 10.53

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

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

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


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

PRESIDENT'S MESSAGE

Tanganyika is pleased to report that record production levels and realized oil prices have resulted in the Company recording $28.9 million of earnings from continuing operations during the second quarter of 2008.

Gross field production grew by over 24% during the second quarter of 2008, averaging 16,670 bopd (6,025 net bopd). Average realized oil prices were over $90/bbl in Oudeh and $95/bbl in Tishrine during the second quarter, up over 90% from the average price realized price in the second quarter of 2007. World oil prices have declined subsequent to quarter end, however they remain well above the price estimates used for the Company's planning purposes. Production growth has continued subsequent to quarter end with average gross field production of over 19,600 bopd (7,800 net bopd) during July 2008 and average gross field production of over 21,000 bopd during the first 10 days of August.

Production increases remain in line with the 2008 production guidance provided by the Company that projected average gross field production rates of between 17,500 and 20,000 bopd during 2008 and a targeted 2008 exit rate of between 21,400 and 27,000 bopd as the Company continues to appraise the different productive reservoirs and test different enhanced oil recovery techniques. The pace of production and reserves/recovery increases is expected to accelerate in the second half of the year, as the three additional planned new drilling rigs are all expected to be drilling by the end of August, bringing the total number of rigs under contract to the Company to six.

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

An additional four steam generators have arrived in Syria. Having ten steam generators provides the Company with a strong platform from which it may continue to expand its enhanced oil recovery pilot program.

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

Signed "Gary S. Guidry", President and CEO

August 12, 2008

MANAGEMENT'S DISCUSSION AND ANALYSIS

(Amounts in United States Dollars unless otherwise indicated)

Three and six months ended June 30, 2008 and June 30, 2007

Management's discussion and analysis ("MD&A") of Tanganyika Oil Company Ltd.'s (the "Company" or "Tanganyika") financial condition and results of operations should be read in conjunction with the consolidated financial statements for the three and six months ended June 30, 2008 and June 30, 2007 and the audited consolidated financial statements for the period ended December 31, 2007 and related notes therein prepared in accordance with Canadian generally accepted accounting principles ("Canadian GAAP"). The Quarter ended June 30, 2007 included for comparison purposes has not been reviewed by our external auditor's. The effective date of this MD&A is August 12, 2008.

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

Overview

Tanganyika is a Canadian-based company whose common shares are traded on the TSX Venture Exchange ("TSXV") under the symbol "TYK". Effective February 14, 2007, the Company's Swedish Depository Receipts commenced trading on the OMX Nordic Exchange under the symbol "TYKS". The Company has received conditional approval from the Toronto Stock Exchange ("TSX") on its application for graduation from the TSXV to the TSX. The Company is currently in the process of forwarding documentation to satisfy remaining requirements of the TSX. Additional information about the Company and its business activities, including the Company's Annual Information Form ("AIF"), is available on SEDAR at www.sedar.com or on the Company's website at www.tanganyikaoil.com.

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

Syria

Oudeh Block

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

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

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

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

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

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

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

Tishrine-Sheikh Mansour Fields

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

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

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

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

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

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

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

Base Crude Production (BCP)



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


Operational Update

Syria - Additional Drilling Rigs

The Company has increased its drilling capacity during the first half of 2008, adding three additional new drilling rigs to the three existing rigs under contract. Two of the additional rigs commenced drilling during the first half of 2008 with the third rig planned to commence drilling in August. The pace of the Company's drilling activity is expected to dramatically increase during the second half of 2008 with the addition of these three rigs, bringing the total rig capacity to six rigs.

Syria - Tishrine

Average gross field production during the second quarter of 2008 was 13,038 barrels of oil per day ("bopd") (Company net: 4,106 bopd). This represents a 31% increase in gross field production over the first quarter of 2008 (75% increase on a net production basis). The Company continues to be very encouraged by Tishrine's growing production and reserve base. The expectation is that production growth will continue during the second half of 2008 utilizing the additional drilling rig capacity that has been added during the first half of 2008.

The Company's second quarter drilling continued to focus on two new development areas: the southwest updip extension of the West Tishrine field and the northern down-dip extension of the West Tishrine Field. Fourteen wells completed drilling or were spud during the second quarter (2008 year to date: 25 wells). Both areas continue to provide very encouraging results. Initial oil production rates have exceeded 400 bopd in several of the wells. It is expected that the new wells may have initial sustainable rates of between 150 to 180 bopd. In addition to geographically extending the Tishrine reserves and resources, oil has been logged and tested at depths of -820 to -845 meters subsea. Reserves have not previously been attributed to reservoirs at this depth. 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 which could contain up to 5 potentially productive geologic horizons.

An additional deep water disposal well was drilled during the second quarter of 2008, increasing the water disposal capacity at Tishrine. Second quarter results indicate that dewatering of the Jaddala formation in West Tishrine continues to positively impact oil production. Decreasing water cuts continue to be registered on several structurally low wells in the field since dewatering began. It is expected that oil production will continue to improve over the next several months as dewatering of the Jaddala formation at West Tishrine continues with the use of deep water disposal wells into formations below the Jaddala formation.

Syria - Oudeh

Average gross field production during the second quarter of 2008 was 3,632 bopd (Company net: 1,919 bopd). This represents a 5% increase in gross field production over the first quarter of 2008 (7% increase on a net production basis).

The Company's second quarter drilling program was primarily focused on new development wells in the Shiranish reservoir. The wells were specifically drilled in the lower viscosity areas of the field. A total of five wells completed drilling or spud during the second quarter of 2008 (2008 year to date: 10 wells). All of the wells were drilled in the Southwest area of the field, encountering excellent Shiranish B reservoir quality, lower viscosity oil and excellent productive capability. Two of the wells drilled during the second quarter resulted in 100% water production which is believed to be due to fractures encountered while drilling. Remediation plans are currently being prepared in order to isolate the water bearing zones. Remediation is expected to be completed during the second half of 2008.

The 2008 Oudeh drilling program is aimed at continuing to develop proven reserves in areas demonstrating lower viscosity oil characteristics. Production is expected to grow at an accelerated rate once Oudeh has additional drilling rigs dedicated to its drilling program. The new wells drilled during the second quarter that do not require additional remediation were very encouraging, contributing an average of over 200 bopd per well by the end of the quarter. Steam injection continued through the second quarter of 2008, which also positively impacted production.

Syria - Thermal Operations

Four new steam generators have been delivered to the fields in Syria during the first half of 2008, bringing the total number of steam generators available for use in Syria to ten. Plans are in place for a gas sweetening plant to be installed at Oudeh to ensure the quality of the gas supply to the steam generators and fluid processing equipment. The Company determined additional engineering is required for this project which is currently ongoing.

The steam pilot in Tishrine now includes 23 wells:

- Estimated gross cold production from these wells, assuming continued cold production, was 701 bopd

- Actual gross thermal production was 1,499 bopd during June 2008 from these same wells

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

The steam pilot in Oudeh now includes 14 wells:

- Estimated gross cold production from these wells, assuming continued cold production, was 546 bopd

- Actual gross thermal production was 876 bopd during June 2008 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

Proposed Transaction

On July 1, 2008 the Company entered into an agreement to dispose of its interest in a private entity which holds certain rights associated with the development of oil and gas properties located in North Africa. As consideration the Company received $2.0 million on closing and may receive an additional $2.5 million of conditional consideration upon future production targets being achieved. The proceeds of this transaction approximate the cost base of the Company's investment in North Africa. Accordingly, the transaction is not expected to have a material impact on the operations of the Company.

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 Value
of of Net
Future Future Present
Net Net Value
Reven- Reven- of
ue- Crude ue- Future
Crude Oil 10% Oil 10% Net
Reserves Disc- Reserves Disc- Crude Reven-
(million ount (million ount Oil ue-
barrels) ($ barrels) ($ Reserves 10%
-------------- mill- ------------- mill- ----------- Disc-
Gross Net ions) Gross Net ions) Gross Net ount
---------------------------------------------------------------------------
Proved 185.0 67.7 1,370.0 168.3 88.8 603.0 10% (24)% 127%
---------------------------------------------------------------------------
Proved
plus
Probable 851.4 328.5 5,726.0 764.8 428.7 2,336.0 11% (23)% 145%
---------------------------------------------------------------------------
Proved
plus
Probable
and
Possible 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 even though the value of the reserves increased significantly.

Selected Quarterly Information



Three Months Ended

30-Jun 31-Mar 31-Dec 30-Sep 30-Jun 31-Mar 31-Dec 30-Sep
2008 2008 2007 2007 2007 2007 2006 2006
--------------------------------------------------------------------------
Total
revenues
($ 000) 51,907 26,307 17,379 7,041 6,827 4,664 4,638 7,217
Earnings
(loss) -
continuing
operations
($ 000) 28,978 826 (4,411) (6,858) (5,656) (5,048) (1,909) (6,721)
Per share
basic -
continuing
operations
$/share 0.467 0.014 (0.078) (0.121) (0.100) (0.091) (0.037) (0.137)
Per share
diluted -
continuing
operations
$/share 0.462 0.014 (0.078) (0.121) (0.100) (0.091) (0.037) (0.137)
Earnings
(loss) -
discontinued
operations
($ 000)
(2) 555 - (1,513) 42,732 2,051 1,736 1,499 2,606
Per share
basic -
discontinued
operations
$/share
(2) 0.009 - (0.027) 0.754 0.036 0.031 0.029 0.053
Per share
diluted -
discontinued
operations
$/share
(2) 0.009 - (0.027) 0.751 0.036 0.031 0.029 0.052
Earnings
(loss)
($ 000) 29,533 826 (5,924) 35,874 (3,605) (3,311) (410) (4,115)
Per share
basic
$/share 0.467 0.014 (0.104) 0.633 (0.064) (0.059) (0.008) (0.084)
Per share
diluted
$/share 0.462 0.014 (0.104) 0.630 (0.064) (0.059) (0.008) (0.084)
Cash flow
from
continuing
operations
($ 000)
(1) 38,178 13,568 3,714 (794) (982) (98) 6,756 (4,862)
Per share
basic
$/share 0.616 0.234 0.065 (0.014) (0.017) (0.002) 0.133 (0.099)
Per share
diluted
$/share 0.608 0.234 0.065 (0.014) (0.017) (0.002) 0.131 (0.099)
Company
total net
production -
continuing
operations
(bbl/d) 6,025 4,139 2,192 1,447 1,563 1,224 1,506 1,456
Company
total net
production -
continuing
operations
(bbl) 548,000 377,000 202,000 133,000 142,000 110,000 139,000 133,000

(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 second quarter of 2008 resulting in the most profitable quarter for Tanganyika. It is expected that Tanganyika's future financial performance will be affected by Company net production levels and world oil prices. The Company does not have any hedging programs that would impact realized oil prices.

Results of Operations

The profit from continuing operations recorded during the quarter ended June 30, 2008 represents the second consecutive quarter in which Tanganyika has recorded positive earnings. Record high net oil production combined with record high realized oil prices to result in a $29.0 million profit from continuing operations during the second quarter of 2008, in comparison to a loss of $5.7 million during the second quarter of 2007. EBITDA (from continuing operations) of $39.4 million was recorded during the second quarter of 2008, an increase of $40.5 million in comparison to the second quarter of 2007.

Net oil production increased by 286% in comparison to the second quarter of 2007. Oudeh's average realized oil price was 94% higher in the second quarter of 2008 than in the second quarter of 2007 and Tishrine's average realized oil price in the second quarter of 2008 was 132% higher than in the second quarter of 2007.

Stock based compensation charges of $1.9 million were recorded during the second quarter of 2008 as the Company continues to utilize its stock option plan as a method of recruiting, retaining and motivating key personnel. Foreign exchange losses of $2.9 million, recorded during the first quarter of 2008, were offset by a $2.9 million foreign exchange gain in the second quarter. The Company has reduced its exposure to foreign exchange rates by reducing its holdings of Canadian dollars. At June 30, 2008, only $8.4 million of Canadian dollars was held by the Company.

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

Production



Three Three Six Six
months months months months Year
ended ended ended ended ending
June 30, June 30, June 30, June 30, December 31,
2008 2007 2008 2007 2007
--------------------------------------------------------------------------
Production:
Syria: Oudeh
Gross field
production
(bbl) 330,549 222,030 644,724 447,809 926,361
Gross field
production
(bbl/d) 3,632 2,440 3,542 2,474 2,538
Company net
production
(bbl) (1) 174,651 97,068 337,340 196,017 416,029
Company net
(bbl/day) 1,919 1,067 1,854 1,083 1,140
Syria:
Tishrine-Sheikh
Mansour
Gross field
production
(bbl) 1,186,492 621,199 2,091,711 1,168,669 2,434,923
Gross field
production
(bbl/d) 13,038 6,826 11,493 6,457 6,671
Company net
production
(bbl) (1) 373,675 45,160 587,577 56,326 170,999
Company net
(bbl/day) 4,106 496 3,228 311 468
--------------------------------------------------------------------------
Syria Total

Total Company
gross Syria
(bbl) 1,517,041 843,229 2,736,435 1,616,478 3,361,284
Total Company
gross Syria
(bbl/d) 16,670 9,266 15,035 8,931 9,209
Total Company
net Syria
(bbl) 548,326 142,228 924,917 252,343 587,028
Total Company
net Syria
(bbl/d) 6,025 1,563 5,082 1,394 1,608
--------------------------------------------------------------------------

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


Syrian gross production increased 24% during the second quarter of 2008 in comparison to the first quarter of 2008 (297,647 bbl). This increase in gross production resulted in a 46% increase in Tanganyika net production in comparison to the first quarter of 2008 (171,735 bbl). Net production increases are not proportionate to the increases in gross production due to declining base crude production levels and 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 Six Six
months months months months Year
ended ended ended ended ending
June 30, June 30, June 30, June 30, December 31,
2008 2007 2008 2007 2007
--------------------------------------------------------------------------
Sales of
oil ($):
Syria: Oudeh 15,809,494 4,537,519 27,006,677 8,137,797 23,424,301
Tishrine 35,504,574 1,850,585 50,478,504 2,245,215 11,102,845
--------------------------------------------------------------------------
Total 51,314,068 6,388,104 77,485,181 10,383,012 34,527,146
--------------------------------------------------------------------------
Average oil
sales price
($ per bbl):
Syria: Oudeh 92.94 46.75 82.19 41.52 52.64
Syria:
Tishrine 98.78 40.98 89.61 39.86 55.87
--------------------------------------------------------------------------


Sales revenue for the three months ended June 30, 2008 was 703% higher than the oil sales revenue during the three months ended June 30, 2007 and 96% higher than oil sales revenue recorded during the first quarter of 2008 ($25.1 million).

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

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

- High world oil prices and Syria realized oil prices.

World oil prices have declined subsequent to quarter end, however they remain well above the price estimates used for the Company's planning purposes.

The Syrian Petroleum Company have provided notification to Syrian heavy oil producers that they have commenced allocating downstream pipeline and facility losses against each oil producers proportionate volume of shipped oil. The Company continues to work with SPC to better understand this claim and the method of loss allocations. The Company is confident of a positive outcome as the terms of the Production Sharing Agreements state that title to custody of the crude oil transfers from the Company to SPC within the contract area. The deduction proposed by SPC is approximately two percent of gross oil shipments. The Company has made a provision of $1.8 million against oil sales revenue during the second quarter ($2.9 million year to date) related to this claim.

Production Costs



Three Three Six Six
months months months months Year
ended ended ended ended ending
June 30, June 30, June 30, June 30, December 31,
2008 2007 2008 2007 2007
--------------------------------------------------------------------------
Production
Costs
Syria
Gross
production
costs (1) $ 13,393,610 $ 8,655,942 $ 26,188,824 $15,628,574 $ 35,387,795
Gross
production
volumes (1) 1,517,041 843,229 2,736,435 1,616,478 3,361,284
Cost per
bbl $ 8.83 $ 10.27 $ 9.57 $ 9.67 $ 10.53
--------------------------------------------------------------------------

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


Production costs from continuing operations for the three months ended June 30, 2008 averaged $8.83 per barrel as compared to $10.27 per barrel for the three months ended June 30, 2007. Average per barrel production costs have improved as oil production rates increased. While diesel prices have continued to increase in Syria ($1.30 per litre in June 2008), the Company significantly reduced diesel consumption during the second quarter by eliminating the use of diesel to fire the steam generators used in the EOR pilot program.

Base Crude Production Recoverable Costs



BCP Operating Expense - BCP Operating Expense -
Recovery during the period Receivable at
-------------------------- ------------------------

December 31, June 30, December 31, June 30,
2007 2008 2007 2008
-------------------------- ------------------------
Oudeh 3,627,000 1,995,000 5,340,000 6,257,000
Tishrine 11,672,000 7,116,000 18,089,000 21,203,978
--------------------------------------------------------------------------
Total 15,299,000 9,111,000 23,429,000 27,460,978
--------------------------------------------------------------------------


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

Depletion

Depletion for the three month period ended June 30, 2008 was $10.1 million compared to $4.6 million for the three month period ended June 30, 2007. During the second quarter of 2008, depletion was approximately $6.66 per barrel for Syria in comparison to $5.42 per barrel in the second quarter of 2007. The Company uses the full cost method of accounting for its oil and gas activities. In accordance with full cost accounting guidelines, all costs associated with exploration and development are capitalized on a country by country basis whether or not such activities were successful. The total capitalized costs and estimated future development costs are amortized using the unit of production method based on proved oil and gas reserves. Accordingly, revisions or changes to estimated proved reserves will impact the depletion expense.

Interest and Other Income

Interest income was $0.6 million for the three months ended June 30, 2008 compared to $0.4 million for the three month period ended June 30, 2007. The interest in 2007 was due to the surplus cash from a private placement in November 2006. The Company completed a private placement on March 14, 2008 in which they raised approximately $73.3 million USD net of placement costs.

General and Administration

General and administration costs for the three months ended June 30, 2008 were $5.5 million compared to $2.7 million for the three month period ended June 30, 2007. The increase in year to date general and administration costs are mainly driven by additional personnel employed in Syria as the Company ramps up its Syrian development program. Tanganyika continues to recruit operational and administrative personnel for its Syrian operations. As a result, accommodation and office space is required for the additional personnel. The Company currently employees over 490 persons distributed among four offices in Canada and Syria. Key drivers of this increased headcount are the increase in rig count and steam generation capacity.

Stock-based Compensation

The Company uses the fair value method of accounting for stock options granted to directors, officers and employees whereby the fair value of all stock options granted is recorded as a charge to operations. Stock based compensation for the three months ended June 30, 2008 was $1.9 million and $1.5 million for the three months ended June 30, 2007. The Company continues to utilize its stock option plan as a method of recruiting, retaining and motivating key personnel.

Oil and Gas Interests



June 30, 2008
--------------------------------------------------
Accumulated
Cost depletion Net book value
--------------------------------------------------
Oil and Gas Interests 269,971,223 49,273,038 220,698,185
--------------------------------------------------
--------------------------------------------------

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


Oil and gas assets have increased $51.0 million during the first half of 2008 as a result of development and appraisal drilling and investment in oil, water and gas handling facilities on both the Oudeh and Tishrine oil fields. Investment in oil and gas assets will increase during 2008 due primarily to the increased number of drilling rigs.

Liquidity and Capital Resources

At June 30, 2008 the Company had a cash balance of $97.8 million compared to $42.3 million at December 31, 2007. Non-cash working capital has increased to $31.7 million at June 30, 2008 compared to $11.2 million at December 31, 2007. The increase in non-cash working capital may be attributed to the increased pace of the Company's capital program, dramatically increasing oil sales revenue and continued growth in the accounts receivable related to base crude production recoverable costs.

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

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

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements.

Outstanding Share Data

As at August 12, 2008 the Company had 62,144,363 common shares outstanding and 3,229,767 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 six months ended June 30, 2008, the Company paid $131,411 (June 30, 2007 - $95,299) 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 six months ended June 30, 2008, the Company received $55,176 (June 30, 2007 - $89,902) from Pearl Exploration and Production Ltd. ("Pearl") for administrative and other services. The Company and Pearl had certain officers in common during the first half of 2008 and continue to have directors in common.

c) During the six months ended June 30 2008, the Company received $38,057 (June 30, 2007 - $nil) from Africa Oil Corp ("AOC") for administrative and other services. The Company and AOC had certain officers and directors in common during the first half 2008 and continue to have directors in common.

Critical Accounting Estimates

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

Proved Oil and Gas Reserves

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

Depletion

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

Impairment of Oil and Gas Interests

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

New Accounting Pronouncements and Changes in Accounting Policies

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

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

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

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

The Accounting Standards Board confirmed recently that public companies will be required to report under International Financial Reporting Standards (IFRS) effective January 1, 2011. The Company sets out in its financial statement notes a summary of significant differences between Canadian GAAP and IFRS.

Risks and Uncertainties

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

Controls and Procedures

Disclosure controls and procedures

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

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

Internal control over financial reporting

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

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

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

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

Forward Looking Statements

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

Non-GAAP Measures

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

Outlook

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

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



KEY DATA

Three Three Six Six
months months months months Year
ended ended ended ended ended
June 30, June 30, June 30, June 30, December 31,
2008 2007 2008 2007 2007
--------------------------------------------------------------------------
Return on
equity, % (1) 9.96% -1.78% 10.23% -3.43% 10.40%
Return on
capital
employed, % (2) 10.23% -1.83% 10.55% -3.48% 10.84%
Debt/equity
ratio, % (3) 0% 0% 0% 0% 0%
Equity ratio,
% (4) 86% 85% 86% 85% 84%
Share of risk
capital, % (5) 86% 85% 86% 85% 84%
Yield, % (6) 0% 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 Six Six
months months months months Year
ended ended ended ended ended
June 30, June 30, June 30, June 30, December 31,
2008 2007 2008 2007 2007
--------------------------------------------------------------------------
Shareholders'
equity, USD (1) 5.66 3.59 5.66 3.59 4.25
Operating cash
flow including
discontinued
operations,
USD (2) 0.70 0.07 1.01 0.15 0.26
Cash flow
from operations
including
discontinued
operations (3) 0.62 0.06 0.86 0.10 0.20
Earnings
including
discontinued
operations (4) 0.476 (0.064) 0.51 (0.123) 0.408
Earnings
including
discontinued
operations
(fully
diluted) (5) 0.471 (0.064) 0.51 (0.123) 0.408
Dividend - - - - -
Quoted price
at the end of
the financial
period 26.60 22.00 26.60 22.00 18.25
P/E-ratio (6) 55.9 (343.7) 52.5 (178.3) 44.7
Number of
shares at
financial
period end 62,118,363 56,434,196 62,118,363 56,434,196 56,938,696
Weighted
average number
of shares for
the financial
period (7) 62,018,257 56,317,754 59,975,300 56,047,956 56,427,858
Weighted
average number
of shares for
the financial
period
(fully diluted)
(5,7) 62,757,689 56,707,530 60,291,870 56,397,497 56,626,839

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


Tanganyika Oil Company Ltd.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(expressed in U.S. dollars)

June 30, December 31,
2008 2007
------------ ------------

ASSETS $ $
Current assets
Cash 97,806,932 42,302,212
Restricted cash (Note 2) 3,233,784 148,271
Advances to contractors 7,647,440 6,727,904
Accounts receivable and other assets 72,239,551 45,829,461
Inventory 4,896,798 2,462,836
Prepaid expenses 1,411,968 1,694,757
------------ ------------
187,236,473 99,165,441

Oil and gas interests (note 5) 220,698,185 187,486,196
Property, plant and equipment 1,269,014 909,677
------------ ------------
409,203,672 287,561,314
------------ ------------
------------ ------------
LIABILITIES
Current liabilities
Accounts payable and other
accrued liabilities 57,672,108 45,740,981
------------ ------------
57,672,108 45,740,981

SHAREHOLDERS' EQUITY

Share capital (Note 6) 319,050,056 242,458,322
Contributed surplus (Note 7) 11,621,436 8,860,819
Accumulated other comprehensive income 689,624 689,624
Retained Earnings (deficit) 20,170,448 (10,188,432)
------------ ------------
351,531,564 241,820,333
------------ ------------
409,203,672 287,561,314
------------ ------------
------------ ------------

Approved by the Directors:

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


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

Accumu-
lated
Other
Comprehen-
Contrib- sive
Share uted income
Capital Surplus Deficit (loss) Total
--------------------------------------------------------------------------

As at
December
31,
2006 $228,236,373 $ 6,201,643 $(33,221,711) $(175,745) $201,040,560
Issue of
shares 5,754,845 - - - 5,754,845
Stock-based
compensation 1,637,161 841,673 - - 2,478,834
Loss for
the period - - (6,915,971) - (6,915,971)
--------------------------------------------------------------
As at
June 30,
2007 235,628,379 7,043,316 (40,137,682) (175,745) 202,358,268
--------------------------------------------------------------

Issue of
shares 5,517,954 - - - 5,517,954
Stock-based
compensation 1,311,989 1,817,503 - - 3,129,492
Profit for
the period - - 29,949,250 - 29,949,250
Discontinued
operations
(Note 4) - - - 865,369 865,369
--------------------------------------------------------------
As at
December
31,
2007 242,458,322 8,860,819 (10,188,432) 689,624 241,820,333
--------------------------------------------------------------

Issue of
shares 75,886,176 - - - 75,886,176
Stock-based
compensation 705,558 2,760,617 - - 3,466,175
Profit for
the period - - 30,358,880 - 30,358,880
--------------------------------------------------------------
As at
June 30,
2008 $319,050,056 $11,621,436 $ 20,170,448 $ 689,624 $351,531,564
--------------------------------------------------------------


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

Three Three Six Six
months months months months Year
ended ended ended ended ended
June 30, June 30, June 30, June 30, December 31,
2008 2007 2008 2007 2007
----------- ---------- ----------- ---------- -----------
(restated- (restated-
note 4) note 4)

Revenue
Sale of oil 51,314,068 6,388,104 77,485,181 10,383,012 34,527,146
Interest
income 593,011 439,765 729,062 1,109,320 1,385,414
----------- ---------- ----------- ---------- -----------
51,907,079 6,827,869 78,214,243 11,492,332 35,912,560
----------- ---------- ----------- ---------- -----------

Expenses
Production
costs 8,034,518 5,101,770 17,077,172 6,966,021 20,088,262
Depletion 10,102,691 4,571,511 18,223,211 8,750,239 19,369,735
General and
administra-
tion 5,492,976 2,747,358 9,087,347 5,611,089 13,834,551
Stock-based
compensation
(note 8) 1,889,766 1,478,236 3,466,175 2,478,834 5,608,326
Interest and
bank charges 201,234 (42,150) 303,015 (5,905) 150,514
Depreciation 126,705 (9,870) 241,392 156,113 656,861
Foreign
exchange
(gain) loss (2,918,837) (1,363,896) 12,012 (1,760,480) (1,822,964)
----------- ---------- ----------- ---------- -----------
22,929,053 12,482,959 48,410,324 22,195,911 57,885,285
----------- ---------- ----------- ---------- -----------

Profit (loss)
for the
period before
discontinued
operations 28,978,026 (5,655,090) 29,803,919 (10,703,579) (21,972,725)

Discontinued
operations
(note 4) 554,961 2,049,716 554,961 3,787,608 45,006,004
----------- ---------- ----------- ---------- -----------

Profit (loss)
for the
period 29,532,987 (3,605,374) 30,358,880 (6,915,971) 23,033,279

Deficit -
beginning of
period (9,362,539)(36,532,308) (10,188,432)(33,221,711) (33,221,711)
----------- ---------- ----------- ---------- -----------

Retained
earnings
(deficit) -
end of
period 20,170,448 (40,137,682) 20,170,448 (40,137,682) (10,188,432)
----------- ---------- ----------- ---------- -----------
----------- ---------- ----------- ---------- -----------

Other
comprehensive
income - - - - -
----------- ---------- ----------- ---------- -----------
Comprehensive
income (loss)
for the
period 29,532,987 (3,605,374) 30,358,880 (6,915,971) 23,033,279
----------- ---------- ----------- ---------- -----------
----------- ---------- ----------- ---------- -----------

Profit (loss)
per share -
Continuing
operations
Basic 0.467 (0.100) 0.497 (0.191) (0.389)
Diluted 0.462 (0.100) 0.494 (0.191) (0.389)

Profit per
share -
Discontinued
operations
Basic 0.009 0.036 0.009 0.068 0.798
Diluted 0.009 0.036 0.009 0.067 0.795

Weighted
average
number of
shares
outstanding
Basic 62,018,257 56,317,754 59,975,300 56,047,956 56,427,858
Diluted 62,757,689 56,707,530 60,291,870 56,397,497 56,626,839


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

Three Three Six Six
months months months months Year
ended ended ended ended ended
June 30, June 30, June 30, June 30, December 31,
2008 2007 2008 2007 2007
----------- ---------- ----------- ---------- -----------
(restated- (restated-
note 4) note 4)

Cash flows
from operating
activities
Profit
(loss) for
the period
excluding
discontinued
operations 28,978,026 (5,655,090) 29,803,919 (10,703,579) (21,972,725)
Items not
affecting
cash
Stock-
based
compensa-
tion 1,889,766 1,478,236 3,466,175 2,478,834 5,608,326
Depreciation 126,705 (9,870) 241,392 156,113 656,861
Depletion 10,102,691 4,571,511 18,223,211 8,750,239 19,369,735
Realized
foreign
exchange
loss
(gain) (2,918,837) (1,363,896) 12,012 (1,760,480) (1,822,964)
----------- ---------- ----------- ---------- -----------

38,178,351 (979,109) 51,746,709 (1,078,873) 1,839,233
Funds
provided from
discontinued
operations - 2,715,654 - 5,063,457 7,782,239
----------- ---------- ----------- ---------- -----------
38,178,351 1,736,545 51,746,709 3,984,584 9,621,472

Changes in
non-cash
operating
working
capital
Changes in
non-cash
working
capital
related to
opera-
tions (23,137,976) (1,303,060) (26,163,692) (1,927,104) (22,478,501)
Discontinued
operations
(Note 4) - (268,863) - (1,533,650) 6,579,489
----------- ---------- ----------- ---------- -----------

(23,137,976) (1,571,923) (26,163,692) (3,460,754) (15,899,012)
----------- ---------- ----------- ---------- -----------

15,040,375 164,622 25,583,017 523,830 (6,277,540)
----------- ---------- ----------- ---------- -----------
Cash flows
from investing
activities
Additions to
oil and gas
interests (26,422,794)(23,105,545) (51,435,200)(43,807,383)(119,406,790)
Additions to
property,
plant and
equipment (482,424) (60,234) (600,729) (129,733) (509,816)
Pledge for
bank guarantee
released - - - - 900,000
Cash security
for letters
of credit (2,453,310) - (3,085,513) - (148,271)
Changes in
non-cash
working
capital
related to
investing
activities 6,219,918 (11,709,688) 8,614,020 (16,974,147) 9,665,009
Discontinued
operations
(Note 4) 554,961 (1,305,075) 554,961 (2,071,989) 54,951,044
----------- ---------- ----------- ---------- -----------
(22,583,649)(36,180,542) (45,952,461)(62,983,252) (54,548,824)
----------- ---------- ----------- ---------- -----------
Cash flows
from financing
activities
Issuance of
common
shares 2,173,706 2,643,150 75,886,176 5,754,845 11,272,799

Effect of
exchange rate
changes on cash
and cash
equivalents
denominated in
foreign
currency 2,918,837 1,363,896 (12,012) 1,760,480 1,822,964
----------- ---------- ----------- ---------- -----------

Increase
(decrease)
in cash (2,450,731)(32,008,874) 55,504,720 (54,944,097) (47,730,601)

Cash -
beginning of
period 100,257,663 67,097,590 42,302,212 90,032,813 90,032,813
----------- ---------- ----------- ---------- -----------

Cash - end of
period 97,806,932 35,088,716 97,806,932 35,088,716 42,302,212
----------- ---------- ----------- ---------- -----------
----------- ---------- ----------- ---------- -----------

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


Tanganyika Oil Company Ltd.

Notes to the Consolidated Financial Statements

For the Three and Six months ended June 30, 2008 and June 30, 2007

(Unaudited)

(in US Dollars)

1. Basis of Presentation

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

2. Restricted Cash

Restricted cash includes outstanding balances relating to letters of credit issued to various suppliers for operations in Syria. At June 30, 2008, an amount of $3,233,784 (December 31, 2007 - $148,271) is restricted as security for letters of credit.

3. Changes in Accounting Policy

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

(a) Inventories

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

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

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

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

(c) International Financial Reporting Standards (IFRS)

The Accounting Standards Board confirmed recently that public companies will be required to report under International Financial Reporting Standards (IFRS) effective January 1, 2011. The Company sets out in note 13 a summary of significant differences between Canadian GAAP and IFRS.

4. Discontinued Operations

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

On September 5, 2007, the Company entered into an agreement with a third party for the sale of its West Gharib oil and gas interests. The sale price of the interests was $70.0 million, including estimated net working capital of $10.9 million. The transaction was subject to a final statement of adjustments, which was completed in May, 2008. All resulting adjustments have been reflected in the results of operations for the period ending June 30, 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. A $0.5 million adjustment was recorded to the gain during the six months ended June 30, 2008 (total adjusted gain on disposal of $40.5 million).



Twelve
Months
Three Months Ended Six Months Ended Ended
June 30, June 30, June 30, June 30, December 31,
2008 2007 2008 2007 2007
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Revenue
Sale of oil - 3,240,646 - 6,052,743 9,256,198
Interest
income - 6,775 - 15,071 19,160
Other income - 20,732 - 54,170 64,383
-------------------- ------------------------ -----------
- 3,268,153 - 6,121,984 9,339,741

Expenses
Production
costs - 463,145 - 895,251 1,314,011
Depletion - 635,046 - 1,214,702 1,792,743
Depreciation - 30,894 - 61,149 89,780
General and
adminins-
tration - 89,191 - 163,110 243,006
Foreign
exchange
gain - (141) - (557) (496)
Other
expenses - 302 - 721 981
-------------------- ------------------------ -----------
- 1,218,437 - 2,334,376 3,440,025
-------------------- ------------------------ -----------

- 2,049,716 - 3,787,608 5,899,716
Gain on
disposition 554,961 - 554,961 - 39,971,657
-------------------- ------------------------ -----------
Income 554,961 2,049,716 554,961 3,787,608 45,871,373
-------------------- ------------------------ -----------
Comprehensive
loss -
cumulative
translation
adjustment - - - - (865,369)
-------------------- ------------------------ -----------
Profit of
discontinued
operations 554,961 2,049,716 554,961 3,787,608 45,006,004
-------------------- ------------------------ -----------


5. Oil and Gas Interests



June 30, 2008
--------------------------------------------------
Accumulated
Cost depletion Net book value
--------------------------------------------------
Oil and Gas Interests 269,971,223 49,273,038 220,698,185
--------------------------------------------------
--------------------------------------------------


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


6. Share Capital

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

Authorized - Unlimited number of common shares without par value

Issued and outstanding:



June 30, 2008
--------------------------------------------------------------------------
Number Amount
--------------------------------------------------------------------------
Balance, beginning of year 56,938,696 $ 242,458,322
Private placements, net 5,000,000 73,291,772

Exercise of options 179,667 3,299,962
--------------------------------------------------------------------------
Balance, end of period 62,118,363 $ 319,050,056
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During the period ended March 31, 2008, the Company completed a private placement consisting of 5,000,000 common shares at CDN $15.00 for net proceeds of $73.3 million.

7. Contributed Surplus



June 30, December 31,
2008 2007
--------------------------------------------------------------------------
Balance, beginning of year 8,860,819 6,201,643
Stock based compensation 3,466,175 5,608,326
Transfer to share capital on
exercise of options (705,558) (2,949,150)

--------------------------------------------------------------------------
Balance, end of period 11,621,436 8,860,819
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--------------------------------------------------------------------------


8. Stock Option Information



June 30, 2008
--------------------------------------------------------------------------

Weighted
Average
Outstanding Exercise
Options Price CDN$
--------------------------------------------------------------------------
Outstanding, beginning of year 2,743,850 17.18
Granted 829,850 14.88
Exercised (179,667) 14.62
Cancelled or expired (166,233) 17.54
--------------------------------------------------------------------------
Outstanding, end of period 3,227,800 16.71
--------------------------------------------------------------------------
--------------------------------------------------------------------------


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

The weighted average estimated fair value of the options granted during the period ended June 30, 2008 was $5.78 per option, determined using the Black-Scholes option pricing model with the following assumptions:



--------------------------------------------------------------------------
June 30, December 31,
2008 2007
--------------------------------------------------------------------------

Risk-free rate 3.35% 4.15% - 4.85%
Expected life 2.25 years 1 - 3 years
Estimated volatility in the
market price of common shares 60% 45% - 55%
Expected dividend rate 0% 0%
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--------------------------------------------------------------------------


9. Related Party Transactions

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

a) During the six months ended June 30, 2008, the Company paid $131,411 (June 30, 2007 - $95,299) 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 six months ended June 30, 2008, the Company received $55,176 (June 30, 2007 - $89,902) from Pearl Exploration and Production Ltd. ("Pearl") for administrative and other services. The Company and Pearl had certain officers in common during the first half of 2008 and continue to have directors in common.

c) During the six months ended June 30 2008, the Company received $38,057 (June 30, 2007 - $nil) from Africa Oil Corp ("AOC") for administrative and other services. The Company and AOC had certain officers and directors in common during the first half 2008 and continue to have officers and directors in common.

10. Supplemental Cash Flow Information



Three Three Six Six Twelve
months months months months months
ending ending ending ending ending
June 30, June 30, June 30, June 30, December 31,
2008 2007 2008 2007 2007
--------------------------------------------------------------------------
Changes in
non-cash
working
capital:
Accounts
receivable
and other
assets and
advances (24,631,721) (15,384,543) (27,329,626) (23,851,157) (25,948,106)
Inventory 929,323 - (2,433,962) - (2,462,836)
Prepaid
expenses 61,537 (401,156) 282,789 (558,153) (1,220,935)
Accounts
payable and
accrued
liabilities 6,722,803 2,772,951 11,931,127 5,508,059 16,818,384
--------------------------------------------------------------
(16,918,058) (13,012,748) (17,549,672) (18,901,251) (12,813,493)

Changes in
non-cash
working
capital
relating to:
Operating
activi-
ties (23,137,976) (1,303,060) (26,163,692) (1,927,104) (22,478,501)
Investing
activities 6,219,918 (11,709,688) 8,614,020 (16,974,147) 9,665,009
--------------------------------------------------------------
(16,918,058) (13,012,748) (17,549,672) (18,901,251) (12,813,492)
--------------------------------------------------------------


11. Capital Structure

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

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

12. Subsequent Event

On July 1, 2008 the Company entered into an agreement to dispose of its interest in a private entity which holds certain rights associated with the development of oil and gas properties located in North Africa. As consideration the Company received $2.0 million on closing and may receive an additional $2.5 million of conditional consideration upon future production targets being achieved. The proceeds of this transaction approximate the cost base of the Company's investment in North Africa. Accordingly, the transaction is not expected to have a material impact on the operations of the Company.

13. 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.

14. Presentation

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



SUPPLEMENTARY INFORMATION

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

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

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

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

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

The corporate number of the Company is 318368-8

Contact Information