Tanganyika Oil Company Ltd.
TSX VENTURE : TYK

Tanganyika Oil Company Ltd.

November 14, 2005 09:30 ET

Tanganyika Oil Company Ltd.: Interim Financial Report

VANCOUVER, BRITISH COLUMBIA--(CCNMatthews - Nov. 14, 2005) - Tanganyika Oil Company Ltd. (TSX VENTURE:TYK)(NYA MARKNADEN:TYKS) -

For the Four and Ten Month Periods ended September 30, 2005

(Unaudited)

(in US Dollars)

- The Company's revenue was $7.6 million for the four month period ended September 30, 2005 compared to $2.2 million for the three month period ended August 31, 2004. For the 10 month period ended September 30, 2005, revenue was $14.1 million compared to $5.2 million for the nine month period ended August 31, 2004.

- The Company's profit after tax for the four month period ended September 30, 2005 amounted to $3.5 million compared to a loss after tax of $1.8 million for the three month period ended August 31, 2004. For the 10 month period ended September 30, 2005 the profit after tax was $4.7 million compared to a loss after tax of $0.5 million for the nine month period ended August 31, 2004.

- The Company's profit per share was $0.083 for the four month period ended September 30, 2005 compared to a loss of $0.048 for the three month period ended August 31, 2004. For the 10 month period ended September 30, 2005, the company's profit per share was $0.116 compared to a loss of $0.007 for the nine month period ended August 31, 2004.

Tanganyika Oil Company Ltd. is an international Canadian oil and gas exploration and production company with interests in exploration and development properties in Egypt and Syria.

The Company is listed on the TSX Venture Exchange at Vancouver, Canada (TYK) and on the Nya Marknaden (The New Market) at Stockholm, Sweden (TYKS)

TANGANYIKA OIL COMPANY LTD.

MANAGEMENT'S DISCUSSION AND ANALYSIS

For the four and 10 month periods ended September 30, 2005 as compared to the three and nine month periods ended August 31, 2004

Certain statements contained in the following Management's Discussion and Analysis of Financial Condition and Results of Operations, including, without limitation, statements containing the words believes, anticipates, estimates, expects, and words of similar import, constitute forward-looking statements. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties, which could cause actual results to differ materially from those anticipated in these forward-looking statements. Among the key factors that could cause such differences are: fluctuations in oil prices, changes in oil and gas reservoir performance and political risks in the countries in which the company has operations.

We disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required to do so by applicable securities law.

Change in Financial Year-end and Reporting Currency

The Company changed its financial year-end from May 31 to December 31 effective June 1, 2005. The Company made this change in order that its financial year-end would be comparable to its peers in the oil and gas industry. As a result of this change, the interim financial statements are presented for the four and 10 month periods ending September 30, 2005 compared to the three and nine month periods ending August 31, 2004.

Based on the growth in the Company's U.S. dollar denominated revenues and costs, the Company changed its reporting currency to U.S. dollars and reclassified its foreign operations from integrated to self-sustaining. This change was effective June 1, 2005 and accordingly the Company has adopted the current rate method for translation. All dollar amounts in the MD&A are stated in U.S. currency unless otherwise stated.

Corporate Events

During the quarter, the Company successfully completed a private placement for net proceeds of $27.5 million, which provides additional funding for the development of the Company's projects in Egypt and Syria.

In Egypt, there are now five oil fields either in production or under development - Hana, Hoshia, West Hoshia, Fadl and Rahmi. The Hana, Hoshia and Fadl fields have wells on production. At West Hoshia and Rahmi, well testing is underway. Four wells were drilled during the quarter and one well was re-completed. Net production to the Company for the four month period ending September 30, 2005 from Egypt averaged 695 barrels per day.

In Syria, the Oudeh development program began in July and has made good progress. During the quarter, three horizontal development wells were drilled and underwent testing - well numbers 139, 140 and 141. At Tishrine, the Company assumed operations on September 29, 2005 and has now received formal approvals to commence production sharing. Since assuming operations, the Company has conducted 14 workovers and increased total production by 700 barrels of oil per day. Immediate plans at Tishrine include continued stimulation, application of wax control methods and plans for drilling horizontal laterals to test enhanced oil recovery methods. Net production to the Company for the four month period ending September 30, 2005 from Syria averaged 687 barrels per day.

Results of Operations

The Company had a consolidated net profit for the four month period ended September 30, 2005 of $3,526,000 ($0.083 per share) compared to a consolidated net loss of $1,761,000 ($0.048 per share) for the three month period ended August 31, 2004. The Company had a consolidated net profit of $4,697,000 ($0.116 per share) for the 10 month period ended September 30, 2005 compared to a consolidated net loss of $489,000 ($0.007 per share) for the nine month period ended August 31, 2004.

For the four month period ended September 30, 2005, total revenue was $7,558,000 compared to $2,222,000 for the three month period ended August 31, 2004. For the 10 month period ended September 30, 2005, revenue was $14,116,000 compared to $5,247,000 for the nine month period ended August 31, 2004.



Sales of oil:
---------------------------------------------------------------------
Country Four months Three months Ten months Nine months
ended ended ended ended
Sept. 30, Aug. 31, Sept. 30, Aug. 31,
2005 2004 2005 2004
---------------------------------------------------------------------
Egypt $ 3,482,000 $ 1,551,000 $ 6,273,000 $ 4,532,000
---------------------------------------------------------------------
Syria 3,944,000 638,000 7,641,000 638,000
---------------------------------------------------------------------
Total $ 7,426,000 $ 2,189,000 $ 13,914,000 $ 5,170,000
---------------------------------------------------------------------


Average daily production (bbl/day):
---------------------------------------------------------------------
Country Four months Three months Ten months Nine months
ended ended ended ended
Sept. 30, Aug. 31, Sept. 30, Aug. 31,
2005 2004 2005 2004
---------------------------------------------------------------------
Egypt 695 572 627 593
---------------------------------------------------------------------
Syria 687 228 670 76
---------------------------------------------------------------------
Total 1,382 800 1,297 669
---------------------------------------------------------------------


In Egypt, the sales of oil are derived entirely from the Hana field. The increase in oil sales for the four and 10 month periods ended September 30, 2005 compared to the three and nine month periods ended August 31, 2004 is largely due to higher oil prices. The average daily oil production has also increased for Egypt. In Syria, the sales of oil are derived from the Oudeh field. The increase in oil sales for the four and 10 month periods ended September 30, 2005 compared to the three and nine month periods ended August 31, 2004 is due to mainly to higher production volumes. Higher oil prices during these periods also contributed to the increase in oil sales.

For the four month period ended September 30, 2005 the netback on the Company's total production was $5,134,000 compared to $21,000 for the three month period ended August 31, 2004. For the 10 month period ended September 30, 2005 the netback on the Company's total production was $9,433,000 compared to $2,411,000 for the nine month period ended August 31, 2004.



Netbacks for Egypt:
---------------------------------------------------------------------
Four months Three months Ten months Nine months
ended ended ended ended
Sept. 30, Aug. 31, Sept. 30, Aug. 31,
2005 2004 2005 2004
---------------------------------------------------------------------
Revenue $ 3,482,000 $ 1,551,000 $ 6,273,000 $ 4,532,000
---------------------------------------------------------------------
Less
production
costs 389,000 192,000 1,118,000 783,000
---------------------------------------------------------------------
Netback $ 3,093,000 $ 1,359,000 $ 5,155,000 $ 3,749,000
---------------------------------------------------------------------
Netback per bbl $ 36.47 $ 25.83 $ 27.04 $ 23.07
---------------------------------------------------------------------


The increase in Egypt's netbacks for the four and 10 month periods ended September 30, 2005 compared to the three and nine month periods ended August 31, 2004 is mainly the result of higher oil prices.



Netbacks for Syria:
---------------------------------------------------------------------
Four months Three months Ten months Nine months
ended ended ended ended
Sept. 30, Aug. 31, Sept. 30, Aug. 31,
2005 2004 2005 2004
---------------------------------------------------------------------
Revenue $ 3,944,000 $ 638,000 $ 7,641,000 $ 638,000
---------------------------------------------------------------------
Less
production
costs 1,903,000 1,976,000 3,363,000 1,976,000
---------------------------------------------------------------------
Netback $ 2,041,000 $ (1,338,000) $ 4,278,000 $ (1,338,000)
---------------------------------------------------------------------
Netback per bbl $ 24.36 $ (63.73) $ 21.00 $ (63.73)
---------------------------------------------------------------------


Syria's netbacks for the four month period ended September 30, 2005 increased compared to the 10 month period ended September 30, 2005 due to higher oil prices. However, the impact of higher oil prices on the netback per barrel was offset by an increase in production costs. Syria's netbacks were negative for the three and nine month periods ended August 31, 2004 due to higher production costs than oil sales. Production from the Oudeh field began as of June 1, 2004. Production volumes and subsequent oil sales for the first three months of production were small in comparison to the production costs.

Total production costs were $2,292,000 ($13.59 per barrel) for the four month period ended September 30, 2005 compared to $2,168,000 ($29.45 per barrel) for the three month period ended August 31, 2004. The higher production costs on a per barrel basis for the period ending August 31, 2004 are the result of the low production volumes from Syria over which to spread the total production costs. Production costs were $4,481,000 ($11.37 per barrel) for the 10 month period ended September 30, 2005 compared to $2,759,000 ($14.99 per barrel) for the nine month period ended August 31, 2004.



Oil sales price ($ per bbl):
---------------------------------------------------------------------
Four months Three months Ten months Nine months
ended ended ended ended
Sept. 30, Aug. 31, Sept. 30, Aug. 31,
2005 2004 2005 2004
---------------------------------------------------------------------
Egypt $ 41.04 $ 30.29 $ 32.16 $ 28.12
---------------------------------------------------------------------
Syria $ 47.31 $ 30.43 $ 32.97 $ 30.43
---------------------------------------------------------------------


World market oil prices have increased in comparison to the prior year periods resulting in higher prices received for the Company's oil sales. Both Egypt and Syria produce heavy oil therefore there is a quality differential to quoted Brent crude oil prices. Syria's oil prices received are higher than Egypt oil prices because the Oudeh field produces a slightly lighter crude than the Hana field.

Interest income was $107,000 for the four month period ended September 30, 2005 compared to $21,000 for the three month period ended August 31, 2004. The increase is due to bank interest earned on surplus cash from the private placement completed in June 2005. Interest income was $142,000 for the 10 month period ended September 30, 2005 compared to $69,000 for the nine month period ended August 31, 2004.

Service income was $22,000 for the four month period ended September 30, 2005 compared to $11,000 for the three month period ended August 31, 2004. Service income represents the overhead provision Egypt is entitled to as operator. The service income is based on monthly expenditures which increased for the period ending September 30, 2005 compared to the period ending August 31, 2004. Service income was $56,000 for the 10 month period ended September 30, 2005 compared to $8,000 for the nine month period ended August 31, 2004. Service income for the nine month period ending August 31, 2004 decreased in comparison to the three month period ended August 31, 2004 due to an adjustment that was booked.

For the four month period ended September 30, 2005 total expenses, excluding the impact of foreign exchange gains and losses, were $2,314,000 compared to $ 726,000 for the three month period ended August 31, 2004. Total expenses, excluding the impact of foreign exchange gains and losses, were $5,211,000 for the 10 month period ended September 30, 2005 compared to $2,403,000 for the nine month period ended August 31, 2004.

The exchange gains for the four and 10 month periods ending September 30, 2005 were $1,609,000 and $2,880,000 respectively. The exchange gains are due to a stronger Canadian dollar and relate mainly to the translation of the Canadian dollar denominated cash balance to U.S. dollars.

Salaries and benefits for the four month period ended September 30, 2005 were $979,000 compared to $262,000 for the three month period ended August 31, 2004. The increase is due to hiring additional staff in Syria and Calgary. Salaries and benefits for the 10 month period ended September 30, 2005 were $1,942,000 compared to $776,000 for the nine month period ended August 31, 2004.

Travel expenses for the four month period ended September 30, 2005 were $180,000 compared to $41,000 for the three month period ended August 31, 2004. The higher travel costs for the current period are the result of increased travel between Canada and Syria to set up the Oudeh development program and to conduct technical studies at Tishrine. Travel expenses for the 10 month period ended September 30, 2005 were $231,000 compared to $132,000 for the nine month period ended August 31, 2004.

General and administration for the four month period ended September 30, 2005 was $461,000 compared to $83,000 for the three month period ended August 31, 2004. The increase is the result of the set-up of the Calgary office as of June 2005. Approximately $50,000 is Calgary office rental costs, and approximately $250,000 is due to one-time office set-up costs. General and administration for the 10 month period ended September 30, 2005 was $741,000 compared to $441,000 for the nine month period ended August 31, 2004.

Stock based compensation for the four month period ended September 30, 2005 was $353,000 compared to $135,000 for the three month period ended August 31, 2004. Stock based compensation for the 10 month period ended September 30, 2005 was $1,269,000 compared to $198,000 for the nine month period ended August 31, 2004. 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.



Summary of Quarterly Results

--------------------------------------------------------------------
Four Three Three Three
months months months months
ended ended ended ended
Sept. 30, May 31, February 28, November
2005 2005 2005 30, 2004
--------------------------------------------------------------------
Sales ($000) 7,426 7,954 1,251 1,869
--------------------------------------------------------------------
Cash flow ($000) 5,029 205 960 1,343
--------------------------------------------------------------------
Per share basic ($) 0.118 0.005 0.025 0.036
--------------------------------------------------------------------
Per share diluted ($) 0.115 0.005 0.025 0.036
--------------------------------------------------------------------
Earnings (loss)($000) 3,526 (2,161) 763 (305)
--------------------------------------------------------------------
Per share basic ($) 0.083 (0.057) 0.020 (0.008)
--------------------------------------------------------------------
Per share diluted ($) 0.080 (0.055) 0.020 (0.008)
--------------------------------------------------------------------
Production (average
boepd) 1,382 1,402 663 626
--------------------------------------------------------------------
Total production 169,000 129,000 60,000 57,000
--------------------------------------------------------------------


--------------------------------------------------------------------
Four Three Three Three
months months months months
ended ended ended ended
Sept. 30, May 31, February 28, November
2005 2005 2005 30, 2004
--------------------------------------------------------------------
Sales ($000) 2,189 1,677 1,303 1,085
--------------------------------------------------------------------
Cash flow ($000) (441) 342 410 243
--------------------------------------------------------------------
Per share basic ($) (0.012) 0.011 0.013 0.008
--------------------------------------------------------------------
Per share diluted ($) (0.012) 0.010 0.013 0.008
--------------------------------------------------------------------
Earnings (loss)($000) (1,761) 0.868 0.404 (1.255)
--------------------------------------------------------------------
Per share basic ($) (0.048) 27 13 (43)
--------------------------------------------------------------------
Per share diluted ($) (0.047) 0.026 0.013 (0.042)
--------------------------------------------------------------------
Production
(average boepd) 800 638 557 513
--------------------------------------------------------------------
Total production 74,000 59,000 51,000 47,000
--------------------------------------------------------------------

Prior periods have been restated to US$ using historical year-end
rates for assets and liabilities, and historical annual average rates
for revenues and expenses.


Financial Condition

At September 30, 2005, total assets were $78,655,000 compared to $42,404,000 at May 31, 2005.

The Company had total liabilities of $6,599,000 at September 30, 2005 compared to $4,149,000 at May 31, 2005. The increase is the result of increased drilling activities in Syria and Egypt.



Oil and gas interests by country:
----------------------------------------------------------------------
As at September 30, 2005 As at May 31, 2005
----------------------------------------------------------------------
Egypt $ 6,259,000 $ 4,975,000
----------------------------------------------------------------------
Syria 17,354,000 13,624,000
----------------------------------------------------------------------
Total $ 23,613,000 $ 18,599,000
----------------------------------------------------------------------


Since May 31, 2005, Egypt's oil and gas assets have increased $1,284,000 as a result of exploration drilling and seismic acquisition. Syria's oil and gas assets have increased $3,730,000 as a result of development drilling and seismic acquisition. In accordance with the concession agreements, tangible costs will be recovered over time periods specified in the individual agreements.

Net property, plant and equipment increased from $497,000 at May 31, 2005 to $636,000 at September 30, 2005. The increase is largely the result of setting up the new office in Calgary, Canada during June.

The restricted cash in the amount of $11,863,000 at September 30, 2005 represents pledged amounts against the issuance of letters of guarantee and outstanding balances against letters of credit issued to various suppliers in Egypt and Syria. The majority of the restricted cash relates to a letter of guarantee in the amount of $9 million issued in favour of the Syria Petroleum Company.

The advance relating to exploration commitment decreased from $1,372,000 at May 31, 2005 to $252,000 at September 30, 2005. The decrease is due to the release of an advance relating to the Egypt operations.

The advances to contractors increased from $586,000 at May 31, 2005 to $1,212,000 at September 30, 2005. This represents advances made by the Company to contractors in Syria for services and equipment relating to drilling and work-over programs.

The amounts receivable and other assets increased from $4,919,000 at May 31, 2005 to $6,833,000 at September 30, 2005. The main reason for the increase is that oil sales receivable have increased due to higher oil prices. In accordance with the terms of the agreements in Egypt and Syria, the Company sells all oil to the national oil companies. The Company does not believe that this concentration of credit risk will result in any loss to the Company based on past payment experience.

Inventory increased from $841,000 at May 31, 2005 to $1,263,000 at September 30, 2005. The increase is mainly due to the acquisition of supplies for the drilling and work-over programs in Syria and Egypt.

At September 30, 2005 the Company had an amount due from its joint venture partners in Egypt in the amount of $330,000 compared to nil at May 31, 2005.

Prepaid expenses increased from $115,000 at May 31, 2005 to $286,000 at September 30, 2005. The increase is the result of having to prepay accommodation costs in Syria.

Liquidity and Source of Financing

At September 30, 2005 the Company held a free cash amount of $32,366,000 compared to $4,220,000 at May 31, 2005. The increase is due to proceeds of $27.5 million received from a private placement that closed June 27, 2005. The Company sold five million shares at a price of CDN$7.60 per share.

The Company's working capital was $47,807,000 at September 30, 2005 compared to $19,158,000 at May 31, 2005. The increase in the working capital is mainly due to the increase in free cash resulting from the private placement completed in June 2005.

Net cash flow from operating activities was $5,029,000 for the four month period ended September 30, 2005 compared to ($441,000) for the three month period ended August 31, 2004. The increase is mainly the result of a profit for the September 30, 2005 period compared to a loss for August 31, 2004 period.

Net cash used in investing activities was $3,243,000 for the four month period ended September 30, 2005 compared to $152,000 for the three month period ended August 31, 2004. For the period ended September 30, 2005 there was an increase of $1.7 million in the investments in oil and gas assets. In addition, the net amount of released pledge deposits was $1.4 million less than the amount released during the period ended August 31, 2004.

During the four month period ended September 30, 2005, share capital increased by $30,103,000 mainly due to the issuance of five million common shares at CDN$7.60 per share.

The increase in the contributed surplus of $173,000 is due to the stock based compensation for the period.

Management considers that the cash generated from the Hana field, after providing for related capital expenditures, will continue to significantly contribute towards funding the Company's exploration and development activities in Egypt. However, the Company does not generate sufficient cash flow from all operations to fund its entire exploration and development activities and has therefore relied upon the issuance of securities and the sale of concession interests to provide additional financing. The Company intends to continue to rely upon the issuance of securities to finance its activities to the extent that sufficient cash flow from operations is unavailable in the future. Accordingly, the Company's financial statements are presented on a going-concern basis.

Looking forward, the Company's main focus will be to further develop its oil and gas interests in the West Gharib block in the Egypt concession, and to continue with its development plans in Syria.

Critical Accounting Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions 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 amounts recorded for depletion and the ceiling test are based on estimates of proved reserves, production rates, oil prices, future costs and other relevant assumptions. Actual results could differ from those estimates.

Environmental Regulation

Drilling for and production, handling, transporting and disposing of oil and gas and petroleum by-products are subject to extensive regulation under national and local environmental laws, including those of the countries in which the Company currently operates. In most instances, the applicable regulations relate to water and air pollution control, waste management, permitting requirements and restrictions on operations in environmentally sensitive areas such as wetlands, wildlife habitats and coastal areas. Environmental protection requirements have not, to date, had a significant effect on the capital expenditures, results of operations or competitive position of the Company. However, environmental regulations are expected to become more stringent in the future and costs associated with compliance are expected to increase. Any penalties imposed on the Company for non-compliance with environmental regulations could have a material adverse effect on the Company's business and results of operations.

Risks and Uncertainties

The Company's operations are subject to various risks and uncertainties associated with exploration for, and the development, production and marketing of oil. Risks associated with the Company's operations are set out in detail in its Annual Information Form for the year ended May 31, 2005. There has been no substantial change in the risk factors since the discussion provided in the Annual Information Form.

Research and Development

The Company does not have a research and development program. The Company does not rely on patents or technological licenses in any significant way in the conduct of its business.

NOTICE OF NO AUDITOR REVIEW OF INTERIM FINANCIAL STATEMENTS

The accompanying financial statements 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.



TANGANYIKA OIL COMPANY LTD.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in US Dollars)

September 30 May 31
2005 2005
-----------------------------
ASSETS
Current Assets:
Cash and short-term deposits $ 32,365,953 $ 4,220,427
Restricted cash 11,862,893 11,254,266
Advance relating to exploration
commitment 252,163 1,372,163
Advances to contractors 1,211,928 585,871
Amounts receivable and other assets 6,833,435 4,918,818
Amounts due from joint venture partners 330,485 -
Inventory 1,262,644 841,010
Prepaid expenses 286,337 115,155
-----------------------------
54,405,838 23,307,710
-----------------------------

Long Term Assets:
Oil and gas interests 23,613,292 18,599,429
Property, plant and equipment, net of
accumulated depreciation
of $876,941 (May 31, 2005 - $762,835) 636,342 496,598
-----------------------------

$ 78,655,472 $ 42,403,737
-----------------------------
-----------------------------

LIABILITIES
Current Liabilities:
Amounts payable and accrued
liabilities $ 6,598,975 $ 4,149,289

-----------------------------
6,598,975 4,149,289

SHAREHOLDERS' EQUITY
Share capital 89,404,838 59,302,193
Contributed surplus 5,233,681 5,060,385
Cumulative translation adjustment (79,943) (79,943)
Deficit (22,502,079) (26,028,187)
-----------------------------

72,056,497 38,254,448
-----------------------------

$ 78,655,472 $ 42,403,737
-----------------------------
-----------------------------


Approved by the Board:

(signed) "John H. Craig" (signed) "William A. Rand"
Director Director



TANGANYIKA OIL COMPANY LTD.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(Unaudited)
(in US Dollars)

September 30, 2005
------------------
Share Contributed
Capital Surplus Deficit
---------------------------------------------

As at June 1, 2005 $ 59,302,193 $ 5,060,385 $ (26,028,187)

Issue of shares 29,922,455 - -

Stock based
compensation 180,190 173,296 -

Profit for the
period - - 3,526,108
---------------------------------------------
As at September
30, 2005 $ 89,404,838 $ 5,233,681 $ (22,502,079)
---------------------------------------------
---------------------------------------------


September 30, 2005
------------------
Cumulative
Translation
Adjustment Total
---------------------------------

As at June 1, 2005 $ (79,943) $ 38,254,448

Issue of shares - 29,922,455

Stock based
compensation - 353,486

Profit for the
period - 3,526,108
---------------------------------
As at September
30, 2005 $ (79,943) $ 72,056,497
---------------------------------
---------------------------------


August 31, 2004
------------------
Share Contributed
Capital Surplus Deficit
---------------------------------------------

As at June 1, 2005 $ 47,638,690 $ 4,185,419 $ (24,081,607)

Issue of shares 143,081 - -

Stock based
compensation 180,190 173,296 -

Profit for the
period - - (1,760,779)
---------------------------------------------
As at September
30, 2005 $ 47,781,771 $ 4,185,419 $ (25,842,386)
---------------------------------------------
---------------------------------------------


August 31, 2004
------------------
Cumulative
Translation
Adjustment Total
---------------------------------

As at June 1, 2005 $ (1,450,620) $ 26,291,882

Issue of shares - 143,081

Stock based
compensation - -

Profit for the
period - (1,760,779)
---------------------------------
As at September
30, 2005 $ (1,450,620) $ (24,674,184)
---------------------------------
---------------------------------



TANGANYIKA OIL COMPANY LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
(Unaudited)
(in US Dollars)

Four Three Ten Nine
months months months months
ended ended ended ended
September 30 August 31 September 30 August 31
2005 2004 2005 2004
---------------------------------------------------
Revenue:
Sale of oil $ 7,426,488 $ 2,189,212 $13,914,029 $ 5,169,642
Interest income 106,698 21,290 142,498 68,834
Service income 21,743 11,297 55,932 8,195
Other income 3,171 - 3,171 -
---------------------------------------------------
7,558,100 2,221,799 14,115,630 5,246,671
---------------------------------------------------

Cost of oil sold:
Production costs 2,292,001 2,168,054 4,480,537 2,758,809
Depletion 1,034,826 408,782 2,607,011 724,833
---------------------------------------------------
3,326,827 2,576,836 7,087,548 3,483,642

Expenses:
Salaries and other
benefits 979,044 262,904 1,942,457 775,824
Travel 180,342 40,678 231,023 132,057
General and
administration 460,515 82,901 740,897 440,707
Management fees 58,869 36,199 141,499 107,356
Legal and accounting 67,650 4,268 376,508 189,074
Stock based
compensation 353,486 135,490 1,269,463 198,216
Interest and bank
charges 12,958 88,681 154,726 (128,058)
Amortization of
deferred finance
charge - - - 394,959
Shareholder
information and
transfer agent 87,458 27,625 214,496 90,226
Listing in Stockholm - - - 104,140
Depreciation 114,106 47,144 140,141 98,080
Foreign exchange
loss (gain) (1,609,263) 679,852 (2,880,162) 47,420
---------------------------------------------------
705,165 1,405,742 2,331,048 2,450,001
---------------------------------------------------

Write-back of oil and
gas concession
interests - - - (198,461)

Profit (loss) for
the period 3,526,108 (1,760,779) 4,697,034 (488,511)

Deficit, beginning
of period (26,028,187)(24,081,608)(27,199,113) (25,353,876)

---------------------------------------------------
Deficit, end of
period $(22,502,079)$(25,842,387)$(22,502,079)$(25,842,387)
---------------------------------------------------
Profit (Loss) per
share
Basic $ 0.083 $ (0.048) $ 0.116 $ (0.007)
Diluted $ 0.080 $ (0.047) $ 0.114 $ (0.007)
---------------------------------------------------
---------------------------------------------------

Weighted average
number of share
outstanding
Basic 42,576,590 36,929,019 40,508,421 35,922,260
Diluted 43,892,508 37,602,029 41,034,788 36,623,839
---------------------------------------------------
---------------------------------------------------


TANGANYIKA OIL COMPANY LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in US Dollars)

Four Three Ten Nine
months months months months
ended ended ended ended
September 30 August 31 September 30 August 31
2005 2004 2005 2004
---------------------------------------------------

OPERATING
ACTIVITIES
Profit (Loss)
for the period $ 3,526,108 $(1,760,779) $4,697,034 $ (488,511)
Adjustment for
items not
affecting cash:
Stock based
compensation 353,486 135,490 1,269,463 198,216
Interest expense - 82,447 122,382 167,750
Depreciation 114,106 47,144 140,141 98,080
Depletion 1,034,826 408,782 2,607,011 724,833
Unrealised foreign
exchange (gain)
loss - 62,000 (164,270) (88,231)
Write back of oil
and gas concession
interest - - - (198,461)
Effect of changes
in exchange rates - 583,619 (423,386) (102,891)
---------------------------------------------------

Cash flow from
operating
activities 5,028,526 (441,297) 8,248,375 310,785

Changes in
non-cash operating
working capital:
(Increase) in
amounts receivable
and other assets (2,871,159) (1,646,069) (5,337,540) (651,874)
(Increase) in
amounts due
from/to joint
venture partners (171,182) (817) (179,184) (39,790)
(Increase) /
decrease in
inventory (421,634) 466,320 (552,992) (385,702)
(Increase) /
decrease in
prepaid expenses - 9,361 (5,133) 19,795
(Decrease) in
amount due to
directors - (260,268) (10,165) (416,417)
(Decrease) in
amounts payable
and accrued
liabilities (98,673) (3,331,082) 682,990 (2,547,616)
---------------------------------------------------

Net (decrease) in
non-cash operating
working capital (3,562,648) (4,762,555) (5,402,024) (4,021,604)
---------------------------------------------------

Cash from/(used)
operating
activities 1,465,878 (5,203,852) 2,846,351 (3,710,819)
---------------------------------------------------

INVESTING
ACTIVITIES
Investment in oil
and gas interests (3,500,330) (1,802,798) (4,880,258) (5,728,603)
Investment in
property, plant
and equipment (253,850) (124,999) (491,370) (279,141)
Advance relating
to exploration
commitment - - (513,824) (1,820,000)
Pledged deposit
for bank guarantee
issued (608,627) - (3,441,427) 74,726
Partial release of
pledged deposit in
lieu of guarantee
issued 1,120,000 1,776,220 (722,258) 1,776,220
Release of
exploration
commitment - - 584,064 -
Deposit in lieu of
guarantee of
guarantee for
exploration
license - - 2,160,190 (37,809)
---------------------------------------------------

Cash used in
investing
activities (3,242,807) (151,577) (7,304,883) (6,014,607)

FINANCING
ACTIVITIES
Issuance of common
shares and special
warrants 29,922,455 143,081 30,020,505 14,279,932
(Repayment of
loan)/ advances
from a shareholder - (3,029,139) 79,636 (3,607,952)
---------------------------------------------------

Cash from/(used)
financing
activities 29,922,455 (2,886,058) 30,100,141 10,671,980
---------------------------------------------------

INCREASE
(DECREASE) IN CASH
AND SHORT-TERM
DEPOSITS DURING
THE PERIOD 28,145,526 (8,241,487) 25,641,609 946,554
Beginning of
period 4,220,427 15,186,375 6,724,344 5,998,334
---------------------------------------------------

End of period $ 32,365,953 $ 6,944,888 $ 32,365,953 $6,944,888
---------------------------------------------------
---------------------------------------------------



TANGANYIKA OIL COMPANY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FOUR MONTHS ENDED SEPTEMBER 30, 2005
(Unaudited)
(in US Dollars)


1. Significant Accounting Policies

The consolidated financial statements of Tanganyika Oil Company Ltd. (the "Company") are prepared in accordance with accounting principles generally accepted in Canada and have been prepared on a basis consistent with the last Annual Report.

These consolidated financial statements do not contain all of the information required by generally accepted accounting principles for annual financial statements and therefore should be read in conjunction with the consolidated financial statements included in the Company's Annual Report for the year ended May 31, 2005.

2. Accounting Changes

(i) Foreign Currency Translation:

Effective June 1, 2005 the Company reclassified its foreign operations from integrated to self-sustaining and in accordance with CICA Handbook section 1651 adopted the current rate method for translation. Based on the growth in the Company's U.S. dollar denominated revenues and costs, it was determined that its foreign operations should be reclassified from integrated to self-sustaining. Effective June 1, 2005 the Company also changed its reporting currency to U.S. dollars. All prior periods have been restated in accordance with CICA Emerging Issues Committee Abstract 130.

(ii) Change in Financial Year-end:

Effective June 1, 2005, the Company changed its financial year-end from May 31 to December 31. The Company made this change in order that its financial year-end would be comparable to its peers in the oil and gas industry. As a result of this change, these interim financial statements are presented as a four month period ending September 30, 2005 compared to a three month period ended August 31, 2004 and a 10 month period ending September 30, 2005 compared to a nine month period ended August 31, 2004.

3. Contingencies

The Company is a defendant in a lawsuit filed for non-payment of rent and abandonment of premises in March 1990. This event took place prior to the change in control of the Company and current management believes that the claim is without merit. The amount of the claim is CDN$ 513,000 including costs.

4. Dividend Policy

The Company has not paid dividends to date on its common shares and has no plan to pay dividends in the near future. The Company's dividend policy is to give funding priority to ongoing exploration and development projects and other immediate capital requirements prior to distributing dividends to the shareholders.

The decision to pay dividends will be based on the Company's earnings and financial requirements and other factors that the Company's Board of Directors may consider appropriate in the circumstances.

5. Restricted Cash

At September 30, 2005, restricted cash represents a pledged amount of $9,000,000 against the issuance of a letter of guarantee in favour of the Syrian Petroleum Company on the Tishrine and Sheikh Mansour blocks. Restricted cash also includes amounts relating to outstanding balances for letters of credit issued to various suppliers. An amount of $2,235,000 is outstanding against letters of credit relating to operations in Syria and $628,000 is outstanding against letters of credit relating to operations in Egypt.



TANGANYIKA OIL COMPANY LTD
SUPPLEMENTARY INFORMATION

(Unaudited)
(in US Dollars)

1. (a) Oil and Gas Interests

EGYPT September 30, 2005 May 31, 2005
------------------------------------
Drilling $ 10,274,000 $ 8,700,000
Production facilities 1,569,000 1,382,000
Concession acquisition 68,000 680,000
Seismic acquisition 3,064,000 2,526,000
Seismic interpretation and
reprocessing 407,000 407,000
Others 215,000 215,000
------------------------------------
15,597,000 13,910,000

Less depletion (8,303,000) (7,900,000)
Write-down/ impairments (1,035,000) (1,035,000)
------------------------------------

Sub-Total 6,259,000 4,975,000
------------------------------------

SYRIA
Concession acquisition 2,064,000 2,064,000
Seismic interpretation and
reprocessing 1,102,000 16,000
Drilling and work over 15,937,000 12,777,000
------------------------------------
19,103,000 14,857,000

Less depletion (1,749,000) (1,233,000)
------------------------------------

Sub-Total 17,354,000 13,624,000
------------------------------------

Total $ 23,613,000 $ 18,599,000
------------------------------------
------------------------------------


(b) Non-Arm's Length Transactions

During the four months ended September 30, 2005 the Company
incurred administrative service fees of $ 59,000 with a corporation
owned by a director.

2. Reconciliation of shareholders' equity between CGAAP and IFRS

September 30, May 31, August 31,
2005 2005 2004
-------------------------------------------

Shareholders' equity
as per CGAAP $ 72,056,497 $ 38,254,448 $ 24,674,184
Adjustments:
Equity adjustment
(brought forward) 2,008,192 1,650,468 1,650,468
Effect of asset impairment (212,325) 357,724 43,404
-------------------------------------------
-------------------------------------------
Net adjustment 1,795,867 2,008,192 1,693,872
-------------------------------------------
-------------------------------------------
Shareholders' equity in
accordance with IFRS $ 73,852,364 $ 40,262,640 $ 26,368,056
-------------------------------------------
-------------------------------------------

3. Reconciliation of profit between CGAAP and IFRS

Four Three Ten Nine
months months months months
Ended ended ended ended
September August September August
30, 2005 31, 2004 30, 2005 31, 2004

Profit/ (loss)
as per CGAAP $ 3,526,108 $ (1,760,779) $ 4,697,034 $ (488,511)
Adjustments:
Effect of asset
Impairment (212,325) 43,404 (374,828) 333,348
-------------------------------------------------
Net results in
accordance with
IFRS $ 3,313,783 $ (1,717,375) $ 4,322,206 $ (155,163)
-------------------------------------------------
-------------------------------------------------

4. As at September 30, 2005

(a) The authorized share capital of the Company consists of an
unlimited number of common shares without par value of which
44,263,975 were issued and outstanding. As at September 30, 2005,
the share capital amounted to $89,404,838.


Number of Shares
Balance May 31, 2005 39,129,641
Issued during the period:
Private placement 5,000,000
Exercise of options 134,334
-----------------------
Balance September 30, 2005 44,263,975


(b) Incentive stock options outstanding and held by directors,
officers and employees of the Company are as follows:

Number of Shares Exercise Price per Share Expiry Date
15,000 $ 3.90 October 28,2005
50,000 $ 5.25 December 11, 2005
66,50 $ 6.50 April 27, 2006
50,000 $ 7.25 July 29, 2006
266,000 $ 3.75 October 8, 2006
12,500 $ 7.20 October 13, 2006
20,000 $ 3.90 October 28, 2006
571,700 $6.90 May 4, 2007
60,000 $7.50 June 22, 2007
25,067 $1.95 June 24, 2008
-----------
1,076,767


(c) The directors of the Company are:

Lukas H. Lundin William A. Rand
Gary S. Guidry John H. Craig
Mamdouh Nagati Bryan Benitz
Keith Hill

The officers of the Company are:

Lukas H. Lundin, Chairman
Gary S. Guidry, President & C.E.O
Mamdouh Nagati, Executive Vice President
Hazem Farid, Controller / Treasurer
Jean R. Florendo, Corporate Secretary


5. Segmented Information

(a) Four months ended September 30, 2005

Syria Egypt Corporate Total

Sale of oil $ (3,944,399) $ (3,482,089) $ - $ ( 7,426,488)
Interest income (1,261) (5,333) (100,104) (106,698)
Service income - (21,743) - (21,743)
Other income (3,171) (3,171)
Production cost
and depletion 2,418,626 908,201 - 3,326,827
Depreciation 82,965 13,018 18,123 114,106
Foreign exchange
(gain)/loss (13,867) (10,855)(1,584,541) (1,609,263)
Other expenses 811,893 91,092 1,297,337 2,200,322
----------------------------------------------------

Segment (profit)
loss $ (646,043) $ (2,510,880)$ (369,185) $ (3,526,108)
----------------------------------------------------
----------------------------------------------------

Other non-cash
items -
Interest
expense $ - $ - $ - $ -
----------------------------------------------------
----------------------------------------------------

Segment assets $ 33,005,941 $ 15,281,041 $30,368,490 $ 78,655,472
----------------------------------------------------
----------------------------------------------------

Segment
expenditures:
Oil and gas
interests $ 2,596,324 $ 904,006 - $ 3,500,330
Property, plant
and equipment 73,400 52,336 128,114 253,850
----------------------------------------------------

$ 2,669,724 $ 956,342 $ 128,114 $ 3,754,180
----------------------------------------------------
----------------------------------------------------

(b) Three months ended August 31, 2004

Syria Egypt Corporate Total

Sale of oil $ (638,250) $ (1,550,962) $ - $ (2,189,212)
Interest income - - (21,290) (21,290)
Service income - (11,297) - (11,297)
Production cost
and depletion 2,155,469 421,367 - 2,576,836
Depreciation 47,144 - - 47,144
Foreign
exchange
(gain)/loss (22,398) 118,530 583,720 679,852
Other expenses 288,718 40,456 349,572 678,746
----------------------------------------------------
Segment
(profit) loss $ 1,830,683 $ (981,906) $ 912,002 $ 1,760,779
----------------------------------------------------
----------------------------------------------------
Other non-cash
items -
Interest
expense $ - $ - $ 82,447 $ 82,447
----------------------------------------------------
----------------------------------------------------

Segment assets $ 15,581,800 $ 9,717,558 $3,983,598 $ 29,282,956
----------------------------------------------------
----------------------------------------------------

Segment
expenditures:
Oil and gas
interests $ 1,681,086 $ 121,712 $ - $ 1,802,798
Property, plant
and equipment 104,796 20,203 - 124,999
----------------------------------------------------
$ 1,785,882 $ 141,915 $ - $ 1,927,797
----------------------------------------------------
----------------------------------------------------


(c) Ten months ended September 30, 2005

Syria Egypt Corporate Total

Sale of oil $ (7,640,763) $ (6,273,266) $ - $ (13,914,029)
Interest income (2,722) (5,333) (134,443) (142,498)
Service income - (55,932) - (55,932)
Other income (3,171) (3,171)
Production cost
and depletion 4,613,690 2,473,858 - 7,087,548
Depreciation 85,192 36,826 18,123 140,141
Foreign
exchange
(gain)/loss 693,764 (419,162)(3,154,764) (2,880,162)
Other expenses 1,621,598 198,069 3,251,402 5,071,069
----------------------------------------------------
Segment
(profit) loss $ (629,241) $ (4,048,110) $ (19,682) $ (4,697,033)
----------------------------------------------------
----------------------------------------------------

Other non-cash
items -
Interest
expense $ - $ - $ 122,382 $ 122,382
----------------------------------------------------
----------------------------------------------------

Segment assets $ 33,005,941 $ 15,281,041 $30,368,490 $ 78,655,472
----------------------------------------------------
----------------------------------------------------

Segment
expenditures:
Oil and gas
interests $ 3,022,268 $ 1,857,990 $ - $ 4,880,258
Property, plant
and equipment 223,090 140,167 128,113 491,370
----------------------------------------------------
$ 3,702,640 $ 1,998,157 $ 128,113 $ 5,828,910
----------------------------------------------------
----------------------------------------------------


(d) Nine months ended August 31, 2004

Syria Egypt Corporate Total

Sale of oil $ (638,250) $ (4,531,392) $ - $ (5,169,642)
Interest income (943) - (67,891) (68,834)
Service income - 8,195 - (8,195)
Production cost
and depletion 2,155,469 1,328,173 - 3,483,642
Depreciation 105,488 (7,408) - 98,080
Foreign
exchange
(gain)/loss (70,176) 100,907 16,689 47,420
Other expenses
Write-back of
oil & gas
interests 906,814 145,312 1,252,375 2,304,501
- - (198,461) (198,461)
----------------------------------------------------

Segment
(profit) loss $ 2,458,402 $ (2,972,603)$1,002,712 $ 488,511
----------------------------------------------------
----------------------------------------------------

Other non-cash
items -
Interest
expense $ 627 $ - $ 167,122 $ 167,749
----------------------------------------------------
----------------------------------------------------

Segment assets $ 15,581,800 $ 9,717,558 $3,983,598 $ 29,282,956
----------------------------------------------------
----------------------------------------------------

Segment
expenditures:
Oil and gas
interests $ 5,605,966 $ 122,637 $ - $ 5,728,603
Property, plant
and equipment 235,531 43,610 - 279,141
----------------------------------------------------

$ 5,841,497 $ 166,247 $ - $ 6,007,744
----------------------------------------------------
----------------------------------------------------


(e) May 31, 2005

Syria Egypt Corporate Total

Sale of oil $(6,413,032) $ (6,211,375) $ - $ (12,624,407)
Interest income (3,130) - (78,338) (81,468)
Service income - (51,498) - (51,498)
Production cost
and depletion 7,481,168 2,514,612 - 9,995,780
Depreciation 100,522 29,969 - 130,491
Foreign
exchange
(gain)/loss (203,801) 215,841 445,896 457,936
Other expenses 1,436,524 199,343 2,483,878 4,119,745
----------------------------------------------------
Segment
(profit) loss $ 2,398,251 $ (3,303,108)$2,851,436 $ 1,946,579
----------------------------------------------------
----------------------------------------------------

Other non-cash
items -
Interest
expense $ - $ - $ 204,830 $ 204,830
----------------------------------------------------
----------------------------------------------------

Segment assets $ 19,906,029 $ 12,318,005 $10,179,703 $ 42,403,737
----------------------------------------------------
----------------------------------------------------

Segment
expenditures:
Oil and gas
interests $ 5,270,977 $ 1,480,561 $ - $ 6,751,538
Property, plant
and equipment 311,595 117,208 - 428,803
----------------------------------------------------
$ 5,582,572 $ 1,597,769 $ - $ 7,180,341
----------------------------------------------------
----------------------------------------------------

6. Other Information

- The registered office of the Company is in Vancouver, Canada.
- The corporate number of the Company is 318368-8.
- John H. Craig and William A. Rand, directors of the Company, signed
these statements on November 10, 2005.


Key Data

Four Three Ten Nine
months months months months
ended ended ended ended
September August September August
30 31 30 31 May 31
2005 2004 2005 2004 2005
--------------------------------------------------
Return on equity, %(1) 6.39% -6.74% 8.48% -2.59% -6.03%
Return on capital
employed, %(2) 3.48% -8.52% 3.51% -1.79% -3.80%
Debt/equity
ratio, %(3) 0% 5.92 0% 6.26% 4.02%
Equity ratio, %(4) 92% 89% 92% 89% 90%
Share of risk
capital, %(5) 92% 89% 92% 89% 90%
Interest coverage
ratio, %(6) 0% -2860% 6291% -219% -1074%
Operating cash
flow/interest
expense, %(7) 0% 39% 7754% 1442% 2571%
Yield, %(8) 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) Dept/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) Interest coverage ratio is defined as the Company's profit before tax and minority interest plus interest expense plus/less exchange differences on financial loans divided by interest expense.

(7) Operating cash flow/interest ratio is defined as the Company's operating income less production costs and less current taxes divided by the interest charge for the financial period.

(8) Yield is defined as dividend in relation to quoted share price at the end of the financial period.



Data per share

Four Three Ten Nine
months months months months
ended ended ended ended
September August September August
30 31 30 31 May 31
2005 2004 2005 2004 2005
--------------------------------------------------

Shareholders'
equity, USD(1) 1.63 0.70 1.63 0.70 0.98
Operating cash
flow, USD(2) 0.12 0.00 0.23 0.07 0.14
Cash flow from
Operations(3) 0.12 (0.01) 0.20 0.01 0.09
Earnings(4) 0.083 (0.048) 0.116 (0.014) (0.051)
Earnings
(fully diluted)(5) 0.080 (0.047) 0.114 (0.013) (0.050)
Dividend 0 0 0 0 0
Quoted price
at the end
of the financial
period 10.25 6.70 10.25 6.70 6.70
P/E-ratio(6) 124 (1016) 195 (234) (131)
Number of
shares at
financial
period end 44,263,975 36,959,999 44,263,975 36,959,999 39,129,641
Weighted
average
number of
shares for
the
financial
period(7) 42,576,590 36,929,019 40,508,421 35,922,260 38,116,261
Weighted
average
number of
shares for
the
financial
period
(fully
diluted)(5,7) 43,892,508 37,602,029 41,034,788 36,623,839 38,733,321


(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.

Contact Information

  • Tanganyika Oil Company Ltd.
    Lukas Lundin
    (604) 689-7842
    (604) 689-4250 (FAX)
    or
    Tanganyika Oil Company Ltd.
    Sophia Shane
    (604) 689-7842
    (604) 689-4250 (FAX)
    www.tanganyikaoil.com