Transglobe Energy (TGA) 6-K Current report (foreign)

 TRANSGLOBE ENERGY CORPORATION TSX & AIM: TGL      NASDAQ: TGA 

Condensed Consolidated Interim Statements of Earnings (Loss) and Comprehensive Income (Loss)

(Unaudited - Expressed in thousands of U.S. Dollars, except per share amounts)

			Three Months Ended June 30					Six Months Ended June 30
		Notes	2021		2020			2021			2020
REVENUE
	Petroleum and natural gas sales, net of royalties	17		50,595		11,392			68,647			64,626
	Finance revenue			3		34			6			92
	Other revenue			33		222			33			222
				50,631		11,648			68,686			64,940
EXPENSES
	Production and operating	7,17		19,722		10,406			29,171			33,663
	Selling costs			1,671		423			1,705			1,049
	General and administrative			3,670		3,951			8,707			5,855
	Foreign exchange loss			10		113			43			165
	Finance costs	5		333		589			803			1,404
	Depletion, depreciation and amortization	9		6,959		5,657			11,774			17,909
	Asset retirement obligation accretion	10		45		60			111			128
	Loss (gain) on financial instruments	4		4,894		1,371			9,409			(7,173	)
	Impairment loss	8,9		-		-			-			73,495
				37,304		22,570			61,723			126,495
Earnings (loss) before income taxes				13,327		(10,922	)		6,963			(61,555	)
Income tax expense - current				5,605		2,445			10,265			7,030
NET EARNINGS (LOSS)				7,722		(13,367	)		(3,302	)		(68,585	)
OTHER COMPREHENSIVE INCOME (LOSS)
	Currency translation adjustments			772		2,247			1,166			(2,559	)
COMPREHENSIVE INCOME (LOSS)				8,494		(11,120	)		(2,136	)		(71,144	)
Net earnings (loss) per share		16
	Basic			0.11		(0.19	)		(0.05	)		(0.95	)
	Diluted			0.11		(0.19	)		(0.05	)		(0.95	)

See accompanying notes to the Condensed Consolidated Interim Financial Statements

1

 TRANSGLOBE ENERGY CORPORATION TSX & AIM: TGL      NASDAQ: TGA 

Condensed Consolidated Interim Balance Sheets

(Unaudited - Expressed in thousands of U.S. Dollars)

			As at			As at
		Notes	June 30, 2021			December 31, 2020
ASSETS
Current
	Cash and cash equivalents	6		43,639			34,510
	Accounts receivable	4		13,641			9,996
	Prepaids and other			2,864			3,530
	Product inventory	7		3,703			5,828
				63,847			53,864
Non-Current
	Intangible exploration and evaluation assets	8		1,162			584
	Property and equipment
	Petroleum and natural gas assets	9		137,202			140,059
	Other	9		2,559			2,917
	Deferred taxes			3,709			3,723
				208,479			201,147
LIABILITIES
Current
	Accounts payable and accrued liabilities	13		30,758			21,667
	Derivative commodity contracts	4		4,605			398
	Current portion of lease obligations	11		1,348			1,553
	Current portion of long-term debt	12		10,000			14,897
				46,711			38,515
Non-Current
	Long-term debt	12		6,951			6,567
	Asset retirement obligations	10		13,863			13,042
	Other long-term liabilities			859			544
	Lease obligations	11		33			461
	Deferred taxes			3,709			3,723
				72,126			62,852
SHAREHOLDERS’ EQUITY
	Share capital	14		152,805			152,805
	Accumulated other comprehensive income			3,066			1,900
	Contributed surplus			25,303			25,109
	Deficit			(44,821	)		(41,519	)
				136,353			138,295
				208,479			201,147

Commitments and Contingencies (Note 13)

See accompanying notes to the Condensed Consolidated Interim Financial Statements

Approved on behalf of the Board:

Signed by:

“Randy C. Neely”	“Steven Sinclair”
Randy C. Neely	Steven Sinclair
President & CEO	Audit Committee Chair
Director	Director

2

 TRANSGLOBE ENERGY CORPORATION TSX & AIM: TGL      NASDAQ: TGA 

Condensed Consolidated Interim Statements of Changes in Shareholders’ Equity

(Unaudited - Expressed in thousands of U.S. Dollars)

			Six Months Ended June 30
		Notes	2021			2020
Share Capital
	Balance, beginning and end of period	14		152,805			152,805
Accumulated Other Comprehensive Income (Loss)
	Balance, beginning of period			1,900			1,134
	Currency translation adjustment			1,166			(2,559	)
	Balance, end of period			3,066			(1,425	)
Contributed Surplus
	Balance, beginning of period			25,109			24,673
	Share-based compensation expense	15		194			245
	Balance, end of period			25,303			24,918
(Deficit) Retained Earnings
	Balance, beginning of period			(41,519	)		35,878
	Net loss			(3,302	)		(68,585	)
	Balance, end of period			(44,821	)		(32,707	)

See accompanying notes to the Condensed Consolidated Interim Financial Statements

3

 TRANSGLOBE ENERGY CORPORATION TSX & AIM: TGL      NASDAQ: TGA 

Condensed Consolidated Interim Statements of Cash Flows

(Unaudited - Expressed in thousands of US Dollars)

				Three Months Ended June 30						Six Months Ended June 30
			Notes	2021			2020			2021			2020
OPERATING
	Net earnings (loss)				7,722			(13,367	)		(3,302	)		(68,585	)
	Adjustments for:
		Depletion, depreciation and amortization	9		6,959			5,657			11,774			17,909
		Asset retirement obligation accretion	10		45			60			111			128
		Impairment loss	8,9		-			-			-			73,495
		Share-based compensation	15		816			884			3,587			(417	)
		Finance costs	5		333			589			803			1,404
		Unrealized loss (gain) on financial instruments	4		1,248			3,348			4,218			(1,028	)
		Unrealized loss on foreign currency translation			8			65			12			32
	Asset retirement obligations settled		10		(31	)		-			(22	)		(20	)
	Changes in non-cash working capital		18		6,732			27,315			2,711			(2,040	)
Net cash generated by operating activities					23,832			24,551			19,892			20,878
INVESTING
	Additions to intangible exploration and evaluation assets		8		(15	)		(7	)		(578	)		(337	)
	Additions to petroleum and natural gas assets		9		(3,557	)		(1,161	)		(5,887	)		(6,322	)
	Additions to other assets		9		(25	)		(61	)		(39	)		(147	)
	Changes in non-cash working capital		18		522			(1,594	)		2,347			(662	)
Net cash used in investing activities					(3,075	)		(2,823	)		(4,157	)		(7,468	)
FINANCING
	Interest paid		5		(291	)		(512	)		(584	)		(1,130	)
	Increase in long-term debt		12		146			72			225			168
	Payments on lease obligations		11		(479	)		(381	)		(1,071	)		(775	)
	Repayments of long-term debt		12		(5,000	)		(10,000	)		(5,000	)		(10,000	)
	Changes in non-cash working capital		18		(8	)		-			(9	)		-
Net cash used in financing activities					(5,632	)		(10,821	)		(6,439	)		(11,737	)
Currency translation differences relating to cash and cash equivalents					(155	)		100			(167	)		(87	)
NET INCREASE IN CASH AND CASH EQUIVALENTS					14,970			11,007			9,129			1,586
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD					28,669			23,830			34,510			33,251
CASH AND CASH EQUIVALENTS, END OF PERIOD					43,639			34,837			43,639			34,837

See accompanying notes to the Condensed Consolidated Interim Financial Statements

4

 TRANSGLOBE ENERGY CORPORATION TSX & AIM: TGL      NASDAQ: TGA 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

As atJune 30, 2021andDecember 31, 2020and for the three and six month periods ended June 30, 2021and2020

(Unaudited - All amounts expressed in U.S. Dollars, except as otherwise noted)

1. CORPORATE INFORMATION

TransGlobe Energy Corporation ("TransGlobe" or the "Company") and its subsidiaries are engaged in oil and natural gas exploration, development and production, and the acquisition of oil and natural gas properties. The Company's shares are traded on the Toronto Stock Exchange (“TSX”), the London Stock Exchange's Alternative Investment Market ("AIM") and the Capital Market of the NASDAQ Stock Market (“NASDAQ”). TransGlobe is incorporated in Alberta, Canada and the address of its principal place of business is Suite 900, 444 – 5th Avenue SW, Calgary, Alberta, Canada, T2P 2T8.

2. BASIS OF PREPARATION

These Condensed Consolidated Interim Financial Statements have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting, using accounting policies consistent with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board (“IASB”). The accounting policies used in the preparation of these Condensed Consolidated Interim Financial Statements were the same as those used in the preparation of the most recent audited Consolidated Financial Statements for the year ended December 31, 2020.

These Condensed Consolidated Interim Financial Statements were authorized for issue by the Board of Directors on August 5, 2021.

The Condensed Consolidated Interim Financial Statements are presented and expressed in United States dollars (“US$”), unless otherwise noted. All references to $ are to United States dollars and references to C$ are to Canadian dollars.

These Condensed Consolidated Interim Financial Statements do not contain all the disclosures required for full annual financial statements and should be read in conjunction with the December 31, 2020 audited Consolidated Financial Statements.

3. CRITICAL JUDGMENTS AND ACCOUNTING ESTIMATES

Timely preparation of financial statements in conformity with IFRS as issued by the IASB requires that management make estimates and assumptions and use judgments that affect the application of accounting policies and the reported amounts of assets, liabilities, revenues and expenses. Such estimates primarily relate to unsettled transactions and events as of the date of the Condensed Consolidated Interim Financial Statements. Accordingly, actual results may differ from estimated amounts as future events occur.

4. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

Fair values of financial instruments

Financial instruments include cash and cash equivalents, accounts receivable, derivative commodity contracts, accounts payable and accrued liabilities, lease obligations and long-term debt.

The Company has classified its cash and cash equivalents and derivative commodity contracts as fair value through profit or loss. Both are measured at fair value with subsequent changes recognized through earnings (loss). Accounts receivable are classified as assets at amortized cost; accounts payable and accrued liabilities, lease obligations and long-term debt are classified as liabilities at amortized cost, all of which are measured initially at fair value, and subsequently at amortized cost. Transaction costs attributable to financial instruments carried at amortized cost are included in the initial measurement of the financial instrument and are subsequently amortized using the effective interest rate method.

Carrying value and fair value of financial assets and liabilities are summarized as follows:

	June 30, 2021				December 31, 2020
Classification ($000s)	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial assets at fair value through profit or loss		43,639		43,639		34,510		34,510
Financial assets at amortized cost		13,641		13,641		9,996		9,996
Financial liabilities at fair value through profit or loss		4,605		4,605		398		398
Financial liabilities at amortized cost		49,090		49,090		45,145		45,248

Assets and liabilities as at June 30, 2021 that are measured at fair value are classified into levels reflecting the method used to make the measurements. Fair values of assets and liabilities included in Level 1 are determined by reference to quoted prices in active markets for identical assets and liabilities. Assets and liabilities in Level 2 include valuations using inputs other than quoted prices for which all significant inputs are observable, either directly or indirectly. Level 3 valuations are based on inputs that are unobservable and significant to the overall fair value measurement.

5

 TRANSGLOBE ENERGY CORPORATION TSX & AIM: TGL      NASDAQ: TGA 

The Company’s cash and cash equivalents and derivative commodity contracts are assessed on the fair value hierarchy described above. TransGlobe’s cash and cash equivalents are classified as Level 1. Derivative commodity contracts are classified as Level 2. Assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the placement within the fair value hierarchy level. There were no transfers between levels in the fair value hierarchy in the period.

Derivative commodity contracts

The nature of TransGlobe’s operations exposes it to fluctuations in commodity prices, interest rates and foreign currency exchange rates. TransGlobe monitors and, when appropriate, uses derivative financial instruments to manage its exposure to these fluctuations. All transactions of this nature entered into by TransGlobe are related to future crude oil and natural gas production. TransGlobe does not use derivative financial instruments for speculative purposes. TransGlobe has elected not to designate any of its derivative financial instruments as accounting hedges and thus accounts for changes in fair value in net earnings (loss) at each reporting period. TransGlobe has not obtained collateral or other security to support its financial derivatives as management reviews the creditworthiness of its counterparties prior to entering into derivative contracts. The derivative financial instruments are initiated within the guidelines of the Company's corporate hedging policy. This includes linking all derivatives to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions.

In conjunction with the prepayment agreement (see Note 12), TransGlobe entered into a marketing contract with Mercuria Energy Trading SA ("Mercuria") to market nine million barrels of TransGlobe's Egyptian entitlement oil production. The pricing of the crude oil sales will be based on market prices at the time of sale. The Company is committed to hedge 60% of its forecasted 1P entitlement production.

In conjunction with the recently renewed revolving Canadian reserves-based lending facility with ATB, the Company is required to enter into hedging arrangements based on its debt utilization. If utilization is below 50%, TransGlobe is required to hedge 25% of its annual forecasted average daily Canadian production of oil and natural gas volumes (net of royalties); utilization of between 50%-69% requires a hedge of 50%; utilization of 70% and above requires a hedge of 60%.

The following table summarizes TransGlobe’s outstanding derivative commodity contract positions as at June 30, 2021, the fair values of which have been presented on the Condensed Consolidated Interim Balance Sheet:

Financial Brent crude oil contracts
Period Hedged	Contract	Remaining Volume (bbl)		Monthly Volume (bbl)		Bought Put US$/bbl		Sold Call US$/bbl		Sold Put US$/bbl
Jul 2021 - Dec 2021	3-Way Collar		300,000		50,000		50.00		60.00		40.00

Financial AECO natural gas contracts
Period Hedged	Contract	Remaining Volume (GJ)		Daily Volume (GJ)		Swap C$/GJ
Jul 2021 - Dec 2021	Swap		699,200		3,800		2.76

The gains and losses on financial instruments for the three and six months ended June 30, 2021 and 2020 are comprised as follows:

	Three Months Ended June 30					Six Months Ended June 30
($000s)	2021		2020			2021		2020
Realized derivative loss (gain) during the period		3,646		(1,977	)		5,191		(6,145	)
Unrealized derivative loss (gain) on commodity contracts outstanding at period end		1,248		3,348			4,218		(1,028	)
Loss (gain) on financial instruments		4,894		1,371			9,409		(7,173	)

Overview of Risk Management

The Company’s activities expose it to a variety of financial risks that arise as a result of its exploration, development, production and financing activities:

•Credit risk

•Market risk

•Liquidity risk

The Board of Directors and Audit Committee oversee management’s establishment and execution of the Company’s risk management framework. Management has implemented and monitors compliance with risk management policies. The Company’s risk management policies are established to identify and analyze the risks faced by the Company, to set appropriate risk limits and controls, and to monitor risks and adherence to market conditions and the Company’s activities.

Credit risk

Credit risk is the risk of financial loss if a customer or counterparty to a financial instrument fails to fulfill their contractual obligations. The Company’s exposure to credit risk primarily relates to cash equivalents and accounts receivable, the majority of which are in respect of oil and natural gas

6

 TRANSGLOBE ENERGY CORPORATION TSX & AIM: TGL      NASDAQ: TGA 

operations. The Company generally extends unsecured credit to these parties and therefore the collection of these amounts may be affected by changes in economic or other conditions. The Company has not experienced any material credit losses in its cash investments or in the collection of accounts receivable to date.

TransGlobe's accounts receivable related to the Canadian operations are with customers and joint interest partners in the petroleum and natural gas industry, and are subject to normal industry credit risks. Receivables from petroleum and natural gas marketers are normally collected in due course. The Company currently sells its production to several purchasers under standard industry sale and payment terms. Purchasers of TransGlobe's natural gas, crude oil and natural gas liquids are subject to a periodic internal credit review to minimize the risk of non-payment. The Company has continued to closely monitor and reassess the creditworthiness of its counterparties, including financial institutions.

Trade and other receivables are analyzed in the table below.

($000s)	June 30, 2021		December 31, 2020
Neither impaired nor past due		9,272		6,542
Not impaired and past due in the following period:
Within 30 days		2,855		2,255
31-60 days		304		34
61-90 days		550		510
Over 90 days		660		655
Accounts receivable		13,641		9,996

During the three months ended June 30, 2021 the Company sold an Egypt crude oil cargo of 498.6 Mbbls to third party buyers for net proceeds of $29.1 million, which were collected in May. Depending on the Company's assessment of the credit of crude purchasers, they may be required to post irrevocable letters of credit to support the sales prior to the cargo liftings. During the second quarter of 2021 the Company sold 366.3 Mbbls of inventoried entitlement crude oil to EGPC for net proceeds of $22.2 million. As at June 30, 2021, $9.3 million (December 31, 2020 - $6.0 million) of the total accounts receivable balance of $13.6 million (December 31, 2020 - $10.0 million) is due from EGPC. All accounts receivable are in good standing and collection is not considered to be at risk.

The Company manages its credit risk on cash equivalents by investing only in term deposits with reputable banking institutions.

Market risk

Market risk is the risk or uncertainty arising from possible market price movements and the associated impact on future performance of the business. The market price movements that the Company is exposed to include commodity prices, foreign currency exchange rates and interest rates, all of which could adversely affect the value of the Company’s financial assets, liabilities and financial results.

Commodity price risk

The Company’s operational results and financial condition are partially dependent on the commodity prices received for its production of oil, natural gas and NGLs. The Company is exposed to commodity price risk on its derivative assets and liabilities which are used as part of the Company's risk management program to mitigate the effects of changes in commodity prices on future cash flows. While transactions of this nature relate to forecasted future petroleum and natural gas production, TransGlobe does not designate these derivative assets and liabilities as accounting hedges. As such, changes in commodity prices impact the fair value of derivative instruments and the corresponding gains or losses on derivative instruments. The estimated fair value of unrealized commodity contracts is reported on the Consolidated Interim Balance Sheets, with any change in the unrealized positions recorded to net earnings (loss). The Company assesses these instruments on the fair value hierarchy and has classified the determination of fair value of these instruments as Level 2, as the fair values of these transactions are based on an approximation of the amounts that would have been received from counterparties to settle the transactions outstanding as at the date of the Consolidated Interim Balance Sheets with reference to forward prices and market values provided by independent sources. The actual amounts realized may differ from these estimates.

Foreign currency exchange risk

As the Company’s business is conducted primarily in U.S. dollars and its financial instruments are primarily denominated in U.S. dollars, the Company’s exposure to foreign currency exchange risk relates primarily to certain cash and cash equivalents, accounts receivable, long-term debt, lease obligations and accounts payable and accrued liabilities denominated in Canadian dollars. When assessing the potential impact of foreign currency exchange risk, the Company believes that 10% volatility is a reasonable measure. The Company estimates that a 10% increase in the value of the Canadian dollar against the U.S. dollar would decrease net earnings for the three months ended June 30, 2021 by approximately $0.7 million and conversely, a 10% decrease in the value of the Canadian dollar against the U.S. dollar would increase net earnings by $0.7 million for the same period. The Company does not utilize derivative instruments to manage this risk.

The Company is also exposed to foreign currency exchange risk on cash balances denominated in Egyptian pounds. Some collections of accounts receivable from the Egyptian Government are received in Egyptian pounds, and while the Company is generally able to spend the Egyptian pounds received on accounts payable denominated in Egyptian pounds, there remains foreign currency exchange risk exposure on Egyptian pound cash balances. Using month-end cash balances converted at month-end foreign exchange rates, the average Egyptian pound cash balance at June 30, 2021 was $0.9 million in equivalent U.S. dollars. The Company estimates that a 10% increase in the value of the Egyptian pound against the U.S. dollar would decrease net earnings for the three months ended June 30, 2021 by approximately $0.1 million and conversely a 10% decrease in the value of the Egyptian pound against the U.S. dollar would increase net earnings by $0.1 million for the same period. The Company does not currently utilize derivative instruments to manage foreign currency exchange risk.

7

 TRANSGLOBE ENERGY CORPORATION TSX & AIM: TGL      NASDAQ: TGA 

The Company maintains nominal balances of British Pounds sterling to pay in-country costs incurred in operating its London office. Foreign exchange risk on these funds is not considered material.

Interest rate risk

Fluctuations in interest rates could result in a significant change in the amount the Company pays to service variable interest debt. No derivative contracts were entered into during Q2-2021 to mitigate interest rate risk. When assessing interest rate risk applicable to the Company’s variable interest debt, the Company believes 1% volatility is a reasonable measure. The effect of interest rates increasing by 1% would decrease the Company’s net earnings, for the three months ended June 30, 2021, by $0.1 million and conversely, the effect of interest rates decreasing by 1% would increase the Company’s net earnings, for the same period, by $0.1 million.

Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. Liquidity describes a company’s ability to access cash. Companies operating in the upstream oil and gas industry require sufficient cash in order to fund capital programs necessary to maintain and increase production and proved reserves, to acquire strategic oil and gas assets and to repay debt. The Company actively maintains credit facilities to ensure it has sufficient available funds to meet current and foreseeable financial requirements at a reasonable cost. The following are the contractual maturities of financial liabilities at June 30, 2021:

		Payment Due by Period1,2
($000s)	Recognized in Financial Statements	Contractual Cash Flows		Less than 1 year		1-3 years		4-5 years		More than 5 years
Accounts payable and accrued liabilities	Yes-Liability		30,758		30,758		-		-		-
Long-term debt	Yes-Liability		16,951		10,000		6,951		-		-
Lease obligations3	Yes-Liability		1,465		1,445		20		-		-
Drilling commitment	No		1,000		-		1,000		-		-
Other long-term liabilities	Yes-Liability		859		-		859		-		-
Derivative commodity contracts	Yes-Liability		4,605		4,605		-		-		-
Equipment and facility leases (short-term)4	No		401		401		-		-		-
Total			56,039		47,209		8,830		-		-

¹ Payments exclude ongoing operating costs, finance costs and payments made to settle derivatives.

² Payments denominated in foreign currencies have been translated at June 30, 2021 exchange rates.

³ These amounts include the notional principal and interest payments.

⁴ Equipment leases include one facility contract and one workover rig.

As at June 30, 2021, the Company had $93.2 million of revolving credit facilities with $17.0 million drawn and $76.2 million available. The Company has a prepayment agreement with Mercuria that allows for a revolving balance of up to $75.0 million, of which $10.0 million was drawn and outstanding as at June 30, 2021. During the six months ended June 30, 2021, the Company repaid $5.0 million on this prepayment facility (See Note 12). The Company also has a revolving Canadian reserves-based lending facility with ATB that was renewed and increased as at June 30, 2021 from C$15.0 million ($11.0 million) to C$22.5 million ($18.2 million), of which C$8.6 million ($7.0 million) was drawn and outstanding. During the six months ended June 30, 2021, the Company had drawings of C$0.3 million ($0.2 million) on this facility (See Note 12).

The Company actively monitors its liquidity to ensure that its cash flows, credit facilities and working capital are adequate to support these financial liabilities, as well as the Company’s capital programs.

To date, the Company has experienced no difficulties with transferring funds abroad.

5. FINANCE COSTS

Finance costs recognized in net loss were as follows:

	Three Months Ended June 30				Six Months Ended June 30
($000s)	2021		2020		2021		2020
Interest on long-term debt		202		387		431		969
Interest on borrowing base facility		80		65		156		158
Amortization of deferred financing costs		-		98		103		193
Interest on lease obligations		51		39		113		84
Finance costs		333		589		803		1,404
Interest paid		291		512		584		1,130

8

 TRANSGLOBE ENERGY CORPORATION TSX & AIM: TGL      NASDAQ: TGA 

6. CASH AND CASH EQUIVALENTS

The following table reconciles TransGlobe's cash and cash equivalents:

($000s)	June 30, 2021		December 31, 2020
Cash		43,639		34,510
Cash equivalents		-		-
Cash and cash equivalents		43,639		34,510

All of the Company's cash is on deposit with high credit-quality financial institutions.

7. PRODUCT INVENTORY

Product inventory consists of the Company's entitlement crude oil barrels in Egypt, which are valued at the lower of cost or net realizable value. Costs include operating expenses and depletion associated with crude oil entitlement barrels and are determined on a concession by concession basis. These amounts are initially capitalized and expensed when sold.

As at June 30, 2021, the Company held 140.3 Mbbls of crude oil in inventory valued at approximately $26.38/bbl (December 31, 2020 – 227.9 Mbbls valued at approximately $25.57 per barrel).

8. INTANGIBLE EXPLORATION AND EVALUATIONASSETS

The following table reconciles the changes in TransGlobe's exploration and evaluation assets:

($000s)
Balance at December 31, 2020	584
Additions to exploration and evaluation assets	578
Balance at June 30, 2021	1,162

The ending balance of intangible exploration and evaluation assets as at June 30, 2021 includes $0.6 million in Canada (December 31, 2020 - $0.6 million) and $0.6 in South Ghazalat (December 31, 2020 - $Nil).

9. PROPERTY AND EQUIPMENT

The following table reconciles the changes in TransGlobe's property and equipment assets:

($000s)	PNG Assets		Other Assets		Total
Cost
Balance at December 31, 2020		720,304		19,751		740,055
Increase in right-of-use assets		-		325		325
Additions		5,887		39		5,926
Change in estimate for asset retirement obligations (Note 10)		416		-		416
Balance at June 30, 2021		726,607		20,115		746,722
Accumulated depreciation, depletion, amortization and impairment losses
Balance at December 31, 2020		583,230		16,834		600,064
Depletion, depreciation and amortization for the period1		10,824		722		11,546
Balance at June 30, 2021		594,054		17,556		611,610
Foreign Exchange
Balance at December 31, 2020		2,985		-		2,985
Currency translation adjustments		1,664		-		1,664
Balance at June 30, 2021		4,649		-		4,649
Net book value
At December 31, 2020		140,059		2,917		142,976
At June 30, 2021		137,202		2,559		139,761

¹ Depletion, depreciation and amortization is adjusted for amounts capitalized to product inventory at the time of production and expensed when sold.

9

 TRANSGLOBE ENERGY CORPORATION TSX & AIM: TGL      NASDAQ: TGA 

The following table discloses the carrying amounts and depreciation charges for right-of-use assets by class of underlying asset as at and for the six months ended June 30, 2021:

($000s)	PNG Assets			Other Assets			Total
Net book value at December 31, 2020		1,443			397			1,840
Increase in right-of-use assets		-			325			325
Depreciation for the period		(533	)		(386	)		(919	)
Net book value at June 30, 2021		910			336			1,246

10. ASSET RETIREMENT OBLIGATIONS

The following table reconciles the change in TransGlobe's asset retirement obligations:

($000s)
Balance at December 31, 2020	13,042
Changes in estimates for asset retirement obligations and additional obligations recognized	416
Obligations settled	(22	)
Asset retirement obligation accretion	111
Effect of movements in foreign exchange rates	316
Balance at June 30, 2021	13,863

As at June 30, 2021, the entire asset retirement obligation balance relates to the Company's Canadian operations. TransGlobe has estimated the net present value of its asset retirement obligations to be $13.9 million as at June 30, 2021 (December 31, 2020 - $13.0 million). These payments are expected to be made between 2021 and 2066. TransGlobe calculated the present value of the obligations using discount rates between 0.45% and 1.84% (December 31, 2020 – 2.00%) to reflect the market assessment of the time value of money as well as risks specific to the liabilities that have not been included in the cash flow estimates. The inflation rate used in determining the cash flow estimate was 2.00% per annum (December 31, 2020 – 2.00%).

As at June 30, 2021 there is no ARO associated with the Egypt production sharing concessions.

11. LEASE OBLIGATIONS

The following table reconciles TransGlobe's lease obligations:

($000s)	As at June 30, 2021		As at December 31, 2020
Less than 1 year		1,445		1,760
1 - 3 years		20		434
Total lease payments		1,465		2,194
Amounts representing interest		84		180
Present value of net lease payments		1,381		2,014
Current portion of lease obligations		1,348		1,553
Non-current portion of lease obligations		33		461

During the six months ended June 30, 2021, the Company incurred $0.1 million (June 30, 2020 - $0.1 million) on interest expense and paid a total cash outflow of $1.0 million (June 30, 2020 - $0.8 million) relating to lease obligations.

12. LONG-TERM DEBT

As at June 30, 2021, interest-bearing debt was comprised as follows:

	June 30, 2021		December 31, 2020
Prepayment agreement		10,000		14,897
Reserves-based lending facility		6,951		6,567
Balance, end of period		16,951		21,464

As at June 30, 2021 and December 31, 2020, the Company had in place a $75.0 million crude oil prepayment agreement with Mercuria, of which $10.0 million (December 31, 2020 - $15.0 million) was drawn. On May 26, 2021, the Company made a repayment of $5.0 million on the prepayment agreement. The prepayment agreement has a maturity date of September 30, 2021.

As at December 31, 2020, the Company had in place a revolving Canadian reserves-based lending facility with ATB totaling C$15.0 million ($11.0 million). On June 4, 2021 the ATB facility was renewed for $C22.5 million ($18.2 million), of which C$8.6 million ($7.0 million) was drawn and outstanding as at June 30, 2021 (December 31, 2020 - C$8.3 million/$6.6 million). The facility bears interest at a rate of either ATB Prime or CDOR (Canadian Dollar Offered Rate) plus applicable margins that vary from 2.25% to 4.25% (December 31, 2020: 2.25% to 4.25%) depending on the

10

 TRANSGLOBE ENERGY CORPORATION TSX & AIM: TGL      NASDAQ: TGA 

Company’s net debt to trailing cash flow ratio. Under the renewed agreement, the Company is required to enter into hedging arrangements based on its debt utilization. If utilization is below 50%, TransGlobe is required to hedge 25% of its annual forecasted average daily Canadian production of oil and natural gas volumes (net of royalties); utilization of between 50%-69% requires a hedge of 50%; utilization of 70% and above requires a hedge of 60%. There were no other changes to the key terms of the agreement from December 31, 2020. During the six months ended June 30, 2021, the Company drew C$0.3 million ($0.2 million) on the revolving facility.

The following table reconciles the changes in TransGlobe's long-term debt, including the current portion:

($000s)
Balance at December 31, 2020	21,464
Draws on revolving credit facility	225
Repayment of long-term debt	(5,000	)
Amortization of deferred financing costs	103
Effects of movements in foreign exchange rates	159
Balance at June 30, 2021	16,951
Current portion of long-term debt	(10,000	)
Non-current portion of long-term debt	6,951

During the six months ended June 30, 2021, the Company paid $0.6 million (June 30, 2020 - $1.1 million) in interest on its long-term debt.

The Company's interest-bearing loans and borrowings are measured at amortized cost. The prepayment agreement and reserves-based lending facility are subject to certain covenants. The Company was in compliance with its covenants as at June 30, 2021.

The estimated future debt payments on long-term debt as of June 30, 2021 are as follows:

($000s)	Prepayment Agreement		Reserves Based Lending Facility		Total
2021		10,000		-		10,000
2022		-		6,951		6,951
		10,000		6,951		16,951

13. COMMITMENTS AND CONTINGENCIES

As part of its normal business, the Company entered into arrangements and incurred obligations that will impact the Company’s future operations and liquidity. The principal commitments of the Company are as follows:

		Payment Due by Period1,2
($000s)	Recognized in Financial Statements	Contractual Cash Flows		Less than 1 year		1-3 years		4-5 years		More than 5 years
Accounts payable and accrued liabilities	Yes-Liability		30,758		30,758		-		-		-
Long-term debt	Yes-Liability		16,951		10,000		6,951		-		-
Lease obligations3	Yes-Liability		1,465		1,445		20		-		-
Drilling commitment	No		1,000		-		1,000		-		-
Other long-term liabilities	Yes-Liability		859		-		859		-		-
Derivative commodity contracts	Yes-Liability		4,605		4,605		-		-		-
Equipment and facility leases (short-term)4	No		401		401		-		-		-
Total			56,039		47,209		8,830		-		-

¹ Payments exclude ongoing operating costs and finance costs.

² Payments denominated in foreign currencies have been translated at June 30, 2021 exchange rates.

³   These amounts include the notional and principal interest payments.

⁴ Equipment leases include one facility contract and one workover rig.

Pursuant to the approved South Ghazalat development lease, the Company is committed to drill one exploration well during the initial four year period of the 20 year development lease. The Company has issued a production guarantee in the amount of $1.0 million which will be released when the commitment well has been drilled.

In the normal course of its operations, the Company may be subject to litigation and claims. Although it is not possible to estimate the extent of potential costs, if any, management believes that the ultimate resolution of such contingencies would not have a material adverse impact on the results of operations, financial position or liquidity of the Company.

On March 31, 2015, TG Holdings Yemen, Inc. ("TG Holdings"), a wholly-owned subsidiary of TransGlobe, relinquished its 13.8% interest in a concession in western Yemen known as "Block 32". In 2018, the Ministry of Oil and Minerals of the Republic of Yemen (“MOM”) raised claims against the contractor parties, including TG Holdings. The claims variously related to accounting practices, environmental and asset integrity/retirement

11

 TRANSGLOBE ENERGY CORPORATION TSX & AIM: TGL      NASDAQ: TGA 

claims, claims related to payment of customs duties and penalties, claims related to amounts allegedly owing to third parties for employment and facilities usage claims, and claims related to the handover of the concession.

A decision was rendered on the arbitration by the arbitral tribunal with an effective date of March 31, 2021. The final award determined that the contractor parties, including TG Holdings, are entitled to their share of Production Sharing Oil that was lifted by MOM in the amount of $5.0 million. The award also determined that the contractor parties, including TG Holdings, are jointly and severally liable for certain costs in the amount of $6.5 million.

The Company is not aware of any material provisions or other contingent liabilities as at June 30, 2021.

14. SHARE CAPITAL

The Company is authorized to issue an unlimited number of common shares with no par value. Shares in issue as at June 30, 2021 and December 31, 2020 are outlined below:

	Six Months Ended June 30, 2021					Year Ended December 31, 2020
(000s)	Shares			Amount ($)		Shares		Amount ($)
Balance, beginning and end of period		72,543	��		152,805		72,543		152,805

15. SHARE-BASED PAYMENTS

Stock options

The following table summarizes information about the stock options outstanding and exercisable at the dates indicated:

	Six Months Ended June 30, 2021					Year Ended December 31, 2020
(000s)	Number of Options			Weighted-Average Exercise Price ($C)		Number of Options			Weighted-Average Exercise Price ($C)
Options outstanding, beginning of period		4,589			2.16		4,481			2.86
Granted		402			2.16		819			0.79
Expired		(1,002	)		2.19		(711	)		4.99
Options outstanding, end of period		3,989			2.15		4,589			2.16
Options exercisable, end of period		2,715			2.35		2,797			2.35

Compensation expense of $0.2 million was recorded during the six months ended June 30, 2021 (June 30, 2020 - $0.2 million) in general and administrative expenses in the Condensed Consolidated Interim Statements of Earnings (Loss) and Comprehensive Income (Loss) and Condensed Consolidated Interim Statements of Changes in Shareholders’ Equity in respect of stock options. The fair value of all common stock options granted is estimated on the date of grant using the lattice-based trinomial option pricing model.

All options granted vest annually over a three-year period and expire five years after the grant date. No employee stock options were exercised during the six month periods ended June 30, 2021 and 2020. As at June 30, 2021 and December 31, 2020, the entire balance in contributed surplus was related to previously recognized share-based compensation expense on equity-settled stock options.

Restricted share unit ("RSU"), performance share unit ("PSU") and deferred share unit ("DSU") plans

The number of RSUs, PSUs and DSUs outstanding as at June 30, 2021 are as follows:

(000s)	RSUs			PSUs			DSUs
Units outstanding, December 31, 2020		835			2,272			826
Granted		362			602			200
Exercised		(333	)		(592	)		(94	)
Units outstanding, June 30, 2021		864			2,282			932

During the six months ended June 30, 2021, compensation expense of $3.4 million (June 30, 2020 - $0.7 million recovery) was recorded in general and administrative expenses in the Condensed Consolidated Interim Statements of Earnings (Loss) and Comprehensive Income (Loss) in respect of the revaluation of outstanding share units granted under the three plans described above.

12

 TRANSGLOBE ENERGY CORPORATION TSX & AIM: TGL      NASDAQ: TGA 

16. PER SHARE AMOUNTS

The basic weighted-average number of common shares outstanding for the three and six months ended June 30, 2021 was 72,542,071 (three and six months ended June 30, 2020 - 72,542,071). The diluted weighted-average number of common shares outstanding for the three and six months ended June 30, 2021 was 72,921,693 (June 30, 2020 - 72,542,071) and 72,953,513 (June 30, 2020 - 72,542,071). These outstanding share amounts were used to calculate net earnings (loss) per share in the respective periods.

In determining diluted net loss per share, the Company assumes that the proceeds received from the exercise of “in-the-money” stock options are used to repurchase common shares at the average market price. In calculating the weighted-average number of diluted common shares outstanding for the three and six month period ended June 30, 2021, the Company excluded 3,169,899 stock options (three months ended June 30, 2020 - 4,589,042; six months ended June 30, 2020 - 3,769,935) as their exercise price was greater than the average common share market price in the periods.

17. SEGMENTED INFORMATION

The Company has two reportable segments for the three and six months ended June 30, 2021 and 2020: the Arab Republic of Egypt and Canada. The Company, through its operating segments, is engaged primarily in oil exploration, development and production and the acquisition of oil and gas properties. In presenting information on the basis of operating segments, segment revenue is based on the geographical location of assets which is also consistent with the location of the segment customers. Segmented assets are also based on the geographical location of the assets. There are no inter-segment sales. The accounting policies of the operating segments are the same as the Company’s accounting policies.

	Three Months Ended June 30
	2021			2020			2021			2020			2021			2020			2021			2020
($000s)	Egypt						Canada						Corporate						Total
Revenue
Oil sales		77,831			22,304			3,942			830			-			-			81,773			23,134
Natural gas sales		-			-			1,137			556			-			-			1,137			556
Natural gas liquids sales		-			-			2,108			859			-			-			2,108			859
Less: royalties		(32,843	)		(12,477	)		(1,580	)		(680	)		-			-			(34,423	)		(13,157	)
Petroleum and natural gas sales, net of royalties		44,988			9,827			5,607			1,565			-			-			50,595			11,392
Finance revenue		-			16			-			-			3			18			3			34
Other revenue		-			-			-			-			33			222			33			222
Total segmented revenue		44,988			9,843			5,607			1,565			36			240			50,631			11,648
Segmented expenses
Production and operating		17,919			9,031			1,803			1,375			-			-			19,722			10,406
Selling costs		1,671			423			-			-			-			-			1,671			423
General and administrative		1,272			1,606			332			194			2,066			2,151			3,670			3,951
Foreign exchange loss		-			-			-			-			10			113			10			113
Finance costs		246			512			85			72			2			5			333			589
Depletion, depreciation and amortization		4,796			3,820			2,076			1,643			87			194			6,959			5,657
Asset retirement obligation accretion		-			-			45			60			-			-			45			60
Loss on financial instruments		4,292			1,371			602			-			-			-			4,894			1,371
Income tax expense		5,605			2,445			-			-			-			-			5,605			2,445
Segmented net earnings (loss)		9,187			(9,365	)		664			(1,779	)		(2,129	)		(2,223	)		7,722			(13,367	)
Capital expenditures
Exploration and development		2,585			1,204			1,012			(27	)		-			-			3,597			1,177
Corporate		-			-			-			-			-			52			-			52
Total capital expenditures		2,585			1,204			1,012			(27	)		-			52			3,597			1,229

13

 TRANSGLOBE ENERGY CORPORATION TSX & AIM: TGL      NASDAQ: TGA 

	Six Months Ended June 30
	2021			2020			2021			2020			2021			2020			2021			2020
($000s)	Egypt						Canada						Corporate						Total
Revenue
Oil sales		114,805			97,719			6,615			4,005			-			-			121,420			101,724
Natural gas sales		-			-			2,079			1,288			-			-			2,079			1,288
Natural gas liquids sales		-			-			3,796			1,724			-			-			3,796			1,724
Less: royalties		(56,327	)		(38,819	)		(2,321	)		(1,291	)		-			-			(58,648	)		(40,110	)
Petroleum and natural gas sales, net of royalties		58,478			58,900			10,169			5,726			-			-			68,647			64,626
Finance revenue		-			16			-			-			6			76			6			92
Other revenue		-			-			-			-			33			222			33			222
Total segmented revenue		58,478			58,916			10,169			5,726			39			298			68,686			64,940
Segmented expenses
Production and operating		25,847			30,389			3,324			3,274			-			-			29,171			33,663
Selling costs		1,705			1,049			-			-			-			-			1,705			1,049
General and administrative		2,506			3,065			555			449			5,646			2,341			8,707			5,855
Foreign exchange loss		-			-			-			-			43			165			43			165
Finance costs		632			1,222			167			170			4			12			803			1,404
Depletion, depreciation and amortization		7,803			13,853			3,730			3,656			241			400			11,774			17,909
Asset retirement obligation accretion		-			-			111			128			-			-			111			128
Loss (gain) on financial instruments		8,969			(7,173	)		440			-			-			-			9,409			(7,173	)
Impairment loss		-			69,434			-			4,061			-			-			-			73,495
Income tax expense		10,265			7,030			-			-			-			-			10,265			7,030
Segmented net (loss) earnings		751			(59,953	)		1,842			(6,012	)		(5,895	)		(2,620	)		(3,302	)		(68,585	)
Capital expenditures
Exploration and development		3,528			4,836			2,966			1,832			-			-			6,494			6,668
Corporate		-			-			-			-			10			138			10			138
Total capital expenditures		3,528			4,836			2,966			1,832			10			138			6,504			6,806

The carrying amounts of reportable segment assets and liabilities are as follows:

	As at June 30, 2021						As at December 31, 2020
($000s)	Egypt		Canada		Total		Egypt		Canada		Total
Assets
Accounts receivable		10,136		2,972		13,108		6,594		2,821		9,415
Intangible exploration and evaluation assets		578		584		1,162		-		584		584
Property and equipment
Petroleum and natural gas assets		66,157		71,045		137,202		70,331		69,728		140,059
Other assets		1,649		10		1,659		1,985		11		1,996
Other		36,701		4,201		40,902		33,571		2,162		35,733
Deferred taxes		3,709		-		3,709		3,723		-		3,723
Segmented assets		118,930		78,812		197,742		116,204		75,306		191,510
Non-segmented assets						10,737						9,637
Total assets						208,479						201,147
Liabilities
Accounts payable and accrued liabilities		21,823		2,054		23,877		14,342		2,040		16,382
Derivative commodity contracts		4,166		439		4,605		398		-		398
Long-term debt		10,000		6,951		16,951		14,897		6,567		21,464
Asset retirement obligation		-		13,863		13,863		-		13,042		13,042
Lease obligation		926		184		1,110		1,466		302		1,768
Deferred taxes		3,709		-		3,709		3,723		-		3,723
Segmented liabilities		40,624		23,491		64,115		34,826		21,951		56,777
Non-segmented liabilities						8,011						6,075
Total liabilities						72,126						62,852

14

 TRANSGLOBE ENERGY CORPORATION TSX & AIM: TGL      NASDAQ: TGA 

18. SUPPLEMENTAL CASH FLOW INFORMATION

Changes in non-cash working capital consisted of the following:

	Three Months Ended June 30						Six Months Ended June 30
($000s)	2021			2020			2021			2020
Operating activities
(Increase) decrease in current assets
Accounts receivable		(4,432	)		28,423			(3,645	)		(8,508	)
Prepaids and other		316			(410	)		799			283
Product inventory1		5,507			(2,752	)		1,898			4,851
Increase (decrease) in current liabilities
Accounts payable and accrued liabilities		5,105			2,103			3,344			1,802
Other long-term liabilities		236			(49	)		315			(468	)
Total changes in non-cash working capital		6,732			27,315			2,711			(2,040	)
Investing activities
Increase (decrease) in current liabilities
Accounts payable and accrued liabilities		522			(1,594	)		2,347			(662	)
Total changes in non-cash working capital		522			(1,594	)		2,347			(662	)
Financing activities
Decrease in current liabilities
Other liabilities		(8	)		-			(9	)		-
Total changes in non-cash working capital		(8	)		-			(9	)		-

¹ The change in non-cash working capital associated with product inventory represents the change in operating costs capitalized as product inventory in the respective periods.

15