Edgar Filing: TRANSATLANTIC PETROLEUM CORP.

Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: September 30, 2008

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 000-31643

TRANSATLANTIC PETROLEUM CORP.

(Exact name of registrant as specified in its charter)


Alberta, Canada		N/A
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

Suite 1840, 444 – 5^th Ave., S.W., Calgary, Alberta		T2P 2T8
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (214)-220-4323

Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨

Accelerated filer ¨

Non-accelerated filer ¨

(Do not check if a smaller

reporting company)

Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of November 14, 2008, the registrant had 79,957,781 common shares outstanding.

TABLE OF CONTENTS


	Part I.

Item 1.	Financial Statements	3
	Consolidated Balance Sheets at December 31, 2007 and September 30, 2008	3
	Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended September 30, 2007 and 2008 and the Nine Months Ended September 30, 2007 and 2008	4
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2007 and 2008	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22
Item 4T.	Controls and Procedures	22

	Part II.

Item 1.	Legal Proceedings	24
Item 1A.	Risk Factors	24
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26
Item 3.	Defaults Upon Senior Securities	26
Item 4.	Submission of Matters to a Vote of Security Holders	26
Item 5.	Other Information	26
Item 6.	Exhibits	26

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

TRANSATLANTIC PETROLEUM CORP.

Consolidated Balance Sheets

(Thousands of U.S. Dollars)


	September 30, 2008			December 31, 2007
	(unaudited)
Assets
Current assets
Cash and cash equivalents	$	10,120		$	2,224
Accounts receivable		470			566
Share subscription receivable (note 9)		105			—
Prepaid and other current assets		447			45

		11,142			2,835
Restricted cash (notes 4, 6 and 13)		2,318			2,272
Deferred charges (note 1)		241			—
Property and equipment (note 6)		2,143			1,572

	$	15,844		$	6,679

Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable	$	1,223		$	401
Accrued liabilities		296			388
Loan payable (notes 8 and 12)		—			2,000
Asset retirement obligations of assets held for sale (notes 5 and 7)		8			8
Settlement provision (note 13)		240			240

		1,767			3,037
Shareholders’ equity
Share capital (note 9)		56,034			42,191
Warrants (note 9)		747			1,108
Contributed surplus (note 9)		6,077			5,646
Deficit		(48,781	)		(45,303	)

		14,077			3,642
Going concern (note 1)
Subsequent events (notes 1, 6 and 16)
Commitments (notes 6 and 15)

	$	15,844		$	6,679

The accompanying notes are an integral part of these consolidated financial statements.

TRANSATLANTIC PETROLEUM CORP.

Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

(Thousands of U.S. Dollars, except for per share amounts)


	Nine Months						Three Months
	Ended September 30,
	2008			2007			2008			2007
Expenses
General and administrative	$	2,526		$	1,956		$	719		$	583
International oil and gas activities (note 6)		1,007			1,544			858			202
Settlement provision (note 13)		—			(313	)		—			—
Foreign exchange (gain) loss		(2	)		19			(2	)		20

		3,531			3,206			1,575			805
Interest and other income		(217	)		(231	)		(140	)		(34	)
Interest expense		39			63			—			18

Loss from continuing operations		3,353			3,038			1,435			789
Loss/(income) from discontinued operations (note 5)		125			3,933			48			318

Net loss and comprehensive net loss for the period		3,478			6,971			1,483			1,107

Net loss per share (note 9)
Basic and diluted – continuing operations	$	0.06		$	0.07		$	0.02		$	0.02
Basic and diluted – discontinued operations		—			0.09			—			0.01
Basic and diluted		0.06			0.16			0.02			0.03
Weighted average number of common shares outstanding – basic and diluted		61,471,175			42,958,355			79,531,341			43,210,129

The accompanying notes are an integral part of these consolidated financial statements.

TRANSATLANTIC PETROLEUM CORP.

Consolidated Statements of Cash Flows

(Unaudited)

(Thousands of U.S. Dollars)


	Nine Months Ended September 30,
	2008			2007
Cash provided by (used in)
Operating activities
Net loss for the period	$	(3,353	)	$	(3,038	)
Items not involving cash:
Stock-based compensation		490			344
Depreciation, depletion and accretion		5			—
Changes in non-cash working capital (note 14)		422			(1,854	)

		(2,434	)		(4,548	)
Discontinued operations
Net loss from discontinued operations (note 5)		(125	)		(3,933	)
Items not involving cash:
Non cash financing expense		—			359
Write-down of property and equipment		—			2,880
Depreciation, depletion and accretion		—			243

		(125	)		(451	)

		(2,559	)		(4,999	)
Investing activities
Property and equipment		(576	)		(4,126	)
Deferred charges		(138	)		—
Restricted cash		(46	)		930

		(760	)		(3,196	)
Financing Activities
Loan proceeds		—			4,000
Loan repayment		(2,000	)		—
Private placement		11,895			—
Deferred charges		(103	)		—
Exercise of warrants and options		1,423			164

		11,215			4,164
Change in cash and cash equivalents		7,896			(4,031	)
Cash and cash equivalents, beginning of period		2,224			4,688

Cash and cash equivalents, end of period	$	10,120		$	657

Supplemental cash flow information
Interest received	$	160		$	197
Interest paid		130			274

The accompanying notes are an integral part of these consolidated financial statements.

TRANSATLANTIC PETROLEUM CORP.

Notes to Consolidated Financial Statements—Unaudited

Three and nine months ended September 30, 2008 and 2007

(Tabular amounts in 000’s of U.S. Dollars unless otherwise noted)

TransAtlantic Petroleum Corp. (the “Company” or “TransAtlantic”) is an international oil and gas company. We are focused on building a portfolio of oil and gas exploration and development projects in countries that are under-explored and have low corporate tax and royalty rates and established petroleum systems. We currently have projects in Morocco, Turkey and Romania. All amounts are in U.S. dollars unless otherwise noted.

1.	Going concern

These financial statements have been prepared on the basis of accounting principles applicable to a going concern, which assumes that TransAtlantic will realize its assets and discharge its liabilities in the normal course of operations. Management considers the going concern basis to be appropriate for these financial statements. If the going concern basis were not appropriate for these financial statements, then adjustments would be necessary to the carrying value of assets and liabilities, reported expenses and the balance sheet classifications used.

At September 30, 2008, the Company had cash and cash equivalents of $10.1 million, no debt and working capital of $9.4 million. The Company incurred a loss during the third quarter of 2008 of $1.5 million. In addition, the Company has commitments relating to work programs (see note 6).

During the second quarter of 2008, the Company successfully closed the two-stage private placement announced on March 28, 2008 with entities controlled by N. Malone Mitchell, 3^rd, the Company’s chairman, and certain other persons, pursuant to which the Company raised gross proceeds of Cdn $12.0 million. The Company used a portion of the net proceeds of the private placement to repay a $2.0 million short-term loan (see note 8). The Company plans to use the remainder of the net proceeds to fund the Company’s drilling activities in Romania and Morocco and for general corporate purposes. See note 12, Related Party Transactions.

During the third quarter of 2008, the Company agreed to acquire 100% of the shares of Longe Energy Limited (“Longe”) from Longfellow Energy, LP in exchange for 39,583,333 common shares of the Company, and 10,000,000 common share purchase warrants with an exercise price of $3.00 per share. Concurrently, and conditioned upon shareholder approval of the Longe acquisition, the Company will issue 35,416,667 common shares at a price of $1.20 per share in a private placement with Mr. Mitchell and associated persons, resulting in gross proceeds of $42.5 million. The Company has recorded $241,000 in deferred charges for transaction costs related to the Longe acquisition and the private placement. The Company expects to consummate the transactions following approval at a special meeting of the Company’s shareholders currently scheduled to be held in December 2008. The Company expects to use approximately $7.0 million of the net proceeds from the private placement to purchase additional equipment for its planned service operations and substantially all of the remainder to fund the Company’s drilling activities in Morocco, Turkey and Romania. See note 12, Related Party Transactions.

2.	Basis of presentation

The interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States and include the accounts of the Company and its wholly-owned subsidiaries. These consolidated financial statements were prepared by management using accounting policies and methods of their application consistent with those used in the preparation of the Company’s audited consolidated financial statements and U.S. GAAP reconciliation as disclosed in the Company’s Annual Report on Form 20-F as at and for the year ended December 31, 2007, except as noted below. In the opinion of management, these interim consolidated financial statements reflect all adjustments which are necessary for a fair statement of the results for the periods presented. Operating results for the quarter ended September 30, 2008 are not necessarily indicative of the results to be achieved for 2008.

The preparation of financial statements in conformity with generally accepted accounting principles in United States requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. Actual results could differ from those estimates and assumptions; however, management believes that such differences would not be material.

3.	Critical accounting policies

(a)

Joint interest activities

Many of the Company’s exploration, development and production activities are conducted jointly with other entities and accordingly the consolidated financial statements reflect only the Company’s proportionate interest in such activities.

(b)

Property and equipment

The Company follows the full cost method of accounting for oil and gas operations. Under the full cost method of accounting, the Company capitalizes all acquisition, exploration and development costs incurred for the purpose of finding oil and gas reserves in cost centers on a country-by-country basis. Costs associated with production and general corporate activities are expensed in the period incurred. The Company expenses pre-acquisition and reconnaissance activities. The aggregate of net capitalized costs and estimated future development costs is amortized using the unit of production method based on estimated proved oil and gas reserves.

Costs related to unproved properties and major development projects may be excluded from costs subject to depletion until proved reserves have been determined or their value is impaired. These properties are assessed periodically and any impairment is transferred to costs subject to depletion. No such impairments have been identified by management.

Under the full cost method of accounting, the net book value of oil and natural gas properties, less related deferred income taxes, may not exceed a calculated “ceiling”. The ceiling limitation is the discounted estimated after-tax future net cash flows from proved oil and natural gas properties. In calculating future net cash flows, current prices and costs are generally held constant indefinitely as adjusted for qualifying cash flow hedges. The net book value of oil and natural gas properties, less related deferred income taxes, is compared to the ceiling on a quarterly and annual basis. Any excess of the net book value, less related deferred income taxes, is generally written off as an expense. Under rules and regulations of the United States Securities and Exchange Commission, all or a portion of the excess above the ceiling may not be written off if, subsequent to the end of the quarter or year but prior to the release of the financial results, prices have increased such that all or a portion of such excess above the ceiling would not have existed if the increased prices were used in the calculations.

Sales of proved and unproved properties are accounted for as adjustments of capitalized costs with no gain or loss recognized, unless such adjustments would significantly alter the relationship between capitalized costs and proved oil and natural gas reserves, in which case the gain or loss is recognized in income.

Depreciation of furniture, fixtures and other assets is provided for on the straight-line basis for periods between three and seven years at rates that will amortize the cost of the assets over their estimated useful lives.

(c)

Asset retirement obligation

The Company records a liability for the fair value of legal obligations associated with the retirement of long-lived tangible assets in the period in which they are incurred, normally when the asset is purchased or developed. On recognition of the liability, there is a corresponding increase in the carrying amount of the related asset known as the asset retirement cost, which is depleted on a unit-of-production basis over the life of the reserves. The liability is adjusted each reporting period to reflect the passage of time, with the accretion charged to earnings, and for revisions to the estimated future cash flows. Actual costs incurred upon settlement of the obligations are charged against the liability, and any remaining difference is recognized as a gain or loss to earnings in the period in which the settlement occurs.

(d)

Revenue recognition

Oil and natural gas revenues are recorded using the sales method, whereby the Company recognizes oil and natural gas revenue based on the amount of oil and natural gas sold to purchasers. The Company does not recognize revenues until they are realized or realizable and earned. Revenues are considered realized or realizable and earned when: (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred or services have been rendered; (iii) the seller’s price to the buyer is fixed or determinable; and (iv) collectability is reasonably assured.

(e)

Foreign currency translation

The Company translates foreign currency denominated transactions and the financial statements of integrated foreign operations using the temporal method. The functional currency of the Company and its subsidiaries is the U.S. dollar. Assets and liabilities denominated in foreign currencies are translated into U.S. dollars at exchange rates in effect at the balance sheet date for monetary items and at exchange rates in effect at the transaction dates for non-monetary items. Income and expenses are translated at the average exchange rates in effect during the applicable period. Exchange gains or losses are included in operations in the period incurred.

(f)

Stock-based compensation

The Company uses the fair value method when stock options are granted to employees and directors under the Company’s fixed share option plan. Under this method, compensation expense is measured at the grant date and recognized as a charge to earnings over the vesting period with a corresponding credit to contributed surplus. Upon exercise of the stock options, consideration paid together with the amount previously recognized in contributed surplus is recorded as an increase to share capital. The fair value of the options is determined using the Black-Scholes option pricing model.

(g)

Income taxes

The Company follows Statement of Financial Accounting Standard (“SFAS”) No. 109, “Accounting for Income Taxes” (“SFAS No. 109”) for recording the provision for income taxes. Deferred tax assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expenses or benefits are based on the changes in the asset or liability each period. If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change. Deferred income taxes may arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods. Deferred taxes are classified as current or non-current, depending on the classification of assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse.

In 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109 Accounting for Income Taxes” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109. FIN 48 also prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company adopted FIN 48 as of January 1, 2007, as required.

(h)

Per share information

Net loss per share is presented in accordance with SFAS No. 128, “Earnings per Share”. Basic net loss per share is computed based on the weighted average shares of common stock outstanding for the period. The Company uses the treasury stock method to determine the dilutive effect of stock options and other dilutive instruments. Under the treasury stock method, only “in the money” dilutive instruments impact the diluted calculations in computing diluted earnings per share. Diluted calculations reflect the weighted average incremental common shares that would be issued upon exercise of dilutive options assuming the proceeds would be used to repurchase shares at average market prices for the period.

(i)

Cash and cash equivalents

The Company considers all term deposits, money market accounts and certificates of deposit purchased with an original maturity of three months or less to be cash equivalents.

(j)

Recently Issued United States Accounting Standards

In September 2006, FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”), which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years, and is applicable beginning in the first quarter of 2008. The Company adopted SFAS No. 157 as of January 1, 2008 and there was no material impact on its consolidated financial statements.

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS No. 162”). SFAS No. 162 establishes the GAAP hierarchy and identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements. SFAS No. 162 is effective 60 days following the Securities and Exchange Commission’s approval of the Public Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles. The Company has not yet determined the impact, if any, that implementation of SFAS No. 162 will have on its results of operations and financial condition.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115” (“SFAS No. 159”), which permits entities to choose to measure many financial instruments and certain other items at fair value at specified election dates. A business entity is required to report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. This statement is expected to expand the use of fair value measurement. SFAS No. 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years, and is applicable beginning in the first quarter of 2008. The Company adopted SFAS No. 159 as of January 1, 2008 and there was no material impact on its consolidated financial statements.

SFAS No. 161, which amends SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS No. 133”), requires companies with derivative instruments to disclose information about how and why a company uses derivative instruments, how derivative instruments and related hedged items are accounted for under SFAS No. 133, and how derivative instruments and related hedged items affect a company’s financial position, financial performance, and cash flows. The required disclosures include the fair value of derivative instruments and their gains or losses in tabular format, information about credit-risk-related contingent features in derivative agreements, counterparty credit risk, and the company’s strategies and objectives for using derivative instruments. SFAS No. 161 is effective prospectively for periods beginning on or after November 15, 2008.

SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — An amendment of ARB No. 51” (“SFAS No. 160”), requires an entity to clearly identify and report ownership interests in subsidiaries held by parties other than the parent in the consolidated statement of financial position within equity but separate from the parent’s equity. SFAS No. 160 also requires that the amount of consolidated net income attributable to the parent and to the noncontrolling interest be identified and presented on the face of the consolidated income statement; changes in a parent’s ownership interest be accounted for as equity transactions; and when a subsidiary is deconsolidated, any retained noncontrolling equity investment in the former subsidiary and the gain or loss on the deconsolidation be measured at fair value. SFAS No. 160 is effective for the Company beginning January 1, 2009.

SFAS No. 141 (Revised 2007), “Business Combinations” (“SFAS No. 141”) requires an acquirer to recognize the assets acquired, the liabilities assumed, contractual contingencies, and contingent consideration at their fair values as of the acquisition date. This statement also requires acquisition costs to be expensed as incurred, restructuring costs to be expensed in the period subsequent to the acquisition date, and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date to impact tax expense. SFAS No. 141 also requires the acquirer in an acquisition achieved in stages to recognize the identifiable assets and liabilities, as well as the noncontrolling interest in the acquiree, at the full amounts of their fair values. SFAS No. 141 is effective for the Company for business combinations completed after December 31, 2008.

4.	Restricted cash

Restricted cash represents cash placed in escrow accounts or in certificates of deposit that is pledged for the satisfaction of liabilities or performance guarantees. At September 30, 2008, restricted cash included: $240,000 for the settlement of Nigerian liabilities (see note 13), $2.0 million in a certificate of deposit supporting a $2.0 million bank guarantee of the Morocco work program (see note 6) and $28,000 in a certificate of deposit that is a collateral for a letter of credit in favor of the Oklahoma Tax Commission.

5.	Discontinued operations held for sale


	Cost		Accumulated depreciation, depletion and write-down		Net book value
September 30, 2008
Crude oil and natural gas properties United States	$	—	$	—	$	—

December 31, 2007
Crude oil and natural gas properties United States	$	11,053	$	11,053	$	—

(a)

United States:

The Company has segregated its U.S. oil and gas properties as held for sale in conjunction with its plan to sell its proved and undeveloped interests in the United States. At December 31, 2007, the assets of the discontinued operations were measured at their fair value less costs to sell. The Company recorded a write-down in 2007. As such, $0 net book value of property and equipment and $8,000 of asset retirement obligations have been reflected as assets and liabilities held for sale at September 30, 2008.

Loss from discontinued operations includes the following amounts:


	For the nine months ended,						For the three months ended,
	September 30, 2008			September 30, 2007			September 30, 2008			September 30, 2007
Revenues, oil and gas sales – net	$	95		$	549		$	34		$	207
Expenses:
Lease operating expenses		128			815			82			333
Write-down of property and equipment		—			2,880			—			—
Depletion, depreciation and accretion		—			243			—			3
Interest expense including shares issued		92			544			—			189

Loss from discontinued operations	$	(125	)	$	(3,933	)	$	(48	)	$	(318	)

6.	Property and equipment


	Cost		Accumulated depreciation and depletion		Net book value
2008
Crude oil and natural gas properties Romania	$	1,974	$	—	$	1,974
Furniture, fixtures and other assets		174		5		169

Balance, September 30, 2008	$	2,148	$	5	$	2,143

2007
Crude oil and natural gas properties Romania	$	1,572	$	—	$	1,572
Furniture, fixtures and other assets		238		238		—

Balance, December 31, 2007	$	1,810	$	238	$	1,572

(a)

Morocco:

In May 2006, the Company was awarded the Tselfat exploration permit in Morocco. In August 2007, the Company reached an agreement to farmout 50% of its interest in the Tselfat permit to a joint interest partner. In exchange for an option to acquire 50% of the Company’s interest in the Tselfat permit, Sphere Petroleum QSC (“Sphere”) agreed to fund the costs of an evaluation work program which included acquisition of a 3D seismic survey and additional geological studies. Upon its exercise of the option, Sphere would fund the drilling and testing of an exploratory well and replace the Company’s bank guarantee deposited with the Moroccan government. In April 2008, Sphere assigned all of its interests in the Tselfat option and farmout agreement to Longe.

In January 2008, the Company converted a portion of its Guercif - Beni Znassen reconnaissance license into two exploration permits. In the initial three-year term, the Company is required to re-enter, log and test a well previously drilled in the area, acquire 300 kilometers of 2D seismic and reprocess and reinterpret an aerogravity and magnetic survey. Pursuant to a participation agreement between the Company (30%), Stratic Energy Corporation (“Stratic”) (20%) and Sphere (50%), Sphere agreed to bear the entire cost of the initial three-year work program to earn its 50% interest in the two Guercif exploration permits. Sphere agreed to reimburse the Company for approximately $680,000 of historical expenditures. In April 2008, Sphere assigned all of its interests in the Guercif participation agreement to Longe which replaced the Sphere bank guarantee upon completion and acceptance of the transfer documentation.

In July 2008, the Company agreed to farm-in to the Ouezzane-Tissa and Asilah exploration permits held by Direct Petroleum Morocco, Inc. and Anschutz Morocco Corporation (collectively, “Direct”) in northern Morocco. The two exploration permits cover seven blocks with a combined area of 12,287 square kilometers (3,036,068 acres). Under the farm-in agreement, the Company will earn a 25% interest in the Ouezzane-Tissa and Asilah exploration permits by carrying Direct for 50% of the costs of drilling three wells on the Ouezzane-Tissa permit. The Company has work program commitments estimated to be $10.0 million through 2010 under its farm-in agreement for the Ouezzane-Tissa and Asilah exploration permits. These commitments are not supported by bank guarantees.

The Company’s interests in each of its Moroccan exploration permits are subject to the 25% interest held by the national oil company of Morocco, which is carried during the exploration phase but pays its share of costs in the development phase. The Company will continue as operator of the Guercif and Tselfat exploration permits during the initial three-year period and will also become the operator of the Ouezzane-Tissa and Asilah exploration permits, subject to government approval. Each of the Company’s Moroccan exploration permits are for an eight-year term divided into three periods.

(b)

Romania:

The Company capitalized $1.6 million of expenditures related to seismic surveys completed at the end of 2006 in Romania. The Company capitalized $137,000 and $402,000 during the three and nine months, respectively, ended September 30, 2008 for wellsite preparation.

In September 2008, the Company agreed with Sterling Resources Ltd. (“Sterling”) to farm-in to Sterling’s Sud Craiova Block E III-7, covering 6,070 square kilometers (1.5 million acres) in western Romania. In exchange for a 50% working interest, the Company will drill three exploration wells on the Sud Craiova license, each to a depth of approximately 1,000 meters (3,280 feet). At casing point in each well, Sterling and TransAtlantic will each elect whether to proceed to completion and will each bear their proportionate share of completion and infrastructure costs. Sterling will remain operator of the Sud Craiova license.

(c)

Turkey:

In March 2008, the Company announced that it had agreed to farmout 75% of its interest in two of its licenses, Blocks 4173 and 4174, in Turkey. The party who farmed in is obligated to drill a well on one of the two blocks prior to the end of 2008 at its cost.

In September 2008, the Company agreed with Incremental Petroleum Limited (“Incremental”) to farm-in to Incremental’s License 4262, covering 12 square kilometers (3,052 acres) in southeastern Turkey. In exchange for a 60% working interest, the Company will drill one exploration well on License 4262 to a depth of approximately 3,200 meters (10,500 feet). At casing point, Incremental and TransAtlantic will each elect whether to proceed to completion and will each bear their proportionate share of completion and infrastructure costs. By drilling this well, the Company will also earn an undivided 75% working interest in four additional licenses covering 1,863 square kilometers (460,321 acres) located south of License 4262. The Company’s participation in these licenses is conditioned upon extension of their term by the Turkish General Directorate of Petroleum Affairs (“GDPA”). Subject to GDPA’s approval, the Company will become the operator of all five of the licenses.

(d)

Other:

The Company incurred and expensed $1.9 million of costs during the nine months ended September 30, 2008, compared to $1.5 million for the nine months ended September 30, 2007, towards the pre-acquisition, reconnaissance and evaluation of the Company’s international oil and gas activities, including those conducted in Morocco, Romania and Turkey, including technical, professional and administrative costs. The Company also received expense reimbursements related to projects totaling $832,000 in Morocco from Riata and $150,000 from an unrelated farm-in partner resulting in total international activity expense to the Company of $1.0 million for the nine months ended September 30, 2008 and $900,000 for the three months ended September 30, 2008.

The Company relinquished its interest in the U.K. North Sea in December 2007.

7.	Asset retirement obligations

As part of its development of oil and gas opportunities, the Company incurs asset retirement obligations (“ARO”) on its properties. The Company’s ARO results from its responsibility to abandon and reclaim its net share of all working interest properties. At September 30, 2008, the net present value of the Company’s total ARO is estimated to be $8,000, compared to $8,000 at December 31, 2007, with the undiscounted value being $14,000, compared to $14,000 at December 31, 2007. An inflation rate of 2% was assumed and a discount rate of 7% was used to calculate the present value of the ARO. For reporting purposes, the ARO associated with the current assets held for sale (see note 5) have been reclassified as current liabilities.


	Nine months ended September 30, 2008		Year ended December 31, 2007
Beginning balance	$	8	$	1,939
Liabilities incurred		—		26
Accretion expense		—		72
Reclassified to current liabilities of assets held for sale (note 5)		—		(2,029	)

Ending balance	$	8	$	8

8.	Loan payable

In April 2007, the Company entered into a $3.0 million short-term standby bridge loan from Quest Capital Corp. (“Quest”). The Company drew down $3.0 million on the loan in the second quarter of 2007. In August 2007, the Company and Quest increased the loan facility to $4.0 million and the Company drew down the additional $1.0 million. Quest and the Company currently have one director in common. At the time of the Quest transactions, the Company and Quest had two directors in common. Transactions with Quest have been conducted at their fair value. The Company issued 503,823 common shares to Quest at an aggregate value of approximately $359,000 as it drew on the loan (see note 9). On November 13, 2007, the Company paid down $2.0 million in principal on the loan and extended the maturity date on the outstanding principal balance of $2.0 million to March 31, 2008. Quest extended the maturity date to April 30, 2008 to facilitate the closing of the Riata loan described below.

On April 8, 2008, Riata Management, LLC (collectively with its affiliates, “Riata”) loaned the Company $2.0 million, which the Company used to repay the $2.0 million bridge loan due to Quest. The Company paid the Riata loan in full on May 30, 2008, and interest on the loan was waived.

9.	Share capital

(a)

Authorized

Unlimited number of common shares and preferred shares, without par value.

(b)

Issued

Common shares


(In thousands)	Number of Shares	Amount
Balance, December 31, 2006	42,557	$	41,567
Shares issued for financing (see notes 5 and 8)	504		359
Stock options exercised	185		232
Stock warrants exercised	25		33

Balance, December 31, 2007	43,271		42,191
Shares issued for cash	35,000		12,010
Stock options exercised	247		207
Stock warrants exercised during the second quarter of 2008	230		305
Shares issue costs	—		(116	)
Stock warrants exercised during the third quarter of 2008	1,085		1,437

Balance, September 30, 2008	79,833	$	56,034

In April and May 2008, the Company issued 10 million common shares and 25 million common shares, respectively, in connection with the private placement transactions announced in March 2008 (see note 1). The Company issued 1,085,000 common shares for warrants exercised during the third quarter of 2008. The Company recorded a receivable of $105,000 relating to 100,000 warrants exercised in September 2008 for which cash was received in October 2008.

Warrants


(In thousands)	Number of Warrants		Amount
Balance, December 31, 2006	7,976		$	2,017
Expired	(3,232	)		(902	)
Exercised	(25	)		(7	)

Balance, December 31, 2007	4,719			1,108
Exercised during quarter ended June 30	(230	)		(63	)
Exercised during quarter ended Sept. 30	(1,085	)		(298	)

Balance, September 30, 2008	3,404		$	747

(c)

December 2006 private placement

In December 2006, the Company issued 4,500,000 Units at $0.85 per Unit for gross proceeds of $3.8 million. Each Unit consisted of one common share and one common share purchase warrant. Each warrant entitles the holder to acquire one common share at a price of $1.05 through December 4, 2008. At September 30, 2008, all of the warrants outstanding relate to the December 2006 private placement. If the volume weighted average closing price of the Company’s common shares exceeds $1.55 per share for 20 consecutive trading days, the Company will be entitled to accelerate expiration of the warrants (thereby requiring the warrant holder to exercise the warrant within 30 days of being notified of the accelerated expiration). In connection with the issuance of the Units, the Company paid a commission of $249,000 and issued 219,375 finders warrants with an estimated fair value of $60,000 as of December 2006 exercisable on the same terms as the purchase warrants. In addition to the finder’s fee, approximately $80,000 of legal, consulting and filing fees were incurred related to the private placement.

(d)

Stock option plan

The Company granted options to acquire 100,000 common shares on August 1, 2008. All the options were granted with a five year term exercisable at the greater of the market price pursuant to the Company’s Amended and Restated Stock Option Plan (the “Plan”) or the volume weighted average price for the five trading days immediately preceding the grant date. The volume weighted average price of $1.35 per share was higher than the market price under the Plan. All of the granted options vest in three equal installments over a two year period, with one-third vesting on the date of the grant; and the remaining two-thirds vesting on August 1, 2009 and 2010.

The Company granted options to acquire 340,000 common shares on June 11, 2008. All the options were granted with a five year term exercisable at the greater of the market price pursuant to the Plan or the volume weighted average price for the five trading days immediately preceding the grant date. The volume weighted average price of $1.23 per share was higher than the market price under the Plan. All of the granted options vest in three equal installments over a two year period, with one-third vesting on the date of the grant; and the remaining two-thirds vesting on June 11, 2009 and 2010.

The Company granted options to acquire 915,000 common shares on December 4, 2007. All of the options were granted pursuant to the Plan with a five-year term exercisable at $0.31 per share. The options were issued on three different vesting schedules. 165,000 of the options issued vested immediately. As to 600,000 of the options issued, one-third vested immediately, one-third will vest on December 4, 2008, and one-third will vest on December 4, 2009. As to 150,000 of the options issued, one-third vested immediately, one-third vested March 31, 2008 and one-third will vest December 31, 2008.

The Company also granted options to acquire 1,355,000 common shares on January 10, 2007. All of the options were granted pursuant to the Plan with a five-year term exercisable at $1.00 per share. The options were issued on two different vesting schedules. As to 405,000 of the options issued, 50% vested immediately and 50% vested on January 10, 2008. As to 950,000 of the options issued, one-third vested immediately, one-third vested on January 10, 2008 and one-third will vest on January 10, 2009.

Based upon these terms, a Black-Scholes pricing model derives a fair value for the grants of approximately $143,000 recognized as stock-based compensation expense for the quarter ended September 30, 2008, compared to $49,000 for the quarter ended September 30, 2007, and $490,000 for the nine months ended September 30, 2008, compared to $344,000 for the nine months ended September 30, 2007. The unamortized amount at September 30, 2008 is approximately $487,000. Both the amortized expense and unamortized amount at September 30, 2008 include an adjustment for unvested option grants to consultants totaling $80,000 to account for decreases in the price of the Company’s common shares since the options were granted. Approximately $38,000 of this was amortized for the quarter ended September 30, 2008.


	September 30, 2008					December 31, 2007
(Shares in thousands)	Number of options		Weighted average exercise price			Number of options		Weighted average exercise price
Outstanding at beginning of period	4,285		$	0.80		2,280		$	0.87
Granted	440			1.25		2,270			0.72
Expired	(65	)		(0.92	)	(80	)		(0.82	)
Exercised	(247	)		(0.60	)	(185	)		(0.74	)

Outstanding at end of period	4,413		$	0.85		4,285		$	0.80

Exercisable at end of period	3,320		$	0.86		2,957		$	0.83

The estimated fair value of share options issued during the periods was determined using the Black-Scholes pricing model with the following assumptions:


Option Value Inputs		September 30, 2008
Risk free interest rate		3.0%
Expected option life		5 Years
Volatility in the price of the Company’s common shares		71-205%
Forfeiture		10%

The Plan had 3,569,909 common shares reserved for issuance at September 30, 2008. All options presently issued under the Plan have a five-year term.

The following table summarizes information about stock options at September 30, 2008 (shares in thousands):


Options outstanding					Options exercisable
Range of prices			Number outstanding	Weighted-average remaining contractual Life (years)	Weighted-average exercise price		Number exercisable	Weighted-average exercise price
Low	High		Number outstanding	Weighted-average remaining contractual Life (years)	Weighted-average exercise price		Number exercisable	Weighted-average exercise price
$0.31	$	0.50	815	4.18	$	0.31	365	$	0.31
$0.75	$	0.99	1,495	1.26	$	0.84	1,495	$	0.84
$1.00	$	1.20	1,680	3.13	$	1.03	1,330	$	1.03
$1.21	$	1.40	423	4.73	$	1.25	130	$	1.25

			4,413	2.84	$	0.85	3,320	$	0.86

(e)

Per share amounts

Basic per common share amounts were calculated using a weighted average number of common shares outstanding for the three and nine months ended September 30, 2008 of 79,531,341 and 61,471,175, respectively, compared to 43,210,129 and 42,958,355 for the three and nine months ended September 30, 2007, respectively.

(f)

Contributed surplus


	September 30, 2008			December 31, 2007
Beginning balance	$	5,646		$	4,284
Increase from stock based compensation		490			554
Transfer to share capital on option exercise		(59	)		(94	)
Warrants expired		—			902

Ending balance	$	6,077		$	5,646

10.

Segment information

As of September 30, 2008, the Company and its subsidiaries operate in one industry segment, composed of three reportable geographic segments, involving the exploration for and the development and production of crude oil and natural gas. Identifiable assets, revenues and net loss in each of its geographic areas are as follows:


	Identifiable assets		Net revenues				Net loss
September 30, 2008	Identifiable assets		Nine months		Three months		Nine months			Three months
United States	$	571	$	—	$	—	$	1,442		$	540
Morocco		2,759		—		—		(419	)		288
Romania		2,201		—		—		630			237
Corporate assets and other		10,313		—		—		1,825			418

	$	15,844	$	—	$	—	$	3,478		$	1,483


	Identifiable assets		Net revenues				Net loss
September 30, 2007	Identifiable assets		Nine months		Three months		Nine months			Three months
United States	$	4,200	$	—	$	—	$	3,933		$	318
Morocco		3,195		—		—		389			112
Romania		1,938		—		—		760			97
Corporate assets and other		834		—		—		1.889			580

	$	10,167	$	—	$	—	$	6,971		$	1,107

11.

Financial and capital risk management

At September 30, 2008, the fair value of the Company’s financial instruments, cash and cash equivalents, restricted cash, accounts receivable, and accounts payable and accrued liabilities approximate their fair values.

Interest rate risk

The Company is exposed to interest rate risk as a result of its variable rate short-term cash holdings. A 1% change in interest rates is not material to the Company’s financial results.

Foreign currency risk

The Company has underlying foreign currency exposure. The Company’s currency exposures relate to transactions denominated in the Canadian dollar, British pound, European Union euro, Romanian new lei, Moroccan dirham and Turkish new lira. Foreign currency forward contracts have not been used to manage exchange rate fluctuations because the Company has had limited access to capital.

Credit risk

The Company’s accounts receivable from unrelated parties are primarily with customers and partners in the oil and gas industry and government agencies and are subject to normal credit risks. As of September 30, 2008, the Company’s accounts receivable included $44,000 currently due from joint interest partners, and approximately $120,000 is due from government agencies, relating to value-added tax reclamation claims.

Liquidity risk

Liquidity risk includes the risk that, as a result of the Company’s operational liquidity requirements:

•

the Company will not have sufficient funds to settle a transaction on the due date;

•

the Company will be forced to sell assets at a value which is less than what they are worth; or

•

the Company may be unable to sell or recover an asset at all.

The Company’s operating cash requirements, including amounts projected to continue the Company’s existing work programs, estimated to be $8.0 million in Morocco and Romania through the remainder of 2008, are continuously monitored and adjusted as circumstances change. The transactions with Riata have provided additional capital. The Company’s commitments and project development plans will necessitate that the Company issue additional equity or obtain debt financing by the end of 2008 (see note 1).

Capital risk

The Company’s objective when managing capital is to safeguard its ability to continue as a going concern (see note 1). The Company manages its capital structure and makes adjustments to it in consideration of changes in economic conditions and the risk characteristics of the underlying projects. The Company’s objective is met by attempting to retain adequate equity to fund future project cash flow requirements. The Company defines capital as total equity plus cash and debt.

12.

Related party transactions

On April 8, 2008, the Company entered into a $2.0 million short-term loan with Riata. The Company paid the loan in full on May 30, 2008 in connection with the closing of the second stage of the private placement announced in March 2008. Mr. Mitchell controls Riata.

In addition, on April 8, 2008, Dalea Partners LP (“Dalea”), which is controlled by Mr. Mitchell, purchased 10,000,000 common shares from the Company at Cdn $0.30 per share pursuant to the first stage of the private placement announced in March 2008, and on May 30, 2008, Dalea and another entity controlled by Mr. Mitchell purchased a further 12,630,000 common shares from the Company at Cdn $0.36 per share pursuant to the second stage of the private placement. Matthew McCann, a director of the Company, also participated in the second stage of the private placement, purchasing 1,100,000 common shares of the Company. However, neither Mr. Mitchell nor Mr. McCann were related parties of the Company on March 28, 2008 when Riata first agreed that it or its associates would participate in the private placement and provide the short-term loan to the Company.

Effective May 1, 2008, the Company and Riata entered into a services agreement under which the Company and Riata agreed to provide technical and administrative services to each other from time to time on an as-needed basis. The Company recorded expenditures for the three and nine months ended September 30, 2008 of $440,00 and $457,000, respectively, for goods and services provided by Riata, of which $334,000 was included in accounts payable at September 30, 2008. The Company received a reimbursement of expenses in the amount of $832,000 from Longe related to Longe’s participation in the Company’s Moroccan exploration permits. The Company recorded accounts receivable of $305,000 from Longe at September 30, 2008 for costs incurred in Morocco. All payables and receivables with Riata and Longe at the end of the third quarter 2008 were settled in cash during October 2008.

On August 27, 2008, the Company announced it changed its operating strategy from a prospect generator to a vertically integrated project developer. To execute this new strategy, the Company has agreed to acquire Longe, an entity associated with Mr. Mitchell, the Company’s Chairman, in conjunction with a private placement that will raise gross proceeds of $42.5 million.

The Company will acquire 100% of the shares of Longe in exchange for 39,583,333 common shares of the Company, valued at $1.20 per share, and 10,000,000 common share purchase warrants. The common share purchase warrants will be exercisable for three years from the date of closing of the Longe acquisition and will entitle the holder to purchase one common share for each warrant at an exercise price of $3.00 per share. Concurrently, and conditioned upon shareholder approval of the Longe acquisition, the Company will issue 35,416,667 common shares at a price of $1.20 per share in a private placement with Mr. Mitchell and associated persons, resulting in gross proceeds of $42.5 million. The Company expects to consummate the transactions following approval at a special meeting of the Company’s shareholders currently scheduled to be held in December 2008.

13.

Settlement provision

In conjunction with the sale of the Company’s Nigerian subsidiaries effective June 20, 2005, the Company deposited funds into an escrow account to address claims relating to prior operations in Nigeria. The remaining potential liability to the Company includes taxes owed for the period January through June 2005, and the Company expects the remaining escrow amount of $240,000 to be sufficient to cover any potential liabilities.

14.

Supplemental cash flow information

Changes in non-cash working capital includes the following amounts:


September 30	2008 Nine months			2007 Nine months
Accounts receivable		96			(11	)
Prepaid and other current assets		(402	)		(106	)
Accounts payable and accrued liabilities		730			(1,016	)
Settlement provision		—			(721	)

Change in non-cash working capital related to operating activities	$	424		$	(1,854	)

Cash and cash equivalents includes the following amounts:


September 30	2008		2007
Cash		1,286		636
Cash equivalents		8,834		21

Cash and cash equivalents	$	10,120	$	657

15.

Commitments

The Company has long-term leases for office space in the United States and Morocco and office lease commitments of less than one year for offices in Romania and Turkey. The Company increased its Dallas office space effective August 2008. The Company is committed to the following aggregate annual amounts as of September 30, 2008:


2008	$	36
2009		150
2010		159
2011		27

	$	372

16.

Subsequent events

(a)

On October 27, 2008, the Company announced its intention to make an all cash takeover offer (the “Offer”) for all of the shares in Incremental Petroleum Limited (“Incremental”), an international oil and gas company publicly traded on the Australian Stock Exchange. The Company plans to offer $1.05 Australian dollars in cash for each Incremental share. The Offer will be conditioned on the Company obtaining a relevant interest in at least 75% of the Incremental shares, and on a number of other conditions. The Company has arranged for the financing of the Offer with Dalea. Under this arrangement, Dalea will advance to the Company funds sufficient to acquire all of the Incremental shares, plus pay the Company’s transaction costs. The purchase price for 75% of Incremental’s currently issued and outstanding shares at $1.05 Australian dollars per share would be approximately $62.8 million Australian dollars. TransAtlantic plans to issue a bidder’s statement on November 26, 2008. All of the conditions to the Offer, TransAtlantic’s reasons for making the Offer, and the financing arrangements will be described in more detail in the Company’s bidder’s statement.

(b)

During October 2008, warrants to purchase 125,353 common shares of the Company at $1.05 per share were exercised and common shares were issued.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Prior to May 30, 2008, we were a foreign private issuer as defined under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). As a result of the closing of a private placement of common shares on May 30, 2008, we no longer qualify as a foreign private issuer.

The information in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Form 10-Q complements the information in “Operating and Financial Review and Prospects” in our Annual Report on Form 20-F for the year ended December 31, 2007. Please refer to the information in “Operating and Financial Review and Prospects” in our Annual Report on Form 20-F for the year ended December 31, 2007 for additional information regarding our financial condition, changes in financial condition and results of operations. Unless stated otherwise, all sums of money stated in this Quarterly Report on Form 10-Q are expressed in U.S. Dollars.

Executive Overview and Recent Developments

TransAtlantic Petroleum Corp. is an international oil and gas company. We are focused on building a portfolio of oil and gas exploration and development projects in countries that are under-explored and have low corporate tax and royalty rates and established petroleum systems. We currently have projects in Morocco, Turkey and Romania.

During the third quarter of 2008, we changed our operating strategy from a prospect generator to a vertically integrated project developer. To execute this new strategy, we have agreed to acquire Longe Energy Limited (“Longe”) from Longfellow Energy, LP (the “Longe Acquisition”) in conjunction with a private placement that will raise gross proceeds of $42.5 million (the “Private Placement”). Longfellow Energy, LP is controlled by our Chairman, N. Malone Mitchell 3^rd. The Longe Acquisition and the Private Placement are subject to regulatory and disinterested shareholder approval, among other conditions.

If the Longe Acquisition and the Private Placement are completed, we anticipate that ownership of our own drilling rigs and services equipment will enable us to significantly lower drilling and operating costs over the long term and control timing for development of our properties, thereby providing a competitive advantage. In addition, the acquisition of the four drilling rigs owned by Longe will allow us to achieve operational capabilities in each country in which we operate, as two rigs will mobilize to Morocco, one to Romania and one to Turkey. Further, the acquisition of Longe’s interests in our Moroccan licenses will consolidate our exploration opportunities in Morocco. We also anticipate that the Longe Acquisition will create opportunities to increase acreage in each country in which we operate by drilling to earn interests in existing third party licenses. When the rigs and equipment are not operating on our properties, we expect to contract them out, creating additional opportunities for us.

With regard to the development of our international properties, in October 2008 we began re-entry operations on one well in Morocco. In September 2008, we agreed to farm-in to Sterling Resources Ltd.’s Sud Craiova Block E III-7, covering 6,070 square kilometers (1.5 million acres) in western Romania. In exchange for a 50% working interest, we will drill three exploration wells on the Sud Craiova license. We expect to begin drilling operations in Romania in December 2008. Also in September 2008, we agreed to farm-in to Incremental’s License 4262, covering 12 square kilometers (3,052 acres) in southeastern Turkey. In exchange for a 60% working interest, we agreed to drill one exploration well. By drilling this well, we will earn an undivided 75% working interest in four additional licenses covering 1,863 square kilometers (460,321 acres) in southeastern Turkey. We began drilling operations on this well in October 2008.

In addition, we will continue to evaluate new opportunities in countries that are underexplored and have low corporate tax and royalty rates and established petroleum systems.

Critical Accounting Policies

Our critical accounting policies are described in note 3 of our unaudited consolidated financial statements filed with this Quarterly Report on Form 10-Q. Management considers the following policies to be the most critical in understanding the judgments and estimates that are involved in the preparation of our consolidated financial statements and the uncertainties which could materially impact our results of operations and financial condition:

•

We use the full cost method to account for our oil and gas activities.

•

We expense all pre-acquisition and reconnaissance costs and capitalize all acquisition, exploration and development costs incurred for the purpose of finding oil and gas reserves in cost centers on a country-by-country basis.

•

We compute the provision for depreciation and depletion of oil and gas properties using the unit-of-production method based upon production and estimates of gross proved reserve quantities as determined by independent reservoir engineers.

•

We record a liability for the fair value of legal obligations associated with the retirement of long-lived tangible assets in the period in which they are incurred, normally when the asset is purchased or developed.

Management continually evaluates its assumptions and estimates; however, actual results could differ materially from these assumptions and estimates.

U.S. Discontinued Operations

In 2007, we decided to exit our U.S. operations and focus on the development of our international properties. As a result of the decision to sell our U.S. operations, we reclassified our U.S. properties as “discontinued operations.” Accordingly, revenues and expenses associated with our U.S. cost center in 2008 and comparative periods are reflected as components of “loss from discontinued operations.”

We have segregated our U.S. oil and gas properties as held for sale in conjunction with our plan to sell our proved and undeveloped interests in the U.S. At December 31, 2007, the assets of the discontinued operations were measured at their fair value less costs to sell. As such, $0 net book value of property and equipment and $8,000 of asset retirement obligations have been reflected as assets and liabilities held for sale at September 30, 2008. Loss from discontinued operations includes the following amounts:


	For the nine months ended,						For the three months ended,
(in thousands)	September 30, 2008			September 30, 2007			September 30, 2008			September 30, 2007
Revenues, oil and gas sales – net	$	95		$	549		$	34		$	207
Expenses:
Lease operating expenses		128			815			82			333
Write-down of property and equipment		—			2,880			—			—
Depletion, depreciation and accretion		—			243			—			3
Interest expense including shares issued		92			544			—			189

Loss from discontinued operations	$	(125	)	$	(3,933	)	$	(48	)	$	(318	)

Results of Operations – Three Months Ended September 30, 2008 Compared to Three Months Ended September 30, 2007

Revenue. We recognized net crude oil and natural gas sales of $34,000 for the third quarter of 2008 from non-operated production in the U.S. This U.S. revenue represented a substantial decrease from third quarter of 2007 sales of $207,000. The decrease is the result of the sale of our South Gillock and Jarvis Dome properties in the fourth quarter of 2007. This revenue is a component of our loss from discontinued operations.

Expenses. Lease operating expenses in the third quarter of 2008 decreased to $82,000 from $333,000 as reported for the third quarter of 2007. The decrease in lease operating expense is the result of the sale of our South Gillock and Jarvis Dome properties in the fourth quarter of 2007. These expenses are a component of our loss from discontinued operations.

Depreciation, depletion and accretion related to U.S. production decreased to $0 for the third quarter of 2008 as compared with $3,000 in the third quarter of 2007. We had no assets subject to depreciation, depletion and accretion due to the write-down and sale of all of our U.S. properties during 2007. We recorded an impairment charge on our South Gillock SGU 96 well of $2.8 million in the quarter ended June 30, 2007. These charges are a component of our loss from discontinued operations.

Interest and other income increased $106,000 to $140,000 in the third quarter of 2008 as compared to 2007 resulting from increased interest income on higher invested cash balances from the private placement in the second quarter of 2008. The Company also recorded other income of $56,000 in the third quarter of 2008 related to a distribution from the former contract operator of the Nigerian operations which were sold in 2005.

General and administrative costs of $719,000 in the third quarter of 2008 increased by $136,000 compared to the third quarter of 2007, primarily because of higher non-cash stock-based compensation expense of $94,000.

During the three months ended September 30, 2008, we continued exploration activities in foreign countries including consulting, legal, accounting, travel and other costs necessary to further our identification and development of business opportunities. Expense reimbursements totaling $832,000 from Longe relating to our Moroccan properties are included in international oil and gas activity during the nine months ended September 30, 2008.

The following table presents exploration expenditures by country:


	For the nine months ended,					For the three months ended,
(in thousands)	September 30, 2008			September 30, 2007		September 30, 2008		September 30, 2007
Morocco	$	(405	)		418	$	306	$	129
Romania		630			760		237		96
Turkey		451			44		170		(106	)
Other and unallocated		331			322		145		83

Total	$	1,007		$	1,544	$	858	$	202

Net Loss. The consolidated net loss for the quarter ended September 30, 2008 was $1.5 million, or $0.02 per share (basic and diluted), compared to consolidated net loss of $1.1 million or $0.03 per share (basic and diluted) for the quarter ended September 30, 2007. The third quarter 2008 net loss is primarily composed of general and administrative expense of $719,000, which includes stock-based compensation of $143,000, and $858,000 relating to international operations.

Results of Operations – Nine Months Ended September 30, 2008 Compared to Nine Months Ended September 30, 2007

Revenue. We recognized net crude oil and natural gas sales of $95,000 for the nine months ended September 30, 2008 from non-operated production in the U.S. This U.S. revenue represented a substantial decrease from sales of $549,000 during the nine months ended September 30, 2007. The decrease is the result of the sale of our South Gillock and Jarvis Dome properties in the fourth quarter of 2007. This revenue is a component of our loss from discontinued operations.

Expenses. Lease operating expenses in the nine months ended September 30, 2008 decreased to $128,000 from $815,000 as reported for the nine months ended September 30, 2007. The decrease is the result of the sale of our South Gillock and Jarvis Dome properties in the fourth quarter of 2007. These expenses are a component of our loss from discontinued operations.

Depreciation, depletion and accretion related to U.S. production decreased to $0 for the nine-month period ended September 30, 2008 as compared with $243,000 in the nine months ended September 30, 2007. We had no assets subject to depreciation, depletion and accretion due to the write-down and sale of all of our U.S. properties during 2007. We recorded an impairment charge primarily related to our South Gillock SGU 96 well of $2.9 million for the nine months ended September 30, 2007.

Interest and other income decreased $14,000 to $217,000 for the nine months ended September 30, 2008 as compared with $231,000 for the same period in 2007. The decrease is due to $70,000 of interest recorded on the Nigerian escrow account that was credited to the Company’s account in the second quarter of 2007, partially offset by $56,000 of other income in the third quarter of 2008 related to a distribution from the former contract operator of the Nigerian operations which were sold in 2005.

General and administrative costs of $2.5 million in the first nine months of 2008 increased by $570,000 compared to the same period of 2007, primarily because of increases in salaries and non-cash stock-based compensation, timing differences in our U.S. securities filings and miscellaneous projects.

Net Loss. The consolidated net loss for the nine months ended September 30, 2008 was $3.5 million, or $0.06 per share (basic and diluted), compared to consolidated net loss of $7.0 million or $0.16 per share (basic and diluted) for the same period last year.

Capital Expenditures

We recorded capital expenditures of $137,000 related to wellsite preparation in Romania and $174,000 for computer and telecommunication equipment in the third quarter of 2008. We recorded no capital expenditures in the first quarter of 2008 and $265,000 in capital expenditures for wellsite preparation in the second quarter of 2008. We have completed a 3D seismic survey over the Haricha field on our Tselfat exploration permit in Morocco that was billed to our partner, Longe. For the nine months ended September 30, 2007, we recorded capital expenditures of $3.8 million relating to the drilling of a well on our former South Gillock property. We had no capital expenditures in the third quarter 2007.

Settlement Provision

In conjunction with the sale of our Nigerian subsidiaries effective June 20, 2005, we deposited funds into an escrow account to address claims relating to prior operations in Nigeria. The remaining potential liability to us includes taxes owed for the period January through June 2005, and we expect the remaining escrow amount of $240,000 to be sufficient to cover any potential liabilities.

Related Party Transactions

On April 8, 2008, we entered into a $2.0 million short-term loan with Riata. We paid the loan in full on May 30, 2008 in connection with the closing of the second stage of the private placement announced in March 2008. Mr. Mitchell controls Riata.

In addition, on April 8, 2008, Dalea Partners LP (“Dalea”), which is controlled by Mr. Mitchell, purchased 10,000,000 common shares from us at Cdn $0.30 per share pursuant to the first stage of the private placement announced in March 2008, and on May 30, 2008, Dalea and another entity controlled by Mr. Mitchell purchased a further 12,630,000 common shares from us at Cdn $0.36 per share pursuant to the second stage of the private placement. Matthew McCann, a director of the Company, also participated in the second stage of the private placement, purchasing 1,100,000 common shares of the Company. However, neither Mr. Mitchell nor Mr. McCann were related parties of the Company on March 28, 2008 when Riata first agreed that it or its associates would participate in the private placement and provide the short-term loan to us.

Effective May 1, 2008, we entered into a services agreement with Riata under which we and Riata agreed to provide technical and administrative services to each other from time to time on an as-needed basis. We recorded expenditures for the three and nine months ended September 30, 2008 of $444,000 and $457,000, respectively, for goods and services provided by Riata, of which $334,000 was included in accounts payable at September 30, 2008. We received a reimbursement of expenses in the amount of $832,000 from Longe related to Longe’s participation in our Moroccan exploration permits. We recorded accounts receivable of $305,000 from Longe at September 30, 2008 for costs incurred in Morocco. All payables and receivables with Riata and Longe at the end of the third quarter 2008 were settled in cash during October 2008.

On August 27, 2008, we announced we changed our operating strategy from a prospect generator to a vertically integrated project developer. To execute this new strategy, we have agreed to acquire Longe, an entity associated with Mr. Mitchell, the Company’s Chairman, in conjunction with a private placement that will raise gross proceeds of $42.5 million.

We will acquire 100% of the shares of Longe in exchange for 39,583,333 common shares of the Company, valued at $1.20 per share, and 10,000,000 common share purchase warrants. The common share purchase warrants will be exercisable for three years from the date of closing of the Longe Acquisition and will entitle the holder to purchase one common share for each warrant at an exercise price of $3.00 per share. Concurrently, and conditioned upon shareholder approval of the Longe Acquisition, we will issue 35,416,667 common shares at a price of $1.20 per share in a private placement with Mr. Mitchell and associated persons, resulting in gross proceeds of $42.5 million. We expect to consummate the transactions following approval at a special meeting of our shareholders currently scheduled to be held in December 2008.

Liquidity and Capital Resources

Our primary source of liquidity is our cash and cash equivalents, cash flow from operations, sales of assets and sales of securities. At September 30, 2008, we had cash and cash equivalents of $10.1 million, no debt and working capital of $9.4 million compared to cash and short-term investments of $657,000, $4.0 million in short-term debt, and a working capital of $316,000 at September 30, 2007.

Cash used in operations during the third quarter of 2008 was $2.7 million compared to cash used in operations of $1.0 million in the third quarter of 2007. Cash used in discontinued operations during the third quarter of 2008 was approximately $48,000, compared to cash used in discontinued operations of $1,424,000 for the same quarter of 2007.

Given the capital-intensive nature of oil and gas exploration as well as the uncertainty of economic success from our existing projects, we believe additional capital will be required to fund our existing and additional projects. We estimate we have $4.0 million in cash commitments for drilling and other exploratory activities under our exploration permits in Morocco and Romania for the remainder of 2008.

During the third quarter of 2008, we entered into an agreement to sell 35,416,667 common shares at a price of $1.20 per share in a private placement with Mr. Mitchell and associated persons, which would result in gross proceeds of $42.5 million. The private placement is subject to regulatory and disinterested shareholder approval and would close concurrently with the Longe Acquisition. If the private placement is consummated, we expect to use approximately $7.0 million of the net proceeds to purchase additional equipment for our planned service operations and substantially all of the remainder to fund drilling activities in Morocco, Turkey and Romania.

If the Longe Acquisition does not close, additional financing sources will be required to fund our international exploration and development activities beyond 2008. Any future inability to secure additional funding when and as needed could have a material adverse effect on our operations and cash flow.

On October 27, 2008, we announced our intention to make an all cash takeover offer (the “Offer”) for all of the shares in Incremental Petroleum Limited (“Incremental”), an international oil and gas company publicly traded on the Australian Stock Exchange. We believe that Incremental’s operations and properties would be highly complementary if combined with ours. We plan to offer $1.05 Australian dollars in cash for each Incremental share. The Offer will be conditioned on our obtaining an interest in at least 75% of the Incremental shares and on a number of other conditions, including receipt of all necessary regulatory approvals. We have arranged for the financing of the Offer with Dalea. Under this arrangement, Dalea will advance to us funds sufficient to acquire all of the Incremental shares, plus pay the transaction costs. The purchase price for 75% of Incremental’s currently issued and outstanding shares at $1.05 Australian dollars per share would be approximately $62.8 million Australian dollars.

Contractual Obligations

We have long-term leases for office space in the U.S. and Morocco and office lease commitments of less than one year for offices in Romania and Turkey.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements at September 30, 2008.

Forward-Looking Statements

Certain statements in this quarterly report, including those appearing under this Item 2, constitute “forward-looking statements” within the meaning of applicable U.S. and Canadian securities legislation. Additionally, forward-looking statements may be made orally or in press releases, conferences, reports, on our website or otherwise, in the future, by us on our behalf. Such statements are generally identifiable by the terminology used such as “plans,” “expects,” “estimates,” “budgets,” “intends,” anticipates,” “believes,” “projects,” “indicates,” “targets,” “objective,” “could,” “should,” “may” or other similar words.

By their very nature, forward-looking statements require us to make assumptions that may not materialize or that may not be accurate. Forward-looking statements are subject to known and unknown risks and uncertainties and other factors that may cause actual results, levels of activity and achievements to differ materially from those expressed or implied by such statements. Such factors include, among others: market prices for natural gas, natural gas liquids and oil products; the ability to produce and transport natural gas, natural gas liquids and oil; the results of exploration and development drilling and related activities; economic conditions in the countries and provinces in which we carry on business, especially economic slowdowns; actions by governmental authorities including increases in taxes, changes in environmental and other regulations, and renegotiations of contracts; political uncertainty, including actions by insurgent groups or other conflict; the negotiation and closing of material contracts; and the other factors discussed in other documents that we file with or furnish to the U.S. Securities and Exchange Commission (the “SEC”) and Canadian securities regulatory authorities. The impact of any one factor on a particular forward-looking statement is not determinable with certainty as such factors are interdependent upon other factors; our course of action would depend upon our assessment of the future considering all information then available. In that regard, any statements as to future natural gas or oil production levels; capital expenditures; the allocation of capital expenditures to exploration and development activities; sources of funding for our capital program; drilling of new wells; demand for natural gas and oil products; expenditures and allowances relating to environmental matters; dates by which certain areas will be developed or will come on-stream; expected finding and development costs; future production rates; ultimate recoverability of reserves; dates by which transactions are expected to close; cash flows; uses of cash flows; collectibility of receivables; availability of trade credit; expected operating costs; changes in any of the foregoing and other statements using forward-looking terminology are forward-looking statements, and there can be no assurance that the expectations conveyed by such forward-looking statements will, in fact, be realized.

Although we believe that the expectations conveyed by the forward-looking statements are reasonable based on information available to us on the date such forward-looking statements were made, no assurances can be given as to future results, levels of activity, achievements or financial condition.

Readers should not place undue reliance on any forward-looking statement and should recognize that the statements are predictions of future results, which may not occur as anticipated. Actual results could differ materially from those anticipated in the forward-looking statements and from historical results, due to the risks and uncertainties described above, as well as others not now anticipated. The foregoing statements are not exclusive and further information concerning us, including factors that potentially could materially affect our financial results, may emerge from time to time. We do not intend to update forward-looking statements to reflect actual results or changes in factors or assumptions affecting such forward-looking statements.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4T.

Disclosure Controls and Procedures

Disclosure Controls. As required by Rule 13a-15 under the Exchange Act, our management carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2008, the end of the period covered by this Quarterly Report on Form 10-Q. Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed on our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our CEO and CFO, to allow timely decisions regarding required disclosure. This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”). Based upon that evaluation, our CEO and our CFO concluded that our disclosure controls and procedures were effective as of September 30, 2008.

Internal Control over Financial Reporting. Our CEO and CFO are responsible for designing internal control over financial reporting, or causing them to be designed under their supervision, in order to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles, or GAAP. Internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in

accordance with GAAP, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Our size and the number of staff impact our internal controls. Due to the limited number of staff, it is not possible to achieve complete segregation of duties, nor do we currently maintain written policies and procedures at our international offices. Similarly, we must engage accounting assistance with respect to complex, non-routine accounting issues, Canadian and U.S. GAAP matters, tax compliance, and reporting for our international operations. Notwithstanding these weaknesses, our internal control over financial reporting are designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements and that information is timely and accurately disclosed consistent with Canadian and U.S. securities laws and regulations. Although the identified weaknesses may be considered to increase the risk that a material misstatement in our financial statements would not be prevented or detected, neither has resulted in a material misstatement in the financial statements. We are planning to increase the size of our staff and hire an internal auditor who will report to our audit committee. Our CEO and CFO oversee all material transactions and related accounting records and our audit committee reviews with management on a quarterly basis our financial statements. While our management and board of directors work to mitigate the risk of a material misstatement in our financial reporting, our control system, no matter how well designed or implemented, can only provide reasonable, but not absolute, assurance of detecting, preventing and deterring errors and fraud.

During our most recently completed fiscal quarter ended September 30, 2008, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II.

Item 1.

Legal Proceedings

None.

Item 1A.

Risk Factors

This section describes some of the risks and uncertainties faced by us. The risk factors below should be considered in connection with any forward-looking statements in this Quarterly Report on Form 10-Q. The risk factors described below are considered to be the significant or material ones, but they are not the only risks faced by us. Additional risk factors are set forth in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2008.

Our directors and executive officers may have interests in the Longe Acquisition and the Private Placement that are different from those of our shareholders generally.

Certain of our executive officers and directors have interests in the Longe Acquisition and the Private Placement that may be different from, or in addition to, the interests of our shareholders generally. For example, Mr. Mitchell, Chairman of the Board, owns securities of, or otherwise controls, each of Longe and Longfellow.

We will incur substantial costs in connection with the Longe Acquisition and Private Placement, even if they are never completed.

We expect to incur acquisition-related expenses of approximately $770,000, consisting of legal and accounting fees and financial printing and other related charges in connection with the Longe Acquisition and the Private Placement. These amounts are preliminary estimates and the actual amounts may be higher or lower. Moreover, we are likely to incur additional expenses in future periods in connection with the integration of Longe’s business with our business. Some of these expenses will be incurred even if we do not complete the Longe Acquisition and the Private Placement.

Completion of the Longe Acquisition and the Private Placement will result in the issuance of a significant amount of additional common shares, including common shares purchasable upon exercise of common share purchase warrants, which may in turn depress the trading price of our common shares.

The Longe Acquisition and the Private Placement will result in the issuance of a significant amount of common shares. The common shares to be issued in the Longe Acquisition and the Private Placement will represent an increase of approximately 94.1% of the common shares currently outstanding, or 106.6% if all of the common share purchase warrants to be issued to Longfellow are exercised. The issuance of such a significant amount of common shares could depress the trading price of our common shares.

Longe may be less valuable to us than expected.

The value of Longe to us is based in large part on our potential ability to execute a vertically integrated project developer strategy, which we believe will reduce costs over the long term and allow us to better control the timing of development. In addition, we believe that the acquisition of drilling rigs and service equipment in the Longe Acquisition will expand our opportunity to increase acreage in Morocco, Romania and Turkey, where the availability of drilling rigs and service equipment is limited and we believe third parties may seek our participation in their licenses on terms more favorable to us if we could also provide the drilling rigs and service equipment. There can be no assurances that we will actually realize these benefits. If the assets of Longe are not integrated into our business as we anticipate, or we are unable to achieve these benefits, we may not realize the value paid for the Longe Acquisition.

The Longe Acquisition and the Private Placement, if completed, will result in a change in control of us under U.S. securities laws. The interests of the controlling shareholders may not coincide with yours and they may make decisions with which you may disagree.

As of November 14, 2008, Mr. Mitchell beneficially owned 28.4% of our common shares. Following the Longe Acquisition and the Private Placement, Mr. Mitchell will beneficially own 64.7% of our outstanding common shares. As a result, Mr. Mitchell will control substantially all matters requiring shareholder approval, including the election of directors and approval of significant corporate transactions. In addition, this concentration of ownership may delay or prevent a change in control of us after the Longe Acquisition and Private Placement and make some future transactions more difficult or impossible without the support of Mr. Mitchell. The interest of Mr. Mitchell may not coincide with our interests or the interest of other shareholders. Accordingly, Mr. Mitchell could cause us to enter into transactions or agreements that other shareholders would not approve or make decisions with which other shareholders may disagree.

Common shares eligible for resale following the transactions could adversely affect the price of our common shares.

Riata will have the right to require us to qualify the common shares held by certain persons associated with Riata, including Longfellow, for distribution in Canada under Canadian securities laws. The sale of a significant number of common shares by such persons, or the perception that these sales may occur, could adversely affect the market price of our common shares. In addition, the sale of these common shares could impair our ability to raise capital through the sale of additional common or preferred shares.

We will require significant additional capital to continue our exploration and development activities.

Following the Longe Acquisition and the Private Placement, we will have substantial capital requirements that we may be unable to finance on acceptable terms, or at all, which may have a material adverse effect on our operations. Our future growth depends on our ability to make large capital expenditures for the exploration and development of natural gas and oil properties. Future cash flows and the availability of debt or equity financing will be subject to a number of variables, such as:

•

the success of our prospects in Romania, Morocco and Turkey;

•

success in finding and commercially producing reserves; and

•

prices of natural gas and oil.

Debt financing could lead to:

•

a substantial portion of operating cash flow being dedicated to the payment of principal and interest;

•

our being more vulnerable to competitive pressures and economic downturns; and

•

restrictions on our operations.

We might not be able to obtain necessary financing on acceptable terms, or at all. If sufficient capital resources are not available, we might be forced to curtail developmental and exploratory drilling and other activities or be forced to sell some assets on an untimely or unfavourable basis, which would have a material adverse effect on our business, financial condition and results of operations.

We depend on a limited number of key personnel who would be difficult to replace.

We depend on the performance of Mr. Mitchell, our Chairman of the Board of Directors, and Scott C. Larsen, our President and Chief Executive Officer. The loss of either Mr. Mitchell or Mr. Larsen could negatively impact our ability to execute our strategy. We do not maintain key person life insurance policies on Mr. Mitchell.

We will be required to evaluate our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002 and any adverse results from such evaluation could result in a loss of investor confidence in our financial reports and have a material adverse effect on the price of our common shares.

Under Section 404 of the Sarbanes-Oxley Act of 2002, we will be required to furnish a report by our management on internal control over financial reporting for the fiscal year ending December 31, 2008. This report must contain, among other matters, an assessment of the effectiveness of our internal control over financial reporting, including a statement as to whether or not our internal control over financial reporting is effective. This assessment must include disclosure of any material weaknesses in our internal control over financial reporting identified by our management. In addition, beginning in the fiscal year ending December 31, 2009, the report will have to contain a statement that our auditors have issued an attestation report on management’s assessment of our internal control over financial reporting. Due to the limited number of our staff, it is not possible to achieve complete segregation of duties, nor do we currently maintain written policies and procedures at our international offices. Further, we must engage accounting assistance with respect to complex, non-routine accounting issues, Canadian and U.S. GAAP matters, tax compliance, and reporting for our international operations. Our efforts to comply with the requirements of Section 404 may result in increased general and administrative expense and a diversion of management time and attention. As a result, we may not be able to conclude that we have effective internal controls in the future. The completion of the Longe Acquisition and the subsequent integration of the Longe into our operations may make it more difficult for us to comply with Section 404. We may not be able to complete our evaluation, testing and required remediation, if any, in a timely fashion. Failure to have effective internal controls could lead to a misstatement of our financials. If, as a result of deficiencies in our internal controls, we cannot provide reliable financial reports, our business decision process may be adversely affected, our business and operating results could be harmed, investors could lose confidence in our reported financial information and the price of our common shares could decrease. In addition, failure to maintain effective internal control over financial reporting could result in investigations or sanctions by regulatory authorities.

Longe may experience difficulty in staffing its drilling rigs.

Longe is a start up business. Longe will need to staff its drilling rigs and add staff to other departments. Longe may experience difficulty in finding a sufficient number of experienced crews to work on its drilling rigs and experienced staff in other departments to complete the work required.

Longe’s contract drilling operations will depend on the level of activity in the oil and natural gas exploration and production industry.

Longe’s contract drilling operations will depend on the level of activity in oil and natural gas exploration and production in Longe’s operating markets. Both short-term and long-term trends in oil and natural gas prices affect the level of that activity. Because oil and natural gas prices are volatile, the level of exploration and production activity can also be volatile. In general, any decrease from current oil and natural gas prices would depress the level of exploration and production activity.

A disruption in the manufacture or import of Longe’s new build rigs could delay its drilling schedule.

Longe currently has drilling rigs on order from Chinese manufacturers. Any event causing the disruption of manufacturing or imports from China, including financial, political and financial instability, strikes, health concerns regarding infectious diseases, adverse weather conditions or natural disasters or acts of war or terrorism in the United States or worldwide, may require Longe to modify its drilling schedule, delay the exploitation and development of its acreage and increase its costs of operation. Any such disruption could materially affect its production, financial condition and results of operations.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

In July and September 2008, we issued 985,000 and 100,000 common shares, respectively, upon the exercise of common share purchase warrants. We received approximately $1.1 million upon exercise of the warrants. The common shares were issued in a private placement under Regulation D and Section 4(2) of the Securities Act of 1933 in a transaction not involving a public offering directly with one of our existing securityholders.

Item 3.

Defaults Upon Senior Securities

None.

Item 4.

Submission of Matters to a Vote of Security Holders

None.

Item 5.

Other Information

None.

Item 6.

Exhibits


2.1		Purchase Agreement, dated September 19, 2008, by and between Longfellow Energy, LP and TransAtlantic Petroleum Corp. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K dated September 19, 2008, filed with the SEC on September 25, 2008).

3.1		Certificate and Articles of Continuance dated June 10, 1997 (incorporated by reference to Exhibit 1.1 to the Company’s Registration Statement on Form 20-F, filed with the SEC on October 9, 2007).

3.2		Certificate and Articles of Amendment dated December 2, 1998 (incorporated by reference to Exhibit 1.2 to the Company’s Registration Statement on Form 20-F, filed with the SEC on October 9, 2007).

3.3		Certificate and Articles of Amalgamation dated January 1, 1999 (incorporated by reference to Exhibit 1.3 to the Company’s Registration Statement on Form 20-F, filed with the SEC on October 9, 2007).

3.4		Certificate of Amendment and Registration of Restated Articles dated January 17, 2008.

3.5		By-law No. 1 dated June 2, 1997 (incorporated by reference to Exhibit 1.4 to the Company’s Registration Statement on Form 20-F, filed with the SEC on October 9, 2007).

31.1		Certification of the Chief Executive Officer of the Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of the Chief Financial Officer of the Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of the Chief Executive Officer and Chief Financial Officer of the Company, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


By:		/s/ Scott C. Larsen
		Scott C. Larsen
		Chief Executive Officer

By:		/s/ Hilda Kouvelis
		Hilda Kouvelis
		Chief Financial Officer

Date: November 14, 2008

INDEX TO EXHIBITS


Exhibit Numbers		Exhibits

2.1		Purchase Agreement, dated September 19, 2008, by and between Longfellow Energy, LP and TransAtlantic Petroleum Corp. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K dated September 19, 2008, filed with the SEC on September 25, 2008).

3.1		Certificate and Articles of Continuance dated June 10, 1997 (incorporated by reference to Exhibit 1.1 to the Company’s Registration Statement on Form 20-F, filed with the SEC on October 9, 2007).

3.2		Certificate and Articles of Amendment dated December 2, 1998 (incorporated by reference to Exhibit 1.2 to the Company’s Registration Statement on Form 20-F, filed with the SEC on October 9, 2007).

3.3		Certificate and Articles of Amalgamation dated January 1, 1999 (incorporated by reference to Exhibit 1.3 to the Company’s Registration Statement on Form 20-F, filed with the SEC on October 9, 2007).

3.4		Certificate of Amendment and Registration of Restated Articles dated January 17, 2008.

3.5		By-law No. 1 dated June 2, 1997 (incorporated by reference to Exhibit 1.4 to the Company’s Registration Statement on Form 20-F, filed with the SEC on October 9, 2007).

31.1		Certification of the Chief Executive Officer of the Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of the Chief Financial Officer of the Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of the Chief Executive Officer and Chief Financial Officer of the Company, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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