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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended July 31, 1999

Commission File Number 0-23580

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TRANSTEXAS GAS CORPORATION
(Exact name of registrant as specified in its charter)

DELAWARE 76-0401023
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

1300 NORTH SAM HOUSTON PARKWAY EAST
SUITE 310
HOUSTON, TEXAS 77032
(Address of principal executive offices) (Zip Code)

(281) 987-8600
(Registrant's telephone number, including area code)

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Indicate by check mark whether the 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
--- ---

The number of shares of common stock of the registrant outstanding on
September 20, 1999 was 57,515,566.

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TRANSTEXAS GAS CORPORATION

TABLE OF CONTENTS

PAGE
----

PART I.
FINANCIAL INFORMATION

Item 1. Financial Statements:

Report of Independent Accountants............................................................ 2

Condensed Consolidated Balance Sheet as of July 31, 1999 and January 31, 1999................ 3

Condensed Consolidated Statement of Operations for the three and six months ended
July 31, 1999 and 1998................................................................... 4

Condensed Consolidated Statement of Cash Flows for the six months ended
July 31, 1999 and 1998................................................................... 5

Notes to Condensed Consolidated Financial Statements......................................... 6

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations ............................................................................ 14

Item 3. Quantitative and Qualitative Disclosures About Market Risk...................................... 20

PART II.
OTHER INFORMATION

Item 1. Legal Proceedings............................................................................... 21

Item 4. Submission of Matters to a Vote of Security Holders............................................. 21

Item 6. Exhibits and Reports on Form 8-K................................................................ 21

Signature.................................................................................................. 22

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

REPORT OF INDEPENDENT ACCOUNTANTS

To the Stockholders and Board of Directors
of TransTexas Gas Corporation

We have reviewed the accompanying condensed consolidated balance sheet of
TransTexas Gas Corporation (debtor-in-possession) as of July 31, 1999 and the
related condensed consolidated statements of operations and of cash flows for
the three and six months ended July 31, 1999 and 1998. These financial
statements are the responsibility of the Company's management.

We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that
should be made to the accompanying condensed consolidated financial statements
for them to be in conformity with generally accepted accounting principles.

We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of January 31, 1999, and the
related consolidated statements of operations, of stockholders' equity
(deficit), and of cash flows for the year then ended (not presented herein); and
in our report dated May 20, 1999, which contains an explanatory paragraph
regarding the Company's ability to continue as a going concern, we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying condensed consolidated balance
sheet as of January 31, 1999, is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.

PricewaterhouseCoopers LLP

Houston, Texas
September 15, 1999

TRANSTEXAS GAS CORPORATION
(DEBTOR-IN-POSSESSION)

CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)

JULY 31, JANUARY 31,
1999 1999
------------ ------------

ASSETS
Current assets:
Cash and cash equivalents ........................................................ $ 16,670 $ 3,775
Accounts receivable .............................................................. 24,187 16,091
Receivable from affiliates ....................................................... 1,075 1,286
Inventories ...................................................................... 2,592 3,210
Other current assets ............................................................. 5,010 3,693
------------ ------------
Total current assets ........................................................ 49,534 28,055
------------ ------------

Property and equipment .............................................................. 1,471,235 1,459,630
Less accumulated depreciation, depletion and amortization ........................... 1,203,135 1,167,487
------------ ------------

Net property and equipment -- based on the full cost method of accounting for
gas and oil properties of which $20,816 and $20,477 was excluded from
amortization at July 31, 1999
and January 31, 1999 respectively .............................................. 268,100 292,143
------------ ------------
Other assets, net ................................................................... 22,805 25,169
------------ ------------
$ 340,439 $ 345,367
============ ============

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
Note payable ..................................................................... $ 20,000 $ --
Revolving credit agreement ....................................................... 1,815 --
Accounts payable ................................................................. 5,431 --
Accrued liabilities .............................................................. 6,322 983
------------ ------------
Total current liabilities ................................................... 33,568 983
------------ ------------

Production payments, less current portion ........................................... 49,796 56,260
Liabilities subject to compromise (Note 2)........................................... 727,752 718,139

Commitments and contingencies (Note 3) .............................................. -- --

Stockholders' deficit:
Common stock, $0.01 par value, 100,000,000
shares authorized, 57,515,566 shares issued and outstanding
at July 31, 1999 and January 31, 1999 ........................................... 740 740
Additional paid-in capital ....................................................... 20,615 19,915
Accumulated deficit .............................................................. (229,627) (188,265)
------------ ------------
(208,272) (167,610)
Treasury stock, at cost, 16,484,434 shares ....................................... (262,405) (262,405)
------------ ------------
Total stockholders' deficit .............................................. (470,677) (430,015)
------------ ------------
$ 340,439 $ 345,367
============ ============

See accompanying notes to condensed consolidated financial statements.

TRANSTEXAS GAS CORPORATION
(DEBTOR-IN-POSSESSION)

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)

THREE MONTHS ENDED SIX MONTHS ENDED
JULY 31, JULY 31,
---------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------

Revenues:
Gas, condensate and natural gas liquids ........ $ 28,096 $ 20,538 $ 46,489 $ 39,868
Gain (loss) on the sale of assets .............. (29) 47,693 (531) 60,020
Other .......................................... 506 3,208 1,680 5,018
------------ ------------ ------------ ------------
Total revenues ............................... 28,573 71,439 47,638 104,906
------------ ------------ ------------ ------------

Costs and expenses:
Operating ...................................... 4,662 6,061 11,542 12,573
Depreciation, depletion and amortization ....... 19,708 13,870 36,040 25,716
General and administrative ..................... 5,869 6,132 11,806 11,777
Taxes other than income taxes .................. 2,450 2,474 4,110 3,450
Impairment loss ................................ -- 21,843 -- 21,843
------------ ------------ ------------ ------------
Total costs and expenses ..................... 32,689 50,380 63,498 75,359
------------ ------------ ------------ ------------
Operating income (loss) ...................... (4,116) 21,059 (15,860) 29,547
------------ ------------ ------------ ------------

Other income (expense):
Interest income ................................ 87 453 136 1,027
Interest expense, net .......................... (2,006) (20,995) (24,719) (40,524)
------------ ------------ ------------ ------------
Total other income (expense) ................. (1,919) (20,542) (24,583) (39,497)
------------ ------------ ------------ ------------
Income (loss) before reorganization items,
income taxes and extraordinary item ....... (6,035) 517 (40,443) (9,950)
Reorganization items .............................. (919) -- (919) --
Income taxes (benefit) ............................ -- 181 -- (3,483)
------------ ------------ ------------ ------------
Income (loss) before extraordinary item ...... (6,954) 336 (41,362) (6,467)
Extraordinary item - early extinguishment
of debt (net of income tax benefit) .......... -- (1,142) -- (1,142)
------------ ------------ ------------ ------------
Net loss ..................................... $ ( 6,954) $ (806) $ (41,362) $ (7,609)
============ ============ ============ ============

Basic and diluted net loss per share:
Income (loss) before extraordinary item ...... $ (0.12) $ 0.01 $ (0.72) $ (0.11)
Extraordinary item ........................... -- (0.02) -- (0.02)
------------ ------------ ------------ ------------
Basic and diluted net loss per share ...... $ (0.12) $ (0.01) $ (0.72) $ (0.13)
============ ============ ============ ============

Weighted average number of shares outstanding
for basic and diluted net loss per share ........ 57,515,566 57,515,566 57,515,566 57,515,566
============ ============ ============ ============

See accompanying notes to condensed consolidated financial statements.

TRANSTEXAS GAS CORPORATION
(DEBTOR-IN-POSSESSION)

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)

SIX MONTHS ENDED
JULY 31,
------------------------------
1999 1998
------------ ------------

Operating activities:
Net loss ............................................................... $ (41,362) $ (7,609)
Adjustments to reconcile net loss to net cash provided (used) by
operating activities:
Extraordinary item .................................................. -- 1,142
Depreciation, depletion and amortization ............................ 36,040 25,716
Impairment loss ..................................................... -- 21,843
Amortization of debt issue costs .................................... 1,656 2,880
(Gain) loss on the sale of assets ................................... 531 (60,020)
Deferred income taxes ............................................... -- (3,481)
Changes in assets and liabilities:
Accounts receivable ............................................... (8,096) 1,067
Receivable from affiliates ........................................ 211 --
Inventories ....................................................... 618 1,284
Other current assets .............................................. (1,317) 5,060
Accounts payable .................................................. 2,470 (4,161)
Accrued interest payable to affiliates ............................ 14,692 28
Accrued liabilities ............................................... (1,867) 6,093
Transactions with affiliates, net ................................. 700 (4,497)
Other assets ...................................................... 605 197
Other liabilities ................................................. (1,796) (6,064)
------------ ------------
Net cash provided (used) by operating activities ............... 3,085 (20,522)
------------ ------------

Investing activities:
Capital expenditures ................................................... (7,109) (128,393)
Proceeds from the sale of assets ....................................... 556 104,920
------------ ------------
Net cash used by investing activities .......................... (6,553) (23,473)
------------ ------------

Financing activities:
Issuance of production payments ........................................ -- 52,214
Principal payments on production payments .............................. (5,107) (4,985)
Issuance of note payable to TEC ........................................ -- 11,948
Principal payment on note payable to TEC ............................... -- (19,206)
Issuance of note payable ............................................... 20,000 --
Issuance of long-term debt ............................................. -- 15,500
Principal payments on long-term debt ................................... -- (33,037)
Revolving credit agreement, net ........................................ 1,470 (708)
Debt issue costs ....................................................... -- (143)
------------ ------------
Net cash provided by financing activities ...................... 16,363 21,583
------------ ------------
Increase (decrease) in cash and cash equivalents ............... 12,895 (22,412)
Beginning cash and cash equivalents ....................................... 3,775 38,502
------------ ------------
Ending cash and cash equivalents .......................................... $ 16,670 $ 16,090
============ ============

Noncash operating and investing activities:
Accounts payable for property and equipment ............................ $ 44,610 $ 29,194
============ ============

See accompanying notes to condensed consolidated financial statements.

TRANSTEXAS GAS CORPORATION
(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. GENERAL

In the opinion of management, all adjustments, consisting of normal
recurring accruals, have been made that are necessary to fairly state the
financial position of TransTexas Gas Corporation ("TransTexas" or the "Company")
as of July 31, 1999 and the results of its operations and cash flows for the
interim periods ended July 31, 1999 and 1998. The condensed consolidated balance
sheet as of January 31, 1999 was derived from audited financial statements, but
does not include all disclosures required by generally accepted accounting
principles. The results of operations for interim periods should not be regarded
as necessarily indicative of results that may be expected for the entire year.
The financial information presented herein should be read in conjunction with
the consolidated financial statements and notes included in TransTexas' annual
report on Form 10-K for the year ended January 31, 1999. Unless otherwise noted,
the terms "TransTexas" and the "Company" refer to TransTexas Gas Corporation and
its subsidiaries, including Galveston Bay Processing Corporation ("Galveston Bay
Processing") and Galveston Bay Pipeline Company ("Galveston Bay Pipeline").
TransTexas is a subsidiary of TransAmerican Energy Corporation ("TEC"), which is
an indirect subsidiary of TransAmerican Natural Gas Corporation
("TransAmerican"). TransAmerican Refining Corporation ("TARC") is a wholly owned
subsidiary of TEC.

Recently Issued Pronouncement

In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), which establishes accounting
and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. The Company
will adopt SFAS 133 effective February 1, 2001. TransTexas is uncertain as to
the impact that adoption of SFAS 133 will have on its financial statements.

2. CHAPTER 11 FILING AND LIQUIDITY

On April 19, 1999, TransTexas filed a voluntary petition for relief under
Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for
the District of Delaware (the "Bankruptcy Court"). On April 20, 1999, TEC and
TARC also filed voluntary petitions under Chapter 11. On May 20, 1999, the cases
were transferred to the Southern District of Texas, Corpus Christi Division. The
bankruptcy cases are being jointly administered. TransTexas, TEC and TARC are
operating their businesses and managing their properties as
debtors-in-possession. TransTexas' Chapter 11 filing does not include its
subsidiaries, including Galveston Bay Processing and Galveston Bay Pipeline.
See Note 6 for summarized financial information of TransTexas' subsidiaries. As
a result of the Chapter 11 filings, absent approval from the Bankruptcy Court,
the Company is prohibited from paying, and creditors are prohibited from
attempting to collect, claims or debts arising prior to the bankruptcy.

Pursuant to a Credit Agreement (the "DIP Facility") dated April 27, 1999
among TransTexas, as Borrower, various financial institutions, as Lenders,
Credit Suisse First Boston Management Corporation, as Administrative Agent, and
TEC and TARC, as Guarantors, the Lenders have agreed to provide up to $20
million in post-petition financing to the Company (with an additional $10
million potentially available). On April 28, 1999, $6 million was disbursed to
TransTexas under the Credit Agreement pursuant to an interim order of the
Bankruptcy Court. On July 27, 1999, $14 million was disbursed to TransTexas
under the Credit Agreement pursuant to a final order dated June 16, 1999. The
Company expects to obtain an additional $10 million under the Credit Agreement
in September 1999. Advances under the Credit Agreement bear interest at the
rate of 13% per annum. TransTexas' obligations are guaranteed by TEC and TARC
and are secured by a first priority senior priming lien (subject to certain
exceptions) on all property of TransTexas, TEC and TARC. Amounts outstanding
under the DIP Facility will mature on the earlier of October 20, 1999 or the
effective date of a plan of reorganization. The maturity date may be extended by
the Lenders under the DIP Facility; however, there is no assurance that an
extension, if needed, will be granted.

Pursuant to an order of the Bankruptcy Court, TransTexas can borrow up to
$10 million under the GMAC Facility (defined in Note 4).

TRANSTEXAS GAS CORPORATION
(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)

The bankruptcy petitions were filed in order to preserve cash and to give
the Company the opportunity to restructure its debt. The consummation of a plan
of reorganization is the primary objective of the Company. On July 16, 1999, the
Company filed its Plan of Reorganization with the Bankruptcy Court. An amended
plan was filed on July 23, 1999. The Company's Plan of Reorganization, as
amended, is referred to herein as the "Plan." A Disclosure Statement relating to
the Plan was filed with Bankruptcy Court on August 13, 1999. The Plan sets forth
TransTexas' proposal for satisfying claims, including liabilities subject to
compromise, and interests in the Company. The Plan will likely result in, among
other things, material dilution or elimination of the interests of existing
security holders. A copy of the Plan is being filed as an exhibit to this Form
10-Q. Consummation of the Plan will require approval of the Bankruptcy Court.
There can be no assurance that the terms of the Plan will not be modified prior
to approval or that the Plan will be approved.

As a result of the bankruptcy filing, a significant amount of the
Company's liabilities, including secured debt, are subject to compromise. As of
July 31, 1999 and January 31, 1999, liabilities subject to compromise included
the following (in thousands of dollars):

JULY 31, JANUARY 31,
1999 1999
---------- -----------

Long-term debt............................ $ 124,876 $ 125,170
Notes payable to affiliates .............. 457,928 457,928
Accounts payable ......................... 69,091 66,231
Accrued interest payable to affiliates ... 23,305 8,613
Accrued liabilities ...................... 39,112 44,961
Other liabilities ........................ 13,440 15,236
---------- -----------
$ 727,752 $ 718,139
========== ===========

As of the petition date, in accordance with current accounting
pronouncements applicable to companies operating under Chapter 11, TransTexas
discontinued the accrual of interest and amortization of deferred debt issue
costs related to liabilities subject to compromise. If such interest had
continued to be accrued, based on contractual terms without increase for default
provisions, and related deferred debt issue costs continued to be amortized,
interest expense for the three and six months ended July 31, 1999 would have
increased by approximately $18.6 million and $19.2 million, respectively.

The accompanying financial statements have been prepared on a going
concern basis, which contemplates continuity of operations, realization of
assets and liquidation of liabilities in the ordinary course of business. As a
result of the bankruptcy filing and related events, there is no assurance that
the carrying amounts of assets will be realized or that liabilities will be
liquidated or settled for the amounts recorded. In addition, confirmation of a
plan of reorganization, or rejection thereof, could change the amounts reported
in the financial statements. As a result, there is substantial doubt about the
Company's ability to continue as a going concern. The ability of TransTexas to
continue as a going concern is dependent upon confirmation of a plan of
reorganization, adequate sources of capital and the ability to sustain positive
results of operations and cash flows sufficient to continue to explore for and
develop gas and oil reserves.

In the ordinary course of business, TransTexas makes substantial capital
expenditures for the exploration and development of natural gas and oil
reserves. TransTexas historically has financed its capital expenditures, debt
service and working capital requirements with cash flow from operations, public
and private offerings of debt and equity securities, the sale of production
payments, asset sales, an accounts receivable revolving credit facility and
other financings. Cash flow from operations is sensitive to the prices
TransTexas receives for its natural gas and oil. A reduction in planned capital
spending or an extended decline in gas and oil prices could result in less than
anticipated

TRANSTEXAS GAS CORPORATION
(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)

cash flow from operations in fiscal year 2000 and later years, which could have
a material adverse effect on TransTexas.

Management's plans are to continue to incur capital expenditures with the
goal of increasing production and reserves. To finance these planned capital
expenditures, TransTexas will be required to supplement its anticipated cash
flow from operations with a combination of asset sales, financings or other
capital-raising transactions. The ability to incur capital expenditures, sell
properties and obtain additional financing is subject to the approval and
ongoing supervision of the Bankruptcy Court, as well as the approval of the
lenders under the DIP Facility or, if subsequent to confirmation of the Plan,
the post-confirmation lenders. There is no assurance that adequate funds can be
obtained on a timely basis or that the Bankruptcy Court will approve such
transactions.

3. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

Chapter 11 Bankruptcy. On April 19, 1999 (the "Petition Date"), TransTexas
filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy
Code in the United States Bankruptcy Court for the District of Delaware. On
April 20, 1999, TEC and TARC also filed voluntary petitions under Chapter 11. On
May 20, 1999, the cases were transferred to the Southern District of Texas,
Corpus Christi Division. The bankruptcy cases are being jointly administered
under the caption "In re: TransTexas Gas Corporation, et al., Debtors," Case No.
99-21550-C-11. TransTexas, TEC and TARC are operating their businesses and
managing their properties as debtors-in-possession. As a result of the Chapter
11 filings, absent approval of the Bankruptcy Court, the Company is prohibited
from paying, and creditors are prohibited from attempting to collect, claims or
debts arising prior to the Petition Date. The Company filed its Plan with the
Bankruptcy Court on July 16, 1999. An amended Plan was filed on July 23, 1999
and a Disclosure Statement was filed on August 13, 1999. See Note 2.

Arabian Offshore Partners. On June 27, 1997, Arabian Offshore Partners
filed a lawsuit against TransTexas in the 14th Judicial District Court, Dallas
County, Texas, seeking $20 million in damages in connection with TransTexas'
refusal to proceed with the acquisition of two jack-up drilling rigs.
TransTexas' motion for summary judgment was granted on January 13, 1998. The
plaintiffs have appealed. This matter is stayed as a result of the Company's
Chapter 11 filing.

Blue Gulf. On July 14, 1998, Blue Gulf Seafood, an owner of oyster leases,
sued TransTexas in the U. S. District Court, Southern District of Texas,
Galveston Division. Blue Gulf is claiming damages in excess of $5 million as a
result of alleged economic injury to its oyster beds caused by TransTexas'
drilling and development activities in the Eagle Point Prospect in Galveston
Bay. In October 1998, TransTexas obtained a final judgment in its favor
principally on the grounds that Blue Gulf lacked standing. Blue Gulf has
appealed. This matter is stayed as a result of the Company's Chapter 11 filing.

Finkelstein. On April 22, 1991, Finkelstein filed a suit against
TransAmerican and various affiliates in the 49th Judicial District Court, Zapata
County, Texas, alleging an improper calculation of overriding royalties
allegedly owed to the plaintiff and seeking damages and attorneys' fees in
excess of $33.7 million. On November 18, 1993, the plaintiff added TransTexas as
an additional defendant. The parties arbitrated this matter in January 1997. In
May 1998, the arbitration panel awarded $13 million to plaintiff, and plaintiff
subsequently obtained a judgment against TransTexas for the awarded amount.
Pursuant to a settlement agreement, TransTexas will pay the amount awarded over
a 24-month period. If payments are not made, plaintiff will have the right to
enforce its judgment. This matter is stayed as a result of the Company's
Chapter 11 filing.

Hein Minerals. On April 3, 1998, Henry and Luz A. Hein Minerals, L.C.
("Hein") filed suit in the 49th Judicial District Court, Zapata County, Texas,
against TransAmerican, TransTexas, TransTexas Transmission Corporation ("TTC")
and Conoco, Inc. Plaintiff alleges that a 1990 mineral lease from plaintiffs to
TransAmerican, comprising approximately 2,000 acres, was breached by failure to
release certain acreage from the lease. Plaintiff alleges trespass, tortious
interference, conversion, fraud, breach of fiduciary duty, breach of contract,
conversion and slander of title, and claim damages including $10 per day per
acre that was not released.

TRANSTEXAS GAS CORPORATION
(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)

On April 29, 1999, TransTexas removed the case to the United States Bankruptcy
Court for the Southern District of Texas, Laredo Division. On May 28, 1999,
plaintiffs filed a motion to remand the case to the 49th Judicial District
Court, Zapata County, Texas. This matter is stayed as a result of the Company's
Chapter 11 filing. TransTexas intends to vigorously defend against these claims.

Zurich. On May 5, 1998, The Home Insurance Company and Zurich Insurance
Company filed suit against TransTexas in the United States District Court,
Southern District of New York, to enforce an arbitration award of approximately
$7.25 million relating to additional collateral for payments under workers'
compensation policies. In January 1999, the court entered a judgment in favor of
Zurich and Home, confirming the arbitration award. Zurich has also, by notice
dated November 25, 1998, filed a second arbitration against TransAmerican with
respect to its attempt to satisfy a disputed premium payment of approximately
$4.2 million. Zurich has also made claims on collateral to cover unpaid loss
billings of over $1 million. Although Zurich's notice of arbitration names only
TransAmerican, TransTexas has provided significant collateral to Zurich and
objected to any draw on its collateral. These matters are stayed as a result of
the Company's Chapter 11 filing. Hearings have been held to consider whether the
stay should be lifted, but the Bankruptcy Court has not ruled on the matter.

Vendor Claims. Numerous suppliers of goods and services have filed or
asserted liens against property of the Company and Galveston Bay Processing to
secure the payment of invoices which are included in liabilities subject to
compromise. Many of these vendors have also filed collection suits against the
Company and Galveston Bay Processing and/or suits to enforce their liens. These
matters are stayed as a result of the Company's Chapter 11 filing. The amount of
claims as to which liens have been asserted or filed against property of the
Company and its subsidiaries, including Galveston Bay Processing, was
approximately $37.3 million as of September 9, 1999. Of this amount,
approximately $3.5 million in liens have been filed against property of
Galveston Bay Processing and approximately $1.8 million in liens have been
filed against property of Galveston Bay Pipeline.

Royalty Claims. Numerous royalty owners have made claims and filed suits
against the Company for payment of unpaid prepetition royalties under mineral
leases and other agreements. These matters are stayed as a result of the
Company's Chapter 11 filing. Unpaid prepetition royalties, included in
liabilities subject to compromise, totaled approximately $9.4 million at July
31, 1999.

General. The resolution in any reporting period of one or more of the
foregoing matters in a manner adverse to TransTexas could have a material
adverse effect on TransTexas' results of operations and cash flows for that
period. TransTexas is also a named defendant in other ordinary course, routine
litigation incidental to its business. Although the outcome of these other
lawsuits cannot be predicted with certainty, TransTexas does not expect these
matters to have a material adverse effect on its financial position. At July 31,
1999, the possible range of estimated losses related to litigation claims, in
addition to the estimates accrued by TransTexas, is $0 to $20 million.
Litigation expense, including legal fees, totaled approximately $1.4 million and
$0.9 million for the three months ended July 31, 1999 and 1998, respectively,
and approximately $1.8 million and $1.0 million for the six months ended July
31, 1999 and 1998, respectively.

Environmental Matters

TransTexas' operations and properties are subject to extensive federal,
state, and local laws and regulations relating to the generation, storage,
handling, emission, transportation, and discharge of materials into the
environment. Permits are required for various of TransTexas' operations, and
these permits are subject to revocation, modification, and renewal by issuing
authorities. TransTexas also is subject to federal, state, and local laws and
regulations that impose liability for the cleanup or remediation of property
which has been contaminated by the discharge or release of hazardous materials
or wastes into the environment. Governmental authorities have the power to
enforce compliance with their regulations, and violations are subject to fines
or injunctions, or both. Certain aspects of TransTexas' operations may not be in
compliance with applicable environmental laws and regulations, and such
noncompliance may give rise to compliance costs and administrative penalties. It
is not anticipated that TransTexas will be required in the near future to expend
amounts that are material to the financial condition or operations of TransTexas
by reason of environmental laws and regulations, but because such laws and
regulations are frequently changed and, as a result, may impose increasingly
strict requirements, TransTexas is unable to predict the ultimate cost of
complying with such laws and regulations.

TRANSTEXAS GAS CORPORATION
(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)

Gas Sales and Delivery Commitments

In January 1997, TransTexas and Koch Energy Trading Inc. entered into a
gas purchase contract pursuant to which TransTexas is required to deliver 25,000
MMBtu per day to a specified delivery point. The purchase price is determined by
an industry index less $0.08 per MMBtu. On August 10, 1999, the Company obtained
Bankruptcy Court approval to reject this contract.

As of July 31, 1999, TransTexas had delivery commitments for an aggregate
of approximately 125 MMcf of natural gas per day pursuant to certain contracts.
These contracts require TransTexas to pay certain charges if it does not deliver
the specified quantities. Such charges totaled $0.5 million and $1.4 million for
the three months ended July 31, 1999 and 1998, respectively, and approximately
$1.1 million and $2.4 million for the six months ended July 31, 1999 and 1998,
respectively. The Company expects to obtain Bankruptcy Court approval to reject
these contracts.

Pursuant to the Bankruptcy Code, the Company has the right to assume or
reject executory contracts. As of September 10, 1999, the Company had obtained
Bankruptcy Court approval to reject 11 contracts.

Lobo Sale

Pursuant to the Lobo Sale Agreement, TransTexas is required to indemnify
the buyer for certain liabilities related to the assets previously owned by TTC.
Although TransTexas does not anticipate that it will incur any material
indemnity liability with respect to the Lobo Sale Agreement, no assurance can be
given that TransTexas will not incur such indemnity liability.

Potential Tax Liability

Part of the refinancing of TransAmerican's debt in 1993 involved the
cancellation of approximately $65.9 million of accrued interest and a contingent
liability for interest of $102 million owed by TransAmerican. TransAmerican has
taken the federal tax position that the entire amount of this debt cancellation
is excluded from its income under the cancellation of indebtedness provisions
(the "COD Exclusion") of the Internal Revenue Code of 1986, as amended, and has
reduced its tax attributes (including its net operating loss and credit
carryforwards) as a consequence of the COD Exclusion. No federal tax opinion was
rendered with respect to this transaction, however, and TransAmerican has not
obtained a ruling from the IRS regarding this transaction. TransTexas believes
that there is substantial legal authority to support the position that the COD
Exclusion applies to the cancellation of TransAmerican's indebtedness. However,
due to factual and legal uncertainties, there can be no assurance that the IRS
will not challenge this position, or that such challenge would not be upheld.
Under an agreement between TNGC Holdings Corporation, the sole stockholder of
TransAmerican ("TNGC"), TransAmerican and its existing subsidiaries, including
TARC, TEC and TransTexas (the "Tax Allocation Agreement"), TransTexas has agreed
to pay an amount equal to any federal tax liability (which would be
approximately $25.4 million) attributable to the inapplicability of the COD
Exclusion. Any such tax could be offset in subsequent years by alternative
minimum tax credits and retained loss and credit carryforwards to the extent
recoverable from TransAmerican. As a member of the TNGC Consolidated Group
(defined below), each of TransTexas, TEC and TARC will be severally liable for
any tax liability resulting from the above-described transactions. The IRS has
commenced an audit of the consolidated federal income tax returns of the TNGC
Consolidated Group for its taxable years ended July 31, 1995 and 1994. At this
time, it is not possible to predict the scope of the IRS' review or whether any
tax deficiencies will be proposed by the IRS as a result of its review.

TRANSTEXAS GAS CORPORATION
(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)

regulations for the resulting taxes, in the estimated amount of up to $270
million (assuming no reduction of tax attributes of the TNGC Consolidated
Group), possible penalties equal to 20% of the amount of the tax, and interest
at the statutory rate (currently 8%) on the tax and penalties (if any). The Tax
Allocation Agreement provides that TransAmerican will be obligated to fund the
entire tax deficiency (if any) resulting from the Lobo Sale. There can be no
assurance that TransAmerican would be able to fund any such payment at the time
due and the other members of the TNGC Consolidated Group may be required to pay
the tax. As a result of subsequent net operating losses and the bankruptcy
filing, it is more likely than not that any claims against TransTexas as a
result of the Lobo Sale will be in the form of reduced net operating loss
carryforwards.

If the aggregate ownership of TransTexas by members of the TNGC
Consolidated Group (excluding TransTexas) is less than 80% (measured by voting
power and value), TransTexas will no longer be a member of the TNGC Consolidated
Group for federal tax purposes ("Deconsolidation") and, with certain exceptions,
will no longer be obligated under the terms and conditions of, or entitled to
the benefits of, the Tax Allocation Agreement. A Deconsolidation could result
from the issuance of additional equity securities by TransTexas, or from the
sale or other disposal of shares of TransTexas by TEC or TransAmerican. Upon a
Deconsolidation of TransTexas, members of the TNGC Consolidated Group that own
TransTexas' common stock could incur a substantial amount of federal income tax
liability. If such Deconsolidation occurred during the fiscal year ending
January 31, 2000, the aggregate amount of this tax liability is estimated to be
approximately $100 million, assuming no reduction for tax attributes of the TNGC
Consolidated Group. However, such tax liability would be substantially reduced
or eliminated in the event that the IRS successfully challenged TransTexas'
position on the Lobo Sale. Each member of a consolidated group filing a
consolidated federal income tax return is severally liable to the IRS for the
consolidated federal income tax liability of the consolidated group. There can
be no assurance that each TNGC Consolidated Group member will have the ability
to satisfy any tax obligation attributable to these transactions at the time due
and, therefore, other members of the group, including TEC, TransTexas or TARC,
may be required to pay the tax.

TransTexas is required, under the Tax Allocation Agreement, to pay any
Texas franchise tax (which is estimated not to exceed $11.4 million)
attributable to prior year transactions by any member of the TNGC Consolidated
Group. As of July 31, 1999, TransTexas had paid $9.6 million of these franchise
taxes.

It is not possible to predict the impact of the bankruptcy filing on the
Tax Allocation Agreement, any obligations of TransTexas to the TNGC Consolidated
Group or the tax attributes of TransTexas, including its net operating loss
carryforwards. In addition, the utilization of any remaining net operating loss
carryforwards after discharge from bankruptcy may be limited. Net operating loss
carryforwards attributable to TransTexas at July 31, 1999 were approximately
$397 million.

4. CREDIT AGREEMENT

TransTexas and GMAC Commercial Credit LLC, formerly known as BNY Factoring
LLC, successor by merger to BNY Financial Corporation ("GMAC"), are parties to a
Second Amended and Restated Accounts Receivable Management and Security
Agreement dated as of October 14, 1997, as amended (the "GMAC Facility").
Interest accrues on advances at the rate of (i) the higher of (a) the prime rate
of The Bank of New York or (b) the Federal Funds Rate plus 1/2 of 1% plus (ii)
1/2 of 1%. Obligations under the GMAC Facility are secured by liens on
TransTexas' receivables and inventory and are guaranteed by John R. Stanley. The
GMAC Facility contains certain financial covenants. Pursuant to an order of the
Bankruptcy Court, TransTexas can borrow up to $10 million and access cash
collateral under the GMAC Facility. The amounts that may be advanced under the
GMAC Facility are based on a percentage of certain of the Company's receivables
and inventory. As of July 31, 1999, outstanding advances under the GMAC Facility
totaled approximately $1.8 million with availability for additional advances of
approximately $1.5 million.

TRANSTEXAS GAS CORPORATION
(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)

5. TRANSACTIONS WITH AFFILIATES

In connection with a December 15, 1998 transaction pursuant to which TARC
transferred its refinery assets to a minority-owned subsidiary, TCR Holding
Corporation, a Delaware corporation ("TCR Holding"), and TCR Holding transferred
such assets to its majority-owned subsidiary, Orion Refining Corporation, a
Delaware corporation ("Orion"), TransTexas entered into an Amended and Restated
Services Agreement with TransAmerican and its affiliates (other than TCR Holding
and Orion) and an Amended and Restated Services Agreement (the "TCR Group
Services Agreement") with TCR Holding and Orion. Pursuant to the TCR Group
Services Agreement, TransTexas will provide accounting, legal, administrative
and other services to the TCR Group through December 15, 2000. The fee for such
services, from December 15, 1998 through February 28, 1999, was $200,000 per
month. Subsequent to February 28, 1999, the monthly fee will be adjusted based
on an assessment of the cost to TransTexas of providing such services. For the
three and six months ended July 31, 1999, respectively, TransTexas charged Orion
$0.1 million and $0.5 million for such services. As of July 31, 1999 and January
31, 1999, respectively, the receivable from Orion for such services was $0.1
million and $0.3 million.

In December 1998, TransTexas executed a note payable to TransAmerican in
the original principal amount of $1.4 million plus interest at a rate of 15% per
annum. This note is secured by a second lien on the assets of Galveston Bay
Processing. The proceeds from this loan were used to pay a portion of the
Company's interest payment obligations on December 31, 1998. As of July 31, 1999
and January 31, 1999, respectively, the balance due on the note was $1.4
million. Accrued interest was $0.1 million as of July 31, 1999.

In April 1999, TEC made a cash contribution of $0.7 million to TransTexas.

In October 1998, TransTexas and Galveston Bay Processing entered into a
treating agreement. Pursuant to the agreement, Galveston Bay Processing treats
and dehydrates gas and separates and handles condensate produced from
TransTexas' Eagle Bay Field at its processing facility located in Winnie, Texas.

6. SUMMARIZED FINANCIAL INFORMATION OF SUBSIDIARIES

Summarized combined financial information of TransTexas' subsidiaries not
in bankruptcy is as follows (in thousands of dollars):

July 31, January 31,
1999 1999
-------- -----------

Assets

Current assets $ 811 $ 115
Net property and equipment 12,262 145
Other assets 7 1
-------- --------
$ 13,080 $ 261
======== ========

Liabilities and Equity

Current liabilities $ 141 $ --
Payable to affiliates 12,844 251
Equity 95 10
-------- --------
$ 13,080 $ 261
======== ========

Three Months Six Months
Ended Ended
July 31, July 31,
1999 1999
------------ ----------

Revenues $ 2,396 $ 3,607
Costs and expenses 1,754 2,595
-------- --------
Operating income 642 1,012
Interest income 2 4
Interest expense (45) (64)
-------- --------
Income before income taxes 599 952
Income taxes 210 333
-------- --------
Net income $ 389 $ 619
======== ========

Galveston Bay Processing and Galveston Bay Pipeline conduct significant
intercompany activities with TransTexas. Included in revenues of subsidiaries
for the three and six months ended July 31, 1999 are processing fees from
TransTexas of $2.0 million and $2.7 million, respectively.

7. GAS AND OIL PROPERTIES

TransTexas uses the full cost method of accounting for exploration and
development costs. Under this method of accounting, net capitalized costs of gas
and oil properties are limited to the lower of unamortized cost or the cost
center ceiling. As of July 31, 1999, TransTexas' net capitalized costs of gas
and oil properties exceeded the cost center ceiling. TransTexas did not adjust
its net capitalized costs because, subsequent to July 31, 1999, prices for gas
and oil increased such that TransTexas' net capitalized costs did not exceed the
recalculated cost center ceiling.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

The following discussion should be read in conjunction with the condensed
consolidated financial statements and notes thereto of TransTexas included
elsewhere in this report.

RESULTS OF OPERATIONS

GENERAL

TransTexas' results of operations are dependent upon natural gas
production volumes and unit prices from sales of natural gas, condensate and
natural gas liquids ("NGLs"). The profitability of TransTexas also depends on
its ability to minimize finding and lifting costs and maintain its reserve base
while maximizing production.

TransTexas' operating data for the three and six months ended July 31,
1999 and 1998, is as follows:

THREE MONTHS ENDED SIX MONTHS ENDED
JULY 31, JULY 31,
-------------------------- --------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------

Sales volumes:
Gas (Bcf) ............................ 7.7 8.7 14.8 16.5
NGLs (MMgal) ......................... 8.5 1.3 16.9 3.3
Condensate (MBbls) ................... 455 147 913 219
Average prices:
Gas (dry) (per Mcf) .................. $ 2.26 $ 2.23 $ 2.07 $ 2.21
NGLs (per gallon) .................... .30 .18 .25 .23
Condensate (per Bbl) ................. 17.96 12.24 15.82 12.65
Number of gross wells drilled .......... 2 15 5 29
Percentage of wells completed .......... 50% 67% 20% 66%

A summary of TransTexas' operating expenses is set forth below (in
millions of dollars):

THREE MONTHS ENDED SIX MONTHS ENDED
JULY 31, JULY 31,
--------------------- ---------------------
1999 1998 1999 1998
-------- -------- -------- --------

Operating costs and expenses:
Lease ................................ $ 2.0 $ 3.5 $ 6.0 $ 6.7
Pipeline and gathering ............... 2.7 1.1 5.5 3.7
Drilling services .................... -- 1.5 -- 2.2
-------- -------- -------- --------
4.7 6.1 11.5 12.6
Taxes other than income taxes (1) ...... 2.4 2.5 4.1 3.5
-------- -------- -------- --------
$ 7.1 $ 8.6 $ 15.6 $ 16.1
======== ======== ======== ========

- ----------------------------

(1) Taxes other than income taxes include severance, property and other taxes.

TransTexas' average depletion rates have been as follows:

THREE MONTHS ENDED SIX MONTHS ENDED
JULY 31, JULY 31,
------------------------- -------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------

Depletion rates (per Mcfe) ... $ 1.81 $ 1.36 $ 1.80 $ 1.34
========== ========== ========== ==========

THREE MONTHS ENDED JULY 31, 1999 COMPARED WITH THE THREE MONTHS ENDED
JULY 31, 1998

Gas, condensate and NGL revenues for the three months ended July 31, 1999
increased $7.6 million from the prior period due primarily to increases in
condensate and NGL sales volumes and higher prices for those products offset in
part by a decrease in natural gas sales volumes. The average monthly prices
received per Mcf of gas ranged from $2.25 to $2.32 in the three months ended
July 31, 1999, compared to a range of $2.17 to $2.31 in the prior period.
Drilling services revenues decreased by $1.3 million for the three months ended
July 31, 1999 due to the sale of certain drilling services division assets in
the prior period. For the three months ended July 31, 1998, TransTexas
recognized a pre-tax gain of $52.3 million on the sale of certain drilling
services division assets and a pre-tax loss of $4.6 million due to post-closing
adjustments to the Lobo Sale purchase price.

Lease operating expenses for the three months ended July 31, 1999
decreased $1.5 million from the prior period due primarily to decreases in
maintenance costs. Pipeline and gathering expenses increased $1.6 million
primarily due to the operations of TransTexas' natural gas treating facility in
Winnie, Texas. Drilling service expenses for the three months ended July 31,
1999 decreased $1.5 million due to the sale of certain drilling assets in the
prior period. Depreciation, depletion and amortization expense for the three
months ended July 31, 1999 increased $5.8 million due to an increase in the
depletion rate resulting from higher cost properties and unsuccessful drilling
results. General and administrative expenses decreased by $0.3 million primarily
as a result of a decrease in salaries and benefits offset in part by an increase
in professional fees. Taxes other than income taxes decreased by $0.1 million
over the prior period due primarily to decreases in severance taxes. The
impairment loss of $21.8 million for the three months ended July 31, 1998
related to a write-down of $16.3 million of TransTexas' net capitalized costs of
gas and oil properties to the cost center ceiling and a $5.5 million write-down
of an underutilized pipeline system that was exchanged as part of a settlement
of certain natural gas delivery commitments.

Interest income for the three months ended July 31, 1999 decreased by $0.4
million as compared to the prior period due to lower cash balances available for
investment. Interest expense decreased $19.0 million primarily as a result of
discontinuing interest accruals on pre-petition unsecured debt obligations.
Reorganization items of $0.9 million for the three months ended July 31, 1999
included legal and professional fees and expenses directly related to
TransTexas' Chapter 11 proceedings.

SIX MONTHS ENDED JULY 31, 1999 COMPARED WITH THE SIX MONTHS ENDED
JULY 31, 1998

Gas, condensate and NGL revenues for the six months ended July 31, 1999
increased by $6.6 million from the prior period due primarily to increases in
condensate and NGL sales volumes and higher prices for those products offset in
part by decreases in natural gas sales volumes and prices. The average monthly
prices received per Mcf of gas ranged from $1.74 to $2.32 in the six months
ended July 31, 1999, compared to a range of $2.09 to $2.36 in the prior period.
Drilling services revenues decreased by $2.7 million for the six months ended
July 31, 1999 due to the sale of certain drilling services division assets in
the prior period. For the six months ended July 31, 1998, TransTexas recognized
a pre-tax gain of $62.6 million for the sale of certain drilling services
division assets and a pre-tax loss of $2.6 million due to post-closing
adjustments to the Lobo Sale purchase price.

Lease operating expenses for the six months ended July 31, 1999 decreased
$0.7 million from the prior period due primarily to decreases in maintenance
costs. Pipeline and gathering expenses increased $1.8 million primarily due to
the operations of TransTexas' natural gas treating facility at Winnie, Texas.
Drilling services expenses for the six months ended July 31, 1999 decreased $2.2
million due to the sale of certain drilling assets in the prior period.
Depreciation, depletion and amortization expense for the six months ended July
31, 1999 increased $10.3 million due to an increase in the depletion rate
resulting from higher cost properties and unsuccessful drilling results. General
and administrative expenses were unchanged from the prior period. Taxes other
than income taxes increased by $0.6 million over the prior period due primarily
to increases in property taxes. The impairment loss of $21.8 million for the six
months ended July 31, 1998 related to a write-down of $16.3 million of
TransTexas' net capitalized costs of gas and oil properties to the cost center
ceiling and a $5.5 million write-down of an underutilized pipeline system that
was exchanged as part of a settlement of certain natural gas delivery
commitments.

Interest income for the six months ended July 31, 1999 decreased by $0.9
million as compared to the prior period due to lower cash balances available for
investment.

Interest expense decreased $15.8 million primarily as a result of discontinuing
interest accruals on pre-petition unsecured debt obligations. Reorganization
items of $0.9 million for the six months ended July 31, 1999 included legal and
professional fees and expenses directly related to TransTexas' Chapter 11
proceedings.

LIQUIDITY AND CAPITAL RESOURCES

On April 19, 1999, TransTexas filed a voluntary petition for relief under
Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for
the District of Delaware. On April 20, 1999, TEC and TARC also filed voluntary
petitions under Chapter 11. On May 20, 1999, the cases were transferred to the
Southern District of Texas, Corpus Christi Division. The bankruptcy cases are
being jointly administered. TransTexas, TEC and TARC are operating their
businesses and managing their properties as debtors-in-possession. As a result
of the Chapter 11 filings, absent approval from the Bankruptcy Court, the
Company is prohibited from paying, and creditors are prohibited from attempting
to collect, claims or debts arising prior to the bankruptcy.

Pursuant to a Credit Agreement (the "DIP Facility") dated April 27, 1999
among TransTexas, as Borrower, various financial institutions, as Lenders,
Credit Suisse First Boston Management Corporation, as Administrative Agent, and
TEC and TARC, as Guarantors, the Lenders have agreed to provide up to $20
million in post-petition financing to the Company (with an additional $10
million potentially available). On April 28, 1999, $6 million was disbursed to
TransTexas under the Credit Agreement pursuant to an interim order of the
Bankruptcy Court. On July 27, 1999, $14 million was disbursed to TransTexas
under the Credit Agreement pursuant to a final order dated June 16, 1999. The
Company expects to obtain an additional $10 million under the Credit Agreement
in September 1999. Advances under the Credit Agreement bear interest at the rate
of 13% per annum. TransTexas' obligations are guaranteed by TEC and TARC and are
secured by a first priority senior priming lien (subject to certain exceptions)
on all property of TransTexas, TEC and TARC. Amounts outstanding under the DIP
Facility will mature on the earlier of October 20, 1999 or the effective date of
a plan of reorganization. The maturity date may be extended by the Lenders under
the DIP Facility; however, there is no assurance that an extension, if needed,
will be granted.

TransTexas and GMAC Commercial Credit LLC, formerly known as BNY Factoring
LLC, successor by merger to BNY Financial Corporation, are parties to a Second
Amended and Restated Accounts Receivable Management and Security Agreement dated
as of October 14, 1997, as amended (the "GMAC Facility"). Interest accrues on
advances at the rate of (i) the higher of (a) the prime rate of The Bank of New
York or (b) the Federal Funds Rate plus 1/2 of 1% plus (ii) 1/2 of 1%.
Obligations under the GMAC Facility are secured by liens on TransTexas'
receivables and inventory and are guaranteed by John R. Stanley. Pursuant to an
order of the Bankruptcy Court, the Company can borrow up to $10 million and
access cash collateral under the GMAC Facility. The amounts that may be advanced
under the GMAC Facility are based on a percentage of certain of the Company's
receivables and inventory. As of July 31, 1999, outstanding advances under the
GMAC Facility totaled approximately $1.8 million with availability for
additional advances of approximately $1.5 million.

The bankruptcy petitions were filed in order to preserve cash and to give
the Company the opportunity to restructure its debt. The consummation of a plan
of reorganization is the primary objective of the Company. On July 16, 1999, the
Company filed its Plan with the Bankruptcy Court. An amended Plan was filed on
July 23, 1999 and a Disclosure Statement was filed on August 13, 1999. The Plan
sets forth TransTexas' proposal for satisfying claims, including liabilities
subject to compromise, and interests in the Company. The Plan will likely result
in, among other things, material dilution or elimination of the interests of
existing security holders. Consummation of the Plan will require approval of the
Bankruptcy Court. There can be no assurance that the terms of the Plan will not
be modified prior to approval or that the Plan will be approved.

At this time, it is not possible to predict the outcome of the bankruptcy
proceedings, in general, or the effect on the business of the Company or on the
interests of creditors, royalty owners or stockholders. There can be no
assurance that the Plan will be approved or that the Bankruptcy Court will
permit TransTexas to continue to operate as a debtor-in-possession. As a result
of these uncertainties and other matters, there is substantial doubt about the
Company's ability to continue as a going concern. See the Notes to Condensed
Consolidated Financial Statements of the Company included under Item 1 of this
report.

TransTexas makes substantial capital expenditures for the exploration and
development of natural gas and oil reserves in the normal course of business.
TransTexas historically has financed its capital expenditures, debt service and
working capital requirements with cash flow from operations, public and private
offerings of debt and equity securities, the sale of production payments, asset
sales, an accounts receivable revolving credit facility and other financings.
Cash flow from operations is sensitive to the prices TransTexas receives for its
natural gas and oil. A reduction in planned capital spending or an extended
decline in gas and oil prices could result in less than anticipated cash flow
from operations in fiscal year 2000 and later years which could have a material
adverse effect on TransTexas. Proceeds from natural gas and oil sales are
received at approximately the same time that production-related burdens, such as
royalties, production taxes and drilling program obligations, are payable.

For the six months ended July 31, 1999, total capital expenditures
incurred were $11 million, including $3 million for lease acquisitions, $7
million for drilling and development and $1 million for gas gathering, other
equipment and seismic acquisitions. Capital expenditures for the remainder of
fiscal 2000 are estimated to be approximately $42 million which amount is in
excess of anticipated cash flows from operating activities. To finance these
planned capital expenditures, TransTexas will be required to supplement its
anticipated cash flow from operations with a combination of asset sales,
financings or other

capital-raising transactions. The ability to incur capital expenditures, sell
properties and obtain additional financing is subject to the approval and
ongoing supervision of the Bankruptcy Court, as well as the approval of the
lenders under the DIP Facility or, if subsequent to confirmation of the Plan, to
the post-confirmation lenders. There is no assurance that adequate funds can be
obtained on a timely basis or that the Bankruptcy Court will approve such
transactions.

In February 1998, TransTexas entered into a production payment drilling
program agreement with an unaffiliated third party for the reimbursement of
certain drilling costs with respect to wells drilled by TransTexas. Pursuant to
the agreement, upon the approval of the third party of a recently drilled or
currently drilling well for inclusion in the program, the third party will
commit to the reimbursement of all or a portion of the cost of such well. The
program wells are subject to a dollar-denominated production payment equal to
the primary sum of such reimbursed costs, plus an amount equivalent to a 15%
annual interest rate on the unpaid portion of such primary sum. As of July 31,
1999, the outstanding balance of the production payment was $44.0 million.

In September 1998, TransTexas sold to an unaffiliated third party a term
overriding royalty in the form of a dollar-denominated production payment in
certain of TransTexas' producing properties for net proceeds of $10 million. The
production payment calls for the repayment of the primary sum plus an amount
equivalent to a 16% annual interest rate on the unpaid portion of such primary
sum. As of July 31, 1999, the outstanding balance of the production payment was
$8.1 million.

In April 1999, TEC made a cash contribution of $0.7 million to TransTexas.

CONTINGENT LIABILITIES

TransTexas has significant contingent liabilities. Although the outcome of
these contingencies or the probability of the occurrence of these contingencies
cannot be predicted with certainty, TransTexas does not expect these matters to
have a material adverse effect on its financial position. However, these
contingencies, individually and in the aggregate, amount to potential liability
that could have a material adverse effect on TransTexas' cash flows or results
of operations.

As of July 31, 1999, TransTexas had delivery commitments for an aggregate
of approximately 125 MMcf of natural gas per day pursuant to certain
contracts. These contracts require TransTexas to pay certain charges if it does
not deliver the specified quantities. Such charges totaled $0.5 million and $1.1
million, respectively, during the three and six months ended July 31, 1999. The
Company expects to obtain Bankruptcy Court approval to reject these contracts.

18
Pursuant to the Lobo Sale Agreement, TransTexas is required to indemnify
the buyer for certain liabilities related to the assets previously owned by TTC.
Although TransTexas does not anticipate that it will incur any material
indemnity liability with respect to the Lobo Sale Agreement, no assurance can be
given that TransTexas will not incur such indemnity liability.

POTENTIAL TAX LIABILITY

Part of the refinancing of TransAmerican's debt in 1993 involved the
cancellation of approximately $65.9 million of accrued interest and of a
contingent liability for interest of $102 million owed by TransAmerican.
TransAmerican has taken the federal tax position that the entire amount of this
debt cancellation is excluded from its income under the cancellation of
indebtedness provisions (the "COD Exclusion") of the Internal Revenue Code of
1986, as amended, and has reduced its tax attributes (including its net
operating loss and credit carryforwards) as a consequence of the COD Exclusion.
No federal tax opinion was rendered with respect to this transaction, however,
and TransAmerican has not obtained a ruling from the IRS regarding this
transaction. TransTexas believes that there is substantial legal authority to
support the position that the COD Exclusion applies to the cancellation of
TransAmerican's indebtedness. However, due to factual and legal uncertainties,
there can be no assurance that the IRS will not challenge this position, or that
such challenge would not be upheld. Under an agreement between TNGC Holdings
Corporation, the sole stockholders of TransAmerican ("TNGC"), TransAmerican and
certain of TransAmerican's subsidiaries including TransTexas, TEC and TARC (the
"Tax Allocation Agreement"), TransTexas has agreed to pay an amount equal to any
federal tax liability (which would be approximately $25.4 million) attributable
to the inapplicability of the COD Exclusion. Any such tax could be offset in
subsequent years by alternative minimum tax credits and retained loss and credit
carryforwards to the extent recoverable from TransAmerican. As a member of the
TNGC Consolidated Group (defined below), each of TransTexas, TEC and TARC will
be severally liable for any tax liability resulting from the above-described
transactions. The IRS has commenced an audit of the consolidated federal income
tax returns of the TNGC Consolidated Group for its taxable years ended July 31,
1995 and 1994. At this time, it is not possible to predict the scope of the IRS'
review or whether any tax deficiencies will be proposed by the IRS as a result
of its review.

Based in part upon independent legal advice, TransTexas determined that it
was not required to report any significant federal income tax liability as a
result of the Lobo Sale. There are, however, significant uncertainties regarding
TransTexas' tax position and no assurance can be given that its position will be
sustained if challenged by the IRS. TransTexas is part of an affiliated group
for tax purposes (the "TNGC Consolidated Group"), which also includes TNGC,
TransAmerican, TEC and TARC. No letter ruling has been or will be obtained from
the IRS regarding the Lobo Sale by any member of the TNGC Consolidated Group. If
the IRS were to successfully challenge TransTexas' position, each member of the
TNGC Consolidated Group would be severally liable under the consolidated tax
return regulations for the resulting taxes, in the estimated amount of up to
$270 million (assuming no reduction of tax attributes of the TNGC Consolidated
Group), possible penalties equal to 20% of the amount of the tax, and interest
at the statutory rate (currently 8%) on the tax and penalties (if any). The Tax
Allocation Agreement provides that TransAmerican will be obligated to fund the
entire tax deficiency (if any) resulting from the Lobo Sale. There can be no
assurance that TransAmerican would be able to fund any such payment at the time
due; therefore, the other members of the TNGC Consolidated Group may be required
to pay the tax. TransTexas' obligations for any liability arising from the Lobo
Sale would likely be in the form of reduced net operating losses.

19
to satisfy any tax obligation attributable to these transactions at the time due
and, therefore, other members of the group, including TEC, TransTexas or TARC,
may be required to pay the tax.

Generally, under the Tax Allocation Agreement, if net operating losses of
TransTexas are used by other members of the TNGC Consolidated Group, then
TransTexas is entitled to the benefit (through reduced current taxes payable) of
such losses in later years to the extent TransTexas has taxable income, remains
a member of the TNGC Consolidated Group and the other group members have the
ability to pay such taxes. If Deconsolidation of TransTexas occurs, TransTexas
would not thereafter receive any benefit pursuant to the Tax Allocation
Agreement for net operating losses of TransTexas used by other members of the
TNGC Consolidated Group prior to the Deconsolidation of TransTexas. Should
Deconsolidation occur, TransTexas would retain, as of July 31, 1999,
approximately $397 million of net operating loss carryforwards. However, such
net operating loss carryforwards could be reclaimed by the remaining members of
the TNGC Consolidated Group if certain events occur. Such events would include a
successful challenge to the tax treatment of the Lobo Sale.

TransTexas is required, under the Tax Allocation Agreement, to pay any
Texas franchise tax (which is estimated not to exceed $11.4 million)
attributable to transactions by any member of the TNGC Consolidated Group in
prior years. As of July 31, 1999, TransTexas had paid approximately $9.6 million
of these franchise taxes.

It is not possible to predict the impact of the bankruptcy filing on the
Tax Allocation Agreement, any obligations to the TNGC Consolidated Group or
TransTexas' tax attributes, including its net operating loss carryforwards. In
addition, the amount of net operating loss carryforwards remaining after
discharge from the bankruptcy that may be used in any future year may be
limited.

LACK OF COMPLETE YEAR 2000 COMPLIANCE

The widespread use of computer programs that rely on two-digit date
programs to perform computations and decision-making functions may cause
information technology ("IT") systems to malfunction in and around the Year
2000. Such malfunctions may lead to significant business delays in the U.S. and
internationally. The Year 2000 problem will potentially impact the Company's
normal business activities because information necessary to monitor and control
various operations is controlled by computers. In addition to potential problems
from computer systems, potential problems could arise from equipment with
embedded chips.

TransTexas has defined a Year 2000-compliant system as one capable of
correct identification, manipulation and calculation when processing data in
connection with the year change from December 31, 1999 to January 1, 2000. A
Year 2000-compliant system is also capable of correct identification,
manipulation and calculation using leap years both alone and in conjunction with
other dates.

Not all of TransTexas' systems are compliant under the above definition.
However, TransTexas is addressing the issues associated with this problem in the
following manner.

o In the first stage, TransTexas commenced preparation of an inventory
of all IT and non-IT systems, as well as equipment that could have
embedded chips, whether or not critical to the operation of the
business. TransTexas also compiled a listing of material
relationships with third parties with which it conducts business.
These relationships include contractors, suppliers and financial
institutions. This stage of the Year 2000 compliance process is
substantially complete.

o In stage two, TransTexas is assessing the results of the completed
inventory done in the first stage to determine the Year 2000 impact
and what actions need to be taken to obtain Year 2000 compliance.
For TransTexas' internal systems, actions needed include obtaining
vendor certification of Year 2000 compliance, remediating internal
systems or replacing systems and equipment that cannot be
remediated. This stage is approximately 95% complete with respect to
internal systems. Major outstanding items include receipt of vendor
certifications and installation of Year 2000 upgrades for certain
non-critical systems. TransTexas has determined a course of action
for remediation or replacement of all identified critical internal
systems. TransTexas is surveying and obtaining information about
Year 2000 readiness of its material third-party relationships.
Contingency plans will be developed for those third parties that
cannot satisfactorily demonstrate Year 2000 compliance.

20
o The third stage includes the repair, replacement or retirement of
systems. This stage of the Year 2000 process is ongoing and is
dependent upon the availability of upgrades from TransTexas' IT
vendors, technician time to implement the upgrades and notification
from other third parties of Year 2000 compliance. TransTexas has
been upgrading packaged software throughout the organization.
TransTexas has implemented a new financial reporting system. Several
operational systems are in various stages of implementation, which
should be completed prior to November 1999. The vendors of these new
systems have provided certification that their respective software
packages are Year 2000 compliant according to TransTexas'
definition.

o The last stage of the implementation process, which is approximately
80% complete, includes testing all of the changes implemented
individually and integrating those changes with all of the systems
of TransTexas and its suppliers and customers. Various forms of
testing are used depending on the type of change implemented. Each
upgrade, to the extent economically feasible, will be run through a
test environment before it is implemented. It is then tested to see
how well it integrates into TransTexas' overall IT environment.
Currently, TransTexas is not employing any independent verification
processes of its systems' tests.

As of July 31, 1999, TransTexas had incurred approximately $2 million in
direct costs with respect to its Year 2000 compliance program. TransTexas
anticipates spending an additional $0.2 million in direct costs to complete its
Year 2000 compliance program.

Despite TransTexas' best efforts to ready its systems and infrastructure
for the Year 2000, there are many factors outside of TransTexas' control that
could affect readiness for the Year 2000. Although TransTexas believes that Year
2000 compliance will be accomplished by the implementation of the program
described above, there could be operational issues with the new systems
implemented that prevent TransTexas from solving the Year 2000 compliance issue
in a timely manner. In such event, TransTexas could be required to implement a
contingency plan for Year 2000 compliance. Although TransTexas has not
completely finalized its contingency plans, TransTexas will select from several
alternative plans including remediation of its software, installation of other
third party vendor software or some combination of alternatives. Substantial
completion of these plans is expected by November 1999 with continual
refinement until all of TransTexas' critical systems and all critical
third-party relationships have demonstrated Year 2000 compliance.

The potential impact of the Year 2000 problem on TransTexas could be
material, as virtually every aspect of its business will be affected. TransTexas
may be adversely affected by this problem, depending on whether it and the
entities with which it does business address this issue successfully.

FORWARD-LOOKING STATEMENTS

Forward-looking statements, within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
are included throughout this report. All statements other than statements of
historical facts included in this report regarding TransTexas' financial
position, business strategy, and plans and objectives of management for future
operations, including, but not limited to words such as "anticipates,"
"expects," "estimates," "believes" and "likely" indicate forward-looking
statements. TransTexas' management believes its current views and expectations
are based on reasonable assumptions; however, there are significant risks and
uncertainties that could significantly affect expected results. Factors that
could cause actual results to differ materially from those in the
forward-looking statements include fluctuations in the commodity prices for
natural gas, crude oil, condensate and natural gas liquids, the extent of
TransTexas' success in discovering, developing and producing reserves,
conditions in the equity and capital markets, competition, Year 2000 readiness
and the ultimate resolution of litigation, including bankruptcy.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of July 31, 1999, the Company did not have any market risk sensitive
instruments.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See Note 3 to the condensed consolidated financial statements for a
discussion of TransTexas' legal proceedings.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Company held its 1999 Annual Meeting of Stockholders on July 9,
1999. No matters, other than the election of directors, were voted upon. James
V. Langston and Robert L. May were elected to serve as Class III directors for a
three-year term. Thomas B. McDade's term as Class II director expires in 2001.
John R. Stanley's term as Class I director expires in 2000.

The following votes were cast with respect to each nominee:

FOR WITHHELD
---------- --------

James V. Langston 56,715,111 228,843
Robert L. May 56,707,411 236,543

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits:

2.1 -- First Amended Plan of Reorganization dated July 22, 1999.

10.1 -- Amendment No. 1 dated June 28, 1999 to Credit Agreement dated
April 27, 1999 among TransTexas, Credit Suisse First Boston
Management Corporation, the Lenders named therein, and TEC and
TARC, as guarantors.

15.1 -- Letter of Independent Accountants regarding awareness of
incorporation by reference.

27.1 -- Financial Data Schedule

(b) Reports on Form 8-K

There were no reports on Form 8-K filed during the quarter ended July 31,
1999.

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SIGNATURE

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.

TRANSTEXAS GAS CORPORATION
(Registrant)

By: /s/ Ed Donahue
----------------------------------
Ed Donahue, Vice President
and Chief Financial Officer

September 20, 1999

INDEX TO EXHIBITS

EXHIBIT
NUMBER EXHIBIT
------ -------

2.1 -- First Amended Plan of Reorganization dated July 22, 1999.

15.1 -- Letter of Independent Accountants regarding awareness of
incorporation by reference.

27.1 -- Financial Data Schedule