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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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COMMISSION FILE NUMBER 1-12204
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)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (281) 987-8600
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Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class On Which Registered
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Common Stock, $.01 par value New York Stock Exchange*
(*An application for de-listing has been filed with the Commission)
Securities registered pursuant to Section 12(g) of the Act:
None
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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 [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K ____.
The aggregate market value of the voting stock held by non-affiliates of the
registrant on May 12, 1999 was $8,017,876.50.
The number of shares of common stock of the registrant outstanding on May 12,
1999 was 57,515,566.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III (Items 10, 11, 12 and 13) are
incorporated by reference from the registrant's definitive proxy statement
relating to registrant's 1999 annual meeting of stockholders to be filed with
the Commission not later than 120 days after the end of the fiscal year covered
by this Form 10-K.
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TABLE OF CONTENTS
PAGE
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PART I
Item 1. Business................................................................................... 1
Item 2. Properties................................................................................. 9
Item 3. Legal Proceedings.......................................................................... 10
Item 4. Submission of Matters to a Vote of Security Holders........................................ 10
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters...................... 10
Item 6. Selected Financial Data.................................................................... 11
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................................ 12
Item 7A. Quantitative and Qualitative Disclosures about Market Risk................................ 21
Item 8. Financial Statements and Supplementary Data................................................ 22
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure................................................................................ 52
PART III
Item 10. Directors and Executive Officers of the Registrant......................................... 52
Item 11. Executive Compensation..................................................................... 52
Item 12. Security Ownership of Certain Beneficial Owners and Management............................. 52
Item 13. Certain Relationships and Related Transactions............................................. 52
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............................ 53
Signatures................................................................................. 60
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PART I
ITEM 1. BUSINESS
GENERAL
TransTexas Gas Corporation (the "Company" or "TransTexas") is engaged in
the exploration for and development and production of natural gas and
condensate, primarily in South Texas and along the upper Gulf Coast. TransTexas'
business strategy is to utilize its experience in drilling and operating wells
in South Texas to continue to find, develop and produce reserves at a low cost.
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,
TransAmerican Energy Corporation ("TEC"), and its subsidiary, TransAmerican
Refining Corporation ("TARC"), also filed voluntary petitions under Chapter 11.
The bankruptcy cases are being jointly administered. TransTexas, TEC and TARC
are operating their businesses and managing their properties as
debtors-in-possession.
The bankruptcy petitions were filed in order to preserve cash and to give
the Company the opportunity to restructure its debt. 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). The Company has drawn $6 million under the DIP Facility
pursuant to an interim order of the Bankruptcy Court. Additional advances will
be subject to the entry of a final order.
The Company's long-term goal is to convert unproven acreage to proved
reserves through drilling in underexploited areas. During fiscal 1999,
management's priority was the development of newly discovered areas such as the
Eagle Bay field. However, the high cost of drilling development wells and lack
of capital caused by cash flow problems required the Company to slow its
drilling efforts in the latter part of the year. The Company anticipates that
working capital available under the DIP Facility will allow the Company to
resume drilling activity and increase production. In order to meet its long-term
goals, TransTexas' strategy is to drill wells in areas of the Upper Texas Gulf
Coast where 3-D seismic data indicates productive potential and to drill
development wells in its proven producing areas such as the Eagle Bay field and
Wharton County. Planned implementation of this strategy is subject to approval
of the Bankruptcy Court.
As of February 1, 1999, TransTexas' net proved reserves, as estimated by
Netherland, Sewell & Associates, Inc., were 161 Bcfe. As of January 31, 1999,
TransTexas owned approximately 482,000 gross (299,200 net) acres of mineral
interests. TransTexas' average net daily natural gas production for the year
ended January 31, 1999 was approximately 98 MMcfd, for a total net production
of 35.6 Bcf of natural gas. TransTexas' average net daily condensate and oil
production for the year ended January 31, 1999 was approximately 3,070 Bpd, for
a total net production of 1,120 MBbls of condensate and oil.
During fiscal 1998, the Company sold the stock of TransTexas Transmission
Corporation ("TTC"), its subsidiary that owned substantially all of TransTexas'
Lobo Trend producing properties and related pipeline transmission system, for an
adjusted sales price of approximately $1.1 billion (the "Lobo Sale").
TransTexas' operating data for fiscal 1998 reflect the impact of the Lobo Sale.
During fiscal 1999, the Company sold certain producing properties and
substantially all of the assets comprising its drilling services division. The
Company is continuing to examine the feasibility of the sale of certain of its
producing properties in Webb, Zapata, Jim Hogg and Starr Counties, Texas. Any
such sale would be subject to approval by the lenders under the DIP facility and
by the Bankruptcy Court.
TransTexas was organized in May 1993 to facilitate the refinancing of
TransAmerican Natural Gas Corporation ("TransAmerican"). TransTexas is a
subsidiary of TEC, which is indirectly wholly owned by
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TransAmerican. TransTexas' operations currently consist of the natural gas
exploration and production businesses of TransAmerican that were transferred to
TransTexas in August 1993 (the "Transfer") pursuant to an agreement among
TransAmerican, TransTexas and John R. Stanley (the "Transfer Agreement").
TransTexas' principal executive office is located at 1300 North Sam Houston
Parkway East, Suite 310, Houston, Texas 77032, and its telephone number at that
address is (281) 987-8600.
OPERATING AREAS
TransTexas' primary areas of operations as of January 31, 1999 are
discussed below:
EAGLE BAY. In November 1996, TransTexas reached an agreement with an
unaffiliated third party to jointly conduct exploration of geological prospects
in the Galveston Bay area. The parties have drilled six out of 10 prospects
identified in the area, the first of which is known as Eagle Bay.
In January 1998, TransTexas announced that it had successfully drilled,
completed and flow-tested its first well in Eagle Bay, the State Tract 331 #1,
located approximately one mile off the coast of San Leon, Texas, in a water
depth of less than 10 feet. This discovery well flow tested at a gross rate of
76.4 MMcfd of natural gas and 11,002 Bpd of condensate and oil.
TransTexas has successfully drilled, completed and produced three
additional wells, the State Tract 331 #3, the State Tract 352 #1, and the State
Tract 330 #1. These confirmation wells flow-tested at gross rates of 41 MMcfd of
natural gas and 10,700 Bpd of condensate and oil, 53.9 MMcfd of natural gas and
6,264 Bpd of condensate and oil and 43.4 MMcfd of natural gas and 4,800 Bpd of
condensate and oil, respectively.
As of January 31, 1999, the Eagle Bay field was producing at a rate of
57 MMcfd of natural gas and 8,300 Bpd of condensate and oil. Subsequent to
January 31, 1999, production from State Tract 330 #1 commenced. As of April 30,
1999, the Eagle Bay Field was producing at a rate of 77 MMcfd of natural gas and
9,800 Bpd of condensate and oil. As of January 31, 1999, TransTexas owned a 75%
working interest covering approximately 5,338 gross (5,249 net) acres in the
Eagle Bay area. Subsequent to January 31, 1999, the State Tract 331 #3 has
ceased production due to down-hole problems. The Company is currently
considering a workover or side-track of this well.
In order to facilitate commercial production of natural gas and oil from
the Eagle Bay field and other contemplated production in the Galveston Bay area,
in July 1998, Galveston Bay Processing Corporation, a wholly owned subsidiary of
the Company, completed construction of onshore production facilities at Winnie,
Texas, approximately 60 miles east of Houston. These facilities are designed to
separate produced natural gas and condensate streams, dehydrate and treat
natural gas and stabilize condensate produced from the Eagle Bay field.
Production from Eagle Bay is currently transported to Winnie through a third-
party pipeline that crosses Galveston Bay.
TransTexas intends to drill additional wells in Eagle Bay as a part of its
strategy to further increase reserves and production, and has identified
drilling locations from 3-D seismic data.
OTHER GALVESTON BAY PROSPECTS. TransTexas has also drilled exploratory
wells on five other prospects in the Galveston Bay area. Four of these, the
Doornbos #1, State Tract 88A #1, State Tract 13E #1 and Maco #1 were
unsuccessful. As of January 31, 1999, the fifth prospect, Trout Point, was being
tested by the drilling of the Sheldon #1 Sidetrack #2. The original Sheldon #1
well was an attempt to test a series of reflectors located beneath salt as seen
on 3-D seismic. This well encountered gas bearing sands beneath the salt and was
drilling at a depth of 21,442 feet when a gas pocket was encountered that
eventually resulted in the sticking of the drill pipe and subsequent loss of the
hole. TransTexas attempted a sidetrack (Sidetrack #1) to re-drill the subsalt
section but was unsuccessful due to the hole deviating inside the salt body. A
second sidetrack, the Sheldon #1 Sidetrack #2, was then drilled to once again
attempt completion in the subsalt, gas bearing sands seen in the Sheldon #1.
Subsequent to January 31, 1999, TransTexas drilled the Sidetrack #2 to a depth
of 21,576 feet. Mechanical difficulties prevented the well from being drilled
further. Wireline
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logs, run to a depth of 21,228 feet, suggested 88 feet of potential pay with
porosity of up to 27%. As much as 200 feet of additional sand was encountered in
the interval between 21,288 and 21,576 feet. The Company attempted to complete
the well after flow from these additional sands was encountered. While
attempting the completion, gas began flowing from the lower zone, and the well
was shut in with 6,800 pounds per square inch of pressure at the surface,
causing the 9-5/8 inch casing to burst. In order to prevent gas flow to the
surface from the resulting underground blowout, TransTexas cemented the well to
the surface. The Company intends to re-drill the prospect as the Sheldon #1-R
(replacement), as soon as funds are available, in order to confirm the presence
of commercially productive sands. As of January 31, 1999, TransTexas owned a 73%
working interest covering approximately 17,708 gross (16,880) net acres in the
Galveston Bay area prospects, including Eagle Bay.
BOB WEST NORTH. In late 1994, TransTexas made a natural gas discovery in
the Bob West North area of southern Zapata County, Texas. As of January 31,
1999, TransTexas had drilled 56 wells and completed 53 wells in the area. As of
January 31, 1999, TransTexas' mineral interests in Bob West North consisted of a
100% working interest in 14,323 gross (12,126 net) acres. For the fiscal year
ended January 31, 1999, TransTexas produced 16.8 Bcf (11.7 Bcf net) from the Bob
West North area at an average net daily rate of 32 MMcfd. Recently obtained 3-D
seismic data indicates the potential for additional drilling locations to
further develop productive reservoirs in the area.
FANDANGO SOUTH. As of January 31, 1999, TransTexas had drilled 13 wells,
and completed nine wells in the Fandango South field located in Jim Hogg County,
Texas. For the fiscal year ended January 31, 1999, TransTexas produced 2.3 Bcf
(1.7 Bcf net) of natural gas from this field, at an average net daily rate of 5
MMcfd. As of January 31, 1999, TransTexas held a 98% working interest in
approximately 4,871 gross (4,871 net) acres in Fandango South.
WHARTON AND AUSTIN COUNTIES. In 1995, TransTexas entered into an agreement
with an unaffiliated third party acting as operator, to jointly develop the
mineral rights in the shallow Frio and Miocene sands in Wharton County, Texas.
As of January 31, 1999, 62 wells had been drilled in shallow formations in the
area, 26 of which had been completed. As of January 31, 1999, TransTexas held
a 75% working interest in the shallow mineral rights in approximately
42,246 gross (39,957 net) acres in Wharton County.
TransTexas also acquired mineral rights covering deeper Yegua and Wilcox
formations in Wharton County and adjacent Austin County. TransTexas has drilled
12, and completed 10, deeper wells in the area, including the Joel Hudgins #1,
the Rees-Gifford #1, the Obenhaus #2 and the Noska #1 in the Wilcox. TransTexas
intends to drill additional wells in the Yegua and Wilcox formations as a part
of its strategy to further increase reserves and production, and has identified
drilling locations from 3-D seismic data. As of January 31, 1999, TransTexas
held a 100% working interest in the mineral rights below the top of the Yegua
formation in approximately 55,760 gross (51,773 net) acres.
For the fiscal year ended January 31, 1999, TransTexas' Wharton County
properties produced 5.3 Bcf (3.9 Bcf net) of natural gas, at an average net
daily rate of 11 MMcfd.
LIVE OAK COUNTY. In June 1998, TransTexas announced that it had drilled,
completed and flow-tested its first well in Live Oak County, Texas, the McNeil
#1. This discovery well flow-tested at a rate of 19.2 MMcfd of natural gas.
Production commenced in August 1998. TransTexas intends to drill additional
wells to develop the field as a part of its strategy to further increase
reserves and production, and has identified potential drilling locations from
3-D seismic data. For the fiscal year ended January 31, 1999, TransTexas' Live
Oak County properties produced 1.0 Bcf (0.7 Bcf net) of natural gas, at an
average net daily rate of 2 MMcfd. As of January 31, 1999, TransTexas owned an
80% working interest in approximately 8,019 gross (8,004 net) acres in Live Oak
County.
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LOUISIANA. TransTexas entered into a separate venture with its Galveston
Bay co-venturer covering prospects in South Louisiana. During fiscal 1999,
TransTexas drilled three unsuccessful exploratory wells on three out of eight
prospects identified in the area. TransTexas owned a 37% working interest in a
discovery well in Vermilion Parish and a 25% working interest in a second well
that commenced production in May 1998 and September 1998, respectively. In
December 1998, TransTexas sold its interest in these wells for a sales price of
$4.7 million. As of January 31, 1999, TransTexas owned a 60% average working
interest in 16,857 gross (16,339 net) acres. Subsequent to January 31, 1999,
TransTexas assigned certain of its interests in South Louisiana to its Galveston
Bay co-venturer and no longer has any obligations to drill additional wells in
Louisiana.
OTHER AREAS. TransTexas has also made discoveries of natural gas and oil
in other prospects that, as of January 31, 1999, were in the preliminary stages
of development drilling but which management believes have the potential to
increase reserves and production.
TransTexas owns an 85% working interest in 1,927 gross (1,623 net) acres
in Brazoria County, Texas. As of January 31, 1999, TransTexas had drilled four
wells and completed three wells in Brazoria County. For the fiscal year ended
January 31, 1999, TransTexas' Brazoria County properties produced 1.1 Bcf (0.8
Bcf net) of natural gas, at an average daily rate of 2 MMcfd.
TransTexas owns a 100% working interest in 14,415 gross (14,408 net) acres
in Chambers County, Texas. As of January 31, 1999, TransTexas had drilled seven
wells and completed four wells in Chambers County. TransTexas has conducted a
3-D seismic survey covering approximately 31 square miles that indicates
multiple prospective drilling locations. For the fiscal year ended January 31,
1999, TransTexas' Chambers County properties produced 5.3 Bcf (3.9 Bcf net) of
natural gas, at an average daily rate of 11 MMcfd.
TransTexas holds a 98% working interest in approximately 11,442 gross
(8,014 net) acres in the La Grulla area of Starr County, Texas. As of January
31, 1999, TransTexas had drilled 38 wells and completed 19 wells in La Grulla.
For the fiscal year ended January 31, 1999, TransTexas' La Grulla properties
produced 1.8 Bcf (1.3 Bcf net) at an average net daily rate of 3 MMcfd.
EXPLORATION AND PRODUCTION OPERATIONS
The exploration and production activities of TransTexas consist of
geological evaluation of current and prospective properties, the acquisition of
mineral interests in prospects and the development and operation of leased
properties for the production and sale of natural gas, condensate and crude oil.
TransTexas' technical staff consists of geologists, geophysicists and engineers.
TransTexas' technical staff selects drilling locations based on the
interpretation of available well data, enhanced by 3-D and 2-D seismic data.
TransTexas operates substantially all of its producing properties. TransTexas
believes that this experience is especially important in south and upper coastal
Texas, which are geologically complex.
During the five years ended January 31, 1999, TransTexas completed
approximately 69% of 533 wells. As of January 31, 1999, TransTexas was drilling
three gross (two net) wells. As of January 31, 1999, TransTexas had a total of
127 productive wells. TransTexas had a working interest in the following numbers
of wells that were drilled during the periods indicated:
YEAR ENDED JANUARY 31,
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1999 1998 1997
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GROSS NET GROSS NET GROSS NET
Exploratory Wells (1):
Productive(2) 9 9 13 11 36 33
Non-Productive 6 5 16 14 45 41
% Productive 60% 63% 45% 44% 44% 45%
Development Wells(1):
Productive(2) 14 12 47 43 67 66
Non-Productive 9 9 31 27 3 3
% Productive 61% 58% 60% 62% 96% 96%
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(1) The number of net wells is the sum of the fractional working interests
owned in gross wells.
(2) Productive wells consist of producing wells and wells capable of
production, including gas wells awaiting pipeline connection. Wells
that are completed in more than one producing zone are counted as one
well.
The following table sets forth information with respect to net production
and average unit prices and costs for the periods indicated:
YEAR ENDED JANUARY 31,
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1999 1998 1997
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Production:
Gas (Bcf) (1)........................................ 35.6 72.4 153.6
NGLs (MMgals)........................................ 8.4 62.4 174.2
Condensate and oil (MBbls)........................... 1,120 619 604
Average sales prices:
Gas (dry) (per Mcf)(2)............................... $ 2.10 $ 2.09 $ 2.14
NGLs (per gallon).................................... .21 .29 .36
Condensate and oil (per Bbl)......................... 11.91 19.20 21.54
Average lifting cost per Mcfe(3)....................... .37 .34 .29
(1) Net gas production volumes for the years ended January 31, 1998 and
1997, include 7.3 and 32.0 Bcf delivered pursuant to volumetric
production payments.
(2) Average prices for the years ended January 31, 1998 and 1997, include
7.3 Bcf and 32.0 Bcf delivered pursuant to volumetric production
payments. The average gas price for TransTexas' undedicated production
for these periods was $2.10 per Mcf and $2.39 per Mcf, respectively.
(3) Condensate and oil are converted to a common unit of measure on the
basis of six Mcf of natural gas to one barrel of condensate or oil. The
components of production costs may vary substantially among wells
depending on the methods of recovery employed and other factors. The
calculation of average lifting cost per Mcfe for the years ended
January 31, 1998 and 1997, includes volumes delivered to third parties
under volumetric production payments.
DRILLING SERVICES DIVISION
On April 30, 1998, TransTexas sold its oilfield stimulation, cementing and
coiled tubing equipment and related facilities to an unaffiliated third party
for a sales price of $30 million, subject to post-closing adjustments. For the
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year ended January 31, 1999, TransTexas recorded a $10.5 million pre-tax gain
as a result of this sale.
On June 26, 1998, TransTexas sold its drilling rigs and related facilities
to an unaffiliated third party for a sales price of $75 million. On August 17,
1998, TransTexas sold its remaining well services assets to an unaffiliated
third party for a sales price of $20.5 million. TransTexas recorded pre-tax
gains of $51.2 million and $5.3 million, respectively, as a result of
these sales.
As a result of these sales, TransTexas no longer operates in the drilling
services segment. TransTexas currently obtains drilling services on an as needed
basis pursuant to an agreement with the third party to whom TransTexas sold its
drilling rigs in June 1998. Pursuant to the agreement, TransTexas is obligated
to engage the third party to provide drilling services for certain land drilling
activities and the third party is obligated to provide such services and to make
available up to 15 drilling rigs. TransTexas is currently renegotiating the
rates payable for such services and rigs.
NATURAL GAS TRANSPORTATION AND PROCESSING
As a part of the Lobo Sale, TransTexas divested the majority of its
pipeline assets and no longer transports or processes a significant amount of
natural gas for third parties. TransTexas initially retained from the Lobo Sale
its right to earn a 37.5% interest in a 28-mile segment of 24-inch pipeline it
had previously built to connect the Bob West North field to a pipeline in Webb
County, Texas. Effective March 1, 1997, TransTexas entered into two agreements
with Lobo Pipeline Company for firm and interruptible gas transportation from
its Bob West North field to the Agua Dulce marketing hub or to the Exxon King
Ranch Gas Plant for gas processing. The agreements were for a term of
approximately 10 years and allowed for the transportation of up to a combined
total of 400 MMcfd. In August 1998, TransTexas entered into a Lobo Pipeline
settlement agreement whereby delivery commitments under such agreements were
released in exchange for TransTexas' right to earn an interest in the 24-inch
pipeline, elimination of certain amounts due TransTexas pursuant to the Lobo
Sale Agreement and a cash payment by TransTexas of $2.7 million. In July 1998,
TransTexas recorded a loss of $3.4 million as a result of this settlement.
In July 1998, Galveston Bay Processing Corporation completed construction
of onshore production facilities at Winnie, Texas, approximately 60 miles east
of Houston. These facilities are designed to separate produced natural gas and
condensate streams, dehydrate and treat natural gas and stabilize condensate
from the Company's Eagle Bay field. Natural gas is transported by third-party
pipeline from Winnie to Port Arthur where it is processed to remove natural gas
liquids. TransTexas markets condensate and oil to third parties at the Winnie
facility.
TransTexas has entered into agreements for the gathering, transportation,
processing and sale of natural gas produced from its Galveston Bay prospects.
Current capacity constraints for transportation do not allow for optimal flow
rates from the Eagle Bay field. TransTexas is negotiating additional agreements
in order to increase available capacity for transportation of natural gas from
the Eagle Bay field to Winnie.
Other than the current capacity constraints at Eagle Bay, TransTexas
believes that there is currently adequate pipeline transportation capacity for
its hydrocarbon production in all of its operating areas. TransTexas intends to
build or contract for additional pipeline capacity as future needs require.
However, there can be no assurance that TransTexas will have funds available to
build additional pipeline capacity.
On June 23, 1997, TransTexas and Shell Midstream Enterprises, Inc.
("Shell") entered into a five-year gas treating agreement at Shell's Fandango
Gas Plant to reduce the CO2 content of the Company's Fandango South gas
production, which became operational in May 1998. Pursuant to this agreement,
TransTexas has committed to deliver 75 MMcfd of natural gas for processing. The
agreement also allows TransTexas to assign one-third of its commitment to a
third party. A treating fee of $0.12 per Mcf must be paid by TransTexas, subject
to adjustment in certain circumstances.
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In June 1998, TransTexas and Duke Field Services, Inc. ("Duke") entered
into a three-year contract to extract natural gas liquids from the high-Btu
natural gas stream leaving the Winnie production facilities. TransTexas can
elect, at its discretion on a monthly basis, whether to process the natural gas
to recover natural gas liquids. The Company's decision whether to process the
natural gas is based on prevailing market prices. During fiscal 1999, TransTexas
produced 8.4 MMgals of natural gas liquids.
NATURAL GAS MARKETING
TransTexas sells its natural gas on the spot market on an interruptible
basis or pursuant to long-term contracts at market prices. For the year ended
January 31, 1999, five purchasers accounted for a total of 71% of the
consolidated natural gas, condensate and NGLs revenues of TransTexas. TransTexas
believes that the loss of any single purchaser would not have a material adverse
effect on TransTexas due to the availability of other purchasers for TransTexas'
production at comparable prices.
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. Deliveries commenced on June 1, 1997 and
are to continue through August 31, 1999.
In June 1998, TransTexas entered into gas purchase agreements with Tejas
Gas Marketing, LLC and PanEnergy Marketing Company, which set forth the terms
and conditions covering the sale by TransTexas of substantially all of its gas
production from the Eagle Bay field in Galveston County, Texas. The agreements
provide for deliveries in excess of 50,000 MMBtu per day at a price calculated
from an industry index. The agreements have terms of five years and two years,
respectively.
PRODUCTION PAYMENTS
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, up to
an aggregate maximum for all such wells of $75 million. 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 January 31, 1999, the
outstanding balance of the production payment was $48.0 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 January 31, 1999, the outstanding balance of the production payment
was $9.2 million.
HEDGING
From time to time, TransTexas has entered into commodity price swap
agreements (the "Hedge Agreements") to reduce its exposure to price risk in the
spot market for natural gas. These Hedge Agreements were accounted for as hedges
and, accordingly, any gains and losses were deferred and recognized in the
respective month as physical volumes were sold. For the fiscal year ended
January 31, 1998, TransTexas made net settlement payments totaling approximately
$7.4 million to the counterparty pursuant to the Hedge Agreements. As of January
31, 1999, TransTexas had no Hedge Agreements or other derivative instruments
outstanding.
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COMPETITION
TransTexas encounters significant competition from major oil and gas
companies and independent operators in the acquisition of desirable undeveloped
natural gas leases and in the sale of natural gas. Many of its competitors are
large, well-established companies with substantially greater capital and human
resources than TransTexas' and which, in many instances, have been engaged in
the energy business for a much longer time than TransTexas.
The primary bases for competition in the natural gas and oil exploration
and production businesses are available capital and the costs involved in
finding and developing gas and oil resources combined with commodity sales
prices and market access.
EMPLOYEES
As of January 31, 1999, TransTexas had approximately 220 employees,
including approximately 70 field workers. TransTexas may engage the services of
independent geological, engineering, land and other consultants from time to
time. None of TransTexas' employees are parties to a collective bargaining
agreement.
GOVERNMENTAL REGULATION
TransTexas' gas exploration, production and related operations are subject
to extensive rules and regulations promulgated by federal and state agencies.
Failure to comply with such rules and regulations can result in substantial
penalties. The regulatory burden on the gas industry increases TransTexas' cost
of doing business and affects its profitability. Because such rules and
regulations are frequently amended or reinterpreted, TransTexas is unable to
predict the future cost or impact of complying with such laws.
The State of Texas (through the Texas Railroad Commission) and many other
states require permits for drilling operations, drilling bonds and reports
concerning operations, and impose other requirements related to the exploration
and production of natural gas. Such states also have statutes or regulations
addressing conservation matters, including provisions for the unitization or
pooling of gas properties, the establishment of maximum rates of production from
gas wells and the regulation of spacing, plugging and abandonment of such wells.
The statutes and regulations of the State of Texas limit the rate at which
natural gas can be produced from TransTexas' properties. Management believes
that these statutes and regulations have not materially impacted TransTexas'
results of operations; however, there can be no assurance that such statutes and
regulations will not affect TransTexas' operating results in the future.
Several major regulatory changes have been implemented by the Federal
Energy Regulatory Commission ("FERC") since 1985 that affect the economics of
natural gas production, transportation and sales. In addition, the FERC
continues to promulgate revisions to various aspects of the rules and
regulations affecting those segments of the natural gas industry, most notably
interstate natural gas transmission companies, that remain subject to the FERC's
jurisdiction. These initiatives may also affect the intrastate transportation of
gas under certain circumstances. The stated purpose of many of these regulatory
changes is to promote competition among the various sectors of the gas industry.
The ultimate impact on TransTexas of these complex and overlapping rules and
regulations, many of which are repeatedly subjected to judicial challenge and
interpretation, cannot be predicted.
ASSUMPTION OR REJECTION OF CONTRACTS
Pursuant to Section 365 of Chapter 11 U.S.C., the Company has the right to
assume or reject executory contracts. The Company is currently reviewing all
such contracts.
ENVIRONMENTAL MATTERS
See Note 13 of Notes to Consolidated Financial Statements for a discussion
of environmental matters affecting TransTexas.
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ITEM 2. PROPERTIES
ACREAGE AND PRODUCTIVE WELLS
The following table sets forth TransTexas' total developed and undeveloped
acreage and productive wells as of January 31, 1999:
DEVELOPED UNDEVELOPED PRODUCTIVE
ACREAGE ACREAGE WELLS(1)
--------- --------- ----------
Gross........................................................ 19,140 462,881 127
Net (2)...................................................... 16,263 282,933 110
(1) Of the total productive wells, 118 gross (108 net) were gas wells
and 9 gross (2 net) were oil wells. As of January 31, 1999,
TransTexas had interests in 2 productive wells which had multiple
completions.
(2) The number of net acres and net wells is the sum of the fractional
working interests owned in gross acres and gross wells, respectively.
RESERVES
As of February 1, 1999, TransTexas had total proved reserves of 120.7 Bcf
of natural gas and 6,640 MBbls of condensate and oil. See Note 17 of Notes to
Consolidated Financial Statements, which contains supplemental information
regarding TransTexas' proved reserves. Proved reserves are the estimated
quantities of natural gas, condensate and oil that geological and engineering
data demonstrate with reasonable certainty to be recoverable in future years
from known reservoirs under existing economic and operating conditions. Proved
developed reserves are proved reserves that can be expected to be recovered
through existing wells with existing equipment and operating methods. The
estimation of reserves requires substantial judgment on the part of petroleum
engineers, resulting in imprecise determinations, particularly with respect to
recent discoveries. The accuracy of any reserve estimate depends on the quality
of available data and engineering and geological interpretation and judgment.
Results of drilling, testing and production after the date of the estimate may
result in revisions of the estimate. Accordingly, estimates of reserves are
often materially different from the quantities of natural gas, condensate and
oil that are ultimately recovered, and these estimates will change as future
production and development information becomes available. The reserve data
represent estimates only and should not be construed as being exact.
TITLE TO PROPERTIES/LIENS AND CLAIMS
As is customary in the oil and gas industry, TransTexas performs only a
preliminary title investigation before leasing undeveloped properties.
Accordingly, working interest percentages and gross and net acreage amounts for
undeveloped properties are preliminary. However, a title opinion is
typically obtained before the commencement of drilling operations and any
material defects in title are remedied prior to the time actual drilling of a
well on the lease is commenced. TransTexas has not obtained title opinions on
all of its properties. The Company is uncertain as to the impact that failure to
obtain a title opinion has on the Company's title to developed properties.
TransTexas' properties are subject to customary royalty interests, liens
incident to operating agreements, liens for current taxes and other burdens. In
addition, numerous vendors have filed liens and claims against TransTexas and
Galveston Bay Processing Corporation that could materially affect certain of
TransTexas' and Galveston Bay Processing Corporation's properties. During
pendency of the bankruptcy proceedings, these claims are stayed.
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ITEM 3. LEGAL PROCEEDINGS
See Notes 13 and 15 of Notes to Consolidated Financial Statements for
information about TransTexas' legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
three months ended January 31, 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Prices for the common stock of TransTexas are currently quoted on Nasdaq's
Over The Counter Bulletin Board under the symbol "TTGGQ." TransTexas' common
stock traded on the New York Stock Exchange ("NYSE") under the symbol "TTG" from
October 30, 1997 until trading was suspended on April 19, 1999 due to the
Company's bankruptcy filing. On May 20, 1999, the NYSE filed with the Securities
and Exchange Commission an application to de-list the common stock. From March
10, 1994 until October 30, 1997, TransTexas' common stock traded on the Nasdaq
National Market tier of The Nasdaq Stock Market ("NNM") under the symbol "TTXG."
The following table sets forth, on a per-share basis for the periods indicated,
the high and low sales prices for TransTexas' common stock as reported by the
NYSE and NNM.
HIGH LOW
---- ---
Fiscal year ended January 31, 1999:
Fourth Quarter $ 4.688 $ 1.938
Third Quarter 6.938 1.000
Second Quarter 12.625 7.000
First Quarter 17.125 11.875
Fiscal year ended January 31, 1998:
Fourth Quarter $ 20.375 $ 13.500
Third Quarter 19.375 13.250
Second Quarter 17.250 13.250
First Quarter 17.500 12.000
As of May 12, 1999, there were approximately 157 record holders of
TransTexas' common stock.
TransTexas has not paid any cash dividends on its capital stock since
inception, except a dividend of approximately $33 million to TransAmerican from
the proceeds of its initial public offering in March 1994. TransTexas' ability
to pay dividends in the future is restricted by TransTexas' existing debt
instruments and will depend on TransTexas' debt levels, earnings levels and book
value and discounted value of certain tangible assets. The Company does not
anticipate paying any dividends in the foreseeable future.
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ITEM 6. SELECTED FINANCIAL DATA
SIX MONTHS ENDED
YEAR ENDED JANUARY 31, JANUARY 31, YEAR ENDED JULY 31,
------------------------------- -------------------- ---------------------
1999 1998 1997 1996 1995 1995 1994
--------- -------- -------- -------- --------- --------- --------
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA:
Gas, condensate and NGLs revenue $ 91,319 $164,538 $363,459 $124,663 $ 143,304 $ 275,627 $302,522
Transportation revenues -- 12,055 34,423 15,892 19,161 36,787 33,240
Gain on the sale of assets 61,247 543,365 7,865 474 -- -- --
Other revenues 4,200 3,313 600 127 52 285 157
--------- -------- -------- -------- --------- --------- --------
156,766 723,271 406,347 141,156 162,517 312,699 335,919
Operating costs and expenses 29,482 62,356 137,019 45,629 50,893 99,310 103,459
Depreciation, depletion, and amortization 86,137 82,659 132,453 60,894 70,345 129,964 113,858
General and administrative expenses 21,938 48,156 45,596 13,685 12,595 31,935 40,311
Litigation settlements -- -- (96,000) (18,300) -- -- (1,000
Loss on asset impairment 425,966 -- -- -- -- -- --
--------- -------- -------- -------- --------- --------- --------
Operating income (loss) (406,757) 530,100 187,279 39,248 28,684 51,490 79,291
Net interest expense 78,716 68,187 91,463 40,436 29,059 65,797 50,155
Income taxes and other (38,882) 161,669 12,491 (416) (131) (2,415) 5,380
Extraordinary loss, net of taxes 1,142 72,043 -- -- -- 56,637 --
--------- -------- -------- -------- --------- --------- --------
Net income (loss) $(447,733) $228,201 $ 83,325 $ (772) $ (244) $ (68,529) $ 23,756
========= ======== ======== ========= ========= ========== ========
Net income (loss) per share: (1)
Income (loss) before extraordinary item $ (7.76) $ 4.49 $ 1.13 $ (0.01) $ -- $ (0.16) $ 0.33
Extraordinary item (.02) (1.08) -- -- -- (0.77) --
--------- -------- -------- -------- --------- --------- --------
Net income (loss) $ (7.78) $ 3.41 $ 1.13 $ (0.01) $ -- $ (0.93) $ 0.33
========= ======== ======== ========= ========= ========== ========
Dividends declared per common share (2) -- -- -- -- -- -- --
JANUARY 31,
--------------------------------------------- JULY 31,
1999 1998 1997 1996 1995
---------- --------- --------- ---------- ----------
BALANCE SHEET DATA:
Working capital (deficit) (3) $ 27,072 $ (22,122) $ 71,586 $ 43,602 $ 106,836
Net property and equipment 292,143 701,598 846,393 715,340 601,460
Total assets 345,367 816,635 1,053,152 938,827 826,570
Liabilities subject to
compromise 718,139 -- -- -- --
Total debt (4) 56,260 630,103 941,922 824,241 800,000
Stockholders' equity (deficit) (430,015) 24,637 (150,795) (154,440) (153,668)
- ------------------------
(1) Net income per share for the year ended July 31, 1994 gives effect to
69,000,000 shares of common stock outstanding after a 69,000-for-1
stock split which was effective in February 1994.
(2) TransTexas' existing debt instruments contain certain restrictions with
respect to the payment of dividends on TransTexas' common stock.
(3) Working capital as of January 31, 1997 and 1996 and July 31, 1995
includes $46.0 million, $46.0 million and $44.7 million, respectively,
of cash restricted for the payment of interest.
(4) Excludes long-term debt subject to compromise of $583.1 million as of
January 31, 1999.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with TransTexas'
Consolidated Financial Statements and Notes thereto included under Item 8 of
this report.
RESULTS OF OPERATIONS
TransTexas' results of operations are dependent upon natural gas
production volumes and unit prices from sales of natural gas, condensate and
NGLs. The profitability of TransTexas also depends on its ability to minimize
finding and lifting costs and maintain its reserve base while maximizing
production. In fiscal 1998, TransTexas sold the stock of TransTexas Transmission
Corporation ("TTC"), its subsidiary that owned substantially all of TransTexas'
Lobo Trend producing properties and related pipeline transmission system, for an
adjusted sales price of approximately $1.1 billion (the "Lobo Sale").
Accordingly, TransTexas' operating results for the fiscal year ended January 31,
1998 reflect the impact of the Lobo Sale. TransTexas recorded a gain of $543.4
million on the Lobo Sale.
TransTexas' operating data for the years ended January 31, 1999, 1998 and
1997, are as follows:
YEAR ENDED JANUARY 31,
--------------------------------------
1999 1998 1997
---------- ---------- ----------
Sales volumes:
Gas (Bcf) (1)................................. 35.6 72.4 153.6
NGLs (MMgals)................................. 8.4 62.4 174.2
Condensate and oil (MBbls).................... 1,120 619 604
Average prices:
Gas (dry) (per Mcf) (2)....................... $ 2.10 $ 2.09 $ 2.14
NGLs (per gallon)............................. .21 .29 .36
Condensate and oil (per Bbl).................. 11.91 19.20 21.54
Number of gross wells drilled................... 38 107 151
Percentage of wells completed................... 61% 56% 68%
(1) Sales volumes for the years ended January 31, 1998 and 1997 include 7.3
Bcf and 32.0 Bcf, respectively, delivered pursuant to volumetric
production payments.
(2) Average prices for the years ended January 31, 1998 and 1997 include
amounts delivered pursuant to volumetric production payments. The
average gas prices for TransTexas' undedicated production for these
periods were $2.10 per Mcf and $2.39 per Mcf, respectively.
TransTexas uses the full-cost method of accounting for exploration and
development costs. Under the full-cost method, the cost for successful, as well
as unsuccessful, exploration and development activities is capitalized and
amortized on a unit-of-production basis over the life of the remaining proved
reserves. Net capitalized costs of gas and oil properties are limited to the
lower of unamortized cost or the cost center ceiling, defined as the sum of the
present value (10% discount rate) of estimated unescalated future net revenues
from proved reserves; plus the cost of properties not being amortized, if any;
plus the lower of cost or estimated fair value of unproved properties included
in the costs being amortized, if any; less related income tax effects. For the
year ended January 31, 1999, TransTexas recorded pre-tax impairments of its gas
and oil properties aggregating $426 million as a result of the limitations of
net capitalized costs of gas and oil properties. Due to higher gas and oil
prices realized by the Company subsequent to January 31, 1999, the impairment
was less than would have been recorded using January 31, 1999 prices.
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A summary of TransTexas' operating expenses is set forth below (in
millions of dollars):
YEAR ENDED JANUARY 31,
-----------------------------------
1999 1998 1997
--------- --------- --------
Operating costs and expenses:
Lease $ 10.4 $ 15.2 $ 27.5
Pipeline and gathering 8.7 18.1 37.2
Natural gas liquids -- 14.5 49.3
Drilling services 3.3 3.1 .4
--------- -------- -------
22.4 50.9 114.4
Taxes other than income taxes (1) 7.1 11.4 22.6
--------- --------- --------
$ 29.5 $ 62.3 $ 137.0
========= ========= ========
- --------------------------
(1) Taxes other than income taxes include severance, property and other
taxes.
TransTexas' average depletion rates have been as follows:
YEAR ENDED JANUARY 31,
1999 1998 1997
--------- --------- --------
Depletion rates (per Mcfe) $ 1.96 $ 1.11 $ .96
========= ========= ========
YEAR ENDED JANUARY 31, 1999, COMPARED WITH THE YEAR ENDED JANUARY 31, 1998
Gas, condensate and NGL revenues for the year ended January 31, 1999
decreased by $73.2 million from the prior year, due primarily to decreases in
gas and NGLs sales volumes attributable to the divestiture of producing
properties as a result of the Lobo Sale and normal production declines on other
properties. These declines were partially offset by increased production from
Eagle Bay. The average monthly prices received per Mcf of gas ranged from $1.90
to $2.41 in the year ended January 31, 1999, compared to a range of $1.49 to
$3.01 in the prior year. As of January 31, 1999, TransTexas had a total of 127
producing wells compared to 157 producing wells at January 31, 1998.
Transportation revenues decreased $12.1 million over the prior year due
primarily to the divestiture of the pipeline system in connection with the Lobo
Sale. Drilling services revenues decreased by $0.4 million for the year ended
January 31, 1999 due to a decrease in services provided to third parties prior
to the sale of the drilling services division. TransTexas' net gain on the sale
of assets includes a pre-tax gain of $63.6 million for the sale of certain
drilling services division assets and a pre-tax loss of $2.4 million due to
post-closing adjustments to the Lobo Sale purchase price.
Lease operating expenses for the year ended January 31, 1999 decreased by
$4.8 million from the prior year due primarily to the Lobo Sale offset by
increased operating expenses for the Eagle Bay field. Pipeline and gathering
expenses decreased by $9.4 million from the prior year due primarily to the
divestiture of the pipeline system. NGL costs decreased by $14.5 million from
the prior year due to the Lobo Sale and the resulting decrease in the volumes of
natural gas processed. Drilling service expenses for the year ended January 31,
1999 increased $0.2 million primarily due to increased costs related to
providing services to the new operator of the Lobo Trend properties prior to
divestiture of the Company's drilling services assets. Depreciation, depletion
and amortization expense for the year ended January 31, 1999 increased $3.5
million due to a $0.85 per Mcfe increase in the depletion rate due to higher
acquisition cost of properties and increased drilling and development costs
partially offset by the Lobo Sale and the resulting decrease in TransTexas'
undedicated natural gas production. General and administrative expenses
decreased by $26.3 million primarily as a result of a decrease in litigation
expense. Taxes other than income taxes decreased by $4.3 million over the prior
year due primarily to decreases in ad valorem, severance and excise taxes as a
result of the decrease in the number of producing wells, partially offset by an
increase in franchise taxes. The impairment loss of $426.0 million for the year
ended January 31, 1999 relates to an aggregate write-down
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of $420.5 million of TransTexas' net capitalized costs of gas and oil properties
as a result of the limitation on net capitalized costs of gas and oil properties
and a $5.5 million write-down of an underutilized pipeline system.
Interest income for the year ended January 31, 1999 decreased by $11.2
million as compared to the prior period due to lower cash balances available for
investment. TransTexas does not expect to earn significant interest income
during fiscal 2000. Interest expense decreased by $0.7 million primarily as a
result of the retirement of the Senior Secured Notes in June 1997, offset in
part by an increase in interest attributable to the issuance of
dollar-denominated production payments and a decrease in the amount of interest
capitalized in connection with unevaluated leasehold acreage.
YEAR ENDED JANUARY 31, 1998, COMPARED WITH THE YEAR ENDED JANUARY 31, 1997
Gas, condensate and NGL revenues for the year ended January 31, 1998
decreased by $198.9 million from the prior year, primarily due to decreases in
gas, condensate and NGLs sales prices and gas sales volumes as a result of the
divestiture of producing properties in connection with the Lobo Sale. The
average prices received per Mcf of gas, excluding amounts dedicated to
volumetric production payments, ranged from $1.49 to $3.01 in the year ended
January 31, 1998, compared to a range of $1.71 to $3.74 in the prior year. NGLs
sales volumes decreased as a result of decreases in the volumes of natural gas
processed. Transportation revenues decreased by $22.4 million for the year ended
January 31, 1998, due primarily to the divestiture of the pipeline system as a
result of the Lobo Sale. Drilling service revenues increased by $2.7 million for
the year ended January 31, 1998, due primarily to an increase in services
provided to third parties. Prior to 1997, the Company did not provide
significant drilling services to third parties; therefore, drilling services was
not recorded or accounted for as a separate business segment.
Lease operating expenses for the year ended January 31, 1998 decreased by
$12.3 million from the prior year due primarily to the Lobo Sale and the
resulting decrease in the number of producing wells. Pipeline and gathering
expenses decreased by $19.1 million due primarily to the divestiture of the
pipeline system, offset partially by an increase of $2.3 million attributable to
contractual transportation charges. NGLs cost decreased by $34.8 million from
the prior year primarily due to the Lobo Sale and the resulting decrease in
volumes of natural gas processed. Drilling service expenses for the year ended
January 31, 1998 increased $2.7 million as compared to the prior year primarily
due to costs related to providing services to the new operator of the Lobo Trend
properties. Depreciation, depletion and amortization expense for the year ended
January 31, 1998 decreased by $49.8 million due to the Lobo Sale and the
resulting decrease in TransTexas' undedicated natural gas production, as a
result of the Lobo Sale, partially offset by a $0.15 increase in the depletion
rate. The depletion rate increased primarily as a result of the inclusion of
approximately $48 million of properties previously not subject to depletion, and
a reduction in TransTexas' proved reserves as a result of the Lobo Sale. General
and administrative expenses increased by $2.6 million due primarily to an
increase in professional services related to amendments to debt agreements
offset partially by a decrease in litigation expense. Taxes other than income
taxes decreased by $11.2 million over the prior year due primarily to decreases
in ad valorem, severance and excise taxes resulting from a decrease in the
number of producing wells associated with the Lobo Sale.
Interest income for the year ended January 31, 1998 increased by $6.8
million as compared to the prior year due to higher cash balances available for
investment. Interest expense decreased by $16.4 million primarily as a result of
the retirement of the Senior Secured Notes offset in part by accretion of
interest on the Old Subordinated Notes (as defined) retired by TransTexas on
June 19, 1997.
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. 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
14
17
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. Additional advances will be subject to the entry of a final
order. 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 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. The plan of
reorganization will set forth the means for satisfying claims, including
liabilities subject to compromise, and interests in the Company. A plan of
reorganization may result in, among other things, material dilution or
elimination of existing security holders as a result of the issuance of
securities to creditors or new investors. The consummation of a plan of
reorganization will require approval of the Bankruptcy Court.
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 of reorganization to be submitted by the Company will be
approved or that the Bankruptcy Court will permit TransTexas to continue to
operate as a debtor-in-possession. As a result, there is substantial doubt about
the Company's ability to continue as a going concern. See the Consolidated
Financial Statements of the Company included under Item 8 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 year ended January 31, 1999, total capital expenditures were
$194 million, including $16 million for lease acquisitions, $159 million for
drilling and development, and $19 million for gas gathering, other equipment and
seismic acquisitions. Capital expenditures for fiscal 2000 are estimated to be
$65 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. 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 January
31, 1999, the outstanding balance of the production payment was $47.0 million.
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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 January 31, 1999, the outstanding balance of the production payment
was $9.2 million.
During the year ended January 31, 1999, TEC made advances to TransTexas
pursuant to a $50 million promissory note which matures on June 14, 2002. The
note bears interest at a rate of 11.375% per annum. At January 31, 1999, the
outstanding balance on the note was $6.5 million.
In December 1998, TransTexas borrowed $5.65 million from an unaffiliated
third party in order to meet a portion of its December 31, 1998 interest payment
obligations. This note bears interest at a rate of 18% per annum and is
secured by a pledge of the stock of Galveston Bay Processing Corporation, a
mortgage on the Winnie processing facility, a pledge by TransAmerican of 5
million shares of TransTexas common stock and a lien on the Company's office
building. The Company also borrowed $1.4 million from TransAmerican in December
1998.
TransTexas and BNY Financial Corporation are parties to a Second Amended
and Restated Accounts Receivable Management and Security Agreement (the "BNY
Facility"), dated as of October 14, 1997. As of January 31, 1999, outstanding
advances under the BNY Facility totaled approximately $0.3 million. 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 BNY Facility are secured by liens on TransTexas'
receivables and inventory. The Company is currently negotiating a post-petition
amendment to the BNY Facility.
In April 1998, TransTexas sold its oilfield stimulation, cementing and
coiled tubing equipment and related facilities for a sales price of $30 million,
subject to post-closing adjustments. In June 1998, TransTexas sold its drilling
rigs and related assets for a sales price of $75 million. TransTexas sold its
remaining drilling services assets in August 1998 for a sales price of $20.5
million. The Company no longer operates in the drilling services segment.
In March 1998, TransTexas executed an amended and restated note in the
principal amount of approximately $14.9 million consolidating equipment
financing debt previously incurred. Concurrently, TransTexas incurred an
additional $14 million in equipment financing debt, evidenced by a promissory
note. These notes were repaid in June 1998 with proceeds from the sale of
TransTexas' drilling rigs.
In December 1998, TransTexas sold certain gas and oil properties for net
proceeds of approximately $16.7 million.
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
which could have a material adverse effect on TransTexas' cash flows or results
of operations.
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19
TransTexas has entered into various contracts whereby TransTexas is
required to deliver an aggregate of approximately 125 MMcf per day to specified
delivery points. TransTexas will incur certain charges if it does not deliver
specified quantities under the contracts. Such charges totaled $1.9 million
during the year ended January 31, 1999.
Pursuant to Section 365 of Chapter 11 U.S.C., the Company has the right to
assume or reject executory contracts. The Company is currently reviewing all
such contracts.
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, no assurance can be given that TransTexas will have
sufficient funds to satisfy any such indemnity obligation or that any payment
thereof will not have a material adverse effect on its ability to fund its debt
service, capital expenditure and working capital requirements.
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 Internal Revenue Service
(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 TransTexas, TransAmerican and certain of TransAmerican's
subsidiaries (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 has 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 Holdings Corporation, the sole stockholder of TransAmerican,
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 7%) on the tax and penalties (if any). The Tax
Allocation Agreement has been amended so that TransAmerican is obligated to fund
the entire tax deficiency (if any) resulting from the Lobo Sale. There can be no
assurance that TransAmerican will 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 loss carryforwards.
If the aggregate ownership of TransTexas by members of the TNGC
17
20
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.
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 January 31, 1999,
approximately $364.5 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 January 31, 1999, TransTexas had paid approximately $9.6
million of such tax and estimates that approximately $0.6 million will be paid
in fiscal 2000. During the year ended January 31, 1999, TransTexas paid
approximately $5.6 million of Texas franchise taxes on behalf of affiliates.
Approximately $2.3 million of the franchise taxes paid exceeded the payable to
affiliates for such taxes and was recorded as a reduction of additional paid-in
capital.
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 bankruptcy that may be used in any future year may be limited.
18
21
INFLATION AND CHANGES IN PRICES
TransTexas' results of operations and the value of its gas properties are
highly dependent upon the prices TransTexas receives for its natural gas.
Substantially all of TransTexas' sales of natural gas are made in the spot
market, or pursuant to long-term contracts at market prices. Accordingly, the
prices received by TransTexas for its natural gas production are dependent upon
numerous factors beyond the control of TransTexas, including the level of
consumer product demand, the North American supply of natural gas, government
regulations and taxes, the price and availability of alternative fuels, the
level of foreign imports of oil and natural gas and the overall economic
environment. Demand for natural gas is seasonal, with demand typically higher
during the summer and winter, and lower during the spring and fall, with
concomitant changes in price. As a result of high demand for drilling services
in 1998 and 1999, TransTexas experienced increases in the cost of oilfield
services and equipment used in exploration and development drilling, and to a
lesser extent well completion and production costs.
Any significant decline in current prices for natural gas could have a
material adverse effect on TransTexas' financial condition, results of
operations and quantities of reserves recoverable on an economic basis. Based
on an assumed average net daily production level of approximately 90 MMcfd,
TransTexas estimates that a $0.10 per MMBtu change in average gas prices
received would change annual operating income by approximately $3 million.
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.
19
22
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 approximately 95% complete.
o In stage two, TransTexas is assessing the results of the completed
portions of 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 85% 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.
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
began implementation of a new financial reporting system on December 1,
1998. Several operational systems are in various stages of
implementation, which should be completed prior to September 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
40% 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 January 31, 1999, TransTexas had incurred approximately $2 million
in direct costs with respect to its Year 2000 compliance program. TransTexas
anticipates spending an additional $0.5 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 September 1999 with continual
refinement until all of TransTexas' critical systems and all critical
third-party relationships have demonstrated Year 2000 compliance.
20
23
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 and the ultimate
resolution of litigation.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of January 31, 1999, the Company did not have any market risk sensitive
instruments.
21
24
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGE
----
Report of Independent Accountants .............................................................................23
Financial Statements:
Consolidated Balance Sheet ..................................................................................24
Consolidated Statement of Operations ........................................................................25
Consolidated Statement of Stockholders' Equity (Deficit).....................................................26
Consolidated Statement of Cash Flows ........................................................................27
Notes to Consolidated Financial Statements ..................................................................28
22
25
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of
TransTexas Gas Corporation:
In our opinion, the accompanying consolidated balance sheet and the
related consolidated statement of operations, of stockholders' equity (deficit)
and of cash flows present fairly, in all material respects, the financial
position of TransTexas Gas Corporation (debtor-in-possession) (the "Company") at
January 31, 1999 and 1998, and the results of its operations and its cash flows
for each of the three years in the period ended January 31, 1999, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As a result of the Company's
bankruptcy, there is substantial doubt about the Company's ability to continue
as a going concern. Management's plans are described in Note 2. The financial
statements do not include any adjustments that might result from the outcome of
these uncertainties.
PricewaterhouseCoopers LLP
Houston, Texas
May 20, 1999
23
26
TRANSTEXAS GAS CORPORATION
(Debtor-in-Possession)
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
JANUARY 31,
-------------------------------
1999 1998
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents ........................................................ $ 3,775 $ 38,502
Accounts receivable .............................................................. 16,091 17,056
Receivable from affiliates ....................................................... 1,286 --
Inventories ...................................................................... 3,210 16,437
Other current assets ............................................................. 3,693 10,719
------------ ------------
Total current assets .......................................................... 28,055 82,714
------------ ------------
Property and equipment .............................................................. 1,459,630 1,418,293
Less accumulated depreciation, depletion and amortization ........................... 1,167,487 716,695
------------ ------------
Net property and equipment -- based on the full cost method of accounting for
gas and oil properties of which $20,477 and $104,389
are excluded from amortization at January 31, 1999 and 1998, respectively ........ 292,143 701,598
------------ ------------
Due from affiliates ................................................................. -- 1,488
Other assets, net ................................................................... 25,169 30,835
------------ ------------
$ 345,367 $ 816,635
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term debt ............................................. $ -- $ 10,181
Accounts payable ................................................................. -- 52,075
Accrued interest payable to affiliate ............................................ -- 6,762
Accrued liabilities............................................................... 983 35,818
------------ ------------
Total current liabilities ..................................................... 983 104,836
------------ ------------
Liabilities subject to compromise.................................................... 718,139 --
Long-term debt, less current maturities ............................................. -- 9,199
Production payments, less current portion ........................................... 56,260 4,121
Note payable to affiliate ........................................................... -- 486,991
Subordinated notes .................................................................. -- 115,815
Revolving credit agreement .......................................................... -- 7,917
Deferred income taxes ............................................................... -- 39,497
Payable to affiliates ............................................................... -- 3,002
Other liabilities ................................................................... -- 20,620
Commitments and contingencies (Note 13) ............................................. -- --
Stockholders' equity (deficit):
Common stock, $0.01 par value, 100,000,000 shares authorized, 57,515,566
shares issued and outstanding at January 31, 1999 and 1998 .................... 740 740
Additional paid-in capital ....................................................... 19,915 26,834
Retained earnings (accumulated deficit) .......................................... (188,265) 259,468
------------ ------------
(167,610) 287,042
Treasury stock, at cost, 16,484,434 shares ....................................... (262,405) (262,405)
------------ ------------
Total stockholders' equity (deficit) .......................................... (430,015) 24,637
------------ ------------
$ 345,367 $ 816,635
============ ============
The accompanying notes are an integral part of the
consolidated financial statements.
24
27
TRANSTEXAS GAS CORPORATION
(Debtor-in-Possession)
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
YEAR ENDED JANUARY 31,
----------------------------------------------------
1999 1998 1997
------------ ------------ ------------
Revenues:
Gas, condensate and natural gas liquids ....... $ 91,319 $ 164,538 $ 363,459
Transportation ................................ -- 12,055 34,423
Gain on the sale of assets .................... 61,247 543,365 7,856
Other ......................................... 4,200 3,313 609
------------ ------------ ------------
Total revenues ............................. 156,766 723,271 406,347
------------ ------------ ------------
Costs and expenses:
Operating ..................................... 22,352 50,957 114,453
Depreciation, depletion and amortization ...... 86,137 82,659 132,453
General and administrative .................... 21,938 48,156 45,596
Taxes other than income taxes ................. 7,130 11,399 22,566
Impairment of gas and oil properties .......... 425,966 -- --
Litigation settlements ........................ -- -- (96,000)
------------ ------------ ------------
Total costs and expenses ................... 563,523 193,171 219,068
------------ ------------ ------------
Operating income (loss) ....................... (406,757) 530,100 187,279
------------ ------------ ------------
Other income (expense):
Interest income ............................... 1,205 12,393 5,544
Interest expense, net ......................... (79,921) (80,580) (97,007)
------------ ------------ ------------
Total other income (expense) ............... (78,716) (68,187) (91,463)
------------ ------------ ------------
Income (loss) before income taxes .......... (485,473) 461,913 95,816
Income tax expense (benefit) ..................... (38,882) 161,669 12,491
------------ ------------ ------------
Income (loss) before extraordinary item .... (446,591) 300,244 83,325
Extraordinary item - loss on early
extinguishment of debt, net of tax ............. (1,142) (72,043) --
------------ ------------ ------------
Net income (loss) .......................... $ (447,733) $ 228,201 $ 83,325
============ ============ ============
Basic and diluted net income (loss) per share:
Income (loss) before extraordinary item ....... $ (7.76) $ 4.49 $ 1.13
Extraordinary item ............................ (0.02) (1.08) --
------------ ------------ ------------
$ (7.78) $ 3.41 $ 1.13
============ ============ ============
Weighted average number of shares
outstanding for basic and diluted net
income (loss) per share ....................... 57,515,566 66,905,903 74,000,000
============ ============ ============
The accompanying notes are an integral part of the
consolidated financial statements.
25
28
TRANSTEXAS GAS CORPORATION
(Debtor-in-Possession)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
RETAINED
COMMON STOCK ADDITIONAL EARNINGS
------------------------------ PAID-IN CAPITAL (ACCUMULATED
SHARES AMOUNT (CAPITAL DEFICIT) DEFICIT)
---------- ---------- ---------- ----------
Balance at January 31, 1996 74,000,000 $ 740 $ (107,040) $ (48,140)
Elimination of intercompany
gain on property purchased
from affiliate -- -- -- (3,918)
Transfer of litigation escrow to
affiliate -- -- (22,484) --
Contribution of Signal Capital
Holdings Corporation stock by
affiliate -- -- 6,000 --
Advances to affiliate -- -- -- --
Net income -- -- -- 83,325
---------- ---------- ---------- ----------
Balance at January 31, 1997 74,000,000 740 (123,524) 31,267
Purchase of treasury stock,
at cost, 16,484,434 shares -- -- -- --
Advance to affiliate -- -- (13,304) --
Contribution from affiliate -- -- 21,513 --
Assumption of tax liability by
TransAmerican -- -- 129,549 --
Contribution of debt issue costs -- -- 12,600 --
by TEC
Collection of advances to -- -- -- --
affiliates
Net income -- -- -- 228,201
---------- ---------- ---------- ----------
Balance at January 31, 1998 74,000,000 740 26,834 259,468
Advance to affiliate -- -- (6,919) --
Net loss -- -- -- (447,733)
---------- ---------- ---------- ----------
Balance at January 31, 1999 74,000,000 $ 740 $ 19,915 $ (188,265)
========== ========== ========== ==========
TOTAL
TREASURY ADVANCES STOCKHOLDERS'
STOCK TO AFFILIATES EQUITY (DEFICIT)
---------- ---------- ----------
Balance at January 31, 1996 $ -- $ -- $ (154,440)
Elimination of intercompany
gain on property purchased
from affiliate -- -- (3,918)
Transfer of litigation escrow to
affiliate -- -- (22,484)
Contribution of Signal Capital
Holdings Corporation stock by
affiliate -- -- 6,000
Advances to affiliate -- (59,278) (59,278)
Net income -- -- 83,325
---------- ---------- ----------
Balance at January 31, 1997 -- (59,278) (150,795)
Purchase of treasury stock,
at cost, 16,484,434 shares (262,405) -- (262,405)
Advance to affiliate -- -- (13,304)
Contribution from affiliate -- -- 21,513
Assumption of tax liability by
TransAmerican -- -- 129,549
Contribution of debt issue costs -- -- 12,600
by TEC
Collection of advances to -- 59,278 59,278
affiliates
Net income -- -- 228,201
---------- ---------- ----------
Balance at January 31, 1998 (262,405) -- 24,637
Advance to affiliate -- -- (6,919)
Net loss -- -- (447,733)
---------- ---------- ----------
Balance at January 31, 1999 $ (262,405) $ -- $ (430,015)
========== ========== ==========
The accompanying notes are an integral part of the
consolidated financial statements.
26
29
TRANSTEXAS GAS CORPORATION
(Debtor-in-Possession)
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
YEAR ENDED JANUARY 31,
----------------------------------------------
1999 1998 1997
--------- ----------- -----------
Operating activities:
Net income (loss) ............................................ $(447,733) $ 228,201 $ 83,325
Adjustments to reconcile net income (loss) to
net cash provided (used) by operating activities:
Extraordinary item ..................................... 1,142 72,043 --
Depreciation, depletion and amortization ............... 86,137 82,659 132,453
Impairment of gas and oil properties ................... 425,966 -- --
Amortization of debt issue costs ....................... 5,730 2,030 8,387
Accretion on subordinated notes ........................ -- 4,941 1,647
Gain on the sale of assets ............................. (61,247) (543,365) (7,856)
Deferred income taxes .................................. (38,882) 161,670 (8,889)
Proceeds from volumetric production payments ........... -- -- 58,621
Repayment of volumetric production payments ............ -- (45,134) --
Amortization of deferred revenue ....................... -- (9,420) (36,917)
Changes in assets and liabilities:
Accounts receivable ................................. 965 61,604 (42,409)
Receivable from affiliates .......................... (1,286) 3,248 449
Inventories ......................................... 13,227 (3,953) (1,060)
Other current assets ................................ 7,026 10,265 (2,154)
Accounts payable .................................... 7,981 18,451 9,900
Accrued interest payable to affiliates .............. 1,851 6,762 --
Accrued liabilities ................................. 9,177 (50,966) 31,134
Transactions with affiliates, net ................... (6,166) 31,223 (6,825)
Other assets ........................................ 126 65 21,428
Other liabilities ................................... (5,384) (8,371) (20,173)
--------- ----------- -----------
Net cash provided (used) by operating activities .. (1,370) 21,953 221,061
--------- ----------- -----------
Investing activities:
Capital expenditures ......................................... (190,601) (423,915) (340,651)
Proceeds from the sale of assets ............................. 156,212 1,062,490 92,518
Withdrawals from cash restricted for interest ................ -- 46,000 92,000
Increase in cash restricted for interest ..................... -- -- (92,000)
Advances to affiliate ........................................ (1,648) -- (24,750)
Payment of advances by affiliate ............................. -- 24,750 --
Contribution to affiliate .................................... -- (13,304) --
--------- ----------- -----------
Net cash provided (used) by investing activities .. (36,037) 696,021 (272,883)
--------- ----------- -----------
Financing activities:
Issuance of long-term debt ................................... 19,650 14,946 26,200
Principal payments on long-term debt ......................... (62,235) (10,128) (19,135)
Revolving credit agreement, net .............................. (7,572) (18,351) 5,903
Issuance of production payments .............................. 69,824 20,977 28,598
Principal payments on production payments .................... (17,355) (29,504) (45,205)
Issuance of note payable to affiliate ........................ 1,395 486,991 --
Retirement of senior secured notes ........................... -- (892,000) --
Issuance of subordinated notes ............................... -- -- 99,445
Debt issue costs ............................................. (1,027) (13,559) (9,187)
Increase in cash restricted for share repurchases ............ -- (399,284) --
Withdrawals from cash restricted for share repurchases ....... -- 399,284 --
Purchases of treasury stock .................................. -- (262,405) --
Transfer of litigation escrow to affiliate ................... -- -- (22,484)
--------- ----------- -----------
Net cash provided (used) by financing activities .. 2,680 (703,033) 64,135
--------- ----------- -----------
Increase (decrease) in cash and cash equivalents .. (34,727) 14,941 12,313
Beginning cash and cash equivalents ............................. 38,502 23,561 11,248
--------- ----------- -----------
Ending cash and cash equivalents ................................ $ 3,775 $ 38,502 $ 23,561
========= =========== ===========
The accompanying notes are an integral part of the
consolidated financial statements.
27
30
TRANSTEXAS GAS CORPORATION
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
TransTexas Gas Corporation (together with its subsidiaries, the "Company"
or "TransTexas") was incorporated in Delaware in May 1993 for the purpose of
owning and operating certain oil and gas and transmission assets previously
owned and operated by TransAmerican Natural Gas Corporation ("TransAmerican")
and certain of its subsidiaries. On August 24, 1993, certain of these operations
were transferred at predecessor basis pursuant to an agreement among TransTexas,
TransAmerican and certain of its subsidiaries, and TransAmerican's sole
stockholder (the "Transfer"). As a result of the Transfer, TransTexas succeeded
to the gas and oil properties, exploration and development operations, and
natural gas gathering and transportation operations of TransAmerican and certain
subsidiaries, except for specific excluded assets (including accounts
receivable) retained by TransAmerican.
TransTexas is a subsidiary of TransAmerican Energy Corporation ("TEC"),
which is wholly owned by TEC/TransAmerican LLC, which is wholly owned by
TransAmerican. TransAmerican Refining Corporation ("TARC") is a wholly owned
subsidiary of TEC. Unless otherwise noted, the term "TransTexas" refers to
TransTexas Gas Corporation and its subsidiaries.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date(s) of the financial
statements and the reported amounts of revenues and expenses during the
reporting period(s). TransTexas' most significant financial estimates are based
on litigation, income taxes and remaining proved gas and oil reserves (see Notes
13 and 17). Actual results could differ from these estimates.
Reclassifications
Certain previously reported financial information has been reclassified to
conform with the current presentation.
Cash and Cash Equivalents
TransTexas considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. Cash and cash
equivalents at January 31, 1999 includes $1.4 million restricted for payments
of future goods and services provided by certain vendors.
Inventories
TransTexas' inventories, consisting primarily of tubular goods, are stated
at the lower of average cost or market.
Gas and Oil Properties
TransTexas uses the full cost method of accounting for exploration and
development costs. Under this method of accounting, the cost for successful as
well as unsuccessful exploration and development activities are capitalized.
Such capitalized costs and estimated future development and reclamation costs
are amortized on a unit-of-production method. Net capitalized costs of gas and
oil properties are limited to the lower of unamortized cost or the cost center
ceiling, defined as the sum of the present value (10% discount rate) of
estimated unescalated future net revenues from proved reserves; plus the cost of
properties not being amortized, if any; plus the lower of cost or estimated fair
value of unproved properties included in the costs being amortized, if any; less
related income tax effects. As of January 31, 1999, TransTexas' net capitalized
costs of gas and oil properties exceeded the cost center ceiling.
28
31
TRANSTEXAS GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
TransTexas adjusted its net capitalized costs resulting in a non-cash pre-tax
loss of approximately $426 million for the year ended January 31, 1999. Due to
higher gas and oil prices realized by the Company subsequent to January 31,
1999, the impairment was less than would have been recorded using January 31,
1999 prices.
Proceeds from the sale of gas and oil properties are applied to reduce the
costs in the cost center unless the sale involves a significant quantity of
reserves in relation to the cost center, in which case a gain or loss is
recognized.
Unevaluated properties and associated costs not currently being amortized
and included in gas and oil properties were $20 million and $104 million at
January 31, 1999 and 1998, respectively. The properties represented by these
costs were undergoing exploration activities at such date, or are properties on
which TransTexas intends to commence such activities in the future. TransTexas
believes that the unevaluated properties at January 31, 1999 will be
substantially evaluated in 12 to 24 months and it will begin to amortize these
costs at such time.
Other Property and Equipment
Other property and equipment are stated at cost. The cost of repairs and
minor replacements is charged to operating expense while the cost of renewals
and betterments is capitalized. At the time depreciable assets are retired or
otherwise disposed of, the cost and related accumulated depreciation or
amortization are removed from the accounts. Gains or losses on dispositions in
the ordinary course of business are included in the consolidated statement of
operations. Impairment of other property and equipment is reviewed whenever
events or changes in circumstances indicate that the carrying value of assets
may not be recoverable.
Depreciation of oilfield services equipment and other buildings and
equipment is computed by the straight-line method at rates that will amortize
the unrecovered cost of depreciable property, including assets acquired under
capital leases, over their estimated useful lives of 4-10 years.
Costs of improving leased property are amortized over the estimated useful
lives of the assets or the terms of the leases, whichever is shorter.
Environmental Remediation Costs
Environmental expenditures are expensed or capitalized as appropriate,
depending on their future economic benefit. Expenditures that relate to an
existing condition caused by past operations and that do not have future
economic benefits are expensed. Liabilities for these expenditures are provided
when the responsibility to remediate is probable and the amount of associated
costs is reasonably estimable.
Debt Issue Costs
Costs related to the issuance of long-term debt are classified as "Other
assets." Capitalized debt costs are amortized to interest expense over the
scheduled maturity of the debt utilizing the interest method. In the event of a
redemption of long-term debt, the related debt issue costs will be charged to
income in the period of presentation.
Defined Contribution Plan
TransTexas, through its indirect parent company, TransAmerican, maintains
a defined contribution plan, which incorporates a "401(k) feature" as allowed
under the Internal Revenue Code. All investments are made through Massachusetts
Mutual Life Insurance Company. Employees who are at least 21 years of age and
have completed one year of credited service are eligible to participate on the
next semiannual entry date. TransTexas matches 10%, 20%
29
32
TRANSTEXAS GAS CORPORATION
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
or 50% of employee contributions up to a maximum of 3% of the participant's
compensation, based on years of plan participation. TransTexas' contributions
with respect to this plan totaled $0.3 million, $0.5 million and $0.5 million
for years ended January 31, 1999, 1998 and 1997, respectively. All Company
contributions are currently funded.
Treasury Stock
TransTexas uses the cost method to account for treasury stock. In June
1997, TransTexas implemented a share repurchase program pursuant to which it
repurchased approximately 3.9 million shares from public stockholders for an
aggregate purchase price of approximately $61.4 million, and approximately 12.6
million shares from TARC and TEC for an aggregate purchase price of
approximately $201 million. The share repurchase program was terminated in
December 1997.
Fair Value of Financial Instruments
TransTexas includes fair value information in the Notes to Consolidated
Financial Statements when the fair value of its financial instruments can be
determined and is different from the book value. TransTexas generally assumes
the book value of those financial instruments that are classified as current
approximate fair value because of the short maturity of these instruments. For
noncurrent financial instruments, TransTexas uses quoted market prices or, to
the extent that there are no available quoted market prices, market prices for
similar instruments. Due to the bankruptcy filing (Note 2), the Company is
uncertain as to the timing and amount of liquidation or settlement of
liabilities subject to compromise. Accordingly, except for debt which has quoted
market prices, the Company does not believe it is practicable to estimate the
fair value of those liabilities.
Revenue Recognition
TransTexas recognizes revenues from the sales of natural gas, condensate
and natural gas liquids in the period of delivery. Revenues are recognized from
transportation of natural gas in the period the service is provided. The sales
method is used for natural gas imbalances that arise from jointly produced
properties. Volumetric production is monitored to minimize these natural gas
imbalances. A natural gas imbalance liability is recorded in other liabilities
if TransTexas' excess sales of natural gas exceed its estimated remaining
recoverable reserves for such properties.
Concentration of Credit Risk
Financial instruments that potentially expose TransTexas to credit risk
consist principally of cash, trade receivables and commodity price swap
agreements. TransTexas selects depository banks based upon management's review
of the financial stability of the institution. Balances periodically exceed the
$100,000 level covered by federal deposit insurance. To date, TransTexas has not
incurred any losses due to excess deposits in any financial institution. Trade
accounts receivable are generally from companies with significant natural gas
marketing activities, which would be impacted by conditions or occurrences
affecting that industry. TransTexas performs ongoing credit evaluations and,
generally, requires no collateral from its customers. TransTexas is not aware of
any significant credit risk relating to its customers and has not experienced
significant credit losses associated with such receivables.
Hedging Agreements
From time to time, TransTexas enters into commodity price swap agreements
(the "Hedge Agreements") to reduce its exposure to price risk in the spot market
for natural gas. The Hedge Agreements are accounted for as hedges if the pricing
of the hedge agreement correlates with the pricing of the natural gas production
hedged. Accordingly, gains or losses are deferred and recognized as an increase
or decrease in revenues in the respective month the physical volumes are sold.
For the years ended January 31, 1998 and 1997, TransTexas incurred net
settlement losses pursuant to the Hedge Agreements of approximately $7.4 million
and $37 million, respectively. TransTexas had no Hedge Agreements outstanding at
January 31, 1999 or 1998.
30
33
TRANSTEXAS GAS CORPORATION
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
TransTexas files a consolidated tax return with TransAmerican. Income
taxes are due from or payable to TransAmerican in accordance with a tax
allocation agreement, as amended, between TransTexas, TNGC Holdings Corporation,
TransAmerican and TransAmerican's other subsidiaries (the "Tax Allocation
Agreement"). It is TransTexas' policy to record income tax expense as though
TransTexas had filed separately. Deferred income taxes are recognized, at
enacted tax rates, to reflect the future effects of temporary differences
arising between the financial reporting and tax bases of assets and liabilities.
Income taxes include federal and state income taxes.
Net Income (Loss) Per Share
Basic and diluted net income (loss) per share has been calculated based on
the weighted average number of shares of common stock outstanding during each
period, excluding treasury shares.
Recently Issued Pronouncements
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, 2000. 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. 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. Additional advances will be subject to the entry of a final
order. 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 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. The plan of
reorganization will set forth the means for satisfying claims, including
liabilities subject to compromise, and
31
34
TRANSTEXAS GAS CORPORATION
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
interests in the Company. A plan of reorganization may result in, among other
things, material dilution or elimination of existing security holders as a
result of the issuance of securities to creditors or new investors. The
consummation of a plan of reorganization will require approval of the Bankruptcy
Court.
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.
As a result of the bankruptcy filing, a significant amount of the
Company's liabilities, including certain secured debt, are subject to
compromise. As of January 31, 1999, the liabilities subject to compromise
included the following (in thousands of dollars):
Long-term debt $125,170 (Note 6)
Notes payable to affiliates 457,928 (Note 7)
Accounts payable 66,231
Accrued interest payable to affiliate 8,613
Accrued liabilities 44,961 (Note 9)
Other liabilities 15,236 (Note 10)
--------
$718,139
========
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, 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 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. There is no assurance that adequate funds can be
obtained on a timely basis or that the Bankruptcy Court will approve such
transactions.
3. OTHER CURRENT ASSETS
The major components of other current assets are as follows (in thousands
of dollars):
JANUARY 31,
---------------------------
1999 1998
---------- ---------
Prepayments:
Trade.................................................................. $ 676 $ 7,120
Insurance.............................................................. 2,300 3,171
Other ................................................................... 717 428
---------- ---------
$ 3,693 $ 10,719
========== =========
32
35
TRANSTEXAS GAS CORPORATION
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY AND EQUIPMENT
The major components of property and equipment, at cost, are as follows
(in thousands of dollars):
JANUARY 31,
-----------------------------
1999 1998
------------- -------------
Land..................................................... $ 710 $ 1,373
Gas and oil properties ................................ 1,394,325 1,246,584
Gas gathering and transportation ........................ 53,761 51,714
Equipment and other ..................................... 10,834 118,622
------------ -------------
$ 1,459,630 $ 1,418,293
============ =============
In May 1997, TransTexas consummated a stock purchase agreement with an
unaffiliated buyer (the "Lobo Sale Agreement"), to effect the sale (the "Lobo
Sale") of the stock of TransTexas Transmission Corporation ("TTC"), its
subsidiary that owned substantially all of TransTexas' Lobo Trend producing
properties and related pipeline transmission system, for an adjusted sales price
of approximately $1.1 billion. With proceeds from the Lobo Sale, TransTexas
repaid certain indebtedness and other obligations, including production
payments, in an aggregate amount of approximately $84 million. TransTexas
recorded a gain of $543.4 million on the Lobo Sale. In accordance with the full
cost method, the cost of the properties sold was determined based on relative
fair market value.
In January 1998, TransTexas sold a portion of its Lodgepole producing
properties for a sales price of $19.1 million. The proceeds from this sale were
credited to the full cost pool.
On April 30, 1998, TransTexas sold its oilfield stimulation, cementing and
coiled tubing equipment and related facilities to an unaffiliated third party
for a sales price of $30 million, subject to post-closing adjustments. For the
year ended January 31, 1999, TransTexas recorded a $10.5 million pre-tax gain
as a result of this sale.
On June 26, 1998, TransTexas sold its drilling rigs and related facilities
to an unaffiliated third party for a sales price of $75 million. On August 17,
1998, TransTexas sold its remaining drilling services assets to an unaffiliated
third party for a sales price of $20.5 million. TransTexas recorded pre-tax
gains of $51.2 million and $5.3 million, respectively, as a result of these
sales.
Additional purchase price adjustments related to the Lobo Sale resulted in
a pre-tax loss on the sale of assets of $2.4 million during the year ended
January 31, 1999.
In December 1998, TransTexas sold certain gas and oil properties for net
proceeds of approximately $16.7 million.
33
36
TRANSTEXAS GAS CORPORATION
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. OTHER ASSETS
The major components of other assets are as follows (in thousands of
dollars):
JANUARY 31,
----------------------------
1999 1998
----------- -----------
Debt issue costs, net of accumulated amortization
of $7,502 and $2,030 at January 31, 1999 and
1998, respectively..................................................... $ 24,278 $ 29,818
Other ................................................................... 891 1,017
------------ -----------
$ 25,169 $ 30,835
============ ===========
6. LONG-TERM DEBT (SUBJECT TO COMPROMISE) AND PRODUCTION PAYMENTS
LONG-TERM DEBT
Long-term debt at January 31, 1999 is subject to compromise. See Note 2.
Long-term debt consists of the following (in thousands of dollars):
JANUARY 31,
----------------------------
1999 1998
----------- -----------
Revolving credit agreement............................................... $ 345 $ 7,917
13 3/4% Senior Subordinated Notes due 2001............................... 115,815 115,815
Note payable ............................................................ 5,650 --
Notes payable, ranging from 9.25% to 15%, due through 2001............... 3,360 19,380
------------ -------------
Total long-term debt.................................................. $ 125,170 $ 143,112
============ =============
TransTexas and BNY Financial Corporation ("BNY") are parties to a Second
Amended and Restated Accounts Receivable Management and Security Agreement (the
"BNY Facility"), dated as of October 14, 1997. As of January 31, 1999,
outstanding advances under the BNY Facility totaled approximately $0.3
million. 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 BNY Facility are secured by liens on
TransTexas' receivables and inventory and is guaranteed by Mr. Stanley. The BNY
Facility contains certain financial covenants including a limitation on net
losses. The Company is currently negotiating a post-petition amendment to the
BNY Facility.
In December 1996, TransTexas issued $189 million in face amount of 13 1/4%
Series A Senior Subordinated Notes due 2003 (the "Old Subordinated Notes") to
unaffiliated third parties. On June 19, 1997, TransTexas completed an exchange
offer (the "Subordinated Notes Exchange Offer"), pursuant to which it exchanged
approximately $115.8 million aggregate principal amount of its 13 3/4% Series C
Senior Subordinated Notes due 2001 (the "Series C Subordinated Notes") for all
of the Old Subordinated Notes. On October 10, 1997, TransTexas completed a
registered exchange offer whereby it issued $115.8 million aggregate principal
amount of its 13 3/4% Series D Senior Subordinated Notes due 2001 (the
"Subordinated Notes") in exchange for all of the outstanding Series C
Subordinated Notes. The indenture governing the Subordinated Notes
("Subordinated Notes Indenture") includes certain restrictive covenants,
including, among others, limitations on incurring additional debt, asset sales,
dividends and transactions with affiliates. During the year ended January 31,
1998, TransTexas recorded a $72 million extraordinary charge, net of an income
tax benefit of $38.2 million, as a result of its tender offer for its senior
secured notes in the amount of $785.4 million and its exchange offer for its
subordinated notes in the amount of $115.8 million. The fair value of the
Subordinated Notes, based on quoted market prices as of January 31, 1999 and
1998, was $34.7 million and $129.7 million, respectively.
34
37
TRANSTEXAS GAS CORPORATION
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In December 1998, TransTexas borrowed $5.65 million from an unaffiliated
third party in order to meet a portion of its December 31, 1998 interest payment
obligations. This note bears interest at a rate of 18% per annum and is secured
by a pledge of the stock of Galveston Bay Processing Corporation, a mortgage on
the Winnie processing facility, a pledge by TransAmerican of 5 million shares of
TransTexas common stock and a lien on the Company's office building.
As of January 31, 1998, TransTexas had outstanding notes payable bearing
interest at rates ranging from 9.43% to 14.41% per annum and maturing at various
dates through November 2001. These notes payable were collateralized by certain
of TransTexas' operating equipment. In March 1998, TransTexas executed an
amended and restated note in the principal amount of approximately $14.9 million
evidencing a portion of the notes payable described above. Concurrently,
TransTexas incurred an additional $14 million in equipment financing debt,
evidenced by a promissory note. Both notes were secured by a lien on equipment.
The notes bear interest at a rate of 13.87%, payable in monthly installments
with a final installment payable on April 1, 2001. These notes were repaid in
June 1998 with proceeds from the sale of drilling rigs.
PRODUCTION PAYMENTS
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, up to
an aggregate maximum for all such wells of $75 million. 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 January 31, 1999, the
outstanding balance of the production payment was $48.0 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 January 31, 1999, the outstanding balance of the production payment
was $9.2 million.
7. NOTES PAYABLE TO AFFILIATES (SUBJECT TO COMPROMISE)
Notes payable to affiliates at January 31, 1999 are subject to compromise.
See Note 2. Notes payable to affiliates consist of the following (in thousands
of dollars):
JANUARY 31,
--------------------------
1999 1998
----------- ----------
TransTexas Intercompany Loan................................................ $ 450,000 $ 450,000
Notes payable to affiliates................................................. 7,928 36,991
----------- ----------
$ 457,928 $ 486,991
=========== ==========
On June 13, 1997, TEC completed a private offering (the "TEC Notes
Offering") of $475 million aggregate principal amount of 11 1/2% Senior Secured
Notes due 2002 (the "TEC Series A Senior Secured Notes") and $1.13 billion
aggregate principal amount of 13% Senior Secured Discount Notes due 2002 (the
"TEC Series A Senior Secured Discount Notes" and, together with the TEC Series A
Senior Secured Notes, the "TEC Series A Notes") for net proceeds of
approximately $1.3 billion. On January 16, 1998, TEC completed a registered
exchange offer whereby it issued $475 million aggregate principal amount of
11 1/2% Series B Senior Secured Notes due 2002 (the "TEC Senior Secured Notes")
and $1.3 billion aggregate principal amount of 13% Series B Senior Secured
Discount Notes due 2002 (the "TEC Senior Secured Discount Notes" and, together
with the TEC Series A Notes and TEC Senior Secured Notes, the "TEC Notes"). The
TEC Notes are senior obligations of TEC, secured by a lien on substantially all
its existing and future assets, including the intercompany loans described
below.
With a portion of the proceeds of the TEC Notes Offering, TEC made an
intercompany loan to TransTexas (the "TransTexas Intercompany Loan"). The
TransTexas Intercompany Loan (i) is in the principal amount of $450 million,
(ii) bears interest at a rate of 107/8% per annum, payable semi-annually in cash
in arrears and (iii) is secured initially by a security interest in
substantially all of the assets of TransTexas other than inventory, receivables
and equipment.
35
38
TRANSTEXAS GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The TransTexas Intercompany Loan will mature on June 1, 2002. The TransTexas
Intercompany Loan Agreement contains certain restrictive covenants, including,
among others, limitations on incurring additional debt, asset sales, dividends
and transactions with affiliates. In connection with the TEC Notes Offering, TEC
allocated $12.6 million of debt issuance costs to TransTexas which are reflected
as a contribution of capital. Such costs are being amortized over the term of
the TransTexas Intercompany Loan using the interest method. The TransTexas
Intercompany Loan Agreement contains provisions which increase the interest rate
from 10 7/8% to 12 7/8% per annum if certain financial ratios are not met. As a
result of TransTexas' failure to maintain the required ratios, the interest rate
on the TransTexas Intercompany Loan increased to 12 7/8% per annum effective
November 1, 1998. The increased interest rate will continue until the Company
has reserve value, as defined, equal to 90% of Net Debt or limits its quarterly
capital expenditures to the amount of its quarterly EBITDA, all as specified in
the TransTexas Intercompany Loan Agreement.
During the year ended January 31, 1999, TEC made advances to TransTexas
pursuant to a $50 million promissory note which matures on June 14, 2002. The
note bears interest at a rate of 11.375% per annum. At January 31, 1999, the
outstanding balance on the note was $6.5 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. The proceeds from this loan were used to meet a portion of the Company's
interest payment obligations on December 31, 1998.
8. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
The following information reflects TransTexas' noncash investing and
financing activities (in thousands of dollars):
YEAR ENDED JANUARY 31,
------------------------------------------
1999 1998 1997
---------- ------------- --------------
Assumption of tax liability by
TransAmerican................................... $ -- $ 129,549 $ --
========== ========== ==========
Contribution from affiliate....................... $ -- $ 21,513 $ --
========== ========== ==========
Seller financed obligations incurred for
capital expenditures............................ $ -- $ -- $ 3,621
========== ========== ==========
Accounts payable and long-term
liabilities for property and
equipment....................................... $ 38,841 $ 32,666 $ 27,192
========== ========== ==========
Exchange of Subordinated Notes.................... $ -- $ 115,815 $ --
========== ========== ==========
Contribution of debt issue
costs from affiliate............................ $ -- $ 12,600 $ --
========== ========== ==========
Cash paid for interest and income taxes are as follows (in thousands of
dollars):
YEAR ENDED JANUARY 31,
------------------------------------------
1999 1998 1997
---------- ------------- --------------
Interest......................................... $ 69,970 $ 52,563 $ 85,254
========== ========== ==========
Income taxes (paid to TransAmerican)............. $ -- $ -- $ 7,000
========== ========== ==========
36
39
TRANSTEXAS GAS CORPORATION
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
TransTexas incurred approximately $89.6 million, $96.4 million and $112.9
million of interest charges of which approximately $9.7 million, $15.8 million
and $15.9 million were capitalized for the years ended January 31, 1999, 1998
and 1997, respectively.
9. ACCRUED LIABILITIES (SUBJECT TO COMPROMISE)
Accrued liabilities at January 31, 1999, other than "Current portion of
production payments," are subject to compromise. See Note 2. The major
components of accrued liabilities are as follows (in thousands of dollars):
JANUARY 31,
----------------------
1999 1998
--------- ---------
Royalties................................................................... $ 9,851 $ 7,171
Taxes other than income taxes............................................... 5,512 2,562
Accrued interest............................................................ 2,921 2,544
Payroll..................................................................... 1,372 5,185
Litigation settlements and other ........................................... 4,170 1,387
Insurance................................................................... 12,819 9,041
Current portion of production payments...................................... 983 653
Other....................................................................... 8,316 7,275
--------- ---------
$ 45,944 $ 35,818
========= =========
10. OTHER LIABILITIES (SUBJECT TO COMPROMISE)
Other liabilities at January 31, 1999 are subject to compromise. See
Note 2. The major components of other liabilities are as follows (in thousands
of dollars):
JANUARY 31,
----------------------
1999 1998
--------- ---------
Litigation accrual....................................................... $ 527 $ 15,008
Litigation settlements................................................... 7,102 --
Other ................................................................... 7,607 5,612
--------- ---------
$ 15,236 $ 20,620
========= =========
11. INCOME TAXES
Income tax expense (benefit) includes the following (in thousands of
dollars):
YEAR ENDED JANUARY 31,
---------------------------------------
1999 1998 1997
---------- ----------- -----------
Federal:
Current ........................................................ $ -- $ (21,380) $ 21,380
Deferred ....................................................... (39,497) 144,256 (8,889)
---------- ----------- -----------
$ (39,497) $ 122,876 $ 12,491
========== =========== ===========
Included in "Payable to affiliates" at January 31, 1998 and 1997 are
income taxes payable to TransAmerican totaling approximately $3.0 million and
$14.4 million, respectively.
37
40
TRANSTEXAS GAS CORPORATION
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Total income tax expense differs from amounts computed by applying the
statutory federal income tax rate to income before income taxes. The items
accounting for this difference are as follows (in thousands of dollars):
YEAR ENDED JANUARY 31,
---------------------------------------
1999 1998 1997
---------- ----------- -----------
Federal income tax expense
(benefit) at the statutory rate ............................... $ (170,530) $ 122,876 $ 33,536
Increase (decrease) in tax resulting from:
Tight sands credit............................................ -- -- (7,441)
Adjustment of tax assumption.................................. (75,000) -- --
Valuation allowance........................................... 206,033 -- (13,604)
---------- ----------- -----------
$ (39,497) $ 122,876 $ 12,491
========== =========== ===========
Significant components of TransTexas' tax attributes are as follows (in
thousand of dollars):
JANUARY 31,
------------------------
1999 1998
-------- ---------
Deferred tax liabilities:
Depreciation, depletion and amortization ................................. $ -- $ 36,314
Tax assumption............................................................ -- 75,000
-------- ---------
-- 111,314
-------- ---------
Deferred tax assets:
Depreciation, depletion and amortization.................................. 75,368 --
Net operating loss carryforwards.......................................... 127,901 63,712
Contingent liabilities ................................................... 1,833 6,553
Other, net................................................................ 931 1,552
-------- ----------
206,033 71,817
Valuation allowance......................................................... (206,033) --
--------- ----------
Net deferred tax assets..................................................... -- 71,817
-------- ----------
$ -- $ 39,497
======== ==========
Based in part upon independent legal advice, TransTexas has 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 Internal Revenue Service (the
"IRS"). TransTexas is part of an affiliated group for tax purposes (the "TNGC
Consolidated Group"), which includes TNGC Holdings Corporation, the sole
stockholder of TransAmerican. 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 7%) on the tax and penalties (if any). The Tax
Allocation Agreement has been amended so that TransAmerican will become
obligated to fund the entire tax deficiency (if any) resulting from the Lobo
Sale. There can be no assurance that TransAmerican will be able to fund any such
payment at the time due and the other members of the TNGC
38
41
TRANSTEXAS GAS CORPORATION
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Consolidated Group, thus, may be required to pay the tax. As a result, in
1998, TransTexas reserved approximately $75 million with respect to the
potential tax liability for financial reporting purposes to reflect a portion of
the federal tax liability that TransAmerican might not be able to pay. 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. Accordingly,
the $75 million reserve has been reclassified to the valuation allowance at
January 31, 1999.
TransTexas agreed to contribute to TransAmerican $48.6 million of
alternative minimum tax credit carryforwards in connection with the assumption
by TransAmerican of the aforementioned contingency. The assumption of the tax
contingency net of the alternative minimum tax credits and the $75 million
contingent liability initially recorded by TransTexas was a credit to additional
paid-in capital of approximately $129.5 million.
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 TransTexas, TransAmerican and certain of
TransAmerican's subsidiaries (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.
TNGC Holdings Corporation ("TNGC"), TransAmerican and its existing
subsidiaries, including TARC, TEC and TransTexas, entered into a tax allocation
agreement, as amended (the "Tax Allocation Agreement"), the general terms of
which require TransAmerican and all of its subsidiaries to file federal income
tax returns as members of a consolidated group to the extent permitted by law.
Filing on a consolidated basis allows income and tax of one member to be offset
by losses and credits of another and allows deferral of certain intercompany
gains; however, each member is severally liable for the consolidated federal
income tax liability of the consolidated group.
The Tax Allocation Agreement requires each of TransAmerican's subsidiaries
to pay to TransAmerican each year its allocable share of the federal income tax
liabilities of the consolidated group ("Allocable Share"). The Tax Allocation
Agreement provides for a reallocation of the group's consolidated federal income
tax liabilities among the members if the IRS or the courts ultimately
re-determine the group's regular tax or alternative minimum tax liability. In
the event of an IRS audit or examination, the Tax Allocation Agreement generally
gives TransAmerican the authority to compromise or settle disputes and to
control litigation, subject to the approval of TARC, TEC or TransTexas, as the
case may be, where such compromise or settlement affects the determination of
the separate tax liability of that company.
Under the Tax Allocation Agreement, each subsidiary's Allocable Share for
each tax year will generally equal the amount of federal income tax it would
have owed had it filed a separate federal income tax return for each year
39
42
TRANSTEXAS GAS CORPORATION
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
except that each subsidiary will be able to utilize net operating losses and
credits of TransAmerican and the other members of the consolidated group
effectively to defer payment of tax liabilities that it would have otherwise
owed had it filed a separate federal income tax return. Each subsidiary will
essentially pay the deferred taxes at the time TransAmerican (or the member
whose losses or credits are utilized by such subsidiary) begins generating
taxable income or tax. This will have the effect of deferring a portion of such
subsidiary's tax liability to future years. The parties to the Tax Allocation
Agreement amended such agreement in May 1997 to include additional affiliates as
parties, and further amended the Tax Allocation Agreement in June 1997 to
allocate to TransAmerican, as among the parties, any tax liability associated
with the Lobo Sale.
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 January 31, 1999, TransTexas had paid $9.6 million of these
franchise taxes and estimates that it will pay approximately $0.6 million during
fiscal 2000. During the year ended January 31, 1999, TransTexas paid
approximately $5.6 million of Texas franchise taxes on behalf of affiliates.
Approximately $2.3 million of the franchise taxes paid exceeded the payable to
affiliates for such taxes and was recorded as a reduction of additional paid-in
capital.
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 at January 31, 1999 were approximately $365
million.
12. TRANSACTIONS WITH AFFILIATES
From August 1993 to June 1997, TransTexas provided accounting and legal
services to TARC and TEC and drilling and workover, administrative and
procurement, accounting, legal, lease operating, and gas marketing services to
TransAmerican pursuant to a services agreement. The fee to TARC and TEC for
general commercial legal services and certain accounting services (including
payroll, tax, and treasury services) was $26,000 per month. At TransAmerican's
request, TransTexas, at its election, provided drilling and workover services.
In June 1997, the receivable from TransAmerican under the services agreement was
paid and the services agreement was terminated.
On June 13, 1997, a services agreement was entered into among
TransAmerican, TEC, TARC and TransTexas. Under the services agreement,
TransTexas provided accounting, legal, administrative and other services to
TARC, TEC and TransAmerican and its affiliates. TransAmerican will provide
advisory services to TransTexas, TARC and TEC. As of January 31, 1999, the
receivable from TARC and TransAmerican for services agreement fees of $0.2
million was charged to general and administrative expenses. As of January 31,
1999, receivables of $4.6 million for other services provided to TransAmerican
and certain of its affiliates were recorded as a reduction of additional paid-in
capital.
40
43
TRANSTEXAS GAS CORPORATION
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, TransContinental Refining
Corporation, a Delaware corporation ("TransContinental"), TransTexas entered
into an Amended and Restated Services Agreement with TransAmerican and its
affiliates (other than TCR Holding and TransContinental) and an Amended and
Restated Services Agreement (the "TCR Group Services Agreement") with TCR
Holding and TransContinental. Pursuant to the TCR Group Services Agreement,
TransTexas provides accounting, legal, administrative and other services to the
TCR Group through December 15, 2000 and receive payment for such services,
through February 28, 1999, in the amount of $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. As of January 31, 1999, the
receivable from TransContinental for such services was $0.3 million.
During the year ended January 31, 1999, TEC made advances to TransTexas
pursuant to a $50 million promissory note which matures on June 14, 2002. The
note bears interest at a rate of 11.375% per annum. Interest payments are due
and payable each June 15 and December 15. As of January 31, 1999, the
outstanding balance of the note was $6.5 million and, the accrued interest was
$0.1 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. The proceeds from this loan were used to pay a portion of the Company's
interest payment obligations on December 31, 1998.
In December 1994, TransTexas entered into an interruptible gas sales
agreement with TransAmerican, revenues from which totaled approximately $11.7
million for the year ended January 31, 1997. TransAmerican did not purchase any
gas from TransTexas during the years ended January 31, 1999 and 1998. All
amounts owed under the agreement were paid on June 13, 1997.
In July 1995, TransTexas acquired certain oil leases in the Lodgepole
Prospect in North Dakota from TransAmerican for approximately $6.3 million,
which amount represented TransAmerican's cost for such leases. TransTexas
continued to acquire additional leases in the area. In October 1995, TransTexas
sold an undivided interest in its Lodgepole leases to TransDakota Oil
Corporation ("TDOC"), a subsidiary of TransAmerican. The sales price was
approximately $16.1, which amount represented the cost to TransTexas of the
interest sold. In September 1996, TransTexas purchased these and other oil and
gas leasehold interests in the Lodgepole area from TDOC for approximately $20.0
million. The purchase price was $3.9 million greater than TDOC's basis in the
properties. The properties were recorded in TransTexas' financial statements at
carryover basis and the $3.9 million was classified as a reduction of retained
earnings.
In July 1996, TransAmerican executed a note payable to TransTexas
Exploration Corporation ("TTEX") in the original principal amount of $25 million
maturing on July 31, 1998. Advances by TTEX to TransAmerican under the note bore
interest at a rate of 15% per annum, payable quarterly. This note was repaid on
June 13, 1997.
During 1995, TransAmerican acquired an office building which it
subsequently sold to TransTexas in February 1996 for $4 million. In February
1996, TransAmerican advanced $4 million of the proceeds from this sale to TARC
for working capital.
41
44
TRANSTEXAS GAS CORPORATION
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In order to facilitate the settlement of certain litigation in May 1996,
TransTexas advanced to TransAmerican $16.4 million of the settlement amount in
exchange for a note receivable. All amounts outstanding under this note were
repaid on June 13, 1997.
TransTexas has made various advances to TransAmerican in an aggregate
amount of approximately $7 million for lease purchases and other corporate
expenses. This amount was repaid on June 13, 1997.
In September 1996, TransTexas and TransAmerican entered into an agreement
pursuant to which TransTexas obtained an $11.5 million dollar-denominated
production payment, subsequently increased to $19 million, bearing interest at
17% per annum, burdening certain oil and gas interests owned by TransAmerican as
a source of repayment for certain of the receivables from TransAmerican
discussed above. At January 31, 1997, $59 million of remaining related-party
receivables was recorded as a contra equity account due to uncertainties
regarding the repayment terms for such receivables. TransTexas agreed to defer
any interest payments due from TransAmerican until 1998. As of January 31, 1997,
TransAmerican conveyed at historical cost certain oil and gas properties to
TransTexas for a purchase price of $31.6 million. A portion of the purchase
price was used to offset obligations under the September 1996 production
payment.
In January 1997, an affiliate of TransTexas contributed all of the
outstanding common stock of Signal Capital Holdings Corporation ("SCHC"), with a
book value of $6 million, to TransTexas. In the same month, TransTexas
contributed the stock of SCHC to TTC.
TransTexas sells natural gas to TARC under an interruptible long-term
sales contract. Revenues from TARC under this contract totaled approximately
$1.1 million and $2.7 million for the years ended January 31, 1998 and 1997,
respectively. There were no such sales to TARC during 1999.
13. 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.
The bankruptcy cases are being jointly administered under the caption "In re:
TransTexas Gas Corporation, et al., Debtors," Case No. 99-889. 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.
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.
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
42
45
TRANSTEXAS GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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, 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. TransAmerican,
TransTexas and TransTexas Transmission's motion to transfer venue was denied by
the Court on April 1, 1999. The Court also set the case for trial on November 1,
1999. On April 29, 1999, TransTexas Gas Corporation removed the case to the
United States Bankruptcy Court for the Southern District of Texas, Laredo
Division. 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 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.
Zurich's notice of arbitration names only TransAmerican, but TransTexas has
provided significant collateral to Zurich and objected to any draw on its
collateral.
VENDOR CLAIMS. Numerous suppliers of goods and services have filed liens
against property of the Company and Galveston Bay Processing Corporation to
secure accounts payable. Many of these vendors have also filed collection suits
against the Company and Galveston Bay Processing Corporation and/or suits to
enforce their liens. These claims, as well as unasserted vendor claims,
represent aggregate accounts payable of approximately $36 million at
May 14, 1999.
ROYALTY CLAIMS. Numerous royalty owners have made claims against the
Company for payment of unpaid royalties under mineral leases and other
agreements. These claims, as well as unasserted royalty claims, represent
aggregate unpaid royalties of approximately $10 million at May 14, 1999.
GENERAL. All of the foregoing claims are stayed as a result of the Chapter
11 filings. 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 January
31, 1999, the possible range of estimated losses related to all of the
aforementioned claims, in addition to the estimates accrued by TransTexas is $0
to $20 million. Litigation expense, including legal fees, totaled approximately
$1 million, $15 million and $19 million for the fiscal years ended
January 31, 1999, 1998 and 1997.
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,
43
46
TRANSTEXAS GAS CORPORATION
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
44
47
TRANSTEXAS GAS CORPORATION
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OPERATING LEASES
As of January 31, 1999, TransTexas had long-term leases covering land and
other property and equipment. Rental expense was approximately $3 million, $2
million and $6 million for the years ended January 31, 1999, 1998 and 1997,
respectively. Future minimum rental payments required under operating leases
that have initial or remaining noncancellable lease terms in excess of one year
as of January 31, 1999, are as follows (in thousands of dollars):
2000 ........................... $ 940
2001 ........................... 908
2002............................ 778
2003............................ 644
2004............................ 245
---------
$ 3,515
=========
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. Deliveries commenced on June 1, 1997 and
are to continue through August 31, 1999.
TransTexas has entered into various contracts whereby TransTexas is
required to deliver an aggregate of approximately 125 MMcf per day to specified
delivery points. TransTexas will incur certain charges if it does not deliver
specified quantities under the contracts. Such charges totaled $1.9 million in
fiscal 1999.
45
48
TRANSTEXAS GAS CORPORATION
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, no assurance can be given that TransTexas will have
sufficient funds to satisfy any such indemnity obligation or that any payment
thereof will not have a material adverse effect on its ability to fund its debt
service, capital expenditure and working capital requirements.
14. BUSINESS SEGMENTS
TransTexas currently conducts its operations in one industry segment:
exploration and production ("E&P"). Prior to the Lobo Sale, TransTexas also
operated a gas transportation segment. The drilling services segment was not
separately reported. The E&P segment explores for, develops, produces and
markets natural gas, condensate and natural gas liquids. The transportation
segment was engaged in intrastate natural gas transportation and marketing. All
of TransTexas' significant gas and oil operations are located in South Texas,
Louisiana and along the Texas Gulf Coast. TransTexas' revenues are derived
principally from sales to interstate and intrastate gas pipelines, direct end
users, industrial companies, marketers and refiners located in the United
States.
For the year ended January 31, 1999, five customers provided approximately
$65 million in E&P revenues. For the year ended January 31, 1998, three
customers provided approximately $79 million in E&P and Transportation revenues.
For the year ended January 31, 1997, three customers provided approximately $177
million in E&P and Transportation revenues.
46
49
TRANSTEXAS GAS CORPORATION
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. LITIGATION SETTLEMENTS
ALAMEDA. On May 22, 1993, Alameda Corporation ("Alameda") sued
TransAmerican in the 234th Judicial District Court, Harris County, Texas,
claiming that TransAmerican failed to account to Alameda for a share of the
proceeds TransAmerican received in a 1990 settlement of litigation with El Paso
Natural Gas Company ("El Paso"), and that TransAmerican has been unjustly
enriched by its failure to share such proceeds with Alameda. On September 20,
1995, the jury rendered a verdict in favor of TransAmerican. Alameda appealed to
the Fourteenth Court of Appeals, which affirmed the trial court judgment in
favor of TransAmerican. Alameda's motion for rehearing was denied and Alameda
appealed to the Texas Supreme Court. The Texas Supreme Court refused to hear
Alameda's appeal. Alameda filed a motion for rehearing which was denied by the
Texas Supreme Court on May 21, 1998. The judgment in favor of TransAmerican is
now final.
BRIONES. In an arbitration proceeding, Jesus Briones, a lessor, claimed
that one of TransTexas' wells on adjacent lands had been draining natural gas
from a portion of his acreage leased to TransTexas on which no well had been
drilled. On October 31, 1995, the arbitrator found that drainage had occurred.
On June 3, 1996, the arbitrator issued a letter indicating that drainage damages
would be awarded to Briones in the amount of approximately $1.4 million. The
arbitrator entered his award of damages on June 27, 1996. On July 3, 1996,
TransTexas filed a petition in the 49th Judicial District Court, Zapata County,
Texas, to vacate the arbitrator's award. Briones also filed a petition to
confirm the arbitrator's award. In April 1997, the court granted Briones' motion
for summary judgment. In August 1997, the court entered a final judgment for
Briones in the amount of approximately $1.6 million. TransTexas' motions for new
trial were denied. TransTexas executed a settlement agreement with Briones in
February 1998.
FINKELSTEIN. On April 15, 1990, H.S. Finkelstein filed suit against
TransAmerican in the 49th Judicial District Court, Zapata County, Texas,
alleging that TransAmerican failed to pay royalties and improperly marketed oil
and gas produced from certain leases. On September 27, 1994, the plaintiff added
TransTexas as an additional defendant. On January 6, 1995, a judgment against
TransAmerican and TransTexas was entered for approximately $18 million in
damages, interest and attorneys' fees. TransTexas and TransAmerican appealed the
judgment to the Fourth Court of Appeals, San Antonio, Texas, which affirmed the
judgment on April 3, 1996. TransTexas and TransAmerican filed a motion for
rehearing. On August 14, 1996, the Fourth Court of Appeals reversed the trial
court judgment and rendered judgment in favor of TransAmerican and TransTexas.
On August 29, 1996, Finkelstein filed a motion for stay and a motion for
rehearing with the court. On October 9, 1996, the court denied Finkelstein's
rehearing request. In November 1996, Finkelstein filed an application for writ
of error with the Supreme Court of Texas. The Texas Supreme Court denied
Finkelstein's application in March 1998. Finkelstein's motion for rehearing was
also denied and the Appellate Court judgment in favor of TransAmerican is now
final.
16. CONSOLIDATED SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(In thousands, except per share data)
YEAR ENDED JANUARY 31, 1999
------------------------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
Revenues.................................. $ 33,467 $ 71,439 $ 32,793 $ 19,067
Operating income (loss)................... 8,488 21,059(1) (162,674) (273,630)
Net income (loss)......................... (6,803) (806) (147,763) (292,361)
Net income (loss) per share -- basic
and diluted............................. (0.12) (0.01) (2.57) (5.08)
47
50
TRANSTEXAS GAS CORPORATION
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEAR ENDED JANUARY 31, 1998
------------------------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
Revenues................................. $ 82,351 $ 575,420 $ 37,233 $ 28,267
Operating income (loss).................. 1,298 531,425(2) 9,586 (12,209)
Net income (loss)........................ (14,538) 262,745 (1,249) (18,757)
Net income (loss) per share -- basic
and diluted............................ (0.20) 3.61 (0.02) (0.33)
YEAR ENDED JANUARY 31, 1997
------------------------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
Revenues................................ $ 95,958 $ 86,732 $ 80,104 $ 143,553
Operating income........................ 25,798 106,696(3) 5,858(4) 48,927
Net income (loss)....................... 3,020 71,561 (9,396) 18,140
Net income (loss) per share -- basic
and diluted........................... 0.04 0.97 (0.13) 0.25
- -----------------------
(1) Operating income for the second quarter of 1999 includes a $47.6
million gain on the sale of assets.
(2) Operating income for the second quarter of 1998 includes a $543 million
gain on the sale of assets.
(3) Operating income for the second quarter of 1997 includes a gain on
settlement of litigation of $96.0 million.
(4) Operating income for the third quarter of 1997 includes litigation
expense of $7.5 million.
17. SUPPLEMENTAL GAS AND OIL DISCLOSURE (UNAUDITED)
The accompanying tables present information concerning TransTexas' gas and
oil producing activities and are prepared in accordance with Statement of
Financial Accounting Standards No. 69, "Disclosures about Oil and Gas Producing
Activities."
Estimates of TransTexas' proved reserves and proved developed reserves
were prepared by Netherland, Sewell & Associates, Inc., an independent firm of
petroleum engineers, based on data supplied to them by TransTexas. Such
estimates are inherently imprecise and may be subject to substantial revisions
as additional information such as reservoir performance, additional drilling,
technological advancements and other factors become available.
Capitalized costs relating to gas and oil producing activities are as
follows (in thousands of dollars):
JANUARY 31,
---------------------------
1999 1998
---------- -----------
Proved properties ....................................................... $ 1,427,608 $ 1,142,195
Unproved properties...................................................... 20,477 104,389
----------- -----------
Total................................................................... 1,448,085 1,246,584
Less accumulated depreciation, depletion and amortization ............... 1,164,224 652,090
----------- -----------
$ 283,861 $ 594,494
=========== ===========
48
51
TRANSTEXAS GAS CORPORATION
(Debtor-in-Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Costs incurred for gas and oil producing activities are as follows (in
thousands of dollars):
YEAR ENDED JANUARY 31,
-------------------------------------------
1999 1998 1997
----------- ------------ -----------
Property acquisitions.................................... $ 13,084 $ 56,205 $ 50,963
Exploration ............................................. 98,294 196,728 100,737
Development ............................................. 77,322 123,273 162,313
------------ ------------ -----------
$ 188,700 $ 376,206 $ 314,013
============ ============ ===========
Results of operations for gas and oil producing activities are as follows
(in thousands of dollars):
YEAR ENDED JANUARY 31,
-------------------------------------------
1999 1998 1997
----------- ------------ -----------
Revenues ................................................ $ 91,319 $ 164,538 $ 363,459
------------ ------------ ----------
Expenses:
Production costs .................................... 22,352 51,346 97,619
Depreciation, depletion and amortization............. 84,883 62,933 122,570
General and administrative........................... 9,767 9,635 8,710
Impairment of gas and oil properties................. 425,966 -- --
Litigation settlement................................ -- -- (96,000)
------------ ------------ ----------
Total operating expenses ............................ 542,968 123,914 132,899
------------ ------------ ----------
Income before income taxes........................... (451,649) 40,624 230,560
Income taxes (benefit)................................... (158,077) 14,218 80,696
------------ ------------ ----------
$ (293,572) $ 26,406 $ 149,864
============ =========== ==========
Depletion rate per net equivalent Mcf.................... $ 1.96 $1.11 $ 0.96
============ =========== ==========
Reserve Quantity Information
Proved reserves are estimated quantities of natural gas, condensate and
natural gas liquids which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions. Proved developed reserves are
those proved reserves that can be expected to be recovered through existing
wells with existing equipment and operating methods. Natural gas quantities
represent gas volumes which include amounts that will be extracted as natural
gas liquids. TransTexas' estimated net proved reserves and proved developed
reserves of natural gas (billions of cubic feet) and condensate (millions of
barrels) are shown in the table below.
YEAR ENDED JANUARY 31,
---------------------------------------------------------
1999 1998 1997
------------------ ----------------- ----------------
GAS OIL GAS OIL GAS OIL
--- --- --- --- --- ---
Proved reserves:
Beginning of year..................... 348.7 15.9 919.7 5.7 1,139.1 2.9
Increase (decrease) during
the year attributable to:
Revisions of previous estimates....... (127.1)(1) (9.7) (103.8) (1.0) 6.5 .1
Extensions, discoveries and other
additions........................... 26.1 2.0 123.7 15.1 90.3 3.6
49
52
TRANSTEXAS GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Sales of reserves..................... (91.4) (.5) (525.8) (3.3) (204.9) (.4)
Purchase of reserves.................. -- -- -- -- 11.3 .1
Production............................ (35.6) (1.1) (65.1) (.6) (122.6) (.6)
------- ------ ------ ------ ------ -----
End of year.............................. 120.7 6.6 348.7 15.9 919.7 5.7
======= ====== ====== ====== ====== ======
Proved developed reserves:
Beginning of year..................... 134.3 4.2 381.5 2.4 425.3 .9
End of year........................... 87.8 5.0 134.3 4.2 381.5 2.4
(1) Reserve estimates were revised downward principally as a result of
additional seismic information which indicated more highly faulted
structures in certain key properties causing reserves to be
reclassified from proved to probable.
Standardized Measure Information
The calculation of estimated future net cash flows in the following table
assumed the continuation of existing economic conditions and applied year-end
prices (except for future price changes as allowed by contract) of gas and
condensate to the expected future production of such reserves, less estimated
future expenditures (based on current costs) to be incurred in developing and
producing those proved reserves.
The standardized measure of discounted future net cash flows does not
purport, nor should it be interpreted, to present the fair market value of
TransTexas' gas and oil reserves. These estimates reflect proved reserves only
and ignore, among other things, changes in prices and costs, revenues that could
result from probable reserves which could become proved reserves in fiscal 2000
or later years and the risks inherent in reserve estimates. The standardized
measure of discounted future net cash flows relating to proved gas and oil
reserves is as follows (in thousands of dollars):
YEAR ENDED JANUARY 31,
-------------------------------------------
1999 1998 1997
----------- ----------- -----------
Future cash inflows ..................................... $ 296,831 $ 898,257 $ 3,051,397
Future production costs ................................. (57,453) (154,725) (506,882)
Future development costs ................................ (33,180) (198,180) (459,326)
Future income taxes ..................................... -- -- (563,812)
----------- ----------- -----------
Future net cash flows.................................... 206,198 545,352 1,521,377
Annual discount (10%) for estimated
timing of cash flows.................................. (44,668) (149,679) (464,121)
----------- ----------- -----------
Standardized measure of discounted
future net cash flows................................. $ 161,530 $ 395,673 $ 1,057,256
=========== =========== ===========
Principal sources of change in the standardized measure of discounted
future net cash flows are as follows (in thousands of dollars):
YEAR ENDED JANUARY 31,
-------------------------------------------
1999 1998 1997
----------- ----------- -----------
Beginning of year ....................................... $ 395,673 $ 1,057,256 $ 608,858
Revisions:
Quantity estimates and production rates ................. (194,041)(1) (215,564) 13,903
Prices, net of lifting costs .......................... (76,157) (348,781) 665,054
Estimated future development costs..................... 58,455 (33,033) (75,622)
50
53
TRANSTEXAS GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Additions, extensions, discoveries and
improved recovery ..................................... 42,184 238,403 209,932
Net sales of production ................................. (73,819) (124,498) (262,066)
Development costs incurred .............................. 77,322 119,944 156,430
Accretion of discount ................................... 39,566 144,909 80,806
Net changes in income taxes.............................. -- 391,812 (192,608)
Sale of a volumetric production payment.................. -- -- (165,949)
Purchases (sales) of reserves............................ (107,653) (834,775) 18,518
----------- ----------- -----------
End of year ........................................... $ 161,530 $ 395,673 $ 1,057,256
=========== =========== ===========
(1) Reserve estimates were revised downward principally as a result of
additional seismic information which indicated more highly faulted
structures in certain key properties causing reserves to be
reclassified from proved to probable.
Year-end wellhead prices received by TransTexas from sales of natural gas,
including margins from natural gas liquids, were $1.79, $1.96 and $3.17 per Mcf
for 1999, 1998 and 1997, respectively. Year-end condensate prices were
$12.12, $13.54 and $23.99 per barrel for 1999, 1998 and 1997, respectively.
51
54
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated by reference from
TransTexas' definitive proxy statement to be filed with the Commission with 120
days after the end of the fiscal year covered by this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from
TransTexas' definitive proxy statement to be filed with the Commission with 120
days after the end of the fiscal year covered by this Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from
TransTexas' definitive proxy statement to be filed with the Commission with 120
days after the end of the fiscal year covered by this Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference from
TransTexas' definitive proxy statement to be filed with the Commission with 120
days after the end of the fiscal year covered by this Form 10-K.
52
55
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
PAGE
----
(a) Financial Statements, Schedules and Exhibits
(1) Report of Independent Accountants........................... 23
Consolidated Balance Sheet.................................. 24
Consolidated Statement of Operations........................ 25
Consolidated Statement of Stockholders' Equity (Deficit).... 26
Consolidated Statement of Cash Flows........................ 27
Notes to Consolidated Financial Statements.................. 28
(2) Report of Independent Accountants........................... 61
Schedule II - Valuation and Qualifying Accounts............. 62
(3) Exhibits
3.1 - Articles of Incorporation (filed as an exhibit to the Company's
Registration Statement on Form S-1 (No. 33-75050), and incorporated
herein by reference).
3.2 - By-laws of TransTexas (filed as an exhibit to the Company's
Registration Statement on Form S-1 (No. 33-75050), and incorporated
herein by reference).
4.1 - Indenture dated as of June 15, 1995, among TransTexas, TTC and American
Bank National Association, as Trustee (the "Indenture Trustee"), with
respect to the Senior Secured Notes including the forms of Senior
Secured Note and Senior Secured Guarantee as exhibits (filed as an
exhibit to TransTexas' current report on Form 8-K dated June 20, 1995,
and incorporated herein by reference).
4.2 - Mortgage, Deed of Trust, Assignment of Production, Security Agreement
and Financing Statement, effective as of June 23, 1995, from TransTexas
to James A. Taylor, as trustee for the benefit of the Indenture Trustee
(filed as an exhibit to TransTexas' current report on Form 8-K dated
June 20, 1995, and incorporated herein by reference).
4.3 - Pipeline Mortgage, Deed of Trust, Assignment, Security Agreement and
Financing Statement, dated as of June 20, 1995, from TTC to James A.
Taylor, as trustee for the benefit of the Indenture Trustee (filed as
an exhibit to TransTexas' current report on Form 8-K dated on June 20,
1995, and incorporated herein by reference).
4.4 - Security Agreement, Pledge and Financing Statement, dated as of June
20, 1995, by TransTexas in favor of the Indenture Trustee (filed as an
exhibit to TransTexas' current report on Form 8-K dated June 20, 1995,
and incorporated herein by reference).
4.5 - Security Agreement, Pledge and Financing Statement, dated as of June
20, 1995, by TTC in favor of the Indenture Trustee (filed as an exhibit
to TransTexas' current report on Form 8-K dated June 20, 1995, and
incorporated herein by reference).
4.6 - Cash Collateral and Disbursement Agreement, dated as of June 20, 1995,
among TransTexas, the Indenture Trustee and the Disbursement Agent
(filed as an exhibit to TransTexas' current report on Form 8-K dated
June 20, 1995, and incorporated herein by reference).
53
56
4.7 - Pledge and Security Agreement dated as of September 19, 1996, between
TransAmerican Exploration Corporation and Fleet National Bank
(previously filed as an exhibit to TransTexas' Form 10-Q for the
quarter ended October 31, 1996, and incorporated herein by reference).
4.8 - Registration Rights Agreement dated as of September 19, 1996, by and
among TransTexas, TransAmerican, TransAmerican Exploration Corporation
and Fleet National Bank (filed as an exhibit to TransTexas' Form 10-Q
for the quarter ended October 31, 1996, and incorporated herein by
reference).
4.9 - Pledge Agreement dated as of February 23, 1995, between TEC and First
Fidelity Bank, National Association, as Trustee (filed as an exhibit to
Post-Effective Amendment No. 5 to TransTexas' Registration Statement on
Form S-3 (33-91494), and incorporated herein by reference).
4.10 - Pledge Agreement dated as of February 23, 1995, between TARC and First
Fidelity Bank, National Association, as Trustee (filed as an exhibit to
Post-Effective Amendment No. 5 to TransTexas' Registration Statement on
Form S-3 (33-91494), and incorporated herein by reference).
4.11 - Registration Rights Agreement dated as of February 23, 1995, among
TransTexas, TARC and TEC (filed as an exhibit to Post-Effective
Amendment No. 5 to the Company's Registration Statement on Form S-3
(33-91494), and incorporated herein by reference).
4.12 - Pledge Agreement dated as of February 23, 1995, among TransAmerican,
TransTexas and Halliburton Company (filed as an exhibit to
Post-Effective Amendment No. 5 to TransTexas' Registration Statement on
Form S-3 (33-91494), and incorporated herein by reference).
4.13 - Pledge Agreement dated as of February 23, 1995, among TransAmerican,
TransTexas and RECO Industries, Inc. (filed as an exhibit to
Post-Effective Amendment No. 5 to TransTexas' Registration Statement on
Form S-3 (33-91494), and incorporated herein by reference).
4.14 - Pledge Agreement dated as of February 23, 1995, among TransAmerican,
TransTexas and Frito-Lay, Inc. (filed as an exhibit to Post-Effective
Amendment No. 5 to TransTexas' Registration Statement on Form S-3
(33-91494), and incorporated herein by reference).
4.15 - Pledge Agreement dated as of February 23, 1995, among TransAmerican,
TransTexas and EM Sector Holdings, Inc. (filed as an exhibit to
Post-Effective Amendment No. 5 to TransTexas' Registration Statement on
Form S-3 (33-91494), and incorporated herein by reference).
4.16 - Stock Pledge Agreement dated January 27, 1995, between TransAmerican
and ITT Commercial Corp. (filed as an exhibit to Post-Effective
Amendment No. 5 to TransTexas' Registration Statement on Form S-3
(33-91494), and incorporated herein by reference).
4.17 - Registration Rights Agreement dated January 27, 1995, among
TransAmerican, TransTexas and ITT Commercial Finance Corp. (filed as an
exhibit to Post-Effective Amendment No. 5 to TransTexas' Registration
Statement on Form S-3 (33-91494), and incorporated herein by
reference).
4.18 - Note Purchase Agreement dated December 13, 1996 between TransTexas and
the Purchasers of 13 1/4% Series A Senior Subordinated Notes due 2003
(filed as an exhibit to Post-Effective Amendment No. 5 to TransTexas'
Registration Statement on Form S-3 (33-91494), and incorporated herein
by reference).
4.19 - Indenture dated December 13, 1996 between TransTexas and Bank One,
Columbus, NA, as Trustee (filed as an exhibit to Post-Effective
Amendment No. 5 to TransTexas' Registration Statement on Form S-3
(33-91494), and incorporated herein by reference).
54
57
4.20 - Registration Rights Agreement dated December 13, 1996 between
TransTexas and each of the Purchasers of the Subordinated Notes (filed
as an exhibit to Post-Effective Amendment No. 5 to TransTexas'
Registration Statement on Form S-3 (33-91494), and incorporated herein
by reference).
4.21 - First Supplemental Indenture dated May 29, 1997 by and among
TransTexas, TTC and Firstar Bank of Minnesota, N.A., as trustee (filed
as an exhibit to TransTexas' current report on Form 8-K dated May 29,
1997, and incorporated herein by reference).
4.22 - Second Supplemental Indenture dated June 13, 1997 between TransTexas,
as issuer, and Firstar Bank of Minnesota, N.A., as trustee (filed as an
exhibit to TransTexas' current report on Form 8-K dated June 13, 1997,
and incorporated herein by reference).
4.23 - Indenture dated June 13, 1997 governing TransTexas' Senior Subordinated
Notes due 2001 between TransTexas, as issuer, and Bank One, N.A., as
trustee (filed as an exhibit to TransTexas' Registration Statement on
Form S-4 (333-33803), and incorporated herein by reference).
4.24 - Registration Rights Agreement dated June 13, 1997 between TransTexas
and the holders of TransTexas' Senior Subordinated Notes due 2001
(filed as an exhibit TransTexas' Registration Statement on Form S-4
(333-33803), and incorporated herein by reference).
4.25 - Loan Agreement dated June 13, 1997 between TransTexas and TEC (filed as
an exhibit to TransTexas' current report on Form 8-K dated June 13,
1997, and incorporated herein by reference).
4.26 - Security and Pledge Agreement dated June 13, 1997 by TransTexas in
favor of TEC (filed as an exhibit to TransTexas' current report on Form
8-K dated June 13, 1997, and incorporated herein by reference).
4.27 - Disbursement Agreement dated June 13, 1997 among TransTexas, TEC and
Firstar Bank of Minnesota, as disbursement agent and Trustee (filed as
an exhibit to TransTexas' current report on Form 8-K dated June 13,
1997, and incorporated herein by reference).
4.28 - Forms of Mortgage dated June 13, 1997 between TransTexas and
TransAmerican Energy Corporation, (filed as an exhibit to TransTexas'
Registration Statement on Form S-4 (333-33803), and incorporated herein
by reference).
4.29 - Intercreditor and Collateral Agency Agreement dated June 13, 1997 among
Firstar Bank of Minnesota, TEC and TransTexas (filed as an exhibit to
TEC's Form 10-Q for the quarter ended July 31, 1997, and incorporated
herein by reference).
4.30 - Registration Rights Agreement dated August 12, 1997, by and among
TransTexas, Firstar Bank of Minnesota, N.A., TEC and TARC (filed as an
exhibit to Post-Effective Amendment No. 6 to TransTexas' Registration
Statement on Form S-4 (33-91494) and incorporated herein by reference).
4.31 - First Supplemental Indenture dated as of September 2, 1997, between
TransTexas, as issuer, and Bank One, N.A., as trustee (filed as an
exhibit to TransTexas' Registration Statement on Form S-4 (333-33803),
and incorporated herein by reference).
4.32 - First Amendment to Loan Agreement dated December 30, 1997 between
TransTexas and TEC (filed as an exhibit to TransTexas' annual report on
Form 10-K for the year ended January 31, 1998, and incorporated herein
by reference).
55
58
4.33 - First Amendment to Disbursement Agreement dated December 30, 1997
between TransTexas, TEC and Firstar Bank of Minnesota, as disbursement
agent and Trustee (filed as an exhibit to TransTexas' annual report on
Form 10-K for the year ended January 31, 1998, and incorporated herein
by reference).
4.34 - Second Amendment dated December 15, 1998 to Loan Agreement between
TransTexas and TEC (filed as an exhibit to TEC's current report on Form
8-K dated February 23, 1999, and incorporated herein by reference).
10.1 - Services Agreement dated August 24, 1993, by and among TransTexas and
TransAmerican (filed as an exhibit to TransTexas' current report on
Form 8-K dated August 24, 1993, and incorporated herein by reference).
10.2 - Tax Allocation Agreement dated August 24, 1993, by and among
TransAmerican, TransTexas, and the other subsidiaries of TransAmerican,
as amended (filed as an exhibit to TransTexas' Registration Statement
on Form S-1 (No. 33-75050), and incorporated herein by reference).
10.3 - Interruptible Gas Sales Terms and Conditions, between TransTexas and
TARC, as amended (filed as an exhibit to TARC's Registration Statement
on Form S-1 (No. 33-82200), and incorporated herein by reference).
10.4 - Bank Group Agreement dated August 24, 1993, by and among TransAmerican,
TransTexas, and the Bank Group (filed as an exhibit to TransTexas'
current report on Form 8-K dated August 24, 1993, and incorporated
herein by reference).
10.5 - Gas Purchase Agreement dated June 8, 1987, by and between TransAmerican
and The Coastal Corporation, as amended by the Amendment to Gas
Purchase Agreement dated February 13, 1990, by and between
TransAmerican and Texcol Gas Services, Inc., as successor to The
Coastal Corporation (filed as an exhibit to TransTexas' Registration
Statement on Form S-1 (No. 33-62740), and incorporated herein by
reference).
10.6 - Gas Purchase Agreement dated October 29, 1987, by and between
TransAmerican and The Coastal Corporation as amended by the Amendment
to Gas Purchase Agreement dated February 13, 1990, by and between
TransAmerican and Texcol Gas Services, Inc., successor to The Coastal
Corporation (filed as an exhibit to TransTexas' Registration Statement
on Form S-1 (No. 33-62740), and incorporated herein by reference).
10.7 - Gas Transportation Agreement dated the Effective Date (as therein
defined), by and between TransAmerican and The Coastal Corporation, as
amended by the Amendment to Gas Transportation Agreement dated February
13, 1990, by and between TransAmerican and Texcol Gas Services, Inc.,
successor to The Coastal Corporation (filed as an exhibit to
TransTexas' Registration Statement on Form S-1 (No. 33-62740), and
incorporated herein by reference).
10.8 - Firm Natural Gas Sales Agreement dated September 30, 1993, by and
between TransTexas and Associated Natural Gas, Inc. (filed as an
exhibit to TransTexas' Form 10-Q for the quarter ended October 31,
1993, and incorporated herein by reference).
10.9 - Form of Indemnification Agreement by and between TransTexas and each of
its directors (filed as an exhibit to TransTexas' current report on
Form 8-K dated August 24, 1993 and incorporated herein by reference).
56
59
10.10 - Gas Purchase Agreement dated November 1, 1985, between TransAmerican
and Washington Gas and Light Company, Frederick Gas Company, Inc., and
Shenandoah Gas Company (filed as an exhibit to TransTexas' Registration
Statement on Form S-1 (No. 33-75050), and incorporated herein by
reference).
10.11 - Natural Gas Sales Agreement between TransTexas and Associated Natural
Gas, Inc. dated September 30, 1993 (filed as an exhibit to TransTexas'
Form 10-Q for the quarter ended October 31, 1993, and incorporated
herein by reference).
10.12 - Amendment Extending Gas Purchase Agreement between TransTexas and
Washington Gas Light Company, Inc., and Shenandoah Gas Company, as
amended, dated November 1, 1993 (filed as an exhibit to TransTexas'
Form 10-Q for the quarter ended January 31, 1994, and incorporated
herein by reference).
10.13 - Agreement for Purchase of Production Payment between TransTexas and
Southern States Exploration, Inc. dated April 1, 1994 (filed as an
exhibit to TransTexas' Form 10-Q for the quarter ended April 30, 1994,
and incorporated herein by reference).
10.14 - Assignment of Proceeds Production Payment between TransTexas and
Southern States Exploration, Inc. dated April 1, 1994 (filed as an
exhibit to TransTexas' Form 10-Q for the quarter ended April 30, 1994,
and incorporated herein by reference).
10.15 - Transfer Agreement dated August 24, 1993, by and among TransAmerican,
TransTexas, TTC, and John R. Stanley (filed as an exhibit to
TransTexas' current report on Form 8-K dated August 24, 1993, and
incorporated herein by reference).
10.16 - Amended and Restated Accounts Receivable Management and Security
Agreement between TransTexas and BNY Financial Corporation (filed as an
exhibit to TransTexas' Form 10-Q for the quarter ended October 31,
1995, and incorporated herein by reference).
10.17 - Note Purchase Agreement, dated as of May 10, 1996, among TransTexas,
TCW Shared Opportunity Fund II, L.P. and Jefferies & Company, Inc.
(filed as an exhibit to the Company's Form 10-Q for the quarter ended
April 30, 1996, and incorporated herein by reference).
10.18 - Master Swap Agreement, dated June 6, 1996, between TransTexas and AIG
Trading Corporation (filed as an exhibit to TransTexas' Form 10-Q for
the quarter ended April 30, 1996, and incorporated herein by
reference).
10.19 - Purchase Agreement, dated January 30, 1996, between TransTexas and
Sunflower Energy Finance Company (filed as an exhibit to TransTexas'
Form 10-Q for the quarter ended April 30, 1996, and incorporated herein
by reference).
10.20 - Production Payment Conveyance, executed on January 30, 1996, from
TransTexas to Sunflower Energy Finance Company (filed as an exhibit to
TransTexas' Form 10-Q for the quarter ended April 30, 1996, and
incorporated herein by reference).
10.21 - First Supplement to Purchase Agreement, dated as of February 12, 1996,
among TransTexas, Sunflower Energy Finance Company and TCW Portfolio
No. 1555 DR V Sub-Custody Partnership, L.P. (filed as an exhibit to
TransTexas' Form 10-Q for the quarter ended April 30, 1996, and
incorporated herein by reference).
10.22 - First Supplement to Production Payment Conveyance, executed February
12, 1996, among TransTexas, Sunflower Energy Finance Company and TCW
Portfolio No. 1555 DR V Sub-Custody Partnership, L.P. (filed as an
exhibit to TransTexas' Form 10-Q for the quarter ended April 30, 1996,
and incorporated herein by reference).
57
60
10.23 - Purchase Agreement, dated May 14, 1996, among TransTexas, TCW Portfolio
No. 1555 DR V Sub-Custody Partnership, L.P. and Sunflower Energy
Finance Company (filed as an exhibit to TransTexas' Form 10-Q for the
quarter ended April 30, 1996, and incorporated herein by reference).
10.24 - Production Payment Conveyance, executed May 14, 1996, from TransTexas
to TCW Portfolio No. 1555 Dr V Sub-Custody Partnership, L.P. and
Sunflower Energy Finance Company (filed as an exhibit to TransTexas'
Form 10-Q for the quarter ended April 30, 1996, and incorporated herein
by reference).
10.25 - Employment Agreement between TransTexas and Richard Bianchi dated
August 12, 1996 (filed as an exhibit to TransTexas' Form 10-Q for the
quarter ended October 31, 1996, and incorporated herein by reference).
10.26 - Employment Agreement between TransTexas and Arnold Brackenridge dated
August 12, 1996 (filed as an exhibit to TransTexas' Form 10-Q for the
quarter ended October 31, 1996, and incorporated herein by reference).
10.27 - Stock Purchase Agreement dated as of May 29, 1997 by and between
TransTexas and First Union Bank of Connecticut, as trustee (filed as an
exhibit to TransTexas' current report on Form 8-K dated May 29, 1997,
and incorporated herein by reference).
10.28 - Interruptible Gas Transportation Agreement dated Effective March 1,
1997 between TransTexas, as shipper, and Lobo Pipeline Company, as
transporter (filed an exhibit to TransTexas' Form 10-Q for the quarter
ended July 31, 1997, and incorporated herein by reference).
10.29 - Intrastate Firm Gas Transportation Agreement dated effective March 1,
1997 between TransTexas, as shipper, and Lobo Pipeline Company, as
transporter (filed an exhibit to TransTexas' Form 10-Q for the quarter
ended July 31, 1997, and incorporated herein by reference).
10.30 - Master Services Contract dated May 30, 1997 between Conoco Inc. and
TransTexas (filed an exhibit to TransTexas' Form 10-Q for the quarter
ended July 31, 1997, and incorporated herein by reference).
10.31 - Agreement for Services dated effective March 1, 1997 between Conoco
Inc. and TransTexas (filed an exhibit to TransTexas' Form 10-Q for the
quarter ended July 31, 1997, and incorporated herein by reference).
10.32 - Services Agreement dated June 13, 1997 among TNGC Holdings Corporation,
TransAmerican, TEC, TARC, TransTexas and TTXD (filed an an exhibit to
TransTexas' Form 10-Q for the quarter ended July 31, 1997, and
incorporated herein by reference).
10.33 - Amendment No. 3 to Tax Allocation Agreement dated May 29, 1997 (filed
an an exhibit to TransTexas' Form 10-Q for the quarter ended July 31,
1997, and incorporated herein by reference).
10.34 - Amendment No. 4 to Tax Allocation Agreement dated June 13, 1997 (filed
an an exhibit to TransTexas' Form 10-Q for the quarter ended July 31,
1997, and incorporated herein by reference).
10.35 - Amendment No. 2 to Transfer Agreement dated May 29, 1997 (filed an an
exhibit to TransTexas' Form 10-Q for the quarter ended July 31, 1997,
and incorporated herein by reference).
10.36 - Amendment No. 3 to Transfer Agreement dated June 13, 1997 (filed an an
exhibit to TransTexas' Form 10-Q for the quarter ended July 31, 1997,
and incorporated herein by reference).
58
61
10.37 - Second Amended and Restated Accounts Receivable Management Agreement
dated October 14, 1997 between TransTexas and BNY Financial
Corporation (filed as an exhibit to TransTexas' Form 10-Q for the
quarter ended October 31, 1997, and incorporated herein by reference).
10.38 - Employment Agreement dated December 1, 1997 between TransTexas and
Arnold Brackenridge (filed as an exhibit to TransTexas' annual report
on Form 10-K for the year ended January 31, 1998, and incorporated
herein by reference).
10.39 - Employment Agreement Settlement dated April 28, 1998 between
TransTexas and Richard Bianchi (filed as an exhibit to TransTexas'
annual report on Form 10-K for the year ended January 31, 1998, and
incorporated herein by reference).
10.40 - Severance Agreement dated November 21, 1997 between TransTexas and Lee
Muncy (filed as an exhibit to TransTexas' annual report on Form 10-K
for the year ended January 31, 1998, and incorporated herein by
reference).
10.41 - Purchase Agreement dated February 23, 1998 between TransTexas and TCW
(filed as an exhibit to TransTexas' annual report on Form 10-K for the
year ended January 31, 1998, and incorporated herein by reference).
10.42 - Production Payment Conveyance dated February 23, 1998 between
TransTexas and TCW (filed as an exhibit to TransTexas' annual report
on Form 10-K for the year ended January 31, 1998, and incorporated
herein by reference).
10.43 - Asset Purchase Agreement dated May 26, 1998 by and among TransTexas,
Bayard Drilling, L.P. and Bayard Drilling Technologies, Inc. (Filed as
an exhibit to TransTexas' current report on Form 8-K dated June 26,
1998, and incorporated herein by reference).
*10.44 - Employment Agreement between the Company and John R. Stanley dated
November 1, 1998.
*10.45 - Employment Agreement between the Company and Ed Donahue dated
December 1, 1998.
*10.46 - Credit Agreement dated April 27, 1999 among TransTexas, Credit Suisse
First Boston Management Corporation, the Lenders named therein and TEC
and TARC, as guarantors.
*21.1 - Schedule of Subsidiaries of TransTexas.
*23.1 - Consent of PricewaterhouseCoopers LLP.
*23.2 - Consent of Netherland, Sewell & Associates, Inc.
*27.1 - Financial Data Schedule.
- ------------------------
*filed herewith
(b) There were no reports on Form 8-K filed during the three months ended
January 31, 1999.
59
62
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on May 17, 1999.
TRANSTEXAS GAS CORPORATION
By: /s/ JOHN R. STANLEY
-----------------------------------------
John R. Stanley, Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities indicated on May 17, 1999.
NAME TITLE
/s/ JOHN R. STANLEY Director and Chief Executive Officer
- ------------------------------------- (Principal Executive Officer)
John R. Stanley
/s/ THOMAS B. MCDADE Director and Chairman of the Board
- -------------------------------------
Thomas B. McDade
/s/ JAMES V. LANGSTON Director
- -------------------------------------
James V. Langston
/s/ ROBERT L. MAY Director
- -------------------------------------
Robert L. May
/s/ EDWIN B. DONAHUE Vice President and Chief Financial Officer
- ------------------------------------- (Principal Financial and Accounting
Edwin B. Donahue Officer)
60
63
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
TransTexas Gas Corporation:
Our report on the consolidated financial statements of TransTexas Gas
Corporation, which includes an explanatory paragraph regarding the Company's
ability to continue as a going concern, is included on page 23 of this Form
10-K. In connection with our audits of such financial statements, we have also
audited the related financial statement schedule listed in the index on page 53
of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
PricewaterhouseCoopers LLP
Houston, Texas
May 20, 1999
61
64
SCHEDULE II
TRANSTEXAS GAS CORPORATION
(Debtor-in-Possession)
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS OF DOLLARS)
BALANCE AT BALANCE AT
BEGINNING ADDITIONS OTHER END
DESCRIPTION OF PERIOD AT COSTS RETIREMENTS CHANGES OF PERIOD
----------- --------- -------- ----------- ------- ---------
Year ended January 31, 1997:
Valuation allowance -
long-term receivables $ 1,230 $ 516 $ 1,746 $ -- $ --
=========== ======== ========= ========= ============
Year ended January 31, 1998:
Valuation allowance -
long-term receivables $ -- $ -- $ -- $ -- $ --
=========== ======== ========= ========= ============
Year ended January 31, 1999:
Valuation allowance -
long-term receivables $ -- $ 191 $ -- $ -- $ 191
=========== ======== ========= ========= ============
62
65
INDEX TO EXHIBITS
-----------------
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
3.1 - Articles of Incorporation (filed as an exhibit to the Company's
Registration Statement on Form S-1 (No. 33-75050), and incorporated
herein by reference).
3.2 - By-laws of TransTexas (filed as an exhibit to the Company's
Registration Statement on Form S-1 (No. 33-75050), and incorporated
herein by reference).
4.1 - Indenture dated as of June 15, 1995, among TransTexas, TTC and American
Bank National Association, as Trustee (the "Indenture Trustee"), with
respect to the Senior Secured Notes including the forms of Senior
Secured Note and Senior Secured Guarantee as exhibits (filed as an
exhibit to TransTexas' current report on Form 8-K dated June 20, 1995,
and incorporated herein by reference).
4.2 - Mortgage, Deed of Trust, Assignment of Production, Security Agreement
and Financing Statement, effective as of June 23, 1995, from TransTexas
to James A. Taylor, as trustee for the benefit of the Indenture Trustee
(filed as an exhibit to TransTexas' current report on Form 8-K dated
June 20, 1995, and incorporated herein by reference).
4.3 - Pipeline Mortgage, Deed of Trust, Assignment, Security Agreement and
Financing Statement, dated as of June 20, 1995, from TTC to James A.
Taylor, as trustee for the benefit of the Indenture Trustee (filed as
an exhibit to TransTexas' current report on Form 8-K dated on June 20,
1995, and incorporated herein by reference).
4.4 - Security Agreement, Pledge and Financing Statement, dated as of June
20, 1995, by TransTexas in favor of the Indenture Trustee (filed as an
exhibit to TransTexas' current report on Form 8-K dated June 20, 1995,
and incorporated herein by reference).
4.5 - Security Agreement, Pledge and Financing Statement, dated as of June
20, 1995, by TTC in favor of the Indenture Trustee (filed as an exhibit
to TransTexas' current report on Form 8-K dated June 20, 1995, and
incorporated herein by reference).
4.6 - Cash Collateral and Disbursement Agreement, dated as of June 20, 1995,
among TransTexas, the Indenture Trustee and the Disbursement Agent
(filed as an exhibit to TransTexas' current report on Form 8-K dated
June 20, 1995, and incorporated herein by reference).
66
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
4.7 - Pledge and Security Agreement dated as of September 19, 1996, between
TransAmerican Exploration Corporation and Fleet National Bank
(previously filed as an exhibit to TransTexas' Form 10-Q for the
quarter ended October 31, 1996, and incorporated herein by reference).
4.8 - Registration Rights Agreement dated as of September 19, 1996, by and
among TransTexas, TransAmerican, TransAmerican Exploration Corporation
and Fleet National Bank (filed as an exhibit to TransTexas' Form 10-Q
for the quarter ended October 31, 1996, and incorporated herein by
reference).
4.9 - Pledge Agreement dated as of February 23, 1995, between TEC and First
Fidelity Bank, National Association, as Trustee (filed as an exhibit to
Post-Effective Amendment No. 5 to TransTexas' Registration Statement on
Form S-3 (33-91494), and incorporated herein by reference).
4.10 - Pledge Agreement dated as of February 23, 1995, between TARC and First
Fidelity Bank, National Association, as Trustee (filed as an exhibit to
Post-Effective Amendment No. 5 to TransTexas' Registration Statement on
Form S-3 (33-91494), and incorporated herein by reference).
4.11 - Registration Rights Agreement dated as of February 23, 1995, among
TransTexas, TARC and TEC (filed as an exhibit to Post-Effective
Amendment No. 5 to the Company's Registration Statement on Form S-3
(33-91494), and incorporated herein by reference).
4.12 - Pledge Agreement dated as of February 23, 1995, among TransAmerican,
TransTexas and Halliburton Company (filed as an exhibit to
Post-Effective Amendment No. 5 to TransTexas' Registration Statement on
Form S-3 (33-91494), and incorporated herein by reference).
4.13 - Pledge Agreement dated as of February 23, 1995, among TransAmerican,
TransTexas and RECO Industries, Inc. (filed as an exhibit to
Post-Effective Amendment No. 5 to TransTexas' Registration Statement on
Form S-3 (33-91494), and incorporated herein by reference).
4.14 - Pledge Agreement dated as of February 23, 1995, among TransAmerican,
TransTexas and Frito-Lay, Inc. (filed as an exhibit to Post-Effective
Amendment No. 5 to TransTexas' Registration Statement on Form S-3
(33-91494), and incorporated herein by reference).
4.15 - Pledge Agreement dated as of February 23, 1995, among TransAmerican,
TransTexas and EM Sector Holdings, Inc. (filed as an exhibit to
Post-Effective Amendment No. 5 to TransTexas' Registration Statement on
Form S-3 (33-91494), and incorporated herein by reference).
4.16 - Stock Pledge Agreement dated January 27, 1995, between TransAmerican
and ITT Commercial Corp. (filed as an exhibit to Post-Effective
Amendment No. 5 to TransTexas' Registration Statement on Form S-3
(33-91494), and incorporated herein by reference).
4.17 - Registration Rights Agreement dated January 27, 1995, among
TransAmerican, TransTexas and ITT Commercial Finance Corp. (filed as an
exhibit to Post-Effective Amendment No. 5 to TransTexas' Registration
Statement on Form S-3 (33-91494), and incorporated herein by
reference).
4.18 - Note Purchase Agreement dated December 13, 1996 between TransTexas and
the Purchasers of 13 1/4% Series A Senior Subordinated Notes due 2003
(filed as an exhibit to Post-Effective Amendment No. 5 to TransTexas'
Registration Statement on Form S-3 (33-91494), and incorporated herein
by reference).
4.19 - Indenture dated December 13, 1996 between TransTexas and Bank One,
Columbus, NA, as Trustee (filed as an exhibit to Post-Effective
Amendment No. 5 to TransTexas' Registration Statement on Form S-3
(33-91494), and incorporated herein by reference).
67
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
4.20 - Registration Rights Agreement dated December 13, 1996 between
TransTexas and each of the Purchasers of the Subordinated Notes (filed
as an exhibit to Post-Effective Amendment No. 5 to TransTexas'
Registration Statement on Form S-3 (33-91494), and incorporated herein
by reference).
4.21 - First Supplemental Indenture dated May 29, 1997 by and among
TransTexas, TTC and Firstar Bank of Minnesota, N.A., as trustee (filed
as an exhibit to TransTexas' current report on Form 8-K dated May 29,
1997, and incorporated herein by reference).
4.22 - Second Supplemental Indenture dated June 13, 1997 between TransTexas,
as issuer, and Firstar Bank of Minnesota, N.A., as trustee (filed as an
exhibit to TransTexas' current report on Form 8-K dated June 13, 1997,
and incorporated herein by reference).
4.23 - Indenture dated June 13, 1997 governing TransTexas' Senior Subordinated
Notes due 2001 between TransTexas, as issuer, and Bank One, N.A., as
trustee (filed as an exhibit to TransTexas' Registration Statement on
Form S-4 (333-33803), and incorporated herein by reference).
4.24 - Registration Rights Agreement dated June 13, 1997 between TransTexas
and the holders of TransTexas' Senior Subordinated Notes due 2001
(filed as an exhibit TransTexas' Registration Statement on Form S-4
(333-33803), and incorporated herein by reference).
4.25 - Loan Agreement dated June 13, 1997 between TransTexas and TEC (filed as
an exhibit to TransTexas' current report on Form 8-K dated June 13,
1997, and incorporated herein by reference).
4.26 - Security and Pledge Agreement dated June 13, 1997 by TransTexas in
favor of TEC (filed as an exhibit to TransTexas' current report on Form
8-K dated June 13, 1997, and incorporated herein by reference).
4.27 - Disbursement Agreement dated June 13, 1997 among TransTexas, TEC and
Firstar Bank of Minnesota, as disbursement agent and Trustee (filed as
an exhibit to TransTexas' current report on Form 8-K dated June 13,
1997, and incorporated herein by reference).
4.28 - Forms of Mortgage dated June 13, 1997 between TransTexas and
TransAmerican Energy Corporation, (filed as an exhibit to TransTexas'
Registration Statement on Form S-4 (333-33803), and incorporated herein
by reference).
4.29 - Intercreditor and Collateral Agency Agreement dated June 13, 1997 among
Firstar Bank of Minnesota, TEC and TransTexas (filed as an exhibit to
TEC's Form 10-Q for the quarter ended July 31, 1997, and incorporated
herein by reference).
4.30 - Registration Rights Agreement dated August 12, 1997, by and among
TransTexas, Firstar Bank of Minnesota, N.A., TEC and TARC (filed as an
exhibit to Post-Effective Amendment No. 6 to TransTexas' Registration
Statement on Form S-4 (33-91494) and incorporated herein by reference).
4.31 - First Supplemental Indenture dated as of September 2, 1997, between
TransTexas, as issuer, and Bank One, N.A., as trustee (filed as an
exhibit to TransTexas' Registration Statement on Form S-4 (333-33803),
and incorporated herein by reference).
4.32 - First Amendment to Loan Agreement dated December 30, 1997 between
TransTexas and TEC (filed as an exhibit to TransTexas' annual report on
Form 10-K for the year ended January 31, 1998, and incorporated herein
by reference).
68
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
4.33 - First Amendment to Disbursement Agreement dated December 30, 1997
between TransTexas, TEC and Firstar Bank of Minnesota, as disbursement
agent and Trustee (filed as an exhibit to TransTexas' annual report on
Form 10-K for the year ended January 31, 1998, and incorporated herein
by reference).
4.34 - Second Amendment dated December 15, 1998 to Loan Agreement between
TransTexas and TEC (filed as an exhibit to TEC's current report on Form
8-K dated February 23, 1999, and incorporated herein by reference).
10.1 - Services Agreement dated August 24, 1993, by and among TransTexas and
TransAmerican (filed as an exhibit to TransTexas' current report on
Form 8-K dated August 24, 1993, and incorporated herein by reference).
10.2 - Tax Allocation Agreement dated August 24, 1993, by and among
TransAmerican, TransTexas, and the other subsidiaries of TransAmerican,
as amended (filed as an exhibit to TransTexas' Registration Statement
on Form S-1 (No. 33-75050), and incorporated herein by reference).
10.3 - Interruptible Gas Sales Terms and Conditions, between TransTexas and
TARC, as amended (filed as an exhibit to TARC's Registration Statement
on Form S-1 (No. 33-82200), and incorporated herein by reference).
10.4 - Bank Group Agreement dated August 24, 1993, by and among TransAmerican,
TransTexas, and the Bank Group (filed as an exhibit to TransTexas'
current report on Form 8-K dated August 24, 1993, and incorporated
herein by reference).
10.5 - Gas Purchase Agreement dated June 8, 1987, by and between TransAmerican
and The Coastal Corporation, as amended by the Amendment to Gas
Purchase Agreement dated February 13, 1990, by and between
TransAmerican and Texcol Gas Services, Inc., as successor to The
Coastal Corporation (filed as an exhibit to TransTexas' Registration
Statement on Form S-1 (No. 33-62740), and incorporated herein by
reference).
10.6 - Gas Purchase Agreement dated October 29, 1987, by and between
TransAmerican and The Coastal Corporation as amended by the Amendment
to Gas Purchase Agreement dated February 13, 1990, by and between
TransAmerican and Texcol Gas Services, Inc., successor to The Coastal
Corporation (filed as an exhibit to TransTexas' Registration Statement
on Form S-1 (No. 33-62740), and incorporated herein by reference).
10.7 - Gas Transportation Agreement dated the Effective Date (as therein
defined), by and between TransAmerican and The Coastal Corporation, as
amended by the Amendment to Gas Transportation Agreement dated February
13, 1990, by and between TransAmerican and Texcol Gas Services, Inc.,
successor to The Coastal Corporation (filed as an exhibit to
TransTexas' Registration Statement on Form S-1 (No. 33-62740), and
incorporated herein by reference).
10.8 - Firm Natural Gas Sales Agreement dated September 30, 1993, by and
between TransTexas and Associated Natural Gas, Inc. (filed as an
exhibit to TransTexas' Form 10-Q for the quarter ended October 31,
1993, and incorporated herein by reference).
10.9 - Form of Indemnification Agreement by and between TransTexas and each of
its directors (filed as an exhibit to TransTexas' current report on
Form 8-K dated August 24, 1993 and incorporated herein by reference).
69
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
10.10 - Gas Purchase Agreement dated November 1, 1985, between TransAmerican
and Washington Gas and Light Company, Frederick Gas Company, Inc., and
Shenandoah Gas Company (filed as an exhibit to TransTexas' Registration
Statement on Form S-1 (No. 33-75050), and incorporated herein by
reference).
10.11 - Natural Gas Sales Agreement between TransTexas and Associated Natural
Gas, Inc. dated September 30, 1993 (filed as an exhibit to TransTexas'
Form 10-Q for the quarter ended October 31, 1993, and incorporated
herein by reference).
10.12 - Amendment Extending Gas Purchase Agreement between TransTexas and
Washington Gas Light Company, Inc., and Shenandoah Gas Company, as
amended, dated November 1, 1993 (filed as an exhibit to TransTexas'
Form 10-Q for the quarter ended January 31, 1994, and incorporated
herein by reference).
10.13 - Agreement for Purchase of Production Payment between TransTexas and
Southern States Exploration, Inc. dated April 1, 1994 (filed as an
exhibit to TransTexas' Form 10-Q for the quarter ended April 30, 1994,
and incorporated herein by reference).
10.14 - Assignment of Proceeds Production Payment between TransTexas and
Southern States Exploration, Inc. dated April 1, 1994 (filed as an
exhibit to TransTexas' Form 10-Q for the quarter ended April 30, 1994,
and incorporated herein by reference).
10.15 - Transfer Agreement dated August 24, 1993, by and among TransAmerican,
TransTexas, TTC, and John R. Stanley (filed as an exhibit to
TransTexas' current report on Form 8-K dated August 24, 1993, and
incorporated herein by reference).
10.16 - Amended and Restated Accounts Receivable Management and Security
Agreement between TransTexas and BNY Financial Corporation (filed as an
exhibit to TransTexas' Form 10-Q for the quarter ended October 31,
1995, and incorporated herein by reference).
10.17 - Note Purchase Agreement, dated as of May 10, 1996, among TransTexas,
TCW Shared Opportunity Fund II, L.P. and Jefferies & Company, Inc.
(filed as an exhibit to the Company's Form 10-Q for the quarter ended
April 30, 1996, and incorporated herein by reference).
10.18 - Master Swap Agreement, dated June 6, 1996, between TransTexas and AIG
Trading Corporation (filed as an exhibit to TransTexas' Form 10-Q for
the quarter ended April 30, 1996, and incorporated herein by
reference).
10.19 - Purchase Agreement, dated January 30, 1996, between TransTexas and
Sunflower Energy Finance Company (filed as an exhibit to TransTexas'
Form 10-Q for the quarter ended April 30, 1996, and incorporated herein
by reference).
10.20 - Production Payment Conveyance, executed on January 30, 1996, from
TransTexas to Sunflower Energy Finance Company (filed as an exhibit to
TransTexas' Form 10-Q for the quarter ended April 30, 1996, and
incorporated herein by reference).
10.21 - First Supplement to Purchase Agreement, dated as of February 12, 1996,
among TransTexas, Sunflower Energy Finance Company and TCW Portfolio
No. 1555 DR V Sub-Custody Partnership, L.P. (filed as an exhibit to
TransTexas' Form 10-Q for the quarter ended April 30, 1996, and
incorporated herein by reference).
10.22 - First Supplement to Production Payment Conveyance, executed February
12, 1996, among TransTexas, Sunflower Energy Finance Company and TCW
Portfolio No. 1555 DR V Sub-Custody Partnership, L.P. (filed as an
exhibit to TransTexas' Form 10-Q for the quarter ended April 30, 1996,
and incorporated herein by reference).
70
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
10.23 - Purchase Agreement, dated May 14, 1996, among TransTexas, TCW Portfolio
No. 1555 DR V Sub- Custody Partnership, L.P. and Sunflower Energy
Finance Company (filed as an exhibit to TransTexas' Form 10-Q for the
quarter ended April 30, 1996, and incorporated herein by reference).
10.24 - Production Payment Conveyance, executed May 14, 1996, from TransTexas
to TCW Portfolio No. 1555 Dr V Sub-Custody Partnership, L.P. and
Sunflower Energy Finance Company (filed as an exhibit to TransTexas'
Form 10-Q for the quarter ended April 30, 1996, and incorporated herein
by reference).
10.25 - Employment Agreement between TransTexas and Richard Bianchi dated
August 12, 1996 (filed as an exhibit to TransTexas' Form 10-Q for the
quarter ended October 31, 1996, and incorporated herein by reference).
10.26 - Employment Agreement between TransTexas and Arnold Brackenridge dated
August 12, 1996 (filed as an exhibit to TransTexas' Form 10-Q for the
quarter ended October 31, 1996, and incorporated herein by reference).
10.27 - Stock Purchase Agreement dated as of May 29, 1997 by and between
TransTexas and First Union Bank of Connecticut, as trustee (filed as an
exhibit to TransTexas' current report on Form 8-K dated May 29, 1997,
and incorporated herein by reference).
10.28 - Interruptible Gas Transportation Agreement dated Effective March 1,
1997 between TransTexas, as shipper, and Lobo Pipeline Company, as
transporter (filed an exhibit to TransTexas' Form 10-Q for the quarter
ended July 31, 1997, and incorporated herein by reference).
10.29 - Intrastate Firm Gas Transportation Agreement dated effective March 1,
1997 between TransTexas, as shipper, and Lobo Pipeline Company, as
transporter (filed an exhibit to TransTexas' Form 10-Q for the quarter
ended July 31, 1997, and incorporated herein by reference).
10.30 - Master Services Contract dated May 30, 1997 between Conoco Inc. and
TransTexas (filed an exhibit to TransTexas' Form 10-Q for the quarter
ended July 31, 1997, and incorporated herein by reference).
10.31 - Agreement for Services dated effective March 1, 1997 between Conoco
Inc. and TransTexas (filed an exhibit to TransTexas' Form 10-Q for the
quarter ended July 31, 1997, and incorporated herein by reference).
10.32 - Services Agreement dated June 13, 1997 among TNGC Holdings Corporation,
TransAmerican, TEC, TARC, TransTexas and TTXD (filed an an exhibit to
TransTexas' Form 10-Q for the quarter ended July 31, 1997, and
incorporated herein by reference).
10.33 - Amendment No. 3 to Tax Allocation Agreement dated May 29, 1997 (filed
an an exhibit to TransTexas' Form 10-Q for the quarter ended July 31,
1997, and incorporated herein by reference).
10.34 - Amendment No. 4 to Tax Allocation Agreement dated June 13, 1997 (filed
an an exhibit to TransTexas' Form 10-Q for the quarter ended July 31,
1997, and incorporated herein by reference).
10.35 - Amendment No. 2 to Transfer Agreement dated May 29, 1997 (filed an an
exhibit to TransTexas' Form 10-Q for the quarter ended July 31, 1997,
and incorporated herein by reference).
10.36 - Amendment No. 3 to Transfer Agreement dated June 13, 1997 (filed an an
exhibit to TransTexas' Form 10-Q for the quarter ended July 31, 1997,
and incorporated herein by reference).
71
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
10.37 - Second Amended and Restated Accounts Receivable Management Agreement
dated October 14, 1997 between TransTexas and BNY Financial Corporation
(filed as an exhibit to TransTexas' Form 10-Q for the quarter ended
October 31, 1997, and incorporated herein by reference).
10.38 - Employment Agreement dated December 1, 1997 between TransTexas and
Arnold Brackenridge (filed as an exhibit to TransTexas' annual report
on Form 10-K for the year ended January 31, 1998, and incorporated
herein by reference).
10.39 - Employment Agreement Settlement dated April 28, 1998 between TransTexas
and Richard Bianchi (filed as an exhibit to TransTexas' annual report
on Form 10-K for the year ended January 31, 1998, and incorporated
herein by reference).
10.40 - Severance Agreement dated November 21, 1997 between TransTexas and Lee
Muncy (filed as an exhibit to TransTexas' annual report on Form 10-K
for the year ended January 31, 1998, and incorporated herein by
reference).
10.41 - Purchase Agreement dated February 23, 1998 between TransTexas and TCW
(filed as an exhibit to TransTexas' annual report on Form 10-K for the
year ended January 31, 1998, and incorporated herein by reference).
10.42 - Production Payment Conveyance dated February 23, 1998 between
TransTexas and TCW (filed as an exhibit to TransTexas' annual report on
Form 10-K for the year ended January 31, 1998, and incorporated herein
by reference).
10.43 - Asset Purchase Agreement dated May 26, 1998 by and among TransTexas,
Bayard Drilling, L.P. and Bayard Drilling Technologies, Inc. (Filed as
an exhibit to TransTexas' current report on Form 8-K dated June 26,
1998, and incorporated herein by reference).
*10.44 - Employment Agreement between the Company and John R. Stanley dated
November 1, 1998.
*10.45 - Employment Agreement between the Company and Ed Donahue dated
December 1, 1998.
*10.46 - Credit Agreement dated April 27, 1999 among TransTexas, Credit Suisse
First Boston Management Corporation, the Lenders named therein and TEC
and TARC, as guarantors.
*21.1 - Schedule of Subsidiaries of TransTexas.
*23.1 - Consent of PricewaterhouseCoopers LLP
*23.2 - Consent of Netherland, Sewell & Associates, Inc
*27.1 - Financial Data Schedule
- -------------------
*filed herewith