-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GSqGr6KsZ2setWOwigC2IRoxSDeW0GKs3xiLk4m6OhkXuBxXW0iWUzBXGO9Oj8YK YoV8yZrxUOqqp3yUIMmiAQ== 0000950129-03-002398.txt : 20030501 0000950129-03-002398.hdr.sgml : 20030501 20030501170338 ACCESSION NUMBER: 0000950129-03-002398 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20030131 FILED AS OF DATE: 20030501 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRANSTEXAS GAS CORP CENTRAL INDEX KEY: 0000904977 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 760401023 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-12204 FILM NUMBER: 03677498 BUSINESS ADDRESS: STREET 1: 1300 NORTH SAM HOUSTON PARKWAY EAST STREET 2: STE 310 CITY: HOUSTON STATE: TX ZIP: 77032 BUSINESS PHONE: 2819878600 MAIL ADDRESS: STREET 1: 1300 NORTH SAM HOUSTON PARKWAY EAST STREET 2: SUITE 310 CITY: HOUSTON STATE: TX ZIP: 77032-2949 10-K 1 h05322e10vk.txt TRANSTEXAS GAS CORPORATION - YEAR ENDED 01/31/2003 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JANUARY 31, 2003 ----------------------- COMMISSION FILE NUMBER 0-30475 TRANSTEXAS GAS CORPORATION 1300 NORTH SAM HOUSTON PARKWAY EAST SUITE 310 HOUSTON, TEXAS 77032-2949 Registrant's telephone number, including area code: (281) 987-8600 DELAWARE 76-0401023 (State of incorporation) (I.R.S. employer identification no.) ----------------------- Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: CLASS A COMMON STOCK, $0.01 PAR VALUE SERIES A SENIOR PREFERRED STOCK, $0.001 PAR VALUE ----------------------- 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. [X] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [ ] No [X] Indicate by check mark whether the registrant has filed all documents required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes [X] No [ ] The aggregate market value of the common stock held by non-affiliates of the registrant on April 30, 2003 was $6,979,371. The number of shares of Class A Common Stock of the registrant outstanding on April 30, 2003 was 63,448,830. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's definitive proxy statement to be filed with the Commission not later than 120 days after the end of the fiscal year covered by this Form 10-K in connection with the registrant's 2003 annual meeting of stockholders are incorporated by reference into Part III of this Form 10-K. ================================================================================ TABLE OF CONTENTS
Page ---- PART I Item 1. Business.......................................................................... 3 Item 2. Properties........................................................................ 7 Item 3. Legal Proceedings................................................................. 8 Item 4. Submission of Matters to a Vote of Security Holders............................... 8 Executive Officers of the Registrant.............................................. 8 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters............. 9 Item 6. Selected Financial Data........................................................... 10 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations..................................................................... 11 Item 7A. Quantitative and Qualitative Disclosures About Market Risk........................ 19 Item 8. Financial Statements and Supplementary Data....................................... 20 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure..................................................................... 48 PART III Item 10. Directors and Executive Officers of the Registrant................................ 48 Item 11. Executive Compensation............................................................ 48 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.................................................... 48 Item 13. Certain Relationships and Related Transactions.................................... 48 Item 14. Controls and Procedures........................................................... 48 PART IV Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K................... 49
PART I ITEM 1. BUSINESS GENERAL TransTexas Gas Corporation (debtor in possession) (the "Company" or "TransTexas"), a Delaware corporation incorporated in 1993, is engaged in the exploration for and development and production of natural gas and condensate, primarily along the Upper Texas Gulf Coast. TransTexas' business strategy is to utilize its experience in drilling and operating wells to find, develop and produce reserves at a low cost. The Company's long-term goal is to convert unproven acreage to proved reserves by drilling in under-exploited areas. 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. TransTexas' current drilling program is restricted by reduced cash flow available from operations. As of February 1, 2003, TransTexas' net proved reserves of natural gas and natural gas equivalents, as estimated by Netherland, Sewell & Associates, Inc., an independent firm of petroleum engineers, were 54 Bcfe. As of January 31, 2003, TransTexas owned approximately 43,970 gross (35,646 net) acres of mineral interests. TransTexas' average net daily natural gas production for the year ended January 31, 2003 was approximately 29 MMcfd, for a total net production of 10.7 Bcf of natural gas. TransTexas' average net daily condensate and oil production for the year ended January 31, 2003 was approximately 2,357 Bpd, for a total net production of 860 MBbls of condensate and oil. TransTexas' average net daily production of natural gas liquids ("NGLs") for the year ended January 31, 2003 was approximately 85,744 gallons per day, for a total net production of 31.3 million gallons of natural gas liquids. Following the separation with the Company's former Chief Executive Officer in March 2002, a change in business strategy was implemented that incorporates and promotes working interest partners to carry a significant portion of the capital expenditure requirements to evaluate and develop the Company's prospects. In conjunction with this change in management, the Company began attempting to achieve a consensus among the holders (the "Noteholders") of the $200 Million Senior Secured Notes due 2005 (the "Notes") so as to effect a consensual recapitalization. The Company held discussions with the principal Noteholders that represented approximately 90% of the Notes and engaged a financial advisor to act as an intermediary in these discussions. From August 2002 to January 2003, the Company worked with the Noteholders in an effort to obtain an agreement to recapitalize the Company. Although the Company was advised that an agreement in principle among the Noteholders had been achieved, subject to documentation, the Company was subsequently informed that these negotiations had failed. The Company has undertaken a substantial effort to engage potential working interest partners and has generated significant industry interest in participating in its prospects. The Company is working with multiple third parties in an effort to reach agreements which should allow the Company to execute this strategy. However, absent available cash to drill, the Company has been unable to add production or reserves. See "Exploration and Production." Available Information. The Company files Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other items with the Securities and Exchange Commission ("SEC"). The Company makes available to any stockholder, without charge, copies of its Annual Report on Form 10-K, as filed with the SEC. Stockholders may obtain copies of exhibits to the Annual Report on Form 10-K upon written request and payment of the Company's reasonable expenses in furnishing such exhibits. Requests for copies of this Form 10-K or other Company filings should be sent to: Investor Relations Department, TransTexas Gas Corporation, 1300 North Sam Houston Parkway East, Houston, Texas 77032-2949 or call (281) 987-8600. The Company maintains an Internet site located at www.transtexasgas.com that links to the SEC's site at www.sec.gov where the public may access reports, proxy and other information that the Company has filed with the SEC. In addition, the public may read and copy any materials that the Company has filed with the SEC at the SEC's Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. REORGANIZATION On November 14, 2002 (the "Petition Date"), TransTexas and its subsidiaries, Galveston Bay Pipeline Company ("Pipeline") and Galveston Bay Processing Corporation ("Processing"), filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Texas, Corpus Christi Division (the "Bankruptcy Court"). The bankruptcy cases are being jointly administered. TransTexas, Pipeline and Processing 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 Petition Date. 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 the interests 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. The Company expects to file its Plan of Reorganization and Disclosure Statement with the Bankruptcy Court on May 1, 2003. Additional information with respect to the Plan of Reorganization and Disclosure Statement will be provided on Form 8-K or by an amendment to this Form 10-K. At this time, it is not possible to predict the outcome of the bankruptcy proceedings or the effect on the business of the Company or on the interests of creditors, royalty owners or stockholders. 3 PRIOR REORGANIZATION On April 19, 1999 (the "Prior Petition Date"), TransTexas filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code. On April 20, 1999, the Company's then parent, TransAmerican Energy Corporation ("TEC"), and its wholly owned subsidiary, TransAmerican Refining Corporation ("TARC"), also filed voluntary petitions for relief under Chapter 11. On May 20, 1999, the cases were transferred to the United States Bankruptcy Court for the Southern District of Texas, Corpus Christi Division. TransTexas' Chapter 11 filing did not include its subsidiaries. The Company's Second Amended, Modified and Restated Plan of Reorganization dated January 25, 2000 (the "Prior Plan") was confirmed by the Bankruptcy Court on February 7, 2000. EXPLORATION AND PRODUCTION Under prior management, the Company's business strategy dictated that the Company remain a 100% working interest operator, with the exception of the Eagle Bay field partnership with Davis Petroleum. This strategy required substantial capital resources to fund the drilling program. In the year ended January 31, 2003, TransTexas' ability to fund its capital expenditure needs from available cash flow was limited by several factors, including the failure of the San Leon #1 well, which was initially completed in October 2001 in the Company's Eagle Bay field; a mechanical failure in October 2002 of the Company's single largest producing well, the State Tract 331-1, that further lowered production and ultimately mandated the drilling of another well into this reservoir to resume equivalent production; the rapid decline in production from the Company's Southwest Bonus field in Wharton County following an aggressive competitive development drilling program; significant leverage that mandated cash flow be used to service debt; and volatile commodity prices. Absent available cash to drill, TransTexas was unable to add production or reserves. In March 2002, the board of directors reached a severance agreement with the Company's former Chief Executive Officer that allowed the Company to embark upon a program for the development of its properties through a revised business model. This new business model is centered upon the promotion of working interest partners who carry a significant portion of the capital expenditure requirements necessary to evaluate the prospects. The Company believes that this new strategy should allow it to traverse from a "go-it-alone" exploration and drilling company to one where multiple projects are being pursued at lower risk to the Company, with outside industry partners assuming a large portion of the capital risk of these projects and sharing their exploration and technical expertise with the Company. As a result of the change in the TransTexas' operating and development strategy, an aggressive marketing effort and the change in management, TransTexas has generated significant industry interest in participating in its prospects. However, there can be no assurance that working interest partners can be obtained on terms acceptable to the Company, or in a timely manner, to evaluate the Company's properties. The exploration and production activities of TransTexas consist of geological and geophysical evaluation of current and prospective properties, the acquisition of mineral interests in prospects and the drilling, 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, and 3-D and 2-D seismic data. TransTexas operates substantially all of its producing properties. Primary Operating Areas Eagle Bay, Galveston County, Texas. TransTexas has successfully drilled and completed ten wells in the Eagle Bay field. TransTexas intends to drill additional development wells in Eagle Bay as a part of its strategy to further increase reserves and production and has identified additional drilling locations from 3-D seismic data. As of January 31, 2003, TransTexas owned a 75% working interest in approximately 3,594 net acres in the Eagle Bay area. For the fiscal year ended January 31, 2003, TransTexas sold 4.9 Bcf of natural gas, 0.7 million barrels of condensate and 31.3 million gallons of natural gas liquids from the Eagle Bay field at average net daily rates of 13 MMcfd, 2,010 Bpd and 85,744 gallons per day, respectively. Production from the Eagle Bay field represents a significant percentage of the Company's total production. See "Drilling and Production Data." In October 2001, a new well in the Eagle Bay field, the San Leon #1, was brought on-line. With the intent of duplicating the production of the best wells in Eagle Bay and in order to try to overcome the decline in commodity prices, an attempt was made to complete this new well and produce it at the highest rate possible. Unfortunately, doing so caused production to be inconsistent and the well began to produce sand from the formation. By the end of January 2002, the well bore had become restricted to the point that production was completely curtailed. This loss of production further lowered cash flow and created the need to re-drill the lower section of the well at additional expense. In October 2002, the Company's single largest producing well in the Eagle Bay field, the State Tract 331-1, suffered a mechanical failure that reduced cash flow and ultimately mandated the drilling of another well into this reservoir to resume equivalent production. In March 2003, the Bankruptcy Court authorized TCW Global Project Fund Ltd. and TCW DR VI 4 Investment Partnership, L.P. (collectively "TCW"), the owner of a production payment, to fund the drilling of this key well in the Eagle Bay field that would duplicate the previous production rates of the State Tract 331-1 well. As a result of an agreement with Davis Petroleum Corporation on April 4, 2003, the Company issued a Tenth Supplemental Production Payment to TCW and Mirant Americas Energy Capital Assets, LLC ("Mirant") for funding of $5 million to drill the State Tract 331-9 well. This well is a sidetrack of the depleted State Tract 352-1 well and is to be drilled as an in-fill development well to the State Tract 331-1 well. The State Tract 331-9 well, if successful, should allow the Company to resume increased production from the fault block in the Eagle Bay field and to take advantage of its full production capacity. The Company commenced operations on the State Tract 331-9 well on April 17, 2003. Southwest Bonus, Wharton County, Texas. As of January 31, 2003, TransTexas had successfully drilled and completed 22 wells in the Southwest Bonus field. TransTexas has identified additional drilling locations based upon seismic data and held a 97% working interest covering approximately 4,595 net acres in the Southwest Bonus area. For the fiscal year ended January 31, 2003, TransTexas' Southwest Bonus properties produced 5.3 Bcf of natural gas, at an average net daily rate of 14 MMcfd. Production from the Southwest Bonus field represents a significant percentage of the Company's total production. See "Drilling and Production Data." Other Areas. TransTexas also has an inventory of exploration and exploitation prospects along the Upper Texas Gulf Coast which it continues to assemble as part of its strategy to increase reserves and production. The Company's primary focus is to seek areas that it believes are under-exploited and are along the trend with existing proved fields and where seismic data indicates additional hydrocarbon potential. The Company, together with suitably capitalized and technically competent partners, intend to drill these additional exploration and exploitation prospects, which are located in the proximity of TransTexas' existing producing fields and infrastructure or along the same geological trend. Drilling and Production Data During the five years ended January 31, 2003, TransTexas completed approximately 63% of 82 wells. As of January 31, 2003, TransTexas had a total of 45 productive wells. TransTexas had a working interest in the following numbers of wells that were drilled during the periods indicated:
YEAR ENDED JANUARY 31, --------------------------------------------------- 2003 2002 2001 -------------- -------------- -------------- GROSS NET GROSS NET GROSS NET ----- --- ----- --- ----- --- Exploratory Wells (1): Productive (2)............................... -- -- 1 1 -- -- Non-Productive............................... -- -- 1 1 4 3 % Productive................................. -- -- 50% 50% -- -- Development Wells (1): Productive (2)............................... -- -- 12 11 11 11 Non-Productive............................... -- -- 1 1 1 1 % Productive................................. -- -- 92% 92% 92% 92%
- ----------------- (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: 5
YEAR ENDED JANUARY 31, ------------------------------------- 2003 2002 2001 ---------- ----------- ---------- Production: Gas (Bcf) ................................................. 10.7 22.5 26.8 NGLs (MMgals).............................................. 31.3 40.1 48.3 Condensate and oil (MBbls)................................. 860 1,286 1,559 Average sales prices: Gas (dry) (per Mcf)........................................ $ 3.38 $ 3.89 $ 4.73 NGLs (per gallon).......................................... .33 .36 .49 Condensate and oil (per Bbl)............................... 25.93 23.63 30.04 Average lifting cost per Mcfe (1)............................ .59 .49 .47
- ------------------ (1) 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. TRANSPORTATION, PROCESSING AND MARKETING TransTexas believes that there is currently adequate pipeline transportation capacity for its anticipated hydrocarbon production in all of its operating areas. TransTexas has entered into various agreements for the gathering, transportation, processing and sale of substantially all of its natural gas and natural gas liquids produced from its Eagle Bay prospects. TransTexas monitors its transportation needs closely and is actively in discussions with pipeline companies regarding additional agreements in order to meet potential future production increases. Galveston Bay Processing Corporation, a wholly owned subsidiary of TransTexas, operates onshore facilities to separate produced natural gas and condensate, dehydrate and treat natural gas for the removal of carbon dioxide and stabilize condensate from the Company's Eagle Bay field. These facilities are located approximately 60 miles east of Houston at Winnie, Texas. TransTexas has entered into contracts with Kinder Morgan Ship Channel Pipeline, L.P., formerly Tejas Ship Channel, LLC, for transportation of its production from the Eagle Bay field to the Winnie facilities at a fixed negotiated rate. Under these contracts, the Company has agreed to deliver the first 75,000 MMBtu per day of natural gas and associated condensate from the field to Kinder Morgan Ship Channel Pipeline, L.P. The Company also entered into a contract with a subsidiary of Duke Energy Field Services, LLC for transportation of natural gas on a firm and interruptible basis from the Winnie facility to natural gas liquids recovery facilities located in the Beaumont/Port Arthur, Texas area, and residue gas from these facilities to various distribution points. Under the agreement, the Company has agreed to deliver the first 56,250 Mcf of natural gas and 19,500 MMBtu of residue gas per day to Duke Energy Field Services. Transportation fees for natural gas and residue gas are based on fixed negotiated rates. TransTexas and Duke Energy Field Services, LLC entered into a contract to extract natural gas liquids from the high-Btu natural gas stream leaving the Winnie 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. TransTexas entered into gas purchase agreements with Duke Energy Field Services, LLC and PanEnergy Marketing Company, covering the sale by TransTexas of substantially all of its gas production from the Eagle Bay field. The agreements provide that deliveries in excess of 50,000 MMBtu per day of residue gas be based on a published industry index price. For the year ended January 31, 2003, two purchasers represented approximately 71% of the consolidated natural gas, condensate and NGL 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. 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- 6 established companies with substantially greater capital and human resources than TransTexas and which, in many instances, have been engaged in the energy business longer 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, 2003, TransTexas had 75 employees (including field and plant personnel), none of which are parties to a collective bargaining agreement. The Company has undertaken significant reductions in its overhead expenses and number of employees. Employees at the Company's headquarters have been reduced 65% from 116 on January 1, 2002 to 41 as of January 31, 2003. From time to time, TransTexas may engage the services of independent geological, engineering, land and other consultants when specific expertise is required. 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. 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. ENVIRONMENTAL MATTERS See Note 13 of Notes to Consolidated Financial Statements for a discussion of environmental matters affecting TransTexas. 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, 2003:
DEVELOPED UNDEVELOPED PRODUCTIVE ACREAGE ACREAGE WELLS (1) ------- ------- --------- Gross ......................................... 19,458 24,512 45 Net (2) ....................................... 12,358 23,288 37
- ----------------- (1) Of the total productive wells, 44 gross (36 net) were gas wells and 1 gross (1 net) was an oil well. (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. 7 RESERVES As of February 1, 2003, TransTexas had total proved reserves of 45.7 Bcf of natural gas and 1,430 MBbls of condensate and oil. See Note 19 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 its title to developed properties. TransTexas' properties are subject to customary royalty interests, liens incident to operating agreements, liens for current taxes, liens of vendors and lenders and other burdens. ITEM 3. LEGAL PROCEEDINGS See Note 13 of Notes to Consolidated Financial Statements for a discussion of legal proceedings affecting TransTexas. 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, 2003. In March 2002, John R. Stanley resigned as Chief Executive Officer and as Chairman and member of the Board of Directors of the Company. Executive Officers of the Registrant The following persons were serving as executive officers of the Company as of April 30, 2003:
Name Office Age - ---- ------ --- Arnold H. Brackenridge Chief Executive Officer, President and Chief Operating Officer 70 Edwin B. Donahue Vice President, Chief Financial Officer and Secretary 52 Gregory J. Halvatzis Vice President of Exploration 51 David R. Jennings Assistant General Counsel and Assistant Secretary 59 John R. Thompson Vice President of Operations 46 Simon J. Ward Vice President and Treasurer 47 George C. Wright Vice President of Accounting 60
Set forth below is a description of the business experience of each of the executive officers. Arnold H. Brackenridge was elected Chief Executive Officer in March 2002 and prior to that he held the position of President and Chief Operating Officer of the Company since March 2001. Prior to his retirement in 1999, Mr. Brackenridge was President and Chief Operating Officer of the Company since May 1993. From 1984 until June 1992, Mr. Brackenridge was the President and Chief Executive Officer of Wintershall Energy, a business group of BASF Corporation. Edwin B. Donahue has been Vice President, Chief Financial Officer and Secretary of the Company since May 1993. Mr. Donahue has been employed in various positions with the Company and TransAmerican for over 25 years. 8 Gregory J. Halvatzis joined the Company in February 2001 and has been Vice President of Exploration since March 2002. From 1976 until 2001, he held various exploration management positions with Cities Service, First Energy and JN Oil and Gas. David R. Jennings has been Assistant General Counsel and Assistant Secretary since May 2000. He has been employed by the Company and its affiliates since November 1995. John R. Thompson has been Vice President of Operations since March 2002. He has been employed by the Company and its affiliates since 1984. Prior to 1984, Mr. Thompson was employed by Texaco USA from 1979 to 1984. Simon J. Ward has been Vice President and Treasurer of the Company since June 1999. He served as Manager of Investor Relations from 1994 until June 1999. From 1976 until 1994, he held various positions with ICO, Inc., Baker Hughes Vetco Services, Inc. and Vetco Services, Inc. George C. Wright has been Vice President of Accounting of the Company since March 1999. He has been employed by the Company and its affiliates since June 1982. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Since April 24, 2000, prices for the Class A Common Stock of TransTexas have been quoted on NASDAQ's Over The Counter Bulletin Board ("OTCBB") under the symbol "TTXG." From May 4, 1999 through March 21, 2000, prices for the Company's common stock were quoted on OTCBB under the symbol "TTGGQ." The following table sets forth, on a per-share basis for the periods indicated, the high and low sales or bid prices for TransTexas' Class A common stock as reported by the OTCBB. Over-the-counter quotations reflect inter-dealer prices without retail mark-up, mark-down or commission and may not necessarily reflect actual transactions.
HIGH LOW ---------- ---------- Fiscal year ended January 31, 2003: Fourth Quarter............................................. $ 0.65 $ 0.04 Third Quarter.............................................. 0.75 0.05 Second Quarter............................................. 0.85 0.30 First Quarter.............................................. 2.05 0.75 Fiscal year ended January 31, 2002: Fourth Quarter............................................. $ 4.00 $ 1.01 Third Quarter ............................................. 6.50 3.45 Second Quarter............................................. 17.00 5.75 First Quarter.............................................. 17.25 12.94
The Certificate of Designation for the Senior Preferred Stock of the Company provides for the mandatory conversion of one-half of the outstanding shares of Senior Preferred Stock into fully paid and non-assessable shares of Class A Common Stock at the rate of 0.3461 shares of Class A Common Stock for each $1.00 of liquidation preference per share, plus an amount equal to accrued and unpaid dividends, of Senior Preferred Stock if the Company fails to pay dividends on the Senior Preferred Stock as required by the Certificate of Designation for the Senior Preferred Stock on any two dividend payment dates. The Certificate of Designation for the Series A Junior Preferred Stock ("Junior Preferred Stock" and together with the Senior Preferred Stock, the "Preferred Stock") provides for the mandatory conversion of all of the outstanding shares of Junior Preferred Stock into fully paid and non-assessable shares of Class A Common Stock at the rate of 0.1168 shares of Class A Common Stock for each $1.00 of liquidation preference per share, plus an amount equal to accrued and unpaid dividends, of Junior Preferred Stock if the Company fails to pay dividends on the Senior Preferred Stock as required by the Certificate of Designation for the Senior Preferred Stock on any two dividend payment dates. The Certificate of Designation for each of the Senior Preferred Stock and the Junior Preferred Stock required the payment to the holders of a cash dividend on the Senior Preferred Stock and an in-kind dividend on the Junior Preferred Stock, respectively, by the Company on June 15, 2002 and on September 15, 2002. The Company did not make the required dividend payments on either date. Therefore, the liquidation preference of the Senior Preferred Stock was increased to approximately $1.04 per share and the liquidation preference of the Junior Preferred Stock was increased to approximately $1.05 per share. As a result, on September 16, 2002, each two shares of Senior Preferred Stock was converted into one share of New Senior Preferred and into approximately 0.3596 shares of Class A Common Stock and each share of Junior Preferred Stock was converted into approximately 0.1227 shares of Class A Common Stock. No fractional shares were issued in the conversion. 9 The Board of Directors of the Company determined that the fair market value of each share of the Preferred Stock and Common Stock for purposes of the conversion was less than $0.01 per share and, therefore, no cash was paid to holders of Preferred Stock in lieu of fractional shares. In the aggregate, 164,333,875 shares of Senior Preferred Stock representing one-half of all of the outstanding Senior Preferred Stock were converted into 59,101,243 shares of Class A Common Stock and 25,240,513 shares of Junior Preferred Stock representing all of the outstanding Junior Preferred Stock were converted into 3,097,336 shares of Class A Common Stock. Since the Company did not pay the required dividend payments, holders of the Senior Preferred Stock have the right, voting separately as a class, to elect all five directors to the Company's Board of Directors. On December 16, 2002 and March 17, 2003, the Company did not make the required cash dividend payments to the remaining holders of the Senior Preferred Stock. On April 24, 2000, prices for the Class A Common Stock commenced quotation on the OTCBB under the symbol "TTXG." As of April 30, 2003, there were 3,082 record holders of the Class A Common Stock. The last sale price of the Class A Common Stock on April 30,2003, was $0.11. The Company has not paid any cash dividends on its common stock since inception, except a dividend of approximately $33 million to its then parent TransAmerican from the proceeds of its initial public offering in March 1994. The terms of the Company's senior secured notes due 2005, its oil and gas credit facility, its accounts receivable facility and its Senior Preferred Stock prohibit the payment of dividends. Because of these prohibitions, the Company does not anticipate paying any dividends on its common stock in the foreseeable future. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected historical financial data for the Company as of and for each of the periods presented. From April 19, 1999 through March 17, 2000, TransTexas operated under Chapter 11 of the United States Bankruptcy Code. The Company adopted fresh-start reporting as of January 31, 2000; therefore, the Company does not believe that the consolidated balance sheet data as of January 31, 1999 is comparable to that of later years in certain material respects. The following data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's financial statements included elsewhere in this report. 10
SUCCESSOR PREDECESSOR --------------------------------------------- ---------------------------- YEAR ENDED JANUARY 31, ----------------------------------------------------------------------------- 2003 2002 2001 2000 1999 ------------- ------------ ------------ ------------ ------------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) STATEMENT OF OPERATIONS DATA: Gas, condensate and NGL revenues......... $ 70,051 $ 133,138 $ 187,883 | $ 112,898 $ 92,159 Transportation revenues.................. -- -- -- | -- -- Gain (loss) on the sale of assets........ -- -- -- | (438) 61,247 Other revenues........................... 1,029 1,245 2,208 | 2,770 4,200 ------------- ------------ ------------ | ------------ ------------ 71,080 134,383 190,091 | 115,230 157,606 Operating costs and expenses............. 14,814 23,370 26,283 | 29,935 30,322 Depreciation, depletion, and | amortization......................... 27,092 91,266 81,483 | 75,044 86,137 General and administrative expenses...... 16,363 19,854 20,303 | 19,883 21,938 Loss on asset impairment................. -- 195,065 -- | -- 425,966 ------------- ------------ ------------ | ------------ ------------ Operating income (loss).............. 12,811 (195,172) 62,022 | (9,632) (406,757) Net interest expense (1)................. 31,937 34,723 33,495 | 38,054 78,716 Reorganization items..................... 660 -- -- | (50,511) -- Income taxes and other................... -- (9,984) 9,984 | 10,000 (38,882) Extraordinary (gain) loss, net of taxes.. -- -- -- | (436,490) 1,142 ------------- ------------ ------------ | ------------ ------------ Net income (loss).................... (19,786) (219,911) 18,543 | 429,315 (447,733) Accretion of preferred stock............. 43,344 46,403 25,722 | -- -- ------------- ------------ ------------ | ------------ ------------ Net income (loss) available to | common stockholders.................. $ (63,130) $ (266,314) $ (7,179)| $ 429,315 $ (447,733) ============= ============ ============ | ============ ============ Net income (loss) per share: | Loss before extraordinary item........... $ (2.55) $ (213.01) $ (5.74)| $ (0.13) $ (7.76) Extraordinary item....................... -- -- -- | 7.59 (0.02) ------------- ------------ ------------ | ------------ ------------ Net income (loss).................... $ (2.55) $ (213.01) $ (5.74)| $ 7.46 $ (7.78) ============= ============ ============ | ============ ============ Dividends declared per common | share (2)............................ -- -- -- | -- --
SUCCESSOR PREDECESSOR ------------------------------------------------------------- ------------- YEAR ENDED JANUARY 31, ----------------------------------------------------------------------------- 2003 2002 2001 2000 1999 ------------- ------------ ------------ ------------ ------------- BALANCE SHEET DATA: Working capital (deficit)................ $ (51,168) $ (8,620) $ 20,589 $ 8,900 | $ 27,072 Net property and equipment............... 107,816 126,947 332,328 327,087 | 292,143 Total assets............................. 127,662 154,804 402,243 369,254 | 345,367 Liabilities subject to compromise........ 238,894 -- -- -- | 718,139 Total debt (3)........................... 56,281 264,218 285,540 251,570 | 56,260 Redeemable preferred stock .............. 60,822 72,125 25,722 -- | -- Stockholders' equity (deficit)........... (259,043) (246,120) 17,846 -- | (430,015)
- ----------------- (1) Interest expense for the years ended January 31, 2003 and 2000 exclude $6.7 million and $55.5 million, respectively, in interest stayed as a result of the bankruptcy filings. (2) TransTexas' existing debt and equity instruments contain certain restrictions with respect to the payment of dividends on its common stock. (3) Excludes long-term debt included in liabilities subject to compromise of $238.9 million and $583.1 million as of January 31, 2003 and 1999, respectively. 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. 11 RESULTS OF OPERATIONS TransTexas' results of operations are dependent upon natural gas production volumes and unit prices from sales of natural gas, condensate and natural gas liquids. The profitability of TransTexas also depends on its ability to minimize finding and lifting costs and maintain its reserve base while maximizing production. See "Liquidity and Capital Resources." On November 14, 2002, TransTexas, Pipeline and Processing filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Texas, Corpus Christi Division. The bankruptcy cases are being jointly administered. TransTexas, Pipeline and Processing 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 Petition Date. 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 the interests 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. The Company expects to file its Plan of Reorganization and Disclosure Statement with the Bankruptcy Court on May 1, 2003. Additional information with respect to the Plan of Reorganization and Disclosure Statement will be provided on Form 8-K or by an amendment to this Form 10-K. At this time, it is not possible to predict the outcome of the bankruptcy proceedings or the effect on the business of the Company or on the interests of creditors, royalty owners or stockholders. Management's revised business model is centered around the promotion of working interest partners who carry a significant portion of the capital expenditures necessary to evaluate the Company's properties, much of which are unevaluated as of January 31, 2003. The Company intends to finance its share of the necessary capital expenditures through cash flow from operations, production payment issuances and any supplemental fundings provided pursuant to its emergence from bankruptcy proceedings. However, there can be no assurance that working interest partners can be obtained on terms acceptable to the Company, or additional financing obtained, to evaluate the Company's properties in a timely manner. From April 19, 1999 through March 17, 2000 (the "Effective Date"), the Company operated as a debtor-in-possession under Chapter 11 of the United States Bankruptcy Code. Effective January 31, 2000, the Company adopted fresh-start reporting in accordance with AICPA Statement of Position 90-7. Pursuant to fresh-start reporting, a new reporting entity was created. The new reporting entity's assets were recorded at the reorganization value based on the confirmed Plan of Reorganization, and postpetition liabilities were recorded at the present value of amounts to be paid. TransTexas' operating data for the years ended January 31, 2003, 2002 and 2001 are as follows:
YEAR ENDED JANUARY 31, ----------------------------------------------------------- 2003 2002 2001 ----------------- ---------------- ----------------- Sales volumes: Gas (Bcf)..................................... 10.7 22.5 26.8 NGLs (MMgals)................................. 31.3 40.1 48.3 Condensate and oil (MBbls).................... 860 1,286 1,559 Average prices: Gas (dry) (per Mcf)........................... $ 3.38 $ 3.89 $ 4.73 NGLs (per gallon)............................. .33 .36 .49 Condensate and oil (per Bbl).................. 25.93 23.63 30.04 Number of gross wells drilled.................... -- 15 16 Percentage of wells completed.................... -- 87% 69%
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, 2002, TransTexas recorded impairment losses related to write-downs of $195.1 million of its net capitalized costs of gas and oil properties to the cost center ceiling in accordance with the full cost method of accounting. 12 A summary of TransTexas' operating expenses is set forth below (in millions of dollars):
YEAR ENDED JANUARY 31, ----------------------------------------------------------- 2003 2002 2001 ----------------- ---------------- ----------------- Operating costs and expenses: Lease........................................ $ 6.4 $ 10.9 $ 10.7 Pipeline and gathering....................... 5.1 8.3 8.4 ----------------- ---------------- ----------------- 11.5 19.2 19.1 Taxes other than income taxes (1)................ 3.3 4.2 7.2 ----------------- ---------------- ----------------- $ 14.8 $ 23.4 $ 26.3 ================= ================ =================
- ----------------- (1) Taxes other than income taxes include severance, property and other taxes. TransTexas' average depletion rates have been as follows:
YEAR ENDED JANUARY 31, ----------------------------------------------------------- 2003 2002 2001 ----------------- ---------------- ----------------- Depletion rates (per Mcfe)....................... $ 1.65 $ 2.98 $ 2.22 ================= ================ =================
Effective February 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities," which was amended by Statement of Financial Accounting Standards No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities." These pronouncements established accounting and reporting standards for derivative instruments and for hedging activities, which generally require recognition of all derivatives as either assets or liabilities in the balance sheet at their fair value. The accounting for changes in fair value depends on the intended use of the derivative and its resulting designation. The Company recorded a cumulative effect charge to comprehensive income of approximately $1.3 million to recognize the fair value of its liability under the Company's derivative instruments upon the adoption of SFAS 133. In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS 143, "Accounting for Asset Retirement Obligations". SFAS 143 provides accounting requirements for costs associated with legal obligations to retire tangible, long-lived assets. Under SFAS 143, the asset retirement obligation is recorded at fair value in the period in which it is incurred by increasing the carrying amount of the related long-lived asset. In each subsequent period, the liability is accreted to its present value and the capitalized cost is depreciated over the useful life of the related asset. Effective upon our adoption, the cumulative effect of applying SFAS 143 will be recognized as a change in accounting principle in the consolidated statements of operations. At January 31, 2003 the Company had not previously recorded an asset retirement obligation related to its long-lived assets. As such, the Company adopted SFAS 143 effective February 1, 2003. The Company expects the impact of adopting SFAS 143 will be a decrease to earnings, net of tax, of approximately $3 million, to be reflected as a cumulative effect of a change in accounting principle in the first quarter of fiscal year 2004. Liabilities for other contingencies are recognized in accordance with SFAS 5 upon identification of an exposure, which when fully analyzed indicates that it is both probable that an asset has been impaired or that a liability has been incurred and that such a loss amount can be reasonably estimated. Non-capital costs to remedy such contingencies or other exposures are charged to a reserve, if one exists, or otherwise to current-period operations. When a range of probable loss exists, the Company accrues the lesser end of the range. In April 2002, the FASB issued SFAS 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13 and Technical Corrections." SFAS 145 provides guidance for income statement classification of gains or losses from extinguishment of debt and accounting for certain lease modifications that have economic effects similar to sale-leaseback transactions. Gains or losses from extinguishments that are part of a company's recurring operations would not be reported as an extraordinary item. The Company adopted SFAS 145 effective February 1, 2003, which had no impact on the Company's financial statements. In June 2002, the FASB issued SFAS 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS 146 requires recognition of a liability for costs associated with an exit or disposal activity when the liability is incurred rather than at the date of a commitment to an exit or disposal plan. SFAS 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002 and will be used to report any future exits or disposal activities. The Company's adoption of SFAS 146 on January 1, 2003 had no effect on the Company's financial statements. In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"), "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." FIN 45 addresses the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. FIN 45 also clarifies the requirement that a guarantor recognize a liability at the inception of the guarantee for the fair value of the obligation that the guarantor has undertaken in issuing the guarantee. The initial recognition and measurement provisions of FIN 45 are applicable to guarantees issued or modified after December 31, 2002 and are not expected to have a material impact on the Company's financial statements. 13 Year Ended January 31, 2003, Compared with the Year Ended January 31, 2002 Gas, condensate and NGL revenues for the year ended January 31, 2003 decreased by $63.1 million from the prior period, due primarily to lower prices for natural gas and lower sales volumes for all products. Approximately 2.5 Bcf of the decrease in natural gas volumes for the year ended January 31, 2003 was attributable to the sale in the prior year of TransTexas' interest in the Bob West field and approximately 7.6 Bcf of the decrease is attributable to reduced production rates from wells in the Southwest Bonus field. The average monthly prices received per Mcf of gas ranged from $2.16 to $5.09 in the year ended January 31, 2003, compared to a range of $2.04 to $6.73 in the prior period. Lease operating expenses for the year ended January 31, 2003 decreased $4.5 million from the prior period due primarily to decreases in workover costs and fewer number of productive wells due to the sale in the prior year of the Bob West field. Pipeline and gathering expenses decreased $3.2 million primarily due to lower labor costs and lower costs for natural gas used in operations. Depreciation, depletion and amortization expense for the year ended January 31, 2003 decreased $64.2 million due to a $1.33 decrease in the depletion rate. The decrease in the depletion rate is due primarily to the impairment of gas and oil properties recorded during fiscal year 2002. General and administrative expenses decreased by $3.5 million primarily as a result of lower professional fees and labor costs. However, included in the current year's general and administrative expenses is a $3.0 million charge for a severance obligation due Mr. Stanley pursuant to his employment agreement. Taxes other than income taxes decreased by $0.9 million over the prior period due primarily to decreases in property, severance and production taxes. Interest income decreased $0.5 million compared to the prior period due to lower cash balances available for investment. Interest expense for the year ended January 31, 2003 decreased $3.3 million primarily because the Company ceased to expense interest on debt reclassed to liabilities subject to compromise, effective after the Petition Date. This lower interest expense was partially offset by lower capitalized interest. Reorganization items of $0.7 million for the year ended January 31, 2003 include legal and professional fees and expenses directly related to TransTexas' Chapter 11 proceeding. The impairment loss recorded during the year ended January 31, 2002 relates to a write-down of $195.1 million of TransTexas' net capitalized costs of gas and oil properties to the cost center ceiling in accordance with the full cost method of accounting. The cost center ceiling at January 31, 2002 decreased from that at January 31, 2001 primarily due to a decrease in prices for natural gas and condensate and a decrease in proved reserves due to production and the sale of the Bob West field. See Note 19 of Notes to Consolidated Financial Statements. Based on the Company's reorganization value as of January 31, 2000, the fair value of the Preferred Stock and Common Stock was estimated to be zero. The remaining Senior Preferred Stock is mandatorily redeemable in 2006. As a result, the Company accretes, in the form of a non-cash dividend deducted from net income available to common stockholders and charged to retained earnings, an amount equal to the combined redemption amount totaling $243.2 million (initial liquidation value) over the period prior to redemption. In addition, earnings available to common stockholders will be reduced by dividends paid on the Preferred Stock. For the years ended January 31, 2003, 2002 and 2001, accretion of Preferred Stock totaled $43.3 million, $46.4 million and $25.7 million, respectively. At January 31, 2003, the amount remaining to be accreted on the Senior Preferred Stock is $103.5 million. Year Ended January 31, 2002, Compared with the Year Ended January 31, 2001 Gas, condensate and NGL revenues for the year ended January 31, 2002 decreased by $54.7 million from the prior period, due primarily to lower prices and sales volumes for all products. The average monthly prices received per Mcf of gas ranged from $2.04 to $6.73 in the year ended January 31, 2002, compared to a range of $2.64 to $9.75 in the prior period. Other revenues decreased by $1.0 million for the year ended January 31, 2002 due to lower transportation and gathering revenues. Lease operating expenses for the year ended January 31, 2002 increased $0.2 million from the prior period due primarily to increases in labor, well service and testing and rental expenses, partially offset by lower outside transportation costs. Pipeline and gathering expenses decreased $0.1 million primarily due to lower costs for natural gas used in operations and lower rental expenses, partially offset by higher labor costs. Depreciation, depletion and amortization expense for the year ended January 31, 2002 increased $9.8 million due to an increase in the depletion rate resulting from higher cost properties and unsuccessful drilling results in prior periods. General and administrative expenses decreased by $0.4 million primarily as a result of lower utility costs, rental expenses and insurance costs. Taxes other than income taxes decreased by $3.0 million over the prior period due primarily to decreases in severance and production taxes. Interest expense for the year ended January 31, 2002 increased $1.2 million due primarily to lower capitalized interest, partially offset by a decrease in the amount of interest associated with reorganization debt. The impairment loss relates to a write-down of $195.1 million of TransTexas' net capitalized costs of gas and oil properties to the cost center ceiling in accordance with the full cost method of accounting. The cost center ceiling at January 31, 2002 decreased from that at January 31, 2001 primarily due to a decrease in prices for natural gas and condensate and a decrease in proved reserves due to production and the sale of the Bob West field. See Note 19 of Notes to Consolidated Financial Statements. 14 Based on the Company's reorganization value as of January 31, 2000, the fair value of the Preferred Stock and Common Stock was estimated to be zero. The Senior Preferred Stock and Junior Preferred Stock are mandatorily redeemable in 2006 and 2010, respectively. As a result, the Company accretes, in the form of a non-cash dividend deducted from net income available to common stockholders and charged to retained earnings, an amount equal to the combined redemption amount totaling $243.2 million (initial liquidation value) over the period prior to redemption. In addition, earnings available to common stockholders will be reduced by dividends paid on the Preferred Stock. For the years ended January 31, 2002 and 2001, accretion of Preferred Stock totaled $46.4 million, and $25.7 million, respectively. LIQUIDITY AND CAPITAL RESOURCES Chapter 11 Bankruptcy Proceeding On November 14, 2002, TransTexas, Pipeline and Processing filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Texas, Corpus Christi Division (the "Bankruptcy Court"). The bankruptcy cases are being jointly administered. TransTexas, Pipeline and Processing 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 Petition Date. 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 the interests 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. The Company expects to file its Plan of Reorganization and Disclosure Statement with the Bankruptcy Court on May 1, 2003. Additional information with respect to the Plan of Reorganization and Disclosure Statement will be provided on Form 8-K or by an amendment to this Form 10-K. At this time, it is not possible to predict the outcome of the bankruptcy proceedings or the effect on the business of the Company or on the interests of creditors, royalty owners or stockholders. Long-Term Debt On the Effective Date, the Company, as Borrower, and Processing and Pipeline, as Guarantors, entered into an Oil and Gas Revolving Credit and Term Loan Agreement, dated as of March 15, 2000 (the "Oil and Gas Facility") with GMAC Commercial Credit LLC ("GMACC"), as a Lender and as Agent. The Oil and Gas Facility consists of a term loan (the "Term Loan") in the amount of $22.5 million and a revolving facility (the "Revolving Loan") in a maximum amount of $30 million (all of which was funded on the Effective Date). The Term Loan bears interest at a rate of 14% per annum and the Revolving Loan bears interest at a rate of 13 1/2% per annum. Interest on the Term Loan and the Revolving Loan is payable monthly in arrears. Principal amortization of the Term Loan is due in 20 quarterly installments of $56,250 each beginning June 14, 2000, with the balance due March 14, 2005; however, the Company may, and in certain circumstances must, make prepayments of such amount. If, subsequent to such prepayments, the Company demonstrates sufficient collateral value meeting the requirements of the Oil and Gas Facility provisions, the Company may be entitled to borrow additional advances under the Revolving Loan. The Oil and Gas Facility is secured by substantially all of the assets of the Company. The security interest in accounts receivable and inventory securing the Oil and Gas Facility is subordinated to the security interest of GMACC under the Accounts Receivable Facility. Interim and Final Financing Orders of the Bankruptcy Court modified certain terms of the Oil and Gas Facility. Pursuant to these Interim and Final Orders, GMACC waived compliance with certain provisions of the facility. Pursuant to the Final Financing Order, the Oil and Gas Facility is due on August 7, 2003. On the Effective Date, the Company, as Issuer, Pipeline and Processing, as Guarantors, and U.S. Bank, N.A., as successor indenture trustee to Firstar Bank, N.A. entered into an Indenture dated as of March 15, 2000, pursuant to which the Company issued the Notes. Interest on the Notes is due semi-annually on March 15 and September 15. The Notes are secured by substantially all of the assets of the Company other than accounts receivable and inventory. The Indenture contains certain covenants that restrict the Company's ability to incur indebtedness, engage in related party transactions, dispose of assets or engage in sale/leaseback transactions, issue dividends on common stock, change its line of business, consolidate or merge with or into another entity or convey, transfer or lease all or substantially all of its assets, and suffer a change of control. The 15 security interest in favor of the Trustee is subordinated to the Security Interest in favor of the Agent under the Oil and Gas Facility. On the Effective Date, the Company and GMACC entered into a Third Amended and Restated Accounts Receivable Management and Security Agreement, dated as of March 15, 2000 (the "Accounts Receivable Facility"). The Accounts Receivable Facility is a revolving credit facility secured by accounts receivable and inventory. The maximum loan amount under the facility is $7.5 million, against which the Company may from time to time, subject to the conditions of the Accounts Receivable Facility, borrow, repay and reborrow. Advances under the facility bear interest at a rate per annum equal to the higher of (i) the prime commercial lending rate of The Bank of New York plus 1/2 of 1%, and (ii) the Federal Funds Rate plus 1% payable monthly in arrears. As of January 31, 2003, there were no outstanding advances under the Accounts Receivable Facility and the Company had availability for advances of approximately $1.8 million. Interim and Final Financing Orders of the Bankruptcy Court modified the maximum loan amount under the Accounts Receivable Facility and modified certain other terms of the facility. Pursuant to these Interim and Final Orders, GMACC waived compliance with certain provisions of the facility. Pursuant to the Final Financing Order, the Accounts Receivable Facility is due on August 7, 2003. Preferred Stock As of the Effective Date, the Company had outstanding 222,455,320 shares of Series A Senior Preferred Stock (the "Senior Preferred Stock") with a liquidation preference of $1.00 per share plus accrued and unpaid dividends. The Certificate of Designation for the Senior Preferred Stock of the Company provides for the mandatory conversion of one-half of the outstanding shares of Senior Preferred Stock into fully paid and non-assessable shares of Class A Common Stock at the rate of 0.3461 shares of Class A Common Stock for each $1.00 of liquidation preference per share, plus an amount equal to accrued and unpaid dividends, of Senior Preferred Stock if the Company fails to pay dividends on the Senior Preferred Stock as required by the Certificate of Designation for the Senior Preferred Stock on any two dividend payment dates. The Certificate of Designation for the Series A Junior Preferred Stock ("Junior Preferred Stock" and together with the Senior Preferred Stock, the "Preferred Stock") provides for the mandatory conversion of all of the outstanding shares of Junior Preferred Stock into fully paid and non-assessable shares of Class A Common Stock at the rate of 0.1168 shares of Class A Common Stock for each $1.00 of liquidation preference per share, plus an amount equal to accrued and unpaid dividends, of Junior Preferred Stock if the Company fails to pay dividends on the Senior Preferred Stock as required by the Certificate of Designation for the Senior Preferred Stock on any two dividend payment dates. The Certificate of Designation for each of the Senior Preferred Stock and the Junior Preferred Stock required the payment to the holders of a cash dividend on the Senior Preferred Stock and an in-kind dividend on the Junior Preferred Stock, respectively, by the Company on June 15, 2002 and on September 15, 2002. The Company did not make the required dividend payments on either date. Therefore, the liquidation preference of the Senior Preferred Stock was increased to approximately $1.04 per share and the liquidation preference of the Junior Preferred Stock was increased to approximately $1.05 per share. As a result, on September 16, 2002, each two shares of Senior Preferred Stock was converted into one share of New Senior Preferred and into approximately 0.3596 shares of Class A Common Stock and each share of Junior Preferred Stock was converted into approximately 0.1227 shares of Class A Common Stock. No fractional shares were issued in the conversion. The Board of Directors of the Company determined that the fair market value of each share of the Preferred Stock and Common Stock for purposes of the conversion was less than $0.01 per share and, therefore, no cash was paid to holders of Preferred Stock in lieu of fractional shares. In the aggregate, 164,333,875 shares of Senior Preferred Stock representing one-half of all of the outstanding Senior Preferred Stock were converted into 59,101,243 shares of Class A Common Stock and 25,240,513 shares of Junior Preferred Stock representing all of the outstanding Junior Preferred Stock were converted into 3,097,336 shares of Class A Common Stock. Since the Company did not pay the required dividend payments, holders of the Senior Preferred Stock have the right, voting separately as a class, to elect all five directors to the Company's Board of Directors. On December 16, 2002 and March 17, 2003, the Company did not make the required cash dividend payments to the remaining holders of the Senior Preferred Stock. The Company does not anticipate paying cash dividends on the Senior Preferred Stock in the future. Production Payments In March 2000, TransTexas entered into a production payment drilling program agreement with two unaffiliated third parties in the form of a term overriding royalty interest carved out of and burdening certain properties ("Subject Interests"). The Company has the right to offer additional interests to the production payment parties at a negotiated purchase price. The production payment calls for the repayment of the primary sum plus an amount equivalent to a 15% annual interest rate on the unpaid portion of such primary sum. In March 2002, the Company closed an Eighth Supplement to the production payment whereby the Company received $14.0 million. In June 2002, the Company closed a Ninth Supplement to the production payment whereby the Company received $13.0 million in exchange for additional properties being made subject to the production payment. As of January 31, 2003, the outstanding balance of the production payment was $18.6 million, 16 of which $2.2 million attributable to produced volumes is included in accrued liabilities. The Oil and Gas Facility entered into by the Company, as borrower, Processing and Pipeline, as Guarantors, and with GMACC, as a Lender and as Agent, places certain restrictions on the amount that may be outstanding under the production payment. In April 2003, the Company closed a Tenth Supplement to the production payment whereby the Company received $5.0 million. In connection with the production payment, the Company entered into various marketing and processing agreements with one of the third parties. Pursuant to these agreements, the Company pays a nominal marketing fee with respect to the Company's production associated with the New Subject Interests. In addition, the third party pays a fee for certain processing services provided by Processing. TransTexas is highly leveraged and has significant cash requirements for debt service and significant charges for Preferred Stock dividends to net income available for common stockholders. In order to maintain or increase its proved oil and gas reserves, TransTexas must continue to make substantial capital expenditures for the exploration and development of its natural gas and oil prospects. For the year ended January 31, 2003, total capital expenditures incurred were $12 million, including $1 million for nonproducing leases and seismic, $7 million for capitalized interest and $4 million for drilling and development. Capital expenditures for fiscal 2004 are estimated to be approximately $25 million. Management's revised business model is centered around the promotion of working interest partners who carry a significant portion of the capital expenditures necessary to evaluate the Company's properties, much of which are unevaluated as of January 31, 2003. The Company intends to finance its share of the necessary capital expenditures through cash flow from operations, production payment issuances and any supplemental fundings provided pursuant to its emergence from bankruptcy proceedings. However, there can be no assurance that working interest partners can be obtained on terms acceptable to the Company, or additional financing obtained, to evaluate the Company's properties in a timely manner. Should TransTexas' drilling prospects not be productive or should oil and gas prices decline for a prolonged period, absent other sources of capital, the Company would substantially reduce its capital expenditures, which would limit its ability to maintain or increase production and in turn meet its debt service requirements. Asset sales and financings are restricted under the terms of TransTexas' debt documents and Senior Preferred Stock and subject to Bankruptcy Court approval. In October 2001, TransTexas sold its interest in the Bob West field in Zapata County, Texas for a sales price of $56.5 million, exclusive of closing costs. Potential Tax Liabilities 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 provision (the "COD Exclusion") of the Internal Revenue Code of 1986, as amended (the "Tax Code"), and has reduced its tax attributes (including its net operating loss and credit carryforwards) as a consequence of the COD Exclusion. As a former member of the affiliated group for tax purposes (the "TNGC Consolidated Group") which included TNGC Holdings Corporation, the sole stockholder of TransAmerican ("TNGC"), TransAmerican, TEC, TransTexas and TARC, TransTexas will be severally liable for any tax liability resulting from any transaction of the TNGC Consolidated Group that occurred during any taxable year of the TNGC Consolidated Group during which TransTexas was a member, including the above-described transactions. During fiscal year 1997, the IRS commenced an audit of the consolidated federal income tax returns of the TNGC Consolidated Group for its taxable years ended July 31, 1994 and July 31, 1995. The Company has been advised by the IRS that they have completed their audit and do not propose any adjustments. TransTexas expects that a significant portion of its net operating loss carryovers ("NOLs") will be eliminated and the use of those NOLs that are not eliminated will be severely restricted as a consequence of TransTexas' reorganization. In addition, certain other tax attributes of TransTexas may under certain circumstances be eliminated or reduced as a consequence of TransTexas' reorganization. The potential elimination or reduction of NOLs and such other tax attributes may substantially increase the amount of tax payable by TransTexas. 17 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, condensate and oil. Substantially all of TransTexas' sales of natural gas, condensate and oil are made 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, 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 of approximately 20.5 MMcfd, TransTexas estimates that a $0.10 per MMBtu change in average gas prices received would change annual operating income by approximately $0.7 million. Based on an assumed average net daily production of approximately 1,687 Bpd, TransTexas estimates that a $1.00 per barrel change in condensate prices received would change annual operating income by approximately $0.6 million. ACCOUNTING POLICIES The following accounting policies are important to an understanding of the Company's operating results and financial position and should be considered as an integral part of the financial review. The Company has adopted a number of accounting policies, the most important of which are discussed in Note 1 to the consolidated financial statements, "Summary of Significant Accounting Policies." Gas and Oil Activities The Company uses the full cost method of accounting for its gas and oil activities. Under this method of accounting, the cost of all acquisition, exploration and development activities are capitalized. Such capitalized costs and estimated future development and reclamation costs are amortized on a unit-of-production method. Costs of unevaluated gas and oil properties are excluded from capitalized costs being amortized. The Company excludes these costs until proved reserves are found or until it is determined that the costs are impaired. All excluded costs are reviewed quarterly to determine if impairment has occurred. Any impairment is transferred to costs to be amortized. 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 the effects of related income taxes. This is referred to as a "ceiling test" and the Company is required to perform this calculation based on prices and costs in effect on the last day of each quarter. If net capitalized costs of the gas and oil properties exceed the cost center ceiling, the Company must write down its properties (a non-cash charge to income) by the amount of such excess. The Company occasionally sells certain gas and oil properties. Proceeds from a sale reduce the costs in the cost center unless the sale involves a significant quantity of reserves in relation to the cost center, then the Company recognizes a gain or loss. Hedging Agreements From time to time, the Company enters into commodity price swap agreements to reduce its exposure to price risk in the spot market for natural gas and condensate. Beginning in February 2001, the estimated fair value of these agreements is reflected in the Company's consolidated balance sheet and represents hedges against the price it will receive for future natural gas and condensate production. Changes in the fair value of the hedging agreements are recorded directly to stockholders' equity until the hedged quantities of natural gas or condensate are produced. The Company does not use derivative instruments for trading purposes. 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, disclosure of contingent assets and liabilities at the date of the financial statements, the reported amounts of revenues and expenses during the reporting period and the reported amounts of gas and oil reserves. TransTexas' most significant financial estimates are based on remaining proved gas and oil reserves. Actual results could differ from these estimates. 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. TransTexas uses the sales method of accounting for production imbalances that arise from jointly produced properties. Volumetric production is monitored to minimize these imbalances. An imbalance liability is recorded in other liabilities if TransTexas' excess sales of production volumes exceed its share of estimated remaining recoverable reserves for such properties. Receivables are not recorded for those properties in which TransTexas has taken less than its share of production. 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. 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 18 "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 The Company is exposed to market risk from adverse changes in prices for natural gas, condensate and oil and interest rates as discussed below. The Company's revenues, profitability, access to capital and future rate of growth are substantially dependent upon the prevailing prices of natural gas, condensate and oil. These prices are subject to wide fluctuations in response to relatively minor changes in supply and demand and a variety of additional factors beyond the Company's control. From time to time, the Company has utilized hedging transactions with respect to a portion of its gas and oil production to achieve a more predictable cash flow, as well as to reduce exposure to price fluctuations. While hedging limits the downside risk of adverse price movements, it may also limit future revenues from favorable price movements. Because gains or losses associated with hedging transactions are included in gas and oil revenues when the hedged volumes are delivered, such gains and losses are generally offset by similar changes in the realized prices of commodities. As of January 31, 2003, the Company had entered into the following hedging arrangements (settlement price based on a published industry index of natural gas prices at Houston Ship Channel) as cash flow hedges of forecasted sales of a portion of the Company's natural gas production:
CONTRACT PRICE -------------------- TOTAL COLLAR VOLUMES IN -------------------- PERIOD MMBtus FLOOR CEILING - ------ ------------- --------- --------- Natural gas: February 2002 - March 2002.................................... 590,000 $ 2.85 $ 3.30 February 2002 - July 2002..................................... 1,267,000 3.30 3.95 April 2002 - October 2002..................................... 1,070,000 2.85 3.35 August 2002 - October 2002.................................... 644,000 3.10 3.40 November 2002 - March 2003.................................... 755,000 3.50 3.95 November 2002 - March 2003.................................... 755,000 3.50 3.90 April 2003 - October 2003..................................... 1,284,000 3.25 4.05
For the year ended January 31, 2003, the Company recognized hedging gains of $0.4 million, which are reflected in gas, condensate and natural gas liquids revenues. At January 31, 2003, the Company's estimated net liability of these contracts was $2.1 million. Because substantially all of its long-term obligations at January 31, 2003 are at fixed rates, the Company considers its interest rate exposure to be minimal. The Company's borrowings under its credit facility are subject to a rate of interest that fluctuates based on short-term interest rates. The Company had no interest rate hedges at January 31, 2003. 19 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA TRANSTEXAS GAS CORPORATION (DEBTOR IN POSSESSION) INDEX CONSOLIDATED FINANCIAL STATEMENTS
Page ---- Report of Independent Accountants........................................................................... 21 Financial Statements: Consolidated Balance Sheet.............................................................................. 22 Consolidated Statement of Operations.................................................................... 23 Consolidated Statement of Stockholders' Equity (Deficit)................................................ 24 Consolidated Statement of Cash Flows.................................................................... 25 Notes to Consolidated Financial Statements.............................................................. 26
20 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, stockholders' equity (deficit) and cash flows present fairly, in all material respects, the financial position of TransTexas Gas Corporation and its subsidiaries (debtor in possession) (the "Company") at January 31, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended January 31, 2003 in conformity with accounting principles generally accepted in the United States of America. 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 auditing standards generally accepted in the United States of America, 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 our opinion. The accompanying consolidated 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 consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties. As described in Note 1 to the consolidated financial statements, the Company changed its method of accounting for derivative instruments and hedging activities effective February 1, 2001. PricewaterhouseCoopers LLP Houston, Texas April 30, 2003 21 TRANSTEXAS GAS CORPORATION (DEBTOR IN POSSESSION) CONSOLIDATED BALANCE SHEET (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
JANUARY 31, ------------------------------- 2003 2002 -------------- ------------- ASSETS Current assets: Cash and cash equivalents....................................................... $ 7,518 $ 6,559 Accounts receivable, less allowance for doubtful accounts of $267 in 2003 and 2002....................................................................... 8,741 15,267 Inventories..................................................................... 435 818 Other........................................................................... 1,218 3,112 -------------- ------------- Total current assets........................................................ 17,912 25,756 -------------- ------------- Property and equipment............................................................ 501,980 494,748 Less accumulated depreciation, depletion and amortization......................... 394,164 367,801 -------------- ------------- Net property and equipment -- based on the full cost method of accounting for gas and oil properties of which $49,146 and $45,301 was excluded from amortization at January 31, 2003 and 2002, respectively........................ 107,816 126,947 -------------- ------------- Other assets...................................................................... 1,934 2,101 -------------- ------------- $ 127,662 $ 154,804 ============== ============= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Current maturities of long-term debt............................................ $ 3,502 $ 2,444 Notes payable................................................................... 51,881 -- Accounts payable................................................................ 2,157 5,805 Accrued liabilities............................................................. 11,550 26,127 -------------- ------------- Total current liabilities................................................... 69,090 34,376 -------------- ------------- Long-term debt, net of current maturities ........................................ 898 261,774 Production payments, net of current portion ...................................... 16,373 26,005 Other liabilities ................................................................ 628 6,644 Liabilities subject to compromise................................................. 238,894 -- Redeemable preferred stock........................................................ 60,822 72,125 Commitments and contingencies (Note 13)........................................... -- -- Stockholders' equity (deficit) (Note 2): Common stock, $0.01 par value, 200,000,000 shares and 100,247,500 shares authorized at January 31, 2003 and 2002; 63,448,830 shares and 1,250,251 shares issued and outstanding at January 31, 2003 and 2002........... 634 12 Additional paid-in capital 79,038 25,013 Accumulated deficit (336,623) (273,493) Accumulated other comprehensive income (loss) (2,092) 2,348 -------------- ------------- Total stockholders' deficit................................................. (259,043) (246,120) -------------- ------------- $ 127,662 $ 154,804 ============== =============
The accompanying notes are an integral part of the consolidated financial statements. 22 TRANSTEXAS GAS CORPORATION (DEBTOR IN POSSESSION) CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
YEAR ENDED JANUARY 31, ------------------------------------------------------- 2003 2002 2001 ------------- ------------- ------------- Revenues: Gas, condensate and natural gas liquids ............. $ 70,051 $ 133,138 $ 187,883 Other ............................................... 1,029 1,245 2,208 ------------- ------------- ------------- Total revenues.................................... 71,080 134,383 190,091 ------------- ------------- ------------- Costs and expenses: Operating ........................................... 11,548 19,195 19,127 Depreciation, depletion and amortization ............ 27,092 91,266 81,483 General and administrative .......................... 16,363 19,854 20,303 Taxes other than income taxes........................ 3,266 4,175 7,156 Impairment of gas and oil properties................. -- 195,065 -- ------------- ------------- ------------- Total costs and expenses ......................... 58,269 329,555 128,069 ------------- ------------- ------------- Operating income (loss)........................... 12,811 (195,172) 62,022 ------------- ------------- ------------- Other income (expense): Interest income...................................... 114 580 574 Interest expense, net................................ (32,051) (35,303) (34,069) ------------- ------------- ------------- Total other expense............................... (31,937) (34,723) (33,495) ------------- ------------- ------------- Income (loss) before reorganization items and income taxes............................... (19,126) (229,895) 28,527 Reorganization items.................................... (660) -- -- ------------- ------------- ------------- Income (loss) before income taxes................. (19,786) (229,895) 28,527 Income tax expense (benefit)............................ -- (9,984) 9,984 ------------- ------------- ------------- Net income (loss)................................. (19,786) (219,911) 18,543 Accretion of preferred stock............................ 43,344 46,403 25,722 ------------- ------------- ------------- Net loss available to common stockholders ........... $ (63,130) $ (266,314) $ (7,179) ============= ============= ============= Basic and diluted net loss per share.................... $ (2.55) $ (213.01) $ (5.74) ============= ============= ============= Weighted average number of shares outstanding for basic and diluted net loss per share............. 24,766,425 1,250,251 1,250,251 ============= ============= =============
The accompanying notes are an integral part of the consolidated financial statements. 23 TRANSTEXAS GAS CORPORATION (DEBTOR IN POSSESSION) CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
RETAINED ACCUMULATED COMMON STOCK ADDITIONAL EARNINGS OTHER TOTAL ---------------------- PAID-IN CAPITAL (ACCUMULATED COMPREHENSIVE STOCKHOLDERS' SHARES AMOUNT (CAPITAL DEFICIT) DEFICIT) INCOME (LOSS) EQUITY (DEFICIT) ------------ ------ ----------------- ------------ ------------- ---------------- Balance at January 31, 2000............. 74,000,000 $ 740 $ (740) $ -- $ -- $ -- Cancellation of old common stock...... (74,000,000) (740) 740 -- -- -- Issuance of new common stock.......... 1,250,251 12 (12) -- -- -- Proceeds from short-swing sale........ -- -- 25 -- -- 25 Accretion of preferred stock.......... -- -- -- (25,722) -- (25,722) Adjustment to reorganization value.... -- -- 25,000 -- 25,000 Net income............................ -- -- -- 18,543 -- 18,543 ------------ ------ ---------------- ------------ ------------- --------------- Balance at January 31, 2001............. 1,250,251 12 25,013 (7,179) -- 17,846 Cumulative effect of adopting SFAS 133............................. -- -- -- -- (1,282) (1,282) Change in fair value of hedge agreements........................... -- -- -- -- 2,486 2,486 Reclassification adjustments for hedge agreement settlements.......... -- -- -- -- 1,144 1,144 Accretion of preferred stock.......... -- -- -- (46,403) -- (46,403) Net loss.............................. -- -- -- (219,911) -- (219,911) ------------ ------ ---------------- ------------ ------------- --------------- Balance at January 31, 2002............. 1,250,251 12 25,013 (273,493) 2,348 (246,120) Change in fair value of hedge agreements........................... -- -- -- -- (4,440) (4,440) Reclassification adjustments for conversion of preferred stock........ 62,198,579 622 54,025 -- -- 54,647 Accretion of preferred stock.......... -- -- -- (43,344) -- (43,344) Net loss.............................. -- -- -- (19,786) -- (19,786) ------------ ------ ---------------- ------------ ------------- --------------- Balance at January 31, 2003............. 63,448,830 $ 634 $ 79,038 $ (336,623) $ (2,092) $ (259,043) ============ ====== ================ ============ ============= ===============
The accompanying notes are an integral part of the consolidated financial statements. 24 TRANSTEXAS GAS CORPORATION (DEBTOR IN POSSESSION) CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS OF DOLLARS)
YEAR ENDED JANUARY 31, --------------------------------------------------- 2003 2002 2001 ------------- -------------- ------------- Operating activities: Net income (loss).............................................. $ (19,786) $ (219,911) $ 18,543 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation, depletion and amortization.................... 27,092 91,266 81,483 Impairment of gas and oil properties........................ -- 195,065 -- Accretion of discount on long-term debt..................... 166 161 3,813 Amortization of debt issue costs............................ 1,287 530 343 Deferred income taxes....................................... -- (9,984) 9,984 Changes in assets and liabilities Accounts receivable..................................... 6,526 27,266 (22,941) Receivable from affiliates.............................. -- 21 1,086 Inventories............................................. 383 658 265 Other current assets.................................... (454) 1,757 (1,595) Accounts payable........................................ (3,648) (3,450) (6,567) Accrued liabilities..................................... 9,618 (7,422) 23,255 Other assets............................................ 200 156 (112) Other liabilities....................................... (373) (1,367) (26,635) ------------- -------------- ------------- Net cash provided by operating activities.............. 21,011 74,746 80,922 ------------- -------------- ------------- Investing activities: Capital expenditures........................................... (11,343) (134,325) (101,189) Proceeds from litigation settlement............................ 3,000 -- -- Proceeds from the sale of assets............................... 697 53,627 16,182 ------------- -------------- ------------- Net cash used by investing activities.................. (7,646) (80,698) (85,007) ------------- -------------- ------------- Financing activities: Issuance of production payments................................ 27,000 49,800 27,000 Principal payments on production payments...................... (36,865) (36,131) (47,303) Issuance of debt............................................... 2,000 2,134 32,500 Principal payments on debt..................................... (1,637) (7,059) (16,943) Revolving credit agreement, net................................ (1,305) (16,639) 13,739 Proceeds from short-swing sale................................. -- -- 25 Debt issue costs............................................... (1,599) (309) (2,506) ------------- -------------- ------------- Net cash provided (used) by financing activities....... (12,406) (8,204) 6,512 ------------- -------------- ------------- Increase (decrease) in cash and cash equivalents....... 959 (14,156) 2,427 Beginning cash and cash equivalents............................... 6,559 20,715 18,288 ------------- -------------- ------------- Ending cash and cash equivalents.................................. $ 7,518 $ 6,559 $ 20,715 ============= ============== =============
The accompanying notes are an integral part of the consolidated financial statements. 25 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. Prior to March 17, 2000 (the "Effective Date"), TransTexas was a subsidiary of TransAmerican Energy Corporation ("TEC"), whose ultimate parent company was TransAmerican Natural Gas Corporation ("TransAmerican"). The Company is engaged in the exploration, development and production of natural gas, crude oil, condensate and natural gas liquids. Unless otherwise noted, the term "TransTexas" refers to TransTexas Gas Corporation and its subsidiaries, Galveston Bay Processing Corporation ("Processing") and Galveston Bay Pipeline Company ("Pipeline"). See Note 2 for a discussion of TransTexas' reorganizations. 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, disclosure of contingent assets and liabilities at the date of the financial statements, the reported amounts of revenues and expenses during the reporting period and the reported amounts of gas and oil reserves. TransTexas' most significant financial estimates are based on remaining proved gas and oil reserves. Actual results could differ from these estimates. 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, 2003 and 2002 include $0.3 million and $0.2 million, respectively, restricted for payments of future goods and services provided by certain vendors. Inventories TransTexas' inventories, which are stated at the lower of average cost or market, consist primarily of condensate produced but not sold and tubular goods. Gas and Oil Properties TransTexas uses the full cost method of accounting for exploration and development costs. Under this method of accounting, the cost of all 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. For the year ended January 31, 2002, TransTexas recorded impairment losses related to write-downs of $195.1 million of its net capitalized costs of gas and oil properties to the cost center ceiling in accordance with the full cost method of accounting. 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 $49 million and $45 million at January 31, 2003 and 2002, 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, 2003 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 26 TRANSTEXAS GAS CORPORATION (DEBTOR IN POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 over their estimated useful lives of 4 to 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. Through January 31, 2002, we reviewed the carrying value of our long-lived assets in accordance with provisions of Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." In August 2001, the Financial Accounting Standards Board ("FASB") issued SFAS 144, "Accounting for the Impairment or Disposal of Long Lived Assets." SFAS 144 addresses the accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS 121 and APB Opinion No. 30 "Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." SFAS 144 requires assets to be evaluated for impairment when events or circumstances indicate that a long-lived asset's carrying value may not be recovered. These events include market declines, changes in the manner in which we intend to use an asset or decision to sell an asset and adverse changes in the legal or business environment. Our adoption of SFAS 144 on February 1, 2002 did not have any impact on our financial position or result of operations. 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. In June 2001, The FASB issued SFAS 143, "Accounting for Asset Retirement Obligations". SFAS 143 provides accounting requirements for costs associated with legal obligations to retire tangible, long-lived assets. Under SFAS 143, the asset retirement obligation is recorded at fair value in the period in which it is incurred by increasing the carrying amount of the related long-lived asset. In each subsequent period, the liability is accreted to its present value and the capitalized cost is depreciated over the useful life of the related asset. Effective upon our adoption, the cumulative effect of applying SFAS 143 will be recognized as a change in accounting principle in the consolidated statements of operations. At January 31, 2003 the Company had not previously recorded an asset retirement obligation related to its long-lived assets. As such, the Company adopted SFAS 143 effective February 1, 2003. The Company expects the impact of adopting SFAS 143 will be a decrease to earnings, net of tax, of approximately $3 million, to be reflected as a cumulative effect of a change in accounting principle in the first quarter of fiscal year 2004. Liabilities for other contingencies are recognized in accordance with SFAS 5 upon identification of an exposure, which when fully analyzed indicates that it is both probable that an asset has been impaired or that a liability has been incurred and that such a loss amount can be reasonably estimated. Non-capital costs to remedy such contingencies or other exposures are charged to a reserve, if one exists, or otherwise to current-period operations. When a range of probable loss exists, the Company accrues the lesser end of the range. 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 maintains a defined contribution plan, which incorporates a "401(k) feature" as allowed under the Internal Revenue Code. All investment transactions are administered by 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 first day of the month following their eligibility. TransTexas matches employee contributions up to a maximum of 100% of the first 3% and 50% of the next 2% of the participant's compensation. TransTexas' contributions with respect to this plan totaled $0.2 million for each of the years ended January 31, 2003, 2002 and 2001. All Company contributions are currently funded. 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 that the book value of financial instruments classified as current approximates 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. 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. TransTexas uses the sales method of accounting for production imbalances that arise from jointly produced properties. Volumetric production is monitored to minimize these imbalances. An imbalance liability is recorded in other liabilities if TransTexas' excess sales of production volumes exceed its share of estimated remaining recoverable reserves for such properties. Receivables are not recorded for those properties in which TransTexas has taken less than its share of production. Concentrations Financial instruments that potentially expose TransTexas to credit risk consist principally of cash and trade receivables. TransTexas selects depository banks based upon management's review of the financial stability of the institution. Balances generally 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 27 TRANSTEXAS GAS CORPORATION (DEBTOR IN POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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. Effective February 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities," which was amended by Statement of Financial Accounting Standards No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities." These pronouncements established accounting and reporting standards for derivative instruments and for hedging activities, which generally require recognition of all derivatives as either assets or liabilities in the balance sheet at their fair value. The accounting for changes in fair value depends on the intended use of the derivative and its resulting designation. The Company recorded a cumulative effect charge to comprehensive income of approximately $1.3 million to recognize the fair value of its liability under the Company's derivative instruments upon the adoption of SFAS 133. A summary of the Company's comprehensive loss for the years ended January 31, 2003 and 2002 is as follows (in thousands of dollars):
YEAR ENDED JANUARY 31, ---------------------------------------- 2003 2002 ----------------- ----------------- Comprehensive loss: Net loss........................................................ $ (19,786) $ (219,911) Cumulative effect of adopting SFAS 133.......................... -- (1,282) Change in the fair value of hedge agreements.................... (4,440) 2,486 Reclassification adjustments for hedge agreement settlements.... -- 1,144 ----------------- ----------------- Comprehensive loss.......................................... $ (24,226) $ (217,563) ================= =================
As of January 31, 2003, the Company had entered into the following hedging arrangements (settlement price based on a published industry index of natural gas prices at Houston Ship Channel) as cash flow hedges of forecasted sales of a portion of the Company's natural gas production:
CONTRACT PRICE -------------------- TOTAL COLLAR VOLUMES IN -------------------- PERIOD MMBtus FLOOR CEILING - ------ ------------- --------- ------- Natural gas: February 2002 - March 2002.................................... 590,000 $ 2.85 $ 3.30 February 2002 - July 2002..................................... 1,267,000 3.30 3.95 April 2002 - October 2002..................................... 1,070,000 2.85 3.35 August 2002 - October 2002.................................... 644,000 3.10 3.40 November 2002 - March 2003.................................... 755,000 3.50 3.95 November 2002 - March 2003.................................... 755,000 3.50 3.90 April 2003 - October 2003..................................... 1,284,000 3.25 4.05
For the years ended January 31, 2003 and 2002, the Company recognized hedging gains of $0.4 million and $1.6 million, respectively, which are reflected in gas, condensate and natural gas liquids revenues. The Company recognized hedging losses of $9.1 million for the year ended January 31, 2001. At January 31, 2003 and 2002, the Company's estimated net liability of its hedging arrangements was $2.1 million and $2.3 million, respectively. 28 TRANSTEXAS GAS CORPORATION (DEBTOR IN POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Income Taxes Prior to the Effective Date, TransTexas filed a consolidated tax return with TransAmerican. Income taxes were 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 was TransTexas' policy to record income tax expense as though TransTexas had filed separately. Subsequent to the Effective Date, TransTexas and its wholly owned subsidiaries file a consolidated tax return. 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. Recently Issued Pronouncements For a discussion related to SFAS 143, see "Environmental Remediation Costs" under Note 1. In April 2002, the FASB issued SFAS 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13 and Technical Corrections." SFAS 145 provides guidance for income statement classification of gains or losses from extinguishment of debt and accounting for certain lease modifications that have economic effects similar to sale-leaseback transactions. Gains or losses from extinguishments that are part of a company's recurring operations would not be reported as an extraordinary item. The Company adopted SFAS 145 effective February 1, 2003, which had no impact on the Company's financial statements. In June 2002, the FASB issued SFAS 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS 146 requires recognition of a liability for costs associated with an exit or disposal activity when the liability is incurred rather than at the date of a commitment to an exit or disposal plan. SFAS 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002 and will be used to report any future exits or disposal activities. The Company's adoption of SFAS 146 on January 1, 2003 had no effect on the Company's financial statements. In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"), "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." FIN 45 addresses the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. FIN 45 also clarifies the requirement that a guarantor recognize a liability at the inception of the guarantee for the fair value of the obligation that the guarantor has undertaken in issuing the guarantee. The initial recognition and measurement provisions of FIN 45 are applicable to guarantees issued or modified after December 31, 2002 and are not expected to have a material impact on the Company's financial statements. 2. REORGANIZATIONS On November 14, 2002 (the "Petition Date"), TransTexas, Pipeline and Processing filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Texas, Corpus Christi Division (the "Bankruptcy Court"). The bankruptcy cases are being jointly administered (see Note 13). TransTexas, Pipeline and Processing 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 Petition Date. 29 TRANSTEXAS GAS CORPORATION (DEBTOR IN POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 the interests 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. The Company expects to file its Plan of Reorganization and Disclosure Statement with the Bankruptcy Court on May 1, 2003. Additional information with respect to the Plan of Reorganization and Disclosure Statement will be provided on Form 8-K or by an amendment to this Form 10-K. At this time, it is not possible to predict the outcome of the bankruptcy proceedings or the effect on the business of the Company or on the interests of creditors, royalty owners or stockholders. Management's revised business model is centered around the promotion of working interest partners who carry a significant portion of the capital expenditures necessary to evaluate the Company's properties, much of which are unevaluated as of January 31, 2003. The Company intends to finance its share of the necessary capital expenditures through cash flow from operations, production payment issuances and any supplemental fundings provided pursuant to its emergence from bankruptcy proceedings. However, there can be no assurance that working interest partners can be obtained on terms acceptable to the Company, or additional financing obtained, to evaluate the Company's properties in a timely manner. As a result of the bankruptcy filing, a significant amount of the Company's liabilities, including secured debt, are subject to compromise. As of January 31, 2003, liabilities subject to compromise included the following (in thousands of dollars): Long-term debt................................ $ 205,197 Note payable ................................. 2,000 Accrued liabilities........................... 26,054 Other liabilities............................. 5,643 ------------- $ 238,894 =============
The consolidated financial statements as of January 31, 2003 and for the year then ended have been prepared in accordance with the American Institute of Certified Public Accountants Statement of Position 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7"). As of the petition date, in accordance with SOP 90-7, the Company discontinued the accrual of interest and amortization of deferred debt issue costs related to liabilities subject to compromise. If such interest had continued to be accrued, based on contractual terms without increase for default provisions, and related deferred debt issue costs continued to be amortized, interest expense for the fiscal year ended January 31, 2003 would have been increased $6.7 million. 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. Prior Reorganization On April 19, 1999 ("Prior Petition Date"), TransTexas filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code. On April 20, 1999, TEC and its wholly owned subsidiary, TransAmerican Refining Corporation ("TARC") also filed voluntary petitions under Chapter 11. On May 20, 1999, the cases were transferred to the United States Bankruptcy Court for the Southern District of Texas, Corpus Christi Division ("Prior Bankruptcy"). This Chapter 11 filing did not include TransTexas' subsidiaries. The Company's Second Amended, Modified and Restated Plan of Reorganization dated January 25, 2000 (the "Prior Plan") was confirmed by the Bankruptcy Court on February 7, 2000. The Effective Date of the Prior Plan is March 17, 2000. 30 TRANSTEXAS GAS CORPORATION (DEBTOR IN POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 3. LIQUIDITY In order to maintain or increase proved oil and gas reserves, TransTexas is required to make substantial capital expenditures for the exploration and development of natural gas and oil prospects. Absent the November 14, 2002 Chapter 11 filing, TransTexas remains highly leveraged and a substantial portion of its cash flow will be required for debt service. In addition, cash flow from operations is dependent on the level of gas and oil prices, which are historically volatile. Management plans to fund TransTexas' 2004 debt service requirements and capital expenditures with cash flows from operating activities and borrowings under the production payment drilling program and other financings. In addition, the Company has commenced negotiations for joint venture drilling opportunities with several unrelated entities. Should these drilling prospects not be productive or should oil and gas prices decline for a prolonged period, absent other sources of capital, the Company would substantially reduce its capital expenditures, which would limit its ability to maintain or increase production and in turn meet its debt service requirements. Asset sales and financings are restricted under the terms of TransTexas' debt documents and Senior Preferred Stock. 4. OTHER CURRENT ASSETS The major components of other current assets are as follows (in thousands of dollars):
JANUARY 31, ----------------------- 2003 2002 -------- -------- Prepayments: Trade............................ $ 123 $ 485 Insurance........................ 607 252 Fair value of hedging contracts..... -- 2,348 Legal............................... 488 27 -------- -------- $ 1,218 $ 3,112 ======== ========
5. PROPERTY AND EQUIPMENT The major components of property and equipment, at cost, are as follows (in thousands of dollars):
JANUARY 31, ----------------------- 2003 2002 -------- -------- Gas and oil properties ........... $446,059 $437,813 Gas gathering and transportation.. 50,236 50,462 Equipment and other .............. 5,685 6,473 -------- -------- $501,980 $494,748 ======== ========
In October 2001, TransTexas sold its interest in the Bob West field in Zapata County, Texas for a sales price of $56.5 million, exclusive of closing costs. TransTexas incurred approximately $39.0 million, $46.7 million and $48.2 million of interest charges of which approximately $6.9 million, $11.4 million and $14.1 million were capitalized for the years ended January 31, 2003, 2002 and 2001, respectively. Capitalized interest is included as part of the cost of gas and oil properties. TransTexas uses capitalization rates based on its weighted average cost of borrowings used to finance such expenditures. For the year ended January 31, 2002, TransTexas recorded impairment losses related to write-downs of $195.1 million of its net capitalized costs of gas and oil properties to the cost center ceiling in accordance with the full cost method of accounting. 31 TRANSTEXAS GAS CORPORATION (DEBTOR IN POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 6. OTHER ASSETS The major components of other assets are as follows (in thousands of dollars):
JANUARY 31, ------------------------------- 2003 2002 ------------- ------------- Debt issue costs, net of accumulated amortization of $2,750 at January 31, 2003 and $1,184 at January 31, 2002 .................... $ 1,665 $ 1,632 Other ................................................................. 269 469 ------------- ------------- $ 1,934 $ 2,101 ============= =============
7. LONG-TERM DEBT AND PRODUCTION PAYMENTS Long-Term Debt Long-term debt consists of the following (in thousands of dollars):
JANUARY 31, ------------------------------- 2003 2002 ------------- ------------- 15% Senior Secured Notes due 2005 ..................................... $ 200,000* $ 200,000 Revolving Credit Note.................................................. 30,000 30,000 Term Note.............................................................. 21,881 22,106 Note payable at 8% due 2005............................................ 5,197* 5,209 Revolving credit agreement ............................................ -- 1,305 Notes payable, ranging from 8% to 10%, due through 2005................ 4,400 5,598 ------------- ------------- Total long-term debt............................................... 261,478 264,218 Less liabilities subject to compromise................................. 205,197* -- Less Revolving Credit Note and Term Note reclassified to current....... 51,881 -- Less current maturities................................................ 3,502 2,444 ------------- ------------- $ 898 $ 261,774 ============= =============
(*) Subject to compromise (see Note 2). Aggregate annual maturities of long-term debt for fiscal years 2004 to 2006 are $3.5 million, $0.9 million and $51.9 million, respectively. Prior to the Company's bankruptcy filing in November 2002, all of the Company's long-term debt was scheduled to be paid by the end of fiscal year 2006. On the Effective Date, the Company and GMAC Commercial Credit LLC ("GMACC") entered into a Third Amended and Restated Accounts Receivable Management and Security Agreement, dated as of March 15, 2000 (the "Accounts Receivable Facility"). The Accounts Receivable Facility is a revolving credit facility secured by accounts receivable and inventory. The maximum loan amount under the facility is $7.5 million, against which the Company may from time to time, subject to the conditions of the Accounts Receivable Facility, borrow, repay and reborrow. Advances under the facility bear interest at a rate per annum equal to the higher of (i) the prime commercial lending rate of The Bank of New York plus 1/2 of 1%, and (ii) the Federal Funds Rate plus 1% payable monthly in arrears. As of January 31, 2003, there were no outstanding advances under the Accounts Receivable Facility and the Company had availability for advances of approximately $1.8 million. Interim and Final Financing Orders of the Bankruptcy Court modified the maximum loan amount under the Accounts Receivable Facility and modified certain other terms of the facility. Pursuant to these Interim and Final Orders, GMACC waived compliance with certain provisions of the facility. Pursuant to the Final Financing Order, the Accounts Receivable Facility is due on August 7, 2003. On the Effective Date, the Company, as Borrower, and Processing and Pipeline, as Guarantors, entered into an Oil and Gas Revolving Credit and Term Loan Agreement, dated as of March 15, 2000 (the "Oil and Gas Facility") with GMACC, as a Lender and as Agent. The Oil and Gas facility consists of a term loan (the "Term Loan") in the amount of $22.5 million and a revolving facility (the "Revolving Loan") in a maximum amount of $30 million (all of which was funded on the Effective Date). The Term Loan bears interest at a rate of 14% per annum and the Revolving Loan bears interest at a rate of 13 1/2% per 32 TRANSTEXAS GAS CORPORATION (DEBTOR IN POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) annum. Interest on the Term Loan and the Revolving Loan is payable monthly in arrears. Principal amortization of the Term Loan is due in 20 quarterly installments of $56,250 each beginning June 14, 2000, with the balance due March 14, 2005; however the Company may, and in certain circumstances must, make prepayments of such amount. If, subsequent to such prepayments, the Company demonstrates sufficient collateral value meeting the requirements of the Oil and Gas Facility provisions, the Company may be entitled to borrow additional advances under the Revolving Loan. The Oil and Gas Facility is secured by substantially all of the assets of the Company. The security interest in accounts receivable and inventory securing the Oil and Gas Facility is subordinated to the security interest of GMACC under the Accounts Receivable Facility. Interim and Final Financing Orders of the Bankruptcy Court modified certain terms of the Oil and Gas Facility. Pursuant to these Interim and Final Orders, GMACC waived compliance with certain provisions of the facility. Pursuant to the Final Financing Order, the Oil and Gas Facility is due on August 7, 2003. On the Effective Date, the Company, as Issuer, Pipeline and Processing, as Guarantors, and U.S. Bank, N.A., as successor indenture trustee to Firstar Bank, N.A., entered into an Indenture dated as of March 15, 2000, pursuant to which the Company issued the Notes. Interest on the Notes is due semi-annually on March 15 and September 15. The Notes are secured by substantially all of the assets of the Company other than accounts receivable and inventory. The Indenture contains certain covenants that restrict the Company's ability to incur indebtedness, engage in related party transactions, dispose of assets or engage in sale/leaseback transactions, issue dividends on common stock, change its line of business, consolidate or merge with or into another entity or convey, transfer or lease all or substantially all of its assets, and suffer a change of control. The security interest in favor of the Trustee is subordinated to the Security Interest in favor of the Agent under the Oil and Gas Facility. The fair value of the Notes, based on quoted market prices on January 31, 2003, was $70 million. On March 15, 2002, Credit Suisse First Boston Management Corporation ("CSFB") and the Company, as borrower, and Processing, as guarantor, entered into an unsecured Term Loan Agreement, wherein CSFB advanced to the Company the principal sum of $2.0 million which was due and payable, together with interest at a rate of 15% per annum, on October 15, 2002. The Company has not paid the principal and accrued interest of this loan and is in default under its terms. At January 31, 2003, the outstanding balance of this loan is included in liabilities subject to compromise. CSFB is the beneficial owner of more than 10% of each of the 15% Notes, Class A Common Stock and Senior Preferred Stock. 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. In accordance with the Plan, the principal amount of the note was increased to $6.7 million, bears interest at 8% and is collateralized by a pledge of the stock of Processing and a mortgage on the Winnie, Texas processing facility. At January 31, 2003, the undiscounted principal balance outstanding of this note was $3.2 million. Additional notes payable totaling $1.2 million and $6.8 million at January 31, 2003 and 2002, respectively, consist of amounts payable pursuant to the Prior Plan in settlement of the claims of certain creditors. Such amounts are generally payable over a five year period with stated interest rates ranging from 8% to 10%; however, these notes have been discounted to an effective interest rate of 14%. Production Payments In March 2000, TransTexas entered into a production payment drilling program agreement with two unaffiliated third parties in the form of a term overriding royalty interest carved out of and burdening certain properties ("Subject Interests"). The Company has the right to offer additional interests to the production payment parties at a negotiated purchase price. The production payment calls for the repayment of the primary sum plus an amount equivalent to a 15% annual interest rate on the unpaid portion of such primary sum. In March 2002, the Company closed an Eighth Supplement to the production payment whereby the Company received $14.0 million. In June 2002, the Company closed a Ninth Supplement to the production payment whereby the Company received $13.0 million in exchange for additional properties being made subject to the production payment. As of January 31, 2003, the outstanding balance of the production payment was $18.6 million, of which $2.2 million attributable to produced volumes is included in accrued liabilities. The Oil and Gas Facility places certain restrictions on the amount that may be outstanding under the production payment. In April 2003, the Company closed a Tenth Supplement to the production payment whereby the Company received $5.0 million. In connection with the production payment, the Company entered into various marketing and processing agreements with one of the third parties. Pursuant to these agreements, the Company pays a nominal marketing fee with respect to the Company's production associated with the New Subject Interests. In addition, the third party pays a fee for certain processing services provided by Processing. 33 TRANSTEXAS GAS CORPORATION (DEBTOR IN POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 8. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION The following information reflects TransTexas' noncash activities (in thousands of dollars):
YEAR ENDED JANUARY 31, ------------------------------------------------ 2003 2002 2001 ------------ ------------- ----------- Accretion of stock............................................. $ 43,344 $ 46,403 $ 25,722 ============ ============= =========== Conversion of preferred stock.................................. $ 54,647 $ -- $ -- ============ ============= =========== (Increase) decrease in fair value of hedging agreements........ $ 4,440 $ (2,486) $ -- ============ ============= =========== Capitalization of amortization of debt issuance costs.......... $ 279 $ 171 $ 139 ============ ============= =========== Cancellation of old common stock............................... $ -- $ -- $ 740 ============ ============= =========== Issuance of new common stock................................... $ -- $ -- $ 12 ============ ============= ===========
Cash paid for interest is as follows (in thousands of dollars):
YEAR ENDED JANUARY 31, ------------------------------------------------ 2003 2002 2001 ------------ ------------- ----------- Interest........................................................... $ 20,703 $ 33,321 $ 16,352 ============ ============= ===========
9. ACCRUED LIABILITIES Accrued liabilities classified as current liabilities consist of the following (in thousands of dollars):
JANUARY 31, ------------------------------- 2003 2002 ------------ ------------- Royalties.......................................................... $ 1,200 $ 2,110 Taxes other than income taxes...................................... 2,560 498 Accrued interest................................................... 949 14,803 Payroll............................................................ 1,325 1,090 Current portion of production payments............................. 2,235 2,468 Hedging losses..................................................... 2,390 -- Accrued insurance.................................................. 127 1,980 Reorganization claims.............................................. 608 2,084 Other.............................................................. 156 1,094 ------------ ------------- $ 11,550 $ 26,127 ============ =============
10. OTHER LIABILITIES The major components of other liabilities are as follows (in thousands of dollars):
JANUARY 31, ------------------------------- 2003 2002 ------------ ------------- Reorganization claims.............................................. $ 625 $ 6,644 Other.............................................................. 3 -- ------------ ------------- $ 628 $ 6,644 ============ =============
34 TRANSTEXAS GAS CORPORATION (DEBTOR IN POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 11. INCOME TAXES Income tax expense (benefit) includes the following (in thousands of dollars):
YEAR ENDED JANUARY 31, ------------------------------------------------ 2003 2002 2001 ------------ ------------- ----------- Federal: Deferred ............................................. $ -- $ (9,984) $ 9,984 ============ ============= ===========
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, ------------------------------------------------ 2003 2002 2001 ------------ ------------- ----------- Federal income tax expense (benefit) at the statutory rate....................................... $ (6,925) $ (80,463) $ 9,984 Increase (decrease) in tax resulting from: Valuation allowance.................................. 6,925 70,479 -- ------------ ------------- ----------- $ -- $ (9,984) $ 9,984 ============ ============= ===========
Significant components of TransTexas' tax attributes are as follows (in thousand of dollars):
JANUARY 31, ------------------------------------------- 2003 2002 ------------------ ------------------ Deferred tax assets: Depreciation, depletion and amortization............. $ 63,147 $ 56,634 Net operating loss carryforwards..................... 14,257 13,845 ------------------ ------------------ 77,404 70,479 Valuation allowance.................................. (77,404) (70,479) ------------------ ------------------ Net deferred tax assets ........................ -- -- ------------------ ------------------ $ -- $ -- ================== ==================
Part of the debt refinancing of TransAmerican 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 provision (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. As a former member of the affiliated group for tax purposes (the "TNGC Consolidated Group") which included TNGC Holdings Corporation, the sole stockholder of TransAmerican ("TNGC"), TransAmerican, TEC, TransTexas and TARC, TransTexas will be severally liable for any tax liability resulting from any transaction of the TNGC Consolidated Group that occurred during any taxable year of the TNGC Consolidated Group during which TransTexas was a member, including the above described transactions. During fiscal year 1997, the IRS commenced an audit of the consolidated federal income tax returns of the TNGC Consolidated Group for its taxable years ended July 31, 1994 and July 31, 1995. The Company has been advised by the IRS that they have completed their audit and do not propose any adjustments. TransTexas expects that a significant portion of its net operating loss carryovers ("NOLs") will be eliminated and the use of those NOLs that are not eliminated will be severely restricted as a consequence of TransTexas' reorganization. In addition, certain other tax attributes of TransTexas may under certain circumstances be eliminated or reduced as a consequence of TransTexas' reorganization. The potential elimination or reduction of NOLs and such other tax attributes may substantially increase the amount of tax payable by TransTexas. Since the Effective Date, TransTexas had NOLs for federal income tax purposes of approximately $40.7 million that may be used in future years to offset taxable income. The NOLs will begin to expire during the years 2021 through 2024. 35 TRANSTEXAS GAS CORPORATION (DEBTOR IN POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 12. RELATED PARTY TRANSACTIONS In March 2002, John R. Stanley resigned as Chief Executive Officer and as Chairman and member of the Board of Directors of the Company. Mr. Stanley's employment agreement provided that the Company would pay Mr. Stanley $3.0 million in cash upon the termination of his employment. A separation agreement between Mr. Stanley and the Company provided that the Company would pay Mr. Stanley $3.0 million in installments, together with interest at a rate of 10% per annum. At January 31, 2003, the severance remaining to be paid to Mr. Stanley was $0.8 million and this amount is included in liabilities subject to compromise. As discussed above (see Note 7), the Company and CSFB entered into an unsecured Term Loan Agreement wherein CSFB advanced to the Company the principal sum of $2.0 million. CSFB is the beneficial owner of more than 10% of each of the 15% Notes, Class A Common Stock and Senior Preferred Stock. 13. COMMITMENTS AND CONTINGENCIES Environmental Matters TransTexas' operations and properties are subject to extensive federal, state, and local laws and regulations relating to the generation, storage, handling, emission, transportation, and discharge of materials into the environment. Permits are required for various of TransTexas' operations, and these permits are subject to revocation, modification, and renewal by issuing authorities. TransTexas also is subject to federal, state, and local laws and regulations that impose liability for the cleanup or remediation of property which has been contaminated by the discharge or release of hazardous materials or wastes into the environment. Governmental authorities have the power to enforce compliance with their regulations, and violations are subject to fines or injunctions, or both. TransTexas believes that it is in material compliance with applicable environmental laws and regulations. Noncompliance with such laws and regulations could 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. Legal Proceedings Chapter 11 Bankruptcy. On November 14, 2002, TransTexas, Pipeline and Processing filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Texas, Corpus Christi Division. The bankruptcy cases are being jointly administered under the caption "In re: TransTexas Gas Corporation, et al., Debtors," Case No. 02-21926-C-11. TransTexas, Pipeline and Processing 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 Petition Date. Litigation Settlement. In October 2002, TransTexas entered into a settlement agreement with an unaffiliated oilfield service company whereby that company paid TransTexas $3.0 million. This settlement was approved by the Bankruptcy Court on December 4, 2002. Prior Plan. TransTexas is a party to various claims and litigation arising out of the Prior Bankruptcy. Any obligations of the Company in respect of such claims and litigation arising out of the Prior Bankruptcy will be discharged or otherwise disposed of pursuant to the Prior Plan. Recovery of these obligations, if any, will be limited to any collateral held by the claimant and/or such claimant's pro rata share of amounts available to pay general unsecured claims. General. TransTexas is a party to various claims and routine litigation arising in the normal course of its business. The resolution in any reporting period of one or more of the such claims or litigation could have a material effect on TransTexas' results of operations and cash flows for that period. Although the outcome of claims and litigation cannot be predicted with certainty, TransTexas does not expect that any of these various claims or routine litigation matters will have a material adverse effect on its financial position. Operating Leases As of January 31, 2003, TransTexas had long-term leases covering land and other property and equipment. Rental expense was approximately $2 million for the year ended January 31, 2003 and approximately $3 million for each of the years ended January 31, 2002 and 2001, 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, 2003, are as follows (in thousands of dollars): 2004-$73, 2005-$73, 2006-$66, 2007-$7. 36 TRANSTEXAS GAS CORPORATION (DEBTOR IN POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Drilling Rig Commitment During February 2001, TransTexas entered into a one-year contract with an independent contractor for utilization of a drilling rig capable of drilling wells to a depth of approximately 18,500 feet. TransTexas utilized this rig to drill wells in the Galveston Bay area. As of January 31, 2003, the balance remaining to be paid under this contract, which commenced in May 2001, was approximately $1 million. In April 2003, the independent contractor released TransTexas from any claim that it had under the 2001 contract. Gas Delivery Agreements TransTexas has entered into contracts with Kinder Morgan Ship Channel Pipeline, L.P., formerly Tejas Ship Channel, LLC, for transportation of its production from the Eagle Bay field to the Winnie facilities at a fixed negotiated rate. Under these contracts, the Company has agreed to deliver the first 75,000 MMBtu per day of natural gas and associated condensate to Kinder Morgan Ship Channel Pipeline, L.P. The Company also entered into a contract with a subsidiary of Duke Energy Field Services, LLC for transportation of natural gas on a firm and interruptible basis from the Winnie facility to natural gas liquids recovery facilities located in the Beaumont/Port Arthur, Texas area, and residue gas from these facilities to various distribution points. Under the agreement, the Company has agreed to deliver the first 56,250 Mcf of natural gas and 19,500 MMBtu of residue gas per day to Duke Energy Field Services. Transportation fees for natural gas and residue gas are based on fixed negotiated rates. 14. PREFERRED STOCK DIVIDENDS AND CONVERSION TO CLASS A COMMON STOCK The Certificate of Designation for the Senior Preferred Stock of the Company provides for the mandatory conversion of one-half of the outstanding shares of Senior Preferred Stock into fully paid and non-assessable shares of Class A Common Stock at the rate of 0.3461 shares of Class A Common Stock for each $1.00 of liquidation preference per share, plus an amount equal to accrued and unpaid dividends, of Senior Preferred Stock if the Company fails to pay dividends on the Senior Preferred Stock as required by the Certificate of Designation for the Senior Preferred Stock on any two dividend payment dates. The Certificate of Designation for the Series A Junior Preferred Stock ("Junior Preferred Stock" and together with the Senior Preferred Stock, the "Preferred Stock") provides for the mandatory conversion of all of the outstanding shares of Junior Preferred Stock into fully paid and non-assessable shares of Class A Common Stock at the rate of 0.1168 shares of Class A Common Stock for each $1.00 of liquidation preference per share, plus an amount equal to accrued and unpaid dividends, of Junior Preferred Stock if the Company fails to pay dividends on the Senior Preferred Stock as required by the Certificate of Designation for the Senior Preferred Stock on any two dividend payment dates. The Certificate of Designation for each of the Senior Preferred Stock and the Junior Preferred Stock required the payment to the holders of a cash dividend on the Senior Preferred Stock and an in-kind dividend on the Junior Preferred Stock, respectively, by the Company on June 15, 2002 and on September 15, 2002. The Company did not make the required dividend payments on either date. Therefore, the liquidation preference of the Senior Preferred Stock was increased to approximately $1.04 per share and the liquidation preference of the Junior Preferred Stock was increased to approximately $1.05 per share. As a result, on September 16, 2002, each two shares of Senior Preferred Stock was converted into one share of New Senior Preferred and into approximately 0.3596 shares of Class A Common Stock and each share of Junior Preferred Stock was converted into approximately 0.1227 shares of Class A Common Stock. No fractional shares were issued in the conversion. The Board of Directors of the Company determined that the fair market value of each share of the Preferred Stock and Common Stock for purposes of the conversion was less than $0.01 per share and, therefore, no cash was paid to holders of Preferred Stock in lieu of fractional shares. In the aggregate 164,333,875 shares of Senior Preferred Stock representing one-half of all of the outstanding Senior Preferred Stock were converted into 59,101,243 shares of Class A Common Stock and 25,240,513 shares of Junior Preferred Stock representing all of the outstanding Junior Preferred Stock were converted into 3,097,336 shares of Class A Common Stock. Since the Company did not pay the required dividend payments, holders of the Senior Preferred Stock have the right, voting separately as a class, to elect all five directors to the Company's Board of Directors. On December 16, 2002 and March 17, 2003, the Company did not make the required cash dividend payments to the remaining holders of the Senior Preferred Stock. The Company does not anticipate paying cash dividends on the Senior Preferred Stock in the future. 37 TRANSTEXAS GAS CORPORATION (DEBTOR IN POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 15. SHORT-SWING SALE During the year ended January 31, 2001, the Company received $25,000 in cash from a stockholder as a result of such stockholder's compliance with the requirement of the Securities Exchange Act of 1934, as amended, that profits from the sale of certain securities of a company that were held less than six months by certain officers, directors and principal stockholders must be returned to the Company. The Company recorded the proceeds as an increase to additional paid-in capital. 16. BUSINESS SEGMENTS TransTexas currently conducts its operations in one industry segment, exploration and production ("E&P"), which explores for, develops, produces and markets natural gas, condensate and natural gas liquids. All of TransTexas' significant gas and oil operations are located 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, 2003, two customers provided approximately $50 million in E&P revenues. For the year ended January 31, 2002, two customers provided approximately $88 million in E&P revenues. For the year ended January 31, 2001, two customers provided approximately $124 million in E&P revenues. 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 its production at comparable prices 17. CONSOLIDATED SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) (In thousands, except per share data)
YEAR ENDED JANUARY 31, 2003 ------------------------------------------------------- 1ST 2ND 3RD 4TH QUARTER QUARTER QUARTER QUARTER -------- --------- --------- ----------- Revenues........................................... $ 21,973 $ 19,745 $ 15,149 $ 14,213 Operating income................................... 2,181 5,284 2,414 2,932 Net loss........................................... (7,350) (4,640) (7,375) (421) Net loss per share -- basic and diluted............ (18.14) (13.56) (0.52) (0.11)
YEAR ENDED JANUARY 31, 2002 ------------------------------------------------------- 1ST 2ND 3RD 4TH QUARTER QUARTER QUARTER QUARTER -------- --------- --------- ----------- Revenues........................................... $ 47,417 $ 29,962 $ 32,373 $ 24,631 Operating income (loss)............................ 14,958 (60,580) (43,575) (105,975) Net income (loss).................................. 4,380 (56,406) (52,531) (115,354) Net loss per share-- basic and diluted............. (4.21) (53.80) (51.78) (103.22)
YEAR ENDED JANUARY 31, 2001 ------------------------------------------------------- 1ST 2ND 3RD 4TH QUARTER QUARTER QUARTER QUARTER -------- --------- --------- ----------- Revenues........................................... $ 38,609 $ 44,240 $ 50,082 $ 57,160 Operating income................................... 6,949 13,206 19,044 22,823 Net income (loss).................................. (2,232) 3,917 6,912 9,946 Net income (loss) per share-- basic and diluted...................................... (5.72) (5.03) 2.69 2.32
18. SUPPLEMENTAL GUARANTOR INFORMATION Galveston Bay Pipeline Company and Galveston Bay Processing Corporation are guarantors of the Notes and the Oil and Gas Facility. Separate financial statements of the Guarantors are not considered to be material to holders of the Notes and GMACC. The following condensed consolidating financial statements present supplemental information of the Guarantors as of and for the years ended January 31, 2003 and 2002. 38 TRANSTEXAS GAS CORPORATION (DEBTOR IN POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) CONDENSED CONSOLIDATING BALANCE SHEET JANUARY 31, 2003 (IN THOUSANDS OF DOLLARS)
GALVESTON GALVESTON BAY BAY CONSOLIDATED TRANSTEXAS PIPELINE PROCESSING ELIMINATIONS TRANSTEXAS ---------- --------- ---------- ------------ ------------ ASSETS Current assets: Cash and cash equivalents .................. $ 7,188 $ 3 $ 327 $ $ 7,518 Accounts receivable ........................ 8,602 -- 139 -- 8,741 Receivables from affiliates ................ 17,639 -- -- (17,639) -- Inventories ................................ 435 -- -- -- 435 Other ...................................... 1,218 -- -- -- 1,218 --------- --------- --------- --------- --------- Total current assets ..................... 35,082 3 466 (17,639) 17,912 --------- --------- --------- --------- --------- Property and equipment ........................ 488,066 2,271 11,643 -- 501,980 Less accumulated depreciation, depletion and amortization ............................... 388,329 866 4,969 -- 394,164 --------- --------- --------- --------- --------- Net property and equipment ............... 99,737 1,405 6,674 -- 107,816 --------- --------- --------- --------- --------- Other assets .................................. 1,936 -- -- (2) 1,934 --------- --------- --------- --------- --------- $ 136,755 $ 1,408 $ 7,140 $ (17,641) $ 127,662 ========= ========= ========= ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Current maturities of long-term debt ....... $ 3,411 $ 26 $ 65 $ -- $ 3,502 Notes payable .............................. 51,881 -- -- -- 51,881 Accounts payable ........................... 2,032 4 121 -- 2,157 Accrued liabilities ........................ 11,410 12 128 -- 11,550 --------- --------- --------- --------- --------- Total current liabilities ................ 68,734 42 314 -- 69,090 --------- --------- --------- --------- --------- Payable to affiliates ......................... -- 2,423 15,216 (17,639) -- Long-term debt, net of current maturities...... 528 276 94 -- 898 Production payments, net of current portion.... 16,373 -- -- -- 16,373 Other liabilities ............................. 628 -- -- -- 628 Liabilities subject to compromise ............. 238,894 -- -- -- 238,894 Redeemable preferred stock .................... 60,822 -- -- -- 60,822 Stockholders' equity (deficit): Common stock ............................... 634 -- -- -- 634 Additional paid-in capital ................. 79,038 1 1 (2) 79,038 Accumulated deficit ........................ (326,804) (1,334) (8,485) -- (336,623) Accumulated other comprehensive loss ....... (2,092) -- -- -- (2,092) --------- --------- --------- --------- --------- Total stockholders' deficit .............. (249,224) (1,333) (8,484) (2) (259,043) --------- --------- --------- --------- --------- $ 136,755 $ 1,408 $ 7,140 $ (17,641) $ 127,662 ========= ========= ========= ========= =========
39 TRANSTEXAS GAS CORPORATION (DEBTOR IN POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) CONDENSED CONSOLIDATING BALANCE SHEET JANUARY 31, 2002 (IN THOUSANDS OF DOLLARS)
GALVESTON GALVESTON BAY BAY CONSOLIDATED TRANSTEXAS PIPELINE PROCESSING ELIMINATIONS TRANSTEXAS ---------- --------- ---------- ------------ ------------ ASSETS Current assets: Cash and cash equivalents .................. $ 6,058 $ 33 $ 468 $ $ 6,559 Accounts receivable ........................ 15,033 -- 234 -- 15,267 Receivables from affiliates ................ 15,523 -- -- (15,523) -- Inventories ................................ 818 -- -- -- 818 Other ...................................... 3,110 -- 2 -- 3,112 --------- --------- --------- --------- --------- Total current assets ..................... 40,542 33 704 (15,523) 25,756 --------- --------- --------- --------- --------- Property and equipment ........................ 480,850 2,267 11,631 -- 494,748 Less accumulated depreciation, depletion and amortization ............................... 363,343 653 3,805 -- 367,801 --------- --------- --------- --------- --------- Net property and equipment ............... 117,507 1,614 7,826 -- 126,947 --------- --------- --------- --------- --------- Other assets .................................. 2,103 -- -- (2) 2,101 --------- --------- --------- --------- --------- $ 160,152 $ 1,647 $ 8,530 $ (15,525) $ 154,804 ========= ========= ========= ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Current maturities of long-term debt ....... $ 2,353 $ 17 $ 74 $ -- $ 2,444 Accounts payable ........................... 5,546 -- 259 -- 5,805 Accrued liabilities ........................ 26,115 -- 12 -- 26,127 --------- --------- --------- --------- --------- Total current liabilities ................ 34,014 17 345 -- 34,376 --------- --------- --------- --------- --------- Payable to affiliates ......................... (28) 1,948 13,603 (15,523) -- Long-term debt, net of current maturities ..... 261,050 580 144 -- 261,774 Production payments, net of current portion.... 26,005 -- -- -- 26,005 Other liabilities ............................. 6,644 -- -- -- 6,644 Redeemable preferred stock .................... 72,125 -- -- -- 72,125 Stockholders' equity (deficit): Common stock ............................... 12 -- -- -- 12 Additional paid-in capital ................. 25,013 1 1 (2) 25,013 Accumulated deficit ........................ (267,031) (899) (5,563) -- (273,493) Accumulated other comprehensive income ..... 2,348 -- -- -- 2,348 --------- --------- --------- --------- --------- Total stockholders' deficit .............. (239,658) (898) (5,562) (2) (246,120) --------- --------- --------- --------- --------- $ 160,152 $ 1,647 $ 8,530 $ (15,525) $ 154,804 ========= ========= ========= ========= =========
40 TRANSTEXAS GAS CORPORATION (DEBTOR IN POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS YEAR ENDED JANUARY 31, 2003 (IN THOUSANDS OF DOLLARS)
GALVESTON GALVESTON BAY BAY CONSOLIDATED TRANSTEXAS PIPELINE PROCESSING ELIMINATIONS TRANSTEXAS ---------- --------- ---------- ------------ ------------ Revenues: Gas, condensate and natural gas liquids..... $ 70,051 $ -- $ -- $ -- $ 70,051 Other....................................... 119 45 3,639 (2,774) 1,029 --------- --------- --------- --------- --------- Total revenues............................ 70,170 45 3,639 (2,774) 71,080 --------- --------- --------- --------- --------- Costs and expenses: Operating................................... 10,559 19 3,744 (2,774) 11,548 Depreciation, depletion and amortization.... 25,720 213 1,159 -- 27,092 General and administrative.................. 16,283 8 72 -- 16,363 Taxes other than income taxes............... 3,141 2 123 -- 3,266 --------- --------- --------- --------- --------- Total costs and expenses.................. 55,703 242 5,098 (2,774) 58,269 --------- --------- --------- --------- --------- Operating income (loss)................... 14,467 (197) (1,459) -- 12,811 --------- --------- --------- --------- --------- Other income (expense): Interest income............................. 111 -- 3 -- 114 Interest expense, net....................... (30,354) (235) (1,462) -- (32,051) --------- --------- --------- --------- --------- Total other expense....................... (30,243) (235) (1,459) -- (31,937) --------- --------- --------- --------- --------- Loss before reorganization items ......... (15,776) (432) (2,918) -- (19,126) Reorganization items........................ (653) (3) (4) -- (660) --------- --------- --------- --------- --------- Net loss.................................. $ (16,429) $ (435) $ (2,922) $ -- $ (19,786) ========= ========= ========= ========= =========
41 TRANSTEXAS GAS CORPORATION (DEBTOR IN POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS YEAR ENDED JANUARY 31, 2002 (IN THOUSANDS OF DOLLARS)
GALVESTON GALVESTON BAY BAY CONSOLIDATED TRANSTEXAS PIPELINE PROCESSING ELIMINATIONS TRANSTEXAS ---------- --------- ---------- ------------ ------------ Revenues: Gas, condensate and natural gas liquids..... $ 133,138 $ -- $ -- $ -- $ 133,138 Other....................................... 167 285 4,307 (3,514) 1,245 --------- --------- --------- --------- --------- Total revenues............................ 133,305 285 4,307 (3,514) 134,383 --------- --------- --------- --------- --------- Costs and expenses: Operating................................... 18,089 9 4,611 (3,514) 19,195 Depreciation, depletion and amortization.... 89,110 339 1,817 -- 91,266 General and administrative.................. 19,559 201 94 -- 19,854 Taxes other than income taxes............... 4,045 2 128 -- 4,175 Impairment of gas and oil properties........ 195,065 -- -- -- 195,065 --------- --------- --------- --------- --------- Total costs and expenses.................. 325,868 551 6,650 (3,514) 329,555 --------- --------- --------- --------- --------- Operating loss............................ (192,563) (266) (2,343) -- (195,172) --------- --------- --------- --------- --------- Other income (expense): Interest income............................. 573 -- 7 -- 580 Interest expense, net....................... (33,463) (291) (1,549) -- (35,303) --------- --------- --------- --------- --------- Total other expense....................... (32,890) (291) (1,542) -- (34,723) --------- --------- --------- --------- --------- Loss before income taxes.................. (225,453) (557) (3,885) -- (229,895) Income tax benefit - deferred............... (9,984) -- -- -- (9,984) --------- --------- --------- --------- --------- Net loss.................................. $(215,469) $ (557) $ (3,885) $ -- $(219,911) ========= ========= ========= ========= =========
42 TRANSTEXAS GAS CORPORATION (DEBTOR IN POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS YEAR ENDED JANUARY 31, 2003 (IN THOUSANDS OF DOLLARS)
GALVESTON GALVESTON BAY BAY CONSOLIDATED TRANSTEXAS PIPELINE PROCESSING ELIMINATIONS TRANSTEXAS ---------- --------- ---------- ------------ ------------ Operating activities: Net loss........................................ $ (16,429) $ (435) $ (2,922) $ -- $ (19,786) Adjustments to reconcile net loss to net cash provided (used) by operating activities: Depreciation, depletion and amortization........ 25,720 213 1,159 -- 27,092 Accretion of discount on long-term debt......... 127 20 19 -- 166 Amortization of debt issue costs................ 1,287 -- -- -- 1,287 Changes in assets and liabilities: Accounts receivable........................... 6,431 -- 95 -- 6,526 Receivable from affiliates.................... (2,088) -- -- 2,088 -- Inventories................................... 383 -- -- -- 383 Other current assets.......................... (456) -- 2 -- (454) Accounts payable.............................. (3,514) 4 (138) -- (3,648) Accrued liabilities........................... 9,490 12 116 -- 9,618 Transactions with affiliates, net............. -- 475 1,613 (2,088) -- Other assets.................................. 200 -- -- -- 200 Other liabilities............................. (373) -- -- -- (373) --------- --------- --------- --------- --------- Net cash provided (used) by operating activities............................... 20,778 289 (56) -- 21,011 --------- --------- --------- --------- --------- Investing activities: Capital expenditures............................ (11,332) (4) (7) -- (11,343) Proceeds from litigation settlement............. 3,000 -- -- -- 3,000 Proceeds from the sale of assets................ 697 -- -- -- 697 --------- --------- --------- --------- --------- Net cash used by investing activities............................... (7,635) (4) (7) -- (7,646) --------- --------- --------- --------- --------- Financing activities: Issuance of production payments................. 27,000 -- -- -- 27,000 Principal payments on production payments....... (36,865) -- -- -- (36,865) Issuance of debt................................ 2,000 -- -- -- 2,000 Principal payments on debt...................... (1,244) (315) (78) -- (1,637) Revolving credit agreement net.................. (1,305) -- -- -- (1,305) Debt issue costs................................ (1,599) -- -- -- (1,599) --------- --------- --------- --------- --------- Net cash used by financing activities..... (12,013) (315) (78) -- (12,406) --------- --------- --------- --------- --------- Increase (decrease) in cash and cash equivalents......................... 1,130 (30) (141) -- 959 Beginning cash and cash equivalents................ 6,058 33 468 -- 6,559 --------- --------- --------- --------- --------- Ending cash and cash equivalents................... $ 7,188 $ 3 $ 327 $ -- $ 7,518 ========= ========= ========= ========= =========
43 TRANSTEXAS GAS CORPORATION (DEBTOR IN POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS YEAR ENDED JANUARY 31, 2002 (IN THOUSANDS OF DOLLARS)
GALVESTON GALVESTON BAY BAY CONSOLIDATED TRANSTEXAS PIPELINE PROCESSING ELIMINATIONS TRANSTEXAS ---------- --------- ---------- ------------ ------------ Operating activities: Net loss........................................ $(215,469) $ (557) $ (3,885) $ -- $(219,911) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation, depletion and amortization........ 89,110 339 1,817 -- 91,266 Impairment of gas and oil properties............ 195,065 -- -- -- 195,065 Accretion of discount on long-term debt......... 78 38 45 -- 161 Amortization of debt issue costs................ 530 -- -- -- 530 Deferred income taxes........................... (9,984) -- -- -- (9,984) Changes in assets and liabilities: Accounts receivable........................... 27,094 -- 172 -- 27,266 Receivable from affiliates.................... (3,891) -- -- 3,912 21 Inventories................................... 658 -- -- -- 658 Other current assets.......................... 1,724 -- 33 -- 1,757 Accounts payable.............................. (3,524) (27) 101 -- (3,450) Accrued liabilities........................... (7,426) -- 4 -- (7,422) Transactions with affiliates, net............. -- 834 3,078 (3,912) -- Other assets.................................. 156 -- -- -- 156 Other liabilities............................. (1,367) -- -- -- (1,367) --------- --------- --------- --------- --------- Net cash provided by operating activities............................... 72,754 627 1,365 -- 74,746 --------- --------- --------- --------- --------- Investing activities: Capital expenditures............................ (132,977) (350) (998) -- (134,325) Proceeds from the sale of assets................ 53,627 -- -- -- 53,627 --------- --------- --------- --------- --------- Net cash used by investing activities............................... (79,350) (350) (998) -- (80,698) --------- --------- --------- --------- --------- Financing activities: Issuance of production payments................. 49,800 -- -- -- 49,800 Principal payments on production payments....... (36,131) -- -- -- (36,131) Issuance of long-term debt...................... 2,134 -- -- -- 2,134 Principal payments on long-term debt............ (6,103) (283) (673) -- (7,059) Revolving credit agreement net.................. (16,639) -- -- -- (16,639) Debt issue costs................................ (309) -- -- -- (309) --------- --------- --------- --------- --------- Net cash used by financing activities (7,248) (283) (673) -- (8,204) --------- --------- --------- --------- --------- Decrease in cash and cash equivalents (13,844) (6) (306) -- (14,156) Beginning cash and cash equivalents................ 19,902 39 774 -- 20,715 --------- --------- --------- --------- --------- Ending cash and cash equivalents................... $ 6,058 $ 33 $ 468 $ -- $ 6,559 ========= ========= ========= ========= =========
44 TRANSTEXAS GAS CORPORATION (DEBTOR IN POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 19. SUPPLEMENTAL GAS AND OIL DISCLOSURE (UNAUDITED) The accompanying tables present information concerning TransTexas' gas and oil producing activities and are prepared in accordance with SFAS 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, ------------------- 2003 2002 -------- -------- Proved properties ................................ $447,149 $442,974 Unproved properties .............................. 49,146 45,301 -------- -------- Total ...................................... 496,295 488,275 Less accumulated depreciation, depletion and amortization............................ 391,341 365,182 -------- -------- $104,954 $123,093 ======== ========
Costs incurred for gas and oil producing activities are as follows (in thousands of dollars):
YEAR ENDED JANUARY 31, -------------------------------- 2003 2002 2001 -------- -------- -------- Property acquisitions ............... $ 8,370 $ 21,965 $ 20,594 Exploration ......................... -- 89,850 82,004 Development ......................... 3,288 22,110 -- -------- -------- -------- $ 11,658 $133,925 $102,598 ======== ======== ========
Results of operations for gas and oil producing activities are as follows (in thousands of dollars):
YEAR ENDED JANUARY 31, -------------------------------- 2003 2002 2001 -------- --------- -------- Revenues ............................ $ 70,051 $ 133,138 $187,883 -------- --------- -------- Expenses: Production costs ................ 14,600 23,381 25,723 Depreciation, depletion and amortization.................. 26,159 89,973 80,145 General and administrative ...... 7,738 9,017 8,578 Impairment of gas and oil properties ................... -- 195,065 -- -------- --------- -------- Total operating expenses ..... 48,497 317,436 114,446 -------- --------- -------- Income (loss) before income taxes .............. 21,554 (184,298) 73,437 Income taxes (benefit) .............. 7,544 (64,504) 25,703 -------- --------- -------- $ 14,010 $(119,794) $ 47,734 ======== ========= ======== Depletion rate per net equivalent Mcf ............... $ 1.65 2.98 $ 2.22 ======== ========= ========
45 TRANSTEXAS GAS CORPORATION (DEBTOR IN POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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, ------------------------------------------------------------- 2003 2002 2001 --------------- -------------- ---------------- GAS OIL GAS OIL GAS OIL ---- --- ----- --- ----- ---- Proved reserves: Beginning of year ............... 55.3 1.8 112.9 3.2 95.6 3.7 Increase (decrease) during the year attributable to: Revisions of previous estimates . 1.1 0.5 (15.4) (0.2) 7.9 0.4 Extensions, discoveries and other additions ..................... -- -- 5.5 0.1 42.4 0.8 Sales of reserves ............... -- -- (25.2) -- (6.2) (0.2) Production ...................... (10.7) (0.9) (22.5) (1.3) (26.8) (1.5) ---- --- ---- --- ----- --- End of year ..................... 45.7 1.4 55.3 1.8 112.9 3.2 ==== === ==== === ===== === Proved developed reserves: Beginning of year ............... 33.9 1.4 66.9 2.0 82.3 3.5 End of year (1) ................. 19.8 0.7 33.9 1.4 66.9 2.0
- ------------------------ (1) As of January 31, 2001, proved undeveloped reserves in the amount of 5.7 Bcf of natural gas and 0.5 MMBbls of condensate became proved developed reserves in February 2001 with the casing of a well in the Eagle Bay field. 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 2004 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): 46 TRANSTEXAS GAS CORPORATION (DEBTOR IN POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEAR ENDED JANUARY 31, --------------------------------- 2003 2002 2001 -------- -------- -------- Future cash inflows ....................... $323,306 $163,275 $810,031 Future production costs ................... (63,241) (44,260) (103,245) Future development costs .................. (48,900) (39,707) (81,004) Future income taxes ....................... -- -- (97,259) -------- -------- -------- Future net cash flows ................. 211,165 79,308 528,523 Annual discount (10%) for estimated timing of cash flows .................... (53,628) (14,174) (118,355) -------- -------- -------- Standardized measure of discounted future net cash flows ............... $157,537 $ 65,134 $410,168 ======== ======== ========
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, -------------------------------- 2003 2002 2001 -------- -------- -------- Beginning of year ........................... $ 65,134 $410,168 $213,603 Revisions: Quantity estimates and production rates.. 15,038 (24,583) 84,923 Prices, net of lifting costs ............ 110,846 (320,982) 162,231 Estimated future development costs ...... 18,102 44,898 7,403 Additions, extensions, discoveries and improved recovery ......................... -- 8,697 163,384 Net sales of production ..................... (60,535) (118,297) (170,832) Development costs incurred .................. 3,288 22,110 -- Accretion of discount ....................... 5,664 39,598 18,322 Net changes in income taxes ................. -- 75,480 (60,347) Purchases (sales) of reserves ............... -- (71,955) (8,519) -------- -------- -------- End of year ............................. $157,537 $ 65,134 $410,168 ======== ======== ========
- --------------------- Year-end wellhead prices received by TransTexas from sales of natural gas, including margins from natural gas liquids, were $6.03, $2.35 and $6.39 per Mcf for 2003, 2002 and 2001, respectively. Year-end condensate prices were $33.26, $18.61 and $28.23 per barrel for 2003, 2002 and 2001, respectively. 47 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 within 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 within 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 AND RELATED STOCKHOLDER MATTERS The information required by this item is incorporated by reference from TransTexas' definitive proxy statement to be filed with the Commission within 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 within 120 days after the end of the fiscal year covered by this Form 10-K. ITEM 14. CONTROLS AND PROCEDURES a) Evaluation of Disclosure Controls and Procedures. Within the 90 days prior to the date of this annual report, the Company evaluated the effectiveness of the design and operation of its disclosure controls and procedures. This evaluation was conducted under the supervision and with the participation of the Company's management, including its Chief Executive Officer and Chief Financial Officer. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have each concluded that the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. b) Changes in Internal Controls. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of the Company's most recent evaluation. 48 PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Page ---- (a) Financial Statements, Financial Statement Schedules and Exhibits (1) The consolidated financial statements of TransTexas Gas Corporation are listed on the Index to this report (page 20). (2) Report of Independent Accountants on Financial Statement Schedule....................................................... 59 Schedule II - Valuation and Qualifying Accounts................ 60 (3) Exhibits
EXHIBIT NUMBER DESCRIPTION - ------ ----------- 2.1 - Second Amended, Modified and Restated Plan of Reorganization dated January 25, 2000 (filed as an exhibit to the Company's current report on Form 8-K dated February 7, 2000, and incorporated herein by reference). 2.2 - Order Confirming Plan of Reorganization dated February 7, 2000 (filed as an exhibit to the Company's current report on Form 8-K dated February 7, 2000, and incorporated herein by reference). 3.1 - Amended and Restated Certificate of Incorporation (filed as an exhibit to the Company's Registration Statement on Form 8-A (No. 0-30475), and incorporated herein by reference). 3.2 - Certificate of Designation, Series A Senior Preferred Stock (filed as an exhibit to the Company's Registration Statement on Form 8-A (No. 0-30475), and incorporated herein by reference). 3.3 - Certificate of Designation, Series A Junior Preferred Stock (filed as an exhibit to the Company's Registration Statement on Form 8-A (No. 0-30475), and incorporated herein by reference). 3.4 - Amended and Restated Bylaws (filed as an exhibit to the Company's Registration Statement on Form 8-A (No. 0-30475), and incorporated herein by reference). 3.5 - Certificate of Amendment to Amended and Restated Certificate of Incorporation (filed as an exhibit to the Company's Registration Statement on Form S-1 (No. 333-38252), and incorporated herein by reference). 3.6 - Certificate of Amendment to Amended and Restated Certificate of Incorporation (regarding Amendments to Certificates of Designation) (filed as an exhibit to the Company's Registration Statement on Form S-1 (No. 333-38252), and incorporated herein by reference). 4.1 - 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). 4.2 - 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). 4.3 - 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). 4.4 - 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). 4.5 - 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). 4.6 - 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). 4.7 - 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). 4.8 - 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). 4.9 - Pledge Agreement dated as of February 23, 1995, among TransAmerican, TransTexas and EM SectorHoldings, 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). 4.10 - 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). 4.11 - 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). 4.12 - 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). 4.13 - Indenture dated March 15, 2000 between the Company and Firstar Bank, N.A., Indenture Trustee, governing the Company's 15% Senior Secured Notes due 2005 (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 4.14 - Form of Mortgage dated March 15, 2000 between the Company and Firstar Bank, N.A. (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 4.15 - Security and Pledge Agreement dated March 15, 2000 between the Company and Firstar Bank, N.A. (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 4.16 - Oil and Gas Revolving Credit and Term Loan Agreement dated March 15, 2000 among GMAC Commercial Credit LLC, as Lender and Agent, the Company, as Borrower, and Galveston Bay Processing Corporation and Galveston Bay Pipeline Company, as Guarantors (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 4.17 - Form of Mortgage dated March 15, 2000 between the Company and GMAC Commercial Credit LLC (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 4.18 - Security and Pledge Agreement dated March 15, 2000 between the Company and GMAC Commercial Credit LLC (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 4.19 - Intercreditor Agreement dated March 15, 2000 between Firstar Bank, N.A. and GMAC Commercial Credit LLC (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 4.20 - Warrant Agreement, including form of Warrant Certificate, dated March 15, 2000 between the Company and ChaseMellon Shareholder Services, LLC, Warrant Agent (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 4.21 - Registration Rights Agreement dated March 15, 2000 between the Company and the holders of the Notes named therein (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 4.22 - Registration Rights Agreement dated March 15, 2000 between the Company and the holders of the common stock named therein (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 4.23 - Registration Rights Agreement dated March 15, 2000 between the Company and the holders of the Senior Preferred Stock named therein (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 4.24 - Registration Rights Agreement dated March 15, 2000 between the Company and the holders of the Junior Preferred Stock named therein (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 4.25 - First Supplemental Indenture dated as of June 28, 2000 by and among the Company, Galveston Bay Processing Corporation, Galveston Bay Pipeline Company and Firstar Bank, N.A., Indenture Trustee, governing the Company's 15% Senior Secured Notes due 2005 (filed as an exhibit to the Company's Registration Statement on Form S-1 (No. 333-38252), and incorporated herein by reference). 4.26 - Amendment to Warrant Agreement dated as of March 28, 2001 between TransTexas and ChaseMellon Shareholder Services, L.L.C., Warrant Agent (filed as an exhibit to TransTexas' annual report on Form 10-K for the year ended January 31, 2001, and incorporated herein by reference). 10.1 - 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). 10.2 - 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). 10.3 - 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). 10.4 - 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). 10.5 - 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). 10.6 - 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). 10.7 - 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). 10.8 - 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). 10.9 - 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). 10.10 - 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). 10.11 - 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). 10.12 - 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). 10.13 - 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). 10.14 - 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). 10.15 - 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). 10.16 - 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). 10.17 - 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). 10.18 - 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). 10.19 - 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). 10.20 - 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). 10.21 - 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). 10.22 - 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). 10.23 - Interruptible Gas Transportation Agreement dated Effective March 1, 1997 between TransTexas, as shipper, and Lobo Pipeline Company, as transporter (filed as an exhibit to TransTexas' Form 10-Q for the quarter ended July 31, 1997, and incorporated herein by reference). 10.24 - Intrastate Firm Gas Transportation Agreement dated effective March 1, 1997 between TransTexas, as shipper, and Lobo Pipeline Company, as transporter (filed as an exhibit to TransTexas' Form 10-Q for the quarter ended July 31, 1997, and incorporated herein by reference). 10.25 - Master Services Contract dated May 30, 1997 between Conoco Inc. and TransTexas (filed as an exhibit to TransTexas' Form 10-Q for the quarter ended July 31, 1997, and incorporated herein by reference). 10.26 - Agreement for Services dated effective March 1, 1997 between Conoco Inc. and TransTexas (filed as an exhibit to TransTexas' Form 10-Q for the quarter ended July 31, 1997, and incorporated herein by reference). 10.27 - Amendment No. 3 to Tax Allocation Agreement dated May 29, 1997 (filed as an exhibit to TransTexas' Form 10-Q for the quarter ended July 31, 1997, and incorporated herein by reference). 10.28 - Amendment No. 4 to Tax Allocation Agreement dated June 13, 1997 (filed as an exhibit to TransTexas' Form 10-Q for the quarter ended July 31, 1997, and incorporated herein by reference). 10.29 - Amendment No. 2 to Transfer Agreement dated May 29, 1997 (filed as an exhibit to TransTexas' Form 10-Q for the quarter ended July 31, 1997, and incorporated herein by reference). 10.30 - Amendment No. 3 to Transfer Agreement dated June 13, 1997 (filed as an exhibit to TransTexas' Form 10-Q for the quarter ended July 31, 1997, and incorporated herein by reference). 10.31 - 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). 10.32 - 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). 10.33 - 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). 10.34 - Employment Agreement dated March 17, 2000 between the Company and John R. Stanley (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 10.35 - Severance Agreement dated May 27, 1998 between the Company and Simon J. Ward (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 10.36 - Purchase Agreement dated March 14, 2000 between the Company, Southern Producer Services, L.P. ("SPS"), and TCW Portfolio No. 1555 DR V Sub-Custody Partnership, L.P., TCW DR VI Investment Partnership, L.P. and TCW Asset Management Company ("TCW") (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 10.37 - Production Payment Conveyance dated March 14, 2000 between the Company, SPS and TCW (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 10.38 - Gas and Natural Gas Liquids Purchase Agreement dated March 14, 2000 between SPS and TransTexas (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 10.39 - Crude Oil Purchase Agreement dated March 14, 2000 between SPS and TransTexas (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 10.40 - Natural Gas Treating and Condensate Handling Agreement dated March 14, 2000 between Galveston Bay Processing Corporation and SPS (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 10.41 - Third Amended and Restated Accounts Receivable Management and Security Agreement dated March 15, 2000 between the Company and GMAC Commercial Credit LLC (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 10.42 - Services Agreement dated March 17, 2000 between TNGC Holdings Corporation and the Company (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 10.43 - First Supplement to 2000 Production Payment Agreement, dated as of June 7, 2000 (filed as an exhibit to the Company's Registration Statement on Form S-1 (No. 333-38252), and incorporated herein by reference). 10.44 - First Supplement to 2000 Production Payment Conveyance, dated as of June 7, 2000 (filed as an exhibit to the Company's Registration Statement on Form S-1 (No. 333-38252), and incorporated herein by reference). 10.45 - Second Supplement to 2000 Production Payment Agreement, dated as of September 8, 2000 (filed as an exhibit to the Company's Registration Statement on Form S-1 (No. 333-38252), and incorporated herein by reference). 10.46 - Second Supplement to 2000 Production Payment Conveyance, dated as of September 8, 2000 (filed as an exhibit to the Company's Registration Statement on Form S-1 (No. 333-38252), and incorporated herein by reference). 10.47 - Subordination Agreement, dated as of September 7, 2000 between the Company and Firstar Bank of Minnesota, relating to the Second Supplement to 2000 Production Payment Conveyance (filed as an exhibit to the Company's Registration Statement on Form S-1 (No. 333-38252), and incorporated herein by reference). 10.48 - Subordination Agreement, dated as of September 7, 2000 between the Company and GMAC Commercial Credit, LLC, relating to the Second Supplement to 2000 Production Payment Conveyance (filed as an exhibit to the Company's Registration Statement on Form S-1 (No. 333-38252), and incorporated herein by reference). 10.49 - Amendment No.1 to Third Amended and Restated Accounts Receivable Management and Security Agreement dated October 1, 2000 between the Company and GMAC Commercial Credit LLC (filed as an exhibit to TransTexas' annual report on Form 10-K for the year ended January 31, 2001, and incorporated herein by reference). 10.50 - Third Supplement to 2000 Production Payment Agreement, dated November 7, 2000 (filed as an exhibit to TransTexas' annual report on Form 10-K for the year ended January 31, 2001, and incorporated herein by reference). 10.51 - Third Supplement to 2000 Production Payment Conveyance, dated November 7, 2000 (filed as an exhibit to TransTexas' annual report on Form 10-K for the year ended January 31, 2001, and incorporated herein by reference). 10.52 - Subordination Agreement, dated as of February 7, 2001 between the Company and Firstar Bank of Minnesota, relating to the Fourth Supplement to 2000 Production Payment Conveyance (filed as an exhibit to TransTexas' annual report on Form 10-K for the year ended January 31, 2001, and incorporated herein by reference). 10.53 - Subordination Agreement, dated as of February 7, 2001 between the Company and GMAC Commercial Credit LLC as Agent, relating to the Fourth Supplement to 2000 Production Payment Conveyance (filed as an exhibit to TransTexas' annual report on Form 10-K for the year ended January 31, 2001, and incorporated herein by reference). 10.54 - Subordination Agreement, dated as of February 7, 2001 between the Company and GMAC Commercial Credit LLC, relating to the Fourth Supplement to 2000 Production Payment Conveyance (filed as an exhibit to TransTexas' annual report on Form 10-K for the year ended January 31, 2001, and incorporated herein by reference). 10.55 - Fourth Supplement to 2000 Production Payment Agreement, dated February 7, 2001 (filed as an exhibit to TransTexas' annual report on Form 10-K for the year ended January 31, 2001, and incorporated herein by reference). 10.56 - Fourth Supplement to 2000 Production Payment Conveyance, dated February 7, 2001 (filed as an exhibit to TransTexas' annual report on Form 10-K for the year ended January 31, 2001, and incorporated herein by reference). 10.57 - Employment Agreement dated March 5, 2001 between TransTexas and Arnold Brackenridge (filed as an exhibit to TransTexas' quarterly report on Form 10-Q for the quarter ended April 30, 2001, and incorporated herein by reference). 10.58 - Amendment No. 1 to Oil and Gas Revolving Credit and Term Loan Agreement dated September 7, 2001 among GMAC Commercial Credit LLC, as Lender and Agent, TransTexas as Borrower, and Galveston Bay Processing Corporation and Galveston Bay Pipeline Company, as Guarantors (filed as an exhibit to TransTexas' quarterly report on Form 10-Q for the quarter ended July 31, 2001, and incorporated herein by reference). 10.59 - Fifth Supplement to 2000 Production Payment Agreement, dated July 9, 2001 (filed as an exhibit to TransTexas' quarterly report on Form 10-Q for the quarter ended July 31, 2001, and incorporated herein by reference). 10.60 - Fifth Supplement to 2000 Production Payment Conveyance, dated July 9, 2001 (filed as an exhibit to TransTexas' quarterly report on Form 10-Q for the quarter ended July 31, 2001, and incorporated herein by reference). 10.61 - Sixth Supplement to 2000 Production Payment Agreement, dated September 10, 2001 (filed as an exhibit to TransTexas' quarterly report on Form 10-Q for the quarter ended July 31, 2001, and incorporated herein by reference). 10.62 - Sixth Supplement to 2000 Production Payment Conveyance, dated September 10, 2001 (filed as an exhibit to TransTexas' quarterly report on Form 10-Q for the quarter ended July 31, 2001, and incorporated herein by reference). 10.63 - Seventh Supplement to 2000 Production Payment Agreement, dated September 10, 2001 (filed as an exhibit to TransTexas' quarterly report on Form 10-Q for the quarter ended July 31, 2001, and incorporated herein by reference). 10.64 - Seventh Supplement to 2000 Production Payment Conveyance, dated September 10, 2001 (filed as an exhibit to TransTexas' quarterly report on Form 10-Q for the quarter ended July 31, 2001, and incorporated herein by reference). 10.65 - Eighth Supplement to 2000 Production Payment Agreement, dated March 5, 2002 (filed as an exhibit to TransTexas' quarterly report on Form 10-Q for the quarter ended April 30, 2002, and incorporated herein by reference). 10.66 - Eighth Supplement to 2000 Production Payment Conveyance, dated March 5, 2002 (filed as an exhibit to TransTexas' quarterly report on Form 10-Q for the quarter ended April 30, 2002, and incorporated herein by reference). 10.67 - Ninth Supplement to 2000 Production Payment Agreement, dated June 7, 2002 (filed as an exhibit to TransTexas' quarterly report on Form 10-Q for the quarter ended April 30, 2002, and incorporated herein by reference). 10.68 - Ninth Supplement to 2000 Production Payment Conveyance, dated June 7, 2002 (filed as an exhibit to TransTexas' quarterly report on Form 10-Q for the quarter ended April 30, 2002, and incorporated herein by reference). 10.69 - Amendment No. 2 to Oil and Gas Revolving Credit and Term Loan Agreement, dated June 6, 2002, among GMAC Commercial Credit LLC, as Lender and Agent, the Company, as Borrower, and Galveston Bay Processing Corporation and Galveston Bay Pipeline Company, as Guarantors (filed as an exhibit to the Company's quarterly report on Form 10-Q for the quarter ended July 31, 2002, and incorporated herein by reference. 10.70 - Amendment No. 2 to Third Amended and Restated Accounts Receivable Management and Security Agreement dated June 6, 2002 between the Company and GMAC Commercial Credit LLC (filed as an exhibit to the Company's quarterly report on Form 10-Q for the quarter ended July 31, 2002, and incorporated herein by reference. *10.71 - Tenth Supplement to Production Payment Agreement, dated March 27, 2003. *10.72 - Tenth Supplement to Production Payment Conveyance, dated March 27, 2003. 21.1 - Schedule of Subsidiaries of TransTexas (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 1999, and incorporated herein by reference). 21.2 - Schedule of Subsidiaries of TransTexas (filed as an exhibit to TransTexas' annual report on Form 10-K for the year ended January 31, 2001, and incorporated herein by reference). *23.1 - Consent of Netherland, Sewell & Associates, Inc. *99.1 - Certification of Chief Executive Officer and Chief Financial Officer.
- --------------------------- * filed herewith (b) Reports on Form 8-K: On November 15, 2002, the Company filed a Current Report on Form 8-K to report that on November 14, 2002 it filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of Texas, Corpus Christi Division. On November 14, 2002, the Company's subsidiaries, Galveston Bay Pipeline Company and Galveston Bay Processing Corporation also filed voluntary petitions under Chapter 11. On April 2, 2003, the Company filed a Current Report on Form 8-K to report that on March 27, 2003 Mr. Vincent Intrieri resigned from the Company's Board of Directors. 49 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 1, 2003. TRANSTEXAS GAS CORPORATION By: /s/ ARNOLD H. BRACKENRIDGE ------------------------------ Arnold H. Brackenridge, Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on May 1, 2003.
NAME TITLE ---- ----- /s/ ARNOLD H. BRACKENRIDGE President, Chief Executive Officer and Chief Operating Officer - --------------------------------- (Principal Executive Officer) Arnold H. Brackenridge /s/ ED DONAHUE Vice President and Chief Financial Officer - --------------------------------- (Principal Financial and Accounting Officer) Ed Donahue /s/ R. GERALD BENNETT Director - --------------------------------- R. Gerald Bennett /s/ RONALD BENSON Director - --------------------------------- Ronald Benson /s/ TED E. DAVIS Director - --------------------------------- Ted E. Davis /s/ WALTER S. PIONTEK Director - --------------------------------- Walter S. Piontek
56 CERTIFICATION OF CHIEF EXECUTIVE OFFICER I, Arnold H. Brackenridge, certify that: 1. I have reviewed this annual report on Form 10-K of TransTexas Gas Corporation; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or other persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 1, 2003 /s/ ARNOLD H. BRACKENRIDGE -------------------------------- Arnold H. Brackenridge President, Chief Executive Officer and Chief Operating Officer 57 CERTIFICATION OF CHIEF FINANCIAL OFFICER I, Ed Donahue, certify that: 1. I have reviewed this annual report on Form 10-K of TransTexas Gas Corporation; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or other persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 1, 2003 /s/ ED DONAHUE --------------------------------------- Ed Donahue Vice President, Chief Financial Officer and Secretary 58 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Stockholders and Board of Directors of TransTexas Gas Corporation: Our audits of the consolidated financial statements referred to in our report dated April 30, 2003 appearing in the January 31, 2003 10-K of TransTexas Gas Corporation also included an audit of the financial statement schedule listed in Item 15(a)(2) of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. PricewaterhouseCoopers LLP Houston, Texas April 30, 2003 TRANSTEXAS GAS CORPORATION (DEBTOR IN POSSESSION) SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS OF DOLLARS)
BALANCE AT CHARGED TO CHARGED BALANCE AT BEGINNING COSTS AND TO OTHER END DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD - ----------- ---------- ---------- -------- ---------- ---------- Year ended January 31, 2001: Valuation allowance - Accounts receivable .. $ -- $ 850 $(531) $(319) $ -- Deferred tax asset ... -- -- -- -- -- Year ended January 31, 2002: Valuation allowance - Accounts receivable .. $ -- $ 239 $ 28 $ -- $ 267 Deferred tax asset ... -- 70,479 -- -- 70,479 Year ended January 31, 2003: Valuation allowance - Accounts receivable .. $ 267 $ -- $ -- $ -- $ 267 Deferred tax asset ... 70,479 6,925 -- -- 77,404
60 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------ ----------- 2.1 - Second Amended, Modified and Restated Plan of Reorganization dated January 25, 2000 (filed as an exhibit to the Company's current report on Form 8-K dated February 7, 2000, and incorporated herein by reference). 2.2 - Order Confirming Plan of Reorganization dated February 7, 2000 (filed as an exhibit to the Company's current report on Form 8-K dated February 7, 2000, and incorporated herein by reference). 3.1 - Amended and Restated Certificate of Incorporation (filed as an exhibit to the Company's Registration Statement on Form 8-A (No. 0-30475), and incorporated herein by reference). 3.2 - Certificate of Designation, Series A Senior Preferred Stock (filed as an exhibit to the Company's Registration Statement on Form 8-A (No. 0-30475), and incorporated herein by reference). 3.3 - Certificate of Designation, Series A Junior Preferred Stock (filed as an exhibit to the Company's Registration Statement on Form 8-A (No. 0-30475), and incorporated herein by reference). 3.4 - Amended and Restated Bylaws (filed as an exhibit to the Company's Registration Statement on Form 8-A (No. 0-30475), and incorporated herein by reference). 3.5 - Certificate of Amendment to Amended and Restated Certificate of Incorporation (filed as an exhibit to the Company's Registration Statement on Form S-1 (No. 333-38252), and incorporated herein by reference). 3.6 - Certificate of Amendment to Amended and Restated Certificate of Incorporation (regarding Amendments to Certificates of Designation) (filed as an exhibit to the Company's Registration Statement on Form S-1 (No. 333-38252), and incorporated herein by reference). 4.1 - 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). 4.2 - 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). 4.3 - 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). 4.4 - 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). 4.5 - 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). 4.6 - 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). 4.7 - 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). 4.8 - 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). 4.9 - Pledge Agreement dated as of February 23, 1995, among TransAmerican, TransTexas and EM SectorHoldings, 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). 4.10 - 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). 4.11 - 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). 4.12 - 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). 4.13 - Indenture dated March 15, 2000 between the Company and Firstar Bank, N.A., Indenture Trustee, governing the Company's 15% Senior Secured Notes due 2005 (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 4.14 - Form of Mortgage dated March 15, 2000 between the Company and Firstar Bank, N.A. (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 4.15 - Security and Pledge Agreement dated March 15, 2000 between the Company and Firstar Bank, N.A. (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 4.16 - Oil and Gas Revolving Credit and Term Loan Agreement dated March 15, 2000 among GMAC Commercial Credit LLC, as Lender and Agent, the Company, as Borrower, and Galveston Bay Processing Corporation and Galveston Bay Pipeline Company, as Guarantors (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 4.17 - Form of Mortgage dated March 15, 2000 between the Company and GMAC Commercial Credit LLC (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 4.18 - Security and Pledge Agreement dated March 15, 2000 between the Company and GMAC Commercial Credit LLC (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 4.19 - Intercreditor Agreement dated March 15, 2000 between Firstar Bank, N.A. and GMAC Commercial Credit LLC (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 4.20 - Warrant Agreement, including form of Warrant Certificate, dated March 15, 2000 between the Company and ChaseMellon Shareholder Services, LLC, Warrant Agent (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 4.21 - Registration Rights Agreement dated March 15, 2000 between the Company and the holders of the Notes named therein (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 4.22 - Registration Rights Agreement dated March 15, 2000 between the Company and the holders of the common stock named therein (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 4.23 - Registration Rights Agreement dated March 15, 2000 between the Company and the holders of the Senior Preferred Stock named therein (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 4.24 - Registration Rights Agreement dated March 15, 2000 between the Company and the holders of the Junior Preferred Stock named therein (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 4.25 - First Supplemental Indenture dated as of June 28, 2000 by and among the Company, Galveston Bay Processing Corporation, Galveston Bay Pipeline Company and Firstar Bank, N.A., Indenture Trustee, governing the Company's 15% Senior Secured Notes due 2005 (filed as an exhibit to the Company's Registration Statement on Form S-1 (No. 333-38252), and incorporated herein by reference). 4.26 - Amendment to Warrant Agreement dated as of March 28, 2001 between TransTexas and ChaseMellon Shareholder Services, L.L.C., Warrant Agent (filed as an exhibit to TransTexas' annual report on Form 10-K for the year ended January 31, 2001, and incorporated herein by reference). 10.1 - 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). 10.2 - 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). 10.3 - 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). 10.4 - 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). 10.5 - 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). 10.6 - 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). 10.7 - 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). 10.8 - 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). 10.9 - 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). 10.10 - 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). 10.11 - 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). 10.12 - 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). 10.13 - 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). 10.14 - 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). 10.15 - 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). 10.16 - 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). 10.17 - 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). 10.18 - 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). 10.19 - 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). 10.20 - 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). 10.21 - 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). 10.22 - 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). 10.23 - Interruptible Gas Transportation Agreement dated Effective March 1, 1997 between TransTexas, as shipper, and Lobo Pipeline Company, as transporter (filed as an exhibit to TransTexas' Form 10-Q for the quarter ended July 31, 1997, and incorporated herein by reference). 10.24 - Intrastate Firm Gas Transportation Agreement dated effective March 1, 1997 between TransTexas, as shipper, and Lobo Pipeline Company, as transporter (filed as an exhibit to TransTexas' Form 10-Q for the quarter ended July 31, 1997, and incorporated herein by reference). 10.25 - Master Services Contract dated May 30, 1997 between Conoco Inc. and TransTexas (filed as an exhibit to TransTexas' Form 10-Q for the quarter ended July 31, 1997, and incorporated herein by reference). 10.26 - Agreement for Services dated effective March 1, 1997 between Conoco Inc. and TransTexas (filed as an exhibit to TransTexas' Form 10-Q for the quarter ended July 31, 1997, and incorporated herein by reference). 10.27 - Amendment No. 3 to Tax Allocation Agreement dated May 29, 1997 (filed as an exhibit to TransTexas' Form 10-Q for the quarter ended July 31, 1997, and incorporated herein by reference). 10.28 - Amendment No. 4 to Tax Allocation Agreement dated June 13, 1997 (filed as an exhibit to TransTexas' Form 10-Q for the quarter ended July 31, 1997, and incorporated herein by reference). 10.29 - Amendment No. 2 to Transfer Agreement dated May 29, 1997 (filed as an exhibit to TransTexas' Form 10-Q for the quarter ended July 31, 1997, and incorporated herein by reference). 10.30 - Amendment No. 3 to Transfer Agreement dated June 13, 1997 (filed as an exhibit to TransTexas' Form 10-Q for the quarter ended July 31, 1997, and incorporated herein by reference). 10.31 - 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). 10.32 - 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). 10.33 - 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). 10.34 - Employment Agreement dated March 17, 2000 between the Company and John R. Stanley (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 10.35 - Severance Agreement dated May 27, 1998 between the Company and Simon J. Ward (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 10.36 - Purchase Agreement dated March 14, 2000 between the Company, Southern Producer Services, L.P. ("SPS"), and TCW Portfolio No. 1555 DR V Sub-Custody Partnership, L.P., TCW DR VI Investment Partnership, L.P. and TCW Asset Management Company ("TCW") (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 10.37 - Production Payment Conveyance dated March 14, 2000 between the Company, SPS and TCW (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 10.38 - Gas and Natural Gas Liquids Purchase Agreement dated March 14, 2000 between SPS and TransTexas (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 10.39 - Crude Oil Purchase Agreement dated March 14, 2000 between SPS and TransTexas (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 10.40 - Natural Gas Treating and Condensate Handling Agreement dated March 14, 2000 between Galveston Bay Processing Corporation and SPS (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 10.41 - Third Amended and Restated Accounts Receivable Management and Security Agreement dated March 15, 2000 between the Company and GMAC Commercial Credit LLC (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 10.42 - Services Agreement dated March 17, 2000 between TNGC Holdings Corporation and the Company (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 2000, and incorporated herein by reference). 10.43 - First Supplement to 2000 Production Payment Agreement, dated as of June 7, 2000 (filed as an exhibit to the Company's Registration Statement on Form S-1 (No. 333-38252), and incorporated herein by reference). 10.44 - First Supplement to 2000 Production Payment Conveyance, dated as of June 7, 2000 (filed as an exhibit to the Company's Registration Statement on Form S-1 (No. 333-38252), and incorporated herein by reference). 10.45 - Second Supplement to 2000 Production Payment Agreement, dated as of September 8, 2000 (filed as an exhibit to the Company's Registration Statement on Form S-1 (No. 333-38252), and incorporated herein by reference). 10.46 - Second Supplement to 2000 Production Payment Conveyance, dated as of September 8, 2000 (filed as an exhibit to the Company's Registration Statement on Form S-1 (No. 333-38252), and incorporated herein by reference). 10.47 - Subordination Agreement, dated as of September 7, 2000 between the Company and Firstar Bank of Minnesota, relating to the Second Supplement to 2000 Production Payment Conveyance (filed as an exhibit to the Company's Registration Statement on Form S-1 (No. 333-38252), and incorporated herein by reference). 10.48 - Subordination Agreement, dated as of September 7, 2000 between the Company and GMAC Commercial Credit, LLC, relating to the Second Supplement to 2000 Production Payment Conveyance (filed as an exhibit to the Company's Registration Statement on Form S-1 (No. 333-38252), and incorporated herein by reference). 10.49 - Amendment No.1 to Third Amended and Restated Accounts Receivable Management and Security Agreement dated October 1, 2000 between the Company and GMAC Commercial Credit LLC (filed as an exhibit to TransTexas' annual report on Form 10-K for the year ended January 31, 2001, and incorporated herein by reference). 10.50 - Third Supplement to 2000 Production Payment Agreement, dated November 7, 2000 (filed as an exhibit to TransTexas' annual report on Form 10-K for the year ended January 31, 2001, and incorporated herein by reference). 10.51 - Third Supplement to 2000 Production Payment Conveyance, dated November 7, 2000 (filed as an exhibit to TransTexas' annual report on Form 10-K for the year ended January 31, 2001, and incorporated herein by reference). 10.52 - Subordination Agreement, dated as of February 7, 2001 between the Company and Firstar Bank of Minnesota, relating to the Fourth Supplement to 2000 Production Payment Conveyance (filed as an exhibit to TransTexas' annual report on Form 10-K for the year ended January 31, 2001, and incorporated herein by reference). 10.53 - Subordination Agreement, dated as of February 7, 2001 between the Company and GMAC Commercial Credit LLC as Agent, relating to the Fourth Supplement to 2000 Production Payment Conveyance (filed as an exhibit to TransTexas' annual report on Form 10-K for the year ended January 31, 2001, and incorporated herein by reference). 10.54 - Subordination Agreement, dated as of February 7, 2001 between the Company and GMAC Commercial Credit LLC, relating to the Fourth Supplement to 2000 Production Payment Conveyance (filed as an exhibit to TransTexas' annual report on Form 10-K for the year ended January 31, 2001, and incorporated herein by reference). 10.55 - Fourth Supplement to 2000 Production Payment Agreement, dated February 7, 2001 (filed as an exhibit to TransTexas' annual report on Form 10-K for the year ended January 31, 2001, and incorporated herein by reference). 10.56 - Fourth Supplement to 2000 Production Payment Conveyance, dated February 7, 2001 (filed as an exhibit to TransTexas' annual report on Form 10-K for the year ended January 31, 2001, and incorporated herein by reference). 10.57 - Employment Agreement dated March 5, 2001 between TransTexas and Arnold Brackenridge (filed as an exhibit to TransTexas' quarterly report on Form 10-Q for the quarter ended April 30, 2001, and incorporated herein by reference). 10.58 - Amendment No. 1 to Oil and Gas Revolving Credit and Term Loan Agreement dated September 7, 2001 among GMAC Commercial Credit LLC, as Lender and Agent, TransTexas as Borrower, and Galveston Bay Processing Corporation and Galveston Bay Pipeline Company, as Guarantors (filed as an exhibit to TransTexas' quarterly report on Form 10-Q for the quarter ended July 31, 2001, and incorporated herein by reference). 10.59 - Fifth Supplement to 2000 Production Payment Agreement, dated July 9, 2001 (filed as an exhibit to TransTexas' quarterly report on Form 10-Q for the quarter ended July 31, 2001, and incorporated herein by reference). 10.60 - Fifth Supplement to 2000 Production Payment Conveyance, dated July 9, 2001 (filed as an exhibit to TransTexas' quarterly report on Form 10-Q for the quarter ended July 31, 2001, and incorporated herein by reference). 10.61 - Sixth Supplement to 2000 Production Payment Agreement, dated September 10, 2001 (filed as an exhibit to TransTexas' quarterly report on Form 10-Q for the quarter ended July 31, 2001, and incorporated herein by reference). 10.62 - Sixth Supplement to 2000 Production Payment Conveyance, dated September 10, 2001 (filed as an exhibit to TransTexas' quarterly report on Form 10-Q for the quarter ended July 31, 2001, and incorporated herein by reference). 10.63 - Seventh Supplement to 2000 Production Payment Agreement, dated September 10, 2001 (filed as an exhibit to TransTexas' quarterly report on Form 10-Q for the quarter ended July 31, 2001, and incorporated herein by reference). 10.64 - Seventh Supplement to 2000 Production Payment Conveyance, dated September 10, 2001 (filed as an exhibit to TransTexas' quarterly report on Form 10-Q for the quarter ended July 31, 2001, and incorporated herein by reference). 10.65 - Eighth Supplement to 2000 Production Payment Agreement, dated March 5, 2002 (filed as an exhibit to TransTexas' quarterly report on Form 10-Q for the quarter ended April 30, 2002, and incorporated herein by reference). 10.66 - Eighth Supplement to 2000 Production Payment Conveyance, dated March 5, 2002 (filed as an exhibit to TransTexas' quarterly report on Form 10-Q for the quarter ended April 30, 2002, and incorporated herein by reference). 10.67 - Ninth Supplement to 2000 Production Payment Agreement, dated June 7, 2002 (filed as an exhibit to TransTexas' quarterly report on Form 10-Q for the quarter ended April 30, 2002, and incorporated herein by reference). 10.68 - Ninth Supplement to 2000 Production Payment Conveyance, dated June 7, 2002 (filed as an exhibit to TransTexas' quarterly report on Form 10-Q for the quarter ended April 30, 2002, and incorporated herein by reference). 10.69 - Amendment No. 2 to Oil and Gas Revolving Credit and Term Loan Agreement, dated June 6, 2002, among GMAC Commercial Credit LLC, as Lender and Agent, the Company, as Borrower, and Galveston Bay Processing Corporation and Galveston Bay Pipeline Company, as Guarantors (filed as an exhibit to the Company's quarterly report on Form 10-Q for the quarter ended July 31, 2002, and incorporated herein by reference. 10.70 - Amendment No. 2 to Third Amended and Restated Accounts Receivable Management and Security Agreement dated June 6, 2002 between the Company and GMAC Commercial Credit LLC (filed as an exhibit to the Company's quarterly report on Form 10-Q for the quarter ended July 31, 2002, and incorporated herein by reference. *10.71 - Tenth Supplement to Production Payment Agreement, dated March 27, 2003. *10.72 - Tenth Supplement to Production Payment Conveyance, dated March 27, 2003. 21.1 - Schedule of Subsidiaries of TransTexas (filed as an exhibit to the Company's annual report on Form 10-K for the year ended January 31, 1999, and incorporated herein by reference). 21.2 - Schedule of Subsidiaries of TransTexas (filed as an exhibit to TransTexas' annual report on Form 10-K for the year ended January 31, 2001, and incorporated herein by reference). *23.1 - Consent of Netherland, Sewell & Associates, Inc. *99.1 - Certification of Chief Executive Officer and Chief Financial Officer.
- ---------- * filed herewith EX-10.71 3 h05322exv10w71.txt TENTH SUPPLEMENT TO PRODUCTION PAYMENT AGREEMENT EXHIBIT 10.71 TENTH SUPPLEMENT TO PURCHASE AGREEMENT THIS TENTH SUPPLEMENT TO PURCHASE AGREEMENT dated as of March 27, 2003 (this "Supplement"), is made by: - TransTexas Gas Corporation, a Delaware corporation and debtor-in-possession (herein called "Grantor"), - TCW DR VI Investment Partnership, L.P. ("Fund VI"), acting through its agent, TCW Asset Management Company, - TCW Global Project Fund Ltd. ("GPF") (Fund VI and GPF are herein collectively called, "Grantee"), and - TCW Asset Management Company ("Tamco"), as Agent on behalf of Fund VI. RECITALS 1. Pursuant to an order of the United States Bankruptcy Court for the Southern District of Texas, Corpus Christi Division (the "Bankruptcy Court"), entered on February 2, 2000, Grantor, Mirant Americas Energy Capital, LP, formerly named Southern Producer Services, L.P. ("SPS"), TCW Portfolio No. 1555 DR V Sub-Custody Partnership, L.P. ("Fund V"), Fund VI and Tamco have heretofore entered into that certain Purchase Agreement dated as of March 14, 2000 (herein, as heretofore amended or supplemented, called the "Original Purchase Agreement"), and, as contemplated in such order and in such Purchase Agreement, Grantor has, by means of a Production Payment Conveyance dated as of March 14, 2000 (herein, as heretofore amended or supplemented, called the "Original Conveyance"), conveyed to SPS, Fund V and Fund VI the "Production Payment" as therein defined, burdening interests of Grantor in certain oil and gas properties. 2. Effective as of December 1, 2000, Fund V assigned all of its right, title, and interest under the Original Conveyance to SPS pursuant to that certain Conveyance of Interest in Production Payment dated as of February 7, 2001. 3. Effective as of September 10, 2001, SPS assigned to GPF an undivided interest in the Production Payment pursuant to that certain Partial Conveyance of Production Payment and Seventh Supplement to Production Payment Conveyance dated as of September 10, 2001. 4. On March 4, 2002, SPS assigned all of its right, title, and interest under the Original Conveyance to Mirant Americas Energy Capital Assets, LLC ("Mirant"). 5. On March 13, 2003, SPS and Mirant collectively assigned their right, title, and interest under the Original Conveyance to Hydrocarbon Capital LLC ("HCL"). Prior to the delivery of this Supplement, and by means of an Assignment of Partial Interest in Production Payment of even date herewith, HCL assigned its right, title and interest under the Original Conveyance to GPF, effective as of 8:59 a.m. Houston, Texas time on March 7, 2003. As the result of such assignment, GPF and Fund VI now constitute the "Grantee" under the Original Conveyance. 6. In consideration of the payment by GPF of the Current Purchase Price Payment to Grantor, as more fully described below, Grantor and Grantee now desire to supplement and amend the Original Conveyance to (a) increase the amount of the unliquidated balance of the Primary Sum, and (b) adjust the relative Percentage Shares of each Person included in Grantee to account for such additional Purchase Price Payment. 7. Pursuant to (a) the Order Authorizing TransTexas Gas Corporation to Sell Certain (Eagle Bay) Assets Free and Clear of Liens and Encumbrances, Authorizing TransTexas Gas Corporation, Galveston Bay Pipeline Company and Galveston Bay Processing Corporation to Assume Certain Contracts and to Enter into Certain Related Transactions entered by the United States Bankruptcy Court for the Southern District of Texas, Corpus Christi Division (the "Bankruptcy Court") on or about January 7, 2003 and (b) the Amended Order Authorizing TransTexas Gas Corporation to Sell Certain (Eagle Bay) Assets Free and Clear of Liens and Encumbrances of U.S. Bank, Indenture Trustee, entered by the Bankruptcy Court on or about March 27, 2003 (collectively, the "Production Payment Order"), Grantor has been authorized to make such supplement and amendment to the Original Conveyance. NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements contained herein, Grantor, Fund VI, GPF, and Tamco hereby agree as follows: ARTICLE I - Definitions and References Section 1.1. Defined Terms and References. As used herein, the terms "Bankruptcy Court", "Fund V", "Fund VI", "GPF", "Grantee", "Grantor", "Mirant", "HCL", "Original Conveyance", "Original Purchase Agreement", "SPS", and "Tamco" have the meanings given them above. Reference is also made to the Original Purchase Agreement and to the Original Conveyance for the meaning of various terms defined therein, all of which shall when used herein (unless otherwise expressly defined herein) have the same meanings. For purposes of this Supplement, unless the context otherwise requires, the following additional terms shall have the following meanings: "Current Closing Date" has the meaning given such term in Section 2.5. "Current Conveyance Supplement" means the Tenth Supplement to Production Payment Conveyance executed by Grantor and Grantee substantially in the form of Exhibit A hereto. "Current Purchase Price Payment" means a Purchase Price Payment in the amount of $5,000,000. "Current Supplement Documents" means this Supplement, the Current Conveyance Supplement, the Subordination Agreements, and all other Production Payment Documents delivered substantially contemporaneously herewith. "Production Payment" has the meaning given such term in the Production Payment Conveyance. "Production Payment Conveyance" means the Original Conveyance as amended and supplemented by the Current Conveyance Supplement. "Purchase Agreement" means the Original Purchase Agreement as supplemented and amended hereby. "Subordination Agreements" means Subordination Agreements substantially in the forms of Exhibit B and Exhibit C hereto, executed and delivered by Grantor and the mortgagees named therein for the benefit of Grantee. Section 1.2. Rules of Construction. All references in this Supplement to articles, sections, subsections and other subdivisions refer to corresponding articles, sections, subsections and other subdivisions of this Supplement unless expressly provided otherwise. Titles appearing at the beginning of any of such subdivisions are for convenience only and shall not constitute part of such subdivisions and shall be disregarded in construing the language contained in such subdivisions. The words "this Supplement, "this instrument", "herein", "hereof", "hereby", "hereunder" and words of similar import refer to this Supplement as a whole and not to any particular subdivision unless expressly so limited. Unless the context otherwise requires: "including" (and its grammatical variations) means "including without limitation"; "or" is not exclusive; words in the singular form shall be construed to include the plural and vice versa; words in any gender include all other genders; references herein to any instrument or agreement refer to such instrument or agreement as it may be from time to time supplemented or amended; and references herein to any Person include such Person's successors and assigns. All references in this Supplement to exhibits and schedules refer to the exhibits and schedules to this Supplement unless expressly provided otherwise, and all such exhibits and schedules are hereby incorporated herein by reference and made a part hereof for all purposes. 25 ARTICLE II - Amendments Section 2.1. Agreement to Amend Conveyance. Upon the terms and conditions of this Supplement and the Purchase Agreement, Grantor and Grantee agree to amend and supplement the Original Conveyance by executing and delivering the Current Conveyance Supplement. Section 2.2. Amendments to Purchase Agreement. The definition of Program Period in Section 1.1 of the Original Purchase Agreement is hereby amended in its entirety to read as follows: " 'Program Period' means the period beginning on the Initial Closing Date through and including March 7, 2003." In addition, although the provisions of the Original Purchase Agreement contemplated that Purchase Price Payments would be paid only by SPS, Grantor and Grantee acknowledge and agree that Purchase Price Payments may be paid by any Person included within Grantee at the time in question, and that the Purchase Agreement shall be construed accordingly. Section 2.3. Closing. On the Current Closing Date, Grantor shall deliver the Current Conveyance Supplement to Grantee, and Grantor shall satisfy all of the conditions set out in Sections 3.4 and 3.5 of the Purchase Agreement (other than the condition in Section 3.4(f) of the Purchase Agreement, which is hereby waived without prejudice to the rights of GPF and Fund VI to request and receive the same in connection with any subsequent supplement to the Purchase Agreement) and in Section 2.4 below. On the Current Closing Date, GPF shall pay all of the Current Purchase Price Payment to Grantor in accordance with the terms and procedures of the Purchase Agreement. Section 2.4. Additional Conditions Precedent. In addition to the conditions mentioned above in Section 2.3, each of the following conditions must be satisfied to Grantee's complete satisfaction, or waived by Grantee, on the Current Closing Date: (a) The Production Payment Order must have been entered in form and substance acceptable to Grantee and must be in full force and effect and not stayed pending appeal, and Grantee must be entitled to all of the protections of Section 363(m) of the United States Bankruptcy Code. (b) Each of the Subordination Agreements must have been executed and delivered in form and substance acceptable to Grantee and must be in full force and effect. (c) Galveston Bay Pipeline Company and Galveston Bay Processing Corporation must have assumed and ratified the "Mirant Contracts" referred to in the Production Payment Order by executing and delivering the Acknowledgment following the signature pages of this Supplement. (d) In its wiring instructions to GPF, Grantor must have directed GPF to pay directly, out of the Current Purchase Price Payment, $75,000 to Thompson & Knight L.L.P., counsel to GPF and Fund VI, $20,000 to Mayer, Brown, Rowe and Maw, counsel to Mirant and HCL, to be applied to the reasonable legal fees and expenses of such counsel that have been incurred in connection with the Production Payment and the Current Supplement Documents and that will be incurred from time to time hereafter in connection with post-closing activities and monitoring the Production Payment during Grantor's bankruptcy case. (e) Grantor's arrangements for coordinating its payments for the Galveston Bay Development Well with the payments of the other joint interest owner in that well must be acceptable to Grantee. Section 2.5. Time and Place of Closing. The closing for the consummation of the transactions contemplated herein shall take place on March 31, 2003 or on such other date as may be agreed to by Grantor and Grantee (herein called the "Current Closing Date"). 26 ARTICLE III - Representations and Covenants Section 3.1. Representations and Warranties of Grantor. To induce Grantee to enter into the Current Supplement Documents and to pay the Current Purchase Price Payment, Grantor hereby represents and warrants and covenants to Grantee that: (a) Except as noted in the Compliance Certificate delivered concurrently herewith, all representations and warranties made by Grantor or any other TransTexas Company in any Production Payment Document now or previously delivered are true and correct as of the Current Closing Date (unless such representations and warranties are expressly limited to an earlier date, in which case such representations and warranties are true and correct as of such earlier date), provided that the representations and warranties confirmed in the Omnibus Certificates heretofore delivered are true and correct as such Certificates are amended and updated through the date hereof. (b) Each TransTexas Company has performed all agreements, covenants, and conditions which it is required by any Production Payment Document to perform on or prior to the Current Closing Date. (c) The consummation on the Current Closing Date of the transactions contemplated in the Current Supplement Documents: (i) is authorized by the Bankruptcy Court, (ii) is not prohibited by any law or any regulation or order of any court or governmental agency or authority applicable to Grantor or any other TransTexas Company, and (iii) does not subject any of them to any penalty or other onerous condition under or pursuant to any such law, regulation or order. Section 3.2. Covenants and Authorization. To induce Grantee to enter into the Current Supplement Documents and to pay the Current Purchase Price Payment, Grantor hereby covenants with Grantee that Grantor will perform all of its covenants and duties under the Production Payment Documents, all as fully as if they were set out in full herein. Grantor further agrees that GPF, Fund VI and their counsel are authorized to apply the $31,395.14 that TransTexas deposited prior to commencement of the case with Thompson & Knight L.L.P. to pay the Reimbursable Expenses that TransTexas owes as reimbursements to GPF and Fund VI (including up to $7,500 in reimbursement for fees and expenses incurred prior to November 14, 2002). Section 3.3. Representations and Warranties of Grantee. Each Person included within Grantee hereby represents and warrants to Grantor that: (a) such Person has incurred no obligation or liability, contingent or otherwise, for broker's or finder's fees in respect of any of the matters provided for in this Supplement for which fees Grantor might be liable; (b) the Purchase Agreement constitutes the legal, valid and binding act and obligation of such Person, enforceable against such Person in accordance with its terms except as such enforcement may be limited by bankruptcy, insolvency, moratorium and other similar laws applicable to creditors' rights generally or by general principles of equity; (c) no bankruptcy or insolvency proceeding is presently pending (or, to such Person's best knowledge, threatened) by or against such Person under any applicable bankruptcy, insolvency or other similar law of any jurisdiction; (d) such Person has not made a general assignment for the benefit of creditors; and (e) such Person is acquiring the Production Payment for its own account and not with any intention to transfer all or any part of the Production Payment to others in violation of the Securities Act of 1933, as amended, or any other applicable securities laws. Fund VI further represents and warrants that in connection with the transactions contemplated herein and in the Purchase Agreement (i) it is represented by Tamco, an investment manager that qualifies as a "qualified professional asset manager" as defined in Department of Labor Prohibited Transaction Exemption 84-14 (the "QPAM Exemption") and (ii) each of the conditions of the QPAM Exemption are satisfied and will, throughout the term of the Purchase Agreement (as hereby supplemented and amended), be satisfied. 27 ARTICLE IV - Miscellaneous Section 4.1. Ratification of Production Payment Documents. The Original Purchase Agreement as hereby supplemented and amended is hereby assumed, ratified and confirmed in all respects. The other Production Payment Documents, as they may be supplemented, amended or affected by the Current Supplement Documents, are hereby assumed, ratified and confirmed in all respects. Any reference to the Purchase Agreement in any Production Payment Document shall be deemed to refer to this Supplement also, and any reference in any Production Payment Document to any other document or instrument amended, renewed, extended or otherwise affected by any Current Supplement Document shall also refer to such Current Supplement Document. The execution, delivery and effectiveness of this Supplement and the other Current Supplement Documents shall not, except as expressly provided herein or therein, operate as a waiver of any right, power or remedy of Grantee or Funds Agent under the Purchase Agreement or any other Production Payment Document nor constitute a waiver of any provision of the Purchase Agreement or any other Production Payment Document. Section 4.2. Survival of Agreements. All representations, warranties, covenants and agreements of Grantor herein shall survive the execution and delivery of this Supplement and the other Current Supplement Documents and shall further survive until terminated in accordance with the Purchase Agreement. Section 4.3. Production Payment Documents. This Supplement and the other Current Supplement Documents are Production Payment Documents, and all provisions in the Purchase Agreement pertaining to Production Payment Documents (including the arbitration provisions of Section 6.9 of the Purchase Agreement) apply hereto and thereto. THIS WRITTEN AGREEMENT AND THE OTHER PRODUCTION PAYMENT DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. Section 4.4. Governing Law. This Supplement shall be deemed a contract and instrument made under the laws of the State of Texas and shall be construed and enforced in accordance with and governed by the laws of the State of Texas and the laws of the United States of America, without regard to principles of conflicts of law. Section 4.5. Counterparts. This Supplement may be separately executed in counterparts and by the different parties hereto in separate counterparts, each of which when so executed shall be deemed to constitute one and the same Supplement. [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK] 28 IN WITNESS WHEREOF, this Supplement is executed as of the date first written above. TRANSTEXAS GAS CORPORATION By: ________________________________________ Ed Donahue Vice President TCW DR VI INVESTMENT PARTNERSHIP, L.P. By: TCW ASSET MANAGEMENT COMPANY, as its Agent By: ___________________________________ Kurt A. Talbot Senior Vice President TCW GLOBAL PROJECT FUND LTD. By: ________________________________________ Name: Director TCW ASSET MANAGEMENT COMPANY, as Agent By: ___________________________________________ Kurt A. Talbot Senior Vice President 29 ACKNOWLEDGMENT To induce Grantee to enter into the above Supplement, the undersigned Galveston Bay Pipeline Company and Galveston Bay Processing Company each hereby assume, ratify and confirm their various agreements made in connection with the Production Payment Documents referred to above, including without limitation the "Mirant Contracts" referred to in the Production Payment Order, and acknowledge and agree that such agreements remain in full force and effect after taking into account the Current Supplement Documents referred to above. EXECUTED and DELIVERED as of the date of the above Supplement. GALVESTON BAY PIPELINE COMPANY By: ________________________________ Ed Donahue Vice President GALVESTON BAY PROCESSING CORPORATION By: ________________________________ Ed Donahue Vice President 30 EX-10.72 4 h05322exv10w72.txt TENTH SUPPLEMENT TO PRODUCTION PAYMENT CONVEYANCE EXHIBIT 10.72 TENTH SUPPLEMENT TO PRODUCTION PAYMENT CONVEYANCE THIS TENTH SUPPLEMENT TO PRODUCTION PAYMENT CONVEYANCE (this "Supplement"), dated as of March 27, 2003, is made by TransTexas Gas Corporation, a Delaware corporation ("Grantor"), TCW DR VI Investment Partnership, L.P. ("Fund VI"), and TCW Global Project Fund Ltd. ("GPF"). Fund VI and GPF are herein collectively called "Grantee". RECITALS: - - Effective as of March 1, 2000, Grantor executed in favor of TCW Portfolio No. 1555 DR V Sub-Custody Partnership, L.P. ("Fund V"), Fund VI, and Mirant Americas Energy Capital, LP, formerly named Southern Producer Services, L.P. ("SPS"), that certain Production Payment Conveyance dated as of March 14, 2000 (the "3/14/2000 Conveyance"). The 3/14/2000 Conveyance has previously been supplemented and amended by various supplements and, as so supplemented and amended, is herein called the "Original Conveyance". The 3/14/2000 Conveyance and such supplements have been recorded as set forth in Schedule 1 hereto (the "Recording Schedule"); all capitalized terms used but not defined herein shall have the meanings assigned to them in the Original Conveyance. - - Effective as of December 1, 2000, Fund V assigned all of its right, title, and interest under the Original Conveyance to SPS pursuant to a Conveyance of Interest in Production Payment dated as of February 7, 2001. - - Effective as of September 10, 2001, SPS conveyed an undivided interest in the Production Payment to GPF pursuant to a Partial Conveyance of Production Payment and Seventh Supplement to Production Payment Conveyance dated as of September 10, 2001. - - On March 4, 2002, SPS assigned all of its right, title, and interest under the Original Conveyance to Mirant Americas Energy Capital Assets, LLC ("Mirant") pursuant to that certain Assignment dated as of March 4, 2002. - - On March 13, 2003, SPS and Mirant collectively assigned their right, title, and interest under the Original Conveyance to Hydrocarbon Capital LLC ("HCL") pursuant to that certain Assignment of Production Payment dated as of March 13, 2003. Prior to the delivery of this Supplement, and by means of an Assignment of Partial Interest in Production Payment of even date herewith recorded immediately prior to this Supplement, HCL assigned its right, title and interest under the Original Conveyance to GPF, effective as of 8:59 a.m. Houston, Texas time on March 7, 2003. GPF is therefore the successor and assign of Mirant with respect to Mirant's interests in the Production Payment under the Original Conveyance, and GPF and Fund VI now constitute the "Grantee" under the Original Conveyance. - - Grantee and Grantor desire to supplement and amend the Original Conveyance, as set forth herein, to (a) increase the unliquidated balance of the Primary Sum in consideration 31 of the payment by GPF of additional funds to Grantor, and (b) accordingly adjust the relative Percentage Shares of Fund VI and GPF. - - As described in Section 8.7 of the Original Conveyance, Fund VI has appointed TCW Asset Management Company and GPF has appointed TCW London International, Limited to act as their respective agents in connection with supplements and amendments to the Original Conveyance. SUPPLEMENTS AND AGREEMENTS: FOR A GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of which are hereby acknowledged, Grantor and Grantee do hereby agree, act and covenant as follows: - Effective as of 9:00 a.m. Houston, Texas time, on March 7, 2003 (the "Effective Time"), the Original Conveyance is amended in order to add the amount of Five Million Dollars ($5,000,000) to the unliquidated balance of the Primary Sum, as such unliquidated balance stood as of the Effective Time after giving effect to all applications of PP Proceeds made before the Effective Time. After giving effect to such amendment (and to such application of PP Proceeds), the unliquidated balance of the Primary Sum as of the Effective Time is $18,965,203.70. (Any PP Proceeds received after the Effective Time on March 7, 2003 shall be deemed to have been received on the next following Business Day.) - The definition of "Percentage Share" in Section 1.1 of the Original Conveyance is hereby amended in its entirety to read as follows: " 'Percentage Share' means, with respect to each Person included in Grantee, the fractional undivided interest which it owns in the Production Payment at the time in question. From the initial grant of the Production Payment until June 7, 2000, the Percentage Share of each Person included in Grantee was as follows: Fund V 42.859594% Fund VI 21.429797% SPS 35.710609% From and after June 7, 2000, until September 8, 2000, the Percentage Share of each Person included in Grantee was as follows: Fund V 33.048697% Fund VI 16.524349% SPS 50.426954% From and after September 8, 2000, until November 7, 2000, the Percentage Share of each Person included in Grantee was as follows: Fund V 22.863142% Fund VI 11.431571% SPS 65.705287% 32 From and after November 7, 2000, until December 1, 2000, the Percentage Share of each Person included in Grantee was as follows: Fund V 19.08294% Fund VI 9.54147% SPS 71.37559% From and after December 1, 2000, until February 7, 2001, the Percentage Share of each Person included in Grantee was as follows: Fund VI 9.54147% SPS 90.45853% From and after February 7, 2001, until July 9, 2001, the Percentage Share of each Person included in Grantee was as follows: Fund VI 49.82233% SPS 51.17767% From and after July 9, 2001, until September 10, 2001, the Percentage Share of each Person included in Grantee was as follows: Fund VI 43.83362% SPS 56.16638% From and after September 10, 2001, until March 7, 2002, the Percentage Share of each Person included in Grantee was as follows: Fund VI 31.64025% SPS (or 49.81482% Mirant) GPF 18.54493% From and after March 7, 2002, until June 7, 2002, the Percentage Share of each Person included in Grantee was as follows: Fund VI 19.36125% Mirant 30.48260% GPF 50.15615% From and after June 7, 2002 until March 7, 2003, the Percentage Share of each Person included in Grantee was as follows: Fund VI 12.77506% Mirant (or 20.11321% HCL) GPF 67.11173% As of 9:00 a.m. Houston, Texas time, on March 7, 2003, the Percentage Share of each Person included in Grantee is as follows: Fund VI 9.40701% GPF 90.59299% 33 The foregoing Percentage Shares of Fund VI and GPF, respectively, taking effect as of 9:00 a.m., Houston, Texas time on March 7, 2003, are in this Supplement called their "amended Percentage Shares". - In consideration of the additional purchase price payment made by GPF to Grantor and the foregoing increase in the unliquidated balance of the Primary Sum: (a) Fund VI does hereby GRANT, BARGAIN, SELL, CONVEY, ASSIGN, TRANSFER, SET OVER and DELIVER unto GPF such additional undivided interests in the Production Payment as are necessary in order to cause GPF and Fund VI to own the Production Payment, at and after the Effective Time, in undivided interests in proportion to their respective amended Percentage Shares, and (b) Fund VI does further assign unto GPF such undivided interests in Fund VI's accounts receivable from the sale of PP Hydrocarbons B to the extent such accounts receivable exist and are unpaid at the Effective Time and arise from the sale of PP Hydrocarbons before the Effective Time B as are necessary in order to cause GPF and Fund VI to share in all collections of such accounts receivable after the Effective Time in proportion to their respective amended Percentage Shares. TO HAVE AND TO HOLD the same, upon and subject to the terms of the Original Conveyance, as amended hereby, unto GPF and its successors and Permitted Assigns, until the Termination Time. - All of the terms and provisions of the Original Conveyance, as the same is amended and supplemented hereby, are ratified, adopted, affirmed and renewed, and remain in full force and effect for the benefit of Grantee, the Beneficiaries, Funds Agent, and their respective successors and assigns. - This Supplement may be executed in multiple counterparts, all of which are identical. - This Supplement shall be binding upon and shall inure to the benefit of the parties hereto, and their respective successors and assigns, and all of the covenants and agreements contained in the Original Conveyance, as amended hereby, shall be deemed to be covenants and agreements running with the lands affected thereby. - This Supplement shall be governed by and construed in accordance with the laws of the State of Texas, without regard to principles of conflicts of laws. 34 IN WITNESS WHEREOF, this Supplement is executed by the parties hereto on the dates set out below in their respective acknowledgments, dated for purposes of reference as of March 27, 2003, and effective as of the Effective Time. TRANSTEXAS GAS CORPORATION By: _________________________________________ Ed Donahue Vice President Grantor's address:1300 North Sam Houston Parkway East Suite 310 Houston, Texas 77032-2949 Attention: Ed Donahue, Vice President Telephone: 281/987-8600 Telecopy: 281/986-8865 TCW DR VI INVESTMENT PARTNERSHIP, L.P. By: TCW ASSET MANAGEMENT COMPANY, as Agent By: __________________________________ Kurt A. Talbot Senior Vice President Fund VI's address: c/o Trust Company of the West 865 South Figueroa Los Angeles, California 90017 Attention: Thomas F. Mehlberg Telephone: 213/244-0702 Telecopy: 213/244-0604 35 TCW GLOBAL PROJECT FUND LTD. By: __________________________________________ David J. Doyle Director GPF's address: TCW Global Project Fund Ltd. c/o Conyers, Dill & Pearman Clarendon House Church Street Hamilton, Bermuda Attention: Kevin Butler Telephone: 441/299-4993 Telecopy: 441/292-4720 with a copy to:TCW London International, Limited 865 South Figueroa Los Angeles, California 90017 Attention: Arthur Carlson Telephone: 213/244-0053 Telecopy: 213/244-0604 This document prepared by: John W. Rain Thompson & Knight L.L.P. 1700 Pacific Avenue, Suite 3300 Dallas, Texas 75201 36 STATE OF TEXAS ) ) COUNTY OF HARRIS ) The foregoing instrument was acknowledged before me on this ____ day of March, 2003, by Ed Donahue, the Vice President of TransTexas Gas Corporation, a Delaware corporation, on behalf of such corporation. ____________________________________________ [SEAL] Notary Public, State of Texas STATE OF TEXAS ) ) COUNTY OF HARRIS ) The foregoing instrument was acknowledged before me on this ____ day of March, 2003, by Kurt A. Talbot, the Senior Vice President of TCW Asset Management Company, a California corporation, on behalf of such corporation acting as agent as aforesaid. ____________________________________________ [SEAL] Notary Public, State of Texas 37 COLONY OF BERMUDA ) CITY OF HAMILTON ) CONSULATE GENERAL OF THE ) UNITED STATES OF AMERICA ) The foregoing instrument was acknowledged before me on this ____ day of March, 2003, by David J. Doyle, a Director of TCW Global Project Fund Ltd., a Bermuda company, on behalf of such company. ________________________________________ [SEAL] Consul of the United States of America 38 EX-23.1 5 h05322exv23w1.txt CONSENT OF NETHERLAND, SEWELL & ASSOCIATES, INC. EXHIBIT 23.1 CONSENT OF INDEPENDENT PETROLEUM ENGINEERS We consent to the references to our reserve report as of February 1, 2003, and to the use of our name in the Annual Report on Form 10-K of TransTexas Gas Corporation for the year ended January 31, 2003 in the form and context in which they appear. NETHERLAND, SEWELL & ASSOCIATES, INC. By: /s/ DANNY D. SIMMONS -------------------------------------------- Danny D. Simmons Executive Vice President Houston, Texas May 1, 2003 39 EX-99.1 6 h05322exv99w1.txt CERTIFICATION OF CEO & CFO PURSUANT SECTION 906 EXHIBIT 99.1 CERTIFICATION OF ANNUAL REPORT Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, Arnold H. Brackenridge, President, Chief Executive Officer and Chief Operating Officer of TransTexas Gas Corporation (the "Company") and Ed Donahue, Vice President, Chief Financial Officer and Secretary of the Company, certify that to his knowledge: 1. The Annual Report on Form 10-K of the Company for the year ended January 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. May 1, 2003 /s/ ARNOLD H. BRACKENRIDGE ----------------------------------------- Arnold H. Brackenridge President, Chief Executive Officer and Chief Operating Officer May 1, 2003 /s/ ED DONAHUE ----------------------------------------- Ed Donahue Vice President, Chief Financial Officer and Secretary 40 -----END PRIVACY-ENHANCED MESSAGE-----