SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

           (MARK ONE)

              [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
                                       OR
              [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                 FOR THE TRANSITION PERIOD FROM ______ TO ______

                         COMMISSION FILE NUMBER 0-17389

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

                      DELAWARE                           76-0263364
            (State or other jurisdiction              (I.R.S. Employer
         of incorporation or organization)           Identification No.)

              1301 MCKINNEY, SUITE 700
                   HOUSTON, TEXAS                           77010
      (Address of principal executive offices)           (Zip Code)
             
                                 (713) 658-0509
              (Registrant's telephone number, including area code)

       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 [ ]

       As of July 31, 1997, Tejas Gas Corporation had 20,570,119 shares of
common stock, par value $.25 per share, outstanding.

<PAGE>
                              TEJAS GAS CORPORATION

                          PART I. FINANCIAL INFORMATION


ITEM 1.       FINANCIAL STATEMENTS

         The consolidated financial statements of Tejas Gas Corporation
("Tejas") included herein have been prepared, without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and notes normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. It is suggested that these
financial statements be read in conjunction with the audited financial
statements and the notes thereto included in Tejas' Annual Report on Form 10-K
for the year ended December 31, 1996.

         Because of the seasonal nature of Tejas' operations, among other
factors, the results of operations for the interim periods presented are not
necessarily indicative of the results to be expected for an entire year.

                                        1
<PAGE>
                              TEJAS GAS CORPORATION

                           CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                                              JUNE 30,  DECEMBER 31,
                                                                                                                 1997        1996
                                                                                                              ----------  ----------
                                                                                                                   (IN THOUSANDS)   
                                     ASSETS
<S>                                                                                                           <C>         <C>       
CURRENT ASSETS:
     Cash and cash equivalents .............................................................................  $    6,645  $   45,247
     Accounts receivable ...................................................................................     210,295     384,652
     Exchange gas receivable ...............................................................................      18,596      10,792
     Storage gas inventory .................................................................................      72,282      45,389
     Prepaids and other current assets .....................................................................      34,328      29,154
     Deferred income tax assets ............................................................................       2,292       2,097
                                                                                                              ----------  ----------
           Total current assets ............................................................................     344,438     517,331
                                                                                                              ----------  ----------
PROPERTY, PLANT AND EQUIPMENT - AT COST ....................................................................   1,570,649   1,526,499
     Less accumulated depreciation .........................................................................     234,752     217,261
                                                                                                              ----------  ----------
           Property, plant and equipment, net ..............................................................   1,335,897   1,309,238

GOODWILL, NET ..............................................................................................       9,579       9,811
                                                                                                              ----------  ----------
INVESTMENTS AND OTHER ASSETS ...............................................................................     107,334      68,168
                                                                                                              ----------  ----------
           TOTAL ...........................................................................................  $1,797,248  $1,904,548
                                                                                                              ==========  ==========
                      LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
     Gas purchases payable .................................................................................  $  246,560  $  386,766
     Exchange gas payable ..................................................................................      10,486       9,237
     Accounts payable ......................................................................................       7,824      11,124
     Accrued liabilities ...................................................................................      55,939      74,142
     Current maturities of long-term obligations ...........................................................       7,573       7,382
                                                                                                              ----------  ----------
           Total current liabilities .......................................................................     328,382     488,651
                                                                                                              ----------  ----------
LONG-TERM DEBT .............................................................................................     866,755     847,755
                                                                                                              ----------  ----------
DEFERRED INCOME TAXES ......................................................................................      97,375      72,072
                                                                                                              ----------  ----------
COMMITMENTS AND CONTINGENCIES ..............................................................................        --          --
                                                                                                              ----------  ----------
MINORITY INTERESTS .........................................................................................      44,321      54,610
                                                                                                              ----------  ----------
STOCKHOLDERS' EQUITY:
     Preferred Stock, $1 par value; 6,000,000 shares authorized 200,000 shares
           of 9.96% Cumulative Preferred Stock issued
                 and outstanding in 1997 and 1996; $250 liquidation
                 preference per share ......................................................................         200         200
           260,000 shares of 5 1/4% Convertible Preferred Stock issued
                 and outstanding in 1997 and 1996; $250 liquidation
                 preference per share ......................................................................         260         260
     Common Stock, $.25 par value; 30,000,000 shares authorized;
           20,568,824 and 20,551,051 shares issued and outstanding
           in 1997 and 1996, respectively ..................................................................       5,142       5,138
     Capital surplus .......................................................................................     295,058     294,599
     Retained earnings .....................................................................................     159,755     141,263
                                                                                                              ----------  ----------
           Total stockholders' equity ......................................................................     460,415     441,460
                                                                                                              ----------  ----------
           TOTAL ...........................................................................................  $1,797,248  $1,904,548
                                                                                                              ==========  ==========
</TABLE>
                 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                        2
<PAGE>
                              TEJAS GAS CORPORATION

                       CONSOLIDATED STATEMENTS OF EARNINGS
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                                             THREE MONTHS ENDED              SIX MONTHS ENDED
                                                                                  JUNE 30,                       JUNE 30,
                                                                          1997             1996             1997             1996
                                                                        ---------       ---------       -----------       ---------
                                                                                 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                                                     <C>             <C>             <C>               <C>      
REVENUES .........................................................      $ 437,705       $ 419,284       $ 1,127,322       $ 851,685
                                                                        ---------       ---------       -----------       ---------
COSTS AND EXPENSES:
    Cost of sales ................................................        368,694         372,793           982,532         761,865
    Operating expenses ...........................................         18,332          11,912            35,485          21,428
    Depreciation and amortization ................................         13,830          10,127            27,586          18,206
    General and administrative ...................................          9,874           6,211            21,784          12,258
                                                                        ---------       ---------       -----------       ---------
        Total ....................................................        410,730         401,043         1,067,387         813,757
                                                                        ---------       ---------       -----------       ---------
EARNINGS FROM OPERATIONS .........................................         26,975          18,241            59,935          37,928
                                                                        ---------       ---------       -----------       ---------
OTHER INCOME (EXPENSE):
    Equity in earnings of unconsolidated entities ................          2,449           1,909             6,526           5,575
    Interest income ..............................................            153             210               553             512
    Interest expense .............................................        (14,841)         (7,384)          (29,566)        (12,539)
    Minority interests ...........................................         (1,083)           (925)           (2,486)         (1,872)
    Other, net ...................................................            193             580               131             672
                                                                        ---------       ---------       -----------       ---------
        Total ....................................................        (13,129)         (5,610)          (24,842)         (7,652)
                                                                        ---------       ---------       -----------       ---------
EARNINGS BEFORE INCOME TAXES .....................................         13,846          12,631            35,093          30,276
                                                                        ---------       ---------       -----------       ---------
INCOME TAXES:
    Current ......................................................        (12,972)          1,934           (12,704)          5,873
    Deferred .....................................................         17,435           2,682            25,109           5,450
                                                                        ---------       ---------       -----------       ---------
        Total ....................................................          4,463           4,616            12,405          11,323
                                                                        ---------       ---------       -----------       ---------
NET EARNINGS .....................................................          9,383           8,015            22,688          18,953
                                                                        ---------       ---------       -----------       ---------
PREFERRED STOCK DIVIDEND REQUIREMENTS ............................          2,098           2,098             4,196           4,196
                                                                        ---------       ---------       -----------       ---------
NET EARNINGS APPLICABLE TO COMMON STOCK ..........................      $   7,285       $   5,917       $    18,492       $  14,757
                                                                        ---------       ---------       -----------       ---------
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING ...............................................         20,563          17,407            20,559          17,406
                                                                        =========       =========       ===========       =========
EARNINGS PER COMMON SHARE ........................................      $    0.35       $    0.34       $      0.90       $    0.85
                                                                        =========       =========       ===========       =========
</TABLE>
                
                SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                        3
<PAGE>

                              TEJAS GAS CORPORATION

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,                                                                                1997                1996
                                                                                                      ---------           ---------
                                                                                                              (IN THOUSANDS)
OPERATING ACTIVITIES:
<S>                                                                                                   <C>                 <C>      
        Net earnings .......................................................................          $  22,688           $  18,953
        Adjustments to reconcile net earnings to net cash
              provided by operating activities:
                    Depreciation and amortization ..........................................             27,586              18,206
                    Amortization of deferred loan costs ....................................              1,345               1,091
                    Deferred income taxes ..................................................             25,109               5,450
                    Equity in earnings of unconsolidated entities ..........................             (6,526)             (5,575)
                    Distributions from unconsolidated entities .............................              9,503               7,391
                    Other, net .............................................................                 60                 708
                                                                                                      ---------           ---------
                                                                                                         79,765              46,224
                                                                                                      ---------           ---------
              Net increase/(decrease) in working capital ...................................            (25,972)             53,625
                                                                                                      ---------           ---------
              Net cash provided by operating activities ....................................             53,793              99,849
                                                                                                      ---------           ---------
INVESTING ACTIVITIES:
        Capital expenditures and investments ...............................................           (117,963)            (22,404)
        Proceeds from sale of assets .......................................................             19,876                --
        Acquisition of Transok .............................................................               --              (568,500)
        Other, net .........................................................................                523                 194
                                                                                                      ---------           ---------
        Net cash used in investing activities ..............................................            (97,564)           (590,710)
                                                                                                      ---------           ---------
FINANCING ACTIVITIES:
        Net borrowings (repayments) under line-of-credit agreements ........................               --                 3,300
        Proceeds from issuance of long-term debt ...........................................             20,000             605,900
        Retirement of long-term debt .......................................................             (1,000)           (105,000)
        Preferred stock dividends ..........................................................             (4,196)             (4,196)
        Net (distribution)/contribution to minority interest holders .......................            (10,098)             (1,754)
        Other, net .........................................................................                463                 111
                                                                                                      ---------           ---------
        NET CASH PROVIDED BY FINANCING ACTIVITIES ..........................................              5,169             498,361
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .......................................            (38,602)              7,500
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ...........................................             45,247              29,935
                                                                                                      ---------           ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .................................................          $   6,645           $  37,435
                                                                                                      =========           =========
</TABLE>

                SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                        4
<PAGE>
                              TEJAS GAS CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

         The accompanying consolidated financial statements and notes thereto
for Tejas Gas Corporation ("Tejas") have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Accordingly, certain
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted
pursuant to such rules and regulations. In connection with the preparation of
these financial statements, management was required to make estimates and
assumptions that affect the reported amount of assets, liabilities, revenues,
expenses and disclosure of contingent liabilities. Actual results could differ
from such estimates. The accompanying consolidated financial statements and
notes thereto should be read in conjunction with the consolidated financial
statements and notes thereto included in Tejas' Annual Report on Form 10-K for
the year ended December 31, 1996.

         Certain amounts in the consolidated financial statements for periods
prior to 1997 have been reclassified to conform to the current presentation.

         In the opinion of Tejas' management, all adjustments have been made
which are necessary to fairly state the consolidated financial position of Tejas
and subsidiaries as of June 30, 1997, the results of their operations for the
three month and six month periods ended June 30, 1997 and 1996 and the cash
flows for the six month periods ended June 30, 1997 and 1996.


2.       INVESTMENT IN UNCONSOLIDATED SUBSIDIARY

         Effective January 1, 1997, Tejas increased its ownership in Coral
Energy, L.P. ("Coral") to fifty percent. Coral was previously owned one-third by
Tejas and two-thirds by Shell Oil Company ("Shell"). Effective May 31, 1997,
Coral formed an alliance with Shell Canada Limited ("Shell Canada") pursuant to
which Shell Canada received a twelve percent ownership interest in Coral. The
remaining equity ownership is held forty-four percent by Tejas and forty-four
percent by Shell.


3.       STOCKHOLDERS' EQUITY

         During the first half of 1997 Tejas granted options for 114,950 and
14,850 shares to its employees and directors, respectively. During the same
period, employee options for 17,596 shares were exercised.


4.       INCOME TAXES

         Tejas' earnings before income taxes include Tejas' share of Coral's
Canadian income which is net of Canadian income tax. This results in a lower
effective income tax rate for Tejas since a tax credit is applied to U.S.
federal income taxes for Canadian income taxes paid on the same income.

                                        5

<PAGE>

5.       SUPPLEMENTAL CASH FLOW INFORMATION

         The "Net increase/(decrease) in working capital" amount included in the
Consolidated Statements of Cash Flows is comprised of the following:


                                                       SIX MONTHS ENDED JUNE 30,
                                                       ---------       --------
                                                         1997           1996(1)
                                                       ---------       --------
                                                             (IN THOUSANDS)
Decrease (increase) in:
    Accounts receivable .........................      $ 174,357       $(14,331)
    Exchange gas receivable .....................         (7,804)        (1,993)
    Storage gas inventory .......................        (26,893)        12,011
    Prepaids and other current assets ...........         (5,173)         9,131
Increase (decrease) in:
    Gas purchases payable .......................       (140,206)        74,490
    Exchange gas payable ........................          1,249           (585)
    Accounts payable ............................         (3,300)       (34,447)
    Accrued liabilities .........................        (18,202)        11,848
    Income taxes payable ........................           --           (2,499)
                                                       ---------       --------
      Total .....................................      $ (25,972)      $ 53,625
                                                       =========       ========
----------
(1)   Excludes Transok's balances at acquisition.


6.       COMMITMENTS AND CONTINGENCIES

THE LONG TRUST LITIGATION

         Tejas is a defendant or party in various lawsuits that have risen in
the ordinary course of Tejas' business. In particular, a subsidiary of Tejas is
a defendant in THE LONG TRUSTS V. TEJAS GAS CORP. ET. AL., 123rd Judicial
District Court, Panola County, Texas, filed March 1, 1989, in which plaintiffs
assert claims and allege damages for breach of contract and failure to
take-or-pay for natural gas pursuant to three natural gas purchase contracts.
Plaintiffs allege that, in addition to failing to take-or-pay for gas, Tejas
breached (a) one of the contracts by failing to take a minimum quantity of gas
and to install and maintain pipeline facilities sufficient to permit Tejas to
meet its quantity purchase obligations, and (b) all three contracts by failing
to take gas in quantities sufficient to enable plaintiffs to produce ratably
with other producers in a common reservoir. In plaintiffs' Seventh Amended
Original Petition filed April 11, 1997, the plaintiffs are seeking take-or-pay
damages for the twelve year period 1984-1996 in excess of $36 million, plus
pre-judgment interest, post-judgment interest, attorneys' fees and court costs
and other unspecified actual damages. In connection with their depositions in
this matter, certain expert witnesses retained by The Long Trusts have presented
damage models purporting to show approximately $60 million in take-or-pay
damages and $70 million for failure to take The Long Trusts' gas ratably.
Management disputes The Long Trusts' claims and believes that The Long Trusts'
damage models are seriously flawed.

         On January 6, 1993, the Court entered an interlocutory summary judgment
order granting in part and denying in part plaintiffs' motions for summary
judgment. The Court found, among other things, as a matter of law that (a) Tejas
breached the minimum take obligations under one of the contracts, (b) Tejas is
not entitled to any credits or offsets for natural gas purchased by third
parties, and (c) the

                                        6

<PAGE>

"availability" of natural gas for take-or-pay purposes is established by the
delivery capacity testing procedures in the contracts. Damages, if any, have not
been determined. The effect of this order on Tejas' case was unclear and Tejas
had sought clarification and rehearing. On July 14, 1997, the Court granted
Tejas' motion for summary judgment regarding natural gas takes under
interruptible purchase contracts. According to the Court's order, Tejas will
receive a volumetric credit for all natural gas purchased by Tejas and its
affiliates under the interruptible contracts. Although a formal evaluation has
not been made, because most of the natural gas purchased from 1985 through 1989
was purchased by Tejas or one of its affiliates under interruptible contracts,
this ruling should significantly reduce the potential damages, if any. This
order reverses the partial summary judgment granted by Judge Boles in January
1993, regarding credit or offsets for natural gas purchased by third parties.

         Because of the relationship between The Long Trusts' contracts and
certain contracts between Tejas and Valero Transmission Company ("VTC"), and in
order to resolve existing and potential claims and disputes, Tejas, VTC and
Valero Transmission, L.P. ("VTLP") entered into an agreement, pursuant to which,
among other things, Tejas, VTC and VTLP would cooperate in the conduct of The
Long Trusts' litigation, and VTC and VTLP would bear a substantial portion of
the costs of any appeal and of the amount of any nonappealable final judgment
rendered against Tejas. On April 15, 1994, the plaintiffs named VTC and VTLP
(collectively "Valero") as additional defendants to the lawsuit, alleging that
Valero intentionally and maliciously interfered with the plaintiffs' contracts
with Tejas. In its Seventh Amended Original Petition, plaintiffs are seeking
damages against Valero in an amount in excess of $200 million for loss of
profits which plaintiffs claim they would have realized but for Valero's alleged
acts of interference. Plaintiffs further allege that Tejas conspired with Valero
in interfering with the contracts and that Tejas should be jointly liable with
Valero for the damages plaintiffs have asserted against Valero. Plaintiffs also
seek from Valero exemplary damages treble the amount of the actual, economic
damages, if any, found by the Court for the interference claim. Plaintiffs have
also added Tejas Gas Corporation as a defendant claiming that Tejas Gas
Corporation operated with its subsidiary, Tejas Gas Corp., as a single business
entity and should therefore be liable for the alleged wrongful acts of Tejas Gas
Corp. Plaintiff alleges similar claims against Valero Energy Corporation with
respect to VTC and VTLP.

         Although Tejas has not obtained a formal opinion, based on discussions
with outside counsel and an internal examination of this lawsuit, management
believes that it has adequate defenses or recourse to third parties relating to
such lawsuit and does not believe this matter will have a material adverse
effect on Tejas' financial condition.

GAS STORAGE FACILITIES

         Tejas' West Clear Lake Storage Facility (the "WCLSF") and Greasy Creek
Storage Facility (the "GCSF") require the maintenance of cushion gas in order to
sustain anticipated operational requirements. Such cushion gas requirements have
been satisfied by a combination of natural gas purchased by Tejas and third
party natural gas stored in the facilities. At June 30, 1997, Tejas had
purchased approximately 12.5 billion cubic feet ("Bcf") of cushion gas. In late
1994, Tejas entered into an agreement with a third party whereby the third party
agreed to purchase up to 35 Bcf of natural gas at a cost not to exceed $65
million and to store such gas in the WCLSF. The agreement with the third party
was scheduled to expire in September 2000. Effective January 16, 1997, the third
party agreement described above was amended and extended. The principal
modifications to the agreement included the extension of the contract expiration
date to December 31, 2002 and, at Tejas' option, an increase in the maximum
volume of natural gas that may be stored in Tejas' facilities, including the
GCSF, to 70 Bcf. In order to secure Tejas' ability to purchase the natural gas
from the third party, the agreement provides for the payment by Tejas of a
reservation fee to the third party which is adjusted quarterly based upon the
third party's financing costs. On certain option dates, Tejas may elect to
purchase specified volumes of the third party's gas based upon market prices.
Should Tejas decline to purchase the natural gas, the third party may instruct

                                        7
<PAGE>

Tejas to sell such volumes on the third party's behalf. In such case, it will be
necessary for Tejas to obtain cushion gas through other means in order to meet
the anticipated operational requirements of the WCLSF and GCSF. At June 30,
1997, the third party had approximately 24.5 Bcf of natural gas in storage at
the WCLSF and GCSF, which such party purchased for $48.3 million. Tejas
estimates the net 1997 cost related to the reservation of the 24.5 Bcf of
natural gas to be approximately $2.1 million.

         Tejas bears the cost of physical loss, if any, incurred during storage.
Management estimates that physical losses will not be significant and has
insured against physical losses due to catastrophic events.

7.       EARNINGS PER SHARE

         In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
per Share," which requires dual presentation of basic and diluted earnings per
share for entities with complex capital structures. Basic earnings per share
excludes dilution and is computed by dividing net income by the weighted average
number of shares outstanding for the period. Diluted earnings per share reflects
the potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock. SFAS No. 128
is effective for financial statements for both interim and annual periods ending
after December 15, 1997. The adoption of SFAS No. 128 would not change basic
earnings per share for the three month and six month periods ended June 30, 1997
and 1996 and would not have a material impact on diluted earnings per share for
either period.

                                        8
<PAGE>

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


RESULTS OF OPERATIONS

         On June 6, 1996, Tejas acquired (the "Transok acquisition") the
pipeline assets and related facilities and leased processing plants of Transok,
Inc. ("Transok"). The results of operations for the assets acquired or leased
("Transok operations") are included below for the period subsequent to the
acquisition. A summary (including the Transok operations where applicable) of
Tejas' natural gas average daily throughput is set forth below:
<TABLE>
<CAPTION>

                                                                                     THREE MONTHS ENDED            SIX MONTHS ENDED
                                                                                          JUNE 30,                     JUNE 30,
                                                                                     -------------------         -------------------
                                                                                      1997       1996(3)          1997       1996(3)
                                                                                     -----         -----         -----         -----
AVERAGE DAILY THROUGHPUT IN MILLION CUBIC FEET ("MMCF"):
<S>                                                                                  <C>           <C>           <C>           <C>  
    System sales ...........................................................         2,037         1,711         2,141         1,785
    Transportation .........................................................         2,250         1,751         2,285         1,616
    Partnership volumes (Tejas' share)(1) ..................................            43           134            43           124
                                                                                     -----         -----         -----         -----
           Total system throughput .........................................         4,330         3,596         4,469         3,525
    Gas processed and other ................................................            80           143            77           111
                                                                                     -----         -----         -----         -----
           Total daily throughput ..........................................         4,410         3,739         4,546         3,636
                                                                                     =====         =====         =====         =====
NATURAL GAS PROCESSING DATA:
    Average daily natural gas liquids production
       in thousands of gallons .............................................         1,317           455         1,348           299
    Average daily inlet volumes in MMcf (2) ................................           548           207           543           141
                                                                                     -----         -----         -----         -----
</TABLE>
----------
(1)   Includes Tejas' share of unconsolidated partnerships.
(2)   Treated volumes are also included in transportation volumes since such
      volumes are transported by Tejas' natural gas pipelines.
(3)   Includes Transok operations beginning June 6, 1996.

          Tejas' net earnings for the first six months of 1997 were $22.7
million as compared to $19 million for the same period in 1996, an increase of
$3.7 million. Net earnings for the second quarter of 1997 were $9.4 million as
compared to $8 million for the second quarter of 1996. Net earnings applicable
to common stock and earnings per common share for the first half of 1997 were
$18.5 million and $.90, respectively, versus $14.8 million and $.85,
respectively, for the first half of 1996. Net earnings applicable to common
stock for the second quarter of 1997 were $7.3 million as compared to $5.9
million for the same period in 1996, an increase of $1.4 million due mainly to
equity earnings from Coral Energy, L.P. ("Coral"), the inclusion of the Transok
operations and the gain associated with a long-term sales contract. Net earnings
applicable to common stock and per share results include a provision for
dividends on Tejas' 9.96% Cumulative Preferred Stock (the "9.96% Preferred
Stock") and Tejas' 5 1/4% Convertible Preferred Stock (the "5 1/4% Preferred
Stock").

                                        9
<PAGE>
NATURAL GAS SYSTEMS

         Sales and transportation of natural gas through its owned and/or
operated natural gas pipeline systems is Tejas' core business. For the first
half of 1997, Tejas' system volumes increased 27% from the same period in 1996
to a total of 4.5 billion cubic feet ("Bcf") of natural gas per day. Gross
profit on transportation and sales increased by $43.7 million to a total of
$126.4 million for the first six months of 1997 as compared to the first six
months of 1996. A significant portion of these improvements resulted from the
inclusion of the Transok operations in the first half of 1997 and the inclusion
of a $7 million gain associated with a sale related to a
long-term natural gas sales contract in the second quarter of 1997.

ENERGY MARKETING PARTNERSHIP - CORAL ENERGY, L.P.

         Coral, the energy marketing venture between Tejas and Shell Oil
Company ("Shell"), commenced operations in November 1995. Coral's total sales
volume for the first half of 1997 averaged 5.6 Bcf of natural gas per day.
Income from the partnership contributed $6.5 million and $2.8 million to Tejas'
pre-tax income for the first half and second quarter of 1997, respectively,
compared to $5.9 million and $2.0 million during the same periods in 1996.
Effective January 1, 1997, Tejas increased its ownership in Coral from one-third
to fifty percent. Effective May 31, 1997, Coral formed an alliance with Shell
Canada Limited ("Shell Canada") pursuant to which Shell Canada obtained a twelve
percent ownership in Coral. The remaining equity ownership is held forty-four
percent by Tejas and forty-four percent by Shell.

NATURAL GAS PROCESSING/TREATING

         During the first half and second quarter of 1997, Tejas' natural gas
processing and treating activities contributed gross profit of $18.4 million and
$7.5 million, respectively, as compared to $7.1 million and $4.8 million for the
corresponding periods in 1996. Both the $11.3 million increase for the first
half of 1997 and the $2.7 million increase for the second quarter of 1997 are
attributable to the Transok operations.

REVENUES

         Revenues for the first half of 1997 were $1,127 million as compared to
$852 million for the same period in 1996, an increase of $275 million. The 32%
growth in revenues is primarily a result of the acquisition of Transok in June
1996, the availability of natural gas and the operational flexibility at the
West Clear Lake Storage Facility (the "WCLSF") and the Greasy Creek Storage
Facility (the "GCSF"). Revenues increased by only 4% during the second quarter
of 1997 primarily because cooler temperatures during this period reduced the
utility load necessary to meet air conditioning demand thus resulting in lower
sales prices and system throughput.

OPERATING EXPENSES/DEPRECIATION/GENERAL AND ADMINISTRATIVE EXPENSES

         During the first half and second quarter of 1997, operating expenses,
depreciation, and general and administrative expenses increased by $33 million
and $14 million, respectively, to $84.9 million for the first half of 1997 and
$42 million for the second quarter of 1997. These increases were primarily due
to the inclusion of the Transok operations beginning June 1996.

                                       10
<PAGE>
OTHER INCOME (EXPENSE)

         Interest expense increased by $17 million and $7.5 million to $29.6
million and $14.8 million for the first half and second quarter of 1997,
respectively, as a result of the additional financing required for the
acquisition of Transok in June 1996.


CAPITAL RESOURCES, LIQUIDITY AND OUTLOOK

CASH FLOWS FROM OPERATING ACTIVITIES

         For the six months ended June 30, 1997, net cash provided by operating
activities totaled $53.8 million as compared to $99.8 million for the same
period in 1996. This $46 million decrease in net cash provided by operations is
primarily due to changes in working capital. Excluding net changes in working
capital components, Tejas' operating activities generated $79.8 million in cash
during the first half of 1997 as compared to $46.2 million in the first half of
1996, an increase of $33.6 million due primarily to higher cash earnings.

CASH FLOWS FROM INVESTING ACTIVITIES

         Net cash used in investing activities during the first half of 1997
totaled $97.6 million, most of which was used to expand the storage and
transportation facilities in Oklahoma and to increase Tejas' ownership in Coral.

LIQUIDITY

         Tejas' working capital decreased $12.6 million to $16.1 million at June
30, 1997 from $28.7 million at December 31, 1996. In order to effectively
utilize its cash balances, Tejas will continue to make periodic borrowings under
its revolving credit facilities and money market credit lines to meet immediate
cash needs.

         At June 30, 1997, Tejas' long-term debt with banks totaled $659.6
million, consisting of $443.8 million borrowed under Tejas' $480 million
revolving credit facilities established for its subsidiaries Tejas-Acadian
Holding Company ("TAHC") and Tejas Natural Gas Company ("TNGC"), and $215.8
million borrowed under a $275 million credit facility established for its
subsidiary Transok. In addition, Tejas has $200 million of long-term debt that
was retained by Transok as part of the Transok acquisition and $7.2 million in
notes payable, net of $2 million in current maturities, related to Industrial
Development Refunding Revenue Bonds issued by Lewis and Pleasants Counties, West
Virginia.

         The $455 million TAHC and $25 million TNGC credit facilities (the
"Credit Agreements") bear interest at Tejas' option, based on either the prime
rate or the London Interbank Offered Rate ("LIBOR"). The margins over LIBOR that
TAHC and TNGC must pay vary, depending on TAHC's funded debt to capitalization
ratio, from a minimum of 0.5% to a maximum of 1.25%. Based upon borrowings at
June 30, 1997, of $443.8 million, and after considering restrictions to provide
for a $10 million letter of credit and borrowings under its money market credit
lines (offset by cash available pursuant to the terms of such money market
credit lines), approximately $26.2 million of additional borrowings were
available under these facilities. Additionally, at June 30, 1997, based upon
TAHC's funded debt to capitalization ratio test, both the TAHC and TNGC credit
facilities bore interest at Tejas' option, at either the prime rate or at LIBOR
plus 0.75%. Under the terms of the Credit Agreements, after two years the
revolving credit facilities will convert into six-year reducing revolving credit
agreements unless extended at the option of the lenders. Commitment reductions
aggregating $15 million per quarter are scheduled to begin

                                       11
<PAGE>
March 31, 1999 with the final remaining commitment reduction to occur on
December 31, 2004. Based upon the current terms of the Credit Agreements and the
outstanding principal balances thereunder at June 30, 1997, no principal
payments are required until the year 1999.

         The Transok credit facility bears interest, at Tejas' option, based
upon either the prime rate or LIBOR. Depending upon Transok's funded debt to
capitalization ratio, the margins over LIBOR that Transok must pay vary, subject
to a minimum margin for a limited period of time, from a minimum of 0.5% to a
maximum of 1.25%. Based upon the June 30, 1997 outstanding balance of
approximately $215.8 million, the Transok credit facility had available
borrowings of approximately $59.2 million and bore interest at Tejas' option, at
either the prime rate or at LIBOR plus 1%. Under the terms of the Transok credit
facility, after two years the revolver will, unless extended at the option of
the lenders, convert into a six-year reducing revolver. Unless extended,
commitment reductions of approximately $8.6 million per quarter will begin March
31, 1999 with the final remaining commitment reduction to occur on December 31,
2004. Based upon the current terms of the Transok credit facility and the
outstanding principal balance thereunder at June 30, 1997, no principal payments
are required until the year 2000.

         The obligations under the Transok credit facility are secured by
certain intercompany notes, the capital stock of all of Transok's subsidiaries
and certain partnership interests held by Transok, and are guaranteed by such
subsidiaries. The obligations under the Credit Agreements are secured by the
capital stock, partnership interests and various intercompany notes of all
material subsidiaries and partnerships of TAHC (excluding the capital stock of
Acadian Gas Corporation ("Acadian"), but including the capital stock and
partnership interests of the material operating subsidiaries and partnerships of
Acadian) and are guaranteed by such subsidiaries and partnerships. The notes
payable related to the Lewis and Pleasants Counties' bonds are secured by bank
letters of credit which in turn are secured by mortgages on two natural gas
processing plants located in West Virginia. The notes are also subject to
certain covenants and require that Tejas' subsidiaries, TAHC and Gulf Energy
Gathering & Processing Corporation, maintain certain financial standards. All of
Tejas' credit facilities are subject to certain covenants, including the
maintenance of certain financial ratios, with which Tejas expects to be able to
comply in the ordinary course of business.

         Although TAHC, TNGC and Transok have additional borrowing capacity
available under the Credit Agreements and the Transok credit facility, the
amount of loans, advances and dividends that may be made to Tejas from TAHC,
TNGC and Transok under the Credit Agreements and the Transok credit facility is
subject to certain limitations. At June 30, 1997, the permitted amount of such
payments was $180.3 million. Such limitations as herein described are not
expected to have any material effect on the ability of Tejas to meet its cash
obligations. Tejas' liquidity is ultimately dependent on cash generated by
operations, and Tejas believes its earnings from operations will generate
sufficient cash to fund expansion projects, make required debt payments and meet
anticipated dividend requirements of the 9.96% Preferred Stock and 5 1/4%
Preferred Stock in the foreseeable future.

         Tejas has uncommitted money market credit lines which allow Tejas to
borrow up to $50 million for periods of up to two months. Any such borrowings
are unsecured and may be extended for additional periods if agreed to by the
lenders. At June 30, 1997, Tejas had no borrowings outstanding under such lines.
Tejas has agreed to maintain funds including, but not limited to, availability
under the Credit Agreements and the Transok credit facility sufficient to repay
borrowings under the money market credit lines.

                                       12
<PAGE>
         A subsidiary of Tejas, Tejas-Magnolia Energy, L.L.C.
("Tejas-Magnolia"), makes distributions on preferred equity interests that were
issued to a third party in 1995 in return for a capital investment of $55
million. The distributions constitute a return on capital (at an effective fixed
after tax cost to Tejas of 4.2%) and return of capital over an eight-year term.
During the second quarter of 1997 Tejas-Magnolia elected to repurchase $7.5
million of these preferred equity interests.

         As part of the Transok acquisition in June 1996 and the acquisition of
pipeline and related facilities from Exxon in September 1993, Tejas (the
"lessee") entered into separate five-year operating leases with third parties
(the "lessor") for seven natural gas processing plants ("Plant Lease") and a
pipeline system ("System Lease"), respectively. Lease payments under the two
leases are adjusted quarterly based upon the respective lessor's financing
costs. However, Tejas has entered into interest rate derivative agreements in a
notional amount of $269.5 million to fully hedge the effects of such adjustments
on the required minimum lease payments. The Plant Lease expires June 6, 2001
unless extended by mutual consent of the lessor and lessee for up to two
additional two-year periods. The System Lease currently expires on September 14,
1998. Upon expiration of the leases, Tejas, at its option, may either purchase
the leased properties or pay a termination fee of $106 million under the Plant
Lease and $122.8 million under the System Lease.

         In the normal course of business, Tejas regularly reviews opportunities
for the possible acquisition of, or combination with, additional natural gas
pipelines and processing plants and companies that own natural gas pipelines and
processing plants. When potential opportunities are deemed to be consistent with
Tejas' growth strategy, Tejas may pursue them. It is uncertain whether any
offers submitted by Tejas in response to these opportunities would be acceptable
to the other parties to the potential transaction. In the event of a future
significant acquisition or business combination, Tejas may require additional
financing in connection therewith.

OUTLOOK

         Tejas' results of operations for the first six months of 1997 were
favorable when compared to the first six months of 1996. Tejas believes there
are more opportunities available for future growth and continued expansion of
operations. The Transok acquisition provides Tejas with the opportunity to
increase the sale of natural gas to certain new markets in Oklahoma and to
increase the flow of natural gas, within the state, West to East. Proposed rules
and regulations in Oklahoma may open significant additional industrial end-user
and city gate markets to competition. These proposals, if passed or adopted,
would present Transok with opportunities to compete for supply arrangements with
customers not previously available to Transok. At the same time, these proposals
and competitive bidding procedures that are being implemented by electric
utilities expose Transok to the risk that other pipeline and marketing companies
will seek to compete for Transok's existing supply and transportation
arrangements with utilities, such as Public Service Company of Oklahoma ("PSO").
Although Transok presently transports substantially all of the natural gas
requirements for PSO's gas-fired power stations in Oklahoma, competitors will
begin transportation of natural gas for PSO in 1998.

         While no prediction can be made as to the continuation of the favorable
impact of Coral on Tejas' prospects, Tejas believes that Coral's newly formed
alliance with Shell Canada will establish Coral in the Canadian natural gas
market and strengthen its marketing position in the U.S. Midwest and West Coast.
While Shell Canada provides Coral access to Canadian natural gas supplies;
Tejas, with its large number of intrastate and interstate pipeline
interconnects, provides Coral access to important U.S. natural gas supply
points. In addition, over the next several years Coral should be in a position
to take advantage of the unutilized capacity in Tejas' major long-distance
transmission lines.

                                       13
<PAGE>
         The capital invested by Tejas at the WCLSF since September 1993 has
increased the availability of natural gas and the operational flexibility of the
WCLSF. This flexibility permits Tejas to sell approximately 25 Bcf of additional
natural gas volumes annually out of this storage facility and to provide
additional daily storage injection and withdrawal capabilities to accommodate
the seasonal needs of customers. Further development of the WCLSF is possible
and Tejas will continue to monitor and review the economic benefit of such
development. While there can be no assurance that market conditions, including
the average cost of natural gas held in storage, will always be conducive to
maintaining the current level of profitability, Tejas has historically shown the
ability to adapt to changing operational requirements and capitalize on new
market opportunities.

         Although the foregoing factors present Tejas with opportunities to grow
and expand, there can be no assurance that such factors will result in future
growth and expansion of Tejas' operations, revenues or earnings.

         Tejas anticipates using substantially all of its available cash from
operations in 1997 and 1998 for capital expenditures, investments and
acquisitions. To enhance throughput on Transok's pipeline system, in 1997 Tejas
completed construction of a 24-inch diameter pipeline which included eight
additional compressors. Total capital expenditures and investments for 1997 are
anticipated to be approximately $180 million, of which Tejas has already spent
or committed to spend approximately $78 million. Actual capital and investment
expenditures may vary from budgeted amounts due to many factors.

         The statements included in this Report on Form 10-Q regarding future
financial performance and results and the other statements that are not
historical facts are forward-looking statements. The words "expect," "project,"
"estimate," "predict," "anticipate," "believes" and similar expressions are also
intended to identify forward-looking statements. Such statements and Tejas'
results are subject to numerous risks, uncertainties and assumptions, including
but not limited to, changes in general economic conditions in the United States,
changes in laws and regulations to which Tejas is subject, the cost and effects
of legal and administrative claims and proceedings against Tejas or its
subsidiaries or which may be brought against Tejas or its subsidiaries,
conditions in the capital markets utilized by Tejas to access capital to finance
operations, Tejas' ability to develop expanded markets and product offerings as
well as maintain existing markets, energy prices, competition from other
pipelines and alternate fuels, the general level of natural gas and petroleum
product demand and weather conditions, among other things, and other risks and
uncertainties described in this Report on Form 10-Q and in Tejas' other filings
with the Securities and Exchange Commission. Further, natural gas prices, which
directly impact transportation and gathering and processing throughput and
operating profits, may fluctuate in unpredictable ways. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those indicated.

         Tejas' management knows of no trends or uncertainties that will impair
Tejas' ability to comply with its debt covenants or pay the dividends on the
9.96% Preferred Stock and 5 1/4% Preferred Stock.

                                       14
<PAGE>
                           PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

         Tejas is a defendant or party in various lawsuits that have risen in
the ordinary course of Tejas' business. In particular, a subsidiary of Tejas is
a defendant in THE LONG TRUSTS V. TEJAS GAS CORP. ET. AL., 123rd Judicial
District Court, Panola County, Texas, filed March 1, 1989, in which plaintiffs
assert claims and allege damages for breach of contract and failure to
take-or-pay for natural gas pursuant to three natural gas purchase contracts.
Plaintiffs allege that, in addition to failing to take-or-pay for gas, Tejas
breached (a) one of the contracts by failing to take a minimum quantity of gas
and to install and maintain pipeline facilities sufficient to permit Tejas to
meet its quantity purchase obligations, and (b) all three contracts by failing
to take gas in quantities sufficient to enable plaintiffs to produce ratably
with other producers in a common reservoir. In plaintiffs' Seventh Amended
Original Petition filed April 11, 1997, the plaintiffs are seeking take-or-pay
damages for the twelve year period 1984-1996 in excess of $36 million, plus
pre-judgment interest, post-judgment interest, attorneys' fees and court costs
and other unspecified actual damages. In connection with their depositions in
this matter, certain expert witnesses retained by The Long Trusts have presented
damage models purporting to show approximately $60 million in take-or-pay
damages and $70 million for failure to take The Long Trusts' gas ratably.
Management disputes The Long Trusts' claims and believes that The Long Trusts'
damage models are seriously flawed.

         On January 6, 1993, the Court entered an interlocutory summary judgment
order granting in part and denying in part plaintiffs' motions for summary
judgment. The Court found, among other things, as a matter of law that (a) Tejas
breached the minimum take obligations under one of the contracts, (b) Tejas is
not entitled to any credits or offsets for natural gas purchased by third
parties, and (c) the "availability" of natural gas for take-or-pay purposes is
established by the delivery capacity testing procedures in the contracts.
Damages, if any, have not been determined. The effect of this order on Tejas'
case was unclear and Tejas had sought clarification and rehearing. On July 14,
1997, the Court granted Tejas' motion for summary judgment regarding natural gas
takes under interruptible purchase contracts. According to the Court's order,
Tejas will receive a volumetric credit for all natural gas purchased by Tejas
and its affiliates under the interruptible contracts. Although a formal
evaluation has not been made, because most of the natural gas purchased from
1985 through 1989 was purchased by Tejas or one of its affiliates under
interruptible contracts, this ruling should significantly reduce the potential
damages, if any. This order reverses the partial summary judgment granted by
Judge Boles in January 1993, regarding credit or offsets for natural gas
purchased by third parties.

         Because of the relationship between The Long Trusts' contracts and
certain contracts between Tejas and Valero Transmission Company ("VTC"), and in
order to resolve existing and potential claims and disputes, Tejas, VTC and
Valero Transmission, L.P. ("VTLP") entered into an agreement, pursuant to which,
among other things, Tejas, VTC and VTLP would cooperate in the conduct of The
Long Trusts' litigation, and VTC and VTLP would bear a substantial portion of
the costs of any appeal and of the amount of any nonappealable final judgment
rendered against Tejas. On April 15, 1994, the plaintiffs named VTC and VTLP
(collectively "Valero") as additional defendants to the lawsuit, alleging that
Valero intentionally and maliciously interfered with the plaintiffs' contracts
with Tejas. In its Seventh Amended Original Petition, plaintiffs are seeking
damages against Valero in an amount in excess of $200 million for loss of
profits which plaintiffs claim they would have realized but for Valero's alleged
acts of interference. Plaintiffs further allege that Tejas conspired with Valero
in interfering with the contracts and that Tejas should be jointly liable with
Valero for the damages plaintiffs have asserted against Valero. Plaintiffs also
seek from Valero exemplary damages treble the amount of the actual, economic
damages, if any, found by the Court for the interference claim. Plaintiffs have
also added Tejas Gas Corporation as a defendant

                                       15
<PAGE>
claiming that Tejas Gas Corporation operated with its subsidiary, Tejas Gas
Corp., as a single business entity and should therefore be liable for the
alleged wrongful acts of Tejas Gas Corp. Plaintiff alleges similar claims
against Valero Energy Corporation with respect to VTC and VTLP.

         Although Tejas has not obtained a formal opinion, based on discussions
with outside counsel and an internal examination of this lawsuit, management
believes that it has adequate defenses or recourse to third parties relating to
such lawsuit and does not believe this matter will have a material adverse
effect on Tejas' financial condition.


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

         Tejas' Annual Meeting of stockholders was held on May 8, 1997. Frederic
C. Hamilton, Jay A. Precourt and Charles C. Gates were re-elected to the Board
of Directors to serve until the annual meeting in the year 2000. The following
are the names of directors whose terms of office as director continued after the
meeting (expiration date in parentheses): A. J. Miller (1998), Arthur L. Kelly
(1998), Robert G. Stone, Jr. (1999), and Ronald F. Walker (1999). Mr. Walker
passed away in May 1997. In addition, the holders of Common Stock approved the
amendment of the Director Stock Option Plan, the amendment of the Employee Stock
Option Plan, the adoption of the Annual Incentive Plan and ratified the
selection of independent auditors for 1997.

         The number of shares of Common Stock outstanding on the record date of
March 17, 1997 was 20,557,026. The number of shares of Common Stock represented
at the meeting in person or by proxy was 17,452,077. The following were the
voting results for each proposal:

<TABLE>
<CAPTION>
                                                                                                      BROKER
                                     FOR                AGAINST         WITHHELD     ABSTENTIONS     NON-VOTES
                                     ---                -------         --------     -----------     ---------
<S>                               <C>                 <C>                <C>             <C>           <C>    
a) Election of Directors
   Frederic C. Hamilton           16,934,106               --            517,971          --            --
   Jay A. Precourt                16,934,506               --            517,571          --            --
   Charles C. Gates               16,893,369               --            558,708          --            --
b) Amendment of Director
   Stock Option Plan              16,639,403            758,826           53,848          --            --
c) Amendment of
   Employee Stock
   Option Plan                    14,309,543          3,096,290           46,244          --            --
d) Approval of Annual
   Incentive Plan                 17,123,602            228,572           45,629          --          54,274
e) Ratify selection of
   independent auditors
   for 1997                       17,418,572              6,608           26,897          --            --
</TABLE>

                                       16
<PAGE>
ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a)  Exhibits

                  10.1     Amended and Restated Limited Partnership Agreement of
                           Coral Energy, L.P. dated April 1, 1997 (certain
                           portions of this Exhibit have been omitted pursuant
                           to a confidential treatment request filed with the
                           Securities and Exchange Commission).

                  10.2     Third Amendment to the Tejas Gas Corporation Thrift
                           Benefit Restoration Plan dated May 1, 1997.

                  11.1     Computation of Earnings Per Common Share.

                  27.1     Financial Data Schedule.

         (b)  Reports on Form 8-K

                  No reports on Form 8-K were filed in the second quarter
                  of 1997.

                                       17
<PAGE>
                                   SIGNATURES

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


                                         TEJAS GAS CORPORATION
                                             (Registrant)

                                         By: /S/ JAMES W. WHALEN
                                         James W. Whalen                        
                                         Senior Executive Vice President - Chief
                                         Financial Officer (principal financial
                                         officer and principal accounting
                                         officer)

Date: August 14, 1997

                                       18