===============================================================================
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
      
                                    FORM 10-Q
        (MARK ONE)
            [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY
                PERIOD ENDED SEPTEMBER 30, 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
    (Address of principal executive                     77010
               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 October 31, 1997, Tejas Gas Corporation had 20,608,446 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)

                                                        SEPTEMBER     December
                                                            30,          31,
                                                           1997          1996
                                                        ----------   ----------
                                                             (IN THOUSANDS)
                                     ASSETS
CURRENT ASSETS:
   Cash and cash equivalents                          $     5,517  $    45,247
   Accounts receivable                                    229,127      384,652
   Exchange gas receivable                                 38,259       10,792
   Storage gas inventory                                   87,737       45,389
   Prepaids and other current assets                       63,770       29,154
   Deferred income tax assets                               8,251        2,097
                                                       ----------   ----------  
       Total current assets                               432,661      517,331
                                                       ----------   ----------  
PROPERTY, PLANT AND EQUIPMENT - AT COST                 1,580,860    1,526,499
   Less accumulated depreciation                          244,394      217,261
                                                       ----------   ----------  
       Property, plant and equipment, net               1,336,466    1,309,238
                                                       ----------   ----------  
GOODWILL, NET                                               9,461        9,811
                                                       ----------   ----------  
INVESTMENTS AND OTHER ASSETS                              108,367       68,168
                                                       ----------   ----------  
       TOTAL                                          $ 1,886,955  $ 1,904,548
                                                      ===========  ===========

                      LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
   Gas purchases payable                              $   258,202  $   386,766
   Exchange gas payable                                    25,282        9,237
   Accounts payable                                         3,744       11,124
   Accrued liabilities                                     55,667       74,142
   Current maturities of long-term obligations              6,724        7,382
                                                       ----------   ----------  
       Total current liabilities                          349,619      488,651
                                                       ----------   ----------  
LONG-TERM DEBT                                            916,755      847,755
                                                       ----------   ----------  
DEFERRED INCOME TAXES                                     106,348       72,072
                                                       ----------   ----------  
COMMITMENTS AND CONTINGENCIES                                   -            -
                                                       ----------   ----------  
MINORITY INTERESTS                                         43,788       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;
     20,578,508 and 20,551,051 shares issued and
       outstanding in 1997 and 1996, respectively           5,145        5,138
   Capital surplus                                        295,389      294,599
   Retained earnings                                      169,451      141,263
                                                       ----------   ----------  
       Total stockholders' equity                         470,445      441,460
                                                       ----------   ----------  
       TOTAL                                          $ 1,886,955  $ 1,904,548
                                                      ===========  ===========  
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                       2
<PAGE>
                              TEJAS GAS CORPORATION

                      CONSOLIDATED STATEMENTS OF EARNINGS
                                  (UNAUDITED)

                                      Three Months Ended     Nine Months Ended
                                       September 30,         September 30,
                                     --------------------  --------------------
                                        1997       1996       1997       1996
                                     ---------   --------  --------    -------- 
                                     (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

REVENUES                            $  549,832 $ 541,912  $1,677,154 $1,393,597
                                    ---------- ---------  ---------- ----------
COSTS AND EXPENSES:
  Cost of sales                        472,161   466,960   1,454,693  1,228,825
  Operating expenses                    19,250    19,301      54,735     40,729
  Depreciation and amortization         13,227    13,333      40,813     31,539
  General and administrative            11,027    11,258      32,811     23,516
                                    ---------- ---------  ---------- ---------- 
   Total                               515,665   510,852   1,583,052  1,324,609
EARNINGS FROM OPERATIONS                34,167    31,060      94,102     68,988
OTHER INCOME (EXPENSE):
  Equity in earnings of
  unconsolidated entities                1,649       425       8,175      6,000
  Interest income                          184       141         737        653
  Interest expense                     (17,061)  (16,372)    (46,627)   (28,911)
  Minority interests                    (1,141)     (913)     (3,627)    (2,785)
  Other, net                               485        (4)        616        668
                                    ---------- ---------  ---------- ----------
   Total                               (15,884)  (16,723)    (40,726)   (24,375)
                                    ---------- ---------  ---------- ---------- 
EARNINGS BEFORE INCOME TAXES            18,283    14,337      53,376     44,613
                                    ---------- ---------  ---------- ---------- 
INCOME TAXES:
  Current                                3,476    (1,294)     (9,228)     4,579
  Deferred                               3,013     5,379      28,122     10,829
                                    ---------- ---------  ---------- ---------- 
   Total                                 6,489     4,085      18,894     15,408
                                    ---------- ---------  ---------- ---------- 
NET EARNINGS                            11,794    10,252      34,482     29,205
                                    ---------- ---------  ---------- ---------- 
PREFERRED STOCK DIVIDEND
 REQUIREMENTS                            2,098     2,098       6,294      6,294
                                    ---------- ---------  ---------- ---------- 
NET EARNINGS APPLICABLE TO COMMON
 STOCK                              $    9,696 $   8,154   $  28,188  $  22,911
                                    ---------- ---------  ---------- ---------- 
WEIGHTED AVERAGE NUMBER OF COMMON
 SHARES OUTSTANDING                     20,573    19,655      20,564     18,161
                                    ========== =========  ========== ==========
EARNINGS PER COMMON SHARE           $     0.47 $    0.41   $    1.37  $    1.26
                                    ========== =========  ========== ==========

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
                           
                                        3

<PAGE>
                             TEJAS GAS CORPORATION

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)
<TABLE>
<CAPTION>
                                                      Nine Months Ended September 30,             
                                                             1997         1996
                                                      -------------------------------
                                                              (IN THOUSANDS)
<S>                                                     <C>         <C>       
OPERATING ACTIVITIES:
     Net earnings                                       $   34,482  $   29,205
        Adjustments to reconcile net earnings to 
         net cash provided by operating activities:
           Depreciation and amortization                    40,813      31,539
           Amortization of deferred costs                    2,346       2,061
           Deferred income taxes                            28,122      10,829
           Equity in earnings of unconsolidated
           entities                                         (8,175)     (6,000)
           Distributions from unconsolidated entities       11,380       8,462
           Other, net                                           46         (91)
                                                        ----------   ---------    
                                                           109,014      76,005
                                                        ----------   ---------    
        Net increase/(decrease) in working capital         (87,278)     39,051
                                                        ----------   ---------    
     Net cash provided by operating activities              21,736     115,056
                                                        ----------   ---------    
INVESTING ACTIVITIES:
     Capital expenditures and investments                 (146,847)    (36,456)
     Proceeds from sale of assets                           32,609           -
     Acquisition of Transok                                      -    (568,500)
     Other, net                                                749         527
                                                        ----------   ---------    
     Net cash used in investing activities                (113,489)   (604,429)
                                                        ----------   ---------    
FINANCING ACTIVITIES:
     Net borrowings (repayments) under line-of-credit
     agreements                                             10,000      (7,900)
     Proceeds from issuance of long-term debt               60,000     605,900
     Retirement of long-term debt                           (1,000)   (208,320)
     Preferred stock dividends                              (6,294)     (6,294)
     Issuance of additional common shares                        -     102,761
     Distribution to minority interest holders             (11,480)     (3,013)
     Exercise of stock options                                 797       1,002
                                                        ----------   ---------    
     Net cash provided by financing activities              52,023     484,136
                                                        ----------   ---------    
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS       (39,730)     (5,237)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD            45,247      29,935
                                                        ----------   ---------    
CASH AND CASH EQUIVALENTS AT END OF PERIOD              $    5,517  $   24,698
                                                        ==========  ==========
</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
its subsidiaries as of September 30, 1997, the results of their operations for
the three month and nine month periods ended September 30, 1997 and 1996 and the
cash flows for the nine month periods ended September 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 nine months of 1997 Tejas granted options for 124,950 and
14,850 shares to its employees and directors, respectively. During the same
period, employee options for 26,094 shares were exercised. Employee options for
7,636 shares and director options for 2,475 shares were canceled during the same
period.

      On October 2, 1997, Tejas announced that its Board of Directors had called
all of Tejas' 5 1/4% Convertible Preferred Stock ("5 1/4% Preferred Stock") and
the depositary shares ("Depositary Shares"), each of which represents a
one-fifth interest in a share of the 5 1/4% Preferred Stock, for redemption for
cash on November 10, 1997 at a price of $258.2031 per share of 5 1/4% Preferred
Stock (equivalent to a redemption price of $51.6406 for each Depositary Share)
which includes accrued and unpaid dividends for the period from November 1, 1997
to November 10, 1997. Prior to redemption, each share of 5 1/4% 

                                       5
<PAGE>
Preferred Stock was convertible into Tejas common stock at a conversion price
of $42.4243 per Depositary Share (equivalent to a conversion rate of
approximately 5.8928 shares of Tejas common stock for each share of 5 1/4%
Preferred Stock, or equivalent to a conversion rate of 1.1786 shares of Tejas
common stock for each Depositary Share).

      As a result of the call for redemption during the fourth quarter of 1997,
1,298,538 Depositary Shares were converted into 1,530,399 shares of Tejas common
stock and the remaining 1,462 Depositary Shares and 58 fractional shares of
common stock were redeemed for cash at a cost of approximately $79 thousand.

4.    INCOME TAXES

      Tejas is able to take U.S. federal income tax credits for the Canadian
income tax paid on Coral's Canadian income. These tax credits result in a lower
effective income tax rate for Tejas.

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:

                              Nine Months Ended September 30,
                              -------------------------------
                                      1997      1996(1)
                                     ------    --------
                                       (IN THOUSANDS)
                                     
Decrease (increase) in:
  Accounts receivable             $ 155,525   $  37,618
  Exchange gas receivable           (27,467)      3,873
  Storage gas inventory             (42,348)    (17,714)
  Prepaids and other current         
    assets                          (34,615)      2,973
Increase (decrease) in:
  Gas purchases payable            (128,564)     40,089
  Exchange gas payable               16,045      (2,703)
  Accounts payable                   (7,380)    (31,516)
  Accrued liabilities               (18,474)     12,962
  Income taxes payable                    -      (6,531)
                                  ---------   --------- 
    Total                          $(87,278)  $  39,051
                                  =========   ========= 
________________________

            (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 

                                       6

<PAGE>
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.

      On October 27, 1997, Robert M. Griffin, Sr., Robert M. Griffin, Jr. and
Charles Conrad, working interest owners in wells operated by the plaintiffs
(collectively referred to as "Interveners"), filed an Original Plea in
Intervention, requesting that the Court allow Interveners to prosecute their own
claims against Tejas. Interveners have adopted the plaintiffs' Seventh Amended
Original Petition and the allegations contained therein for all purposes not
inconsistent with differences that the Interveners have with the plaintiffs. The
Interveners have alleged that irreconcilable differences have arisen between
themselves and the plaintiffs and no longer desire to have plaintiffs represent
their interest in the lawsuit.

      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

                                       7

<PAGE>
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 September 30, 1997, Tejas had
purchased approximately 10 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
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 September 30,
1997, the third party had approximately 30.6 Bcf of natural gas in storage at
the WCLSF and GCSF, which such party purchased for $63.2 million. Tejas
estimates the net 1997 cost related to the reservation of the 30.6 Bcf of
natural gas to be approximately $2.3 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 nine month periods ended September
30, 1997 and 1996 and would not have a material impact on diluted earnings per
share for either period.

                                       8
<PAGE>
8.    SUBSEQUENT EVENTS

MERGER AGREEMENT - SHELL OIL COMPANY

      Tejas and Shell have entered into a merger agreement (the "Shell Merger")
pursuant to which a company to be formed by Shell will acquire all of the
outstanding common stock of Tejas for $61.50 per share in cash, which, on a
fully diluted common stock basis, would represent an aggregate common stock
purchase price of approximately $1.4 billion. In addition, the majority of
Tejas' balance sheet debt and all of its preferred stock will be retired and
Tejas will terminate two operating leases and purchase the related leased
properties for approximately $270 million.

      The Board of Directors of Tejas, acting on the unanimous recommendation of
a special committee of the Board of Directors of Tejas, unanimously approved the
transaction and recommended that stockholders of Tejas approve and adopt the
agreement and the merger. Certain Tejas stockholders and members of Tejas
management, who now hold approximately 19 percent of the outstanding Tejas
common stock, have agreed to vote in favor of the transaction. The transaction
is subject to the approval of the Tejas stockholders, applicable regulatory
approvals and certain other conditions.

      Following the transaction, Shell's own natural gas midstream business will
be combined with the business of Tejas. Shell's natural gas midstream business
consists of offshore and onshore pipelines, gas processing and natural gas
liquids fractionation, transportation and marketing, with facilities in Texas,
Louisiana, Mississippi and the Gulf of Mexico. The consolidated Tejas and Shell
executive and operating team will be led by Tejas' Chief Executive Officer, Jay
A. Precourt, and Tejas' Chairman of the Board, Frederic C. Hamilton, both of
whom have been with Tejas since it became a publicly-traded company in 1988. Two
Shell Oil Company executives, Philip J. Carroll, the President and Chief
Executive Officer of Shell Oil Company, and Jack E. Little, President and Chief
Executive Officer of Shell Exploration and Production Company, will join the
Board of the new combined business.

      The transaction is expected to be finalized in January, 1998, subject to
the closing conditions described above.

PURCHASE AGREEMENT - AMOCO PRODUCTION COMPANY

      Tejas and Amoco Production Company have entered into a stock purchase
agreement pursuant to which Tejas will acquire Amoco Gas Company. Tejas plans to
borrow approximately $150 million from Shell in connection with the purchase.
The purchase of Amoco Gas Company is expected to be completed prior to year end,
subject to customary regulatory approvals and closing conditions.

                                       9
<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 of Tejas' natural gas average daily throughput is set
forth below:

                                                                     
                                          Three Months Ended   Nine Months Ended
                                              September 30,      September 30,
                                           -----------------  -----------------
                                             1997   1996(2)(3)  1997  1996(2)(3)
                                           ------- ----------- ------ ----------
AVERAGE DAILY THROUGHPUT IN MILLION 
 CUBIC FEET ("MMCF"):
   System sales                              2,320    2,233     2,202    1,978
   Transportation                            2,310    2,755     2,293    2,079
   Partnership volumes (Tejas' share)(1)        49       56        45       56
                                           -------   ------    ------   ------
       Total system throughput               4,679    5,044     4,540    4,113
   Gas processed                                55       86        69       80
                                           -------   ------    ------   ------
       Total daily throughput                4,734    5,130     4,609    4,193
                                           =======   ======    ======   ======
NATURAL GAS PROCESSING DATA:
   Average daily natural gas liquids
     production in thousands of gallons      1,409    1,394     1,369      667
   Average daily inlet volumes in MMcf         522      561       536      281
                                           -------   ------    ------   ------
________________________

(1)   Includes Tejas' share of unconsolidated partnerships.
(2)   Includes Transok operations beginning June 6, 1996.
(3)   Certain volumes in 1996 have been reclassified to conform to the
      current presentation.

      Tejas' net earnings for the first nine months of 1997 were $34.5 million
as compared to $29.2 million for the same period in 1996, an increase of $5.3
million. Net earnings applicable to common stock and earnings per common share
for the first nine months of 1997 were $28.2 million and $1.37, respectively,
versus $22.9 million and $1.26, respectively, for the first nine months of 1996.
These increases were partially attributable to the inclusion of Transok. Net
earnings for the third quarter of 1997 were $11.8 million as compared to $10.3
million for the third quarter of 1996. Net earnings applicable to common stock
for the third quarter of 1997 were $9.7 million as compared to $8.2 million for
the same period in 1996, an increase of $1.5 million which was due mainly to
increased equity earnings from Coral Energy, L.P. ("Coral"). 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").

                                       10
<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 nine months
of 1997, Tejas' system volumes increased 10% 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 $49.3 million to a total of $192.5 million
for the first nine months of 1997 as compared to the first nine months of 1996.
A significant portion of these improvements resulted from the inclusion of the
Transok operations in the first nine months 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 nine months of 1997 averaged 6 Bcf of natural gas per day. Income from
the partnership contributed $8.2 million and $1.7 million to Tejas' pre-tax
income for the first nine months and third quarter of 1997, respectively,
compared to $6.0 million and $0.1 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 nine months and third quarter of 1997, Tejas' natural gas
processing and treating activities contributed gross profit of $29.9 million and
$11.5 million, respectively, as compared to $21.6 million and $14.5 million for
the corresponding periods in 1996. The increase for the first nine months of
1997 is attributable to the acquisition of Transok operations. The lower gross
profit in the third quarter of 1997 was a result of lower margins from
processing activity.

REVENUES

      Revenues for the first nine months of 1997 were $1,677 million as compared
to $1,394 million for the same period in 1996, an increase of $283 million. The
20% 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 1.5% during the third quarter of
1997 as compared to the third quarter of 1996, primarily because cooler
temperatures during the 1997 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 nine months of 1997, operating expenses, depreciation,
and general and administrative expenses increased by $32.6 million to $128.4
million. These increases for the first nine months of 1997 were primarily due to
the inclusion of the Transok operations beginning June 1996. During the third
quarter of 1997 these expenses remained relatively unchanged compared to the
third quarter of 1996.

                                       11
<PAGE>
OTHER INCOME (EXPENSE)

      Interest expense increased by $17.7 million and $0.7 million to $46.6
million and $17.1 million for the first nine months and third quarter of
1997, respectively, as compared to the same periods in 1996.  These increases
were primarily the result of the additional financing required for the
acquisition of Transok in June 1996.

INCOME TAXES

      The effective income tax rate for the first nine months of 1997 increased
by 0.86% compared to the same period of 1996 primarily due to the inclusion of
Transok operations, which are subject to higher state income tax rates than
Tejas' other operations. This increase was partially offset by U.S. Federal
income tax credits for the Canadian income tax paid on Coral's Canadian income.


CAPITAL RESOURCES, LIQUIDITY AND OUTLOOK

MERGER AGREEMENT - SHELL OIL COMPANY

      Tejas and Shell have entered into a merger agreement pursuant to which a
company to be formed by Shell will acquire all of the outstanding common stock
of Tejas. If the conditions to the merger are satisfied or waived and regulatory
approval is received, Tejas will merge with a subsidiary of Shell, and Tejas'
common stockholders will be entitled to receive $61.50 in cash for each share of
Tejas' common stock they own. The aggregate amount of the payments to be made to
holders of common stock and holders of stock options will be approximately $1.4
billion. In addition, Tejas plans to redeem its 9.96% Cumulative Preferred
Stock, par value $1.00 per share, in February 1998.

      At a special meeting of stockholders to be held in January 1998, the
holders of Tejas' common stock will vote on a proposal to adopt the merger
agreement. Tejas' directors and executive officers who hold approximately 19% of
Tejas' common stock have agreed to vote in favor of the merger. The transaction
is subject to the approval of the Tejas stockholders, applicable regulatory
approvals and certain other conditions.

CASH FLOWS FROM OPERATING ACTIVITIES

      For the nine months ended September 30, 1997, net cash provided by
operating activities totaled $21.7 million as compared to $115.1 million for the
same period in 1996. This $93.4 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 $109
million in cash during the first nine months of 1997 as compared to $76 million
in the first nine months of 1996, an increase of $33 million due primarily to
higher cash earnings.

CASH FLOWS FROM INVESTING ACTIVITIES

      Net cash used in investing activities during the first nine months of 1997
totaled $113.5 million, most of which was used to expand the storage and
transportation facilities in Oklahoma and to increase Tejas' ownership in Coral.

                                       12
<PAGE>
LIQUIDITY

      Tejas' working capital increased $54.3 million to $83 million at September
30, 1997 from $28.7 million at December 31, 1996, primarily due to seasonal
inventory build up. 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 September 30, 1997, Tejas' long-term debt with banks totaled $709.6
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"), $255.8 million
borrowed under a $275 million credit facility established for its subsidiary
Transok, and $10 million borrowed under various money market credit lines. 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 September
30, 1997, of $443.8 million, and after considering restrictions to provide for a
$10 million letter of credit, approximately $26.2 million of additional
borrowings were available under these facilities. Additionally, at September 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 .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
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 September 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 September 30, 1997 outstanding balance of
approximately $255.8 million, the Transok credit facility had available
borrowings of approximately $19.2 million and bore interest at Tejas' option, at
either the prime rate or at LIBOR plus 1.0%. 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 September 30, 1997, no
principal payments are required until the year 1999.

      On September 19, 1997, Tejas entered into a $115 million unsecured credit
agreement (the "Tejas Credit Facility"). A portion of the amounts borrowed under
the Tejas Credit Facility have been used for the redemption of the 5 1/4%
Preferred Stock (to the extent such preferred was not converted into Company
common stock) with the remaining portion to be used for general liquidity
purposes. The redemption of the 5 1/4% Preferred Stock is described under Note 3
"Stockholders' Equity" of Item 1. of this report. The Tejas Credit Facility
matures on September 18, 1998, requires no principal payments prior to maturity,
and bears interest, at Tejas' option, based upon either the prime rate or LIBOR.

                                       13

<PAGE>
The margins over the prime rate or LIBOR that Tejas must pay are initially 0%
and 1.0%, respectively, with such margins increasing by .25% per month beginning
in March of 1998, subject to a cap if certain events related to the merger with
Shell occur. As of September 30, 1997, $50 million of the $115 million in
commitments was in effect, $40 million was available to be borrowed, and there
were no amounts outstanding under the Tejas Credit Facility. Subsequent to
quarter end, the remaining $65 million in commitments became effective.

      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 September 30, 1997, the permitted amount of
such payments was $185.6 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.

      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 September 30, 1997, Tejas had $10 million of borrowings outstanding
under such lines. Tejas has agreed to maintain funds including, but not limited
to, availability under the Tejas Credit Facility, the Credit Agreements and/or
the Transok credit facility sufficient to repay borrowings under the money
market credit lines.

      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

                                       14

<PAGE>
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 the completion of the Shell Merger, Tejas expects to terminate these
operating leases and purchase the leased properties from the lessors.

      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.

      Tejas and Amoco Production Company have entered into a stock purchase
agreement pursuant to which Tejas will acquire Amoco Gas Company. Tejas plans to
borrow approximately $150 million from Shell in connection with the purchase.
The purchase of Amoco Gas Company is expected to be completed prior to year end,
subject to customary regulatory approvals and closing conditions.

OUTLOOK

      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.

      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," "plans," "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.

                                       15
<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.

      On October 27, 1997, Robert M. Griffin, Sr., Robert M. Griffin, Jr. and
Charles Conrad, working interest owners in wells operated by the plaintiffs
(collectively referred to as "Interveners"), filed an Original Plea in
Intervention, requesting that the Court allow Interveners to prosecute their own
claims against Tejas. Interveners have adopted the plaintiffs' Seventh Amended
Original Petition and the allegations contained therein for all purposes not
inconsistent with differences that the Interveners have with the plaintiffs. The
Interveners have alleged that irreconcilable differences have arisen between
themselves and the plaintiffs and no longer desire to have plaintiffs represent
their interest in the lawsuit.

      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

                                       16

<PAGE>
(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.


ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K.

      (a)  Exhibits

             2.1  Stock Purchase Agreement dated November 6, 1997 between Amoco
                  Production Company and Tejas Gas Corp.

            11.1  Computation of Earnings Per Common Share.

            27.1  Financial Data Schedule.

            99.1  Form of Management Agreement among Trango Holdings
                  Corporation, Shell Oil Company, Sierra Acquisition, and
                  Frederic C. Hamilton, Jay A. Precourt, Precourt Interests
                  Ltd., James W. Whalen, Rene R. Joyce, P. Anthony Lannie and
                  certain other persons as holders of stock appreciation rights.

      (b)  Reports on Form 8-K

            A Current Report on Form 8-K dated September 25, 1997, was filed
            during the third quarter of 1997 with respect to Item No. 5 of Form
            8-K "Other Events" and Item No. 7 of Form 8-K "Financial Statements
            and Exhibits" to report that Tejas Gas Corporation and Shell Oil
            Company had entered into a Merger Agreement that provides for the
            merger of a special purpose subsidiary of Shell Oil Company with and
            into Tejas Gas Corporation, which, subject to stockholder approval
            and other conditions, will result in Tejas Gas Corporation becoming
            a subsidiary of Shell Oil Company.

                                       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: November 14, 1997