UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, DC 20549



                                     FORM 10-Q/A    


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

     For  the  quarterly  period  ended  October  31,  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:  000-24394

                            PENN OCTANE CORPORATION
            (Exact Name of Registrant as Specified in Its Charter)

          DELAWARE                                                  52-1790357
(State  or  Other  Jurisdiction  of                          (I.R.S.  Employer
Incorporation  or  Organization)                          Identification  No.)

900  VETERANS  BOULEVARD,  SUITE  240,  REDWOOD  CITY,  CALIFORNIA       94063
     (Address  of  Principal  Executive  Offices)                   (Zip Code)

Registrant's  Telephone  Number,  Including  Area  Code:        (415) 368-1501

     Indicate  by check mark whether the registrant: (1) has filed all reports
required  to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934  during  the  preceding  12  months  (or for such shorter period that the
registrant  was  required  to  file such reports), and (2) has been subject to
such  filing  requirements  for  the  past  90  days.
Yes        X        No
     -------

     The  number  of  shares  of  Common  Stock,  par  value  $.01  per share,
outstanding  on  December  5,  1997  was  8,694,600.

<PAGE>
<TABLE>
<CAPTION>

                                  PENN OCTANE CORPORATION
                                     TABLE OF CONTENTS


         ITEM                                                                     PAGE NO.
         ----                                                                     --------
<S>      <C>   <C>                                                                <C>
Part I     1.  Financial Statements

               Consolidated Balance Sheets as of October 31, 1997 (unaudited)          3-4
               and July 31, 1997

               Consolidated Statements of Operations for the three months ended
               October 31, 1997 and 1996 (unaudited)                                     5

               Consolidated Statements of Cash Flows for the three months ended
               October 31, 1997 and 1996 (unaudited)                                     6

               Notes to Consolidated Financial Statements (unaudited)                 7-16

Part I     2.  Management's Discussion and Analysis of Financial Condition
               and Results of Operations                                             17-22

Part II    1.  Legal Proceedings                                                        23

           2.  Changes in Securities                                                    23

           3.  Defaults Upon Senior Securities                                          23

           4.  Submission of Matters to a Vote of Security Holders                      23

           5.  Other Information                                                        23

           6.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K      23-25
</TABLE>




<PAGE>
PART  I
ITEM  1.
<TABLE>
<CAPTION>

                      PENN OCTANE CORPORATION AND SUBSIDIARIES

                             CONSOLIDATED BALANCE SHEETS

                                     (UNAUDITED)

                                       ASSETS


                                                            October 31,    July 31,
                                                                1997         1997
                                                            ------------  ----------
<S>                                                         <C>           <C>
Current Assets
 Cash                                                       $    401,196  $   31,142
 Trade accounts receivable, less allowance for doubtful
   accounts of $53,406                                           550,048     281,500
 Related party receivables                                        80,259     171,601
 Costs and estimated earnings in excess of billings
   on uncompleted contracts (note D)                             748,210     196,888
 Inventories (note D)                                            870,738     795,797
   Deferred registration costs                                   370,000           -
 Prepaid expenses and other current assets                       287,249      83,082
                                                            ------------  ----------
   Total current assets                                        3,307,700   1,560,010
Property, plant and equipment - net (note C)                   3,486,073   3,185,148
Lease rights (net of accumulated amortization of $444,213
and $432,765) (note C)                                           709,826     721,274
Other noncurrent assets                                           11,935      29,935
                                                            ------------  ----------
   Total assets                                             $  7,515,534  $5,496,367
                                                            ============  ==========
</TABLE>



       The accompanying notes are an integral part of these statements.

<PAGE>
<TABLE>
<CAPTION>

                                 PENN OCTANE CORPORATION AND SUBSIDIARIES

                                  CONSOLIDATED BALANCE SHEETS - CONTINUED

                                                (UNAUDITED)

                                   LIABILITIES AND STOCKHOLDERS' EQUITY


                                                                             October 31,       July 31,
                                                                                 1997            1997
                                                                            --------------  --------------
<S>                                                                         <C>             <C>
Current Liabilities
 Current maturities of long-term debt, less unamortized discount of
   $75,000 and $0 at October 31, 1997 and July 31, 1997 (note E)            $   1,612,863   $   1,152,391 
 Revolving line of credit (note E)                                                      -         140,000 
 Construction accounts payable                                                     52,556         121,801 
 Trade accounts payable                                                           972,253         481,348 
 Billings in excess of costs and estimated earnings in excess of billings
   on uncompleted contracts (note D)                                                    -           7,596 
 Borrowings from IBC-Brownsville                                                  672,552         672,552 
 Accrued liabilities                                                            1,161,435       1,055,237 
                                                                            --------------  --------------

   Total current liabilities                                                    4,471,659       3,630,925 
Long-term debt, less current maturities (note E)                                1,078,967       1,112,833 
Commitments and contingencies (note G)                                                  -               - 
Stockholders' Equity (note F)
 Senior Preferred stock-$.01 par value, 5,000,000 shares authorized; 0                  -               - 
   shares issued and outstanding at October 31, 1997 and July 31, 1997
 Preferred stock-$.01 par value, 5,000,000 shares authorized; 270,000
   convertible shares issued and outstanding at October 31, 1997 and
   July 31, 1997                                                                    2,700           2,700 
 Common stock-$.01 par value, 25,000,000 shares authorized; 8,694,600
   and 8,169,286 shares issued and outstanding at October 31, 1997 and
   July 31, 1997                                                                   86,946          81,693 
 Additional paid-in capital                                                    11,904,264      10,515,266 
 Notes receivable including accrued interest receivable from the
   president of the Company and a related party for exercise of warrants     (  2,892,369)   (  2,834,865)
 Accumulated deficit                                                         (  7,136,633)   (  7,012,185)
                                                                            --------------  --------------
   Total stockholders' equity                                                   1,964,908         752,609 
                                                                            --------------  --------------
     Total liabilities and stockholders' equity                             $   7,515,534   $   5,496,367 
                                                                            ==============  ==============
</TABLE>


       The accompanying notes are an integral part of these statements.

<PAGE>
<TABLE>
<CAPTION>

                   PENN OCTANE CORPORATION AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS

                                  (UNAUDITED)

                                                    Three Months Ended
                                               ----------------------------
                                                October 31,    October 31,
                                                   1997           1996
                                               -------------  -------------
<S>                                            <C>            <C>
Revenues                                       $  8,188,002   $  2,546,493 
Cost of goods sold                                7,758,459      2,752,965 
                                               -------------  -------------
 Gross profit (loss)                                429,543       (206,472)
                                               -------------  -------------
Selling, general and administrative expenses
 Legal and professional fees                        152,784        191,431 
 Salaries and payroll related expenses              207,034        114,283 
 Travel                                              82,406         24,036 
 Other                                              108,138         97,439 
                                               -------------  -------------
                                                    550,362        427,189 
                                               -------------  -------------
 Operating loss                                  (  120,819)    (  633,661)
Other income (expense)
 Interest expense                                 (  61,137)     (  54,338)
 Interest income                                     57,508            711 
                                               -------------  -------------
   Net loss before taxes                         (  124,448)    (  687,288)
Provision for income taxes                                -              - 
                                               -------------  -------------
   Net loss                                    $ (  124,448)  $ (  687,288)
                                               -------------  -------------
Loss per common share (note B)                 $    (  0.01)  $    (  0.13)
                                               =============  =============
Weighted average common shares outstanding        8,529,789      5,205,000 
                                               =============  =============
</TABLE>




       The accompanying notes are an integral part of these statements.


<PAGE>

                   PENN OCTANE CORPORATION AND SUBSIDIARIES

                  NOTES TO CONS OLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)

<TABLE>
<CAPTION>

                                   PENN OCTANE CORPORATION AND SUBSIDIARIES
                                    CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                 (UNAUDITED)
                                             Three Months Ended

                                                                                October 31,     October 31,
                                                                                    1997            1996
                                                                               --------------  --------------
<S>                                                                            <C>             <C>
INCREASE (DECREASE) IN CASH
Cash flows from operating activities:
Net loss                                                                       $  (  124,448)  $  (  687,288)
Adjustments to reconcile net loss to net cash used in operating
activities:
 Depreciation and amortization                                                        67,727         109,745 
 Amortization of lease rights and other non-current assets                            14,449          34,124 
 Interest income from related party notes receivables                              (  57,504)              - 
Changes in current assets and liabilities:
 Restricted cash                                                                           -      (  500,000)
 Trade accounts receivable                                                        (  268,548)     (  314,601)
 Related party receivable                                                             91,342               - 
 Interest receivable                                                                                  26,233 
 Costs and estimated earnings in excess of billings on uncompleted contracts      (  551,322)              - 
 Inventories                                                                      (  232,537)         82,309 
 Prepaids and other current assets                                                (  189,167)      (  17,710)
 Deferred registration costs                                                      (  370,000)              - 
 Construction and accounts payable                                                   415,062         412,951 
 Billings in excess of costs and estimated earnings in excess                       (  7,596)              - 
 of billings on uncompleted contracts
 Accrued liabilities                                                                 225,795          74,556 
                                                                               --------------  --------------
   Net cash used in operating activities                                          (  986,747)     (  779,681)

Cash flows from investing activities:
 Capital expenditures                                                             (  211,054)       (  5,375)
                                                                               --------------  --------------

   Net cash used in  investing activities                                         (  211,054)       (  5,375)

Cash flows from financing activities:
 Revolving credit facilities                                                      (  140,000)        100,000 
 Issuance of debt                                                                  1,500,000         325,000 
 Issuance of Common Stock                                                          1,131,250               - 
 Shareholder notes

 Reduction in debt                                                                (  923,395)       (  4,469)
                                                                               --------------  --------------
   Net cash provided by financing activities                                       1,567,855         420,531 
                                                                               --------------  --------------

     Net increase (decrease) in cash                                                 370,054    (    364,525)
Cash at beginning of period                                                           31,142         364,525 
                                                                               --------------  --------------
Cash at end of period                                                          $     401,196   $           - 
                                                                               ==============  ==============
Supplemental disclosures of cash flow information:
 Cash paid during the period for:
   Interest                                                                           47,329   $           - 
                                                                               ==============  ==============
Supplemental disclosures of noncash transactions:
 Common stock and warrants issued (note F)                                     $     263,000   $           - 
                                                                               ==============  ==============
</TABLE>


       The accompanying notes are an integral part of these statements.



NOTE  A  -  ORGANIZATION

Penn  Octane  Corporation, which was formerly International Energy Development
Corporation  (IEDC) and The Russian Fund, is a Delaware corporation, which was
incorporated  on  August  27,  1992.   On October 21, 1993, IEDC acquired Penn
Octane  Corporation,  a  Texas  corporation,  whose primary asset was a liquid
petroleum  gas  (LPG)  pipeline lease agreement (Pipeline Lease) with Seadrift
Pipeline  Corporation  (Seadrift),  a  subsidiary of Union Carbide Corporation
(Union  Carbide).    On  January  6, 1995, the Board of Directors approved the
change  of  IEDC's  name  to  Penn  Octane  Corporation (POC).  The Company is
engaged  primarily in the business of purchasing, transporting and selling LPG
and  providing  services  and  equipment  to  the compressed natural gas (CNG)
industry.    Substantially all of the sales volume since inception has been to
PMI  Trading  Limited  (PMI), a subsidiary of Petroleos Mexicanos (PEMEX), the
Mexican  state  owned  oil  company.

POC  commenced operations  during  the fiscal year ended July  31,  1995  upon
construction  of  its  terminal  faciliy  in  Brownsville,  Texas (Brownsville
Terminal Facility).  Prior  to  such time, the Company was in the "development
stage." until the  business was established and planned  principal  operations
commenced during the year ended July 31, 1995.

In  February  1997,  POC  formed  Wilson  Acquisition  Corporation, a Delaware
corporation  and a wholly-owned subsidiary, for the purpose of engaging in the
business  of  designing,  constructing, installing and servicing equipment for
CNG  fueling  stations  and  related  products  for  use  in  the CNG industry
throughout  the  world.   The subsidiary's name was changed to PennWilson CNG,
Inc.  (PennWilson)  in  August  1997.

In  October  1997,  POC  formed Penn CNG Holdings, Inc. (Holdings), a Delaware
corporation  and  a  wholly-owned  subsidiary, to act as a holding company for
POC's  CNG-related  operations,  including  the ownership and operation of CNG
fueling  stations,  sales  of  CNG-powered  vehicles  and  other  CNG-related
business.  The  Company  intends  to  transfer  the ownership of PennWilson to
Holdings, however, such ownership has not yet been transferred.

BASIS  OF  PRESENTATION
-----------------------

The  accompanying  financial  statements  include  POC  and  its subsidiaries,
PennWilson  and Holdings (Company).  All significant intercompany accounts and
transactions  are  eliminated.

The unaudited consolidated balance sheet as of October 31, 1997, the unaudited
consolidated  statements  of  operations,  and  the  unaudited  consolidated
statements  of cash flows for the three months ended October 31, 1997 and 1996
have  been  prepared  by  the  Company  without  audit.    In  the  opinion of
management,  the  financial  statements include all adjustments (which include
only  normal  recurring adjustments) necessary to present fairly the unaudited
consolidated  financial position of the Company as of October 31, 1997 and the
unaudited  consolidated  results of operations and unaudited consolidated cash
flows  for  the  three  months  ended  October  31,  1997  and  1996.

Certain  information  and  footnote disclosures normally included in financial
statements  prepared  in  accordance  with  generally  accepted  accounting
principles  have  been  omitted.  These financial statements should be read in
conjunction  with  the  financial statements and notes thereto included in the
Company's  Annual  Report  on  Form  10-K  for  the  year ended July 31, 1997.

Certain  reclassifications  have been made to prior period balances to conform
to  the  current  presentation.  All  reclassifications  have  been  applied
consistently  to  the  periods  presented.

<PAGE>
NOTE  B  -  LOSS  PER  COMMON  SHARE

Loss  per  share  of  common  stock  is  computed based solely on the weighted
average  number  of  shares outstanding because the Company incurred losses in
each  of  the  periods  presented;  therefore,  giving  effect to common stock
equivalents  would  be  antidilutive.  Fully  diluted loss per share of common
stock  assumes  the  conversion  of  preferred  stock and is only presented in
periods  where such computation results in dilution greater than 3% of primary
earnings  (loss)  per  share  of  common  stock.

The  FASB  issued  Statement  of  Financial Accounting Standards No. 128 (SFAS
128),  "Earnings  Per  Share",  which  supersedes  Accounting Principles Board
Opinion No. 15 (APB 15), "Earnings Per Share".  The statement is effective for
financial  statements  issued  for  periods  ending  after  December 15, 1997,
including  interim  periods. Early adoption is not permitted. The Company does
not  expect  a  material  change  in  earnings  per  share data as a result of
adopting  SFAS  128.


NOTE  C  -  PROPERTY,  PLANT  AND  EQUIPMENT

     Property,  plant  and  equipment  consists  of  the  following:
<TABLE>
<CAPTION>



                                     October 31,       July 31,
                                         1997            1997
                                    --------------  --------------
<S>                                 <C>             <C>
LPG:
Building                            $     173,500   $     173,500 
LPG terminal                            3,426,440       3,426,440 
Automobiles and equipment                 385,038         378,039 
Office equipment                           24,518          22,202 
Leasehold improvements                    249,124         237,899 

CNG:
Furniture, fixtures and equipment         190,053         162,161 
Automobiles                                40,523          40,023 
Construction in progress                  319,718               - 
Leasehold improvements                      8,575           8,575 
                                    --------------  --------------
                                        4,817,489       4,448,839 
Less: accumulated depreciation and
 Amortization                        (  1,331,416)   (  1,263,691)
                                    --------------  --------------
                                    $   3,486,073   $   3,185,148 
                                    ==============  ==============
</TABLE>



During  May  1997, the Company amended (the Amendment) the Pipeline Lease with
Seadrift to extend the term of the Pipeline Lease through March 31, 2013.  The
Amendment  will  become  effective  on  April  1,  1998.    As a result of the
Amendment,  the  Company  changed  the useful life of its LPG terminal assets,
leasehold  improvements  and lease rights through the extension of the amended
lease period.  The effect of the change in estimate for the three months ended
October  31,  1997  was to reduce the Company's net loss by $73,262 and reduce
the  Company's  loss  per  common  share  by  $.01  per  share.

<PAGE>

NOTE  D  -  INVENTORIES

Inventories  consist  of  the  following:

<TABLE>
<CAPTION>

                             October 31,    July 31,
                                 1997         1997
                             ------------  -----------
<S>                          <C>           <C>
LPG                          $    543,704  $   492,551
PROPYLENE (PPL)                    12,698            -
CNG
 Raw material and supplies        196,597      199,519
 Work in progress                 117,739      103,727
                             ------------  -----------

                             $    870,738  $   795,797
                             ============  ===========
</TABLE>



Costs  and  estimated  earnings  on  uncompleted  contracts  consist  of  the
following:

<TABLE>
<CAPTION>

                                                  October 31,     July 31,
                                                      1997          1997
                                                  ------------  ------------
<S>                                               <C>           <C>
Uncompleted contracts consist of:
    Costs incurred on uncompleted contracts       $  1,814,625  $   488,560 
 Estimated earnings                                    203,818      101,294 
                                                  ------------  ------------
                                                     2,018,443      589,854 
 Less: billings to date                              1,270,233      400,562 
                                                  ------------  ------------
                                                  $    748,210      189,292 
                                                  ============  ============

Included in the accompanying balance sheet under
the following captions:

 Costs and estimated earnings in excess of
   billings on uncompleted contracts              $    748,210  $   196,888 
 Billings in excess of costs and estimated
   earnings on uncompleted contracts                         -     (  7,596)
                                                  ------------  ------------
                                                  $    748,210  $   189,292 
                                                  ============  ============
</TABLE>


The  above amounts include approximately $600,000 related to change-orders for
additional  work  performed by the Company in connection with the construction 
of equipment for a CNG fueling  station for the New  York  City  Department of 
Transportation, which  have  been  submitted  to the customer for approval.

<PAGE>
NOTE  E  -  LONG-TERM  DEBT

<TABLE>
<CAPTION>

Long-term  debt  consists  of  the  following:

                                                                                               October 31,    July 31,
                                                                                                   1997         1997
                                                                                               ------------  ----------
<S>                                                                                            <C>           <C>
Contract for Bill of Sale; due in semi-annual payments of $22,469, including interest at
11.8%; due in October 1998; collateralized by a building                                       $    106,652  $  113,191
   
Subordinated note with warrants to purchase 50,000 shares of common stock at $2.50
per share expiring February 28, 2001; principal due August 31, 1997, or upon earlier
receipt of proceeds from a primary equity offering in the minimum amount of
$5,000,000; interest at 10% due annually on the anniversary date of the note;
collateralized by all tanks, pumps, equipment and other terminal property, and proceeds
from a judgment or settlement of litigation (paid in September 1997)                                      -     400,000

Subordinated note with warrants to purchase 50,000 shares of common stock at $2.50
per share expiring April 11, 2001; principal due October 11, 1997, or upon earlier
receipt of proceeds from a primary equity offering in the minimum amount of
$5,000,000; interest at 10% due annually on the anniversary date of the note;
collateralized by all tanks, pumps, equipment and other terminal property and proceeds
from the judgment or settlement of litigation (paid in October 1997)                                      -     500,000

Unsecured note with warrants to purchase 75,000 shares of common stock at $3.00 per
share expiring October 10, 1997; principal due November 7, 1997, or upon receipt of
proceeds from offering of securities prior to payment date in excess of $250,000;
Company shall utilize one half of proceeds from such sale to satisfy this note; interest at
10% due annually on the anniversary date of the note  (paid in August 1997)                               -      75,000

Unsecured note with principal due in equal annual installments of $20,000
beginning June 5, 1998, plus interest at the prime rate  (8.5% at October 31, 1997); due
June 5, 2002                                                                                        100,000     100,000

Unsecured promissory note due May 29, 1998                                                           33,000      33,000

Secured promissory note with warrants to purchase 500,000 shares of common stock at
$2.50 per share expiring June 15, 2002; principal due June 15, 1999, or upon earlier
receipt of proceeds from a primary debt or equity offering in the minimum amount of
$5,000,000; interest at 10.5% due semi-annually on December 15 and June 15;
collateralized by certain specified assets of the Company                                         1,000,000   1,000,000

$1,500,000 in promissory notes less unamortized discount of $75,000 with warrants to
purchase 250,000 shares of common stock at $6.00 per share expiring October 21,
2000; principal due June 30, 1998, or upon earlier receipt of proceeds from any public
offering of debt or equity of the Company resulting in net proceeds to the Company in
excess of $5,000,000; interest at 10.0% on the principal amount of the promissory
notes is due quarterly on March 31, June 30, September 30 and December 31.  The
effective interest rate after consideration of the discount, is 18.0% per annum.
Purchasers of the promissory notes were granted one demand registration right with
respect to the shares issuable upon exercise of the warrants                                      1,425,000           -

Capitalized lease obligations payable in monthly installments totaling $3,138; due
on various dates through January 1999                                                                27,178      44,033
                                                                                               ------------  ----------
                                                                                                  2,691,830   2,265,224
Current maturities                                                                                1,612,863   1,152,391
                                                                                               ------------  ----------
                                                                                               $  1,078,967  $1,112,833
                                                                                               ============  ==========
    
</TABLE>




In  December  1995,  the  Company  obtained  a  revolving  line  of credit for
$140,000.  The credit line was renewed in December 1996 for the period through
September  30,  1997.  Interest is calculated on this credit line at the prime
rate  (8.5%  at  July 31, 1997) plus 3%.  During October 1997, the outstanding
balance  under  the  revolving  line  of  credit  was  repaid.

NOTE  F  -  STOCKHOLDERS'  EQUITY

PREFERRED  STOCK
----------------

On  September  18, 1993, in  a private  placement, the  Company issued 150,000
shares  of  its  $.01  par  value,  11%  convertible,  cumulative  non-voting 
Preferred  stock  at  a  purchase  price of $10.00 per share. On June 10, 1994
the Company declared a 2-for-1 stock split. The Company  has  had  no earnings
to  date and therefore no dividends have been declared or  paid. The Preferred
Stock is convertible, at the option of the holder through  September 18, 1998,
into voting shares of Common Stock of the Company at a conversion ratio of one
share of  Preferred Stock  for 3.333 shares of  common  stock.   The Preferred
Stock is not redeemable by the Company.  On September  10,  1997, the Board of
Directors of the Company approved the issuance of an additional 100,000 shares
of Common Stock as an inducement for the  Preferred  stockholders  to  convert
the  shares of Preferred  Stock and release all rights  with  respect  to  the
Preferred Stock.  During  December  1997,  the  Preferred     Stockholders    
agreed to convert the shares of Preferred Stock.

COMMON  STOCK
-------------

In  August  1997,  warrants  to  purchase 75,000 shares of Common Stock of the
Company were exercised in exchange for cancellation of a $75,000 note payable,
plus  accrued  interest thereon, and a cash payment to the Company of $56,250.

During the quarter ended October 31, 1997, warrants to purchase 430,000 shares
of  common  stock  of  the Company were exercised by a director of the Company
(130,000)  and other third parties (300,000) at an exercise price of $2.50 per
share  resulting  in a cash payment received by the Company of $1,075,000.  In
connection  with  the  exercise  of  100,000  of these warrants (the Exercised
Securities),  the  Company  entered  into  a  Registration  Rights  Agreement,
agreeing  to  register the Exercised Securities on or before February 1, 1998.
In  the  event  the  Company  fails  to  register  the Exercised Securities by
February  1,  1998,  for  each  month  beginning  March  1, 1998 and ending on
September  1, 1998, the Company will be required to issue to the holder of the
Exercised Securities warrants to purchase 10,000 shares of Common Stock of the
Company  at  an exercise price of $2.50 per share, exercisable within one year
from  the  date  of  issuance.

STOCK  AWARD  PLAN

On  October  21,  1997,  the Company adopted the 1997 Stock Award Plan (Plan).
Under  the  terms  of  the Plan, the Company has reserved for issuance 150,000
shares  of common stock.  The purpose of the Plan is to compensate consultants
who  have  rendered  significant  services  to  the Company.  The Plan will be
administered  by  the  compensation  committee of the Company which shall have
complete  authority  to  select  participants,  determine the awards of common
stock  to  be  granted  and the times such awards will be granted.  In October
1997, the Company issued 20,314 shares of common stock of the Company from the
Plan  to  a Mexican consultant in payment for services rendered to the Company
valued  at  $113,000.

<PAGE>

NOTE  G  -  COMMITMENTS  AND  CONTINGENCIES

LITIGATION


     On  August  24,  1994,  the  Company  filed  an  Original  Petition  and
Application  for  Injunctive  Relief  against  the  International  Bank  of
Commerce-Brownsville  ("IBC-Brownsville"),  a Texas state banking association,
seeking  (i)  either  enforcement of a credit facility between the Company and
IBC-Brownsville  or  a release of the Company's property granted as collateral
thereunder  consisting  of  significantly  all  of  the Company's business and
assets; (ii) declaratory relief with respect to the credit facility; and (iii)
an  award for damages and attorneys' fees.  After completion of an arbitration
proceeding,  on February 28, 1996, the 197th District Court in and for Cameron
County,  Texas entered judgment (the "Judgment") confirming the arbitral award
for  $3,246,754  to  the  Company  by  IBC-Brownsville.    On  June  3,  1996,
IBC-Brownsville  filed  an  appeal.

     On  April 18, 1996, the Company reached an agreement (the "IBC Settlement
Agreement")  to  accept  $400,000 to settle a lawsuit it filed in October 1995
against  International  Bank  of  Commerce-San  Antonio,  a  bank  related  to
IBC-Brownsville ("IBC-San Antonio").  As part of the settlement agreement, the
parties,  including  IBC-Brownsville  and  IBC-San  Antonio,  executed  mutual
releases  from  future  claims  related  to  the  IBC-Brownsville  litigation.
Additionally,  IBC-San  Antonio  agreed  to indemnify the Company for any such
claims  made  or  asserted.

     On  June 26, 1996, IBC-Brownsville filed a suit against the Company (Case
No.  96-06-3502)  in  the  357th  Judicial  District  Court  of Cameron County
alleging  that  the Company, in filing the Judgment against IBC-Brownsville in
order  to  clear  title  to its assets, slandered the name of IBC-Brownsville.
IBC-Brownsville  contends  that  the  Judgment  against  it  prevented it from
selling  certain  property.    IBC-Brownsville  has  claimed actual damages of
$600,000 and requested punitive damages of $2,400,000.  On September 23, 1996,
the  court  which entered the Judgment on behalf of the Company indicated in a
preliminary  ruling  that the Company was privileged in filing the Judgment to
clear title to its assets. The Company believes the case to be frivolous and a
breach  of  the  IBC Settlement Agreement.  Further, the Company believes this
cause  of  action  is  covered by an indemnity agreement from IBC-San Antonio.

     In  connection with the lawsuit, IBC-Brownsville filed an appeal with the
Texas Court of Appeals on January 21, 1997.  The Company responded on February
14,  1997.   On September 18, 1997, the appeal was heard by the Texas Court of
Appeals.    A  decision is expected sometime in 1998. The Company continues to
believe  that  the  Judgment  is  final,  binding  and  collectible.

     The  financial  statements  do not include any adjustments reflecting the
gain  contingency  of  the  Judgment,  net  of  attorney's fees, or the offset
(principal  and  interest).    Short-term  borrowing  of  $672,552 and accrued
interest  of  $206,025  reflect the amount of the offsets at October 31, 1997.
The Judgment will be accounted for when it is actually realized and the offset
will  be  accounted  for  at  the  time  IBC  has  exhausted  all  appeals.

     A former officer of the Company is entitled to a payment of 5% of the net
proceeds  (after expenses and legal fees) received by the Company arising from
the  above-mentioned  litigation.

     On  July 30, 1996, the Company filed suit in the District Court of Harris
County,  Texas  against  Jorge  V.  Duran, former Chairman of the Board of the
Company,  regarding  alleged conversion and fraud by Mr. Duran during his time
as an employee of the Company.  The Company has not yet quantified its damages
and  is  seeking a declaration that the termination of employment of Mr. Duran
was lawful and within the rights of the Company based on Mr. Duran's status as
an  at-will  employee of the Company.  On December 12, 1996, Mr. Duran filed a
counterclaim  in  the  District  Court  of  Harris County, Texas asserting the
following  claims:    Breach  of contract against the Company and Mr. Richter;
wrongful  discharge  against  the  Company,  Mr.  Richter, and Mark Casaday, a
former  officer  and  director of the Company; defamation against the Company,
Mr.  Richter,  Mark  Casaday,  and  Jorge  Bracamontes;  and interference with
contract  against  Jorge  Bracamontes.   On February 27, 1997, the two actions
were  consolidated into Case No. 96-37447, Penn Octane Corporation v. Jorge V.
Duran,  in  the  164th  District  Court of Harris County, Texas.  Mr. Duran is
seeking  (i)  judgment  against  the  Company and Messrs. Richter, Casaday and
Bracamontes  for  unspecified money damages, punitive damages in the amount of
$10,500,000, prejudgment interest as provided for by law, and attorneys' fees;
(ii)  400,000 shares of Common Stock from the Company, (iii) 100,000 shares of
common stock from Mr. Richter; and (iv) such further relief to which he may be
justly entitled.  The Company intends to vigorously defend against Mr. Duran's
counterclaim.

CREDIT  FACILITY  AND  LETTERS  OF  CREDIT

On  October  22, 1997, the Company entered into a $6.0 million credit facility
with  RZB  Finance L.L.C. (RZB) for demand loans and standby letters of credit
(RZB Credit Facility) to finance the Company's purchase of LPG and PPL.  Under
the  RZB  Credit Facility, the Company has agreed to pay a fee with respect to
each  letter  of  credit  thereunder  in an amount equal to the greater of (i)
$500,  (ii) 1.5% of the maximum face amount of such letter of credit, or (iii)
such  higher amount as may be agreed between the Company and RZB.  Any amounts
outstanding  under  the  RZB  Credit  Facility  accrue  interest  at  a  rate
equal  to  the  rate  announced  by the Chase Manhattan Bank as its prime rate
(8.5%  at  October  31, 1997) plus 2.5%.  Pursuant to the RZB Credit Facility,
RZB  has sole and absolute discretion to terminate the RZB Credit Facility and
to  make  any loan or issue any letter of credit thereunder.  RZB also has the
right  to  demand  payment  of  any  and all amounts outstanding under the RZB
Credit  Facility at any time.  In connection with the RZB Credit Facility, the
Company  granted  a  mortgage,  security  interest  and  assignment in any and
all  of  the  Company's  real  property,  buildings,  pipelines,  fixtures and
interests  therein  or  relating  thereto,  including, without limitation, the
lease  with the Brownsville Navigation District of Cameron County for the land
on  which  the  Company's terminal facility (Brownsville Terminal Facility) is
located,  the  Pipeline  Lease, and   in connection therewith    agreed     to
enter into leasehold deeds of trust, security agreements, financing statements
and assignments of rent, in forms  satisfactory  to RZB.  The Company has also
agreed  that  it  shall  not  permit  to  exist  any  lien, security interest,
mortgage,  charge  or other encumbrance of any nature on any of its properties
or  assets,  except  in  favor  of  RZB.    In  connection with the RZB Credit
Facility,  the holder of the secured promissory note of the Company has agreed
to subordinate its security interest in the Brownsville Terminal Facility.  On
November  5,  an  irrevocable  letter  of credit was established under the RZB
Credit Facility in favor of Exxon in the amount of $3.8 million to be used for
the  purchase  of  LPG.  The Company's President, Chairman and Chief Executive
Officer  has  personally  guaranteed  all of the Company's payment obligations
with  respect  to the RZB Credit Facility.  As of December 4, 1997, $1,801,158
has  been presented by Exxon against the letter of credit for purchases of LPG
made  by  the  Company  from  November 11, 1997 through November 30, 1997, and
$1,988,214  has  been invoiced to customers for sales of LPG from November 11,
1997  through  November 30, 1997.  Upon establishment of the letter of credit,
the  Company  began  invoicing  PMI  on  a  weekly  basis.

During  March  1997,  the Company obtained a letter of credit in the amount of
approximately  $251,000  in  connection  with  the obligation of PennWilson to
complete  certain work under a contract.  During September 1997, the letter of
credit  was  extended  to  November 26, 1997.  The letter of credit expired on
November  26,  1997.

OTHER

During  June 1997, PennWilson entered into a performance and payment bond (the
Bonds)  in  connection  with  a  contract to design, construct and install CNG
equipment  totaling  approximately $1,487,000.  The Bonds remained outstanding
until  the  equipment  was  delivered to the customer, as prescribed under the
contract,  in  December  1997.


<PAGE>
NOTE  H  -  REALIZATION  OF  ASSETS

The  accompanying  unaudited  consolidated  financial  statements  have  been
prepared  in  conformity  with generally accepted accounting principles, which
contemplate  continuation  of the Company as a going concern.  The Company has
incurred  losses  since  its  inception, has used cash in operations and has a
deficit  in  working  capital.  In  addition,  the  Company  is  involved  in
litigation, the outcome of which cannot be determined at the present time.  As
discussed in Note A, the Company has historically depended heavily on sales to
one major customer.  In addition, there is no significant operating history on
which  to  base  the  results  of  the  additional  business generated through
PennWilson,  Holdings  or  contracts  to  purchase  and  sell  PPL.

In view of the matters described in the preceding paragraph, recoverability of
a  major  portion  of  the recorded asset amounts as shown in the accompanying
unaudited consolidated balance sheet at October 31, 1997 is dependent upon the
collection  of  the  Judgment,  the  Company's  ability  to  obtain additional
financing  and  to  raise  additional  equity  capital, and the success of the
Company's  future operations.  The unaudited consolidated financial statements
do  not  include  any  adjustments  related  to  the  recoverability  and
classification  of  recorded  asset  amounts  or amounts and classification of
liabilities  that  might be necessary should the Company be unable to continue
in  existence.

To  provide  the Company with the ability it believes necessary to continue in
existence,  management is taking steps to 1) collect the Judgment, 2) increase
sales  to  its current customers, 3) increase its customer base, 4) expand its
product  lines  and  5)  raise  additional  debt  and/or  equity  capital.

At July 31, 1997, the Company had net operating loss carryforwards for federal
income  tax purposes of approximately $5,348,000.  The ability to utilize such
net  operating  loss  carryforwards  may  be  significantly  limited  by  the
application  of  the  "change  of  ownership"  rules  under Section 382 of the
Internal  Revenue  Code.

NOTE  I  -  CONTRACTS

LPG  BUSINESS

The Company has entered into a sales agreement with PMI (PMI Sales Agreement),
to  provide a minimum monthly volume of LPG to PMI through September 30, 1998.
During  August  1,  1997 through November 10, 1997, the Company was purchasing
LPG  on  a  month-to-month basis from Exxon Company, U.S.A. (Exxon), its major
supplier,  to  meet  the  minimum  monthly  volumes  required in the PMI Sales
Agreement.    Effective  November  11, 1997, the Company entered into a supply
contract  with  Exxon  to  purchase  minimum  monthly  volumes  of LPG through
September  1998 under payment terms similar to those required in the PMI Sales
Agreement.   The supply price is below the sales price provided for in the PMI
Sales  Agreement.

PPL  BUSINESS

     In  September  1997,  the Company began selling limited quantities of PPL
that  it  purchased from PMI in Mexico to customers in the United States.  The
Company  is  currently  seeking  to obtain adequate supplies of high-grade PPL
from PMI and other suppliers.  Although the Company has no formal contract for
the  supply  of  PPL,  the  Company  purchases quantities of PPL from PMI on a
month-to-month,  as  available  basis.  The  Company  expects  to  commence
deliveries under its contract with Union Carbide in early 1998.  In July 1997,
the  Company  entered  into a one-year contract with Union Carbide pursuant to
which Union Carbide agreed to purchase from the Company up to 9,000,000 pounds
of  high-grade  PPL  per month, or as otherwise mutually agreed, at a variable
posted  price  through  July  31,  1998.


<PAGE>
CNG  BUSINESS

Prior  to  October  31,  1997,  the  Company was awarded two contracts for the
design,  construction  and  installation of equipment for CNG fueling stations
for  A.E.  Schmidt Environmental in connection with CNG fueling stations being
constructed for the New York City Department of Transportation (total contract
amount  of approximately $1,487,000) and the Orange County Sanitation District
(total  contract  amount  of approximately $236,000).  The Company anticipates
completion  of  the  projects during the second and third quarters of its 1998
fiscal  year, respectively.  The Company is pursuing additional CNG contracts;
however,  the  Company  has  not  entered into any CNG contracts subsequent to
October  31,  1997.

NOTE  J  -  SEGMENT  INFORMATION

The  FASB issued Statement of Financial Accounting Standards No. 131 (SFAS No.
131),  "Disclosure  about  Segments of an Enterprise and Related Information",
effective  for  years  beginning  after  December  15,  1997,  with  earlier
application  encouraged.    The  Company  adopted  SFAS  131  in  1997.

The  Company  has  the  following  reportable  segments: LPG and CNG.  The LPG
segment  is  a distributor of fuel and the CNG segment designs, constructs and
installs  equipment  for  CNG  fueling  stations.

The  accounting  policies  used  to  develop segment information correspond to
those  described  in  the summary of significant accounting policies.  Segment
profit or loss is based on profit or loss from operations before income taxes.
The  reportable  segments  are  distinct  business  units operating in similar
industries.    They  are  separately  managed,  with  separate  marketing  and
distribution  systems.   The following information about the segments is as of
October  31,  1997  and  for  the  three  months  ended  October  31,  1997.

<TABLE>
<CAPTION>

                                                     LPG                CNG               Totals
                                                --------------  --------------------  --------------
<S>                                             <C>             <C>                   <C>
Revenues from external customers                $   6,542,481   $         1,645,521   $   8,188,002 
Interest expense                                       59,099                 2,038          61,137 
Depreciation and amortization                          55,871                11,856          67,727 
Segment (loss)                                        (44,975)              (79,473)       (124,448)
Segment assets                                      5,714,416             1,801,118       7,515,534 
Segment liabilities                                (4,431,981)           (1,118,645)     (5,550,626)
Expenditure for segment assets                         20,542               190,512         211,054 

RECONCILIATION TO CONSOLIDATED AMOUNTS
--------------------------------------
Revenues
 Total revenues for reportable segments                         $         8,188,002 
 Other revenues                                                                   - 
 Elimination of intersegment revenues                                             - 
                                                                --------------------
   Total consolidated revenues                                  $         8,188,002 
                                                                ====================

Profit or Loss
 Total profit or loss for reportable segments                   $        (  124,448)
 Other profit or loss                                                             - 
 Elimination of intersegment profits                                              - 
 Unallocated amounts
   Corporate headquarters expense                                                 - 
   Other expenses                                                                 - 
                                                                --------------------
     Consolidated income before income taxes                    $        (  124,448)
                                                                ====================
Assets
 Total assets for reportable segments                           $         7,515,534 
 Other assets                                                                     - 
 Corporate headquarters                                                           - 
 Other unallocated amounts                                                        - 
                                                                --------------------
   Total consolidated assets                                    $         7,515,534 
                                                                ====================
   
Geographic Information                             Revenues           Assets
----------------------                          --------------  --------------------
                                                                                                              
United States                                   $   8,153,149   $          7,515,534
Canada                                                 34,853                      -
                                                --------------  --------------------
                                                $   8,188,002   $          7,515,534
                                                ==============  ====================
    
</TABLE>


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

     The  following  discussion  of  the  Company's  results of operations and
liquidity  and  capital  resources  should  be  read  in  conjunction with the
unaudited  Consolidated  Financial Statements of the Company and related Notes
thereto  appearing elsewhere herein.  References to specific years preceded by
"fiscal"  (e.g. fiscal 1997) refer to the Company's fiscal year ended July 31.
The results of operations of PennWilson, which began operations in March 1997,
have been included in the Company's results of operations for the three months
ended  October  31,  1997  discussed  below.    To  date,  there  has  been no
significant  activity  associated  with  the  operations  of  Holdings.

OVERVIEW

     The  Company  is  principally engaged in the purchase, transportation and
sale  of  LPG and the provision of equipment and services to the CNG industry.
Since  July  1994,  the  Company has bought and sold LPG for distribution into
northeast  Mexico  and the U.S. Rio Grande Valley.  In March 1997, the Company
expanded  its operations to include the design, construction, installation and
maintenance  of  turnkey CNG fueling stations.  In September 1997, the Company
commenced  limited sales of PPL, purchased from PMI in Mexico, to consumers in
the  United  States.

     Historically,  the  Company has derived substantially all of its revenues
from sales to PMI, its primary customer, of LPG purchased from Exxon.  For the
three  months  ended October 31, 1997, the Company derived approximately 79.9%
of  its  revenues from sales of LPG, of which sales to PMI accounted for 99.4%
of  total  LPG  sales.

     As  part  of  its  business  strategy, in March 1997 the Company acquired
certain  assets and hired certain former  employees from  Wilson  Technologies
Incorporated, a company engaged in  the  engineering, design and  construction
of equipment for turnkey CNG  fueling  stations.    In  connection  with  this
acquisition,  the  Company  paid  $394,000  and  is  committed  to  pay  up to
$2.0  million  in  royalty  payments  based  on  future  sales,  if  any.  The
acquisition was accounted for as a purchase and is  reflected  as such in  the
Company's financial statements as of October 31, 1997.

     The  Company  provides  products  and  services  through a combination of
fixed-margin  and fixed-priced contracts.  Under the Company's agreements with
its  customers and suppliers, the buying and selling prices of LPG and PPL are
based  on variable posted prices that provide the Company with a fixed margin.
Costs included in costs of goods sold other than the purchase price of LPG and
PPL  may  affect  actual  profits  from  sales,  including  costs  relating to
transportation,  storage,  leases,  maintenance  and  financing.   The Company
generally  attempts  to purchase in volumes commensurate with projected sales.
However, mismatches in volumes and prices of LPG purchased from Exxon and sold
to  PMI  or  PPL  purchased from PMI and sold to Union Carbide could result in
unanticipated  costs.

     The Company's CNG revenues are principally derived from contracts awarded
on a fixed-price, as-completed basis.  In competing for contracts to construct
equipment  for CNG fueling stations, the Company normally must submit bids for
specific  projects.  The  Company's  ability  to achieve a profit margin for a
specific  project  is dependent on the accuracy of its assessment of the costs
associated  with  that  project.


<PAGE>
LPG  SALES

     The  following  table shows the Company's volume sold in gallons, average
sales  price  and  average  purchase  price  of LPG for the three months ended
October  31,  1997  and  1996.

<TABLE>
<CAPTION>

                                Three  Months  Ended
                                --------------------

                            October 31,   October 31,
                                1997          1996
                            ------------  ------------
<S>                         <C>           <C>
Volume Sold

 LPG (millions of gallons)          15.1           4.7

Average sales price

 LPG (per gallon)           $       0.43  $       0.54

Average purchase price

 LPG (per gallon)           $       0.39  $       0.49
</TABLE>




RESULTS  OF  OPERATIONS

     THREE  MONTHS ENDED OCTOBER 31, 1997 COMPARED WITH THE THREE MONTHS ENDED
OCTOBER  31,  1996

     Revenues.  Revenues for the three months ended October 31, 1997 were $8.2
million  compared  with  $2.5  million  for the three months ended October 31,
1996,  an increase of $5.7 million or 228%.  Of this increase (i) $5.6 million
was  attributable  to  increased  volumes  of LPG sold during the three months
ended October 31, 1997, partially offset by decreased average sales prices for
LPG  during  the three months ended October 31, 1997 of $1.5 million, and (ii)
$1.6  million  was  attributable  to  revenues from sales of equipment for CNG
fueling stations.  The increase in volume of LPG sales during the three months
ended October 31, 1997 primarily resulted from the lack of sales to PMI during
August  and  September  1996  due  to the expiration of the Company's previous
sales  arrangement  with PMI on July 31, 1996.  Subsequent thereto, a one-year
sales  agreement  was  entered  into  with  PMI  effective  October  1,  1996.

     Cost  of  sales.  Cost of sales during the three months ended October 31,
1997 was $7.8 million compared with $2.8 million during the three months ended
October  31,  1996, an increase of $5.0 million or 179%.  Of this increase (i)
$5.1  million  was  attributable  to  increased volumes of LPG sold during the
three  months  ended  October  31, 1997, partially offset by decreased average
purchase prices for LPG during the three months ended October 31, 1997 of $1.6
million, and (ii) $1.5 million was attributable to costs associated with sales
of  equipment  for  CNG  fueling  stations.

     Selling,  general  and  administrative  expenses.  Selling,  general  and
administrative  expenses  were  $550,362 during the three months ended October
31,  1997  compared  with  $427,189  during the three months ended October 31,
1996,  an  increase  of  $123,173  or  28.8%.    This  increase  was primarily
attributable  to (i) $45,000 of costs associated with the exercise of warrants
and  (ii) PennWilson expenses of $239,000, associated with the commencement of
the  Company's  CNG  related  operations,  partially  offset by lower selling,
general  and administrative expenses associated with the Company's LPG related
operations.

     Other  income and expense, net.  Other income (expense), net was ($3,629)
during  the three months ended October 31, 1997 compared with ($53,627) during
the  three  months  ended  October  31,  1996.    The decrease of other income
(expense), net, is due to the accrual of interest income from notes receivable
from  the  President  of  the  Company  and  a  related  party.


<PAGE>
     Income  tax.  Due to the net losses during the three months ended October
31,  1997 and 1996, there was no income tax expense in either period.  At July
31,  1997, the Company had net operating loss carryforwards for federal income
tax  purposes  of approximately $5.3 million.  The ability to utilize such net
operating  loss  carryforwards, which expire in the years 2009 to 2012, may be
significantly  limited  by  the application of the "change of ownership" rules
under  Section  382  of  the  Internal  Revenue  Code.

     Historically,  the  Company has received the majority of its total annual
revenues  during  the  months  of  October  through  March.    Such pattern is
attributable  to  the  seasonal  demand  for  LPG, which is typically greatest
during  the  winter  months  of the second and third quarters of the Company's
fiscal  year.    The Company's quarterly earnings may vary considerably due to
the  impact  of  such  seasonality.    Upon  expiration of the Company's sales
arrangement  with  PMI,  its  primary  customer,  sales  of  LPG  to  PMI were
interrupted  during August and September 1996 pending the negotiation of a new
sales  contract  which  became  effective  in  October  1996.

LIQUIDITY  AND  CAPITAL  RESOURCES

     General.    The  Company has incurred losses since its inception in 1992,
has  used  cash  in  operations  and  has  a  deficit  in working capital.  In
addition,  the  Company is involved in litigation, the outcome of which cannot
be  determined  at  the present time.  The Company depends heavily on sales to
one major customer.  In addition, there is no significant operating history on
which  to  base  the  results  of  the  additional  business generated through
PennWilson,  Holdings  or  contracts  to purchase and sell PPL.  The Company's
sources  of liquidity and capital resources historically have been provided by
sales  of  LPG  and  CNG-related  equipment,  proceeds  from  the  issuance of
short-term  and  long-term  debt,  revolving  credit  facilities  and  credit
arrangements,  sale  or  issuance of preferred and common stock of the Company
and proceeds from the exercise of warrants to purchase shares of the Company's
common  stock.

     The following summary table reflects comparative cash flows for the three
months  ended  October  31,  1997  and 1996.  All information is in thousands.

<TABLE>
<CAPTION>

                                            October 31,    October 31,
                                               1997           1996
                                           -------------  -------------
<S>                                        <C>            <C>
Net cash used in operating activities      $     ( 987)  $       (780)
Net cash used in investing
 Activities                                        (211)            (5)
Net cash provided by financing activities         1,568            420 
                                           -------------  -------------
Net increase (decrease) in cash            $        370   $       (365)
                                           =============  =============
</TABLE>


     The  PMI Sales Agreement is effective for the period from October 1, 1997
through  September  30,  1998  and provides for the purchase by PMI of minimum
monthly  volumes  of  LPG  aggregating a minimum annual volume of 69.0 million
gallons,  representing  a  15% increase over minimum volume requirements under
the  previous  sales agreement with PMI effective during the months of October
1,  1996  to September 30, 1997.  In November 1997, the Company entered into a
new  supply  agreement with Exxon pursuant to which Exxon has agreed to supply
minimum  volumes of LPG to the Company.  The Company believes it has access to
an  adequate  supply of LPG as a result of its agreement with Exxon to satisfy
the  requirements  of  PMI  under  the PMI Sales Agreement.  Under the current
agreement  with Exxon, the Company's current sole source of supply of LPG, the
Company  anticipates  greater  gross  margins  on its LPG sales as a result of
lower LPG costs.  In addition, the Company anticipates increased gross margins
as  a  result  of  the elimination of the Company's responsibility for certain
costs  associated  with  transportation  and  the  mixing  and  testing of LPG
purchased  from  Exxon.

<PAGE>
     Prior to October 31, 1997, the  Company was awarded two contracts for the
design,  construction  and  installation of equipment for CNG fueling stations
for  A.E.  Schmidt Environmental in connection with CNG fueling stations being
constructed for the New York City Department of Transportation (total contract
amount  of approximately $1,487,000) and the Orange County Sanitation District
(total  contract  amount  of approximately $236,000).  The Company anticipates
completion  of  the  projects during the second and third quarters of its 1998
fiscal  year, respectively.  The Company is pursuing additional CNG contracts;
however,  the  Company  has  not  entered into any CNG contracts subsequent to
October  31,  1997. The  Company  anticipates  that  there  will  be  adequate
cash flow to fund the Company's  performance of its obligations thereunder   .
    The  Company  is  pursuing  additional  contracts  for  the supply of CNG-
related equipment and services in the future.

     On  October  21,  1997,  the  Company  announced that it is contemplating
filing  a  registration  statement  with the SEC for the sale to the public of
additional  shares  of  its Common Stock.  No assurance can be given as to the
timing  of  such  offering  or  that the Company will be successful in raising
additional  capital.    In  connection  therewith,  the  Company  has incurred
professional  fees and other costs totaling $370,000, which have been recorded
as  deferred  registration  costs  at  October  31,  1997.

     Pipeline Lease.  In May 1997, the Company entered into the Pipeline Lease
Amendment  with  Seadrift  which,  once effective, will extend the term of the
lease  through  2013.  Under the Pipeline Lease Amendment, the Company will be
required  to  make  minimum  monthly  lease  payments  of  $75,000, subject to
abatement  during  the  first  two  years of the extended term, an increase of
$21,000  per  month  over the Company's current Pipeline Lease Agreement.  The
Pipeline  Lease  Amendment  will  be  effective  no  later than April 1, 1998.

     Credit  Arrangements.    In  connection  with  the  PMI  Sales Agreement,
invoicing  is  to occur weekly.  In November 1996, the Company and PMI made an
arrangement  under  which  PMI guaranteed the Company's credit with Exxon, the
Company's  main  supplier,  and invoicing occurred on a monthly, rather than a
weekly  basis.

     On  October  22,  1997,  the  Company  entered into a $6.0 million credit
facility with RZB to finance the Company's purchase of LPG and PPL.  Under the
RZB  Credit Facility, the Company has agreed to pay a fee with respect to each
letter  of  credit  thereunder  in an amount equal to the greater of (i) $500,
(ii)  1.5%  of the maximum face amount of such letter of credit, or (iii) such
higher  amount  as  may  be  agreed  between the Company and RZB.  Any amounts
outstanding  under  the  RZB  Credit  Facility shall accrue interest at a rate
equal  to  the  rate  announced  by the Chase Manhattan Bank as its prime rate
(8.5%  at  October  31, 1997) plus 2.5%.  Pursuant to the RZB Credit Facility,
RZB  has sole and absolute discretion to terminate the RZB Credit Facility and
to  make  any loan or issue any letter of credit thereunder.  RZB also has the
right  to  demand  payment  of  any  and all amounts outstanding under the RZB
Credit  Facility at any time.  In connection with the RZB Credit Facility, the
Company  granted  a  mortgage,  security  interest  and  assignment  in  any
and all of the Company's real property,  buildings,  pipelines,  fixtures  and
interests  therein  or  relating  thereto,  including, without limitation, the
Brownsville  Lease,  the Pipeline Lease, and in connection therewith agreed to
Enter into leasehold deeds of trust, security agreements, financing statements
And assignments of rent, in  forms satisfactory  to RZB.  The Company has also
agreed  that  it  shall  not  permit  to  exist  any  lien, security interest,
mortgage,  charge  or other encumbrance of any nature on any of its properties
or  assets,  except  in  favor  of  RZB.    In  connection with the RZB Credit
Facility,  the holder of the secured promissory note of the Company has agreed
to  subordinate  its  security  interest in the Brownsville Terminal Facility.
See  "-Private  Placements  and  Other  Transactions."    On  November  5,  an
irrevocable  letter of credit was established under the RZB Credit Facility in
favor  of  Exxon  in the amount of $3.8 million to be used for the purchase of
LPG.    Mr.  Richter,  the  Company's  President, Chairman and Chief Executive
Officer,  has  personally  guaranteed all of the Company's payment obligations
with  respect  to the RZB Credit Facility.  As of December 4, 1997, $1,801,158
has  been presented by Exxon against the letter of credit for purchases of LPG
made  by  the  Company  from  November 11, 1997 through November 30, 1997, and
$1,988,214  has  been invoiced to customers for sales of LPG from November 11,
1997  through  November 30, 1997.  Upon establishment of the letter of credit,
the  Company  began  invoicing  PMI  on  a  weekly  basis.

     In  March 1997, the Company obtained a letter of credit from the Bay Area
Bank in the amount of approximately $251,000 in connection with the obligation
of  PennWilson  to  complete  certain  work  for  the Orange County Sanitation
District.    In  September 1997, the letter of credit was extended to November
26,  1997.    The  letter  of  credit  expired  on  November  26,  1997.

     Private  Placements  and  Other  Transactions. During August 1997, 75,000
warrants  to  purchase 75,000 shares of the Common Stock of the Company issued
in  connection  with  the private placement were exercised at prices below the
original  stated  exercise  price  in  exchange for a cash payment of $56,000,
which  the  Company  used  for working capital, and cancellation of $75,000 of
indebtedness  from  the  private  placement,  plus  accrued  interest thereon.

<PAGE>
     During  the  quarter ended October 31, 1997, warrants to purchase a total
of  430,000  shares of Common Stock were exercised, resulting in cash proceeds
to  the Company of $1.1 million.  The proceeds of such exercises were used for
working  capital  and  repayment  of  Company  debt.

     On  August  29,  1997,  in  connection  with  the exercise of warrants to
purchase  100,000  shares of Common Stock of the Company by an unrelated third
party,  the  Company  entered into a Registration Rights Agreement agreeing to
register  the Common Stock issued upon exercise on or before February 1, 1998.
In  the  event  the  Company fails to register the Common Stock by February 1,
1998,  for  each  month  thereafter  until September 1, 1997, during which the
shares have not been not registered, the Company will be required to issue the
holder  Common  Stock warrants to purchase 10,000 shares of Common Stock at an
exercise  price of $2.50 per share, exercisable within a year from the date of
issuance.

     On  October  21, 1997, the Company completed a private placement pursuant
to  which it issued promissory notes in the aggregate principal amount of $1.5
million  and  warrants  to purchase 250,000 shares of Common Stock exercisable
until October 21, 2000 at an exercise price of $6.00 per share.  The notes are
unsecured.    Proceeds raised from the private placement totaled $1.5 million,
which  the  Company used for working capital requirements. Interest at 10% per
annum  is  due  quarterly  on March 31, June 30, September 30 and December 31.
Payment of the principal and any accrued and unpaid interest on the promissory
notes  is due on the earlier to occur of June 30, 1998, and the closing of any
public  offering  of debt or equity securities of the Company resulting in net
proceeds  to  the  Company  in  excess of $5.0 million.  The purchasers in the
private  placement  were granted one demand registration right with respect to
the  shares  issuable  upon  exercise  of  the  warrants.

     Pursuant  to  the  1997  Stock  Award  Plan, in October 1997, the Company
issued  20,314  shares  of Common Stock to a Mexican consultant in payment for
services  rendered  to  the  Company  valued  at  $113,000.

     Judgment in favor of the Company.  Judgment has been rendered in favor of
the  Company  in connection with its litigation against IBC-Brownsville in the
amount of approximately $3.5 million including accrued interest and legal fees
and  expenses, which Judgment is being appealed by the defendant.  Although no
assurance  can  be  made, management believes that the Company will ultimately
prevail  on  appeal  and  will  receive  the  proceeds  from  such Judgment. A
significant  portion of the Judgment, upon realization by the Company, will be
used  to  pay  attorneys' fees incurred in connection with the IBC-Brownsville
litigation.  In addition, a former officer of the Company is entitled to 5% of
the net proceeds (after expenses and legal fees).  See Note G to the unaudited
Consolidated  Financial  Statements.

     Realization of Assets.  Recoverability of a major portion of the recorded
asset  amounts on the Company's balance sheet is dependent upon the collection
of  the  Judgment, the Company's ability to obtain additional financing and to
raise  additional  equity  capital,  and  the  success of the Company's future
operations.    See  Note H to the unaudited Consolidated Financial Statements.

     To provide the Company with the ability it believes necessary to continue
in  existence,  management  is  taking steps to (i) collect the Judgment, (ii)
increase  sales  to  its  current customers, (iii) increase its customer base,
(iv)  expand  its  product  lines  and (v) raise additional debt and/or equity
capital.

FINANCIAL  ACCOUNTING  STANDARDS

     In  February  1997,  the  Financial  Accounting  Standards  Board  issued
Statement  of  Financial Accounting Standards No. 128 (SFAS 128), Earnings per
Share.   SFAS 128 supersedes APB Opinion No. 15 (Opinion No. 15), Earnings per
Share, and requires the calculation and dual presentation of basic and diluted
earnings  per share (EPS), replacing the measures of primary and fully-diluted
EPS  as  reported  under  Opinion No. 15.  SFAS 128 is effective for financial
statements  issued  for  periods  ending  after  December  15,  1997;  earlier
application  is  not permitted.  Accordingly, EPS for the periods presented in
the  accompanying  unaudited  consolidated  statements  of  operations  are
calculated  under  the  guidance  of  Opinion  No.  15.

<PAGE>

     The  Company does not expect a material change in earnings per share data
in  any  of  the  periods presented in the accompanying unaudited Consolidated
Statements  of  Operations  as  a  result  of  adopting  SFAS  128.

               In  June  1997, the Financial Accounting Standards Board issued
Statement  of  Financial  Accounting  Standards  No. 130 (SFAS 130), Reporting
Comprehensive  Income  and Statement of Financial Accounting Standards No. 131
(SFAS  131),  Disclosure  about  Segments  of  an  Enterprise  and  Related
Information.    Both  are  effective  for periods beginning after December 15,
1997,  with  earlier application encouraged for SFAS 131.  The company adopted
SFAS  131  in  fiscal  1997.   The Company will adopt SFAS 130 in fiscal 1998.


<PAGE>
                           PART  II


ITEM  1.          LEGAL  PROCEEDINGS

     See  Note  G  to  the  unaudited  Consolidated  Financial  Statements.

ITEM  2.          CHANGES  IN  SECURITIES

     None.

ITEM  3.          DEFAULTS  UPON  SENIOR  SECURITIES

     None.

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

     None.

ITEM  5.          OTHER  INFORMATION

     None.

ITEM  6.     EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

The  following  Exhibits  are  incorporated  herein  by  reference:
<TABLE>
<CAPTION>

         Exhibit No.
         -------------------------------------------------------------------------------------------------------
<C>      <S>
10.01    Amendment to Irrevocable Standby Letter of Credit No. 310 dated September 15, 1997. (Incorporated
         by reference to the Company's Annual Report on Form 10-K for the year ended July  31, 1997 filed on
         November 13, 1997, SEC File No. 000-24394)

10.02    Release of Lien dated August 1997 by Lauren Constructors, Inc. (Incorporated by reference to the
         Company's Annual Report on Form 10-K for the year ended July 31, 1997 filed on November 13, 1997,
         SEC File No. 000-24394)

10.03    LPG Purchase Agreement dated August 28, 1997 between PMI Trading Company Ltd. and the
         Company. (Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended
         July 31, 1997 filed on November 13, 1997, SEC File No. 000-24394)

10.04    Continuing Agreement for Private Letters of Credit dated October 14, 1997 between RZB Finance LLC
         and the Company. (Incorporated by reference to the Company's Annual Report on Form 10-K for the
         year ended July 31, 1997 filed on November 13, 1997, SEC File No. 000-24394)

10.05    Promissory Note dated October 14, 1997 between RZB Finance LLC and the Company. (Incorporated
         by reference to the Company's Annual Report on Form 10-K for the year ended July 31, 1997 filed on
         November 13, 1997, SEC File No. 000-24394)

10.06    General Security Agreement dated October 14, 1997 between RZB Finance LLC and the Company.
         (Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended July 31,
         1997 filed on November 13, 1997, SEC File No. 000-24394)

10.07    Guaranty and Agreement dated October 14, 1997 between RZB Finance LLC and Jerome Richter.
         (Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended July 31,
         1997 filed on November 13, 1997, SEC File No. 000-24394)


10.08    Purchase Agreement dated October 21, 1997 among Castle Energy Corporation, Clint Norton, Southwest
         Concept, Inc., James F. Meara, Jr., Donaldson Luftkin Jenrette Securities Corporation Custodian SEP
         FBO James F. Meara IRA, Lincoln Trust Company FBO Perry D. Snavely IRA and the Company.
         (Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended July 31,
         1997 filed on November 13, 1997, SEC File No. 000-24394)

10.09    Registration Rights Agreement dated October 21, 1997 among  Castle Energy Corporation, Clint Norton,
         Southwest Concept, Inc., James F. Meara, Jr., Donaldson Luftkin Jenrette Securities Corporation
         Custodian SEP FBO James F. Meara IRA, Lincoln Trust Company FBO Perry D. Snavely IRA and the
         Company. (Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended
         July 31, 1997 filed on November 13, 1997, SEC File No. 000-24394)

10.10    Promissory Note dated October 21, 1997 between Castle Energy Corporation and the Company.
         (Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended July 31,
         1997 filed on November 13, 1997, SEC File No. 000-24394)

10.11    Common Stock Purchase Warrant dated October 21, 1997 issued to Castle Energy Corporation by the
         Company. (Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended
         July 31, 1997 filed on November 13, 1997, SEC File No. 000-24394)

10.12    Promissory Note dated October 21, 1997 between Clint Norton and the Company. (Incorporated by
         reference to the Company's Annual Report on Form 10-K for the year ended July 31, 1997 filed on
         November 13, 1997, SEC File No. 000-24394)

10.13    Common Stock Purchase Warrant dated October 21, 1997 issued to Clint Norton by the Company.
         (Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended July 31,
         1997 filed on November 13, 1997, SEC File No. 000-24394)

10.14    Promissory Note dated October 21, 1997 between Southwest Concept, Inc. and the Company.
         (Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended July 31,
         1997 filed on November 13, 1997, SEC File No. 000-24394)

10.15    Common Stock Purchase Warrant dated October 21, 1997 issued to Southwest Concept, Inc. by the
         Company.  (Incorporated by reference to the Company's Annual Report on Form 10-K for the year
         ended July 31, 1997 filed on November 13, 1997, SEC File No. 000-24394)

10.16    Promissory Noted dated October 21, 1997 between James F. Meara, Jr. and the Company. (Incorporated
         by reference to the Company's Annual Report on Form 10-K for the year ended July 31, 1997 filed on
         November 13, 1997, SEC File No. 000-24394)

10.17    Common Stock Purchase Warrant dated October 21, 1997 issued to James F. Meara, Jr. by the
         Company. (Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended
         July 31, 1997 filed on November 13, 1997, SEC File No. 000-24394)

10.18    Promissory Note dated October 21, 1997 between Donaldson Luftkin Jenrette Securities Corporation
         Custodian SEP FBO James F. Meara IRA and the Company. (Incorporated by reference to the
         Company's Annual Report on Form 10-K for the year ended July 31, 1997 filed on November 13, 1997,
         SEC File No. 000-24394)

<PAGE>

10.19    Common Stock Purchase Warrant dated October 21, 1997 issued to Donaldson Luftkin Jenrette
         Securities Corporation Custodian SEP FBO James F. Meara IRA and the Company. (Incorporated by
         reference to the Company's Annual Report on Form 10-K for the year ended July 31, 1997 filed on
         November 13, 1997, SEC File No. 000-24394)

10.20    Promissory Note dated October 21, 1997 between Lincoln Trust Company FBO Perry D. Snavely IRA
         and the Company. (Incorporated by reference to the Company's Annual Report on Form 10-K for the
         year ended July 31, 1997 filed on November 13, 1997, SEC File No. 000-24394)

10.21    Common Stock Purchase Warrant dated October 21, 1997 issued to Lincoln Trust Company FBO Perry
         D. Snavely IRA by the Company. (Incorporated by reference to the Company's Annual Report on Form
         10-K for the year ended July 31, 1997 filed on November 13, 1997, SEC File No. 000-24394)

10.22    Agreement dated November 7, 1997 between Ernesto Rubio del Cueto and the Company. (Incorporated
         by reference to the Company's Annual Report on Form 10-K for the year ended July 31, 1997 filed on
         November 13, 1997, SEC File No. 000-24394)

10.23    LPG Sales Agreement dated November 12, 1997 between Exxon and the Company.   (Incorporated by
         reference to the Company's Annual Report on Form 10-K for the year ended July 31, 1997 filed on
         November 13, 1997, SEC File No. 000-24394)
</TABLE>

The  following  material  contracts  are  filed  as  part  of  the  report.

<TABLE>
<CAPTION>
<C>    <S>
10.24    Purchase order dated November 7, 1996 between County Sanitation Districts of Orange County and
         Wilson Technologies, Inc.

27.01    Financial Data Schedule (Filed herewith).
</TABLE>

b.          Reports  on  Form  8-K.

The  following  Report  on  Form  8-K  is  incorporated  herein  by reference:

Company's  Current  Report on Form 8-K filed on October 28, 1997 regarding the
Company's  (i)  completion  of  a $1.5 million private placement consisting of
promissory  notes and warrants and (ii) contemplation of filing a registration
statement  with  the  Securities  and  Exchange Commission for the sale of its
Common  Stock.



<PAGE>
                                  SIGNATURES

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


                      PENN  OCTANE  CORPORATION



December 15, 1997     By: /S/ Ian T. Bothwell
                          ----------------------
                              Ian T. Bothwell
                              Vice President, Treasurer, Assistant Secretary,
                              Chief  Financial  Officer