Document:

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                                                                    EXHIBIT 4.36

                     MORTGAGE, DEED OF TRUST, ASSIGNMENT OF
             PRODUCTION, SECURITY AGREEMENT AND FINANCING STATEMENT

                           DATED AS OF MARCH 15, 2000

                                     BETWEEN

                           TRANSTEXAS GAS CORPORATION
                             (MORTGAGOR AND DEBTOR)

                                       TO

                           ROBERT M. GALPERIN, TRUSTEE

                               FOR THE BENEFIT OF

                FIRSTAR BANK, N.A., AS INDENTURE TRUSTEE FOR THE
                   HOLDERS OF THE TRANSTEXAS GAS CORPORATION'S
                        15% SENIOR SECURED NOTES DUE 2005
                          (MORTGAGEE AND SECURED PARTY)

"THE OIL AND GAS INTERESTS INCLUDED IN THE MORTGAGED PROPERTY WILL BE FINANCED
AT THE WELLHEADS OF THE WELLS LOCATED ON THE PROPERTIES DESCRIBED HEREIN, AND
THIS FINANCING STATEMENT IS TO BE FILED FOR RECORD, AMONG OTHER PLACES, IN THE
REAL ESTATE RECORDS."

"SOME OF THE PERSONAL PROPERTY CONSTITUTING A PORTION OF THE MORTGAGED PROPERTY
IS OR IS TO BE AFFIXED TO THE PROPERTIES DESCRIBED HEREIN AND THIS FINANCING
STATEMENT IS TO BE FILED FOR RECORD, AMONG OTHER PLACES, IN THE REAL ESTATE
RECORDS."

         The mailing address of the above-named Mortgagee and Secured Party is
c/o FIRSTAR BANK, NA., 101 East Fifth Street, St. Paul, Minnesota 55101, Attn:
Corporate Trust Department; the mailing address of the above-named Mortgagor and
Debtor is 1300 North Sam Houston Parkway East, Suite 310, Houston, Texas 77032,
Attn: Ed Donahue; and the mailing address of the Trustee is 7557 Rambler Road,
Suite 1200, Dallas, Texas 75231.

         THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS.

         ATTENTION OF RECORDING OFFICERS: This instrument is a Mortgage of both
real and personal property and is, among other things, a Security Agreement and
Financing Statement under the Uniform Commercial Code. This instrument creates a
lien on rights in or relating to lands of Mortgagor which are described in
Schedule 1, together with its accompanying Exhibits, all of which are attached
hereto.

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                  Recorded counterparts should be returned to:

                  Sheinfeld, Maley & Kay, P.C.
                  1001 Fannin, Suite 3700
                  Houston, Texas 77002
                  Attention: Anne Pilati Burke

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                     MORTGAGE, DEED OF TRUST, ASSIGNMENT OF
             PRODUCTION, SECURITY AGREEMENT AND FINANCING STATEMENT

         This Mortgage, Deed of Trust, Assignment of Production, Security
Agreement and Financing Statement, from TRANSTEXAS GAS CORPORATION, a Delaware
corporation ("Mortgagor"), to ROBERT M. GALPERIN ("Trustee") for the benefit of
FIRSTAR BANK, N.A., as indenture trustee for the HOLDERS OF MORTGAGOR'S 15%
SENIOR SECURED NOTES DUE 2005 (together with its successors or assigns,
"Mortgagee"), is made and entered into as of this 15th day of March, 2000.

                                    RECITALS

         Mortgagor is a debtor in bankruptcy in the proceedings styled In re:
TransTexas Gas Corporation, TransAmerican Energy Corporation, TransAmerican
Refining Corporation, Case No. 99-21550-C-11 (Jointly Administered) in the
United States Bankruptcy Court for the Southern District of Texas, Corpus
Christi Division (the "Court").

         Mortgagor has filed with the Court that certain Second Amended Modified
and Restated Plan of Reorganization under Chapter 11 of the Bankruptcy Code
Proposed by Debtor (the "Plan"). On February 7, 2000, the Court entered its
Order Confirming Debtor's Second Amended, Modified and Restated Plan of
Reorganization confirming the Plan. Additionally, the Court has issued its Order
in Furtherance of Order Dated February 7, 2000 Confirming Debtor's Chapter 11
Plan, a copy of which is attached hereto as Schedule 1 (the "Implementation
Order") (except that, in accordance with the provisions of the Implementation
Order, there are attached as Exhibits to the copy of the Implementation Order
attached hereto the legal descriptions of the real properties and estates, and
interest therein, situated in the county and state in which a counterpart of
this Mortgage is filed of record).

         Pursuant to the Plan, Mortgagor and Mortgagee are entering into that
certain Indenture, dated as of March 15, 2000 (as amended or modified and in
effect from time to time, the "Indenture").

         Pursuant to and on the terms and conditions set forth in the Indenture,
Mortgagor is issuing to Mortgagee certain 15% Senior Secured Notes due 2005 in
the aggregate principal amount of TWO HUNDRED MILLION and N0/100
($200,000,000.00) (as supplemented from time to time in accordance with the
terms of the Indenture, collectively the "Notes").

         Mortgagor is entering into this Mortgage pursuant to its obligations
under the Indenture and for the purpose, among other things, of securing and
providing for the repayment of the Notes.

                                    ARTICLE I
                                   Definitions

         1.1. Certain Defined Terms. Unless the context otherwise requires, as
used in this Mortgage and all amendments, extensions, modifications, renewals,
supplements or waivers hereof or hereto, the following terms shall have the
following meanings, which meanings shall be equally applicable to both the
singular and plural form of such terms.

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                  "Business Day" shall have the meaning assigned to that term in
the Indenture.

                  "Collateral" shall have the meaning set out in Article VIII of
this Mortgage.

                  "Contract Rights" shall mean all contracts, operating
agreements, mineral purchase agreements, rights of way, easements, surface
leases, permits, licenses, pooling or unitization agreements, pooling
designations and pooling orders and all other contracts or agreements pertaining
to or affecting the Mortgaged Properties or which were executed in connection
with the drilling for, producing, processing, treating, handling, storing,
transporting or marketing oil, gas or other minerals from the Mortgaged
Properties or from any properties unitized or pooled therewith, including but
not limited to, the contracts listed on Schedule 1, Exhibit D attached hereto.

                  "Debtor" shall have the meaning set out in Article VIII of
this Mortgage.

                  "DTPA" shall mean the Texas Deceptive Trade Practices Consumer
Protection Act, Subchapter E of Chapter 17 of the Texas Business and Commerce
Code.

                  "Equipment" shall mean and include all of Mortgagor's now
owned or hereafter acquired equipment (as such term is defined in the New York
Uniform Commercial Code), including, without limitation, Vehicles, drilling
rigs, workover rigs, fracture stimulation equipment, compressors, rolling stock
and related equipment and other assets accounted for as equipment by Mortgagor
on its financial statements, all proceeds thereof (from insurance or otherwise),
and all documents of title, books, records, ledger cards, files, correspondence
and computer files, tapes, disks and related data processing software that at
any time evidence or contain information relating to the foregoing.

                  "Event of Default" shall have the meaning assigned to that
term in Section 6.1.

                  "Highest Lawful Rate" shall mean the maximum non-usurious
amount and the maximum non-usurious rate of interest that, under applicable law,
is permitted to be contracted for, charged, reserved, or received on the
Indebtedness.

                  "Hydrocarbons" shall mean oil, natural gas, condensate and
natural gas liquids, including any held as "inventory" (as such term is defined
in Article 9 of the New York UCC).

                  "Indebtedness" shall mean the following indebtedness and
liabilities of Mortgagor (and any extensions, renewals, refundings, increases,
substitutions, replacements, consolidations, modifications or rearrangements of
such indebtedness and liabilities, whether or not Mortgagor executes any
extension agreement or renewal instrument):

                  (a) all principal, premiums, accrued interest and any other
sums now or hereafter owing on the Notes;

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                  (b) all amounts advanced or expended by Mortgagee under or in
connection with the Indenture or this Mortgage, all reasonable costs and
out-of-pocket expenses (excluding expenses representing administrative overhead)
at any time and from time to time incurred by the Trustee or Mortgagee in
connection with the administration and/or enforcement of this Mortgage, the
Notes or the Indenture (including, without limitation, the reasonable fees and
out-of-pocket expenses of counsel employed by the Trustee or Mortgagee in
connection therewith), and all sums due or to become due at any time and from
time to time hereunder or under the Indenture to the Trustee or Mortgagee, it
being contemplated that Mortgagor may hereafter become indebted to Trustee or
Mortgagee in such further sum or sums; and

                  (c) all other amounts payable by Mortgagor under the
Indenture.

                  "Inventory" shall mean all of Mortgagor's now owned or
hereafter acquired inventory (as such term is defined in the New York Uniform
Commercial Code), including, without limitation, casing, drill pipe and other
supplies accounted for as inventory by the Mortgagor on its consolidated
financial statements (excluding Hydrocarbons), all proceeds thereof (from
insurance or otherwise), and all documents of title, books, records, ledger
cards, files, correspondence and computer files, tapes, disks and related data
processing software that at any time evidence or contain information relating to
the foregoing.

                  "Lands" shall mean that real property in AUSTIN, BRAZORIA,
CALHOUN, CHAMBERS, COLORADO, GALVESTON, HARRIS, HIDALGO, JIM HOGG, KENT, LIVE
OAK, POLK, SAN JACINTO, STARR, TRINITY, TYLER, VAL VERDE, WALKER, WEBB, WHARTON
AND ZAPATA Counties described, referred to or covered by the Leases described in
Schedule1, Exhibits A and C hereto, and the Pipelines and the real property
included and described in Schedule 1, Exhibit B hereto, or the description of
which is incorporated in any such exhibit by reference to any other instrument
or document, together with any and all other land in any state or the
Outer-Continental Shelf in which Mortgagor has any interest, legal or
beneficial, recorded or unrecorded now owned or hereafter acquired in overriding
royalty interests, mineral interests, leasehold interests, mineral rights,
royalty interests, net profits interests, oil payments, production payments,
carried interests, or otherwise.

                  "Leases" shall mean those Oil and Gas Leases covering Lands in
AUSTIN, BRAZORIA, CALHOUN, CHAMBERS, COLORADO, GALVESTON, HARRIS, HIDALGO, JIM
HOGG, KENT, LIVE OAK, POLK, SAN JACINTO, STARR, TRINITY, TYLER, VAL VERDE,
WALKER, WEBB, WHARTON AND ZAPATA Counties described in Schedule 1, Exhibit A
hereto, or the description of which is incorporated in Schedule 1, Exhibit A by
reference to any other instrument or document, together with any and all other
Oil and Gas Leases or leasehold estates covering Lands in any state or the
Outer-Continental Shelf including any lands pooled or unitized therewith, in
which, or in any portion of which, Mortgagor has an interest, now owned or
hereafter acquired as well as any extensions, renewals or replacements of or for
any of the foregoing.

                  "Mortgage" shall mean this Mortgage, Deed of Trust, Assignment
of Production, Security Agreement and Financing Statement, as same may from time
to time be amended or modified and in effect.

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                  "Mortgaged Property" shall have the meaning set out in Article
II to this Mortgage.

                  "Mortgagee" shall have the meaning assigned to that term in
the introduction to this Mortgage.

                  "Mortgagor" shall have the meaning assigned to that term in
the introduction to this Mortgage.

                  "New York Uniform Commercial Code" means the Uniform
Commercial Code as in effect in the State of New York.

                  "Notes" shall have the meaning assigned to that term in the
introduction to this Mortgage.

                  "Oil and Gas Leases" shall include oil, gas and mineral leases
and shall also include subleases and assignments of operating rights.

                  "Operating Equipment" shall mean Mortgagor's interest in all
personal property, surface or subsurface machinery, equipment, facilities,
supplies or other property of whatsoever kind or nature, now or hereafter
located on or under any of the Lands or Leases or on a unit, including all or
part of the Lands or Leases or now or hereafter used, held for use or useful in
connection with the exploration, development, operation, production, treatment,
storage, processing or transportation of Hydrocarbons, helium and/or other
minerals produced or to be produced from or attributable to the Lands or Leases,
including, but not by way of limitation, all oil wells, gas wells, water wells,
injection wells, casing, tubing, rods, pumps, pumping units and engines,
christmas trees, derricks, separators, gun barrels, flow lines, tanks, tank
batteries, gas systems (for gathering, treating, compression, disposal or
injection), chemicals, solutions, water systems (for treating, disposal and
injection), pipe, pipelines, boilers, meters, apparatus, compressors, liquid
extractors, connectors, valves, fittings, power plants, poles, lines, cables,
wires, transformers, starters and controllers, machine shops, tools, machinery
and parts, storage yards and equipment stored therein, buildings and camps,
telegraph, telephone and other communication systems, roads, loading docks,
loading racks and shipping facilities, computer equipment and software, fixtures
and other appurtenances, appliances and property of every kind and character,
movable or immovable, together with all improvements, betterments and additions,
accessories and attachments thereto and replacements thereof.

                  "Permitted Liens" shall have the meaning assigned to that term
in the Indenture.

                  "Permitted Prior Lien" shall mean those Permitted Liens to
which the priority of the lien and security interest created by this Mortgage is
subject, but only to the limited extent permitted or authorized by the
Indenture.

                  "Pipelines" shall mean the Pipeline Assets and all pipelines
owned and/or operated by Mortgagor for the gathering, transmission or
distribution of Hydrocarbons including, without

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limitation, those pipelines described in Schedule 1, Exhibit B attached hereto,
and any interests in real property relating thereto.

                  "Pipeline Assets" shall mean all parts or aspects of the gas
pipeline system of Mortgagor now or hereafter situated on any of the Lands, and
the Rights-of-Way and Franchises, including, without limitation, the pipeline
system described in Schedule 1, Exhibit B, and all fixtures, improvements,
equipment, surface or subsurface machinery, facilities, supplies, replacement
parts, vehicles of every description, all process control computer systems and
equipment or other property of whatsoever kind or nature, including, without
limitation, all buildings, structures, machinery, gas processing plants,
Pipelines, stations, substations, compression or dehydration equipment, pumps,
pumping stations, meter houses, metering stations, regulator houses, ponds,
tanks, scrapers and scraper traps, fittings, valves, connections, cathodic or
electrical protection by-passes, regulators, drips, meters, pumps, pumping
units, pumping stations, storage or tankage facilities, engines, pipes, gates,
telephone and telegraph lines, electric power lines, poles, wires, casings,
radio towers, fixtures, mechanical equipment, electrical equipment, computer
equipment and software, machine shops and other equipment, used or useful in
connection therewith; together with all of Mortgagor's liquid hydrocarbons,
carbon dioxide, natural gas liquids, refined petroleum products and other
inventory fuels, carbon, chemicals, electric energy and other consumable
materials or products manufactured, processed, generated, produced, transmitted,
stored (whether above or below ground) or purchased by Mortgagor for sale,
exchange, distribution, consumption or transmission by Mortgagor, including,
without limitation, all system gas, drip gas and line fill.

                  "Production Sale Contracts" shall mean, except to the extent
that the same constitute Receivables, all contracts now or hereafter in effect,
including, without limitation, any gas sales contracts, entered into by
Mortgagor, or Mortgagor's predecessors in interest, for the production, sale,
purchase, exchange or processing of Subject Minerals, including, but not limited
to, any of the foregoing contracts listed on Schedule 1, Exhibit D, and the
Contract Rights related thereto.

                  "Receivables" shall mean any and all of Mortgagor's now owned
or hereafter acquired "accounts," as such term is defined in Article 9 of the
New York Uniform Commercial Code, together with the proceeds and products
thereof, and all books, records, ledger cards, files, correspondence and
computer files, tapes, disks or software that at any time evidence or contain
information relating to the foregoing.

                  "Rights-of-Way and Franchises" shall mean all leases,
leaseholds, easements, rights-of-way, licenses, franchises, privileges, permits,
ordinances, grants, rights, consents, servitudes, surfaces leases or rights,
amendatory grants and interests in land for the installation, maintenance and
operation of the Subject Interests or the Pipelines, or any portion thereof, now
owned or held by Mortgagor, including, without limitation, those leases,
leaseholds, easements, rights-of-way, licenses, franchises, privileges, permits,
ordinances, grants, rights, consents, servitudes, surface leases or rights,
amendatory grants and interests in land applicable to the Subject Interests or
the Pipelines owned or held by Mortgagor and those leases, leaseholds,
easements, rights-of-way, licenses, franchises, privileges, permits, ordinances,
grants, rights, consents, servitudes, surfaces leases or rights, amendatory
grants and interests in land owned or held by

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Mortgagor, including, without limitation, any described in Schedule 1, Exhibit B
attached hereto or arising by virtue of the documents described in Schedule 1,
Exhibit B attached hereto, which descriptions of real property set forth in
Schedule 1, Exhibit B or incorporated by reference to the documents described on
Schedule 1, Exhibit B are hereby made a part so that all of the property rights,
other rights and other assets described therein shall be subject to this
Mortgage to the same extent as if they were described herein.

                  "Secured Party" shall have the meaning set out in Article VIII
of this Mortgage.

                  "Subject Interests" shall mean each kind and character of
right, title, interest or estate, whether now owned or hereafter acquired, which
Mortgagor has in, under or to the Leases and all right, title, interest or
estate, whether now owned or hereafter acquired, which Mortgagor has in and to
the Lands, together with each kind and character of right, title, interest or
estate now or hereafter vested in Mortgagor in and to any and all overriding
royalty interests, mineral interests, leasehold interests, mineral rights,
royalty interests, net profits interests, oil payments, production payments,
carried interests and all other properties or interests of every kind or
character which relate to any of the Lands or Leases, whether such right, title,
interest or estate be under and by virtue of a Lease, a unitization or pooling
agreement, a unitization or pooling order, a mineral deed, a royalty deed, an
operating agreement, a revenue sharing agreement, a division order, a transfer
order, a farmout agreement, a fee simple conveyance or any other type of
contract, conveyance or instrument or under any other type of claim or title,
legal or equitable, recorded or unrecorded, all as the same shall be enlarged by
the discharge of any payments out of production or by the removal of any charges
or encumbrances to which any of same are subject.

                  "Subject Minerals" shall mean all Hydrocarbons, helium and/or
other minerals in, under, upon, produced or to be produced or which may be
produced, saved and sold from and which shall accrue and be attributable to the
Subject Interests, including, without limitation, all oil in tanks and all
rents, royalties, issues, profits, proceeds, products, revenues, and other
income arising from or attributable to the Subject Interests and Mortgagor's
interest therein.

                  "Trustee" shall have the meaning assigned to that term in the
introduction to this Mortgage.

                  "Uniform Commercial Code" shall mean the Uniform Commercial
Code as in effect in the State of Texas.

                  "Vehicles" shall mean all trucks, automobiles, trailers and
other vehicles covered by a certificate of title.

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                                   ARTICLE II
                             Mortgage, Deed of Trust

         2.1. Grant of Deed of Trust on Real Property and Security Interest in
Personal Property. To secure the payment of the Indebtedness and to secure the
performance of the covenants, agreements and obligations of Mortgagor contained
herein, in the Indenture and in all other security documents executed in
accordance therewith, Mortgagor, for and in consideration of the premises and of
the debts and trusts hereinafter mentioned, except to the extent that the same
constitute Inventory or Receivables, has granted, bargained, sold, warranted,
mortgaged, assigned, transferred and conveyed a security interest, and by these
presents does grant, bargain, sell, warrant, mortgage, assign, transfer and
convey and grant a security interest, unto the Trustee, for the use and benefit
of Mortgagee with power of sale, all of Mortgagor's rights, titles, interests
and estates, if any, in, to, under, derived from or with respect to all of the
assets of Mortgagor, including without limitation the following described real
and personal property, whether now owned or hereafter acquired:

                  (a) the Subject Interests, the Subject Minerals and the
                      Hydrocarbons;

                  (b) the Contract Rights and the Production Sale Contracts;

                  (c) the Equipment;

                  (d) the Operating Equipment;

                  (e) the Leases and the Lands;

                  (f) the Pipelines;

                  (g) the Pipeline Assets;

                  (h) the Rights-of-Way and Franchises;

                  (i) all unitization, communitization, operating agreements,
pooling agreements and declarations of pooled units and the properties covered
and the units created thereby (including all units formed under orders,
regulations, rules or other official acts of any federal, state or other
governmental agency providing for pooling or unitization, spacing orders or
other well permits and other instruments) which relate to or affect all or any
portion of the Subject Interests;

                  (j) all contract rights, operating rights, general
intangibles, chattel paper, documents and instruments arising under any of the
foregoing, including without limitation, the Production Sale Contracts and all
transmission contracts or other contracts now or hereafter in effect with
respect to the Pipelines or the Pipeline Assets;

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                  (k) all subleases, farmout agreements, assignments of
interests, assignments of operating rights, contracts, operating agreements,
bidding agreements, advance payment agreements, rights-of-way, surface leases,
franchises, servitudes, privileges, permits, licenses, easements, tenements,
hereditaments, improvements, appurtenances and benefits now existing or in the
future obtained and incident and appurtenant to any of the foregoing;

                  (l) all lease records, well records, production records and
accounting and other records and files which relate to any of the foregoing, and
all maps, data bases, manuals, information and data which relate to any of the
foregoing, including without limitation engineering, geological and geophysical
data;

                  (m) all income, revenues, rents, profits and proceeds arising
out of the gathering, transportation, processing or sale of Hydrocarbons through
the Pipelines and other accounts, contract rights, operating rights, general
intangibles, chattel paper, documents, investment property and instruments
arising under any of the foregoing, but expressly excluding therefrom
Receivables;

                  (n) any liens and security interests in the Subject Interests
in favor of Mortgagor securing payment of proceeds from the sale of the Subject
Minerals including, but not limited to, those liens and security interests
provided for in Tex. Bus. & Com. Code Ann. Section 9.319 (Tex. UCC), as amended;

                  (o) all other rights, titles and interests of Mortgagor in, to
and under or derived from the Lands, the Leases, the Rights-of-Way and
Franchises, the Production Sale Contracts and/or other properties described in
Schedule 1, Exhibits A, B or C hereto;

                  (p) any property that may from time to time hereafter, by
delivery or by writing of any kind executed by or on behalf of Mortgagor, be
subjected to the lien and security interest hereof by Mortgagor or by anyone
authorized on Mortgagor's behalf, and Mortgagee and Trustee are hereby
authorized to receive the same as additional security;

                  (q) all other property of every nature and kind and
wheresoever situated, now owned or hereafter acquired by Mortgagor or to which
Mortgagor is now or may hereafter be entitled at law or in equity, other than
Receivables and Inventory;

                  (r) any and all proceeds, returns, rents, royalties, issues,
profits, products, revenues and other income arising from or by virtue of the
sale, lease or other disposition of, or from any condemnation, eminent domain or
insurance payable with respect to damage, loss or destruction of, the items
described in subparagraphs (a) through (q) above;

together with any and all proceeds, products, increases, profits, substitutions,
replacements, renewals, additions, amendments and accessions of, to and for all
of the foregoing property. All the aforesaid properties, rights and interests
which are hereby subjected to the lien and/or security interest of this
instrument, together with any additions thereto which may be subjected to the
lien and/or security

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interest of this instrument by means of supplements hereto or otherwise, other
than Inventory and Receivables, shall hereinafter be referred to as the
"Mortgaged Property."

TO HAVE AND TO HOLD the Mortgaged Property unto the Trustee and to his
successors and assigns forever.

         2.2 Limited License. Without limiting the security interest granted
hereby, Mortgagor hereby grants to Mortgagee a limited license in Mortgagor's
trade names, trademarks and service marks, together with Mortgagor's goodwill
associated with such trade names, trademarks and service marks, for purposes of
allowing Mortgagee to use the same in connection with any foreclosure sale or
any other disposition pursuant to the Uniform Commercial Code or this Mortgage.

                                   ARTICLE III
                   Warranties and Representations of Mortgagor

         Mortgagor represents and warrants that each of the representations and
warranties set forth in SCHEDULE 2 attached hereto is true and correct.
Additionally, each representation and warranty in the Indenture and officer's
certificate provided to Mortgagee is true and correct (each of which
representation and warranty is incorporated herein by reference together with
related definitions and ancillary provisions) as if set forth herein verbatim.

                                   ARTICLE IV
                Particular Covenants and Agreements of Mortgagor

         Mortgagor will, for Mortgagee's benefit, timely and properly observe,
perform, and otherwise comply with each covenant and agreement in the Indenture
and officer's certificate provided to Mortgagee (each of which is incorporated
herein by reference together with related definitions and ancillary provisions)
as if set forth herein verbatim.

                                    ARTICLE V
                            Assignment of Production

         5.1. Assignment. As further security for the payment of the
Indebtedness, subject however to the rights of the holder of any Permitted Prior
Liens, Mortgagor has transferred, assigned, warranted and conveyed and does
hereby transfer, warrant and convey to Mortgagee, effective as of the date
hereof at 9:00 a.m., local time, all of Mortgagor's rights, titles, interests
and estates in and to the following property, except to the extent that any of
the same constitutes Inventory or Receivables: all Hydrocarbons, helium and/or
other minerals which are thereafter produced and which accrue to the Subject
Interests, all products obtained or processed therefrom and all revenues and
proceeds now or hereafter attributable to said Hydrocarbons, helium and/or other
minerals and said products as well as any liens and security interests securing
any sales of said Hydrocarbons, helium and/or other minerals, including, but not
limited to, those liens and security interests provided for in Tex. Bus. & Com.
Code Ann. Section 9.319 (Tex. UCC) (Vernon 1968), as amended. All parties
producing, purchasing or receiving any such Hydrocarbons, helium and/or other
minerals or

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products, or having such Hydrocarbons, helium and/or other minerals, products,
or proceeds therefrom, in their possession for which they or others are
accountable to Mortgagee by virtue of the provisions of this Article, are
authorized and directed to treat and regard Mortgagee as the assignee and
transferee of Mortgagor and entitled in Mortgagor's place and stead to receive
such Hydrocarbons, helium and/or other minerals and all proceeds therefrom,
subject to the rights of the holder of any Permitted Prior Liens, and said
parties and each of them shall be fully protected in so treating and regarding
Mortgagee and shall be under no obligation to see to the application by
Mortgagee of any such proceeds or payments received by it; provided, however;
that, until Mortgagee or Mortgagor shall have instructed such parties to deliver
such Hydrocarbons, helium and/or other minerals and all products, revenues
and/or proceeds therefrom directly to Mortgagee (which such instructions may be
given only after the occurrence and during the continuance of an Event of
Default, as herein defined, but the giving of such instructions shall as to all
such parties be conclusive as to the occurrence of an Event of Default), such
parties shall be entitled to deliver such Hydrocarbons, helium and/or other
minerals and all products, revenues and/or proceeds therefrom to Mortgagor.
Mortgagor agrees, subject to the rights of the holder of any Permitted Prior
Liens, to perform all such acts, and to execute all such further assignments,
transfers and division orders and other instruments as may be required or
desired by Mortgagee or any party in order to have said revenues and proceeds so
paid to Mortgagee and/or to have such Hydrocarbons, helium and/or other minerals
delivered to Mortgagee. Mortgagee is fully authorized to receive and issue a
receipt for said revenue and proceeds, to endorse and cash any and all checks
and drafts payable to the order of Mortgagor or Mortgagee for the account of
Mortgagor received from or in connection with said revenues or proceeds and
apply the proceeds thereof in accordance with Section 5.2 hereof, and to execute
transfer and division orders in the name of Mortgagor, or otherwise, with
warranties binding Mortgagor. In the event that Mortgagee elects to take
delivery of any such Hydrocarbons, helium or other minerals in kind, Mortgagee
shall have the right to sell such Hydrocarbons, helium or minerals upon such
terms as Mortgagee may desire, and to apply the proceeds of such sale as
provided in Section 5.2 below.

         5.2. Application of Proceeds. Any and all payments and sale proceeds
received by Mortgagee pursuant to Section 5.1 hereof shall be placed in a cash
collateral account with Mortgagee and on the first day of each month applied as
follows:

         First:   to the payment and satisfaction of all costs and expenses
                  incurred in connection with the collection of such proceeds
                  (and in the event Mortgagee shall have taken delivery in kind,
                  to the costs and expenses of the sale of such Hydrocarbons,
                  helium or other minerals); and

         Second:  then in accordance with the provisions of Section 7.9 below.

         5.3. No Liability of Mortgagee in Collecting. Mortgagee is hereby
absolved from all liability for failure to enforce collection of any proceeds so
assigned and from all other responsibility in connection therewith, except the
responsibility to account to Mortgagor for funds actually received. Mortgagee
shall have the right, at its election, to prosecute and defend any and all
actions or legal proceedings deemed advisable by Mortgagee in order to collect
such funds and to protect

                                       12
<PAGE>   13

the interests of Mortgagee and/or Mortgagor, with all reasonable costs, expenses
and attorneys' fees incurred in connection therewith being paid by Mortgagor.

         5.4. Assignment Not a Restriction on Mortgagee's Rights. Nothing herein
contained shall detract from or limit the absolute obligation of Mortgagor to
make payment in full of the Indebtedness, regardless of whether the proceeds
assigned by this Article are sufficient to pay the same, and the rights under
this Article V shall be in addition to all other security now or hereafter
existing to secure the payment of the Indebtedness.

         5.5. Status of Assignment. Notwithstanding the other provisions of this
Article V, the Trustee or any receiver appointed in judicial proceedings for the
enforcement of this instrument shall have the right to receive all of the
Hydrocarbons, helium, and/or other minerals herein assigned and, subject to the
rights of the holder of any Permitted Prior Liens, the proceeds therefrom after
the Notes have been declared due and payable in accordance with the provisions
of Section 6.2 hereof and to apply all of said proceeds as set forth in Section
5.2 hereof. Upon any sale of the Subject Interests or any part thereof pursuant
to Article VII hereof, the Hydrocarbons, helium, and/or other minerals
thereafter produced from the Subject Interests so sold, and the proceeds
therefrom, shall be included in such sale and shall pass to the purchaser free
and clear of the assignment contained in this Article V.

         5.6. Indemnity. MORTGAGOR AGREES TO INDEMNIFY, DEFEND AND HOLD THE
TRUSTEE AND MORTGAGEE HARMLESS AGAINST ALL CLAIMS, ACTIONS, LIABILITIES,
JUDGMENTS, COSTS, ATTORNEYS' FEES OR OTHER CHARGES OF WHATSOEVER KIND OR NATURE
(INCLUDING WITHOUT LIMITATION AMOUNTS PAID IN SETTLEMENT, COURT COSTS AND THE
FEES AND DISBURSEMENTS OF COUNSEL INCURRED IN CONNECTION WITH ANY INVESTIGATION,
LITIGATION OR OTHER PROCEEDING) (ALL HEREINAFTER IN THIS SECTION 5.6 CALLED
"CLAIMS"), OTHER THAN CLAIMS ARISING FROM MORTGAGEE'S OWN GROSS NEGLIGENCE,
WILLFUL MISCONDUCT OR BAD FAITH, MADE AGAINST OR INCURRED BY THEM OR ANY OF THEM
AS A CONSEQUENCE, EITHER BEFORE OR AFTER THE PAYMENT IN FULL OF THE
INDEBTEDNESS, OF (I) THE BREACH BY MORTGAGOR OF ANY COVENANT, REPRESENTATION OR
WARRANTY CONTAINED IN THIS MORTGAGE OR TO WHICH IT REFERS, (II) ANY VIOLATION OF
LAW BY MORTGAGOR, OR (III) THE ASSERTION THAT MORTGAGOR AND/OR TRUSTEE RECEIVED
HYDROCARBONS, HELIUM AND/OR OTHER MINERALS HEREIN ASSIGNED OR THE PROCEEDS
THEREOF CLAIMED BY THIRD PERSONS. THE TRUSTEE AND MORTGAGEE SHALL HAVE THE RIGHT
TO DEFEND AGAINST ANY SUCH CLAIMS, EMPLOYING ATTORNEYS THEREFOR, AND UNLESS
FURNISHED WITH REASONABLE INDEMNITY, THEY OR EITHER OF THEM SHALL HAVE THE RIGHT
TO PAY OR COMPROMISE AND ADJUST ALL SUCH CLAIMS. MORTGAGOR WILL INDEMNIFY AND
PAY TO THE TRUSTEE OR MORTGAGEE ANY AND ALL SUCH AMOUNTS AS MAY BE PAID IN
RESPECT OF SUCH CLAIMS OR AS MAY BE SUCCESSFULLY ADJUDGED AGAINST MORTGAGEE AND
THE TRUSTEE OR EITHER OF THEM. THE OBLIGATIONS OF MORTGAGOR AS

                                       13
<PAGE>   14

HEREINABOVE SET FORTH IN THIS SECTION 5.6 SHALL SURVIVE THE RELEASE OF THIS
INSTRUMENT.

                                   ARTICLE VI
                                Events of Default

         6.1. Events of Default. It shall constitute an "Event of Default"
hereunder if an "Event of Default" occurs under the terms and provisions of the
Indenture.

         6.2. Effect of Event of Default. If an Event of Default shall occur and
be continuing:

                  (a) Mortgagee may, subject to and in accordance with the terms
of the Indenture, by notice in writing to Mortgagor declare the principal of and
accrued interest on the Notes and all other outstanding Indebtedness secured
hereby to be immediately due and payable whereupon the Notes and all other
outstanding Indebtedness shall become and be immediately due and payable, in
each instance without (except for any grace and notice expressly provided for in
the Indenture) grace, demand, presentment for payment, protest or notice of any
kind to Mortgagor or any other person (including, but not limited to, notice of
intent to accelerate and notice of acceleration), all of which are hereby
expressly waived; and

                  (b) Mortgagee may proceed to enforce its rights hereunder.

                                   ARTICLE VII
                             Enforcement of Remedies

         7.1. Power of Sale of Real Property Constituting a Part of the
Mortgaged Property. Upon the occurrence and during the continuance of an Event
of Default, the Trustee is hereby authorized and empowered to sell or offer for
sale any part of the Mortgaged Property, with or without having first taken
possession of same, to the highest bidder for cash at public auction. Such sale
shall be made at the courthouse of the county in which the Mortgaged Property or
any part thereof is situated, as herein described, between the hours of 10:00
a.m. and 4:00 p.m. on the first Tuesday of any month, beginning within three (3)
hours of the time provided in the notices described herein, after posting a
written or printed notice or notices of the place, the earliest time at which
the sale will begin and the terms of the sale, and the portion of the Mortgaged
Property to be sold, by posting (or having some person or persons acting for the
Trustee post) for at least twenty-one (21) days preceding the date of the sale,
written or printed notice of the proposed sale at the courthouse door of said
county in which the sale is to be made, and if such portion of the Mortgaged
Property lies in more than one county, one such notice of sale shall be posted
at the courthouse door of each county in which such part of the Mortgaged
Property is situated and such part of the Mortgaged Property may be sold at the
courthouse door of any one of such counties, and the notice so posted shall
designate in which county such property shall be sold. In addition to such
posting of notice, Mortgagee, the Trustee or other holder of the Indebtedness
hereby secured (or some person or persons acting for the Trustee, Mortgagee or
other such holder) shall, at least twenty-one (21) days preceding the date of
sale, file a copy of such notice(s) in the office of the county clerk in each of

                                       14
<PAGE>   15

such counties and serve or cause to be served written notice of the proposed
sale by certified mail on Mortgagor and on each other debtor, if any, obligated
to pay the Indebtedness hereby secured according to the records of Mortgagee.
Service of such notice shall be completed upon deposit of the notice, enclosed
in a postpaid wrapper properly addressed to Mortgagor and such other debtors at
their most recent address or addresses as shown by the records of Mortgagee in a
post office or official depository under the care and custody of the United
States Postal Service. The affidavit of any person having knowledge of the facts
to the effect that such a service was completed shall be prima facie evidence of
the fact of service. Mortgagor agrees that no notice of any sale, other than as
set out in this paragraph, need be given by the Trustee, Mortgagee or any other
person. Mortgagor hereby designates as its address for the purpose of such
notice, the address set out on the signature page hereof and agrees that such
address shall be changed only by depositing notice of such change enclosed in a
postpaid wrapper in post office or official depository under the care and
custody of the United States Postal Service, certified mail, postage prepaid,
return receipt requested, addressed to Mortgagee or other holder of the
Indebtedness secured hereby at the address for Mortgagee set out herein (or to
such other address as Mortgagee or other holder of the Indebtedness secured
hereby may have designated by notice given as above provided to Mortgagor and
such other debtors). Any such notice of change of address of Mortgagor or other
debtors or of Mortgagee or other holders of the Indebtedness secured hereby
shall be effective three (3) business days after such deposit if such post
office official depository is located in the State of Texas, otherwise to be
effective upon receipt. Mortgagor authorizes and empowers the Trustee to sell
the Mortgaged Property in lots or parcels or in its entirety as the Trustee
shall deem expedient and to execute and deliver to the purchaser or purchasers
thereof good and sufficient deeds of conveyance thereto by fee simple title,
with evidence of warranty by Mortgagor, subject only to Permitted Prior Liens,
and Mortgagor binds itself to warrant and forever defend the title of such
purchaser or purchasers when so made by the Trustee. Where portions of the
Mortgaged Property lie in different counties, sales in such counties may be
conducted in any order that the Trustee may deem expedient and one or more such
sales may be conducted in the same month or in successive or different months as
the Trustee may deem expedient.

As to Mortgaged Property located in the State of Texas or the Outer-Continental
Shelf adjacent to the State of Texas, such sales of all or any part of such
Mortgaged Property shall be conducted at the courthouse of any county (whether
or not the counties in which the Mortgaged Property is located are contiguous)
in the State of Texas in which any part of the Mortgaged Property is situated
(or if all of the Mortgaged Property are in the Outer-Continental Shelf, then
any county adjacent to any of the Mortgaged Property). This instrument, insofar
as it covers Mortgaged Property located in the State of Texas or the
Outer-Continental Shelf adjacent to the State of Texas, is a single instrument,
but has been executed in multiple counterparts. Attached to each such
counterpart are descriptions of Mortgaged Property located only in the
particular county in which such counterpart is to be recorded, except that a
full and complete copy of this instrument with the entire exhibits attached is
to be of record in Galveston County, Texas.

         7.2. Rights of the Trustee with Respect to Personal Property
Constituting a Part of the Mortgaged Property. Upon the occurrence and during
the continuance of an Event of Default, the Trustee will have all rights and
remedies granted by law, and particularly by the Uniform

                                       15
<PAGE>   16

Commercial Code, including, but not limited to, (i) the right to proceed as to
both the real and the personal property covered hereby in accordance with the
Trustee's rights and remedies in respect of the real property covered hereby and
(ii) the right to take possession of all personal property constituting a part
of the Mortgaged Property, and for this purpose the Trustee may enter upon any
premises on which any or all of such personal property is situated and take
possession of and operate such personal property (or any portion thereof) or
remove it therefrom. The Trustee may require Mortgagor to assemble such personal
property and make it available to the Trustee at a place to be designated by the
Trustee which is reasonably convenient to all parties. If the Trustee elects to
foreclose under the Uniform Commercial Code and unless such personal property is
perishable or threatens to decline speedily in value or is of a type customarily
sold on a recognized market, the Trustee will give Mortgagor reasonable notice
of the time and place of any public sale or of the time after which any private
sale or other disposition of such personal property is to be made. This
requirement of sending reasonable notice will be met if the notice is mailed by
first class mail, postage prepaid, to Mortgagor at the address shown below the
signatures at the end of this instrument at least five (5) Business Days before
the time of the sale or disposition.

         7.3. Rights of the Trustee with Respect to Fixtures Constituting a Part
of the Mortgaged Property. Upon the occurrence and during the continuance of an
Event of Default, the Trustee may elect to treat the fixtures constituting a
part of the Mortgaged Property as either real property collateral or personal
property collateral and proceed to exercise such rights as apply to such type of
collateral.

         7.4. Judicial Proceedings. Upon the occurrence and during the
continuance of an Event of Default, the Trustee, in lieu of or in addition to
exercising any power of sale hereinabove given, may proceed by a suit or suits
in equity or at law, whether for a foreclosure hereunder, or for the sale of the
Mortgaged Property, or for the specific performance of any covenant or agreement
herein contained or in aid of the execution of any power herein granted, or for
the appointment of a receiver pending any foreclosure hereunder or the sale of
the Mortgaged Property, or for the enforcement of any other appropriate legal or
equitable remedy.

         7.5. Possession of the Mortgaged Property. It shall not be necessary
for the Trustee to have physically present or constructively in his possession
at any sale held by the Trustee or by any court, receiver or public officer any
or all of the Mortgaged Property, and Mortgagor shall deliver to the purchaser
at such sale on the date of sale the Mortgaged Property purchased by such
purchasers at such sale, and, if it should be impossible or impracticable for
any of such purchasers to take actual delivery of the Mortgaged Property, then
the title and right of possession to the Mortgaged Property shall pass to the
purchaser at such sale as completely as if the same had been actually present
and delivered.

         7.6. Certain Aspects of a Sale. Mortgagee shall have the right to
become the purchaser at any sale held by the Trustee or by any court, receiver
or public officer, and Mortgagee shall have the right to credit upon the amount
of the bid made therefor the amount payable out of the net proceeds of such sale
to it. Recitals contained in any conveyance made to any purchaser at any sale
made hereunder shall conclusively establish the truth and accuracy of the
matters therein stated,

                                       16
<PAGE>   17

including, without limiting the generality of the foregoing, nonpayment of the
unpaid principal sum of, and the interest accrued on, the Notes after the same
have become due and payable, advertisement and conduct of such sale in the
manner provided herein or appointment of any successor Trustee hereunder.

         7.7. Receipt of Purchaser. Upon any sale, whether made under the
Uniform Commercial Code, the power of sale herein granted and conferred or by
virtue of judicial proceedings, the receipt of the Trustee, or of the officer
making sale under judicial proceedings, shall be sufficient discharge to the
purchaser or purchasers at any sale for his or their purchase money, and such
purchaser or purchasers, his or their assigns or personal representatives shall
not, after paying such purchase money and receiving such receipt of the Trustee
or of such officer therefor, be obliged to see to the application of such
purchase money or be in anywise answerable for any loss, misapplication or
non-application thereof.

         7.8. Effect of Sale. Any sale or sales of the Mortgaged Property or any
part thereof, whether under the Uniform Commercial Code, the power of sale
herein granted and conferred or by virtue of judicial proceedings, shall operate
to divest all right, title, interest, claim and demand whatsoever either at law
or in equity, of Mortgagor of, in and to the Mortgaged Property sold, and shall
be a perpetual bar, both at law and in equity, against Mortgagor, and
Mortgagor's successors or assigns, and against any and all persons claiming or
who shall thereafter claim all or any of the property sold from, through or
under Mortgagor, or Mortgagor's successors or assigns. Nevertheless, Mortgagor,
if requested by the Trustee or Mortgagee so to do, shall join in the execution
and delivery of all proper conveyances, assignments and transfers of the
properties so sold.

         7.9. Application of Proceeds. The proceeds of any sale of the Mortgaged
Property, or any part thereof, whether under the Uniform Commercial Code, the
power of sale herein granted and conferred or by virtue of judicial proceedings,
whose application has not elsewhere herein been specifically provided for, shall
be applied as follows:

         First:   to the payment of all expenses incurred by the Trustee or
                  Mortgagee incident to the enforcement of this Mortgage, the
                  Notes or any of the Indebtedness including, without limiting
                  the generality of the foregoing, all expenses of any entry or
                  taking of possession, of any sale, of advertisement thereof,
                  and of conveyances, and as well, court costs, compensation of
                  agents and employees and legal fees and expenses and a
                  reasonable fee to the Trustee;

         Second:  to the payment of all other costs, charges, expenses,
                  liabilities and advances incurred or made by the Trustee or
                  Mortgagee under this Mortgage or in executing any trust or
                  power hereunder;

         Third:   to the payment of the Notes and any other Indebtedness (other
                  than Indebtedness described in "First" and "Second" above),
                  with interest to the date of such payment, in such order and
                  manner as set forth in the Indenture; and

                                       17
<PAGE>   18

         Fourth:  any surplus thereafter remaining shall be paid to Mortgagor or
                  Mortgagor's successors or assigns, as their interests shall
                  appear.

         7.10. Mortgagor's Waiver of Rights of Marshaling, etc. Mortgagor
agrees, to the full extent that Mortgagor may lawfully so agree, that Mortgagor
will not at any time insist upon or plead or in any manner whatever claim the
benefit of any stay, extension or redemption law now or hereafter in force, in
order to prevent or hinder the enforcement or foreclosure of this Mortgage or
the absolute sale of the Mortgaged Property or the possession thereof by any
purchaser at any sale made pursuant to any provision hereof, or pursuant to the
decree of any court of competent jurisdiction; but Mortgagor, for Mortgagor and
all who may claim by, through or under Mortgagor, to the maximum extent that
Mortgagor or those claiming by, through or under Mortgagor now or hereafter
lawfully may, hereby waives the benefit of all such laws. Mortgagor, for
Mortgagor and all who may claim through or under Mortgagor, waives, to the
maximum extent that Mortgagor or those claiming by, through or under Mortgagor
now or hereafter lawfully may do so, any and all right to have any of the
Mortgaged Property marshaled upon any foreclosure of the lien hereof, or sold in
inverse order of alienation, and agrees that the Trustee or any court having
jurisdiction to foreclose such lien may sell the Mortgaged Property as an
entirety. If any law in this Section 7.10 referred to and now in force, of which
Mortgagor or Mortgagor's successor or successors might take advantage despite
the provisions hereof, shall hereafter be repealed or cease to be in force, such
law shall not thereafter be deemed to constitute any part of the contract herein
contained or to preclude the operation or application of the provisions of this
Section 7.10.

         7.11. Costs and Expenses. All reasonable costs and out-of-pocket
expenses (excluding expenses representing Mortgagee's administrative overhead
and including, without limitation, reasonable attorneys' fees) incurred by the
Trustee or Mortgagee in protecting and enforcing their rights hereunder shall
constitute a demand obligation owing by Mortgagor to the party incurring such
costs and expenses and shall draw interest at an annual rate equal to the
highest rate of interest accruing among the Notes until paid, all of which shall
constitute a portion of the Indebtedness, provided, however, that in no event
shall such interest rate ever exceed the Highest Lawful Rate.

         7.12. Operation of Property by the Trustee. Upon the occurrence and
during the continuance of an Event of Default and in addition to all other
rights herein conferred on the Trustee or Mortgagee, the Trustee (or any person,
firm or corporation designated by the Trustee) shall have the right and power,
but shall not be obligated, to enter upon and take possession of any of the
Mortgaged Property, and to exclude Mortgagor, and Mortgagor's agents or
servants, wholly therefrom, and to hold, use, administer, manage and operate the
same to the extent that Mortgagor shall be at the time entitled and in its place
and stead. The Trustee or Mortgagee, or any person, firm or corporation
designated by the Trustee or Mortgagee, may operate the same without any
liability to Mortgagor in connection with such operations, except for its gross
negligence or willful misconduct in the operation of such properties, and the
Trustee or any person, firm or corporation designated by the Trustee, shall have
the right and power, but shall not be obligated, to collect, receive and issue a
receipt for all Hydrocarbons produced and sold from said properties, to make
repairs, purchase machinery and equipment, conduit and power, to enter work over
operations, drill additional wells and to exercise every power, right and
privilege of Mortgagor with respect to the

                                       18
<PAGE>   19

Mortgaged Property. When and if the expenses of such operation and development
(including costs of unsuccessful work over operations or additional wells) have
been paid and the Indebtedness paid, said properties shall, if there has been no
sale or foreclosure, be returned to Mortgagor.

                                  ARTICLE VIII
                               Security Agreement

         8.1. Without limiting any of the provisions of this instrument, to
secure the Indebtedness, Mortgagor, as Debtor (referred to in this Article VIII
as "Debtor"), hereby expressly GRANTS, ASSIGNS, TRANSFERS and SETS OVER unto
Mortgagee, as Secured Party (referred to in this Article VIII as "Secured
Party," whether one or more), a lien upon and a security interest in all the
Mortgaged Property, together with any and all proceeds, products, increases,
profits, substitutions, replacements, renewals, additions, amendments and
accessions of, to and for the Mortgaged Property, insofar as such property
consists of Equipment, contract rights, instruments, general intangibles,
chattel paper, documents, investment property, Hydrocarbons, helium and/or other
minerals, fixtures and any and all other personal property of any kind or
character (including both those now and those hereafter existing and the
following types of property as defined in S.B.1058, 76th Texas Legislature,
Regular Session, 1999: commercial tort claims, letter of credit rights, payment
intangibles and software) to the full extent that such property may be subject
to the uniform commercial code of the state or states where such property is
located, but expressly excluding any and all Inventory and Receivables (said
Mortgaged Property, Equipment, contract rights, instruments, general
intangibles, chattel paper, documents, investment property, Hydrocarbons, helium
and/or other minerals and all other personal property of any kind or character
[including both those now and those hereafter existing and the following types
of property as defined in S.B.1058, 76th Texas Legislature, Regular Session,
1999: commercial tort claims, letter of credit rights, payment intangibles and
software] together with any and all proceeds, products, increases, profits,
substitutions, replacements, renewals, additions, amendments and accessions of,
to and for the foregoing property, but expressly excluding any and all Inventory
and Receivables, being hereinafter collectively referred to as the "Collateral"
for the purposes of this Article VIII.) The lien and security interest created
by this Mortgage attaches upon the delivery hereof. Debtor covenants and agrees
with Secured Party that:

                  (a) In addition to and cumulative of any other remedies
granted in this instrument to Secured Party or to the Trustee, Secured Party
may, upon the occurrence and during the continuance of an Event of Default,
proceed under said Uniform Commercial Code as to all or any part of the
Collateral and shall have and may exercise with respect to the Collateral all
the rights, remedies and powers of a secured party after default under said
Uniform Commercial Code, including, without limitation, the right and power to
sell, at public or private sale or sales, or otherwise dispose of, lease or
utilize the Collateral and any part or parts thereof in any manner authorized or
permitted under said Uniform Commercial Code after default by a debtor, and to
apply the proceeds thereof toward payment of any costs and expenses and
attorneys' fees and legal expenses thereby incurred by Secured Party, and toward
payment of the Indebtedness in accordance with Section 7.9 hereof.

                                       19
<PAGE>   20

                  (b) Upon the occurrence and during the continuance of any
Event of Default, Secured Party shall have the right (without limitation) to
take possession of the Collateral and to enter upon any premises where same may
be situated for such purpose without being deemed guilty of trespass and without
liability for damages thereby occasioned (other than damages arising from the
gross negligence, willful misconduct or bad faith of Secured Party) and to take
any action deemed necessary or appropriate or desirable by Secured Party, at its
option and in its discretion, to repair, refurbish or otherwise prepare the
Collateral for sale, lease or other use or disposition as herein authorized.
Debtor waives, to the maximum extent permitted by law, any and all rights that
it may have to a judicial hearing in advance of the enforcement of any of the
Secured Party's rights hereunder, including without limitation, its rights
following an Event of Default to take immediate possession of the Collateral and
to exercise its rights with respect thereto. To the extent that any of the
Indebtedness is to be paid or performed by a person other than Debtor, Debtor
waives and agrees not to assert any rights or privileges which it may have under
Section 9-112 of the Uniform Commercial Code.

                  (c) To the maximum extent permitted by law, Debtor expressly
waives any notice of sale or other disposition of the Collateral and any other
right or remedies of a debtor or formalities prescribed by law relative to sale
or disposition of the Collateral or exercise of any other right or remedy of
Secured Party existing after default hereunder; and to the extent any such
notice is mailed, postage prepaid, to Debtor at the address shown with Debtor's
signature hereinbelow at least five (5) Business Days before the time of the
sale or disposition, such notice shall be deemed reasonable and shall fully
satisfy any requirement for giving of said notice. Such notice, in case of a
public sale or disposition, shall state the time and place fixed for such sale
or disposition and, in case of a private sale or disposition, shall state the
date after which such sale or disposition is to be made.

                  (d) Any public sale of the Collateral shall be held at such
time or times within ordinary business hours at such places as Secured Party may
fix in the notice of such sale. At any such sale, the Collateral may be sold in
one lot as an entirety or in separate parcels, as Secured Party may determine.

                  (e) Secured Party shall not be obligated to make any sale
pursuant to any such notice. Secured Party may, without notice or publication,
adjourn any public or private sale or cause the same to be adjourned from time
to time by announcement at the time and place fixed for the sale, and such sale
may be made at any time or place to which the same shall be so adjourned.

                  (f) In case of any sale of all or any part of the Collateral
on credit or for future delivery, the Collateral so sold may be retained by
Secured Party until the selling price is paid by the purchaser thereof, but
Secured Party shall not incur any liability in case of the failure of such
purchaser to take up and pay for the Collateral so sold and, in case of any such
failure, such Collateral may again be sold upon like notice.

                  (g) Upon the occurrence and during the continuance of an Event
of Default, Secured Party is expressly granted the right, at its option, to
transfer at any time to itself or to its nominee the Collateral, or any part
thereof and to hold the same as security for the Indebtedness, and

                                       20
<PAGE>   21

to receive the monies, income, proceeds or benefits attributable or accruing
thereto and to apply the same toward payment of the Indebtedness, whether or not
then due, in accordance with Section 7.9 hereof. All rights to marshaling of
assets of Debtor, including any such right with respect to the Collateral, are
hereby waived to the maximum extent permitted by law.

                  (h) All recitals in any instrument of assignment or any other
instrument executed by Secured Party incident to sale, transfer, assignment,
lease or other disposition or utilization of the Collateral or any part thereof
hereunder shall be full proof of the matter stated therein, no other proof shall
be required to establish full legal propriety of the sale or other action or of
any fact, condition or thing incident thereto, and all prerequisites of such
sale or other action and of any fact, condition or thing incident thereto shall
be presumed conclusively to have been performed or to have occurred.

                  (i) Upon the occurrence and during the continuance of an Event
of Default, Secured Party may require Debtor to assemble the Collateral and make
it available to Secured Party at a place to be designated by Secured Party that
is reasonably convenient to both parties. All expenses of retaking, holding,
preparing for sale, lease or other use or disposition, selling, leasing or
otherwise using or disposing of the Collateral and the like which are incurred
or paid by Secured Party as authorized or permitted hereunder, including also
all attorneys' fees, legal expenses and costs, shall be added to the
Indebtedness.

                  (j) Should Secured Party elect to exercise its rights under
said Uniform Commercial Code as to part of the personal property and fixtures
described herein, this election shall not preclude Secured Party, Mortgagee or
the Trustee from exercising the rights and remedies granted by the preceding
paragraphs of this instrument as to the remaining personal property and
fixtures.

                  (k) Secured Party may, at its election, at any time after
delivery of this instrument, sign one or more photocopies hereof in order that
such photocopies may be used as a financing statement under said Uniform
Commercial Code. Such signature by Secured Party may be placed between the last
sentence of this instrument and Debtor's acknowledgment or may follow Debtor's
acknowledgment. Secured Party's signature need not be acknowledged and is not
necessary to the effectiveness hereof as a deed of trust, mortgage, assignment,
pledge or security agreement.

                  (l) Except as permitted by the Indenture, so long as any
amount remains unpaid on the Indebtedness, Debtor will not execute nor file in
any public office any financing statement or statements affecting the Collateral
other than financing statements in favor of Secured Party hereunder, unless the
prior written specific consent and approval of Secured Party shall have first
been obtained.

                  (m) Secured Party is authorized to file, in any jurisdiction
where Secured Party deems it necessary, a financing statement or statements, and
at the request of Secured Party, Debtor will join Secured Party in executing one
or more financing statements pursuant to said Uniform Commercial Code in form
satisfactory to Secured Party, and will pay the cost of filing or recording this
or any other instrument, as a financing statement, in all public offices at any
time and from time

                                       21
<PAGE>   22

to time whenever filing or recording of any financing statement or of this
instrument is deemed by Secured Party to be necessary or desirable. The
addresses of Debtor and Secured Party are those addresses set forth for
Mortgagor and Mortgagee, respectively, on the cover page of this Mortgage.

                  (n) Without in any manner limiting the generality of any of
the other provisions of this Mortgage: (i) some portions of the goods described
or to which reference is made herein are or are to become fixtures on the Lands;
(ii) the security interests created hereby under applicable provisions of the
Uniform Commercial Code of one or more of the jurisdictions in which the
Mortgaged Property is situated will attach to Hydrocarbons or the accounts
(other than Receivables) resulting from the sale thereof at the wellhead or
minehead located on the Lands; and (iii) this instrument is to be filed of
record in the real estate records as a financing statement.

                  (o) Debtor hereby irrevocably designates and appoints Secured
Party as its attorney-in-fact, with full power of substitution, for the purposes
of carrying out the provisions of this Mortgage and taking any action and
executing any instrument that Secured Party may deem necessary or advisable to
accomplish the purposes hereof, which appointment as attorney-in-fact is
effective without further action of Mortgagor or Mortgagee upon the occurrence
and during the continuance of an Event of Default (but the determination of an
Event of Default by Secured Party shall as to all parties for the purposes
hereof be conclusive as to the occurrence of an Event of Default) and is
irrevocable and coupled with an interest.

                  (p) Without limiting the generality of the foregoing, Debtor
hereby irrevocably authorizes and empowers Secured Party, upon the occurrence
and during the continuance of an Event of Default, at the expense of Debtor, at
any time and from time to time, but subject to the rights of the holders of any
Permitted Prior Liens, (a) to ask, demand, receive, receipt, give acquittance
for, settle and compromise any and all monies which may be or become due or
payable or remain unpaid at any time or times to Debtor under or with respect to
the Collateral; (b) to endorse any drafts, checks, orders or other instruments
for the payment of money payable to Debtor on account of the Collateral
(including any such draft, check, order or instrument issued by an insurance
company payable jointly to Debtor and Secured Party); and (c) in the discretion
of Secured Party, to settle, compromise, prosecute or defend any action, claim
or proceeding, or take any other action, all either in its own name or in the
name of Debtor or otherwise, which Secured Party may deem to be necessary or
advisable for the purpose of exercising and enforcing its powers and rights
under this Mortgage or in furtherance of the purposes hereof, including any
action which by the terms of this Mortgage is to be taken by Debtor. Nothing in
this Mortgage shall be construed as requiring or obligating Secured Party to
make any demand or to make any inquiry as to the nature or sufficiency of any
payment received by it or to present or file any claim or notice, or to take any
action with respect to any of the Collateral or the amounts due or to become due
under any thereof, or to collect or enforce the payment of any amounts assigned
to it or to which it may otherwise be entitled hereunder at any time or times,
other than to account for amounts or Collateral received.

                  (q) Secured Party shall incur no liability as a result of the
sale of Collateral, or any part thereof, at any private sale. Debtor hereby
waives, to the extent permitted by applicable law, any claims against Secured
Party arising by reason of the fact that the price at which the Collateral

                                       22
<PAGE>   23

may have been sold at such a private sale was less than the price which might
have been obtained at a public sale or was less than the aggregate amount of the
Indebtedness, even if Secured Party accepts the first offer received and does
not offer such Collateral to more than one offeree.

                  (r) Without precluding any other methods of sale, Debtor
acknowledges that the sale of the Collateral shall have been made in a
commercially reasonable manner if conducted in conformity with reasonable
commercial practices of banks disposing of similar property. Secured Party shall
not be liable for any depreciation in the value of the Collateral.

                                   ARTICLE IX
                                Other Agreements

         9.1. Indenture Prevails. In the event of any conflict or inconsistency
between the terms, covenants, conditions and provisions set forth in this
Mortgage and the terms, covenants, conditions and provisions set forth in the
Indenture, the terms, covenants, conditions and provisions of the Indenture
shall prevail.

         9.2 Production Payment Conveyance. This Mortgage has been executed and
delivered after Mortgagor's execution and delivery of that certain Production
Payment Conveyance (the "Production Payment Conveyance"), made effective as of
9:00 a.m. Houston, Texas time, on March 1, 2000, from Mortgagor to Southern
Producer Services, L.P. ("SPS"), TCW Portfolio No. 1555 DR V Sub-Custody
Partnership, L.P. ("Fund V") and TCW DR VI Investment Partnership, L.P. ("Fund
VI"), counterparts of which are being filed for record concurrently herewith in
Chambers, Galveston, Jim Hogg, Live Oak, Wharton and Zapata Counties, Texas.
Reference to the Production Payment Conveyance is here made for all purposes.

         Pursuant to the Production Payment Conveyance, Mortgagor has conveyed
and assigned to SPS, Fund V and Fund VI the "Production Payment" (as defined in
the Production Payment Conveyance and herein so called). As provided in the
Order of the United States Bankruptcy Court attached to the Production Payment
Conveyance, the Production Payment is conveyed free and clear of any liens,
claims or other rights of Mortgagee, whether under this Mortgage or otherwise,
and the Mortgaged Property does not include the rights, titles and interests
granted under the Production Payment Conveyance as the Production Payment,
including without limitation the proceeds of the Production Payment.

         The Mortgaged Property does, however, include (among other things) the
rights, titles and interests retained by Mortgagor after the conveyance of the
Production Payment which are referred to in the Production Payment Conveyance as
the "Retained Interests" (herein so called). By its acceptance of the benefits
of this Mortgage, Mortgagee and each other beneficiary hereof hereby agrees,
with and for the benefit of Mortgagor, SPS, Fund V and Fund VI and their
respective successors and assigns: (a) not to enforce any rights with respect to
the possession or use of such Retained Interests or the Equipment and fixtures
thereon (under this Mortgage or otherwise) in any way which prevents any owner
or any Person (hereafter defined) in possession of the Retained Interests
(whether Mortgagor or its successors and assigns, or any Person taking upon
foreclosure,

                                       23
<PAGE>   24

or any receiver, it being understood that this Section 9.2 in no way prevents
foreclosure of this Mortgage) from honoring its duties with respect to the
Production Payment Conveyance, (b) that any Person acquiring the Retained
Interests by foreclosure or other sale pursuant to this Mortgage will take the
same subject to the obligation to perform, from and after the date of such
acquisition, the duties of Mortgagor with respect to the Production Payment
Conveyance (other than any duties of Mortgagor to pay damages for breach of any
title warranty or to pay damages for any other breach of the Production Payment
Conveyance by Mortgagor prior to the date of such acquisition), and (c) that to
the extent that Mortgagor or any other beneficiary hereof might have any lien,
claim or other right to the Production Payment (or the proceeds thereof) that
arises other than under this Mortgage, such lien or claim is hereby released and
discharged. The term "Person" shall have the meaning assigned to such term in
the Indenture.

         9.3 Intercreditor Agreement. Reference is made herein for all purposes
to that certain Intercreditor Agreement (herein so called) dated the date
hereof, executed among Mortgagee and GMAC Commercial Credit, LLC ("Lender"),
acknowledged by Mortgagor. Under the terms of the Intercreditor Agreement,
Mortgagee and Lender have agreed (among other things) that the interests of
Mortgagee under this Mortgage in and to the Mortgaged Property shall be
inferior, and subject to, the interests of Lender in accordance with the
Intercreditor Agreement.

                                    ARTICLE X
                                  Miscellaneous

         10.1. Successor Trustees. The Trustee may resign in writing addressed
to Mortgagee or be removed at any time with or without cause by an instrument in
writing duly executed by Mortgagee. In case of the death, resignation or removal
of a Trustee, a successor Trustee or Trustees may be appointed by Mortgagee from
time to time by instrument of substitution complying with any applicable
requirements of law and, in the absence of any such requirement, without other
formality than appointment and designation in writing. Such appointment and
designation shall be full evidence of the right and authority to make the same
and of all facts therein recited, and, upon the making of any such appointment
and designation, this conveyance shall vest in the named successor Trustee or
Trustees all the estate and title of the prior Trustee or Trustees in all of the
Mortgaged Property, and such successor Trustee or Trustees shall thereupon
succeed to all the rights, powers, privileges, immunities and duties hereby
conferred upon the Trustee named herein. All references herein to the Trustee
shall be deemed to refer to the Trustees from time to time acting hereunder.

         10.2. Legal Proceedings by and against Trustee. The Trustee shall not
be required to take any action for the enforcement of this instrument or the
exercise of any rights or remedies hereunder or to appear in or defend any
action, suit or other proceeding in connection therewith, where, in the opinion
of the Trustee, such action will be likely to involve him in expense or
liability, unless the Trustee be tendered security and indemnity satisfactory to
him against cost, expense or liability in connection therewith.

                                       24
<PAGE>   25

         10.3. Responsibilities of Trustee. It shall be no part of the duty of
the Trustee to see to any recording, filing or registration of this instrument
or of any instrument supplemental hereto or to see to the payment of or be under
any duty in respect to any tax or assessment or other governmental charge which
may be levied or assessed on the Mortgaged Property or against Mortgagor or to
see to the performance or observance by Mortgagor of any of the covenants or
agreements herein contained. The Trustee shall not be responsible for the
execution, acknowledgment or validity of this instrument or of any instrument
supplemental hereto or of the Notes or for the sufficiency of the security
purported to be created hereby, and the Trustee makes no representation in
respect thereof or in respect of those rights of the holders of any of the
Notes. The Trustee shall have the right to consult with counsel upon any matters
arising hereunder and shall be fully protected in relying as to legal matters on
the advice of such counsel. The Trustee shall not incur any personal liability
hereunder except for his own gross negligence, willful misconduct or bad faith,
and the Trustee shall have the right to rely on any instrument, document or
signature authorizing or supporting any action taken or proposed to be taken by
him hereunder which is believed by him in good faith to be genuine.

         10.4. Advances by Mortgagee or Trustee. Each and every covenant herein
contained shall be performed and kept by Mortgagor solely at Mortgagor's
expense. If Mortgagor shall fail to perform or keep any of the covenants of
whatsoever kind or nature contained in this instrument, then, if such failure is
not remedied by Mortgagor within 30 days following notice thereof by Mortgagee,
the Trustee or any receiver appointed hereunder may, but shall not be obligated
to, make advances to perform the same in Mortgagor's behalf, and Mortgagor
hereby agrees to repay such sums upon demand plus interest at an annual rate
equal to the highest rate of interest from time to time accruing on the Notes
until paid or, in the event any promissory note evidences such indebtedness,
upon the terms and conditions thereof; provided, however, that in no event shall
such interest rate ever exceed the Highest Lawful Rate. No such advance shall be
deemed to relieve Mortgagor from any default hereunder. All such advances shall
be included in the Indebtedness.

         10.5. Defense of Claims. Mortgagor will notify the Trustee and
Mortgagee, in writing, promptly of the commencement of any legal proceedings
affecting the lien hereof or the Mortgaged Property, or any part thereof, and
will take such action as may be necessary to preserve Mortgagor's, the Trustee's
and Mortgagee's rights affected thereby, and should Mortgagor fail or refuse to
take any such action, the Trustee or Mortgagee may, upon giving prior written
notice thereof to Mortgagor, take such action on behalf of and in the name of
Mortgagor and at Mortgagor's expense. Moreover, Mortgagee, or the Trustee on
behalf of Mortgagee, may take such independent action in connection therewith as
they may in their reasonable discretion deem proper, Mortgagor hereby agreeing
that all sums advanced or all expenses incurred in such actions plus interest at
an annual rate equal to the highest rate of interest from time to time accruing
on the Notes will, on demand, be reimbursed to Mortgagee, the Trustee or any
receiver appointed hereunder; provided, however, that in no event shall such
interest rate ever exceed the Highest Lawful Rate.

         10.6. Survival of Covenants and Liens. All of the covenants and
agreements of Mortgagor set forth herein shall survive the execution and
delivery of this Mortgage and shall continue in force until the Indebtedness is
paid in full. Accordingly, if Mortgagor shall perform faithfully each and

                                       25
<PAGE>   26

all of the covenants and agreements herein contained, then, and then only, this
conveyance shall become null and void and shall be released in due form, upon
Mortgagor's written request and at Mortgagor's expense; otherwise, it shall
remain in full force and effect. No release of this conveyance or the lien
thereof shall be valid unless executed by Mortgagee.

         10.7. Renewals and Other Security. Renewals and extensions of the
Indebtedness may be given at any time, and Mortgagee may take or may now hold
other security for the Indebtedness without notice to or consent of Mortgagor.
The Trustee or Mortgagee may resort first to such other security or any part
thereof or first to the security herein given or any part thereof, or from time
to time to either or both, even to the partial or complete abandonment of either
security, and such action shall not be a waiver of any rights conferred by this
instrument, which shall continue as a perfected lien upon the Mortgaged Property
not expressly released until the Indebtedness secured hereby is fully paid.

         10.8. Instrument an Assignment, Etc. This instrument shall be deemed to
be and may be enforced from time to time as an assignment, chattel mortgage,
hypothecation, contract, deed of trust, mortgage, conveyance, financing
statement, real estate mortgage, pledge or security agreement, and from time to
time as any one or more thereof.

         10.9. No Usury Intended. It is the intention of the parties hereto to
comply strictly with applicable usury laws; accordingly, notwithstanding any
provision to the contrary contained herein, in the Notes, or in any of the
documents securing or relating to any Indebtedness, in no event shall this
instrument, the Notes, or such documents require or permit the payment,
charging, taking, reserving, or receiving of any sums constituting interest
under applicable laws which exceed the maximum amount permitted by such laws. If
any such excess interest is contracted for, charged, taken, reserved, or
received in connection with this instrument or the Notes or in any of the
documents securing or relating to any Indebtedness, or in any communication by
Mortgagee or any other person to Mortgagor or any other person, or in the event
all or part of the Indebtedness shall be prepaid or accelerated, so that under
any of such circumstances or under any other circumstance whatsoever the amount
of interest contracted for, charged, taken, reserved, or received on the amount
of principal actually outstanding from time to time under this instrument or the
Notes shall exceed the maximum amount of interest permitted by applicable usury
laws, then in any such event it is agreed as follows: (i) the provisions of this
Section shall govern and control, (ii) any such excess shall be deemed an
accidental and bona fide error and canceled automatically to the extent of such
excess, and shall not be collected or collectible, (iii) any such excess which
is or has been paid or received notwithstanding this Section shall be credited
against the then unpaid principal balance hereof with the excess, if any,
refunded to Mortgagor, and (iv) the effective rate of interest shall be
automatically reduced to the maximum lawful rate allowed under applicable laws
as construed by courts having jurisdiction hereof or thereof. Without limiting
the foregoing, all calculations of the rate of interest contracted for, charged,
taken, reserved, or received in connection herewith which are made for the
purpose of determining whether such rate exceeds the maximum lawful rate shall
be made to the extent permitted by applicable laws by amortizing, prorating,
allocating and spreading during the period of the full term of the Notes,
including all prior and subsequent renewals and extensions, all interest at any
time contracted for, charged, taken, reserved, or received. The terms

                                       26
<PAGE>   27

of this Section shall be deemed to be incorporated in every document, security
instrument, and communication relating to this instrument and the Notes. The
term "applicable usury laws" shall mean such laws of the State of Texas or the
laws of the United States, whichever laws allow the higher rate of interest, as
such laws now exist; provided, however, that if such laws shall hereafter allow
higher rates of interest, then the applicable usury laws shall be the laws
allowing the higher rates, to be effective as of the effective date of such
laws. Mortgagor hereby waives its rights under Texas Finance Code Section
305.006(d) and will, in connection with any counterclaim alleging usurious
interest, give Trustee and Mortgagee the notice required in Texas Finance Code
Section 305.006(b) prior to filing such counterclaim and Trustee and Mortgagee
shall have the right to correct any violation as provided by Texas Finance Code
Section 305.103.

         10.10. Separability. If any provision hereof or of the Notes is invalid
or unenforceable in any jurisdiction, the other provisions hereof or of the
Notes shall remain in full force and effect in such jurisdiction, and the
remaining provisions hereof shall be liberally construed in favor of the Trustee
and Mortgagee in order to effectuate the provisions hereof, and the invalidity
of any provision hereof in any jurisdiction shall not affect the validity or
enforceability of any such provision in any other jurisdiction.

         10.11. Rights Cumulative. Each and every right, power and remedy herein
given to the Trustee or Mortgagee shall be cumulative and not exclusive, and
every right, power and remedy whether specifically herein given or otherwise
existing may be exercised from time to time and so often and in such order as
may be deemed expedient by the Trustee or Mortgagee, as the case may be, and the
exercise, or the beginning of the exercise, of any such right, power or remedy
shall not be deemed a waiver of the right to exercise, at the same time or
thereafter, any other right, power or remedy. No delay or omission by the
Trustee or Mortgagee in the exercise of any right, power or remedy shall impair
any such right, power or remedy or operate as a waiver thereof or of any other
right, power or remedy then or thereafter existing.

         10.12. Binding Effect. This instrument is binding upon Mortgagor,
Mortgagor's successors and assigns, and shall inure to the benefit of the
Trustee, his successors and assigns and Mortgagee and its successors and
assigns, and the provisions hereof shall likewise constitute covenants running
with the land.

         10.13 Article and Section Headings. The article and section headings in
this instrument are inserted for convenience and shall not be considered a part
of this instrument or used in its interpretation.

         10.14. Counterparts. This instrument may be executed in any number of
counterparts, each of which shall for all purposes be deemed to be an original
and all of which are identical except that, to facilitate recordation, the
Schedules and Exhibits in any particular counterpart may omit the description of
properties situated in counties other than the county in which such counterpart
is to be recorded.

                                       27
<PAGE>   28

         10.15. Notices. Except as otherwise provided in the Indenture or
herein, any notice, request, demand or other instrument which may be required or
permitted to be given or served upon Mortgagor shall be sufficiently given when
made by hand delivery, by telex, by telecopier or registered or certified mail,
postage prepaid, return receipt requested and addressed to Mortgagor at the
address shown below the signatures at the end of this Mortgage or to such
different address as Mortgagor shall have designated by written notice received
by Mortgagee or the Trustee.

         10.16. Amendments, Modifications and Waivers, Etc. Except as provided
in Section 10.1, this instrument may be amended, modified, revised, discharged,
released or terminated only by a written instrument or instruments executed by
Mortgagor and Mortgagee. Any alleged amendment, revision, discharge, release or
termination which is not so documented shall not be effective as to any party.
No waiver of any provision of this Mortgage nor consent to any departure by
Mortgagor therefrom shall in any event be effective unless the same shall be in
writing, and then such waiver or consent shall be effective only in the specific
instance and for the purpose for which given.

         10.17. Survival of Agreements. All representations and warranties of
Mortgagor herein and all covenants and agreements herein not fully and finally
performed before the effective date or dates of this Mortgage shall survive such
date or dates. All covenants and obligations in this Mortgage are intended by
the parties to be, and shall be construed as, covenants running with the Lands.

         10.18. Governing Law. This Mortgage and the Indebtedness arising in
connection herewith shall be governed by, and construed in accordance with, the
laws of the State of New York applicable to contracts made and performed in such
State (without regard to principles of conflict of laws except Section 5-1401 of
the New York General Obligations Law) and any applicable law of the United
States of America, including, without limiting the generality of the foregoing,
matters of construction, validity and performance, except that at all times the
provisions for the creation, perfection, and enforcement of the liens and
security interests created pursuant hereto shall be governed by and construed
according to the law of Texas.

         10.19. Subrogation. To the extent the Indebtedness represents funds
utilized to satisfy certain outstanding indebtedness and obligations secured by
liens, rights and/or claims against the Mortgaged Property or any part thereof,
Mortgagee shall be subrogated to any and all liens, rights, superior titles and
equities owned or claimed by the holder of any such outstanding indebtedness or
obligation so satisfied, regardless of whether said liens, rights, superior
titles and equities are assigned to the Mortgagee by the holder(s) thereof or
released. Mortgagee shall be subrogated to all covenants and warranties
heretofore given or made with respect to the Mortgaged Property.

         10.20. DTPA Waiver. Mortgagor acknowledges and agrees, on Mortgagor's
own behalf and on behalf of any permitted assigns and successors hereafter, that
the DTPA is not applicable to this transaction. Accordingly, Mortgagor's rights
and remedies with respect to the transaction contemplated under this Mortgage
and the Indenture and with respect to all acts or practices of Mortgagee and
Trustee, past, present or future, in connection with such transaction, shall be
governed by legal principles other than the DTPA. In furtherance thereof,
Mortgagor agrees as follows:

                                       28
<PAGE>   29

                  (a) Mortgagor represents that Mortgagor has the knowledge and
         experience in financial and business matters that enable Mortgagor to
         evaluate the merits and risks of the business transaction that is the
         subject of this Mortgage and the Indenture. Mortgagor also represents
         that Mortgagor is not in a significantly disparate bargaining position
         in relation to Mortgagee and Trustee. Mortgagor has negotiated the
         documents with Mortgagee and Trustee at arm's length and have willingly
         entered into the documents.

                  (b) Mortgagor represents that (i) Mortgagor has been
         represented by the firm of Gardere & Wynne, L.L.P. as legal counsel in
         the transaction contemplated by this Mortgage and the Indenture and
         (ii) such legal counsel was not directly or indirectly identified,
         suggested or selected by Mortgagee and Trustee or an agent of Mortgagee
         and Trustee.

                  (c) This Mortgage and the Indenture relate to a transaction
         involving total consideration by Mortgagor of more than $100,000.00 and
         does not involve the Mortgagor's residence.

Mortgagor agrees, on Mortgagor's own behalf and on behalf of Mortgagor's
permitted assigns and successors, that all of the Mortgagor's rights and
remedies under the DTPA are WAIVED AND RELEASED, including specifically, without
limitation, all rights and remedies under the DTPA resulting from or arising out
of any and all acts or practices of Mortgagee and Trustee in connection with
this transaction, whether such acts or practices occur before or after the
execution of this Mortgage.

In furtherance thereof, Mortgagor agrees that by signing this Mortgage,
Mortgagor and any permitted assigns and successors are bound by the following
waiver:

         Waiver of Consumer Rights. Mortgagor waives its rights under the
         Deceptive Trade Practices--Consumer Protection Act, Section 17.41 et
         seq., Business & Commerce Code, a law that gives consumers special
         rights and protection. After consultation with an attorney of
         Mortgagor's own selection, Mortgagor voluntarily consents to this
         waiver.

         10.21 Final Expression. THIS MORTGAGE, THE INDENTURE, AND THE NOTES
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

                                       29
<PAGE>   30

         IN WITNESS WHEREOF, Mortgagor has executed or caused to be executed
this Mortgage, Deed of Trust, Assignment of Production, Security Agreement and
Financing Statement on the date and year first set forth above.

The address of the                           MORTGAGOR:
Mortgagor/Debtor is:
                                             TRANSTEXAS GAS CORPORATION,
1300 North Sam Houston                       a Delaware corporation
Parkway East, Suite 310
Houston, Texas 77032

                                             By:
                                                  ------------------------------
                                                  Ed Donahue, Vice President and
                                                  Chief Financial Officer

                                       30
<PAGE>   31

STATE OF TEXAS                   )
                                 )
COUNTY OF DALLAS                 )

         Before me, a Notary Public, on this day personally appeared Ed Donahue,
known to me to be the person and officer whose name is subscribed to the
foregoing instrument and acknowledged to me that the same was the act of
TRANSTEXAS GAS CORPORATION, and that he has executed the same on behalf of said
corporation for the purposes and consideration therein expressed, and in the
capacity therein stated.

         Given under my hand and seal of office this ____ day of March, 2000.

                                     Notary Public in and for the State of Texas

(PERSONALIZED SEAL)

                                       31<PAGE>   1
                                                                    EXHIBIT 4.37

                           TRANSTEXAS GAS CORPORATION
                          SECURITY AND PLEDGE AGREEMENT

                  This Security and Pledge Agreement (this "Agreement") is made
and entered into as of March 15, 2000 by and between TransTexas Gas Corporation,
a Delaware corporation (the "Company"), as debtor, and Firstar Bank, N.A., in
its capacity as indenture trustee (the "Trustee") for the benefit of Holders of
TransTexas Gas Corporation"s 15% Senior Secured Notes Due 2005 (the "Holders"),
(Trustee acting as agent for the benefit of the Holders shall be called the
"Secured Party").

                                    RECITALS

                  The Company, as issuer, Galveston Bay Pipeline Company and
Galveston Bay Processing Corporation, as guarantors, and the Trustee as the
indenture trustee for the benefit of the Holders have entered into that certain
Indenture dated as of March 15, 2000 (as amended, modified or supplemented from
time to time, the "Indenture");

                  Pursuant to and on the terms and conditions set forth in the
Indenture, Company is issuing to the Holders certain 15% senior secured notes
due 2005 in the aggregate principal amount of $200,000,000.00 (collectively, the
"Notes");

                  In order to secure the payment and performance in full of the
obligations of Company under the Indenture and the Notes, the parties hereto
desire to set forth their mutual understanding and certain agreements regarding
the terms and conditions of the grant of a security interest in Collateral (as
defined below);

                  NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Company and the
Secured Party hereby agree as follows:

         Section 1. Definitions.

                  (a) As used in this Agreement, capitalized terms not otherwise
         defined herein have the meanings set forth in the Indenture, and the
         following terms shall have the respective meanings set forth below
         (such meanings to be equally applicable to both the singular and plural
         forms of the terms defined):

                  "Collateral" shall mean, collectively, the Pledged Property
         and the Pledged Securities.

                  "Contract Rights" shall mean all contracts, operating
         agreements, mineral purchase agreements, rights of way, easements,
         surface leases, permits, licenses, pooling or unitization agreements,
         pooling designations and pooling orders and all other contracts or
         agreements

Security&Pledge Agmt - Indenture v.3

                                       1
<PAGE>   2

         pertaining to or affecting the Collateral or which were executed in
         connection with the drilling for, producing, processing treating,
         handling, storing, transporting, or marketing oil, gas or other
         minerals from the Collateral or from any properties unitized or pooled
         therewith, including - but not limited to - the contracts listed on
         Schedule 1, Exhibit D attached hereto.

                  "Default" and "Event of Default" shall have the meanings
         assigned to those terms in Section 7(a) of this Agreement.

                  "Equipment" shall mean and include, as to any Person, all of
         such Person's now owned or hereafter acquired equipment (as such term
         in defined in the UCC), including, without limitation, Vehicles, crew
         quarters, drilling rigs, workover rigs, fracture stimulation equipment,
         compressors, rolling stock and related equipment and other assets
         accounted for as equipment by such Person on its financial statements,
         all proceeds thereof (from insurance or otherwise), and all documents
         of title, books, records, ledger cards, files, correspondence, and
         computer files, tapes, disks and related data processing software that
         at any time evidence or contain information relating to the foregoing.

                  "GAAP" means generally accepted accounting principles of the
         United States of America, consistently applied.

                  "General Intangibles" shall mean and include any and all of
         Company's now owned or hereafter acquired "general intangibles" as such
         term is defined in Article 9 of the UCC, including without limitation,
         all trademarks, tradenames, tradestyles, trade secrets, equipment
         formulation, manufacturing procedures, quality control procedures,
         product specifications, patents, patent applications, copyrights,
         registrations, contract rights, choses in action, causes of action,
         tort claims, payment intangibles, letter of credit rights, corporate or
         other business records, inventions, designs, goodwill, claims under
         guarantees, licenses, franchises, tax refunds, tax refund claims,
         computer programs, computer data bases, computer program flow diagrams,
         source codes, object codes and all other intangible property of every
         kind and nature.

                  "Hydrocarbons" shall mean oil, natural gas, condensate and
         natural gas liquids.

                  "Inventory" shall mean and include, as to any Person, such
         Person's now owned or hereafter acquired inventory (as such term is
         defined in the UCC), including, without limitation, casing, drill pipe
         and other supplies accounted for as inventory by the Company on its
         consolidated financial statements (excluding any Hydrocarbons), all
         proceeds thereof (from insurance or otherwise), and all document of
         title, books, records, ledger cards, files, correspondence, and
         computer files, tapes, disks and related data processing software that
         at any time evidence or contain information relating to the foregoing.

                  "Investment Property" shall mean and include all of Company's
         now owned or hereafter acquired "investment property" as such term is
         defined in Article 9 of the UCC.

Security&Pledge Agmt - Indenture v.3
                                       2
<PAGE>   3

                  "Jefferies" means Jefferies Analytical Trading Group, Inc., a
         Delaware Corporation.

                  "Jefferies Documentation" shall mean the Mortgage, Deed of
         Trust, Assignment, Security Agreement and Financing Statement,
         effective December 31, 1998, made by Galveston Bay Processing
         Corporation in favor of Jefferies, the Promissory Note, dated December
         31, 1998 in the amount of $5,650,000, made by Company in favor of
         Jefferies; and any amendments or supplements to the foregoing as of the
         date hereof.

                  "Jefferies Lien" shall mean pledge of the stock of Galveston
         Bay Processing Corporation owned by Company in favor of Jefferies as
         security for Company"s obligations to Jefferies under the Jefferies
         Documentation.

                  "Lands" shall have the meaning set forth in the Mortgage.

                  "Leases" shall have the meaning set forth in the Mortgage.

                  "Mortgage" shall mean, collectively, those certain Mortgages,
         Deeds of Trust, Assignments of Production, Security and Financing
         Statements executed by Company for the benefit of Secured Party to
         grant a Lien on Company"s real property and/or Hydrocarbons, or any
         interest therein, to secure all of the Obligations.

                  "Obligations" shall mean and include (i) all obligations of
         Company to the Secured Party under the Notes, whether such obligations
         are now existing or hereafter arising, and all renewals, extensions,
         amendments, supplements and rearrangements thereof, and (ii) payment
         and performance of all covenants and conditions by Company contained
         herein and in the Indenture and each of the other Security Documents in
         each case whether for principal, interest, prepayment premium, taxes,
         costs, losses, compensation, reimbursements, fees, expenses or any
         other amount payable to the Secured Party under the terms of such
         documents and/or this Agreement and whether such obligations are now
         existing or hereafter arising.

                  "Oil and Gas Leases" shall include oil, gas and mineral leases
and shall also include subleases and assignments of operating rights.

                  "Pipelines" shall mean the Pipeline Assets and all pipelines
owned and/or operated by Company for the gathering, transmission or distribution
of Hydrocarbons, and any interests in real property relating thereto.

                  "Pipeline Assets" shall mean all parts or aspects of the gas
pipeline system of Company now or hereafter situated on any of the Lands, or the
Rights-of-Way and Franchises, and all fixtures, improvements, equipment, surface
or subsurface machinery, facilities, supplies, replacement parts, vehicles of
every description, all process control computer systems and equipment or other
property of whatsoever kind or nature, including, without limitation, all
buildings,

Security&Pledge Agmt - Indenture v.3
                                       3
<PAGE>   4

structures, machinery, gas processing plants, Pipelines, stations, substations,
compression or dehydration equipment, pumps, pumping stations, meter houses,
metering stations, regulator houses, ponds, tanks, scrapers and scraper traps,
fittings, valves, connections, cathodic or electrical protection by-passes,
regulators, drips, meters, pumps, pumping units, pumping stations, storage or
tankage facilities, engines, pipes, gates, telephone and telegraph lines,
electric power lines, poles, wires, casings, radio towers, fixtures, mechanical
equipment, electrical equipment, computer equipment and software, machine shops
and other equipment, used or useful in connection therewith; together with all
of Company's liquid hydrocarbons, carbon dioxide, natural gas liquids, refined
petroleum products and other inventory fuels, carbon, chemicals, electric energy
and other consumable materials or products manufactured, processed, generated,
produced, transmitted, stored (whether above or below ground) or purchased by
Company for sale, exchange, distribution, consumption or transmission by
Company, including, without limitation, all system gas, drip gas and line fill.

                  "Production Sale Contracts" shall mean, except to the extent
that the same constitute Receivables, all contracts now or hereafter in effect,
including, without limitation, any gas sales contracts, entered into by Company,
or Company's predecessors in interest, for the production, sale, purchase,
exchange or processing of Subject Minerals (as defined in the Mortgage),
including - but not limited to - any of the foregoing contracts listed on
Schedule 1, Exhibit D, and the Contract Rights related thereto.

                  "Pledged Securities" shall have the meaning assigned to that
term in Section 2 of this Agreement.

                  "Receivables" shall mean and include, as to any person, any
and all of such Person's now owned or hereafter acquired Accounts, all products
and proceeds thereof, and all books, records, ledgers cards, files,
correspondence, and computer files, tapes, disks or software that at any time
evidence or contain information relating to such Person's Accounts.

                  "Rights-of-Way and Franchises" shall mean all leases,
leaseholds, easements, rights-of-way, licenses, franchises, privileges, permits,
ordinances, grants, rights, consents, servitudes, surface leases or rights,
amendatory grants and interests in land for the installation, maintenance and
operation of the Pipelines or the Pipeline Assets or any portion thereof, now or
hereafter owned or held by Company, including, without limitation, those leases,
leaseholds, easements, rights-of-way, licenses, franchises, privileges, permits,
ordinances, grants, rights, consents, servitudes, surface leases or rights,
amendatory grants and interests in land applicable to the Pipelines or the
Pipeline Assets owned or held by Company and those leases, leaseholds,
easements, rights-of-way, licenses, franchises, privileges, permits, ordinances,
grants, rights, consents, servitudes, surfaces leases or rights, amendatory
grants and interests in land owned or held by Company and described in the
Mortgage.

Security&Pledge Agmt - Indenture v.3

                                       4
<PAGE>   5

                  "Subject Interests" shall mean each kind and character of
right, title, interest or estate, whether now owned or hereafter acquired, which
the Company has in, under or to the Leases and all right, title, interest or
estate, whether now owned or hereafter acquired, which the Company has in and to
the Lands, together with each kind and character of right, title, interest or
estate now or hereafter vested in the Company in and to any and all overriding
royalty interests, mineral interests, leasehold interests, mineral rights,
royalty interests, net profits interests, oil payments, production payments,
carried interests and all other properties or interests of every kind or
character which relate to any of the Lands or Leases, whether such right, title,
interest or estate be under and by virtue of a Lease, a unitization or pooling
agreement, a unitization or pooling order, a mineral deed, a royalty deed, an
operating agreement, a revenue sharing agreement, a division order, a transfer
order, a farmout agreement, a fee simple conveyance or any other type of
contract, conveyance or instrument or under any other type of claim or title,
legal or equitable, recorded or unrecorded, all as the same shall be enlarged by
the discharge of any payments out of production or by the removal of any charges
or encumbrances to which any of same are subject.

                  "UCC" means the Uniform Commercial Code as in effect in the
State of New York.

                  "UCC Collateral" shall have the meaning assigned to that term
in Section 2 of this Agreement.

                  "Vehicles" means all trucks, automobiles, trailers and other
vehicles covered by a certificate of title.

                  (b) All terms used in this Agreement which are defined in the
         UCC, other than those which are defined in the Indenture or
         specifically defined in Section 1(a) above, shall have the same meaning
         herein as in the UCC.

         Section 2. Grant of Security Interest.

                  (a) Company hereby grants to the Secured Party, to secure the
         payment and performance in full of the Obligations, a security interest
         in and a lien on and so pledges and assigns to the Secured Party all of
         Company's right, title and interest in, to and under any and all of the
         following described property, assets and rights, in each case, wherever
         located, whether now owned or hereafter acquired or arising, except to
         the extent the same constitutes Inventory or Receivables, all
         accessions and additions thereto, all substitutions and replacements
         therefor, and all proceeds and products thereof and assigns all rights
         in and to all collateral securing the following described property,
         assets and rights:

                           (i)   all Equipment;

                           (ii)  all General Intangibles;

                           (iii) all Investment Property;

Security&Pledge Agmt - Indenture v.3
                                       5
<PAGE>   6

                           (iv) all Subject Interests, the Subject Minerals and
                  Hydrocarbons;

                           (v) all Contract Rights and Production Sale
                  Contracts;

                           (vi) all Leases and the Lands;

                           (vii) all Pipelines;

                           (viii) all Pipeline Assets;

                           (ix) all Rights-of-Way and Franchises;

                           (x) all unitization, communitization, operating
                  agreements, pooling agreements and declarations of pooled
                  units and the properties covered and the units created thereby
                  (including all units formed under orders, regulations, rules
                  or other official acts of any federal, state or other
                  governmental agency providing for pooling or unitization,
                  spacing orders or other well permits and other instruments)
                  which relate to or affect all or any portion of the Subject
                  Interests;

                           (xi) all contract rights, operating rights, general
                  intangibles, chattel paper, documents and instruments, whether
                  arising under any of the foregoing or otherwise, including
                  without limitation, the Production Sale Contracts and all
                  transmission contracts or other contracts now or hereafter in
                  effect with respect to the Pipelines or the Pipeline Assets;

                           (xii) all subleases, farmout agreements, assignments
                  of interests, assignments of operating rights, contracts,
                  operating agreements, bidding agreements, advance payment
                  agreements, rights-of-way, surface leases, franchises,
                  servitudes, privileges, permits, licenses, easements,
                  tenements, hereditaments, improvements, appurtenances and
                  benefits now existing or in the future obtained and incident
                  and appurtenant to any of the foregoing;

                           (xiii) all lease records, well records, production
                  records and accounting and other records and files which
                  relate to any of the foregoing, and all maps, data bases,
                  manuals, information and data which relate to any of the
                  foregoing, including without limitation engineering,
                  geological and geophysical data;

                           (xiv) all income, revenues, rents, profits and
                  proceeds arising out of the gathering, transportation,
                  processing or sale of Hydrocarbons through the Pipelines and
                  other accounts, contract rights, operating rights, general
                  intangibles, chattel paper, documents, investment property and
                  instruments arising under any of the foregoing;

Security&Pledge Agmt - Indenture v.3

                                       6
<PAGE>   7

                           (xv) any liens and security interests in the Subject
                  Interests in favor of Company securing payment of proceeds
                  from the sale of the Subject Minerals including, but not
                  limited to, those liens and security interests provided for in
                  Tex. Bus. & Com. Code Ann. Section 9.319 (Tex. UCC)
                  (Vernon 1968), as amended;

                           (xvi) all other rights, titles and interests of
                  Company in, to and under or derived from the Lands, the
                  Leases, the Rights-of-Way and Franchises, the Production Sale
                  Contracts and/or other properties described in the Mortgage;

                           (xvii) any property that may from time to time
                  hereafter, by delivery or by writing of any kind executed by
                  or on behalf of Company, be subjected to the lien and security
                  interest hereof by Company or by anyone authorized on
                  Company's behalf, and Secured Party is hereby authorized to
                  receive the same as additional security;

                           (xviii) all other property of every nature and kind
                  and wheresoever situated, now owned or hereafter acquired by
                  Company or to which Company is now or may hereafter be
                  entitled at law or in equity; and

                           (xix) any and all proceeds, returns, rents,
                  royalties, issues, profits, products, revenues and other
                  income (other than Inventory or Receivables) arising from or
                  by virtue of the sale, lease or other disposition of, or from
                  any condemnation, eminent domain or insurance payable with
                  respect to damage, loss or destruction of, the items described
                  in subparagraphs (i) through (xviii) above;

         together with any and all increases, substitutions, replacements,
         renewals, additions, amendments and accessions of, to and for all of
         the foregoing property. All the aforesaid properties, rights and
         interests which are hereby subjected to the lien and/or security
         interest of this instrument, together with any additions thereto which
         may be subjected to the lien and/or security interest of this paragraph
         (a) by means of supplements hereto or otherwise shall hereinafter be
         referred to as the "UCC Collateral" (UCC Collateral excludes Inventory
         and Receivables).

                  (b) Company also pledges to the Secured Party, and grants to
         the Secured Party a security interest in all of Company's right, title
         and interest in, to and under any and all of the following described
         property, rights and interests, in each case, wherever located, whether
         now owned or hereafter acquired or arising, all accessions and
         additions thereto, all substitutions and replacements therefor, and all
         proceeds and products thereof (collectively, the "Pledged Securities"):

                           (i) all of the issued and outstanding shares of
                  common stock of any Subsidiary of Company organized in the
                  United States, whether such Subsidiary is

Security&Pledge Agmt - Indenture v.3

                                      7
<PAGE>   8

                  presently existing or hereafter created or acquired
                  (collectively the "Pledged Subsidiaries"), including without
                  limitation, each of the Pledged Subsidiaries and shares of
                  common stock identified on Schedule 2(b) attached hereto.

                           (ii) all other shares of common stock or other equity
                  securities now or hereafter acquired by Company in any manner
                  issued by the Pledged Subsidiaries, and the certificates
                  representing such securities, and any present or future
                  options, warrants or other rights to subscribe for or purchase
                  any property described in Schedule 2(b) or any notes, bonds,
                  debentures or other evidences of indebtedness now or hereafter
                  owned or acquired by Company in any manner that (A) are at any
                  time convertible, exchangeable or exercisable into capital
                  stock or other equity securities of the Pledged Subsidiaries
                  or (B) have or at any time could by their terms have voting
                  rights with respect to any matter affecting the Pledged
                  Subsidiaries and all securities, certificates and instruments
                  representing or evidencing ownership of any of the property
                  described in Schedule 2(b) hereof; and

                           (iii) all proceeds and products of the foregoing and
                  distributions thereof or with respect thereto, including
                  without limitation dividends, distributions, cash, instruments
                  and other property or securities, now or hereafter at any time
                  or from time to time received or receivable or otherwise
                  distributed or distributable in respect of or in exchange for
                  any or all of the foregoing.

                  Subject to any Permitted Liens, Company has endorsed, assigned
         and delivered to the Secured Party or such other Person that the
         Secured Party has designated as its agent to hold for perfection
         purposes all negotiable or non-negotiable instruments (including
         certificated securities) and chattel paper pledged by it hereunder,
         together with instruments of transfer or assignment duly executed in
         blank as the Secured Party may have specified. In the event that
         Company shall, after the date of this Agreement, acquire any other
         negotiable or non-negotiable instruments (including certificated
         securities) or chattel paper to be pledged by it hereunder, Company
         shall, subject to any Permitted Liens, forthwith endorse, assign and
         deliver the same to the Secured Party, accompanied by such instruments
         of transfer or assignment duly executed in blank as the Secured Party
         may from time to time specify. To the extent that any securities are
         uncertificated, appropriate book-entry transfers reflecting the pledge
         of such securities created hereby have been or, in the case of
         uncertificated securities hereafter acquired by Company, will at the
         time of such acquisition be, duly made for the account of the Secured
         Party or one or more nominees of the Secured Party with the issuer of
         such securities or other appropriate book-entry facility or financial
         intermediary, with the Secured Party having at all times the right to
         obtain definitive certificates (in the Secured Party's name or in the
         name of one or more nominees of the Secured Party) where the issuer
         customarily or otherwise issues certificates, all to be held as
         Collateral hereunder. Company hereby acknowledges that the Secured
         Party may, in its discretion, appoint one or more financial
         institutions to act as the Secured Party's agent in holding in
         custodial accounts instruments or other financial assets, including
         securities, in which the Secured Party is

Security&Pledge Agmt - Indenture v.3

                                       8
<PAGE>   9

         granted a security interest hereunder, including, without limitation,
         certificates of deposit and other instruments evidencing short term
         obligations.

                  (c) Without limiting the security interest granted hereby,
         Company hereby grants to Secured Party a limited license in Company's
         trade names, trademarks and service marks, together with Company's
         goodwill associated with such trade names, trademarks and service
         marks, for purposes of allowing Secured Party to use the same in
         connection with any foreclosure sale or any other disposition pursuant
         to the UCC or this Agreement.

                  (d) The inclusion of proceeds in this Agreement does not
         authorize Company to sell, dispose of or otherwise use the Collateral
         in any manner not specifically authorized hereby or under the
         Indenture.

                  (e) This Agreement secures the prompt and complete payment of
         all Obligations.

         Section 3. Representations and Warranties. Company represents and
warrants, as of the date hereof, to the Secured Party as follows:

                  (a) The chief executive office and principal place of business
         of Company is located at 1300 N. Sam Houston Parkway East, Suite 310,
         Houston, Harris County, Texas 77032. Any and all Collateral not
         delivered to the Secured Party or its designated agent is and will
         continue to be located only in the States of Texas, Louisiana, Alabama,
         Mississippi and North Dakota or other states wherein the security
         interests hereunder are perfected.

                  (b) Company is the legal and beneficial owner of all of the
         Collateral free and clear of any lien, security interest, charge or
         encumbrance of any kind or nature, except with respect to all
         Collateral other than the Pledged Securities for the lien and security
         interest created hereby and Permitted Liens and except with respect to
         the Pledged Securities, the lien and security interest created hereby,
         the lien and security interest granted to the Post-Confirmation Credit
         Facility Agent and the Jefferies Lien, and has not made any other
         pledge, assignment, mortgage, hypothecation or transfer of the
         Collateral except as permitted hereunder or under the Indenture. Except
         for such permitted liens, the Collateral taken as a whole is free from
         any material credit, deduction, allowance, defense, dispute, setoff or
         counterclaim and there is no material extension or indulgence with
         respect thereto. The Pledged Securities are not subject to any put,
         call, option or other right in favor of any other person whatsoever.

                  (c) The Pledged Securities are accurately described in
         Schedule 2(b) hereto and have been duly authorized and validly issued
         and are fully paid and non-assessable.

                  (d) This Agreement has been duly authorized, executed and
         delivered by Company and creates a valid and enforceable security
         interest in, and lien on, the Collateral securing the payment of the
         Obligations. Upon the delivery of physical certificates

Security&Pledge Agmt - Indenture v.3

                                       9
<PAGE>   10

         evidencing the Pledged Securities to the Secured Party or its
         designated agent and the making of the filings and the taking of all
         other actions necessary to perfect the security interests created
         hereby, including, without limitation, those actions specified in
         Section 2(b) and Section 4, the security interests created by this
         Agreement are duly perfected security interests subject to no equal or
         prior lien, security interest or encumbrance of any kind or nature
         other than the Permitted Liens.

                  (e) Company has the requisite corporate power and authority to
         pledge the Collateral in the manner hereby done or contemplated and to
         defend its title thereto against the lawful claims of all persons
         whomsoever.

                  (f) Neither the execution and delivery of this Agreement by
         Company, the performance by Company of its obligations hereunder, nor
         the transactions herein contemplated will (i) violate Company's charter
         or bylaws, (ii) violate the terms of any agreement, indenture,
         mortgage, deed of trust, equipment lease, instrument or other document
         to which Company is a party, (iii) violate any law, order, rule or
         regulation applicable to Company of any court or any government,
         regulatory body or administrative agency or other governmental body
         having jurisdiction over Company or its properties, or (iv) result in
         or require the creation or imposition of any lien (other than the lien
         contemplated hereby), upon or with respect to any of the property now
         owned or hereafter acquired by Company, which violation or conflict
         would have a material adverse effect on the financial condition,
         business, assets or liabilities of Company or on the value of the
         Collateral or a material adverse effect on the security interests
         hereunder.

                  (g) The Pledged Securities includes the issued and outstanding
         shares of Common Stock of the Pledged Subsidiaries as described in
         Schedule 2(b) attached hereto, and as of the date of execution hereof,
         there are no outstanding options, warrants or other rights to subscribe
         for or purchase any property described in Schedule 2(b) or any notes,
         bonds, debentures or other evidences of indebtedness that (i) are at
         any time convertible into capital stock of the Pledged Subsidiaries or
         (ii) have or at any time could by their terms have voting rights with
         respect to any matters affecting the Pledged Subsidiaries.

                  (h) No consent or approval which has not been obtained prior
         to the date hereof of any other person or entity and no authorization,
         approval or other action (other than delivery of physical certificates
         evidencing the Pledged Securities) by, and no notice to or filing with
         any governmental body (other than UCC filings), regulatory authority or
         securities exchange, was or is necessary as a condition to the validity
         of the pledge hereunder of the Collateral, and such pledge is effective
         to vest in the Secured Party the rights of the Secured Party in the
         Collateral as set forth herein. There are no restrictions on the
         transferability of any of the Collateral transferred or delivered by
         Company hereunder or, except for restrictions related to federal and
         state securities laws governing the sale of "restricted stock" or
         "control stock," with respect to the foreclosure, transfer or
         disposition thereof by the Secured Party.

Security&Pledge Agmt - Indenture v.3

                                       10
<PAGE>   11

                  (i) As of the date hereof, Galveston Bay Processing
         Corporation and Galveston Bay Pipeline Corporation are the only
         Material Subsidiaries of Company.

                  Section 4. Covenants. During the term of this Agreement and
         until all the Obligations have been fully and finally paid and
         discharged in full, Company covenants and agrees with the Secured Party
         that:

                  (a) Except as permitted by the Indenture or in the ordinary
         course of business, Company will not make any compromise or settlement
         with respect to the Collateral without notice to or consent of the
         Secured Party.

                  (b) Subject to the Permitted Liens, Company shall deliver to
         the Secured Party or its designated agent concurrently with the
         execution of this Agreement or, to the extent acquired subsequent to
         the date of execution hereof, including without limitation Pledged
         Securities issued by a newly created or acquired Pledged Subsidiary,
         immediately upon Company's creation or acquisition thereof: (i) all
         certificates and instruments representing the Pledged Securities and a
         revised Schedule 2(b), and (ii) all certificates and instruments
         representing each other item of Collateral (including all certificates,
         instruments and notes representing any such UCC Collateral). Any and
         all Pledged Securities delivered to the Secured Party or its designated
         agent shall be accompanied by undated duly executed powers in blank and
         by such other instruments of transfer or documents as the Secured Party
         may reasonably request. The Secured Party may hold the certificates
         representing the Pledged Securities delivered to it in its own name or
         in the name of its nominee, all in form and substance satisfactory to
         the Secured Party.

                  (c) From time to time, Company shall, at its own expense,
         promptly give, execute, deliver, file and/or otherwise formalize any
         such notice, statement, instrument, document, agreement or other
         papers, and do all such other acts and things, as may be necessary or
         desirable, or as the Secured Party may reasonably request, in order to
         create, evidence, preserve, perfect, validate or continue any lien or
         security interest created pursuant to this Agreement or to enable the
         Secured Party to exercise or enforce its rights hereunder with respect
         to such lien or security interest, or otherwise further to effect the
         purposes of this Agreement. Without limiting the generality of the
         foregoing, Company shall, at any time or from time to time upon the
         request of the Secured Party and at Company's own expense, execute,
         acknowledge, witness, deliver, file and/or record such financing and
         continuation statements, notices, additional assignments and other
         documents or instruments (all of which shall be in form and substance
         satisfactory to the Secured Party and its counsel) as the Secured Party
         may from time to time reasonably request for the perfection of the
         liens and security interests created hereby.

                  (d) Company shall promptly notify the Secured Party (i) of any
         material changes in any fact or circumstance represented or warranted
         by Company with respect to any

Security&Pledge Agmt - Indenture v.3

                                       11
<PAGE>   12

         material portion of the Collateral, (ii) of any material impairment of
         the Collateral and (iii) of any claim, action or proceeding affecting
         title to all or any of the Collateral.

                  (e) Except for the liens and security interests created by
         this Agreement and the other Liens in the Collateral expressly
         permitted by this Agreement, Company shall at its own expense defend
         the Collateral against any and all liens, claims, security interests
         and other encumbrances or interests, howsoever arising and shall
         maintain and preserve the security interest granted hereunder with
         respect to the Collateral as long as this Agreement shall remain in
         full force and effect. Company shall not make any other pledge,
         assignment, mortgage, hypothecation or transfer of the Collateral
         except as permitted hereunder or under the Indenture.

                  (f) Company shall at all times keep accurate and complete
         records with respect to the Collateral, including, without limitation,
         records of all payments made, credit granted and proceeds received in
         connection therewith.

                  (g) Company shall not relocate its principal place of business
         or chief executive office to a county or state other than that
         specified in Section 3(a) of this Agreement unless Company gives 30
         days' prior written notice to the Secured Party, which notice shall
         specify the county and state into which such relocation is to be made.
         The Collateral, to the extent not delivered to the Secured Party
         pursuant to Section 2, will be kept at those locations listed in the
         Order of Furtherance of Confirmation, dated March 14, 2000, and filed
         with the Court, and Company will not remove the Collateral from such
         locations, without providing at least 30 days' prior written notice to
         the Secured Party.

                  (h) Company will keep the Collateral in good order and repair,
         except in situations where not to do so would not be material, and will
         not use the same in violation of law or any policy of insurance
         thereon. The Secured Party, or its designee, may inspect the Collateral
         at any reasonable time, wherever located.

                  (i) The Secured Party, or its representative, shall at all
         times have full and free access during normal business hours to all of
         the books, correspondence and records of Company relating to the
         Collateral (other than information that is privileged and confidential)
         and the Secured Party and its representatives may examine the same,
         make abstracts therefrom and make photocopies thereof, and Company
         agrees to render to the Secured Party, at Company's cost and expense,
         such clerical and other assistance as may be reasonably requested by
         the Secured Party with regard thereto.

                  (j) Company shall not permit any of the Pledged Subsidiaries
         to issue to Company or any other Person any securities of the type
         required to be pledged hereunder unless such securities are promptly
         pledged and delivered hereunder to the Secured Party or its designated
         agent in accordance with Section 2(b).

Security&Pledge Agmt - Indenture v.3

                                       12
<PAGE>   13

                  (k) If, while this Agreement is in effect, any stock dividend,
         stock split, reclassification, readjustment, reorganization, merger,
         consolidation, exchange offer, tender offer or other change in the
         capital structure, including the creation of any subscription or other
         rights relating to the Pledged Securities, is declared or made, or
         proposed to be declared or made, by any of the Pledged Subsidiaries or
         any other issuer of the Collateral, all substituted and additional
         securities or interest issued with respect to the Collateral and
         evidenced by certificates shall be endorsed in blank by Company
         promptly upon receipt thereof or otherwise appropriately transferred to
         the Secured Party in negotiable form, and all certificates or
         instruments evidencing such securities shall be delivered to the
         Secured Party to be held under the terms of this Agreement in the same
         manner as, and as a part of, the Collateral. All Pledged Securities
         shall be evidenced by one or more certificates. Any securities that may
         be issued upon exercise of any subscription or other rights relating to
         the Pledged Securities shall be endorsed in blank and delivered to the
         Secured Party with any necessary powers.

         Section 5. Powers of the Secured Party.

                  (a) Company hereby irrevocably designates and appoints the
         Secured Party as its attorney-in-fact, with full power of substitution,
         for the purposes of carrying out the provisions of this Agreement and
         taking any action and executing any instrument, including, without
         limitation, any financing statement or continuation statement, and
         taking any other action to maintain the validity, perfection, priority
         and enforcement of the security interest intended to be created
         hereunder, that the Secured Party may reasonably deem necessary or
         advisable to accomplish the purposes hereof, which appointment as
         attorney-in-fact is irrevocable and coupled with an interest.

                  (b) Without limiting the generality of Section 5(a) hereof,
         Company hereby irrevocably authorizes and empowers the Secured Party,
         upon the occurrence and during the continuation of any Event of
         Default, at the expense of Company, either in the Secured Party"s own
         name or in the name of Company, at any time and from time to time:

                           (i) to ask, demand, receive, issue a receipt for,
                  give acquittance for, settle and compromise any and all monies
                  which may be or become due or payable or remain unpaid at any
                  time or times to Company, and any and all other property which
                  may be or become deliverable at any time or times to Company,
                  under or with respect to the Collateral;

                           (ii) to endorse any drafts, checks, orders or other
                  instruments for the payment of money payable to Company on
                  account of the Collateral (including any such draft, check,
                  order or instrument issued by any insurance company payable
                  jointly to Company and the Secured Party); and

Security&Pledge Agmt - Indenture v.3

                                       13
<PAGE>   14

                           (iii) to settle, compromise, prosecute or defend any
                  action, claim or proceeding, or take any other action, all
                  either in its own name or in the name of Company or otherwise,
                  which the Secured Party may deem to be necessary or advisable
                  for the purpose of exercising and enforcing its powers and
                  rights under this Agreement or in furtherance of the purposes
                  hereof, including any action which by the terms of this
                  Agreement is to be taken by Company.

                  (c) Nothing in this Agreement shall be construed as requiring
         or obligating the Secured Party to make any commitment or to make any
         inquiry as to the nature or sufficiency of any payment received by it,
         or to present or file any claim or notice, or to take any other action
         with respect to any of the Collateral or any part thereof or the
         amounts due or to become due in respect thereof or any property covered
         thereby, or to collect or enforce the payment of any amounts assigned
         to it or to which it may otherwise be entitled hereunder at any time or
         times other than to account for amounts or Collateral received.

                  (d) The Secured Party shall be entitled at any time to file
         this Agreement, or a carbon, photographic or any other reproduction of
         this Agreement, as a financing statement, but the failure of the
         Secured Party to do so shall not impair the validity or enforceability
         of this Agreement. The Secured Party shall have no duty to comply with
         any recording, filing or other legal requirements necessary to
         establish or maintain the validity, priority or enforceability of, or
         the Secured Party's rights in or to, any of the Collateral.

                  (e) In its discretion, the Secured Party may discharge taxes
         and other encumbrances at any time levied or placed on any of the
         Collateral, make repairs thereto and pay any necessary filing fees.
         Company agrees to reimburse the Secured Party on demand for any and all
         reasonable expenditures so made with interest on unpaid amounts at the
         maximum rate permitted by law. The Secured Party shall have no
         obligation to Company to make any such expenditures, nor shall the
         making thereof relieve Company of any default.

                  (f) Anything herein to the contrary notwithstanding, Company
         shall remain liable under each contract or agreement comprised in the
         Collateral to be observed or performed by Company thereunder. The
         Secured Party shall not have any obligation or liability under any such
         contract or agreement by reason of or arising out of this Agreement or
         the receipt by the Secured Party of any payment relating to any of the
         Collateral, nor shall the Secured Party be obligated in any manner to
         perform any of the obligations of Company under or pursuant to any such
         contract or agreement, to make inquiry as to the nature or sufficiency
         of any payment received by the Secured Party in respect of the
         Collateral or as to the sufficiency of any performance by any party
         under any such contract or agreement, to present or file any claim, to
         take any action to enforce any performance or to collect the payment of
         any amounts which may have been assigned to the Secured Party or to
         which the Secured Party may be entitled at any time or times other than
         to account for amounts or Collateral received, and no action taken or
         omitted shall give rise to any defense, counterclaim or right of action
         against the Secured Party, unless the Secured Party"s actions are taken
         or omitted

Security&Pledge Agmt - Indenture v.3

                                       14
<PAGE>   15

         to be taken with gross negligence or bad faith or constitute willful
         misconduct. The Secured Party"s sole duty with respect to the custody,
         safe keeping and physical preservation of the Collateral in its
         possession, under Section 9-207 of the UCC or otherwise, shall be to
         deal with such Collateral in the same manner as the Secured Party deals
         with similar property for its own account.

                  (g) If an Event of Default has occurred and is continuing, the
         Secured Party may at any time, at its option, transfer to itself or any
         nominee any securities constituting the Pledged Securities, receive any
         income thereon and hold such income as additional Collateral or apply
         it to the Obligations. Regardless of whether any Obligations are due,
         the Secured Party may demand, sue for, collect, or make any settlement
         or compromise which it deems desirable with respect to the Collateral.
         Regardless of the adequacy of Collateral or any other security for the
         Obligations, any deposits or other sums at any time credited by or due
         from the Secured Party to Company may at any time be applied to or set
         off against any of the Obligations.

                  (h) If an Event of Default shall have occurred and be
         continuing, Company shall, at the request of the Secured Party, notify
         obligors on chattel paper and general intangibles of Company and
         obligors on instruments for which Company is an obligee of the security
         interest of the Secured Party in any chattel paper, general intangible
         or instrument and that payment thereof is to be made directly to the
         Secured Party or to any financial institution designated by the Secured
         Party as the Secured Party's agent therefor, and the Secured Party may
         itself, if an Event of Default shall have occurred and be continuing,
         without notice to or demand upon Company, so notify said obligors.
         After the making of such a request or the giving of any such
         notification, Company shall hold any proceeds of collection of chattel
         paper, general intangibles and instruments received by Company as
         trustee for the Secured Party without commingling the same with other
         funds of Company and shall turn the same over to the Secured Party in
         the identical form received, together with any necessary endorsements
         or assignments. The Secured Party shall apply the proceeds of
         collection of chattel paper, general intangibles and instruments
         received by the Secured Party to the Obligations, such proceeds to be
         immediately entered after final payment in cash of the items giving
         rise to them.

         Section 6. Voting Rights, Dividends, Etc.

                  (a) Until an Event of Default shall have occurred and be
         continuing:

                           (i) except as otherwise provided in this Agreement,
                  Company shall be entitled to exercise any and all voting or
                  consensual rights and powers, including subscription rights,
                  in relation to the Pledged Securities; provided, however, that
                  no vote shall be cast or consent, waiver or ratification given
                  or action taken which would materially impair the securities
                  or the value thereof or violate any provision of this
                  Agreement, the Indenture or any other ancillary document;

Security&Pledge Agmt - Indenture v.3

                                       15
<PAGE>   16

                           (ii) except as otherwise provided in this Agreement,
                  Company shall be entitled to receive and retain any and all
                  dividends, distributions or other payments in respect of the
                  Pledged Securities and the Secured Party, upon receipt of any
                  of the foregoing, shall promptly pay or distribute the same to
                  Company, and, to the extent so permitted, any distributions
                  received by Company and transferred to other persons shall
                  pass free and clear of the lien and security interest hereof;
                  and

                           (iii) the Secured Party shall execute and deliver to
                  Company or cause to be executed and delivered to Company, all
                  such proxies, powers of attorney, dividend orders and other
                  instruments as Company may reasonably request for the purpose
                  of enabling it to exercise the voting or consensual rights and
                  powers which Company is entitled to exercise pursuant to the
                  foregoing Section 6(a)(i) or to receive the dividends,
                  distributions or other payments which Company is authorized to
                  retain pursuant to the foregoing Section 6(a)(ii).

                  (b) Upon the occurrence and during the continuance of an Event
         of Default, all rights of Company to exercise the voting or consensual
         rights and powers which Company would otherwise be entitled to exercise
         pursuant to Section 6(a)(i) and to receive the dividends, distributions
         and other payments which the Pledgor would otherwise be authorized to
         receive and retain pursuant to Section 6(a)(ii) shall automatically
         cease, and all such rights shall thereupon become vested in the Secured
         Party, which shall then have the sole and exclusive right and authority
         to exercise, in its sole discretion, all such voting and consensual
         rights and powers and to receive and retain as Collateral all such
         dividends, distributions and other payments, subject, however, to the
         rights of the holders of Permitted Liens. Without limiting the
         foregoing, in such event the Secured Party may exercise all voting and
         corporate rights at any meeting of any corporation issuing any such
         securities and any and all rights of conversion, exchange, subscription
         or any other rights, privileges or options pertaining to any such
         securities as if it were the absolute owner thereof, including, without
         limitation, the rights to exchange at its discretion, any and all such
         securities upon the merger, consolidation, reorganization,
         recapitalization or other readjustment of any corporation issuing any
         such securities or upon the exercise by any such issuer or the Secured
         Party of any right, privilege or option pertaining to any such
         securities, and, in connection therewith, to deposit and deliver any
         and all securities with any committee, depository, transfer agent,
         registrar or other designated agency upon such terms and conditions as
         it may determine, all without liability except to account for the
         property actually received by it, but the Secured Party shall have no
         duty to exercise any of the aforesaid rights, privileges or options and
         the Secured Party shall not be responsible for any failure to do so or
         delay in so doing.

Security&Pledge Agmt - Indenture v.3

                                       16
<PAGE>   17

         Section 7. Default.

                  (a) It shall constitute a Default or an Event of Default under
         this Agreement if a "Default" or an "Event of Default" shall occur
         under the Indenture.

                  (b) If an Event of Default shall have occurred and is
         continuing and if the Obligations are accelerated under the provisions
         of the Indenture and the Security Documents, in addition to any other
         rights and remedies that may be available to the Secured Party under
         the UCC, the Indenture, or any other Security Documents or under
         Section 5(a) or 5(b) of this Agreement or otherwise under this
         Agreement or at law, the Secured Party shall also have the following
         rights and powers:

                           (i) The Secured Party may, without being required to
                  give any notice except as hereinafter provided, sell the
                  Collateral, or any part thereof, at public or private sale,
                  for cash, upon credit or for future delivery and at such price
                  or prices as the Secured Party deems satisfactory, and the
                  Secured Party and/or its collateral agent may be the purchaser
                  of any or all of the Collateral so sold and thereafter hold
                  the same absolutely free from any right or claim of whatsoever
                  kind, and the Obligations or any portion of the Obligations
                  may be applied as a credit against the purchase price.

                           (ii) Upon any such sale, the Secured Party shall have
                  the right to deliver, assign and transfer to the purchaser
                  thereof the Collateral so sold. Each purchaser at any such
                  sale shall hold the property sold absolutely free from any
                  claim or right of whatsoever kind by or on behalf of Company,
                  including any equity or rights of redemption of Company, and
                  Company hereby specifically waives, to the full extent
                  permitted by applicable law, all rights of redemption, stay or
                  appraisal which it has or may have under any rule or law or
                  statute now existing or hereafter adopted.

                           (iii) The Secured Party shall give Company ten (10)
                  business days' written notice (which Company agrees is
                  reasonable notification within the meaning of Section 9.504 of
                  the UCC) of its intention to make any such public or private
                  sale. Such notice, in case of public sale, shall state the
                  time and place fixed for such sale and, in case of a private
                  sale, shall state the date after which such sale is to be
                  made.

                           (iv) Any such public sale shall be held at such time
                  or times within ordinary business hours and at such places as
                  the Secured Party may fix in the notices of such sale. At any
                  such sale the Collateral may be sold in one lot as an entirety
                  or in separate parcels, as the Secured Party may, in its sole
                  discretion, determine.

                           (v) The Secured Party shall not be obligated to make
                  any sale of the Collateral of any part thereof if it shall
                  determine not to do so, regardless of the fact that notice of
                  sale of the Collateral may have been given. The Secured Party
                  may, without notice or publication, adjourn any public or
                  private sale or cause the same to be adjourned from time to
                  time by announcement at the time and place fixed for the

Security&Pledge Agmt - Indenture v.3

                                       17
<PAGE>   18

                  sale, and such sale may, without further notice, be made at
                  any time or place to which the same shall be so adjourned.

                           (vi) In case of any sale of all or any part of the
                  Collateral on credit or for future delivery, the Collateral so
                  sold may be retained by the Secured Party until the selling
                  price is paid by the purchaser thereof, but the Secured Party
                  shall not incur any liability in case of the failure of such
                  purchaser to take up and pay for the Collateral so sold and,
                  in case of any such failure, such Collateral may again be sold
                  upon like notice.

Security&Pledge Agmt - Indenture v.3

                                       18
<PAGE>   19

                           (vii) The Secured Party, instead of exercising the
                  power of sale herein conferred upon it, may proceed by a suit
                  or suits at law or in equity to exercise its remedies
                  regarding the Collateral and sell the Collateral, or any
                  portion thereof, under a judgment or decree of a court or
                  courts of competent jurisdiction.

                           (viii) Company agrees that if any Event of Default
                  shall have occurred and be continuing, then the Secured Party
                  shall have the right to take possession of the Collateral, and
                  for that purpose the Secured Party may, so far as Company can
                  give authority therefor, enter upon any premises on which the
                  Collateral may be situated and remove the same therefrom with
                  or without notice or process of law. Company waives any and
                  all rights that it may have to a judicial hearing in advance
                  of the enforcement of any of the Secured Party's rights
                  hereunder, including, without limitation, its right following
                  an Event of Default to take immediate possession of the
                  Collateral and to exercise its rights with respect thereto. To
                  the extent that any of the Obligations are to be paid or
                  performed by a person other than Company, Company waives and
                  agrees not to assert any rights or privileges which it may
                  have under Section 9-112 of the UCC.

                           (ix) If under mandatory requirements of applicable
                  law, the Secured Party shall be required to make disposition
                  of the Collateral within a period of time that does not permit
                  the giving of notice to Company as hereinbefore provided, the
                  Secured Party need give Company only such notice of
                  disposition as shall be reasonably practicable in view of such
                  mandatory requirements of law.

                           (x) The Secured Party may instruct the obligor or
                  obligors on any agreement, instrument or other obligation
                  constituting the Collateral to make any payment or render any
                  performance required by the terms of such agreement,
                  instrument or obligation directly to the Secured Party or its
                  designee.

                  (c) The Secured Party shall incur no liability as a result of
         the sale of the Collateral, or any part thereof, at any private sale
         other than for its own gross negligence, willful misconduct or bad
         faith. Company hereby waives, to the maximum extent permitted by
         applicable law, any claims against the Secured Party arising by reason
         of the fact that the price at which the Collateral may have been sold
         at such private sale was less than the price which might have been
         obtained at a public sale or was less than the aggregate amount of the
         Obligations, even if the Secured Party accepts the first offer received
         and does not offer such Collateral to more than one offeree.

                  (d) The Secured Party shall not be obligated to pursue or
         exhaust its rights and remedies against any particular Collateral or
         other security for the Obligations before pursuing or enforcing its
         rights and remedies against any other Collateral or other security for
         the Obligations.

Security&Pledge Agmt - Indenture v.3

                                       19
<PAGE>   20

                  (e) To the extent permitted by law, Company hereby waives (i)
         any rights to require the Secured Party to proceed first against any
         other Person, to exhaust its rights in the Collateral or other security
         for the Obligations or to pursue any other right that the Secured Party
         might have, (ii) with respect to the Notes, presentment and demand for
         payment, protest, notice of protest and nonpayment, notice of dishonor,
         notice of the intention to accelerate and notice of acceleration
         (except as otherwise set forth in the Indenture), and (iii) all rights
         of marshalling in respect of any and all of the Collateral.

                  (f) Without precluding any other methods of sale, Company
         acknowledges that the sale of the Collateral shall have been made in a
         commercially reasonable manner if conducted in conformity with
         reasonable commercial practices of institutional lenders disposing of
         similar property. The Secured Party shall not be liable for any
         depreciation in the value of the Collateral.

                  (g) Company agrees that its obligation to deliver the
         Collateral is of the essence of this Agreement and that accordingly,
         upon application to a court of equity having jurisdiction, the Secured
         Party shall be entitled to a decree requiring specific performance by
         Company of such obligation.

                  (h) Remedies of the Secured Party are cumulative and the
         exercise of any one or more of the remedies provided herein shall not
         be construed as a waiver of any of the other remedies of the Secured
         Party.

                  (i) If an Event of Default shall have occurred and be
         continuing, the proceeds of any sale of or other realization upon all
         or any part of the Collateral and any other amounts held by the Secured
         Party under this Agreement shall be applied by the Secured Party as
         provided in the Indenture.

                  Any amounts remaining after such applications and the payment
in full of the Notes with respect to the Obligations shall be remitted to
Company, its successors or assigns, or as a court of competent jurisdiction may
otherwise direct.

         Section 8. General Provisions.

                  (a) Continuing Security Interest; Binding Effect. This
         Agreement shall create a continuing security interest in the Collateral
         and shall (a) remain in full force and effect until termination of the
         obligations of Company under the Indenture and the indefeasible payment
         in full thereafter of the Obligations; (b) be binding upon Company and
         its successors and assigns; and (c) inure to the benefit of the Secured
         Party and its successors, transferees and assigns. Without limiting the
         generality of the foregoing clause (c), the Secured Party may assign or
         otherwise transfer any of its rights under this Agreement to any other
         Person, and such Person shall thereupon become vested with all the
         benefits in respect thereof granted herein or otherwise to the Secured
         Party. Upon the termination of the obligations of the

Security&Pledge Agmt - Indenture v.3

                                       20
<PAGE>   21
         Secured Party under the Indenture and the indefeasible payment in full
         thereafter of the Obligations, Company shall be entitled to the return,
         upon its request and at its expense, of such of the Collateral as is in
         the Secured Party's possession and as shall not have been sold or
         otherwise disposed of pursuant to the terms hereof.

                  (b) Security Interest Absolute. The lien and security interest
         created hereunder and Company's obligations hereunder and the Secured
         Party's rights hereunder shall not be released, diminished, impaired or
         adversely affected by the occurrence of any one or more of the
         following events:

                           (i) The taking or accepting of any other security or
                  assurance for any or all of the Obligations;

                           (ii) Any release, surrender, exchange, subordination
                  or loss of any security or assurance at any time existing in
                  connection with any or all of the Obligations;

                           (iii) The modification of, amendment to, or waiver of
                  compliance with any terms of the Indenture or the Notes;

                           (iv) Any renewal, extension and/or rearrangement of
                  the payment of any or all of the Obligations or any statement,
                  indulgence, forbearance or compromise that may be granted or
                  given by the Secured Party to Company or any other Person;

                           (v) any neglect, delay, omission, failure or refusal
                  of the Secured Party to take or prosecute any action in
                  connection with any agreement, document or other instrument
                  evidencing, securing or assuring the payment of any or all of
                  the Obligations;

                           (vi) the illegality, invalidity or unenforceability
                  of all or any part of the Indenture or the Notes; or

                           (vii) any other circumstance (other than payment in
                  full of the Obligations) that might otherwise constitute a
                  defense available to, or a discharge of, Company or any party
                  to any document in respect of the Obligations.

                  (c) Amendments. This Agreement or any term hereof may be
         amended or changed only by an instrument in writing executed jointly by
         Company and the Secured Party and in accordance with the Indenture.

                  (d) Remedies Cumulative. Each right, power and remedy herein
         specifically granted to the Secured Party or otherwise available to it
         or now or hereafter existing in law or in equity shall be cumulative
         and concurrent, and shall be in addition to every other right,

Security&Pledge Agmt - Indenture v.3

                                       21
<PAGE>   22

         power and remedy herein specifically given or now or hereafter existing
         at law, in equity, or otherwise (including, without limitation, all
         rights, powers and remedies granted to a secured party under the UCC),
         and each such right, power and remedy, whether specifically granted
         herein or otherwise existing, may be exercised at any time and from
         time to time as often and in such order as may be deemed expedient by
         the Secured Party in its sole and complete discretion. The provisions
         of this Agreement may only be waived by an instrument in writing signed
         by the Secured Party, and no failure on the part of the Secured Party
         to exercise, and no delay in exercising, and no course of dealing with
         respect to, any such right, power or remedy, shall operate as a waiver
         thereof, nor shall any single or partial exercise of any such right,
         power or remedy preclude any other or further exercise thereof or the
         exercise of any other right. No notice to or demand on Company
         hereunder shall, of itself, entitle Company to any other or further
         notice or demand in the same or similar circumstances.

                  (e) Assignment. Neither this Agreement nor any interest herein
         or in the Collateral, or any part thereof, may be assigned by Company
         without the prior written consent of the Secured Party, except as
         expressly permitted herein or in the Indenture.

                  (f) Headings. The descriptive headings of the several sections
         of this Agreement are inserted for convenience only and shall not
         control or affect the meaning or construction of any of the provisions
         hereof.

                  (g) Severability. Any provision of this Agreement that is
         prohibited or unenforceable in any jurisdiction shall, as to such
         jurisdiction, be ineffective to the extent of such prohibition or
         unenforceability without invalidating the remaining provisions hereof
         or affecting the validity of enforceability or such provision in any
         other jurisdiction.

                  (h) Survival. All representations and warranties contained
         herein, in the Indenture or made in writing by Company in connection
         herewith or therewith, shall survive the execution and delivery of this
         Agreement, the Indenture and any documents executed in connection
         herewith or therewith.

                  (i) Counterparts and Facsimiles. This Agreement may be
         executed in any number of counterparts and by different parties in
         separate counterparts, each of which when so executed and delivered
         shall be deemed to be an original, but all of which when taken together
         shall constitute one and the same instrument. A complete set of
         counterparts shall be lodged with the Secured Party. Any signature
         delivered by fax shall be deemed an original signature hereto.

                  (j) Waiver. To the extent permitted by applicable law Company
         hereby waives promptness, diligence, notice of acceptance and any other
         notice with respect to any of the Indenture obligations and this
         Agreement and any requirement that the Secured Party protect, secure,
         perfect or insure any security interest or any property subject thereto
         or exhaust any

Security&Pledge Agmt - Indenture v.3

                                       22
<PAGE>   23

         right or take any action against Company or any other person or entity;
         provided however, that the Secured Party shall in any event take such
         care in the handling of any Collateral in its possession as it takes
         with respect to its own property of a similar nature in its possession.

                  (k) Notices. Any notices or other communications required or
         permitted hereunder shall be made in the manner provided in the
         Indenture.

                  (l) Conflicting Terms. In the event of any conflict or
         inconsistency between the terms, covenants, conditions and provisions
         set forth in this Agreement and the terms, covenants, conditions and
         provisions set forth in the Indenture, the terms, covenants, conditions
         and provisions of the Indenture shall prevail.

                  (m) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
         CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT
         REGARD TO PRINCIPLES OF CONFLICTS OF LAW EXCEPT SECTION 5-1401 OF THE
         NEW YORK GENERAL OBLIGATIONS LAW. THE COMPANY HEREBY IRREVOCABLY
         SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE COURT SITTING IN THE
         BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK OR ANY FEDERAL COURT
         SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK IN RESPECT
         OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
         AGREEMENT, AND IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS
         PROPERTY, GENERALLY AND UNCONDITIONALLY, JURISDICTION OF THE AFORESAID
         COURTS. THE COMPANY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY
         EFFECTIVELY DO SO UNDER APPLICABLE LAW, TRIAL BY JURY AND ANY OBJECTION
         THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY
         SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM
         THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS
         BEEN BROUGHT IN AN INCONVENIENT FORUM. THE COMPANY IRREVOCABLY
         CONSENTS, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER
         APPLICABLE LAW, TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED
         COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES
         THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE
         COMPANY AT ITS SAID ADDRESS, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS
         AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE
         SECURED PARTY TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR
         TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE COMPANY
         IN ANY OTHER JURISDICTION.

                  IN WITNESS WHEREOF, Company and the Secured Party have
executed this Agreement as of the date first above written.

Security&Pledge Agmt - Indenture v.3

                                       23
<PAGE>   24

                                         TRANSTEXAS GAS CORPORATION

                                         By:
                                               ---------------------------------

                                         Name:
                                               ---------------------------------

                                         Title:
                                               ---------------------------------

                                         FIRSTAR BANK, N.A., as TRUSTEE

                                         By:
                                               ---------------------------------

                                         Name:
                                               ---------------------------------

                                         Title:
                                               ---------------------------------

Security&Pledge Agmt - Indenture v.3

                                       24

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