##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



---

FORM 10-Q

(Mark One)

[X]

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)


OF THE SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended June 30, 1999, or

[   ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)


OF THE SECURITIES EXCHANGE ACT OF 1934


For the transition period from
                    to

Commission file number 1-10070

MCN ENERGY GROUP INC.

(Exact name of registrant as specified in its charter)

Michigan





500 Griswold Street, Detroit, Michigan



38-2820658






48226



Registrants telephone number, including area code 313-256-5500

No Changes

(Former name, former address and former fiscal
year, if changed since last report.)

Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by
 Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the
past 90 days.

Yes  [X]
            No 
 [   ]

Number of shares outstanding of
each of the registrants classes of common stock, as of
July 30, 1999:

Common Stock, par value $.01 per share: 85,655,381



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TABLE OF CONTENTS



|                                                                                                |  |  |  |  |  |  |  | 
|----------------------------------------------------------------------------------------------- |  |  |  |  |  |  |  | 
|MCN ENERGY GROUP INC. Managements Discussion and Analysis                                     
|MCN ENERGY GROUP INC. AND SUBSIDIARIES Consolidated Statement of Financial Position (Unaudited)
|MCN ENERGY GROUP INC. AND SUBSIDIARIES Consolidated Statement of Operations (Unaudited)        
|MCN ENERGY GROUP INC. AND SUBSIDIARIES Consolidated Statement of Cash Flows (Unaudited)        
|MCN ENERGY GROUP INC. AND SUBSIDIARIES Notes To The Consolidated Financial Statements          
|Consolidating Statements of Operations (Unaudited)                                             
|Other Information                                                                              
|Exhibits And Reports On Form 8-K                                                               
|Signature                                                                                      
|EXHIBIT INDEX                                                                                  



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INDEX TO FORM 10-Q

For Quarter Ended June 30, 1999

|                                                                                         |  |        |    | 
|---------------------------------------------------------------------------------------- |  | ------ | -- | 
|                                                                                         |  | Page  
|                                                                                         |  | Number
|                                                                                         |  |       
|COVER                                                                                    |  |        | i  | 
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|INDEX                                                                                    |  |        | ii | 
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|PART I   FINANCIAL INFORMATION                                                          |  |        |    | 
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Managements
	 Discussion and Analysis of Financial
	Condition and Results of Operations |  |        | 1  | 
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Financial
	Statements                                                                    |  |        | 22 | 
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|PART II  OTHER INFORMATION                                                              |  |        |    | 
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Item 5. Other Information                                                                |  |        | 44 | 
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Item 6. Exhibits and Reports on Form 8-K                                                 |  |        | 48 | 
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|SIGNATURE                                                                                |  |        | 49 | 

ii



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##### Table of Contents






MCN ENERGY GROUP INC.

MANAGEMENTS DISCUSSION AND ANALYSIS

RESULTS OF OPERATIONS

Results lower due to unusual charges, partially offset by
earnings from new gas sales program  MCN had a net
 loss for the 1999 second quarter of $86.3 million or
$1.03 per share compared with a net loss of
$212.6 million or $2.70 per share in the same 1998
quarter. MCN experienced a net loss in the 1999 six-and
twelve-month periods of $.7 million or $.01 per share and
$153.4 million or $1.91 per share, respectively,
compared with a net loss of $133.7 million or $1.70 per
 share and $87.6 million or $1.12 per share for the
same 1998 periods. As subsequently discussed, the comparability
in earnings was affected by non-recurring items consisting of an
accounting change and several unusual charges. The unusual
charges include losses on the sale of properties, property
write-downs, investment losses and restructuring charges.

|                                                               |                           |         |       |          |   |           |        |        |   |      |       |       |   |   |        |        |   |   |        |        |   |   |        |        |  
|-------------------------------------------------------------- | ------------------------- | ------- | ----- | -------- | - | --------- | ------ | ------ | - | ---- | ----- | ----- | - | - | ------ | ------ | - | - | ------ | ------ | - | - | ------ | ------ | -
|                                                               |                           |         |       |          |   |          
|                                                               |                           | Quarter |       | 6 Months |   | 12 Months
|                                                               |                           |         |       |          |   |          
|                                                               |                           | 1999    |       | 1998     |   | 1999      |        | 1998   |   | 1999 |       | 1998 
|                                                               |                           |         |       |          |   |           |        |        |   |      |       |      
|(in Millions, Except Per Share Amounts)                        |                           |         |       |          |   |           |        |        |   |      |       |       |   |   |        |        |   |   |        |        |   |   |        |       
|                                                              
|                                                              
|                                                              
|                                                              
|Net Income (Loss)                                              |                           |         |       |          |   |           |        |        |   |      |       |       |   |   |        |        |   |   |        |        |   |   |        |       
|                                                              
|                                                              
|                                                              
|                                                              
|Diversified Energy:                                            |                           |         |       |          |   |           |        |        |   |      |       |       |   |   |        |        |   |   |        |        |   |   |        |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Before unusual charges    |         | $     | (9.2     | ) |           | $      | 5.1    |   |      | $     | (5.1  | ) |   | $      | 21.3   |   |   | $      | (11.7  | ) |   | $      | 51.4   |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Unusual charges (Note 2)  |         |       | (83.4    | ) |           |        | (220.4 | ) |      |       | (83.4 | ) |   |        | (220.4 | ) |   |        | (235.8 | ) |   |        | (220.4 | )
|                                                               |                           |         |       |          |   |           |        |        |   |      |       |       |   |   |        |        |   |   |        |        |   |   |        |       
|                                                               |                           |         | (92.6 | )        |   |           | (215.3 | )      |   |      | (88.5 | )     |   |   | (199.1 | )      |   |   | (247.5 | )      |   |   | (169.0 | )     
|                                                               |                           |         |       |          |   |           |        |        |   |      |       |       |   |   |        |        |   |   |        |        |   |   |        |       
|Gas Distribution:                                              |                           |         |       |          |   |           |        |        |   |      |       |       |   |   |        |        |   |   |        |        |   |   |        |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Before unusual charges    |         |       | 6.3      |   |           |        | 2.7    |   |      |       | 90.6  |   |   |        | 65.4   |   |   |        | 113.7  |   |   |        | 81.4   |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Unusual charges (Note 2e) |         |       |         |   |           |        |       |   |      |       |      |   |   |        |       |   |   |        | (16.7  | ) |   |        |       |  
|                                                               |                           |         |       |          |   |           |        |        |   |      |       |       |   |   |        |        |   |   |        |        |   |   |        |       
|                                                               |                           |         | 6.3   |          |   |           | 2.7    |        |   |      | 90.6  |       |   |   | 65.4   |        |   |   | 97.0   |        |   |   | 81.4   |       
|                                                               |                           |         |       |          |   |           |        |        |   |      |       |       |   |   |        |        |   |   |        |        |   |   |        |       
|Total Before Accounting Change:                                |                           |         |       |          |   |           |        |        |   |      |       |       |   |   |        |        |   |   |        |        |   |   |        |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Before unusual charges    |         |       | (2.9     | ) |           |        | 7.8    |   |      |       | 85.6  |   |   |        | 86.7   |   |   |        | 102.0  |   |   |        | 132.8  |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Unusual charges (Note 2)  |         |       | (83.4    | ) |           |        | (220.4 | ) |      |       | (83.4 | ) |   |        | (220.4 | ) |   |        | (252.5 | ) |   |        | (220.4 | )
|                                                               |                           |         |       |          |   |           |        |        |   |      |       |       |   |   |        |        |   |   |        |        |   |   |        |       
|                                                               |                           |         | (86.3 | )        |   |           | (212.6 | )      |   |      | 2.2   |       |   |   | (133.7 | )      |   |   | (150.5 | )      |   |   | (87.6  | )     
|                                                              
|                                                              
|                                                              
|                                                              
|Cumulative Effect of Accounting Change, Net of Taxes
	(Note 4) |                           |         |      |          |   |           |       |        |   |      | (2.9  | )     |   |   |       |        |   |   | (2.9   | )      |   |   |       |       
|                                                               |                           |         |       |          |   |           |        |        |   |      |       |       |   |   |        |        |   |   |        |        |   |   |        |       
|                                                               |                           | $       | (86.3 | )        |   | $         | (212.6 | )      |   | $    | (.7   | )     |   | $ | (133.7 | )      |   | $ | (153.4 | )      |   | $ | (87.6  | )     
|                                                               |                           |         |       |          |   |           |        |        |   |      |       |       |   |   |        |        |   |   |        |        |   |   |        |       
|Diluted Earnings (Loss) Per Share                              |                           |         |       |          |   |           |        |        |   |      |       |       |   |   |        |        |   |   |        |        |   |   |        |       
|                                                              
|                                                              
|                                                              
|                                                              
|Diversified Energy:                                            |                           |         |       |          |   |           |        |        |   |      |       |       |   |   |        |        |   |   |        |        |   |   |        |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Before unusual charges    |         | $     | (.11     | ) |           | $      | .07    |   |      | $     | (.06  | ) |   | $      | .27    |   |   | $      | (.15   | ) |   | $      | .66    |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Unusual charges (Note 2)  |         |       | (1.00    | ) |           |        | (2.80  | ) |      |       | (1.01 | ) |   |        | (2.80  | ) |   |        | (2.94  | ) |   |        | (2.82  | )
|                                                               |                           |         |       |          |   |           |        |        |   |      |       |       |   |   |        |        |   |   |        |        |   |   |        |       
|                                                               |                           |         | (1.11 | )        |   |           | (2.73  | )      |   |      | (1.07 | )     |   |   | (2.53  | )      |   |   | (3.09  | )      |   |   | (2.16  | )     
|                                                               |                           |         |       |          |   |           |        |        |   |      |       |       |   |   |        |        |   |   |        |        |   |   |        |       
|Gas Distribution:                                              |                           |         |       |          |   |           |        |        |   |      |       |       |   |   |        |        |   |   |        |        |   |   |        |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Before unusual charges    |         |       | .08      |   |           |        | .03    |   |      |       | 1.10  |   |   |        | .83    |   |   |        | 1.42   |   |   |        | 1.04   |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Unusual charges (Note 2e) |         |       |         |   |           |        |       |   |      |       |      |   |   |        |       |   |   |        | (.21   | ) |   |        |       |  
|                                                               |                           |         |       |          |   |           |        |        |   |      |       |       |   |   |        |        |   |   |        |        |   |   |        |       
|                                                               |                           |         | .08   |          |   |           | .03    |        |   |      | 1.10  |       |   |   | .83    |        |   |   | 1.21   |        |   |   | 1.04   |       
|                                                               |                           |         |       |          |   |           |        |        |   |      |       |       |   |   |        |        |   |   |        |        |   |   |        |       
|Total Before Accounting Change:                                |                           |         |       |          |   |           |        |        |   |      |       |       |   |   |        |        |   |   |        |        |   |   |        |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Before unusual charges    |         |       | (.03     | ) |           |        | .10    |   |      |       | 1.04  |   |   |        | 1.10   |   |   |        | 1.27   |   |   |        | 1.70   |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Unusual charges (Note 2)  |         |       | (1.00    | ) |           |        | (2.80  | ) |      |       | (1.01 | ) |   |        | (2.80  | ) |   |        | (3.15  | ) |   |        | (2.82  | )
|                                                               |                           |         |       |          |   |           |        |        |   |      |       |       |   |   |        |        |   |   |        |        |   |   |        |       
|                                                               |                           |         | (1.03 | )        |   |           | (2.70  | )      |   |      | .03   |       |   |   | (1.70  | )      |   |   | (1.88  | )      |   |   | (1.12  | )     
|                                                              
|                                                              
|                                                              
|                                                              
|Cumulative Effect of Accounting Change (Note 4)                |                           |         |      |          |   |           |       |        |   |      | (.04  | )     |   |   |       |        |   |   | (.03   | )      |   |   |       |       
|                                                               |                           |         |       |          |   |           |        |        |   |      |       |       |   |   |        |        |   |   |        |        |   |   |        |       
|                                                               |                           | $       | (1.03 | )        |   | $         | (2.70  | )      |   | $    | (.01  | )     |   | $ | (1.70  | )      |   | $ | (1.91  | )      |   | $ | (1.12  | )     
|                                                               |                           |         |       |          |   |           |        |        |   |      |       |       |   |   |        |        |   |   |        |        |   |   |        |       

1



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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS


Excluding the non-recurring items, MCN had a net loss of
$2.9 million for the 1999 quarter and earnings of
$85.6 million and $102.0 million for the 1999 six-and
twelve-month periods, respectively, resulting in decreases of
$10.7 million, $1.1 million and $30.8 million from
 the corresponding 1998 periods. The comparisons reflect losses
in the Diversified Energy group resulting from the decline in
earnings in the Exploration & Production (E&P) segment
due to the disposition of assets as well as increased financing
costs. The decline in Diversified Energys results was
partially offset by increased contributions from the Gas
Distribution segment resulting from its new gas sales program and
 the favorable impact of more normal weather in the 1999
six-month period. Also affecting the comparability for the
six-and twelve-month periods were gains recorded by the
Diversified Energy group in 1998 from the sale of certain assets.

As discussed in Note 3 to the Consolidated Financial
Statements included herein and in MCNs 1998
Annual Report on Form 10-K/ A, MCN conducted a special
investigation of prior years operations of CoEnergy Trading
 Company, its non-utility energy marketing subsidiary, subsequent
 to the issuance of its December 31, 1998 financial
statements. As a result of the investigation, MCN identified that
 its internal control systems had been overridden and that
certain transactions had not been properly accounted for. The
accompanying consolidated financial statements for the 1998
periods have been restated from those originally reported to
properly account for the transactions identified. The
restatements result in an increase in net loss of
$2.5 million or $.03 per share, $4.2 million or $.05
per share and $9.5 million or $.12 per share for the 1998
second quarter, six- and twelve-month periods, respectively. The
corrections did not have an impact on the liquidity or cash flows
 of MCN. The financial information contained in Managements
 Discussion and Analysis herein has been revised to reflect the
impact of such restatement.

Strategic direction  MCNs
objective is to achieve competitive, long-term returns for its
shareholders. Consistent with this objective, MCN announced in
August 1999 a significantly revised strategic direction that
 includes: focusing on the Midwest-to-Northeast region rather
than on North America; emphasizing operational efficiencies and
growth through the integration of existing businesses rather than
 building a portfolio of diverse, non-operated energy
investments; retaining its natural gas producing properties in
Michigan while going forward with the sale of its other
exploration and production oil and gas properties; and reducing
capital investment levels to approximately $500 million in
1999 and to $300 million in 2000 and 2001.

Unusual charges  MCN recorded several
unusual charges in the 1999 second quarter as well as the 1998
second and third quarters, consisting of losses on the sale of
properties, property write-downs, investment losses and
restructuring charges (Note  2).

2



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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS


A discussion of each unusual charge by segment follows:

|                                         |                          |         |       |          |   |           |        |        |   |      |       |       |   |   |        |        |   |   |        |        |   |   |        |        |  
|---------------------------------------- | ------------------------ | ------- | ----- | -------- | - | --------- | ------ | ------ | - | ---- | ----- | ----- | - | - | ------ | ------ | - | - | ------ | ------ | - | - | ------ | ------ | -
|                                         |                          |         |       |          |   |          
|                                         |                          | Quarter |       | 6 Months |   | 12 Months
|                                         |                          |         |       |          |   |          
|                                         |                          | 1999    |       | 1998     |   | 1999      |        | 1998   |   | 1999 |       | 1998 
|                                         |                          |         |       |          |   |           |        |        |   |      |       |      
|(in Millions, Except Per Share
	Amounts) |                          |         |       |          |   |           |        |        |   |      |       |       |   |   |        |        |   |   |        |        |   |   |        |       
|                                        
|                                        
|                                        
|                                        
|Unusual Charges                          |                          |         |       |          |   |           |        |        |   |      |       |       |   |   |        |        |   |   |        |        |   |   |        |       
|                                        
|                                        
|                                        
|                                        
|Diversified Energy:                      |                          |         |       |          |   |           |        |        |   |      |       |       |   |   |        |        |   |   |        |        |   |   |        |       
|                                        
|                                        
|                                        
|                                        
|                                         | Pipelines & Processing   |         | $     |         |   |           | $      |       |   |      | $     |      |   |   | $      |       |   |   | $      | (89.5  | ) |   | $      |       |  
|                                        
|                                        
|                                        
|                                        
|                                         | Electric Power           |         |       |         |   |           |        |       |   |      |       |      |   |   |        |       |   |   |        | (1.6   | ) |   |        |       |  
|                                        
|                                        
|                                        
|                                        
|                                         | Exploration & Production |         |       | (83.4    | ) |           |        | (220.4 | ) |      |       | (83.4 | ) |   |        | (220.4 | ) |   |        | (138.0 | ) |   |        | (220.4 | )
|                                        
|                                        
|                                        
|                                        
|                                         | Corporate & Other        |         |       |         |   |           |        |       |   |      |       |      |   |   |        |       |   |   |        | (6.7   | ) |   |        |       |  
|                                         |                          |         |       |          |   |           |        |        |   |      |       |       |   |   |        |        |   |   |        |        |   |   |        |       
|                                         |                          |         | (83.4 | )        |   |           | (220.4 | )      |   |      | (83.4 | )     |   |   | (220.4 | )      |   |   | (235.8 | )      |   |   | (220.4 | )     
|                                        
|                                        
|                                        
|                                        
|Gas Distribution                         |                          |         |      |          |   |           |       |        |   |      |      |       |   |   |       |        |   |   | (16.7  | )      |   |   |       |       
|                                         |                          |         |       |          |   |           |        |        |   |      |       |       |   |   |        |        |   |   |        |        |   |   |        |       
|                                         |                          | $       | (83.4 | )        |   | $         | (220.4 | )      |   | $    | (83.4 | )     |   | $ | (220.4 | )      |   | $ | (252.5 | )      |   | $ | (220.4 | )     
|                                         |                          |         |       |          |   |           |        |        |   |      |       |       |   |   |        |        |   |   |        |        |   |   |        |       
|Diluted Loss Per Share                   |                          | $       | (1.00 | )        |   | $         | (2.80  | )      |   | $    | (1.01 | )     |   | $ | (2.80  | )      |   | $ | (3.15  | )      |   | $ | (2.82  | )     
|                                         |                          |         |       |          |   |           |        |        |   |      |       |       |   |   |        |        |   |   |        |        |   |   |        |       

Pipelines & Processing

Property Write-Downs:


In the third quarter of 1998, MCN also recorded an impairment
loss of $3.9 million pre-tax ($2.5 million net of taxes)
relating to an acquired out-of-service pipeline in Michigan. MCN
reviewed the business alternatives for this asset and determined
that its development is unlikely. Accordingly, MCN recorded an
impairment loss equal to the carrying value of this asset.

Electric Power

Restructuring Charge:


Exploration & Production

Property Write-Downs:


3



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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS


oil reserves as well as reduced expectations of sales proceeds on
 unproved acreage. Under the full cost method of accounting as
prescribed by the Securities and Exchange Commission, MCNs
capitalized exploration and production costs at June 30,
1999 exceeded the full cost ceiling, resulting in the
 excess being written off to income. The ceiling is the sum of
discounted future net cash flows from the production of proved
gas and oil reserves, and the lower of cost or estimated fair
value of unproved properties, net of related income tax effects.

In the second and third quarters of 1998, MCN recognized
write-downs of its gas and oil properties totaling
$333.0 million pre-tax ($216.4 million net of taxes)
and $83.9 million pre-tax ($54.6 million net of taxes),
 respectively. The write-downs were also the result of MCNs
 capitalized exploration and production costs exceeding the full
cost ceiling.

Losses on Sale of Properties:In the second quarter of
1999, MCN recognized losses from the sale of its Western and
Midcontinent/ Gulf Coast E&P properties totaling
$68.8 million pre-tax ($44.7 million net of taxes).

Loss on Investment:In the second quarter of 1999, MCN
recognized a $7.5 million pre-tax ($4.9 million net of
taxes) loss from the write-down of an investment in the common
stock of an E&P company. MCN had also recognized a
$6.1 million pre-tax loss ($4.0 million net of taxes)
from the write-down of this investment during the second quarter
of 1998. The losses were due to declines in the fair value of the
 securities that are not considered temporary. MCN has no
carrying value in this investment after the write-downs.

Corporate & Other

Restructuring Charge:


Gas Distribution

Property Write-Downs:


Loss on Investment:In the third quarter of 1998, MCN also
 recorded an $8.5 million pre-tax loss ($5.5 million net of
taxes) from the write-down of an investment in a Missouri gas
distribution company that MCN expects to sell in 2000. The
write-down represents the amount by which the carrying value
exceeded the estimated fair value of the investment.

4



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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS


Diversified Energy

Results reflect unusual charge and reduced E&P
contributions 


|                                     |                                                         |         |        |          |   |           |        |        |   |      |        |       |   |   |        |        |   |   |         |         |   |   |         |        |  
|------------------------------------ | ------------------------------------------------------- | ------- | ------ | -------- | - | --------- | ------ | ------ | - | ---- | ------ | ----- | - | - | ------ | ------ | - | - | ------- | ------- | - | - | ------- | ------ | -
|                                     |                                                         |         |        |          |   |          
|                                     |                                                         | Quarter |        | 6 Months |   | 12 Months
|                                     |                                                         |         |        |          |   |          
|                                     |                                                         | 1999    |        | 1998     |   | 1999      |        | 1998   |   | 1999 |        | 1998 
|                                     |                                                         |         |        |          |   |           |        |        |   |      |        |      
|(in Millions)                        |                                                         |         |        |          |   |           |        |        |   |      |        |       |   |   |        |        |   |   |         |         |   |   |         |       
|                                    
|                                    
|                                    
|                                    
|Diversified Energy Operations        |                                                         |         |        |          |   |           |        |        |   |      |        |       |   |   |        |        |   |   |         |         |   |   |         |       
|                                    
|                                    
|                                    
|                                    
|Operating Revenues*                  |                                                         | $       | 298.0  |          |   | $         | 233.2  |        |   | $    | 591.5  |       |   | $ | 505.1  |        |   | $ | 1,079.2 |         |   | $ | 1,019.1 |       
|                                     |                                                         |         |        |          |   |           |        |        |   |      |        |       |   |   |        |        |   |   |         |         |   |   |         |       
|Operating Expenses*                  |                                                         |         |        |          |   |           |        |        |   |      |        |       |   |   |        |        |   |   |         |         |   |   |         |       
|                                    
|                                    
|                                    
|                                    
|                                     | Property write-downs and restructuring charges (Note 2) |         |        | 52.0     |   |           |        | 333.0  |   |      |        | 52.0  |   |   |        | 333.0  |   |   |         | 286.5   |   |   |         | 333.0  |  
|                                    
|                                    
|                                    
|                                    
|                                     | Other                                                   |         |        | 302.3    |   |           |        | 227.0  |   |      |        | 581.8 |   |   |        | 493.8  |   |   |         | 1,077.6 |   |   |         | 986.4  |  
|                                     |                                                         |         |        |          |   |           |        |        |   |      |        |       |   |   |        |        |   |   |         |         |   |   |         |       
|                                     |                                                         |         | 354.3  |          |   |           | 560.0  |        |   |      | 633.8  |       |   |   | 826.8  |        |   |   | 1,364.1 |         |   |   | 1,319.4 |       
|                                     |                                                         |         |        |          |   |           |        |        |   |      |        |       |   |   |        |        |   |   |         |         |   |   |         |       
|Operating Loss                       |                                                         |         | (56.3  | )        |   |           | (326.8 | )      |   |      | (42.3  | )     |   |   | (321.7 | )      |   |   | (284.9  | )       |   |   | (300.3  | )     
|                                     |                                                         |         |        |          |   |           |        |        |   |      |        |       |   |   |        |        |   |   |         |         |   |   |         |       
|Equity in Earnings of Joint Ventures |                                                         |         | 11.6   |          |   |           | 11.8   |        |   |      | 23.6   |       |   |   | 28.2   |        |   |   | 56.6    |         |   |   | 58.3    |       
|                                     |                                                         |         |        |          |   |           |        |        |   |      |        |       |   |   |        |        |   |   |         |         |   |   |         |       
|Other Income & (Deductions)*         |                                                         |         |        |          |   |           |        |        |   |      |        |       |   |   |        |        |   |   |         |         |   |   |         |       
|                                    
|                                    
|                                    
|                                    
|                                     | Interest income                                         |         |        | 1.5      |   |           |        | 1.1    |   |      |        | 2.0   |   |   |        | 4.4    |   |   |         | 2.8     |   |   |         | 9.1    |  
|                                    
|                                    
|                                    
|                                    
|                                     | Interest expense                                        |         |        | (15.4    | ) |           |        | (11.8  | ) |      |        | (32.2 | ) |   |        | (21.7  | ) |   |         | (64.8   | ) |   |         | (34.3  | )
|                                    
|                                    
|                                    
|                                    
|                                     | Dividends on preferred securities of subsidiaries       |         |        | (10.4    | ) |           |        | (9.2   | ) |      |        | (20.7 | ) |   |        | (19.0  | ) |   |         | (38.1   | ) |   |         | (38.5  | )
|                                    
|                                    
|                                    
|                                    
|                                     | Loss on sale of E&P properties (Note 2c)                |         |        | (68.8    | ) |           |        |       |   |      |        | (68.8 | ) |   |        |       |   |   |         | (68.8   | ) |   |         |       |  
|                                    
|                                    
|                                    
|                                    
|                                     | Loss on E&P investment (Note 2c)                        |         |        | (7.5     | ) |           |        | (6.1   | ) |      |        | (7.5  | ) |   |        | (6.1   | ) |   |         | (7.5    | ) |   |         | (6.1   | )
|                                    
|                                    
|                                    
|                                    
|                                     | Other                                                   |         |        | 3.8      |   |           |        | .3     |   |      |        | 10.0  |   |   |        | 13.0   |   |   |         | 17.2    |   |   |         | 20.6   |  
|                                     |                                                         |         |        |          |   |           |        |        |   |      |        |       |   |   |        |        |   |   |         |         |   |   |         |       
|                                     |                                                         |         | (96.8  | )        |   |           | (25.7  | )      |   |      | (117.2 | )     |   |   | (29.4  | )      |   |   | (159.2  | )       |   |   | (49.2   | )     
|                                     |                                                         |         |        |          |   |           |        |        |   |      |        |       |   |   |        |        |   |   |         |         |   |   |         |       
|Loss Before Income Taxes             |                                                         |         | (141.5 | )        |   |           | (340.7 | )      |   |      | (135.9 | )     |   |   | (322.9 | )      |   |   | (387.5  | )       |   |   | (291.2  | )     
|                                    
|                                    
|                                    
|                                    
|Income Tax Benefit                   |                                                         |         | (48.9  | )        |   |           | (125.4 | )      |   |      | (47.4  | )     |   |   | (123.8 | )      |   |   | (140.0  | )       |   |   | (122.2  | )     
|                                     |                                                         |         |        |          |   |           |        |        |   |      |        |       |   |   |        |        |   |   |         |         |   |   |         |       
|Net Income (Loss)                    |                                                         |         |        |          |   |           |        |        |   |      |        |       |   |   |        |        |   |   |         |         |   |   |         |       
|                                    
|                                    
|                                    
|                                    
|                                     | Before unusual charges                                  |         |        | (9.2     | ) |           |        | 5.1    |   |      |        | (5.1  | ) |   |        | 21.3   |   |   |         | (11.7   | ) |   |         | 51.4   |  
|                                    
|                                    
|                                    
|                                    
|                                     | Unusual charges (Note 2)                                |         |        | (83.4    | ) |           |        | (220.4 | ) |      |        | (83.4 | ) |   |        | (220.4 | ) |   |         | (235.8  | ) |   |         | (220.4 | )
|                                     |                                                         |         |        |          |   |           |        |        |   |      |        |       |   |   |        |        |   |   |         |         |   |   |         |       
|                                     |                                                         | $       | (92.6  | )        |   | $         | (215.3 | )      |   | $    | (88.5  | )     |   | $ | (199.1 | )      |   | $ | (247.5  | )       |   | $ | (169.0  | )     
|                                     |                                                         |         |        |          |   |           |        |        |   |      |        |       |   |   |        |        |   |   |         |         |   |   |         |       

*  Includes intercompany transactions

Operating and Joint Venture Income



5



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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS


and $32.8 million, respectively. Results for all 1999
periods reflect reduced contributions from the Pipelines &
Processing and E&P segments, partially offset by lower
Corporate & Other expenses. The Electric Power segment had
reduced contributions in the current quarter and six-month
period. Energy Marketing had a larger loss in the current quarter
 and improved results in the current six-month period.

|                                          |                          |         |       |          |   |           |        |      |   |      |       |      |  |   |        |      |   |   |        |      |   |   |        |      |  
|----------------------------------------- | ------------------------ | ------- | ----- | -------- | - | --------- | ------ | ---- | - | ---- | ----- | ---- |  | - | ------ | ---- | - | - | ------ | ---- | - | - | ------ | ---- | -
|                                          |                          |         |       |          |   |          
|                                          |                          | Quarter |       | 6 Months |   | 12 Months
|                                          |                          |         |       |          |   |          
|                                          |                          | 1999    |       | 1998     |   | 1999      |        | 1998 |   | 1999 |       | 1998
|                                          |                          |         |       |          |   |           |        |      |   |      |       |     
|Operating and Joint Venture Income (Loss) |                          |         |       |          |   |           |        |      |   |      |       |      |  |   |        |      |   |   |        |      |   |   |        |     
|                                         
|                                         
|                                         
|                                         
|Before Unusual Charges:                   |                          |         |       |          |   |           |        |      |   |      |       |      |  |   |        |      |   |   |        |      |   |   |        |     
|                                         
|                                         
|                                         
|                                         
|                                          | Pipelines & Processing   |         | $     | 4.6      |   |           | $      | 6.1  |   |      | $     | 9.6  |  |   | $      | 15.6 |   |   | $      | 15.4 |   |   | $      | 31.3 |  
|                                         
|                                         
|                                         
|                                         
|                                          | Electric Power           |         |       | 3.9      |   |           |        | 6.9  |   |      |       | 11.4 |  |   |        | 12.4 |   |   |        | 25.0 |   |   |        | 24.7 |  
|                                         
|                                         
|                                         
|                                         
|                                          | Energy Marketing         |         |       | (2.3     | ) |           |        | (.2  | ) |      |       | 2.9  |  |   |        | .3   |   |   |        | (1.0 | ) |   |        | (1.2 | )
|                                         
|                                         
|                                         
|                                         
|                                          | Exploration & Production |         |       | .2       |   |           |        | 8.1  |   |      |       | 8.2  |  |   |        | 16.9 |   |   |        | 20.3 |   |   |        | 44.0 |  
|                                         
|                                         
|                                         
|                                         
|                                          | Corporate & Other        |         |       | .9       |   |           |        | (2.9 | ) |      |       | 1.2  |  |   |        | (5.7 | ) |   |        | (1.5 | ) |   |        | (7.8 | )
|                                          |                          |         |       |          |   |           |        |      |   |      |       |      |  |   |        |      |   |   |        |      |   |   |        |     
|                                          |                          |         | 7.3   |          |   |           | 18.0   |      |   |      | 33.3  |      |  |   | 39.5   |      |   |   | 58.2   |      |   |   | 91.0   |     
|                                         
|                                         
|                                         
|                                         
|Unusual Charges (Note 2)                  |                          |         | (52.0 | )        |   |           | (333.0 | )    |   |      | (52.0 | )    |  |   | (333.0 | )    |   |   | (286.5 | )    |   |   | (333.0 | )   
|                                          |                          |         |       |          |   |           |        |      |   |      |       |      |  |   |        |      |   |   |        |      |   |   |        |     
|                                          |                          | $       | (44.7 | )        |   | $         | (315.0 | )    |   | $    | (18.7 | )    |  | $ | (293.5 | )    |   | $ | (228.3 | )    |   | $ | (242.0 | )   
|                                          |                          |         |       |          |   |           |        |      |   |      |       |      |  |   |        |      |   |   |        |      |   |   |        |     

Pipelines & Processingoperating and joint venture
results (excluding the write-offs recorded in the 1998 third
quarter) decreased by $1.5 million, $6.0 million and
$15.9 million for the 1999 quarter, six- and twelve-month
periods, respectively. The 1999 quarter reflects start-up
expenditures associated with new projects and a decline in the
allowance for funds used during construction
(AFUDC) associated with MCNs 16%-owned Portland
Natural Gas Transmission System, as it was placed in service in
the first quarter of 1999. The 1999 six- and twelve-month periods
 also reflect reduced earnings from MCNs 25%-owned methanol
 production business resulting from lower methanol prices as well
 as lower methanol volumes produced. Earnings from the methanol
production business benefited from strong methanol prices during
1997 and early 1998, but prices have since weakened. Pipelines
& Processings average methanol sales prices declined
22% for the current six-month period and 37% for the 1999
twelve-month period. Methanol production declined
5.4 million gallons for the 1999 six-month period and
6.2 million gallons for the 1999 twelve-month period due
primarily to the shutdown of the methanol plant for scheduled
maintenance in March 1999. Additionally, Pipelines &
Processing results for the 1999 twelve-month period were impacted
 by $9.1 million of operating losses related to the start-up
 of the coal fines plants (Note 2a).

Pipelines & Processing operating and joint venture income was
 also affected by an increase in transportation volumes for all
1999 periods due to new gas gathering ventures and the expansion
of existing pipeline projects. Volumes transported increased for
the 1999 quarter, six- and twelve-month periods by
10.7 billion cubic feet (Bcf), 16.9 Bcf and 40.6 Bcf,
respectively. Pipelines & Processing results were also higher
 in all 1999 periods due to an increase in gas processed to
remove natural gas liquids (NGLs). Gas processed to remove NGLs
increased 10.5 Bcf, 9.0 Bcf and 16.9 Bcf in the
1999 quarter, six- and twelve-month periods, respectively,
reflecting volumes associated with the acquisition and
development of additional processing facilities. Pipelines &
Processing operations include an increase in gas processed to
remove carbon dioxide (CO2). The volume of CO2 gas treated increased 1.7 Bcf, 2.3 Bcf and 8.0 Bcf in the
1999 quarter, six- and twelve-month periods, respectively.
However, earnings were not significantly affected by these

6



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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS


increases, since under the terms of Pipelines &
Processings CO2 processing contracts, revenues
are not volume sensitive.

|                                   |                                     |                             |      |          |      |           |      |      |      |      |      |       |      |  |      |      |      |  |       |       |      |  |      |       |      | 
|---------------------------------- | ----------------------------------- | --------------------------- | ---- | -------- | ---- | --------- | ---- | ---- | ---- | ---- | ---- | ----- | ---- |  | ---- | ---- | ---- |  | ----- | ----- | ---- |  | ---- | ----- | ---- | 
|                                   |                                     |                             |      |          |      |          
|                                   |                                     | Quarter                     |      | 6 Months |      | 12 Months
|                                   |                                     |                             |      |          |      |          
|                                   |                                     | 1999                        |      | 1998     |      | 1999      |      | 1998 |      | 1999 |      | 1998 
|                                   |                                     |                             |      |          |      |           |      |      |      |      |      |      
|Pipelines & Processing Statistics* |                                     |                             |      |          |      |           |      |      |      |      |      |       |      |  |      |      |      |  |       |       |      |  |      |      
|                                  
|                                  
|                                  
|                                  
|                                   | Methanol Produced (Million Gallons) |                             |      | 16.8     |      |           |      | 14.8 |      |      |      | 24.9  |      |  |      | 30.3 |      |  |       | 55.0  |      |  |      | 61.2  |     
|                                   |                                     |                             |      |          |      |           |      |      |      |      |      |       |      |  |      |      |      |  |       |       |      |  |      |      
|                                   | Transportation (Bcf)                |                             |      | 53.0     |      |           |      | 42.3 |      |      |      | 101.1 |      |  |      | 84.2 |      |  |       | 192.4 |      |  |      | 151.8 |     
|                                   |                                     |                             |      |          |      |           |      |      |      |      |      |       |      |  |      |      |      |  |       |       |      |  |      |      
|                                   | Gas Processed (Bcf):                |                             |      |          |      |           |      |      |      |      |      |       |      |  |      |      |      |  |       |       |      |  |      |       |     
|                                  
|                                  
|                                  
|                                  
|                                   |                                     | Carbon Dioxide Treatment    |      |          | 12.9 |           |      |      | 11.2 |      |      |       | 25.8 |  |      |      | 23.5 |  |       |       | 51.1 |  |      |       | 43.1 | 
|                                  
|                                  
|                                  
|                                  
|                                   |                                     | Natural Gas Liquids Removal |      |          | 22.6 |           |      |      | 12.1 |      |      |       | 31.5 |  |      |      | 22.5 |  |       |       | 54.1 |  |      |       | 37.2 | 
|                                   |                                     |                             |      |          |      |           |      |      |      |      |      |       |      |  |      |      |      |  |       |       |      |  |      |      
|                                   |                                     |                             | 35.5 |          |      |           | 23.3 |      |      |      | 57.3 |       |      |  | 46.0 |      |      |  | 105.2 |       |      |  | 80.3 |      
|                                   |                                     |                             |      |          |      |           |      |      |      |      |      |       |      |  |      |      |      |  |       |       |      |  |      |      



|  |                                       
|- | --------------------------------------
|* | Includes MCNs share of joint ventures

Pipelines & Processing has also recorded earnings from
certain joint venture investments where it is allocated income
based on its share of the ventures earnings but not less
than a predetermined fixed amount. Joint venture income recorded
from these investments through June 1999 was based on the
fixed amount. Under the joint venture agreements, the fixed
amount will be lowered or eliminated in 2000.

Pipelines & Processing has a 75% interest in an asphalt
manufacturing partnership that recently completed construction of
 a plant designed to produce annually up to 100,000 tons of
high-quality asphalt. The plant is experiencing some technical
difficulties in producing economical quantities of asphalt. MCN
is aggressively working to resolve the technical issues.

In 1998, MCN advanced approximately $18 million to a
developer of a natural gas-based fertilizer project in the United
 Arab Emirates. The advance was structured as an interest bearing
 loan with the possibility of being converted into an equity
investment in the project. Under MCNs new strategic
direction, it is no longer likely that it will make an equity
interest in the project. While the advance is due in
September 1999, the project is being developed slower than
initially anticipated and MCNs continuing role in the
project is under negotiation.

Electric Poweroperating and joint venture results
(excluding the restructuring charges recorded in the 1998 third
quarter) decreased by $3.0 million and $1.0 million in the
1999 quarter and six-month period, respectively, and increased by
 $.3 million in the 1999 twelve-month period. Results for
all 1999 periods were unfavorably affected by an uncollectible
expense provision associated with a customer in bankruptcy.
Additionally, the 1999 periods were impacted by higher start-up
expenditures associated with new ventures as well as reduced
contributions from MCNs international power investments,
specifically its interest in the Torrent Power Limited
(TPL) venture, which holds minority interests in electric
distribution companies and power generation facilities in the
state of Gujarat, India. In February 1999, MCN reached an
agreement to sell its 40% interest in TPL for approximately
$130 million. Earnings from TPL for 1999 have been deferred
due to the pending sale that is expected to be completed in
August 1999. MCN does not expect to incur any significant
gains or losses relating to the TPL sale.

Electric Powers earnings comparison also was impacted by
increased contributions from the 1,370 megawatt (MW) Midland
 Cogeneration Venture (MCV) facility reflecting an increase in
MCNs interest in the MCV partnership from 18% to 23% in
June 1998. Earnings from the MCV partnership for the 1999
six-and twelve-month periods include a favorable
$2.1 million pre-tax

7



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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS


adjustment for the resolution of a number of contract issues with
 the electricity purchaser. Also contributing favorably to the
1999 results were higher earnings from MCNs 50%-owned, 123
MW Michigan Power cogeneration facility due to higher electricity
 capacity payments received under its long-term sales contract.

|                         |                                   |         |       |          |  |           |       |       |  |      |         |         |  |  |         |         |  |  |         |         |  |  |         |         | 
|------------------------ | --------------------------------- | ------- | ----- | -------- |  | --------- | ----- | ----- |  | ---- | ------- | ------- |  |  | ------- | ------- |  |  | ------- | ------- |  |  | ------- | ------- | 
|                         |                                   |         |       |          |  |          
|                         |                                   | Quarter |       | 6 Months |  | 12 Months
|                         |                                   |         |       |          |  |          
|                         |                                   | 1999    |       | 1998     |  | 1999      |       | 1998  |  | 1999 |         | 1998   
|                         |                                   |         |       |          |  |           |       |       |  |      |         |        
|(Thousands of MW hours)* |                                   |         |       |          |  |           |       |       |  |      |         |         |  |  |         |         |  |  |         |         |  |  |         |        
|                        
|                        
|                        
|                        
|Electric Power           |                                   |         |       |          |  |           |       |       |  |      |         |         |  |  |         |         |  |  |         |         |  |  |         |        
|                        
|                        
|                        
|                        
|                         | Electricity Sales  Domestic      |         |       | 691.1    |  |           |       | 581.0 |  |      |         | 1,392.0 |  |  |         | 1,204.0 |  |  |         | 2,704.6 |  |  |         | 2,471.0 | 
|                        
|                        
|                        
|                        
|                         | Electricity Sales  International |         |       |         |  |           |       | 298.9 |  |      |         |        |  |  |         | 537.6   |  |  |         | 750.7   |  |  |         | 538.1   | 
|                         |                                   |         |       |          |  |           |       |       |  |      |         |         |  |  |         |         |  |  |         |         |  |  |         |        
|                         |                                   |         | 691.1 |          |  |           | 879.9 |       |  |      | 1,392.0 |         |  |  | 1,741.6 |         |  |  | 3,455.3 |         |  |  | 3,009.1 |        
|                         |                                   |         |       |          |  |           |       |       |  |      |         |         |  |  |         |         |  |  |         |         |  |  |         |        



|  |                                       
|- | --------------------------------------
|* | Includes MCNs share of joint ventures

Energy Marketing operating and joint venture results
decreased $2.1 million for the 1999 quarter, and improved
$2.6 million and $.2 million for the 1999 six-and
twelve-month periods, respectively. Results for all 1999 periods
were impacted by higher costs for natural gas transportation and
storage capacity, higher uncollectible expense as well as costs
associated with the June 1999 dissolution of the
DTE-CoEnergy joint venture.

The 1999 periods were also affected by improved margins due to an
 increase in total gas sales and exchange deliveries of 41.1 Bcf,
 62.9 Bcf and 115.1 Bcf during the 1999 quarter, six- and
twelve-month periods, respectively. The increase in gas sales is
due in part to the April 1999 acquisition of existing
marketing operations that significantly increased Energy
Marketings level of sales to large commercial and
industrial customers in the Midwest. The comparisons of earnings
for all periods were also affected by losses associated with
trading activities (Note 3). Additionally, the twelve-month
period comparison was impacted by the December 1997 sale of
Energy Marketings 25% interest in a gas storage project,
that contributed $1.0 million of joint venture income in the
 1998 twelve-month period.

|                 |                         |         |       |          |  |           |       |       |  |      |       |       |  |  |       |       |  |  |       |       |  |  |       |       | 
|---------------- | ----------------------- | ------- | ----- | -------- |  | --------- | ----- | ----- |  | ---- | ----- | ----- |  |  | ----- | ----- |  |  | ----- | ----- |  |  | ----- | ----- | 
|                 |                         |         |       |          |  |          
|                 |                         | Quarter |       | 6 Months |  | 12 Months
|                 |                         |         |       |          |  |          
|                 |                         | 1999    |       | 1998     |  | 1999      |       | 1998  |  | 1999 |       | 1998 
|                 |                         |         |       |          |  |           |       |       |  |      |       |      
|(Bcf)*           |                         |         |       |          |  |           |       |       |  |      |       |       |  |  |       |       |  |  |       |       |  |  |       |      
|                
|                
|                
|                
|Energy Marketing |                         |         |       |          |  |           |       |       |  |      |       |       |  |  |       |       |  |  |       |       |  |  |       |      
|                
|                
|                
|                
|                 | Gas Sales               |         |       | 144.5    |  |           |       | 103.3 |  |      |       | 282.6 |  |  |       | 218.5 |  |  |       | 518.8 |  |  |       | 401.7 | 
|                
|                
|                
|                
|                 | Exchange Gas Deliveries |         |       | .1       |  |           |       | .2    |  |      |       | 5.6   |  |  |       | 6.8   |  |  |       | 9.9   |  |  |       | 11.9  | 
|                 |                         |         |       |          |  |           |       |       |  |      |       |       |  |  |       |       |  |  |       |       |  |  |       |      
|                 |                         |         | 144.6 |          |  |           | 103.5 |       |  |      | 288.2 |       |  |  | 225.3 |       |  |  | 528.7 |       |  |  | 413.6 |      
|                 |                         |         |       |          |  |           |       |       |  |      |       |       |  |  |       |       |  |  |       |       |  |  |       |      



|  |                                       
|- | --------------------------------------
|* | Includes MCNs share of joint ventures

The Washington 10 storage project, for which MCN markets 100% of
the 42 Bcf of storage capacity, was completed and placed into
operation in July 1999. Completion of the storage field in
time for the 1999-2000 winter heating season enhances Energy
Marketings ability to offer a reliable gas supply during
peak winter months.

Exploration & Production operating and joint venture
results (excluding the unusual charges recorded in the 1999
second quarter, 1998 second quarter and the 1998 third quarter)
decreased by $7.9 million, $8.7 million and $23.7
million for the 1999 quarter, six- and twelve-month periods,
respectively. These results reflect a decline in overall gas and
oil production of 7.6 billion cubic feet equivalent (Bcfe) in the
 1999 quarter, 10.9 Bcfe in the 1999 six-month period and 17.7
Bcfe in the 1999 twelve-month period. The decrease in gas and oil
 production is due primarily to the sale of MCNs Western
properties in April 1999. Gas and oil production in future
1999 periods will also be

8



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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS


lower than the comparable 1998 periods due to the expected sale
of other non-Michigan E&P properties by the end of 1999.

E&P results for all 1999 periods were also impacted by an
increase in production-related expenses and variations in gas and
 oil sales prices. Production expenses increased per thousand
cubic feet (Mcf) equivalent by $.22, $.09 and $.11 for the 1999
quarter, six- and twelve-month periods, respectively. Gas prices
increased by $.19 per Mcf in the 1999 second quarter, by $.16 per
 Mcf in the current six-month period and by $.13 per Mcf in the
1999 twelve-month period. Oil prices increased by $.55 per barrel
 (Bbl) in the 1999 quarter, but declined by $1.21 per Bbl and
$3.02 per Bbl in the current six- and twelve-month periods,
respectively. The impact of fluctuations in natural gas and oil
sales prices on E&P operating and joint venture income was
mitigated by hedging with swap and futures agreements, as
discussed in the Risk Management Strategy section
that follows.

|                                          |  |         |       |          |  |           |       |      |  |      |       |      |  |   |       |   |  |   |       |  |  |   |       |  
|----------------------------------------- |  | ------- | ----- | -------- |  | --------- | ----- | ---- |  | ---- | ----- | ---- |  | - | ----- | - |  | - | ----- |  |  | - | ----- | -
|                                          |  |         |       |          |  |          
|                                          |  | Quarter |       | 6 Months |  | 12 Months
|                                          |  |         |       |          |  |          
|                                          |  | 1999    |       | 1998     |  | 1999      |       | 1998 |  | 1999 |       | 1998
|                                          |  |         |       |          |  |           |       |      |  |      |       |     
|Exploration & Production Statistics       |  |         |       |          |  |           |       |      |  |      |       |      |  |   |       |   |  |   |       |  |  |   |       |  
|                                         
|                                         
|                                         
|                                         
|Gas Production (Bcf)                      |  |         | 15.7  |          |  |           | 20.6  |      |  |      | 35.3  |      |  |   | 41.1  |   |  |   | 76.2  |  |  |   | 81.1  |  
|                                         
|                                         
|                                         
|                                         
|Oil Production (million Bbl)              |  |         | .3    |          |  |           | .8    |      |  |      | .8    |      |  |   | 1.6   |   |  |   | 1.5   |  |  |   | 3.7   |  
|                                         
|                                         
|                                         
|                                         
|Gas and Oil Production (Bcf equivalent)   |  |         | 17.6  |          |  |           | 25.2  |      |  |      | 40.0  |      |  |   | 50.9  |   |  |   | 85.4  |  |  |   | 103.1 |  
|                                         
|                                         
|                                         
|                                         
|Average Gas Selling Price (per Mcf)       |  | $       | 2.18  |          |  | $         | 2.07  |      |  | $    | 1.99  |      |  | $ | 2.09  |   |  | $ | 2.02  |  |  | $ | 2.23  |  
|                                         
|                                         
|                                         
|                                         
|Effect of Hedging (per Mcf)               |  |         | .01   |          |  |           | (.07  | )    |  |      | .20   |      |  |   | (.06  | ) |  |   | .09   |  |  |   | (.25  | )
|                                          |  |         |       |          |  |           |       |      |  |      |       |      |  |   |       |   |  |   |       |  |  |   |       |  
|Overall Average Gas Sales Price (per Mcf) |  | $       | 2.19  |          |  | $         | 2.00  |      |  | $    | 2.19  |      |  | $ | 2.03  |   |  | $ | 2.11  |  |  | $ | 1.98  |  
|                                          |  |         |       |          |  |           |       |      |  |      |       |      |  |   |       |   |  |   |       |  |  |   |       |  
|Average Oil Sales Price (per Bbl)         |  | $       | 12.94 |          |  | $         | 10.49 |      |  | $    | 11.38 |      |  | $ | 11.83 |   |  | $ | 10.86 |  |  | $ | 14.07 |  
|                                         
|                                         
|                                         
|                                         
|Effect of Hedging (per Bbl)               |  |         | .44   |          |  |           | 2.34  |      |  |      | .58   |      |  |   | 1.34  |   |  |   | .92   |  |  |   | .73   |  
|                                          |  |         |       |          |  |           |       |      |  |      |       |      |  |   |       |   |  |   |       |  |  |   |       |  
|Overall Average Oil Sales Price (per Bbl) |  | $       | 13.38 |          |  | $         | 12.83 |      |  | $    | 11.96 |      |  | $ | 13.17 |   |  | $ | 11.78 |  |  | $ | 14.80 |  
|                                          |  |         |       |          |  |           |       |      |  |      |       |      |  |   |       |   |  |   |       |  |  |   |       |  

Risk management strategy  MCN manages commodity
 price risk by utilizing futures, options and swap contracts to
more fully balance its portfolio of gas and oil supply and sales
agreements. In late 1998, MCN began entering into offsetting
positions for existing hedges of gas and oil production from
properties that have been or were expected to be sold in 1999.
MCNs risk management strategy is being revised to reflect
the change in its business that will result from its new
strategic direction as previously discussed. Additionally, as a
result of the special investigation, MCN is taking additional
steps to ensure compliance with risk management policies that are
 periodically reviewed by the Board of Directors.

Corporate & Otheroperating and joint venture results
(excluding the restructuring charges recorded in the 1998 third
quarter) improved $3.8 million, $6.9 million and
$6.3 million for the 1999 quarter, six- and twelve-month
periods, respectively. These improvements reflect adjustments
that reduce or eliminate accruals for employee incentive awards
that are based on MCNs operating or stock price
performance.

Other Income and Deductions



9



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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS


include lower interest income due to the collection in
March 1998 of a $46 million advance made to a
Philippine independent power producer. Other income in the 1999
periods includes a $3.1 million pre-tax gain recorded in the
 1999 second quarter from the sale of a pipeline facility. Other
income in the 1998 six- and twelve-month periods includes
$9.9 million of pre-tax gains recorded in the 1998 first
quarter from the sale of certain gas sales contracts and a 50%
interest in the 30 MW Ada cogeneration facility. Other income for
 the 1998 twelve-month period includes a $3.2 million
pre-tax gain from the December 1997 sale of Diversified
Energys 25% interest in a gas storage project.

Income Taxes



Outlook



To achieve the operating efficiencies expected from the new
strategic direction, MCN is working to reorganize its Diversified
 Energy group into the segments detailed below. Financial
information beginning by year-end 1999 will be presented based on
 these new segments.



|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Midstream & Supply develops and manages MCNs gas
	 producing, gathering, processing, storage and transmission
	facilities within the Midwest-to-Northeast target region. It also
	 integrates all of MCNs gas supply functions, including
	purchasing the commodity itself and aggregating the
	transportation and storage capacity required to deliver the gas
	to the Gas Distribution, Energy Marketing and Power segments and
	other, non-affiliated wholesale customers.
| 
| | Energy Marketing consists of MCNs non-regulated
	marketing activities to industrial, commercial and residential
	customers, both inside and outside the Gas Distribution
	segments service area. Energy Marketing also will provide
	full-service energy solutions to business customers.                                                                                                                                                                                    
| 
| | Powerdevelops and manages independent electric power
	projects.                                                                                                                                                                                                                                                                                                                                                                                                                
| 
| | Energy Holdings manages and seeks to maximize the value of
	 existing ventures outside MCNs target region. It primarily
	 consists of gas gathering and processing investments in major
	U.S. producing basins.                                                                                                                                                                                                                                                               

10



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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS


Gas Distribution

Results reflect earnings from new gas sales program


|                                     |                                          |         |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |       |  
|------------------------------------ | ---------------------------------------- | ------- | ----- | -------- | - | --------- | ----- | ----- | - | ---- | ----- | ----- | - | - | ----- | ----- | - | - | ------- | ----- | - | - | ------- | ----- | -
|                                     |                                          |         |       |          |   |          
|                                     |                                          | Quarter |       | 6 Months |   | 12 Months
|                                     |                                          |         |       |          |   |          
|                                     |                                          | 1999    |       | 1998     |   | 1999      |       | 1998  |   | 1999 |       | 1998 
|                                     |                                          |         |       |          |   |           |       |       |   |      |       |      
|(in Millions)                        |                                          |         |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      
|                                    
|                                    
|                                    
|                                    
|Gas Distribution Operations          |                                          |         |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      
|Operating Revenues*                  |                                          |         |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      
|                                    
|                                    
|                                    
|                                    
|                                     | Gas sales                                |         | $     | 135.6    |   |           | $     | 126.0 |   |      | $     | 578.6 |   |   | $     | 499.0 |   |   | $       | 918.6 |   |   | $       | 929.1 |  
|                                    
|                                    
|                                    
|                                    
|                                     | End user transportation                  |         |       | 23.4     |   |           |       | 18.3  |   |      |       | 50.2  |   |   |       | 43.3  |   |   |         | 89.2  |   |   |         | 82.7  |  
|                                    
|                                    
|                                    
|                                    
|                                     | Intermediate transportation              |         |       | 13.9     |   |           |       | 15.9  |   |      |       | 28.6  |   |   |       | 33.8  |   |   |         | 58.0  |   |   |         | 60.9  |  
|                                    
|                                    
|                                    
|                                    
|                                     | Other                                    |         |       | 19.6     |   |           |       | 15.1  |   |      |       | 44.8  |   |   |       | 34.6  |   |   |         | 77.5  |   |   |         | 61.9  |  
|                                     |                                          |         |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      
|                                     |                                          |         | 192.5 |          |   |           | 175.3 |       |   |      | 702.2 |       |   |   | 610.7 |       |   |   | 1,143.3 |       |   |   | 1,134.6 |      
|                                    
|                                    
|                                    
|                                    
|Cost of Sales                        |                                          |         | 65.7  |          |   |           | 58.8  |       |   |      | 321.4 |       |   |   | 279.5 |       |   |   | 504.0   |       |   |   | 529.8   |      
|                                     |                                          |         |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      
|Gross Margin                         |                                          |         | 126.8 |          |   |           | 116.5 |       |   |      | 380.8 |       |   |   | 331.2 |       |   |   | 639.3   |       |   |   | 604.8   |      
|                                     |                                          |         |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      
|Other Operating Expenses*            |                                          |         |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      
|                                    
|                                    
|                                    
|                                    
|                                     | Operation and maintenance                |         |       | 67.7     |   |           |       | 62.8  |   |      |       | 138.2 |   |   |       | 125.9 |   |   |         | 268.9 |   |   |         | 266.8 |  
|                                    
|                                    
|                                    
|                                    
|                                     | Depreciation, depletion and amortization |         |       | 25.1     |   |           |       | 23.6  |   |      |       | 50.0  |   |   |       | 46.3  |   |   |         | 97.5  |   |   |         | 98.4  |  
|                                    
|                                    
|                                    
|                                    
|                                     | Property and other taxes                 |         |       | 12.9     |   |           |       | 14.1  |   |      |       | 31.5  |   |   |       | 31.6  |   |   |         | 55.9  |   |   |         | 58.8  |  
|                                    
|                                    
|                                    
|                                    
|                                     | Property write-down (Note 2e)            |         |       |         |   |           |       |      |   |      |       |      |   |   |       |      |   |   |         | 24.8  |   |   |         |      |  
|                                     |                                          |         |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      
|                                     |                                          |         | 105.7 |          |   |           | 100.5 |       |   |      | 219.7 |       |   |   | 203.8 |       |   |   | 447.1   |       |   |   | 424.0   |      
|                                     |                                          |         |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      
|Operating Income                     |                                          |         | 21.1  |          |   |           | 16.0  |       |   |      | 161.1 |       |   |   | 127.4 |       |   |   | 192.2   |       |   |   | 180.8   |      
|                                     |                                          |         |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      
|Equity in Earnings of Joint Ventures |                                          |         | .6    |          |   |           | (.1   | )     |   |      | 1.0   |       |   |   | .4    |       |   |   | 1.6     |       |   |   | 1.0     |      
|                                     |                                          |         |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      
|Other Income and (Deductions)*       |                                          |         |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      
|                                    
|                                    
|                                    
|                                    
|                                     | Interest income                          |         |       | .8       |   |           |       | 1.0   |   |      |       | 1.8   |   |   |       | 2.0   |   |   |         | 5.5   |   |   |         | 4.2   |  
|                                    
|                                    
|                                    
|                                    
|                                     | Interest expense                         |         |       | (12.7    | ) |           |       | (12.6 | ) |      |       | (26.5 | ) |   |       | (28.0 | ) |   |         | (56.0 | ) |   |         | (55.0 | )
|                                    
|                                    
|                                    
|                                    
|                                     | Investment loss (Note 2e)                |         |       |         |   |           |       |      |   |      |       |      |   |   |       |      |   |   |         | (8.5  | ) |   |         |      |  
|                                    
|                                    
|                                    
|                                    
|                                     | Minority interest                        |         |       | (.2      | ) |           |       | (.5   | ) |      |       | (.5   | ) |   |       | (1.2  | ) |   |         | 6.4   |   |   |         | (2.2  | )
|                                    
|                                    
|                                    
|                                    
|                                     | Other                                    |         |       | (.3      | ) |           |       | .6    |   |      |       | .1    |   |   |       | .7    |   |   |         | (.7   | ) |   |         | 1.2   |  
|                                     |                                          |         |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      
|                                     |                                          |         | (12.4 | )        |   |           | (11.5 | )     |   |      | (25.1 | )     |   |   | (26.5 | )     |   |   | (53.3   | )     |   |   | (51.8   | )    
|                                     |                                          |         |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      
|Income Before Income Taxes           |                                          |         | 9.3   |          |   |           | 4.4   |       |   |      | 137.0 |       |   |   | 101.3 |       |   |   | 140.5   |       |   |   | 130.0   |      
|                                    
|                                    
|                                    
|                                    
|Income Taxes                         |                                          |         | 3.0   |          |   |           | 1.7   |       |   |      | 46.4  |       |   |   | 35.9  |       |   |   | 43.5    |       |   |   | 48.6    |      
|                                     |                                          |         |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      
|Net Income                           |                                          |         |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      
|                                    
|                                    
|                                    
|                                    
|                                     | Before unusual charges                   |         |       | 6.3      |   |           |       | 2.7   |   |      |       | 90.6  |   |   |       | 65.4  |   |   |         | 113.7 |   |   |         | 81.4  |  
|                                    
|                                    
|                                    
|                                    
|                                     | Unusual charges (Note 2e)                |         |       |         |   |           |       |      |   |      |       |      |   |   |       |      |   |   |         | (16.7 | ) |   |         |      |  
|                                     |                                          |         |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      
|                                     |                                          | $       | 6.3   |          |   | $         | 2.7   |       |   | $    | 90.6  |       |   | $ | 65.4  |       |   | $ | 97.0    |       |   | $ | 81.4    |      
|                                     |                                          |         |       |          |   |           |       |       |   |      |       |       |   |   |       |       |   |   |         |       |   |   |         |      

*  Includes intercompany transactions

Gross Margin



11



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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS


its Regulatory Reform Plan (Note 5a). Under the gas sales program
 that began in January 1999, MichCons gas sales rates
include a gas commodity component that is fixed at $2.95 per Mcf.
 As part of its gas acquisition strategy, MichCon has entered
into fixed-price contracts at costs below $2.95 per Mcf for a
substantial portion of its expected gas supply requirements
through 2001. This strategy is likely to continue producing
favorable margins in each of the three years.

Gross margins for the 1999 six-month period also reflect higher
gas sales resulting from colder weather compared to the same 1998
 period. Additionally, gross margins for all 1999 periods reflect
 revenues from the continued growth in other gas-related services
 as well as revenues and cost of sales associated with the three
heating and cooling firms acquired in October 1998.

Gas Distributions operations are seasonal, with gross
margins and earnings concentrated in the first and fourth
quarters of each calendar year. By the end of the first quarter,
the heating season is largely over, and Gas Distribution
typically incurs substantially reduced gross margins and earnings
 in the second quarter and losses in the third quarter. The
seasonal nature of Gas Distributions operations is expected
 to be more pronounced as a result of MichCons new gas
sales program.

|                                              |                            |                            |  |          |      |           |  |       |      |      |  |      |       |   |  |       |       |   |  |       |       |   |  |       |       |  
|--------------------------------------------- | -------------------------- | -------------------------- |  | -------- | ---- | --------- |  | ----- | ---- | ---- |  | ---- | ----- | - |  | ----- | ----- | - |  | ----- | ----- | - |  | ----- | ----- | -
|                                              |                            |                            |  |          |      |          
|                                              |                            | Quarter                    |  | 6 Months |      | 12 Months
|                                              |                            |                            |  |          |      |          
|                                              |                            | 1999                       |  | 1998     |      | 1999      |  | 1998  |      | 1999 |  | 1998
|                                              |                            |                            |  |          |      |           |  |       |      |      |  |     
|Effect of Weather on Gas Markets and Earnings |                            |                            |  |          |      |           |  |       |      |      |  |      |       |   |  |       |       |   |  |       |       |   |  |      
|                                             
|                                             
|                                             
|                                             
|                                              | Percent Warmer Than Normal |                            |  | (21.4    | )%   |           |  | (24.8 | )%   |      |  | (7.8 | )%    |   |  | (20.1 | )%    |   |  | (11.6 | )%    |   |  | (12.9 | )%   
|                                             
|                                             
|                                             
|                                             
|                                              | Decrease From Normal in:   |                            |  |          |      |           |  |       |      |      |  |      |       |   |  |       |       |   |  |       |       |   |  |       |      
|                                             
|                                             
|                                             
|                                             
|                                              |                            | Gas Markets (Bcf)          |  |          | (5.3 | )         |  |       | (6.1 | )    |  |      | (10.4 | ) |  |       | (25.3 | ) |  |       | (25.4 | ) |  |       | (26.2 | )
|                                             
|                                             
|                                             
|                                             
|                                              |                            | Net Income (Millions)      |  | $        | (5.1 | )         |  | $     | (5.3 | )    |  | $    | (10.3 | ) |  | $     | (22.0 | ) |  | $     | (23.7 | ) |  | $     | (22.8 | )
|                                             
|                                             
|                                             
|                                             
|                                              |                            | Diluted Earnings Per Share |  | $        | (.06 | )         |  | $     | (.07 | )    |  | $    | (.13  | ) |  | $     | (.28  | ) |  | $     | (.29  | ) |  | $     | (.29  | )

Gas sales and end user transportationrevenues in total
increased by $14.7 million and $86.5 million for the 1999
quarter and six-month period, respectively, and decreased by
$4.0 million for the 1999 twelve-month period. Revenues were
 affected by fluctuations in gas sales and end user
transportation deliveries that increased by .1 Bcf and
12.7 Bcf in the current quarter and six-month period,
respectively, and decreased by .2 Bcf in the 1999
twelve-month period. The fluctuations in gas sales and end user
transportation deliveries were due primarily to weather, which
was colder in all the 1999 periods compared to the corresponding
1998 periods. The effect of more favorable weather on deliveries
in the 1999 twelve-month period was more than offset by a
decrease in end user transportation deliveries as a result of the
 temporary shut-down of an industrial customers plant.

Revenues were also impacted by variations in the cost of the gas
commodity component of gas sales rates. As previously discussed,
this gas commodity component was fixed under MichCons new
gas sales program at $2.95 per Mcf beginning in
January 1999. Prior to 1999, MichCons sales rates were
 set to recover all of its reasonably and prudently incurred gas
costs. The gas commodity component of MichCons sales
increased $.20 per Mcf (7%) and $.18 per Mcf (6%) for the 1999

12



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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS


quarter and six-month period, respectively, and decreased $.12
per Mcf (4%) for the 1999 twelve-month period.

|                 |                              |         |       |          |  |           |       |       |  |      |       |       |  |  |       |       |  |  |       |       |  |  |       |       | 
|---------------- | ---------------------------- | ------- | ----- | -------- |  | --------- | ----- | ----- |  | ---- | ----- | ----- |  |  | ----- | ----- |  |  | ----- | ----- |  |  | ----- | ----- | 
|                 |                              |         |       |          |  |          
|                 |                              | Quarter |       | 6 Months |  | 12 Months
|                 |                              |         |       |          |  |          
|                 |                              | 1999    |       | 1998     |  | 1999      |       | 1998  |  | 1999 |       | 1998 
|                 |                              |         |       |          |  |           |       |       |  |      |       |      
|(Bcf)            |                              |         |       |          |  |           |       |       |  |      |       |       |  |  |       |       |  |  |       |       |  |  |       |      
|                
|                
|                
|                
|Gas Distribution |                              |         |       |          |  |           |       |       |  |      |       |       |  |  |       |       |  |  |       |       |  |  |       |      
|                
|                
|                
|                
|                 | Gas Sales                    |         |       | 24.1     |  |           |       | 24.7  |  |      |       | 116.6 |  |  |       | 104.7 |  |  |       | 184.1 |  |  |       | 183.9 | 
|                
|                
|                
|                
|                 | End User Transportation      |         |       | 31.8     |  |           |       | 31.1  |  |      |       | 74.4  |  |  |       | 73.6  |  |  |       | 141.1 |  |  |       | 141.5 | 
|                 |                              |         |       |          |  |           |       |       |  |      |       |       |  |  |       |       |  |  |       |       |  |  |       |      
|                 |                              |         |       | 55.9     |  |           |       | 55.8  |  |      |       | 191.0 |  |  |       | 178.3 |  |  |       | 325.2 |  |  |       | 325.4 | 
|                
|                
|                
|                
|                 | Intermediate Transportation* |         |       | 135.0    |  |           |       | 148.4 |  |      |       | 262.4 |  |  |       | 296.8 |  |  |       | 503.1 |  |  |       | 601.2 | 
|                 |                              |         |       |          |  |           |       |       |  |      |       |       |  |  |       |       |  |  |       |       |  |  |       |      
|                 |                              |         | 190.9 |          |  |           | 204.2 |       |  |      | 453.4 |       |  |  | 475.1 |       |  |  | 828.3 |       |  |  | 926.6 |      
|                 |                              |         |       |          |  |           |       |       |  |      |       |       |  |  |       |       |  |  |       |       |  |  |       |      



|  |                              
|- | -----------------------------
|* | Includes intercompany volumes

Additionally, gas sales and end user transportation revenues in
total were impacted by MichCons three-year customer choice
program, which is also part of its Regulatory Reform Plan. Under
the customer choice program that began in April 1999,
approximately 70,000 or 6% of its customers are purchasing
natural gas from suppliers other than MichCon. However, MichCon
continues to transport and deliver the gas to the customers
 premises at prices that maintain its previously existing sales
margins on these services. MichCons customers who have
chosen to purchase their gas from other suppliers are reflected
as end user transportation customers rather than gas sales
customers. Accordingly, gas sales revenues have decreased,
partially offset by an increase in end user transportation
revenues, resulting in a net decrease in total operating revenues
 due to the gas commodity component included in gas sales rates.

Intermediate transportation revenues decreased
$2.0 million, $5.2 million and $2.9 million in the
 1999 quarter, six- and twelve-month periods, respectively.
Intermediate transportation revenues reflect lower off-system
volumes of 13.4 Bcf, 34.4 Bcf and 98.1 Bcf in the 1999 quarter,
six-and twelve-month periods, respectively. A significant portion
 of the volume decrease was for customers who pay a fixed fee for
 intermediate transportation capacity regardless of actual usage.
 Although volumes associated with these fixed-fee customers may
vary, the related revenues are not affected. The decrease in
intermediate transportation revenues for all 1999 periods is due
in part to an adjustment in 1998 of revenues related to fees
generated from tracking the transfer of gas title on
MichCons transportation system. The decrease for all 1999
periods is also due to customers shifting volumes from a higher
rate to a lower rate transportation route.

Other operating revenues increased $4.5 million,
$10.1 million and $15.6 million in the 1999 quarter, six-and
 twelve-month periods, respectively. The improvements are due to
an increase in facility development and appliance maintenance
services, late payment fees and other gas-related services.
Additionally, all 1999 periods reflect revenues from the
acquisition of three heating and cooling firms in
October 1998.

Cost of Sales



13



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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS


is fixed. Accordingly, beginning in January 1999, changes in
 cost of gas sold directly impact gross margins and earnings.

Cost of sales increased $6.9 million and $41.9 million
in the 1999 quarter and six-month period, respectively, and
decreased $25.8 million in the 1999 twelve-month period. The
 increase in the current quarter and six-month period was due
primarily to higher weather-driven gas sales volumes. Cost of
sales was also impacted by a decrease in average prices paid for
gas of $.05 per Mcf (2%) in the 1999 six-month period and $.27
per Mcf (9%) in the current twelve-month period. Prices paid for
gas sold in the 1999 second quarter increased by $.01 per Mcf.
Additionally, all 1999 periods reflect cost of sales associated
with the operations of the three heating and cooling firms
acquired in October 1998.

Other Operating Expenses

Operation and maintenance


Depreciation and depletion increased $1.5 million and
 $3.7 million in the 1999 quarter and six-month period,
respectively, and decreased $.9 million in the 1999
twelve-month period. Depreciation on higher plant balances
impacted all 1999 periods. Additionally, the twelve-month period
comparison reflects the effect of lower depreciation rates for
MichCons utility property, plant and equipment that became
effective in January 1998.

Property and other taxes decreased $1.2 million,
$.1 million and $2.9 million in the 1999 quarter, six-
and twelve-month periods, respectively. The improvement in all
1999 periods is attributable to lower property taxes. The 1999
quarter and twelve-month periods were also impacted by lower
Michigan Single Business Tax resulting from an increase in
capital acquisitions deductions.

Property write-down of $24.8 million in the 1999
twelve-month period represents the impairment of a Michigan gas
gathering system (Note 2e).

Equity in Earnings of Joint Ventures



Other Income and Deductions



14



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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS


in the 1999 twelve-month period also reflect an unusual charge to
 write down the investment in a small natural gas distribution
company located in Missouri (Note 2e). Also impacting other
income and deductions in the 1999 twelve-month period was a
change in minority interest reflecting the joint venture
partners share of the write-down of the Michigan gas
gathering properties (Note 2e).

Income Taxes



Outlook



Gas Distribution has begun, and plans to continue capitalizing on
 opportunities resulting from the gas industry restructuring.
MichCon is currently implementing its Regulatory Reform Plan,
which includes a comprehensive experimental three-year customer
choice program which is designed to offer all sales customers
added choices and greater price certainty. Beginning
April 1, 1999, a limited number of customers have the option
 of purchasing natural gas from suppliers other than MichCon.
However, MichCon will continue to transport and deliver the gas
to the customers premises at prices that maintain its
previously existing sales margins on these services. The Plan
also suspended the GCR mechanism for customers who continue to
purchase gas from MichCon and fixed the gas commodity component
of MichCons sales rates at $2.95 per Mcf for the three-year
 period that began in January 1999. The suspension of the
GCR mechanism allows MichCon to profit from its ability to
purchase gas at less than $2.95 per Mcf. Also beginning in 1999,
an income sharing mechanism allows customers to share in profits
when actual returns on equity from utility operations exceed
predetermined thresholds. The impact of weather and expenses
incurred in the second half of 1999 will determine the actual
amount of profits, if any, to be shared with customers.

Gas Distribution also plans to grow revenues and earnings by
offering a variety of energy-related services, which include
appliance maintenance. Growth in revenues is expected from the
three heating and cooling firms acquired in October 1998
that have been integrated under MichCon Home Services, which is
expanding its customer base and range of services.

Changes in Accounting

Reporting on the Costs of Start-up
Activities


In the 1999 first quarter, MCN adopted the Emerging Issues Task
Force consensus on Issue No. 98-10, Accounting for
Energy Trading and Risk Management Activities
(EITF 98-10). EITF 98-10 requires all energy trading
contracts to be recognized in the balance sheet as either

15



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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS


assets or liabilities measured at their fair value, with changes
in fair value recognized in earnings. Adoption of EITF 98-10
 did not have a material impact on MCNs financial
statements.

CAPITAL RESOURCES AND LIQUIDITY

|                                          |                      |          |     |        |   |   |      |        |  
|----------------------------------------- | -------------------- | -------- | --- | ------ | - | - | ---- | ------ | -
|                                          |                      |         
|                                          |                      | 6 Months
|                                          |                      |         
|                                          |                      | 1999     |     | 1998  
|                                          |                      |          |     |       
|(in Millions)                             |                      |          |     |        |   |   |      |       
|                                         
|                                         
|                                         
|                                         
|Cash and Cash Equivalents                 |                      |          |     |        |   |   |      |       
|                                         
|                                         
|                                         
|                                         
|Cash Flow Provided From (Used For):       |                      |          |     |        |   |   |      |       
|                                         
|                                         
|                                         
|                                         
|                                          | Operating activities |          | $   | 290.9  |   |   | $    | 275.2  |  
|                                         
|                                         
|                                         
|                                         
|                                          | Financing activities |          |     | (249.3 | ) |   |      | 62.1   |  
|                                         
|                                         
|                                         
|                                         
|                                          | Investing activities |          |     | (38.6  | ) |   |      | (295.8 | )
|                                          |                      |          |     |        |   |   |      |       
|Net Increase in Cash and Cash Equivalents |                      | $        | 3.0 |        |   | $ | 41.5 |       
|                                          |                      |          |     |        |   |   |      |       

Operating Activities



Financing Activities



Prior to mid-February 1999, MCN issued new shares of common
stock pursuant to its Dividend Reinvestment and Stock Purchase
Plan and various employee benefit plans. MCN generated
$.2 million in the 1999 six-month period and $10.4 million
in the same 1998 period from common stock issuances under these
plans. Beginning in mid-February 1999, shares issued under
these plans are being acquired by MCN through open market
purchases.

MCNs 5,865,000 of Preferred Redeemable Increased Dividend
Equity Securities (Enhanced PRIDES) matured in April 1999.
Each security represented a contract to purchase one share of MCN
 common stock. Upon conversion of the Enhanced PRIDES, MCN
received cash proceeds totaling approximately
$135.0 million. The proceeds were used to repay a
$130.0 million medium-term note of Diversified Energy that
came due in May 1999.

In March 1999, MCN entered into a $150 million
revolving credit agreement that expires in October 1999.
Borrowings under the credit agreement will be used to fund
capital investments and for general corporate purposes. There was
 $40 million outstanding under this credit agreement at
June 30, 1999.

Diversified Energy



16



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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS


finance capital investments and to finance Energy
Marketings working capital requirements. The 364-day
facility was renewed in July 1999. During the first six
months of 1999, Diversified Energys commercial paper and
bank borrowings outstanding increased by $112.1 million,
leaving borrowings of $337.8 million outstanding under this
program at June 30, 1999.

MCN received approximately $165 million in April 1999
from the sale of its Western E&P properties and approximately
 $65 million in August 1999 from the sale of its
Midcontinent/ Gulf Coast E&P properties. Proceeds from the
sales were used to repay outstanding debt at the MCN Corporate
and Diversified Energy levels. Proceeds from the sale of
additional non-Michigan E&P properties are expected by the
end of 1999 and will be used to repay outstanding borrowings and
for general corporate purposes.

MCN repaid $80 million of medium-term notes and
$130 million of medium-term notes that came due in
February 1999 and May 1999, respectively.

Gas Distribution



During the 1999 quarter, MichCon issued approximately
$110 million of debt (Note 9) and repaid
$50 million of first mortgage bonds.

Investing Activities



17



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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS


Capital investments equaled $263.8 million in the 1999
six-month period compared to $443.7 million for the same
period in 1998. The 1999 investments include significantly lower
levels of investments in E&P properties, pipeline and
processing ventures and gas distribution facilities.

|                                                      |                                                |          |       |       |  |   |       |       | 
|----------------------------------------------------- | ---------------------------------------------- | -------- | ----- | ----- |  | - | ----- | ----- | 
|                                                      |                                                |         
|                                                      |                                                | 6 Months
|                                                      |                                                |         
|                                                      |                                                | 1999     |       | 1998 
|                                                      |                                                |          |       |      
|(in Millions)                                         |                                                |          |       |       |  |   |       |      
|                                                     
|                                                     
|                                                     
|                                                     
|Capital Investments                                   |                                                |          |       |       |  |   |       |      
|                                                     
|                                                     
|                                                     
|                                                     
|Consolidated Capital Expenditures:                    |                                                |          |       |       |  |   |       |      
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Diversified Energy                             |          | $     | 104.5 |  |   | $     | 202.5 | 
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Gas Distribution                               |          |       | 58.4  |  |   |       | 75.2  | 
|                                                      |                                                |          |       |       |  |   |       |      
|                                                      |                                                |          | 162.9 |       |  |   | 277.7 |      
|                                                      |                                                |          |       |       |  |   |       |      
|MCNs Share of Joint Venture Capital Expenditures:(1) |                                                |          |       |       |  |   |       |      
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Pipelines & Processing                         |          |       | 51.1  |  |   |       | 94.3  | 
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Energy Marketing, Gas Storage & Electric Power |          |       | 15.1  |  |   |       | 11.9  | 
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Other                                          |          |       | .1    |  |   |       | .5    | 
|                                                      |                                                |          |       |       |  |   |       |      
|                                                      |                                                |          | 66.3  |       |  |   | 106.7 |      
|                                                      |                                                |          |       |       |  |   |       |      
|Acquisitions:(2)                                      |                                                |          | 34.6  |       |  |   | 59.3  |      
|                                                      |                                                |          |       |       |  |   |       |      
|Total Capital Investments                             |                                                | $        | 263.8 |       |  | $ | 443.7 |      
|                                                      |                                                |          |       |       |  |   |       |      

(1)  A portion of joint venture capital
expenditures is financed with joint venture debt

(2)  Includes MCNs share of certain
debt existing at the date of acquisitions

Total capital investments were partially funded from the sale of
certain E&P properties and joint venture investments that
totaled approximately $200 million in the 1999 six-month period.

Outlook

1999 capital investments to approximate
$500 million 


The proposed level of investments for 2000 and each of the next
several years will approximate $300 million and is expected
to be financed primarily with internally generated funds. No
issuance of incremental equity securities is expected for the
next few years. It is managements opinion that MCN and its
subsidiaries will have sufficient capital resources to meet
anticipated capital and operating requirements.

YEAR 2000

As discussed in MCNs 1998 Annual Report on Form 10-K/
A, MCN has implemented a corporate-wide, four-phase Year 2000
approach consisting of: i) inventory  identification
of the components of MCNs systems, equipment and
facilities; ii) assessment  assessing Year 2000
readiness and prioritizing the risks of items identified in the
inventory phase; iii) remediation  upgrading,
repairing and replacing non-compliant systems, equipment and
facilities; and iv) testing  verifying items
remediated. MCN is on schedule to have its mission-critical
business systems, and measurement and control systems (including
embedded microprocessors) Year 2000 ready as detailed below.
 The extension of the program reflects MCNs determination
that additional testing and remediation is appropriate for some
critical business and control systems for both MCN and its
partners and vendors. The decision to retain the Michigan E&P
 properties has also made it

18



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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS


necessary to extend the testing timeline for a few business
systems. The estimated completion status of these systems and the
 projected status for the future follows:

|                                 |                    |           |  |            |   |             |  |         |   |  |  |     |   |  |  |     |  
|-------------------------------- | ------------------ | --------- |  | ---------- | - | ----------- |  | ------- | - |  |  | --- | - |  |  | --- | -
|                                 |                    | Inventory |  | Assessment |   | Remediation |  | Testing
|                                 |                    |           |  |            |   |             |  |        
|Business Systems:                |                    |           |  |            |   |             |  |         |   |  |  |     |   |  |  |    
|                                
|                                
|                                
|                                
|                                 | June 30, 1999      |           |  | 100        | % |             |  | 100     | % |  |  | 90  | % |  |  | 80  | %
|                                
|                                
|                                
|                                
|                                 | September 30, 1999 |           |  | 100        | % |             |  | 100     | % |  |  | 100 | % |  |  | 98  | %
|                                
|                                
|                                
|                                
|                                 | November 30, 1999  |           |  | 100        | % |             |  | 100     | % |  |  | 100 | % |  |  | 100 | %
|                                
|                                
|                                
|                                
|Measurement and Control Systems: |                    |           |  |            |   |             |  |         |   |  |  |     |   |  |  |    
|                                
|                                
|                                
|                                
|                                 | June 30, 1999      |           |  | 100        | % |             |  | 100     | % |  |  | 98  | % |  |  | 98  | %
|                                
|                                
|                                
|                                
|                                 | September 30, 1999 |           |  | 100        | % |             |  | 100     | % |  |  | 100 | % |  |  | 100 | %

Costs associated with the Year 2000 issue are not expected to
have a material adverse effect on MCN results of operation,
liquidity and financial condition. The total costs are estimated
to be between $5 million and $6 million, of which
approximately $4.2 million was incurred through
June 1999. This estimate does not include MCNs share
of Year 2000 costs that may be incurred by partnerships and joint
 ventures. The anticipated costs are not higher due in part to
the ongoing replacement of significant old systems. New systems
in process of being installed, as well as those installed over
the past few years, are Year 2000 ready. These systems were
necessary to maintain a high level of customer satisfaction and
to respond to changes in regulation and increased competition
within the energy industry.

MCN anticipates a smooth transition to the Year 2000. However,
the failure to correct a material Year 2000 problem could result
in an interruption in or a failure of certain business activities
 and operations. Such interruptions or failures could have a
material adverse effect on MCNs results of operations,
liquidity and financial condition. Due to the uncertainty
inherent in the Year 2000 issue, resulting in part from the
uncertainty of the Year 2000 readiness of key partners,
operators, suppliers and government agencies, MCN cannot certify
that it will be unaffected by Year 2000 complications.

In order to reduce its Year 2000 risk, MCN is developing
contingency plans for mission-critical processes in the event of
a Year 2000 complication. Contingency plans for several essential
 gas transmission facilities continue to be tested under a
power outage scenario and have achieved excellent
results. Contingency plans will continue to be refined throughout
 1999 as MCN works with partners, operators, suppliers and
governmental agencies.

MARKET RISK INFORMATION

As discussed in MCNs 1998 Annual Report on Form 10-K/
A, MCN manages commodity price and interest rate risk through the
 use of various derivative instruments and limits the use of such
 instruments to hedging activities. A discussion and analysis of
the events and factors that have changed MCNs commodity
price, interest rate and foreign currency risk during the 1999
six-month period follows.

Commodity Price Risk



19



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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS


a result of entering into the offsetting positions, as well as
changes in commodity prices that occurred during the 1999
six-month period, there have been significant changes in the
outcome of the sensitivity analysis performed for commodity price
 risk at June 30, 1999 as compared to December 31,
1998.

A sensitivity analysis calculates the change in fair values of
MCNs natural gas and oil futures and swap agreements given
a hypothetical 10% increase or decrease in commodity prices
utilizing applicable forward commodity rates in effect at the end
 of the reporting period.

The results of the sensitivity analysis calculations follow:

|                                  |  |               |       |                   |  |             |       |             |  |   |       |   |  |   |       |  
|--------------------------------- |  | ------------- | ----- | ----------------- |  | ----------- | ----- | ----------- |  | - | ----- | - |  | - | ----- | -
|                                  |  |               |       |                  
|                                  |  | June 30, 1999 |       | December 31, 1998
|                                  |  |               |       |                  
|                                  |  | Assuming      |       | Assuming          |  | Assuming    |       | Assuming   
|                                  |  | a 10%         |       | a 10%             |  | a 10%       |       | a 10%      
|                                  |  | Increase in   |       | Decrease in       |  | Increase in |       | Decrease in
|                                  |  | Commodity     |       | Commodity         |  | Commodity   |       | Commodity  
|                                  |  | Prices        |       | Prices            |  | Prices      |       | Prices     
|                                  |  |               |       |                   |  |             |       |            
|(in Millions)                     |  |               |       |                   |  |             |       |             |  |   |       |   |  |   |       |  
|Commodity Price Sensitive:*       |  |               |       |                   |  |             |       |             |  |   |       |   |  |   |       |  
|                                 
|                                 
|                                 
|                                 
|Swaps: Pay fixed/receive variable |  | $             | 85.2  |                   |  | $           | (85.2 | )           |  | $ | 53.6  |   |  | $ | (53.6 | )
|                                 
|                                 
|                                 
|                                 
|Pay
	variable/receive fixed       |  | $             | (76.6 | )                 |  | $           | 76.6  |             |  | $ | (54.0 | ) |  | $ | 54.0  |  
|                                 
|                                 
|                                 
|                                 
|Futures: Longs                    |  | $             | 6.3   |                   |  | $           | (6.3  | )           |  | $ | 1.9   |   |  | $ | (1.9  | )
|                                 
|                                 
|                                 
|                                 
|Shorts                            |  | $             | (7.4  | )                 |  | $           | 7.4   |             |  | $ | (.1   | ) |  | $ | .1    |  



|  |                                                                                                                                              
|- | ---------------------------------------------------------------------------------------------------------------------------------------------
|* | Includes only the risk related to the derivative
	instruments that serve as hedges and does not include the related
	 underlying hedged item.

Interest Rate Risk



Foreign Currency Risk



NEW ACCOUNTING PRONOUNCEMENTS

Derivative and Hedging Activities  In
June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards
(SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities, effective for
fiscal years beginning after June 15, 1999. In
June 1999, the FASB issued SFAS No. 137, Accounting for Derivative Instruments and Hedging
Activities  Deferral of the Effective Date of FASB
Statement No. 133. SFAS No. 137 changes the
effective date of SFAS No. 133 to fiscal years beginning
after June 15, 2000.

SFAS No. 133 requires all derivatives to be recognized in
the balance sheet as either assets or liabilities measured at
their fair value and sets forth conditions in which a derivative
instrument may

20



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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS


be designated as a hedge. The Statement requires that changes in
the fair value of derivatives be recognized currently in earnings
 unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivatives gains
 and losses to be recorded to other comprehensive income or to
offset related results on the hedged item in earnings.

MCN manages commodity price risk and interest rate risk through
the use of various derivative instruments and predominantly
limits the use of such instruments to hedging activities. The
effects of SFAS No. 133 on MCNs financial statements
are subject to fluctuations in the market value of hedging
contracts which are, in turn, affected by variations in gas and
oil prices and in interest rates. Accordingly, management cannot
quantify the effects of adopting SFAS No. 133 at this time.

FORWARD-LOOKING STATEMENTS

The Quarterly Report on Form 10-Q includes forward-looking
statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements involve
 certain risks and uncertainties as set forth in MCNs 1998
Annual Report on Form 10-K/A.

The Year 2000 disclosure is a Year 2000 Readiness Disclosure
under the Year 2000 Information and Readiness Disclosure
Act. Therefore, MCN claims the full protections established by
the Act.

AVAILABLE INFORMATION

The following information is available without charge to
shareholders and other interested parties: the Form 10-K/A
Annual Report; the Form 10-Q Quarterly Reports and the
Annual and Quarterly Statistical Supplements. To request these
publications, shareholders and other interested parties are
instructed to contact: MCN Investor Relations, 500 Griswold
Street, Detroit, Michigan 48226, (800) 548-4655.
Information is also available on MCNs website at
http://www.mcnenergy.com.

21



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##### Table of Contents






MCN ENERGY GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Unaudited)




|                                              |                                                                                                         |          |           |              |  |      |           |           |  |   |           |           | 
|--------------------------------------------- | ------------------------------------------------------------------------------------------------------- | -------- | --------- | ------------ |  | ---- | --------- | --------- |  | - | --------- | --------- | 
|                                              |                                                                                                         |          |           |             
|                                              |                                                                                                         | June 30, |           | December 31,
|                                              |                                                                                                         |          |           |             
|                                              |                                                                                                         |          |           | 1998         |  |     
|                                              |                                                                                                         |          |           | (Restated)   |  |     
|                                              |                                                                                                         | 1999     |           | Note 3       |  | 1998
|                                              |                                                                                                         |          |           |              |  |     
|(in Thousands)                                |                                                                                                         |          |           |              |  |      |           |           |  |   |           |          
|                                             
|                                             
|                                             
|                                             
|ASSETS                                        |                                                                                                         |          |           |              |  |      |           |           |  |   |           |          
|                                             
|                                             
|                                             
|                                             
|Current Assets                                |                                                                                                         |          |           |              |  |      |           |           |  |   |           |          
|                                             
|                                             
|                                             
|                                             
|                                              | Cash and cash equivalents, at cost (which approximates
	market value)                                   |          | $         | 20,076       |  |      | $         | 80,999    |  |   | $         | 17,039    | 
|                                             
|                                             
|                                             
|                                             
|                                              | Accounts receivable, less allowance for doubtful accounts of
	$15,847, $14,682 and $9,655, respectively |          |           | 326,648      |  |      |           | 327,653   |  |   |           | 400,120   | 
|                                             
|                                             
|                                             
|                                             
|                                              | Accrued unbilled revenues                                                                               |          |           | 20,516       |  |      |           | 15,725    |  |   |           | 87,888    | 
|                                             
|                                             
|                                             
|                                             
|                                              | Gas in inventory (Note 7)                                                                               |          |           | 122,536      |  |      |           | 103,671   |  |   |           | 147,387   | 
|                                             
|                                             
|                                             
|                                             
|                                              | Property taxes assessed applicable to future periods                                                    |          |           | 50,595       |  |      |           | 44,526    |  |   |           | 72,551    | 
|                                             
|                                             
|                                             
|                                             
|                                              | Other                                                                                                   |          |           | 46,419       |  |      |           | 76,972    |  |   |           | 42,472    | 
|                                              |                                                                                                         |          |           |              |  |      |           |           |  |   |           |          
|                                              |                                                                                                         |          | 586,790   |              |  |      | 649,546   |           |  |   | 767,457   |          
|                                              |                                                                                                         |          |           |              |  |      |           |           |  |   |           |          
|                                             
|                                             
|                                             
|                                             
|Deferred Charges and Other Assets             |                                                                                                         |          |           |              |  |      |           |           |  |   |           |          
|                                             
|                                             
|                                             
|                                             
|                                              | Deferred income taxes                                                                                   |          |           | 28,136       |  |      |           |          |  |   |           | 50,547    | 
|                                             
|                                             
|                                             
|                                             
|                                              | Investments in debt and equity securities                                                               |          |           | 70,516       |  |      |           | 48,967    |  |   |           | 69,705    | 
|                                             
|                                             
|                                             
|                                             
|                                              | Deferred swap losses and receivables (Note 13)                                                          |          |           | 64,567       |  |      |           | 63,123    |  |   |           | 63,147    | 
|                                             
|                                             
|                                             
|                                             
|                                              | Deferred environmental costs                                                                            |          |           | 31,174       |  |      |           | 30,468    |  |   |           | 30,773    | 
|                                             
|                                             
|                                             
|                                             
|                                              | Prepaid benefit costs                                                                                   |          |           | 132,805      |  |      |           | 88,711    |  |   |           | 111,775   | 
|                                             
|                                             
|                                             
|                                             
|                                              | Other                                                                                                   |          |           | 114,501      |  |      |           | 91,037    |  |   |           | 98,940    | 
|                                              |                                                                                                         |          |           |              |  |      |           |           |  |   |           |          
|                                              |                                                                                                         |          | 441,699   |              |  |      | 322,306   |           |  |   | 424,887   |          
|                                              |                                                                                                         |          |           |              |  |      |           |           |  |   |           |          
|                                             
|                                             
|                                             
|                                             
|Investments in and Advances to Joint Ventures |                                                                                                         |          |           |              |  |      |           |           |  |   |           |          
|                                             
|                                             
|                                             
|                                             
|                                              | Pipelines & Processing                                                                                  |          |           | 568,921      |  |      |           | 429,846   |  |   |           | 521,711   | 
|                                             
|                                             
|                                             
|                                             
|                                              | Electric Power                                                                                          |          |           | 248,456      |  |      |           | 215,648   |  |   |           | 231,668   | 
|                                             
|                                             
|                                             
|                                             
|                                              | Energy Marketing                                                                                        |          |           | 27,299       |  |      |           | 23,873    |  |   |           | 29,435    | 
|                                             
|                                             
|                                             
|                                             
|                                              | Gas Distribution (Note 2e)                                                                              |          |           | 1,978        |  |      |           | 8,822     |  |   |           | 1,478     | 
|                                             
|                                             
|                                             
|                                             
|                                              | Other                                                                                                   |          |           | 18,694       |  |      |           | 19,029    |  |   |           | 18,939    | 
|                                              |                                                                                                         |          |           |              |  |      |           |           |  |   |           |          
|                                              |                                                                                                         |          | 865,348   |              |  |      | 697,218   |           |  |   | 803,231   |          
|                                              |                                                                                                         |          |           |              |  |      |           |           |  |   |           |          
|                                             
|                                             
|                                             
|                                             
|Property, Plant and Equipment                 |                                                                                                         |          |           |              |  |      |           |           |  |   |           |          
|                                             
|                                             
|                                             
|                                             
|                                              | Pipelines & Processing (Note 2a)                                                                        |          |           | 46,902       |  |      |           | 112,138   |  |   |           | 48,706    | 
|                                             
|                                             
|                                             
|                                             
|                                              | Exploration & Production (Note 2c)                                                                      |          |           | 753,357      |  |      |           | 1,066,673 |  |   |           | 1,040,047 | 
|                                             
|                                             
|                                             
|                                             
|                                              | Gas Distribution (Note 2e)                                                                              |          |           | 2,970,482    |  |      |           | 2,867,494 |  |   |           | 2,916,540 | 
|                                             
|                                             
|                                             
|                                             
|                                              | Other                                                                                                   |          |           | 65,139       |  |      |           | 32,875    |  |   |           | 36,124    | 
|                                              |                                                                                                         |          |           |              |  |      |           |           |  |   |           |          
|                                              |                                                                                                         |          | 3,835,880 |              |  |      | 4,079,180 |           |  |   | 4,041,417 |          
|                                             
|                                             
|                                             
|                                             
|                                              | Less  Accumulated depreciation and depletion                                                           |          |           | 1,685,079    |  |      |           | 1,562,383 |  |   |           | 1,644,094 | 
|                                              |                                                                                                         |          |           |              |  |      |           |           |  |   |           |          
|                                              |                                                                                                         |          | 2,150,801 |              |  |      | 2,516,797 |           |  |   | 2,397,323 |          
|                                              |                                                                                                         |          |           |              |  |      |           |           |  |   |           |          
|                                              |                                                                                                         | $        | 4,044,638 |              |  | $    | 4,185,867 |           |  | $ | 4,392,898 |          
|                                              |                                                                                                         |          |           |              |  |      |           |           |  |   |           |          
|                                             

The notes to the consolidated financial statements
 are an integral part of this statement.


22



---



##### Table of Contents



MCN ENERGY GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Unaudited)




|                                                                                                            |                                                                 |          |           |              |   |      |           |         |   |   |           |         |  
|----------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------- | -------- | --------- | ------------ | - | ---- | --------- | ------- | - | - | --------- | ------- | -
|                                                                                                            |                                                                 |          |           |             
|                                                                                                            |                                                                 | June 30, |           | December 31,
|                                                                                                            |                                                                 |          |           |             
|                                                                                                            |                                                                 |          |           | 1998         |   |     
|                                                                                                            |                                                                 |          |           | (Restated)   |   |     
|                                                                                                            |                                                                 | 1999     |           | Note 3       |   | 1998
|                                                                                                            |                                                                 |          |           |              |   |     
|(in Thousands)                                                                                              |                                                                 |          |           |              |   |      |           |         |   |   |           |        
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                        |                                                                 |          |           |              |   |      |           |         |   |   |           |        
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Current Liabilities                                                                                         |                                                                 |          |           |              |   |      |           |         |   |   |           |        
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Accounts payable                                                |          | $         | 252,791      |   |      | $         | 317,893 |   |   | $         | 304,349 |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Notes payable                                                   |          |           | 346,809      |   |      |           | 149,697 |   |   |           | 618,851 |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Current portion of long-term debt and capital lease obligations |          |           | 46,351       |   |      |           | 269,690 |   |   |           | 269,721 |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Gas inventory equalization (Note 7)                             |          |           | 22,967       |   |      |           | 15,490  |   |   |           |        |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Federal income, property and other taxes payable                |          |           | 43,201       |   |      |           | 79,376  |   |   |           | 69,465  |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Deferred gas cost recovery revenues (Note 5b)                   |          |           |             |   |      |           | 29,139  |   |   |           | 14,980  |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Gas payable                                                     |          |           | 38,848       |   |      |           | 40,277  |   |   |           | 42,669  |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Customer deposits                                               |          |           | 15,856       |   |      |           | 14,924  |   |   |           | 18,791  |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Interest payable                                                |          |           | 22,416       |   |      |           | 29,073  |   |   |           | 30,314  |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Other                                                           |          |           | 62,135       |   |      |           | 38,034  |   |   |           | 77,996  |  
|                                                                                                            |                                                                 |          |           |              |   |      |           |         |   |   |           |        
|                                                                                                            |                                                                 |          | 851,374   |              |   |      | 983,593   |         |   |   | 1,447,136 |        
|                                                                                                            |                                                                 |          |           |              |   |      |           |         |   |   |           |        
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Deferred Credits and Other Liabilities                                                                      |                                                                 |          |           |              |   |      |           |         |   |   |           |        
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Deferred income taxes                                           |          |           |             |   |      |           | 43,176  |   |   |           |        |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Unamortized investment tax credit                               |          |           | 29,082       |   |      |           | 32,109  |   |   |           | 30,056  |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Tax benefits amortizable to customers                           |          |           | 128,869      |   |      |           | 123,444 |   |   |           | 130,120 |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Deferred swap gains and payables (Note 13)                      |          |           | 62,617       |   |      |           | 50,014  |   |   |           | 62,956  |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Accrued environmental costs                                     |          |           | 34,704       |   |      |           | 35,000  |   |   |           | 35,000  |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Minority interest                                               |          |           | 10,529       |   |      |           | 19,166  |   |   |           | 10,898  |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Other                                                           |          |           | 74,857       |   |      |           | 115,498 |   |   |           | 75,439  |  
|                                                                                                            |                                                                 |          |           |              |   |      |           |         |   |   |           |        
|                                                                                                            |                                                                 |          | 340,658   |              |   |      | 418,407   |         |   |   | 344,469   |        
|                                                                                                            |                                                                 |          |           |              |   |      |           |         |   |   |           |        
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Long-Term Debt,including capital lease obligations
	(Note 9)                                                |                                                                 |          | 1,463,756 |              |   |      | 1,405,252 |         |   |   | 1,307,168 |        
|                                                                                                            |                                                                 |          |           |              |   |      |           |         |   |   |           |        
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|MCN-Obligated Mandatorily Redeemable Preferred Securities of
	Subsidiaries Holding Solely Debentures of MCN |                                                                 |          | 502,232   |              |   |      | 405,428   |         |   |   | 502,203   |        
|                                                                                                            |                                                                 |          |           |              |   |      |           |         |   |   |           |        
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Contingencies (Note 12)                                                                                     |                                                                 |          |           |              |   |      |           |         |   |   |           |        
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|Common Shareholders Equity                                                                                 |                                                                 |          |           |              |   |      |           |         |   |   |           |        
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Common stock (Note 9)                                           |          |           | 855          |   |      |           | 789     |   |   |           | 797     |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Additional paid-in capital (Note 9)                             |          |           | 966,956      |   |      |           | 816,286 |   |   |           | 832,966 |  
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Retained earnings (deficit)                                     |          |           | (45,400      | ) |      |           | 190,548 |   |   |           | (2,977  | )
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Accumulated other comprehensive loss (Note 11)                  |          |           | (13,505      | ) |      |           | (12,148 | ) |   |           | (16,576 | )
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                           
|                                                                                                            | Yield enhancement, contract and issuance costs                  |          |           | (22,288      | ) |      |           | (22,288 | ) |   |           | (22,288 | )
|                                                                                                            |                                                                 |          |           |              |   |      |           |         |   |   |           |        
|                                                                                                            |                                                                 |          | 886,618   |              |   |      | 973,187   |         |   |   | 791,922   |        
|                                                                                                            |                                                                 |          |           |              |   |      |           |         |   |   |           |        
|                                                                                                            |                                                                 | $        | 4,044,638 |              |   | $    | 4,185,867 |         |   | $ | 4,392,898 |        
|                                                                                                            |                                                                 |          |           |              |   |      |           |         |   |   |           |        
|                                                                                                           

The notes to the consolidated financial statements
 are an integral part of this statement.


23



---



##### Table of Contents






MCN ENERGY GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)




|                                                               |                                                                                                 |                    |          |                  |   |                     |          |            |   |      |           |            |   |   |           |         |   |   |           |           |   |   |           |           |  
|-------------------------------------------------------------- | ----------------------------------------------------------------------------------------------- | ------------------ | -------- | ---------------- | - | ------------------- | -------- | ---------- | - | ---- | --------- | ---------- | - | - | --------- | ------- | - | - | --------- | --------- | - | - | --------- | --------- | -
|                                                               |                                                                                                 |                    |          |                  |   |                    
|                                                               |                                                                                                 | Three Months Ended |          | Six Months Ended |   | Twelve Months Ended
|                                                               |                                                                                                 | June 30,           |          | June 30,         |   | June 30,           
|                                                               |                                                                                                 |                    |          |                  |   |                    
|                                                               |                                                                                                 |                    |          | 1998             |   |                     |          | 1998       |   |      |           | 1998      
|                                                               |                                                                                                 |                    |          | (Restated)       |   |                     |          | (Restated) |   |      |           | (Restated)
|                                                               |                                                                                                 | 1999               |          | Note 3           |   | 1999                |          | Note 3     |   | 1999 |           | Note 3    
|(in Thousands, except Per Share Amounts)                       |                                                                                                 |                    |          |                  |   |                     |          |            |   |      |           |           
|                                                               |                                                                                                 |                    |          |                  |   |                     |          |            |   |      |           |           
|                                                              
|                                                              
|                                                              
|                                                              
|Operating Revenues                                             |                                                                                                 | $                  | 488,784  |                  |   | $                   | 406,214  |            |   | $    | 1,285,370 |            |   | $ | 1,107,674 |         |   | $ | 2,208,394 |           |   | $ | 2,138,855 |          
|                                                               |                                                                                                 |                    |          |                  |   |                     |          |            |   |      |           |            |   |   |           |         |   |   |           |           |   |   |           |          
|Operating Expenses                                             |                                                                                                 |                    |          |                  |   |                     |          |            |   |      |           |            |   |   |           |         |   |   |           |           |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Cost of sales                                                                                   |                    |          | 314,948          |   |                     |          | 228,249    |   |      |           | 788,833    |   |   |           | 652,545 |   |   |           | 1,342,062 |   |   |           | 1,282,252 |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Operation and maintenance                                                                       |                    |          | 98,477           |   |                     |          | 91,629     |   |      |           | 200,427    |   |   |           | 186,503 |   |   |           | 403,339   |   |   |           | 386,158   |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Depreciation, depletion and amortization                                                        |                    |          | 42,162           |   |                     |          | 46,458     |   |      |           | 87,337     |   |   |           | 91,247  |   |   |           | 175,580   |   |   |           | 183,918   |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Property and other taxes                                                                        |                    |          | 16,270           |   |                     |          | 17,838     |   |      |           | 37,928     |   |   |           | 38,713  |   |   |           | 68,768    |   |   |           | 72,976    |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Property write-downs and restructuring charges (Note 2)                                         |                    |          | 52,000           |   |                     |          | 333,022    |   |      |           | 52,000     |   |   |           | 333,022 |   |   |           | 311,296   |   |   |           | 333,022   |  
|                                                               |                                                                                                 |                    |          |                  |   |                     |          |            |   |      |           |            |   |   |           |         |   |   |           |           |   |   |           |          
|                                                               |                                                                                                 |                    | 523,857  |                  |   |                     | 717,196  |            |   |      | 1,166,525 |            |   |   | 1,302,030 |         |   |   | 2,301,045 |           |   |   | 2,258,326 |          
|                                                               |                                                                                                 |                    |          |                  |   |                     |          |            |   |      |           |            |   |   |           |         |   |   |           |           |   |   |           |          
|Operating Income (Loss)                                        |                                                                                                 |                    | (35,073  | )                |   |                     | (310,982 | )          |   |      | 118,845   |            |   |   | (194,356  | )       |   |   | (92,651   | )         |   |   | (119,471  | )        
|                                                               |                                                                                                 |                    |          |                  |   |                     |          |            |   |      |           |            |   |   |           |         |   |   |           |           |   |   |           |          
|Equity in Earnings of Joint Ventures                           |                                                                                                 |                    | 12,166   |                  |   |                     | 11,837   |            |   |      | 24,624    |            |   |   | 28,598    |         |   |   | 58,251    |           |   |   | 59,426    |          
|                                                               |                                                                                                 |                    |          |                  |   |                     |          |            |   |      |           |            |   |   |           |         |   |   |           |           |   |   |           |          
|Other Income and (Deductions)                                  |                                                                                                 |                    |          |                  |   |                     |          |            |   |      |           |            |   |   |           |         |   |   |           |           |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Interest income                                                                                 |                    |          | 2,369            |   |                     |          | 1,815      |   |      |           | 3,865      |   |   |           | 6,163   |   |   |           | 8,595     |   |   |           | 12,953    |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Interest on long-term debt                                                                      |                    |          | (21,604          | ) |                     |          | (19,424    | ) |      |           | (43,506    | ) |   |           | (37,953 | ) |   |           | (92,899   | ) |   |           | (73,072   | )
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Other interest expense                                                                          |                    |          | (6,682           | ) |                     |          | (4,822     | ) |      |           | (15,317    | ) |   |           | (11,663 | ) |   |           | (28,058   | ) |   |           | (16,322   | )
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Dividends on preferred securities of subsidiaries                                               |                    |          | (10,334          | ) |                     |          | (9,230     | ) |      |           | (20,669    | ) |   |           | (18,984 | ) |   |           | (38,055   | ) |   |           | (38,516   | )
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Loss on sale of E&P properties (Note 2c)                                                        |                    |          | (68,798          | ) |                     |          |           |   |      |           | (68,798    | ) |   |           |        |   |   |           | (68,798   | ) |   |           |          |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Investment losses (Notes 2c and 2e)                                                             |                    |          | (7,456           | ) |                     |          | (6,135     | ) |      |           | (7,456     | ) |   |           | (6,135  | ) |   |           | (15,956   | ) |   |           | (6,135    | )
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Recognition of deferred loss related to discontinued operations
	subsequently retained (Note 6) |                    |          | (1,982           | ) |                     |          |           |   |      |           |           |   |   |           |        |   |   |           |          |   |   |           |          |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Minority interest (Note 2e)                                                                     |                    |          | (420             | ) |                     |          | (635       | ) |      |           | (739       | ) |   |           | (1,245  | ) |   |           | 6,498     |   |   |           | (2,242    | )
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Other                                                                                           |                    |          | 5,701            |   |                     |          | 1,272      |   |      |           | 10,374     |   |   |           | 13,961  |   |   |           | 15,974    |   |   |           | 22,140    |  
|                                                               |                                                                                                 |                    |          |                  |   |                     |          |            |   |      |           |            |   |   |           |         |   |   |           |           |   |   |           |          
|                                                               |                                                                                                 |                    | (109,206 | )                |   |                     | (37,159  | )          |   |      | (142,246  | )          |   |   | (55,856   | )       |   |   | (212,699  | )         |   |   | (101,194  | )        
|                                                               |                                                                                                 |                    |          |                  |   |                     |          |            |   |      |           |            |   |   |           |         |   |   |           |           |   |   |           |          
|Income (Loss) Before Income Taxes                              |                                                                                                 |                    | (132,113 | )                |   |                     | (336,304 | )          |   |      | 1,223     |            |   |   | (221,614  | )       |   |   | (247,099  | )         |   |   | (161,239  | )        
|                                                              
|                                                              
|                                                              
|                                                              
|Income Tax Benefit                                             |                                                                                                 |                    | (45,873  | )                |   |                     | (123,681 | )          |   |      | (952      | )          |   |   | (87,873   | )       |   |   | (96,547   | )         |   |   | (73,627   | )        
|                                                               |                                                                                                 |                    |          |                  |   |                     |          |            |   |      |           |            |   |   |           |         |   |   |           |           |   |   |           |          
|Income (Loss) Before Cumulative Effect of Accounting Change    |                                                                                                 |                    | (86,240  | )                |   |                     | (212,623 | )          |   |      | 2,175     |            |   |   | (133,741  | )       |   |   | (150,552  | )         |   |   | (87,612   | )        
|                                                              
|                                                              
|                                                              
|                                                              
|Cumulative Effect of Accounting Change, Net of Taxes
	(Note 4) |                                                                                                 |                    |         |                  |   |                     |         |            |   |      | (2,872    | )          |   |   |          |         |   |   | (2,872    | )         |   |   |          |          
|                                                               |                                                                                                 |                    |          |                  |   |                     |          |            |   |      |           |            |   |   |           |         |   |   |           |           |   |   |           |          
|Net Loss                                                       |                                                                                                 | $                  | (86,240  | )                |   | $                   | (212,623 | )          |   | $    | (697      | )          |   | $ | (133,741  | )       |   | $ | (153,424  | )         |   | $ | (87,612   | )        
|                                                               |                                                                                                 |                    |          |                  |   |                     |          |            |   |      |           |            |   |   |           |         |   |   |           |           |   |   |           |          
|Basic Earnings (Loss) Per Share (Note 10)                      |                                                                                                 |                    |          |                  |   |                     |          |            |   |      |           |            |   |   |           |         |   |   |           |           |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Before cumulative effect of accounting change                                                   |                    | $        | (1.03            | ) |                     | $        | (2.70      | ) |      | $         | .03        |   |   | $         | (1.70   | ) |   | $         | (1.88     | ) |   | $         | (1.12     | )
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Cumulative effect of accounting change (Note 4)                                                 |                    |          |                 |   |                     |          |           |   |      |           | (.04       | ) |   |           |        |   |   |           | (.03      | ) |   |           |          |  
|                                                               |                                                                                                 |                    |          |                  |   |                     |          |            |   |      |           |            |   |   |           |         |   |   |           |           |   |   |           |          
|                                                               |                                                                                                 | $                  | (1.03    | )                |   | $                   | (2.70    | )          |   | $    | (0.01     | )          |   | $ | (1.70     | )       |   | $ | (1.91     | )         |   | $ | (1.12     | )        
|                                                               |                                                                                                 |                    |          |                  |   |                     |          |            |   |      |           |            |   |   |           |         |   |   |           |           |   |   |           |          
|Diluted Earnings (Loss) Per Share (Note 10)                    |                                                                                                 |                    |          |                  |   |                     |          |            |   |      |           |            |   |   |           |         |   |   |           |           |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Before cumulative effect of accounting change                                                   |                    | $        | (1.03            | ) |                     | $        | (2.70      | ) |      | $         | .03        |   |   | $         | (1.70   | ) |   | $         | (1.88     | ) |   | $         | (1.12     | )
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Cumulative effect of accounting change (Note 4)                                                 |                    |          |                 |   |                     |          |           |   |      |           | (.04       | ) |   |           |        |   |   |           | (.03      | ) |   |           |          |  
|                                                               |                                                                                                 |                    |          |                  |   |                     |          |            |   |      |           |            |   |   |           |         |   |   |           |           |   |   |           |          
|                                                               |                                                                                                 | $                  | (1.03    | )                |   | $                   | (2.70    | )          |   | $    | (0.01     | )          |   | $ | (1.70     | )       |   | $ | (1.91     | )         |   | $ | (1.12     | )        
|                                                               |                                                                                                 |                    |          |                  |   |                     |          |            |   |      |           |            |   |   |           |         |   |   |           |           |   |   |           |          
|Average Common Shares Outstanding                              |                                                                                                 |                    |          |                  |   |                     |          |            |   |      |           |            |   |   |           |         |   |   |           |           |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Basic                                                                                           |                    |          | 83,413           |   |                     |          | 78,758     |   |      |           | 81,424     |   |   |           | 78,563  |   |   |           | 80,242    |   |   |           | 78,303    |  
|                                                               |                                                                                                 |                    |          |                  |   |                     |          |            |   |      |           |            |   |   |           |         |   |   |           |           |   |   |           |          
|                                                               | Diluted                                                                                         |                    |          | 83,413           |   |                     |          | 78,758     |   |      |           | 82,514     |   |   |           | 78,563  |   |   |           | 80,242    |   |   |           | 78,303    |  
|                                                               |                                                                                                 |                    |          |                  |   |                     |          |            |   |      |           |            |   |   |           |         |   |   |           |           |   |   |           |          
|Dividends Declared Per Share                                   |                                                                                                 | $                  | .2550    |                  |   | $                   | .2550    |            |   | $    | .5100     |            |   | $ | .5100     |         |   | $ | 1.0200    |           |   | $ | 1.0075    |          
|                                                               |                                                                                                 |                    |          |                  |   |                     |          |            |   |      |           |            |   |   |           |         |   |   |           |           |   |   |           |          




CONSOLIDATED STATEMENT OF RETAINED EARNINGS (DEFICIT)
(Unaudited)




|                                 |  |                    |         |                  |  |                     |          |            |  |      |         |            |  |   |          |   |  |   |          |   |  |   |         |  
|-------------------------------- |  | ------------------ | ------- | ---------------- |  | ------------------- | -------- | ---------- |  | ---- | ------- | ---------- |  | - | -------- | - |  | - | -------- | - |  | - | ------- | -
|                                 |  |                    |         |                  |  |                    
|                                 |  | Three Months Ended |         | Six Months Ended |  | Twelve Months Ended
|                                 |  | June 30,           |         | June 30,         |  | June 30,           
|                                 |  |                    |         |                  |  |                    
|                                 |  |                    |         | 1998             |  |                     |          | 1998       |  |      |         | 1998      
|                                 |  |                    |         | (Restated)       |  |                     |          | (Restated) |  |      |         | (Restated)
|                                 |  | 1999               |         | Note 3           |  | 1999                |          | Note 3     |  | 1999 |         | Note 3    
|(in Thousands)                   |  |                    |         |                  |  |                     |          |            |  |      |         |           
|Balance  Beginning of period    |  | $                  | 62,775  |                  |  | $                   | 424,157  |            |  | $    | (2,977  | )          |  | $ | 365,730  |   |  | $ | 190,548  |   |  | $ | 358,825 |  
|                                
|                                
|                                
|                                
|Add  Net loss                   |  |                    | (86,240 | )                |  |                     | (212,623 | )          |  |      | (697    | )          |  |   | (133,741 | ) |  |   | (153,424 | ) |  |   | (87,612 | )
|                                 |  |                    |         |                  |  |                     |          |            |  |      |         |            |  |   |          |   |  |   |          |   |  |   |         |  
|                                 |  |                    | (23,465 | )                |  |                     | 211,534  |            |  |      | (3,674  | )          |  |   | 231,989  |   |  |   | 37,124   |   |  |   | 271,213 |  
|                                
|                                
|                                
|                                
|Deduct  Cash dividends declared |  |                    | 21,935  |                  |  |                     | 20,986   |            |  |      | 41,726  |            |  |   | 41,441   |   |  |   | 82,524   |   |  |   | 80,665  |  
|                                 |  |                    |         |                  |  |                     |          |            |  |      |         |            |  |   |          |   |  |   |          |   |  |   |         |  
|Balance  End of period          |  | $                  | (45,400 | )                |  | $                   | 190,548  |            |  | $    | (45,400 | )          |  | $ | 190,548  |   |  | $ | (45,400  | ) |  | $ | 190,548 |  
|                                 |  |                    |         |                  |  |                     |          |            |  |      |         |            |  |   |          |   |  |   |          |   |  |   |         |  






24



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##### Table of Contents






MCN ENERGY GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)




|                                                                          |                                                                                                                            |                                                                           |                                                        |            |        |          |         |          |         |          |  
|------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------- | ------------------------------------------------------ | ---------- | ------ | -------- | ------- | -------- | ------- | -------- | -
|                                                                          |                                                                                                                            |                                                                          
|                                                                          |                                                                                                                            | Six Months Ended                                                         
|                                                                          |                                                                                                                            | June 30,                                                                 
|                                                                          |                                                                                                                            |                                                                          
|                                                                          |                                                                                                                            |                                                                           |                                                        | 1998      
|                                                                          |                                                                                                                            |                                                                           |                                                        | (Restated)
|                                                                          |                                                                                                                            | 1999                                                                      |                                                        | Note 3    
|                                                                          |                                                                                                                            |                                                                           |                                                        |           
|(in Thousands)                                                            |                                                                                                                            |                                                                           |                                                        |            |        |          |         |         
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Cash Flow From Operating Activities                                       |                                                                                                                            |                                                                           |                                                        |            |        |          |         |         
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Net loss                                                                                                                   |                                                                           | $                                                      | (697       | )      |          | $       | (133,741 | )      
|                                                                          | Adjustments to reconcile net loss to net cash provided from
	operating activities Depreciation, depletion and amortization |                                                                           |                                                        |            |        |          |         |          |        
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          |                                                                                                                            |                                                                           | Per statement of operations                            |            |        | 87,337   |         |          |         | 91,247   |  
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          |                                                                                                                            |                                                                           | Charged to other accounts                              |            |        | 4,423    |         |          |         | 4,020    |  
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          |                                                                                                                            | Unusual charges, net of taxes (Note 2)                                    |                                                        |            | 83,365 |          |         |          | 220,452 |         
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          |                                                                                                                            | Cumulative effect of accounting change, net of taxes (Note 4)             |                                                        |            | 2,872  |          |         |          |        |         
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          |                                                                                                                            | Deferred income taxes  current                                           |                                                        |            | (2,266 | )        |         |          | (11,994 | )       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          |                                                                                                                            | Deferred income taxes and investment tax credit, net                      |                                                        |            | 65,246 |          |         |          | 10,356  |         
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          |                                                                                                                            | Equity in earnings of joint ventures, net of distributions                |                                                        |            | (8,256 | )        |         |          | (17,715 | )       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          |                                                                                                                            | Other                                                                     |                                                        |            | (1,118 | )        |         |          | (4,798  | )       
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          |                                                                                                                            | Changes in assets and liabilities, exclusive of changes shown
	separately |                                                        |            | 60,062 |          |         |          | 117,393 |         
|                                                                          |                                                                                                                            |                                                                           |                                                        |            |        |          |         |         
|                                                                          |                                                                                                                            |                                                                           | Net cash provided from operating activities            |            |        | 290,968  |         |          |         | 275,220  |  
|                                                                          |                                                                                                                            |                                                                           |                                                        |            |        |          |         |         
|Cash Flow From Financing Activities                                       |                                                                                                                            |                                                                           |                                                        |            |        |          |         |         
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Notes payable, net                                                                                                         |                                                                           |                                                        | (272,042   | )      |          |         | (161,672 | )      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Dividends paid                                                                                                             |                                                                           |                                                        | (41,726    | )      |          |         | (41,441  | )      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Issuance of common stock (Note 9)                                                                                          |                                                                           |                                                        | 135,120    |        |          |         | 10,374   |        
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Reacquisition of common stock                                                                                              |                                                                           |                                                        | (783       | )      |          |         |         |        
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Issuance of long-term debt (Note 9)                                                                                        |                                                                           |                                                        | 106,535    |        |          |         | 460,161  |        
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Long-term commercial paper and bank borrowings                                                                             |                                                                           |                                                        | 92,344     |        |          |         | 109,643  |        
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Retirement of long-term debt and preferred securities
	(Note 9)                                                            |                                                                           |                                                        | (268,773   | )      |          |         | (323,454 | )      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Other                                                                                                                      |                                                                           |                                                        |           |        |          |         | 8,506    |        
|                                                                          |                                                                                                                            |                                                                           |                                                        |            |        |          |         |         
|                                                                          |                                                                                                                            |                                                                           | Net cash provided from (used for) financing activities |            |        | (249,325 | )       |          |         | 62,117   |  
|                                                                          |                                                                                                                            |                                                                           |                                                        |            |        |          |         |         
|Cash Flow From Investing Activities                                       |                                                                                                                            |                                                                           |                                                        |            |        |          |         |         
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Capital expenditures                                                                                                       |                                                                           |                                                        | (159,880   | )      |          |         | (277,655 | )      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Acquisitions                                                                                                               |                                                                           |                                                        | (31,153    | )      |          |         | (36,731  | )      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Investment in debt and equity securities, net                                                                              |                                                                           |                                                        | (2,597     | )      |          |         | 44,241   |        
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Investment in joint ventures                                                                                               |                                                                           |                                                        | (39,991    | )      |          |         | (96,647  | )      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Sale of property and joint venture interests                                                                               |                                                                           |                                                        | 200,705    |        |          |         | 81,026   |        
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Return of investment in joint ventures                                                                                     |                                                                           |                                                        | 1,193      |        |          |         | 4,801    |        
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Other                                                                                                                      |                                                                           |                                                        | (6,883     | )      |          |         | (14,868  | )      
|                                                                          |                                                                                                                            |                                                                           |                                                        |            |        |          |         |         
|                                                                          |                                                                                                                            |                                                                           | Net cash used for investing activities                 |            |        | (38,606  | )       |          |         | (295,833 | )
|                                                                          |                                                                                                                            |                                                                           |                                                        |            |        |          |         |         
|Net Increase in Cash and Cash Equivalents                                 |                                                                                                                            |                                                                           | 3,037                                                  |            |        |          | 41,504  |         
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Cash and Cash Equivalents, January 1                                      |                                                                                                                            |                                                                           | 17,039                                                 |            |        |          | 39,495  |         
|                                                                          |                                                                                                                            |                                                                           |                                                        |            |        |          |         |         
|Cash and Cash Equivalents, June 30                                        |                                                                                                                            | $                                                                         | 20,076                                                 |            |        | $        | 80,999  |         
|                                                                          |                                                                                                                            |                                                                           |                                                        |            |        |          |         |         
|Changes in Assets and Liabilities, Exclusive of Changes Shown
	Separately |                                                                                                                            |                                                                           |                                                        |            |        |          |         |         
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Accounts receivable, net                                                                                                   |                                                                           | $                                                      | 72,787     |        |          | $       | 66,451   |        
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Accrued unbilled revenues                                                                                                  |                                                                           |                                                        | 67,372     |        |          |         | 77,285   |        
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Accrued/deferred gas cost recovery revenues, net                                                                           |                                                                           |                                                        | (19,795    | )      |          |         | 42,001   |        
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Gas in inventory                                                                                                           |                                                                           |                                                        | 24,851     |        |          |         | (46,894  | )      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Accounts payable                                                                                                           |                                                                           |                                                        | (46,758    | )      |          |         | (32,753  | )      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Gas inventory equalization                                                                                                 |                                                                           |                                                        | 22,967     |        |          |         | 15,490   |        
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Federal income, property and other taxes payable                                                                           |                                                                           |                                                        | (35,194    | )      |          |         | (7,422   | )      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Gas payable                                                                                                                |                                                                           |                                                        | (3,821     | )      |          |         | 38,214   |        
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Interest payable                                                                                                           |                                                                           |                                                        | (7,898     | )      |          |         | 612      |        
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Prepaid benefit costs, net                                                                                                 |                                                                           |                                                        | (20,422    | )      |          |         | (7,818   | )      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Other current assets and liabilities, net                                                                                  |                                                                           |                                                        | 15,088     |        |          |         | (17,883  | )      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Other deferred assets and liabilities, net                                                                                 |                                                                           |                                                        | (9,115     | )      |          |         | (9,890   | )      
|                                                                          |                                                                                                                            |                                                                           |                                                        |            |        |          |         |         
|                                                                          |                                                                                                                            | $                                                                         | 60,062                                                 |            |        | $        | 117,393 |         
|                                                                          |                                                                                                                            |                                                                           |                                                        |            |        |          |         |         
|Supplemental Disclosures                                                  |                                                                                                                            |                                                                           |                                                        |            |        |          |         |         
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Cash paid during the year for:                                                                                             |                                                                           |                                                        |            |        |          |         |          |        
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          |                                                                                                                            | Interest, net of amounts capitalized                                      |                                                        | $          | 71,640 |          |         | $        | 47,166  |         
|                                                                          |                                                                                                                            |                                                                           |                                                        |            |        |          |         |         
|                                                                          |                                                                                                                            | Federal income taxes                                                      |                                                        | $          | 3,550  |          |         | $        | 11,700  |         
|                                                                          |                                                                                                                            |                                                                           |                                                        |            |        |          |         |         




The notes to the consolidated financial statements
 are an integral part of this statement.


25



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##### Table of Contents






MCN ENERGY GROUP INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1.  GENERAL

The accompanying consolidated financial statements should be read
 in conjunction with MCNs 1998 Annual Report on
Form 10-K/ A. Certain reclassifications have been made to
the prior years financial statements to conform with the
1999 presentation. In the opinion of management, the unaudited
information furnished herein reflects all adjustments necessary
for a fair presentation of the financial statements for the
periods presented.

Because of seasonal and other factors, revenues, expenses, net
income and earnings per share for the interim periods should not
be construed as representative of revenues, expenses, net income
and earnings per share for all or any part of the balance of the
current year or succeeding periods.

2.  UNUSUAL CHARGES

As discussed in MCNs 1998 Annual Report on Form 10-K/
A, MCN recorded several unusual charges in 1998, consisting of
property write-downs, investment losses, and restructuring
charges. In June 1999, MCN recorded additional unusual
charges related to the Exploration & Production (E&P)
segment, which had previously been classified as discontinued
operations (Note 6). A discussion of each unusual charge by
segment follows:

a.  Pipelines &
Processing



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Property Write-Downs:In the third quarter of 1998, MCN
	recorded a $133,782,000 pre-tax ($86,959,000 net of taxes)
	write-off of its coal fines project. The economic viability of
	the project is dependent on coal briquettes produced from six
	coal fines plants qualifying for synthetic fuel tax credits and
	MCNs ability to utilize or sell such credits. Although the
	plants were in service by June 30, 1998, the date specified
	to qualify for the tax credits, operating delays at the plants in
	 the 1998 third quarter have significantly increased the
	possibility that the Internal Revenue Service (IRS) will
	challenge the projects eligibility for tax credits. In
	addition, there was uncertainty as to whether MCN could utilize
	or sell the credits. These factors led to MCNs decision to
	record an impairment loss equal to the carrying value of the
	plants, reflecting the likely inability to recover such costs.
	MCN is seeking to maximize the value of its investment in the
	coal fines project, and in May 1999 filed a request with the
	 IRS seeking a factual determination that its coal fines plants
	were in service on June 30, 1998. Management is unable to
	predict what action the IRS will take on its request.
|
| | In the third quarter of 1998, MCN also recorded an impairment
	loss of $3,899,000 pre-tax ($2,534,000 net of taxes) relating to
	an acquired out-of-service pipeline in Michigan. MCN reviewed the
	 business alternatives for this asset and determined that its
	development is unlikely. Accordingly, MCN recorded an impairment
	loss equal to the carrying value of this asset.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

b.  Electric Power



| |                                                                                                                                                                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Restructuring Charge:In the third quarter of 1998, MCN
	recorded a $2,470,000 pre-tax ($1,605,000 net of taxes)
	restructuring charge related to certain international power
	projects. The charge was incurred as a result of refocusing
	MCNs strategic plan, particularly to exit certain
	international power projects.

26



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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


c.  Exploration and
Production



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Property Write-Downs:In the second quarter of 1999, MCN
	recognized a $52,000,000 pre-tax ($33,800,000 net of taxes)
	write-down of its gas and oil properties under the full cost
	method of accounting, due primarily to an unfavorable revision in
	 the timing of the production of proved gas and oil reserves as
	well as reduced expectations of sales proceeds on unproved
	acreage. Under the full cost method of accounting as prescribed
	by the Securities and Exchange Commission, MCNs capitalized
	 exploration and production costs at June 30, 1999 exceeded
	the full cost ceiling, resulting in the excess being
	written off to income. The ceiling is the sum of discounted
	future net cash flows from the production of proved gas and oil
	reserves, and the lower of cost or estimated fair value of
	unproved properties, net of related income tax effects.
|
| | In the second and third quarters of 1998, MCN recognized
	write-downs of its gas and oil properties totaling $333,022,000
	pre-tax ($216,465,000 net of taxes) and $83,955,000 pre-tax
	($54,570,000 net of taxes), respectively. The write-downs were
	also the result of MCNs capitalized exploration and
	production costs exceeding the full cost ceiling.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| | Losses on Sale of Properties:In the second quarter of
	1999, MCN recognized losses from the sale of its Western and
	Midcontinent/ Gulf Coast E&P properties totaling $68,798,000
	pre-tax ($44,719,000 net of taxes).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| | Loss on Investment:In the second quarter of 1999, MCN
	recognized a $7,456,000 pre-tax loss ($4,846,000 net of taxes)
	from the write-down of an investment in the common stock of an
	E&P company. MCN had also recognized a $6,135,000 pre-tax
	loss ($3,987,000 net of taxes) from the write-down of this
	investment during the second quarter of 1998. The losses were due
	 to declines in the fair value of the securities that are not
	considered temporary. MCN has no carrying value in this
	investment after the write-downs.                                                                                                                                                                                                                                                                                                                                               

d.  Corporate & Other



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Restructuring Charge:In the third quarter of 1998, MCN
	recorded a $10,390,000 pre-tax ($6,753,000 net of taxes)
	restructuring charge related to the corporate realignment
	designed to improve operating efficiencies through a more
	streamlined organizational structure. The realignment includes
	cost saving initiatives expected to reduce future operating
	expenses. As of June 30, 1999, payments of $2,224,000 have
	been charged against the restructuring accruals relating to
	severance and termination benefits. These benefits will continue
	to be paid through 2000. The remaining restructuring costs,
	primarily for net lease expenses, are expected to be paid over
	the related lease terms that expire through 2006.

e.  Gas Distribution



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Property Write-Downs:In the third quarter of 1998, MCN
	recorded a $24,800,000 pre-tax ($11,200,000 net of taxes and
	minority interest) write-down of certain gas gathering
	properties. An analysis revealed that projected cash flows from
	the gathering system were not sufficient to cover the
	systems carrying value. Therefore, an impairment loss was
	recorded representing the amount by which the carrying value of
	the system exceeded its estimated fair value.
|
| | Loss on Investment:In the third quarter of 1998, MCN also
	 recorded an $8,500,000 pre-tax ($5,525,000 net of taxes) loss
	from the write-down of an investment in a Missouri gas                                                                                                                                                                                                                                                                                               

27



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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS




| |                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | distribution company that MCN expects to sell in 2000. The
	write-down represents the amount by which the carrying value
	exceeded the estimated fair value of the investment.

3.  RESTATEMENT

As discussed in MCNs 1998 Annual Report on Form 10-K/
A, subsequent to the issuance of MCNs December 31,
1998 financial statements, certain matters came to
managements attention and resulted in a special
investigation of prior years operations of CoEnergy Trading
 Company (CTC), MCNs non-utility energy marketing
subsidiary. As a result of the investigation, MCN identified that
 its internal controls had been overridden and that certain
transactions had not been properly accounted for. Specifically,
the investigation concluded that CTC had entered into gas supply
contracts and agreed to pay significantly less than market prices
 in one period in return for above-market prices to be paid in
subsequent periods through March 2000. The effect of these
transactions was to improperly delay the accrual of cost of gas
expenses, resulting in the understatement of net loss for the
1998 second quarter, six- and twelve-month periods by $2,234,000,
 $1,364,000 and $6,471,000, respectively.

Additionally, the investigation identified that CTC had entered
into certain unauthorized gas purchase and sale contracts for
trading purposes. The unauthorized transactions violate
MCNs risk-management policy that requires all such
activities to be reviewed and approved by a risk committee that
reports regularly to the MCN Board of Directors. The gas purchase
 and sale contracts entered into in connection with trading
activities, some of which remain in effect through
March 2000, were not accounted for properly using the
required mark-to-market method, under which unrealized gains and
losses are recorded as an adjustment to cost of gas. The effect
of not properly accounting for these transactions was the
understatement of net loss for the 1998 second quarter, six- and
twelve-month periods by $268,000, $2,744,000 and $2,926,000,
respectively. However, net income of $276,000, $1,187,000 and
$2,613,000 was realized and recorded in connection with these
trading activities in the 1998 second quarter, six- and
twelve-month periods, respectively, resulting in net income of
$8,000 in the 1998 second quarter, a net loss of $1,557,000 in
the 1998 six-month period and a net loss of $313,000 in the 1998
twelve-month period from such activities. From the inception of
these trading activities in March 1997 through
June 1999, $2,714,000 of net loss was realized and recorded
in connection with these trading activities. All of the contracts
 were effectively closed in June 1999.

Other items identified during the investigation resulted in the
understatement of net loss for the 1998 second quarter, six- and
twelve-month periods by $21,000, $43,000 and $86,000,
respectively.

28



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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


The 1998 information in the accompanying consolidated financial
statements has been restated from amounts originally reported to
properly account for the transactions identified. A summary of
the significant effects of the restatement on MCNs
June 30, 1998 financial statements is as follows:

|                                          |            |                    |          |                  |  |                     |          |          |  |            |          |          |  |   |          |   |  |   |           |   |  |   |           |   | 
|----------------------------------------- | ---------- | ------------------ | -------- | ---------------- |  | ------------------- | -------- | -------- |  | ---------- | -------- | -------- |  | - | -------- | - |  | - | --------- | - |  | - | --------- | - | 
|                                          |            |                    |          |                  |  |                    
|                                          |            | Three Months Ended |          | Six Months Ended |  | Twelve Months Ended
|                                          |            | June 30, 1998      |          | June 30, 1998    |  | June 30, 1998      
|                                          |            |                    |          |                  |  |                    
|                                          |            | Previously         |          |                  |  | Previously          |          |          |  | Previously |          |         
|                                          |            | Reported           |          | Restated         |  | Reported            |          | Restated |  | Reported   |          | Restated
|                                          |            |                    |          |                  |  |                     |          |          |  |            |          |         
|(in Thousands, Except Per
	Share Amounts) |            |                    |          |                  |  |                     |          |          |  |            |          |          |  |   |          |   |  |   |           |   |  |   |           |  
|                                         
|                                         
|                                         
|                                         
|Consolidated Statement of                 |            |                    |          |                  |  |                     |          |          |  |            |          |          |  |   |          |   |  |   |           |   |  |   |           |  
|                                         
|                                         
|                                         
|                                         
|                                          | Operations |                    |          |                  |  |                     |          |          |  |            |          |          |  |   |          |   |  |   |           |   |  |   |           |   | 
|                                         
|                                         
|                                         
|                                         
|Cost of Sales                             |            | $                  | 224,368  |                  |  | $                   | 228,249  |          |  | $          | 646,160  |          |  | $ | 652,545  |   |  | $ | 1,267,665 |   |  | $ | 1,282,252 |  
|                                         
|                                         
|                                         
|                                         
|Loss Before Income Taxes                  |            | $                  | (332,423 | )                |  | $                   | (336,304 | )        |  | $          | (215,229 | )        |  | $ | (221,614 | ) |  | $ | (146,652  | ) |  | $ | (161,239  | )
|                                         
|                                         
|                                         
|                                         
|Income Tax Benefit                        |            | $                  | (122,323 | )                |  | $                   | (123,681 | )        |  | $          | (85,639  | )        |  | $ | (87,873  | ) |  | $ | (68,523   | ) |  | $ | (73,627   | )
|                                         
|                                         
|                                         
|                                         
|Net Loss                                  |            | $                  | (210,100 | )                |  | $                   | (212,623 | )        |  | $          | (129,590 | )        |  | $ | (133,741 | ) |  | $ | (78,129   | ) |  | $ | (87,612   | )
|                                         
|                                         
|                                         
|                                         
|Basic Loss Per Share                      |            | $                  | (2.67    | )                |  | $                   | (2.70    | )        |  | $          | (1.65    | )        |  | $ | (1.70    | ) |  | $ | (1.00     | ) |  | $ | (1.12     | )
|                                         
|                                         
|                                         
|                                         
|Diluted Loss Per Share                    |            | $                  | (2.67    | )                |  | $                   | (2.70    | )        |  | $          | (1.65    | )        |  | $ | (1.70    | ) |  | $ | (1.00     | ) |  | $ | (1.12     | )

|                                                 |                    |               |         |          |  |   |         |  | 
|------------------------------------------------ | ------------------ | ------------- | ------- | -------- |  | - | ------- |  | 
|                                                 |                    |              
|                                                 |                    | June 30, 1998
|                                                 |                    |              
|                                                 |                    | Previously    |         |         
|                                                 |                    | Reported      |         | Restated
|                                                 |                    |               |         |         
|Consolidated Statement of                        |                    |               |         |          |  |   |         | 
|                                                
|                                                
|                                                
|                                                
|                                                 | Financial Position |               |         |          |  |   |         |  | 
|                                                
|                                                
|                                                
|                                                
|Accounts Receivable                              |                    | $             | 318,620 |          |  | $ | 327,653 | 
|                                                
|                                                
|                                                
|                                                
|Gas in Inventory                                 |                    | $             | 114,071 |          |  | $ | 103,671 | 
|                                                
|                                                
|                                                
|                                                
|Accounts Payable                                 |                    | $             | 298,912 |          |  | $ | 317,893 | 
|                                                
|                                                
|                                                
|                                                
|Federal Income, Property and Other Taxes Payable |                    | $             | 86,496  |          |  | $ | 79,376  | 
|                                                
|                                                
|                                                
|                                                
|Common Shareholders Equity                      |                    | $             | 986,415 |          |  | $ | 973,187 | 

4.  ACCOUNTING FOR START-UP ACTIVITIES

In January 1999, MCN adopted Statement of Position
(SOP) 98-5, Reporting on the Costs of Start-up
Activities, issued by the Accounting Standards
Executive Committee of the American Institute of Certified Public
 Accountants. SOP 98-5 requires start-up and organizational costs
 to be expensed as incurred. This change in accounting principle
resulted in the write-off of start-up and organization costs
capitalized as of December 31, 1998. The cumulative effect
of the change was to decrease earnings by $4,418,000 pre-tax
($2,872,000 net of taxes) for the six- and twelve-month periods
ended June 30, 1999.

5.  REGULATORY MATTERS

a.  Regulatory Reform Plan



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As discussed in MCNs 1998 Annual Report on
	Form 10-K/A, MichCon implemented its Regulatory Reform Plan
	in January 1999. The plan includes a new three-year gas
	sales program under which MichCons gas sales rates include
	a gas commodity component that is fixed at $2.95 per thousand
	cubic feet (Mcf). As part of its gas acquisition strategy,
	MichCon has entered into fixed-price contracts at costs below
	$2.95 per Mcf for a substantial portion of its expected gas
	supply requirements through 2001.

29



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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS




| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The plan also includes a comprehensive experimental three-year
	customer choice program, which is subject to annual caps on the
	level of participation. The customer choice program began in
	April 1999, with approximately 70,000 customers choosing to
	purchase natural gas from suppliers other than MichCon. Plan
	years begin April 1 of each year, and the number of customers
	allowed to participate in the plan is limited to 75,000 in 1999,
	150,000 in 2000 and 225,000 in 2001. There is also a volume
	limitation on commercial and industrial participants. The volume
	limitation for these participants is 10 billion cubic feet
	(Bcf) in 1999, 20 Bcf in 2000 and 30 Bcf in 2001. MichCon will
	continue to transport and deliver the gas to the customers
	premises at prices that maintain its previously existing sales
	margins on these services. Various parties have appealed the
	Michigan Public Service Commissions (MPSC) approval of
	 the plan. While management believes the plan will be upheld on
	appeal, there can be no assurance as to the outcome.

b.  Gas Cost Recovery
Proceedings



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Prior to January 1999, the Gas Cost Recovery (GCR) process
	allowed MichCon to recover its cost of gas sold if the MPSC
	determined that such costs were reasonable and prudent. An annual
	 GCR reconciliation proceeding provided a review of gas costs
	incurred during the previous year and determined whether gas
	costs had been overcollected or undercollected, and as a result,
	whether a refund or surcharge, including interest, was required
	to be returned to or collected from GCR customers. The GCR
	process was suspended with the implementation of MichCons
	Regulatory Reform Plan in January 1999.
|
| | In February 1999, MichCon filed its final GCR reconciliation
	 case covering gas costs incurred during 1998 which indicates an
	overrecovery of $18,000,000, including interest. Management
	believes that 1998 gas costs were reasonable and prudent and that
	 the MPSC will approve the gas costs incurred. However,
	management cannot predict the outcome of this proceeding. During
	the first quarter of 1999, MichCon refunded the overrecovery to
	customers as a reduction in gas sales rates.                                                                                                                   

6.  DISCONTINUED OPERATIONS SUBSEQUENTLY RETAINED

In December 1998, MCN accounted for its E&P segment as a
 discontinued operation as a result of its decision to sell all
of its gas and oil properties. In August 1999, management
announced its intention to retain its natural gas producing
properties in Michigan. Accordingly, E&Ps operating
results for prior periods have been reclassified from
discontinued operations to continuing operations. The decision to
 retain these properties was based on the interaction of two
factors. MCN significantly revised its strategic direction. Key
aspects of the new corporate strategy include a
Midwest-to-Northeast regional focus rather than a North American
focus, and an emphasis on achieving operational efficiencies and
growth through the integration of existing businesses. Shortly
thereafter, the bid for the Michigan properties was lowered
significantly. The lower price was unacceptable, especially in
light of MCNs new strategic direction.

In accordance with Emerging Issues Task Force (EITF) Issue
No. 85-36, Discontinued Operations with Expected
Gain and Interim Operating Losses, E&Ps
operating results for the first quarter of 1999 were initially
deferred until the sale of all E&P properties was completed.
Prior to the lowering of the bid for the Michigan properties,
management expected that the disposition of all of the E&P
properties would result in a gain. As a result of MCNs
decision to retain its Michigan

30



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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


E&P properties, the deferred loss of $1,982,000 pre-tax
($1,288,000 net of taxes) was recorded in the second quarter of
1999.

Additionally, the E&P segment recorded several unusual
charges in the 1999 and 1998 periods (Note 2c). Included in
these unusual charges for 1999 was the loss on the sale of the
Western and Midcontinent/ Gulf Coast properties. Proceeds from
the sale of these properties totaled approximately $265,000,000.
At December 31, 1998, the Western and Midcontinent/ Gulf
Coast properties had 360 billion cubic feet equivalent of
proven reserves. MCN will continue selling its other non-Michigan
 E&P oil and gas properties.

Under EITF Issue No. 87-24, Allocation of Interest
to Discontinued Operations,Diversified Energys
interest and preferred dividend expenses were allocated to the
discontinued E&P segment based on its ratio of total capital
to that of Diversified Energy. The interest and preferred
dividend expenses have been reallocated to the E&P segment
based on an imputed debt structure reflective of its industry as
is done with MCNs other segments.

The following financial information summarizes E&Ps
operations:

|                   |                           |                    |         |                  |   |                     |          |          |   |      |         |         |   |   |          |          |   |   |          |          |   |   |          |          |  
|------------------ | ------------------------- | ------------------ | ------- | ---------------- | - | ------------------- | -------- | -------- | - | ---- | ------- | ------- | - | - | -------- | -------- | - | - | -------- | -------- | - | - | -------- | -------- | -
|                   |                           |                    |         |                  |   |                    
|                   |                           | Three Months Ended |         | Six Months Ended |   | Twelve Months Ended
|                   |                           | June 30,           |         | June 30,         |   | June 30,           
|                   |                           |                    |         |                  |   |                    
|                   |                           | 1999               |         | 1998             |   | 1999                |          | 1998     |   | 1999 |         | 1998   
|                   |                           |                    |         |                  |   |                     |          |          |   |      |         |        
|(in Thousands)     |                           |                    |         |                  |   |                     |          |          |   |      |         |         |   |   |          |          |   |   |          |          |   |   |          |         
|                  
|                  
|                  
|                  
|Operating Revenues |                           | $                  | 37,918  |                  |   | $                   | 53,101   |          |   | $    | 87,417  |         |   | $ | 108,713  |          |   | $ | 185,806  |          |   | $ | 223,434  |         
|                  
|                  
|                  
|                  
|Operating Loss     |                           | $                  | (51,824 | )                |   | $                   | (324,864 | )        |   | $    | (43,774 | )       |   | $ | (316,132 | )        |   | $ | (115,596 | )        |   | $ | (290,951 | )       
|                  
|                  
|                  
|                  
|Net Income (Loss): |                           |                    |         |                  |   |                     |          |          |   |      |         |         |   |   |          |          |   |   |          |          |   |   |          |         
|                  
|                  
|                  
|                  
|                   | Before Unusual Charges    |                    | $       | 3,657            |   |                     | $        | 7,241    |   |      | $       | 3,657   |   |   | $        | 13,061   |   |   | $        | 12,267   |   |   | $        | 34,330   |  
|                  
|                  
|                  
|                  
|                   | Unusual Charges (Note 2c) |                    |         | (83,365          | ) |                     |          | (220,452 | ) |      |         | (83,365 | ) |   |          | (220,452 | ) |   |          | (137,935 | ) |   |          | (220,452 | )
|                   |                           |                    |         |                  |   |                     |          |          |   |      |         |         |   |   |          |          |   |   |          |          |   |   |          |         
|                   |                           | $                  | (79,708 | )                |   | $                   | (213,211 | )        |   | $    | (79,708 | )       |   | $ | (207,391 | )        |   | $ | (125,668 | )        |   | $ | (186,122 | )       
|                   |                           |                    |         |                  |   |                     |          |          |   |      |         |         |   |   |          |          |   |   |          |          |   |   |          |         

7.  GAS IN INVENTORY

Inventory gas is priced on a last-in, first-out
(LIFO) basis. In anticipation that interim inventory
reductions will be replaced prior to year-end, the cost of gas
for net withdrawals from inventory is generally recorded at the
estimated average purchase rate for the calendar year. The excess
 of these changes over the LIFO cost is credited to the gas
inventory equalization account. During interim periods when there
 are net injections to inventory, the equalization account is
reversed. Approximately 95.7 Bcf and 90.7 Bcf of gas
was in inventory at June 30, 1999 and 1998, respectively.

31



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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


8.  CREDIT FACILITIES AND SHORT-TERM BORROWINGS

In March 1999, MCN entered into a $150,000,000 revolving
credit agreement that expires in October 1999. Borrowings
under the credit agreement are at variable rates.

MCN Investment Corporation (MCNIC) and MichCon maintain credit
lines that allow for borrowings of up to $350,000,000 under
364-day revolving credit facilities and up to $350,000,000 under
three-year revolving credit facilities. These credit lines
totaling $700,000,000 support their commercial paper programs.
The 364-day revolving credit facilities were renewed in
July 1999. The three-year revolving credit facilities expire
 in July 2001.

As discussed in MCNs 1998 Annual Report on Form 10-K/
A, MCN borrowed $260,000,000 under a one-year term loan facility,
 due December 31, 1999. Principal payments are required
based on certain proceeds received from the sale of E&P
assets. As of June 30, 1999, MCN had repaid $143,000,000 of
the facility.

9.  ENHANCED PRIDES AND LONG-TERM DEBT

As discussed in MCNs 1998 Annual Report on Form 10-K/
A, MCN issued 5,865,000 of Preferred Redeemable Increased
Dividend Equity Securities (Enhanced PRIDES) in 1996. Each
security represented a contract to purchase one share of MCN
common stock. The Enhanced PRIDES were converted into MCN common
stock in April 1999, and as a result MCN received cash proceeds
totaling approximately $135,000,000. These proceeds were used to
repay a $130,000,000 medium-term note that came due in
May 1999. Also in February 1999, MCN repaid an
$80,000,000 medium-term note.

In June 1999, MichCon issued $55,000,000 of 6.85% senior
secured notes, due June 2038, and 55,000,000 of 6.85% senior
 secured notes, due June 2039. The notes are insured by a
financial guaranty insurance policy and are rated AAA or its
equivalent by the major rating agencies. The notes are redeemable
 on or after June 1, 2004.

32



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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


10.  EARNINGS PER SHARE COMPUTATION

MCN reports both basic and diluted earnings per share. Basic EPS
is computed by dividing income before cumulative effect of
accounting change by the weighted average number of common shares
 outstanding during the period. Diluted EPS assumes the issuance
of potential dilutive common shares outstanding during the period
 and adjusts for changes in income and the repurchase of common
shares that would have occurred with proceeds from the assumed
issuance. A reconciliation of both calculations is shown below.

|                                         |                                 |                                |   |          |   |           |   |          |   |      |  |        |       |  |  |        |   |  |   |       |   |  |   |       |   | 
|---------------------------------------- | ------------------------------- | ------------------------------ | - | -------- | - | --------- | - | -------- | - | ---- |  | ------ | ----- |  |  | ------ | - |  | - | ----- | - |  | - | ----- | - | 
|                                         |                                 |                                |   |          |   |           |   |         
|                                         |                                 | Net Income (Loss)              |   | Weighted |   |           |   |         
|                                         |                                 | Before Cumulative              |   | Average  |   |          
|                                         |                                 | Effect of                      |   | Common   |   | Earnings 
|                                         |                                 | Accounting Change              |   | Shares   |   | Per Share
|                                         |                                 |                                |   |          |   |          
|                                         |                                 | 1999                           |   | 1998     |   | 1999      |   | 1998     |   | 1999 |  | 1998  
|                                         |                                 |                                |   |          |   |           |   |          |   |      |  |       
|(in Thousands, Except Per Share Amounts) |                                 |                                |   |          |   |           |   |          |   |      |  |        |       |  |  |        |   |  |   |       |   |  |   |      
|                                        
|                                        
|                                        
|                                        
|Three Months Ended June 30               |                                 |                                |   |          |   |           |   |          |   |      |  |        |       |  |  |        |   |  |   |       |   |  |   |      
|                                        
|                                        
|                                        
|                                        
|                                         | Basic EPS                       |                                | $ | (86,240  | ) |           | $ | (212,623 | ) |      |  | 83,413 |       |  |  | 78,758 |   |  | $ | (1.03 | ) |  | $ | (2.70 | )
|                                         |                                 |                                |   |          |   |           |   |          |   |      |  |        |       |  |  |        |   |  |   |       |   |  |   |      
|                                         | Effect of Dilutive Securities:* |                                |   |          |   |           |   |          |   |      |  |        |       |  |  |        |   |  |   |       |   |  |   |       |  
|                                        
|                                        
|                                        
|                                        
|                                         |                                 | FELINE PRIDES                  |   |          |  |           |   |          |  |      |  |        |      |  |  |        |  |  |   |       |   |  |   |       |   | 
|                                        
|                                        
|                                        
|                                        
|                                         |                                 | Enhanced PRIDES                |   |          |  |           |   |          |  |      |  |        |      |  |  |        |  |  |   |       |   |  |   |       |   | 
|                                        
|                                        
|                                        
|                                        
|                                         |                                 | Stock-based compensation plans |   |          |  |           |   |          |  |      |  |        |      |  |  |        |  |  |   |       |   |  |   |       |   | 
|                                         |                                 |                                |   |          |   |           |   |          |   |      |  |        |       |  |  |        |   |  |   |       |   |  |   |      
|                                         | Diluted EPS                     |                                | $ | (86,240  | ) |           | $ | (212,623 | ) |      |  | 83,413 |       |  |  | 78,758 |   |  | $ | (1.03 | ) |  | $ | (2.70 | )
|                                         |                                 |                                |   |          |   |           |   |          |   |      |  |        |       |  |  |        |   |  |   |       |   |  |   |      
|Six Months Ended June 30                 |                                 |                                |   |          |   |           |   |          |   |      |  |        |       |  |  |        |   |  |   |       |   |  |   |      
|                                        
|                                        
|                                        
|                                        
|                                         | Basic EPS                       |                                | $ | 2,175    |   |           | $ | (133,741 | ) |      |  | 81,424 |       |  |  | 78,563 |   |  | $ | .03   |   |  | $ | (1.70 | )
|                                         |                                 |                                |   |          |   |           |   |          |   |      |  |        |       |  |  |        |   |  |   |       |   |  |   |      
|                                         | Effect of Dilutive Securities:* |                                |   |          |   |           |   |          |   |      |  |        |       |  |  |        |   |  |   |       |   |  |   |       |  
|                                        
|                                        
|                                        
|                                        
|                                         |                                 | FELINE PRIDES                  |   |          |  |           |   |          |  |      |  |        |      |  |  |        |  |  |   |       |   |  |   |       |   | 
|                                        
|                                        
|                                        
|                                        
|                                         |                                 | Enhanced PRIDES                |   |          |  |           |   |          |  |      |  |        |      |  |  |        |  |  |   |       |   |  |   |       |   | 
|                                        
|                                        
|                                        
|                                        
|                                         |                                 | Stock-based compensation plans |   |          |  |           |   |          |  |      |  |        | 1,090 |  |  |        |  |  |   |       |   |  |   |       |   | 
|                                         |                                 |                                |   |          |   |           |   |          |   |      |  |        |       |  |  |        |   |  |   |       |   |  |   |      
|                                         | Diluted EPS                     |                                | $ | 2,175    |   |           | $ | (133,741 | ) |      |  | 82,514 |       |  |  | 78,563 |   |  | $ | .03   |   |  | $ | (1.70 | )
|                                         |                                 |                                |   |          |   |           |   |          |   |      |  |        |       |  |  |        |   |  |   |       |   |  |   |      
|Twelve Months Ended June 30              |                                 |                                |   |          |   |           |   |          |   |      |  |        |       |  |  |        |   |  |   |       |   |  |   |      
|                                        
|                                        
|                                        
|                                        
|                                         | Basic EPS                       |                                | $ | (150,552 | ) |           | $ | (87,612  | ) |      |  | 80,242 |       |  |  | 78,303 |   |  | $ | (1.88 | ) |  | $ | (1.12 | )
|                                         |                                 |                                |   |          |   |           |   |          |   |      |  |        |       |  |  |        |   |  |   |       |   |  |   |      
|                                         | Effect of Dilutive Securities:* |                                |   |          |   |           |   |          |   |      |  |        |       |  |  |        |   |  |   |       |   |  |   |       |  
|                                        
|                                        
|                                        
|                                        
|                                         |                                 | FELINE PRIDES                  |   |          |  |           |   |          |  |      |  |        |      |  |  |        |  |  |   |       |   |  |   |       |   | 
|                                        
|                                        
|                                        
|                                        
|                                         |                                 | Enhanced PRIDES                |   |          |  |           |   |          |  |      |  |        |      |  |  |        |  |  |   |       |   |  |   |       |   | 
|                                        
|                                        
|                                        
|                                        
|                                         |                                 | Stock-based compensation plans |   |          |  |           |   |          |  |      |  |        |      |  |  |        |  |  |   |       |   |  |   |       |   | 
|                                         |                                 |                                |   |          |   |           |   |          |   |      |  |        |       |  |  |        |   |  |   |       |   |  |   |      
|                                         | Diluted EPS                     |                                | $ | (150,552 | ) |           | $ | (87,612  | ) |      |  | 80,242 |       |  |  | 78,303 |   |  | $ | (1.88 | ) |  | $ | (1.12 | )
|                                         |                                 |                                |   |          |   |           |   |          |   |      |  |        |       |  |  |        |   |  |   |       |   |  |   |      



|  |                                                                                                                                                                                     
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Except for the 1999 six-month period, the
	potentially dilutive securities have been excluded from the
	diluted EPS calculation since their inclusion would have been
	antidilutive.

33



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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


11.  COMPREHENSIVE INCOME

MCN reports comprehensive income, which is defined as the change
in common shareholders equity during a period from
transactions and events from non-owner sources, including net
income. Total comprehensive income for the applicable periods is
as follows:

|                                                 |                                                       |                                         |                                                            |                  |      |                     |          |          |        |        |       |       |      |        |          |          |        |        |          |          |        |        |         |         |         |        |  
|------------------------------------------------ | ----------------------------------------------------- | --------------------------------------- | ---------------------------------------------------------- | ---------------- | ---- | ------------------- | -------- | -------- | ------ | ------ | ----- | ----- | ---- | ------ | -------- | -------- | ------ | ------ | -------- | -------- | ------ | ------ | ------- | ------- | ------- | ------ | -
|                                                 |                                                       |                                         |                                                            |                  |      |                    
|                                                 |                                                       | Three Months Ended                      |                                                            | Six Months Ended |      | Twelve Months Ended
|                                                 |                                                       | June 30,                                |                                                            | June 30,         |      | June 30,           
|                                                 |                                                       |                                         |                                                            |                  |      |                    
|                                                 |                                                       | 1999                                    |                                                            | 1998             |      | 1999                |          | 1998     |        | 1999   |       | 1998 
|                                                 |                                                       |                                         |                                                            |                  |      |                     |          |          |        |        |       |      
|(in Thousands)                                   |                                                       |                                         |                                                            |                  |      |                     |          |          |        |        |       |       |      |        |          |          |        |        |          |          |        |        |         |        
|                                                
|                                                
|                                                
|                                                
|Comprehensive Income (Loss)                      |                                                       |                                         |                                                            |                  |      |                     |          |          |        |        |       |       |      |        |          |          |        |        |          |          |        |        |         |        
|                                                
|                                                
|                                                
|                                                
|Net Loss                                         |                                                       | $                                       | (86,240                                                    | )                |      | $                   | (212,623 | )        |        | $      | (697  | )     |      | $      | (133,741 | )        |        | $      | (153,424 | )        |        | $      | (87,612 | )      
|                                                 |                                                       |                                         |                                                            |                  |      |                     |          |          |        |        |       |       |      |        |          |          |        |        |          |          |        |        |         |        
|Other Comprehensive Income (Loss), Net of Taxes: |                                                       |                                         |                                                            |                  |      |                     |          |          |        |        |       |       |      |        |          |          |        |        |          |          |        |        |         |        
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                       | Foreign currency translation adjustment |                                                            |                  | (898 | )                   |          |          | (5,314 | )      |       |       | (616 | )      |          |          | (5,813 | )      |          |          | (1,357 | )      |         |         | (12,092 | )     
|                                                 |                                                       |                                         |                                                            |                  |      |                     |          |          |        |        |       |       |      |        |          |          |        |        |          |          |        |        |         |        
|                                                 |                                                       | Unrealized loss on securities:          |                                                            |                  |      |                     |          |          |        |        |       |       |      |        |          |          |        |        |          |          |        |        |         |         |         |       
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                       |                                         | Unrealized losses during period                            |                  |      | (642                | )        |          |        | (1,736 | )     |       |      | (1,159 | )        |          |        | (2,803 | )        |          |        | (4,846 | )       |         |         | (3,987 | )
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                       |                                         | Less: Reclassification for losses recognized in net income |                  |      | 4,846               |          |          |        | 3,987  |       |       |      | 4,846  |          |          |        | 3,987  |          |          |        | 4,846  |         |         |         | 3,987  |  
|                                                 |                                                       |                                         |                                                            |                  |      |                     |          |          |        |        |       |       |      |        |          |          |        |        |          |          |        |        |         |        
|                                                 |                                                       |                                         | 4,204                                                      |                  |      |                     | 2,251    |          |        |        | 3,687 |       |      |        | 1,184    |          |        |        |         |          |        |        |        |        
|                                                 |                                                       |                                         |                                                            |                  |      |                     |          |          |        |        |       |       |      |        |          |          |        |        |          |          |        |        |         |        
|                                                 | Total Other Comprehensive Income (Loss), Net of Taxes |                                         |                                                            | 3,306            |      |                     |          | (3,063   | )      |        |       | 3,071 |      |        |          | (4,629   | )      |        |          | (1,357   | )      |        |         | (12,092 | )      
|                                                 |                                                       |                                         |                                                            |                  |      |                     |          |          |        |        |       |       |      |        |          |          |        |        |          |          |        |        |         |        
|                                                 | Total Comprehensive Income (Loss)                     |                                         | $                                                          | (82,934          | )    |                     | $        | (215,686 | )      |        | $     | 2,374 |      |        | $        | (138,370 | )      |        | $        | (154,781 | )      |        | $       | (99,704 | )      
|                                                 |                                                       |                                         |                                                            |                  |      |                     |          |          |        |        |       |       |      |        |          |          |        |        |          |          |        |        |         |        

12.  CONTINGENCIES

MCN is involved in certain legal and administrative proceedings
before various courts and governmental agencies concerning claims
 arising in the ordinary course of business. These proceedings
include certain contract disputes between Gas Distribution and
gas producers. Management cannot predict the final disposition of
 such proceedings, but believes that adequate provision has been
made for probable losses. It is managements belief, after
discussion with legal counsel, that the ultimate resolution of
those proceedings still pending will not have a material adverse
effect on MCNs financial statements.

34



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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


13.  COMMODITY SWAP AGREEMENTS

MCNs Diversified Energy and Gas Distribution groups manage
commodity price risk through the use of various derivative
instruments and predominately limit the use of such instruments
to hedging activities. The following assets and liabilities
related to the use of gas and oil swap agreements are reflected
in the Consolidated Statement of Financial Position:

|                                     |                        |          |        |              |  |      |        |        |  |   |        |        | 
|------------------------------------ | ---------------------- | -------- | ------ | ------------ |  | ---- | ------ | ------ |  | - | ------ | ------ | 
|                                     |                        |          |        |             
|                                     |                        | June 30, |        | December 31,
|                                     |                        |          |        |             
|                                     |                        | 1999     |        | 1998         |  | 1998
|                                     |                        |          |        |              |  |     
|(in Thousands)                       |                        |          |        |              |  |      |        |        |  |   |        |       
|                                    
|                                    
|                                    
|                                    
|Deferred Swap Losses and Receivables |                        |          |        |              |  |      |        |        |  |   |        |       
|                                    
|                                    
|                                    
|                                    
|                                     | Unrealized losses      |          | $      | 42,556       |  |      | $      | 55,042 |  |   | $      | 48,700 | 
|                                    
|                                    
|                                    
|                                    
|                                     | Receivables            |          |        | 31,156       |  |      |        | 8,786  |  |   |        | 25,864 | 
|                                     |                        |          |        |              |  |      |        |        |  |   |        |       
|                                     |                        |          | 73,712 |              |  |      | 63,828 |        |  |   | 74,564 |       
|                                    
|                                    
|                                    
|                                    
|                                     | Less  Current portion |          |        | 9,145        |  |      |        | 705    |  |   |        | 11,417 | 
|                                     |                        |          |        |              |  |      |        |        |  |   |        |       
|                                     |                        | $        | 64,567 |              |  | $    | 63,123 |        |  | $ | 63,147 |       
|                                     |                        |          |        |              |  |      |        |        |  |   |        |       
|Deferred Swap Gains and Payables     |                        |          |        |              |  |      |        |        |  |   |        |       
|                                    
|                                    
|                                    
|                                    
|                                     | Unrealized gains       |          | $      | 24,822       |  |      | $      | 5,626  |  |   | $      | 24,126 | 
|                                    
|                                    
|                                    
|                                    
|                                     | Payables               |          |        | 51,720       |  |      |        | 62,545 |  |   |        | 54,525 | 
|                                     |                        |          |        |              |  |      |        |        |  |   |        |       
|                                     |                        |          | 76,542 |              |  |      | 68,171 |        |  |   | 78,651 |       
|                                    
|                                    
|                                    
|                                    
|                                     | Less  Current portion |          |        | 13,925       |  |      |        | 18,157 |  |   |        | 15,695 | 
|                                     |                        |          |        |              |  |      |        |        |  |   |        |       
|                                     |                        | $        | 62,617 |              |  | $    | 50,014 |        |  | $ | 62,956 |       
|                                     |                        |          |        |              |  |      |        |        |  |   |        |       

35



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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


14.  SEGMENT INFORMATION

MCN is organized into two business groups, Diversified Energy and
 Gas Distribution. The groups operate five major business
segments, as set forth in the following table.

|                                      |                                        |                    |         |                  |   |                     |          |          |   |      |           |         |   |   |           |          |   |   |           |           |   |   |           |           |  
|------------------------------------- | -------------------------------------- | ------------------ | ------- | ---------------- | - | ------------------- | -------- | -------- | - | ---- | --------- | ------- | - | - | --------- | -------- | - | - | --------- | --------- | - | - | --------- | --------- | -
|                                      |                                        |                    |         |                  |   |                    
|                                      |                                        | Three Months Ended |         | Six Months Ended |   | Twelve Months Ended
|                                      |                                        | June 30,           |         | June 30,         |   | June 30,           
|                                      |                                        |                    |         |                  |   |                    
|                                      |                                        | 1999               |         | 1998             |   | 1999                |          | 1998     |   | 1999 |           | 1998   
|                                      |                                        |                    |         |                  |   |                     |          |          |   |      |           |        
|(in Thousands)                        |                                        |                    |         |                  |   |                     |          |          |   |      |           |         |   |   |           |          |   |   |           |           |   |   |           |          
|                                     
|                                     
|                                     
|                                     
|Revenues From Unaffiliated Customers: |                                        |                    |         |                  |   |                     |          |          |   |      |           |         |   |   |           |          |   |   |           |           |   |   |           |          
|                                     
|                                     
|                                     
|                                     
|                                      | Pipelines & Processing                 |                    | $       | 5,426            |   |                     | $        | 6,205    |   |      | $         | 11,331  |   |   | $         | 8,438    |   |   | $         | 23,749    |   |   | $         | 11,474    |  
|                                     
|                                     
|                                     
|                                     
|                                      | Electric Power                         |                    |         | 12,980           |   |                     |          | 12,568   |   |      |           | 25,123  |   |   |           | 22,246   |   |   |           | 50,008    |   |   |           | 47,498    |  
|                                     
|                                     
|                                     
|                                     
|                                      | Energy Marketing                       |                    |         | 253,081          |   |                     |          | 175,153  |   |      |           | 495,693 |   |   |           | 389,666  |   |   |           | 873,095   |   |   |           | 801,565   |  
|                                     
|                                     
|                                     
|                                     
|                                      | Exploration & Production               |                    |         | 25,457           |   |                     |          | 38,474   |   |      |           | 54,371  |   |   |           | 81,350   |   |   |           | 123,525   |   |   |           | 153,224   |  
|                                     
|                                     
|                                     
|                                     
|                                      | Gas Distribution                       |                    |         | 191,840          |   |                     |          | 173,814  |   |      |           | 698,852 |   |   |           | 605,974  |   |   |           | 1,138,017 |   |   |           | 1,125,094 |  
|                                      |                                        |                    |         |                  |   |                     |          |          |   |      |           |         |   |   |           |          |   |   |           |           |   |   |           |          
|                                      |                                        |                    | 488,784 |                  |   |                     | 406,214  |          |   |      | 1,285,370 |         |   |   | 1,107,674 |          |   |   | 2,208,394 |           |   |   | 2,138,855 |          
|                                      |                                        |                    |         |                  |   |                     |          |          |   |      |           |         |   |   |           |          |   |   |           |           |   |   |           |          
|Revenues From Affiliated Customers:   |                                        |                    |         |                  |   |                     |          |          |   |      |           |         |   |   |           |          |   |   |           |           |   |   |           |          
|                                     
|                                     
|                                     
|                                     
|                                      | Pipelines & Processing                 |                    |         | 928              |   |                     |          | 62       |   |      |           | 1,102   |   |   |           | 236      |   |   |           | 1,211     |   |   |           | 395       |  
|                                     
|                                     
|                                     
|                                     
|                                      | Energy Marketing                       |                    |         | 25,938           |   |                     |          | 25,966   |   |      |           | 44,023  |   |   |           | 49,975   |   |   |           | 99,591    |   |   |           | 96,147    |  
|                                     
|                                     
|                                     
|                                     
|                                      | Exploration & Production               |                    |         | 12,461           |   |                     |          | 14,627   |   |      |           | 33,046  |   |   |           | 27,363   |   |   |           | 62,281    |   |   |           | 70,210    |  
|                                     
|                                     
|                                     
|                                     
|                                      | Gas Distribution                       |                    |         | 666              |   |                     |          | 1,460    |   |      |           | 3,334   |   |   |           | 4,710    |   |   |           | 5,259     |   |   |           | 9,541     |  
|                                      |                                        |                    |         |                  |   |                     |          |          |   |      |           |         |   |   |           |          |   |   |           |           |   |   |           |          
|                                      |                                        |                    | 39,993  |                  |   |                     | 42,115   |          |   |      | 81,505    |         |   |   | 82,284    |          |   |   | 168,342   |           |   |   | 176,293   |          
|                                      |                                        |                    |         |                  |   |                     |          |          |   |      |           |         |   |   |           |          |   |   |           |           |   |   |           |          
|Eliminations                          |                                        |                    | (39,993 | )                |   |                     | (42,115  | )        |   |      | (81,505   | )       |   |   | (82,284   | )        |   |   | (168,342  | )         |   |   | (176,293  | )        
|                                      |                                        |                    |         |                  |   |                     |          |          |   |      |           |         |   |   |           |          |   |   |           |           |   |   |           |          
|Consolidated Operating Revenues       |                                        | $                  | 488,784 |                  |   | $                   | 406,214  |          |   | $    | 1,285,370 |         |   | $ | 1,107,674 |          |   | $ | 2,208,394 |           |   | $ | 2,138,855 |          
|                                      |                                        |                    |         |                  |   |                     |          |          |   |      |           |         |   |   |           |          |   |   |           |           |   |   |           |          
|Net Income (Loss):                    |                                        |                    |         |                  |   |                     |          |          |   |      |           |         |   |   |           |          |   |   |           |           |   |   |           |          
|                                     
|                                     
|                                     
|                                     
|                                      | Pipelines & Processing                 |                    | $       | 1,782            |   |                     | $        | 2,776    |   |      | $         | 3,457   |   |   | $         | 7,243    |   |   | $         | (85,485   | ) |   | $         | 16,779    |  
|                                     
|                                     
|                                     
|                                     
|                                      | Electric Power                         |                    |         | 2,970            |   |                     |          | 4,957    |   |      |           | 7,371   |   |   |           | 12,663   |   |   |           | 14,913    |   |   |           | 22,375    |  
|                                     
|                                     
|                                     
|                                     
|                                      | Energy Marketing                       |                    |         | (2,742           | ) |                     |          | (568     | ) |      |           | (387    | ) |   |           | 2,843    |   |   |           | (4,268    | ) |   |           | 2,945     |  
|                                     
|                                     
|                                     
|                                     
|                                      | Exploration & Production               |                    |         | (79,708          | ) |                     |          | (213,211 | ) |      |           | (79,708 | ) |   |           | (207,391 | ) |   |           | (125,668  | ) |   |           | (186,122  | )
|                                     
|                                     
|                                     
|                                     
|                                      | Gas Distribution                       |                    |         | 6,340            |   |                     |          | 2,714    |   |      |           | 90,633  |   |   |           | 65,370   |   |   |           | 96,997    |   |   |           | 81,388    |  
|                                     
|                                     
|                                     
|                                     
|                                      | Corporate & Other                      |                    |         | (14,882          | ) |                     |          | (9,291   | ) |      |           | (19,191 | ) |   |           | (14,469  | ) |   |           | (47,041   | ) |   |           | (24,977   | )
|                                      |                                        |                    |         |                  |   |                     |          |          |   |      |           |         |   |   |           |          |   |   |           |           |   |   |           |          
|                                      |                                        |                    | (86,240 | )                |   |                     | (212,623 | )        |   |      | 2,175     |         |   |   | (133,741  | )        |   |   | (150,552  | )         |   |   | (87,612   | )        
|                                     
|                                     
|                                     
|                                     
|                                      | Cumulative effect of accounting change |                    |         |                 |   |                     |          |         |   |      |           | (2,872  | ) |   |           |         |   |   |           | (2,872    | ) |   |           |          |  
|                                      |                                        |                    |         |                  |   |                     |          |          |   |      |           |         |   |   |           |          |   |   |           |           |   |   |           |          
|Consolidated Net Loss                 |                                        | $                  | (86,240 | )                |   | $                   | (212,623 | )        |   | $    | (697      | )       |   | $ | (133,741  | )        |   | $ | (153,424  | )         |   | $ | (87,612   | )        
|                                      |                                        |                    |         |                  |   |                     |          |          |   |      |           |         |   |   |           |          |   |   |           |           |   |   |           |          

15.  CONSOLIDATING FINANCIAL STATEMENTS

Debt securities issued by MCN Investment Corporation (MCNIC) are
subject to a support agreement between MCN and MCNIC, under which
 MCN has committed to make payments of interest and principal on
MCNICs securities in the event of failure to pay by MCNIC.
Under the terms of the support agreement, the assets of MCN,
other than MichCon, and any cash dividends paid to MCN by any of
its subsidiaries are available as recourse to holders of
MCNICs securities. The carrying value of MCNs assets
on an unconsolidated basis, which primarily consists of
investments in subsidiaries other than MichCon, is $878,334,000
at June 30, 1999.

The following MCN consolidating financial statements are
presented and include separately MCNIC, MichCon and MCN and other
 subsidiaries. MCN has determined that separate financial
statements and other disclosures concerning MCNIC are not
material to investors. The other MCN subsidiaries represent
Citizens Gas Fuel Company, MCN Michigan Limited Partnership, MCN
Financing I, MCN Financing II, MCN Financing III,
MCN Financing V, MCN Financing VI, MichCon Enterprises,
 Inc. and Blue Lake Holdings, Inc., until its sale on
December 31, 1997.

36



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


CONSOLIDATING STATEMENTS OF OPERATIONS (Unaudited)

|                                                               |                                                                                        |                                  |          |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |         |  
|-------------------------------------------------------------- | -------------------------------------------------------------------------------------- | -------------------------------- | -------- | ------ | - | ------- | -------- | ------------ | - | ------------ | ------- | ------- | - | - | ------- | ------- | - | - | -------- | ------- | -
|                                                               |                                                                                        | MCN                              |          |        |   |         |          | Eliminations |   |             
|                                                               |                                                                                        | and Other                        |          |        |   |         |          | and          |   | Consolidated
|                                                               |                                                                                        | Subsidiaries                     |          | MCNIC  |   | MichCon |          | Reclasses    |   | Total       
|                                                               |                                                                                        |                                  |          |        |   |         |          |              |   |             
|                                                               |                                                                                        |                                  |          |        |   |         |          |              |   |             
|                                                               |                                                                                        |                                 
|                                                               |                                                                                        | Three Months Ended June 30, 1999
|                                                               |                                                                                        |                                 
|(in Thousands)                                                 |                                                                                        |                                  |          |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|                                                              
|                                                              
|                                                              
|                                                              
|Operating Revenues                                             |                                                                                        | $                                | 6,908    |        |   | $       | 297,912  |              |   | $            | 185,555 |         |   | $ | (1,591  | )       |   | $ | 488,784  |        
|                                                               |                                                                                        |                                  |          |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|Operating Expenses                                             |                                                                                        |                                  |          |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Cost of sales                                                                          |                                  |          | 5,233  |   |         |          | 250,736      |   |              |         | 60,410  |   |   |         | (1,431  | ) |   |          | 314,948 |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Operation and maintenance                                                              |                                  |          | 591    |   |         |          | 34,130       |   |              |         | 63,942  |   |   |         | (186    | ) |   |          | 98,477  |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Depreciation, depletion and amortization                                               |                                  |          | 973    |   |         |          | 16,431       |   |              |         | 24,758  |   |   |         |        |   |   |          | 42,162  |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Property and other taxes                                                               |                                  |          | 389    |   |         |          | 3,187        |   |              |         | 12,700  |   |   |         | (6      | ) |   |          | 16,270  |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Property write-downs and restructuring charges                                         |                                  |          |       |   |         |          | 52,000       |   |              |         |        |   |   |         |        |   |   |          | 52,000  |  
|                                                               |                                                                                        |                                  |          |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|                                                               |                                                                                        |                                  | 7,186    |        |   |         | 356,484  |              |   |              | 161,810 |         |   |   | (1,623  | )       |   |   | 523,857  |        
|                                                               |                                                                                        |                                  |          |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|Operating Income (Loss)                                        |                                                                                        |                                  | (278     | )      |   |         | (58,572  | )            |   |              | 23,745  |         |   |   | 32      |         |   |   | (35,073  | )      
|                                                               |                                                                                        |                                  |          |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|Equity in Earnings (Losses) of Joint Ventures and Subsidiaries |                                                                                        |                                  | (83,493  | )      |   |         | 11,594   |              |   |              | 572     |         |   |   | 83,493  |         |   |   | 12,166   |        
|                                                               |                                                                                        |                                  |          |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|Other Income and (Deductions)                                  |                                                                                        |                                  |          |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Interest income                                                                        |                                  |          | 16,336 |   |         |          | 1,471        |   |              |         | 946     |   |   |         | (16,384 | ) |   |          | 2,369   |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Interest on long-term debt                                                             |                                  |          | 250    |   |         |          | (10,329      | ) |              |         | (11,525 | ) |   |         |        |   |   |          | (21,604 | )
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Other interest expense                                                                 |                                  |          | (3,150 | ) |         |          | (13,375      | ) |              |         | (1,181  | ) |   |         | 11,024  |   |   |          | (6,682  | )
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Dividends on preferred securities of subsidiaries                                      |                                  |          |       |   |         |          |             |   |              |         |        |   |   |         | (10,334 | ) |   |          | (10,334 | )
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Loss on sale of E&P properties                                                         |                                  |          |       |   |         |          | (68,798      | ) |              |         |        |   |   |         |        |   |   |          | (68,798 | )
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Investment losses                                                                      |                                  |          |       |   |         |          | (7,456       | ) |              |         |        |   |   |         |        |   |   |          | (7,456  | )
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Recognition of deferred loss related to discontinued operations
	subsequently retained |                                  |          |       |   |         |          | (1,982       | ) |              |         |        |   |   |         |        |   |   |          | (1,982  | )
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Minority interest                                                                      |                                  |          |       |   |         |          | (154         | ) |              |         | (266    | ) |   |         |        |   |   |          | (420    | )
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Other                                                                                  |                                  |          | (127   | ) |         |          | 6,040        |   |              |         | (177    | ) |   |         | (35     | ) |   |          | 5,701   |  
|                                                               |                                                                                        |                                  |          |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|                                                               |                                                                                        |                                  | 13,309   |        |   |         | (94,583  | )            |   |              | (12,203 | )       |   |   | (15,729 | )       |   |   | (109,206 | )      
|                                                               |                                                                                        |                                  |          |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|Income (Loss) Before Income Taxes                              |                                                                                        |                                  | (70,462  | )      |   |         | (141,561 | )            |   |              | 12,114  |         |   |   | 67,796  |         |   |   | (132,113 | )      
|                                                              
|                                                              
|                                                              
|                                                              
|Income Tax Provision (Benefit)                                 |                                                                                        |                                  | (967     | )      |   |         | (48,855  | )            |   |              | 3,949   |         |   |   |        |         |   |   | (45,873  | )      
|                                                               |                                                                                        |                                  |          |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|Net Income (Loss)                                              |                                                                                        |                                  | (69,495  | )      |   |         | (92,706  | )            |   |              | 8,165   |         |   |   | 67,796  |         |   |   | (86,240  | )      
|                                                              
|                                                              
|                                                              
|                                                              
|Dividends on Preferred Securities                              |                                                                                        |                                  | 10,334   |        |   |         |         |              |   |              |        |         |   |   | (10,334 | )       |   |   |         |        
|                                                               |                                                                                        |                                  |          |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|Net Income (Loss) Available for Common Stock                   |                                                                                        | $                                | (79,829  | )      |   | $       | (92,706  | )            |   | $            | 8,165   |         |   | $ | 78,130  |         |   | $ | (86,240  | )      
|                                                               |                                                                                        |                                  |          |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|                                                               |                                                                                        | Three Months Ended June 30, 1998
|                                                               |                                                                                        |                                 
|Operating Revenues                                             |                                                                                        | $                                | 2,487    |        |   | $       | 233,228  |              |   | $            | 172,787 |         |   | $ | (2,288  | )       |   | $ | 406,214  |        
|                                                               |                                                                                        |                                  |          |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|Operating Expenses                                             |                                                                                        |                                  |          |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Cost of sales                                                                          |                                  |          | 1,322  |   |         |          | 170,955      |   |              |         | 57,512  |   |   |         | (1,540  | ) |   |          | 228,249 |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Operation and maintenance                                                              |                                  |          | 100    |   |         |          | 30,409       |   |              |         | 61,868  |   |   |         | (748    | ) |   |          | 91,629  |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Depreciation, depletion and amortization                                               |                                  |          | 693    |   |         |          | 22,273       |   |              |         | 23,492  |   |   |         |        |   |   |          | 46,458  |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Property and other taxes                                                               |                                  |          | 538    |   |         |          | 3,347        |   |              |         | 13,953  |   |   |         |        |   |   |          | 17,838  |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Property write-downs and restructuring charges                                         |                                  |          |       |   |         |          | 333,022      |   |              |         |        |   |   |         |        |   |   |          | 333,022 |  
|                                                               |                                                                                        |                                  |          |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|                                                               |                                                                                        |                                  | 2,653    |        |   |         | 560,006  |              |   |              | 156,825 |         |   |   | (2,288  | )       |   |   | 717,196  |        
|                                                               |                                                                                        |                                  |          |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|Operating Income (Loss)                                        |                                                                                        |                                  | (166     | )      |   |         | (326,778 | )            |   |              | 15,962  |         |   |   |        |         |   |   | (310,982 | )      
|                                                               |                                                                                        |                                  |          |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|Equity in Earnings (Losses) of Joint Ventures and Subsidiaries |                                                                                        |                                  | (209,940 | )      |   |         | 11,859   |              |   |              | 361     |         |   |   | 209,557 |         |   |   | 11,837   |        
|                                                               |                                                                                        |                                  |          |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|Other Income and (Deductions)                                  |                                                                                        |                                  |          |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Interest income                                                                        |                                  |          | 9,527  |   |         |          | 971          |   |              |         | 822     |   |   |         | (9,505  | ) |   |          | 1,815   |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Interest on long-term debt                                                             |                                  |          | 162    |   |         |          | (9,073       | ) |              |         | (10,513 | ) |   |         |        |   |   |          | (19,424 | )
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Other interest expense                                                                 |                                  |          | (210   | ) |         |          | (12,163      | ) |              |         | (1,891  | ) |   |         | 9,442   |   |   |          | (4,822  | )
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Dividends on preferred securities of subsidiaries                                      |                                  |          |       |   |         |          |             |   |              |         |        |   |   |         | (9,230  | ) |   |          | (9,230  | )
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Investment losses                                                                      |                                  |          |       |   |         |          | (6,135       | ) |              |         |        |   |   |         |        |   |   |          | (6,135  | )
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Minority interest                                                                      |                                  |          |       |   |         |          | (34          | ) |              |         | (398    | ) |   |         | (203    | ) |   |          | (635    | )
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Other                                                                                  |                                  |          | (541   | ) |         |          | 1,025        |   |              |         | 585     |   |   |         | 203     |   |   |          | 1,272   |  
|                                                               |                                                                                        |                                  |          |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|                                                               |                                                                                        |                                  | 8,938    |        |   |         | (25,409  | )            |   |              | (11,395 | )       |   |   | (9,293  | )       |   |   | (37,159  | )      
|                                                               |                                                                                        |                                  |          |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|Income (Loss) Before Income Taxes                              |                                                                                        |                                  | (201,168 | )      |   |         | (340,328 | )            |   |              | 4,928   |         |   |   | 200,264 |         |   |   | (336,304 | )      
|                                                              
|                                                              
|                                                              
|                                                              
|Income Tax Provision (Benefit)                                 |                                                                                        |                                  | (360     | )      |   |         | (125,235 | )            |   |              | 1,914   |         |   |   |        |         |   |   | (123,681 | )      
|                                                               |                                                                                        |                                  |          |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|Net Income (Loss)                                              |                                                                                        |                                  | (201,808 | )      |   |         | (215,093 | )            |   |              | 3,014   |         |   |   | 200,264 |         |   |   | (212,623 | )      
|                                                              
|                                                              
|                                                              
|                                                              
|Dividends on Preferred Securities                              |                                                                                        |                                  | 9,230    |        |   |         |         |              |   |              |        |         |   |   | (9,230  | )       |   |   |         |        
|                                                               |                                                                                        |                                  |          |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        
|Net Income (Loss) Available for Common Stock                   |                                                                                        | $                                | (210,038 | )      |   | $       | (215,093 | )            |   | $            | 3,014   |         |   | $ | 209,494 |         |   | $ | (212,623 | )      
|                                                               |                                                                                        |                                  |          |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |          |        

37



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS







CONSOLIDATING STATEMENTS OF OPERATIONS


|                                                            |                                                   |                                |        |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |           |         |  
|----------------------------------------------------------- | ------------------------------------------------- | ------------------------------ | ------ | ------ | - | ------- | -------- | ------------ | - | ------------ | ------- | ------- | - | - | ------- | ------- | - | - | --------- | ------- | -
|                                                            |                                                   | MCN                            |        |        |   |         |          | Eliminations |   |             
|                                                            |                                                   | and Other                      |        |        |   |         |          | and          |   | Total       
|                                                            |                                                   | Subsidiaries                   |        | MCNIC  |   | MichCon |          | Reclasses    |   | Consolidated
|                                                            |                                                   |                                |        |        |   |         |          |              |   |             
|                                                            |                                                   |                               
|                                                            |                                                   | Six Months Ended June 30, 1999
|                                                            |                                                   |                               
|(in Thousands)                                              |                                                   |                                |        |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |           |        
|                                                           
|                                                           
|                                                           
|                                                           
|Operating Revenues                                          |                                                   | $                              | 18,572 |        |   | $       | 591,479  |              |   | $            | 683,645 |         |   | $ | (8,326  | )       |   | $ | 1,285,370 |        
|                                                            |                                                   |                                |        |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |           |        
|Operating Expenses                                          |                                                   |                                |        |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |           |        
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Cost of sales                                     |                                |        | 12,638 |   |         |          | 473,037      |   |              |         | 308,761 |   |   |         | (5,603  | ) |   |           | 788,833 |  
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Operation and maintenance                         |                                |        | (834   | ) |         |          | 72,496       |   |              |         | 131,488 |   |   |         | (2,723  | ) |   |           | 200,427 |  
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Depreciation, depletion and amortization          |                                |        | 1,807  |   |         |          | 36,164       |   |              |         | 49,366  |   |   |         |        |   |   |           | 87,337  |  
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Property and other taxes                          |                                |        | 777    |   |         |          | 5,989        |   |              |         | 31,162  |   |   |         |        |   |   |           | 37,928  |  
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Property write-downs and restructuring charges    |                                |        |       |   |         |          | 52,000       |   |              |         |        |   |   |         |        |   |   |           | 52,000  |  
|                                                            |                                                   |                                |        |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |           |        
|                                                            |                                                   |                                | 14,388 |        |   |         | 639,686  |              |   |              | 520,777 |         |   |   | (8,326  | )       |   |   | 1,166,525 |        
|                                                            |                                                   |                                |        |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |           |        
|Operating Income (Loss)                                     |                                                   |                                | 4,184  |        |   |         | (48,207  | )            |   |              | 162,868 |         |   |   |        |         |   |   | 118,845   |        
|                                                            |                                                   |                                |        |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |           |        
|Equity in Earnings of Joint Ventures and Subsidiaries       |                                                   |                                | 560    |        |   |         | 23,611   |              |   |              | 1,013   |         |   |   | (560    | )       |   |   | 24,624    |        
|                                                            |                                                   |                                |        |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |           |        
|Other Income and (Deductions)                               |                                                   |                                |        |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |           |        
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Interest income                                   |                                |        | 21,629 |   |         |          | 1,988        |   |              |         | 1,945   |   |   |         | (21,697 | ) |   |           | 3,865   |  
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Interest on long-term debt                        |                                |        | 461    |   |         |          | (21,476      | ) |              |         | (22,491 | ) |   |         |        |   |   |           | (43,506 | )
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Other interest expense                            |                                |        | (7,312 | ) |         |          | (25,867      | ) |              |         | (3,836  | ) |   |         | 21,698  |   |   |           | (15,317 | )
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Dividends on preferred securities of subsidiaries |                                |        |       |   |         |          |             |   |              |         |        |   |   |         | (20,669 | ) |   |           | (20,669 | )
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Loss on sale of E&P properties                    |                                |        |       |   |         |          | (68,798      | ) |              |         |        |   |   |         |        |   |   |           | (68,798 | )
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Investment losses                                 |                                |        |       |   |         |          | (7,456       | ) |              |         |        |   |   |         |        |   |   |           | (7,456  | )
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Minority interest                                 |                                |        |       |   |         |          | (216         | ) |              |         | (523    | ) |   |         |        |   |   |           | (739    | )
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Other                                             |                                |        | (258   | ) |         |          | 10,346       |   |              |         | 287     |   |   |         | (1      | ) |   |           | 10,374  |  
|                                                            |                                                   |                                |        |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |           |        
|                                                            |                                                   |                                | 14,520 |        |   |         | (111,479 | )            |   |              | (24,618 | )       |   |   | (20,669 | )       |   |   | (142,246  | )      
|                                                            |                                                   |                                |        |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |           |        
|Income (Loss) Before Income Taxes                           |                                                   |                                | 19,264 |        |   |         | (136,075 | )            |   |              | 139,263 |         |   |   | (21,229 | )       |   |   | 1,223     |        
|                                                           
|                                                           
|                                                           
|                                                           
|Income Tax Provision (Benefit)                              |                                                   |                                | (708   | )      |   |         | (47,369  | )            |   |              | 47,125  |         |   |   |         |         |   |   | (952      | )      
|                                                            |                                                   |                                |        |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |           |        
|Income (Loss) Before Cumulative Effect of Accounting Change |                                                   |                                | 19,972 |        |   |         | (88,706  | )            |   |              | 92,138  |         |   |   | (21,229 | )       |   |   | 2,175     |        
|                                                           
|                                                           
|                                                           
|                                                           
|Cumulative Effect of Accounting Change, Net of Taxes        |                                                   |                                |       |        |   |         | (2,872   | )            |   |              |        |         |   |   |        |         |   |   | (2,872    | )      
|                                                            |                                                   |                                |        |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |           |        
|Net Income (Loss)                                           |                                                   |                                | 19,972 |        |   |         | (91,578  | )            |   |              | 92,138  |         |   |   | (21,229 | )       |   |   | (697      | )      
|                                                           
|                                                           
|                                                           
|                                                           
|Dividends on Preferred Securities                           |                                                   |                                | 20,669 |        |   |         |         |              |   |              |        |         |   |   | (20,669 | )       |   |   |          |        
|                                                            |                                                   |                                |        |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |           |        
|Net Income (Loss) Available for Common Stock                |                                                   | $                              | (697   | )      |   | $       | (91,578  | )            |   | $            | 92,138  |         |   | $ | (560    | )       |   | $ | (697      | )      
|                                                            |                                                   |                                |        |        |   |         |          |              |   |              |         |         |   |   |         |         |   |   |           |        

|                                                               |                                                   |                                |          |        |   |   |          |         |   |   |         |         |   |   |         |         |   |   |           |         |  
|-------------------------------------------------------------- | ------------------------------------------------- | ------------------------------ | -------- | ------ | - | - | -------- | ------- | - | - | ------- | ------- | - | - | ------- | ------- | - | - | --------- | ------- | -
|                                                               |                                                   |                               
|                                                               |                                                   | Six Months Ended June 30, 1998
|                                                               |                                                   |                               
|                                                              
|                                                              
|                                                              
|                                                              
|Operating Revenues                                             |                                                   | $                              | 8,669    |        |   | $ | 505,082  |         |   | $ | 602,014 |         |   | $ | (8,091  | )       |   | $ | 1,107,674 |        
|                                                               |                                                   |                                |          |        |   |   |          |         |   |   |         |         |   |   |         |         |   |   |           |        
|Operating Expenses                                             |                                                   |                                |          |        |   |   |          |         |   |   |         |         |   |   |         |         |   |   |           |        
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Cost of sales                                     |                                |          | 4,443  |   |   |          | 377,736 |   |   |         | 275,101 |   |   |         | (4,735  | ) |   |           | 652,545 |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Operation and maintenance                         |                                |          | 240    |   |   |          | 65,529  |   |   |         | 124,090 |   |   |         | (3,356  | ) |   |           | 186,503 |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Depreciation, depletion and amortization          |                                |          | 1,339  |   |   |          | 43,971  |   |   |         | 45,937  |   |   |         |        |   |   |           | 91,247  |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Property and other taxes                          |                                |          | 1,171  |   |   |          | 6,287   |   |   |         | 31,255  |   |   |         |        |   |   |           | 38,713  |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Write-down of E&P properties                      |                                |          |       |   |   |          | 333,022 |   |   |         |        |   |   |         |        |   |   |           | 333,022 |  
|                                                               |                                                   |                                |          |        |   |   |          |         |   |   |         |         |   |   |         |         |   |   |           |        
|                                                               |                                                   |                                | 7,193    |        |   |   | 826,545  |         |   |   | 476,383 |         |   |   | (8,091  | )       |   |   | 1,302,030 |        
|                                                               |                                                   |                                |          |        |   |   |          |         |   |   |         |         |   |   |         |         |   |   |           |        
|Operating Income (Loss)                                        |                                                   |                                | 1,476    |        |   |   | (321,463 | )       |   |   | 125,631 |         |   |   |        |         |   |   | (194,356  | )      
|                                                               |                                                   |                                |          |        |   |   |          |         |   |   |         |         |   |   |         |         |   |   |           |        
|Equity in Earnings (Losses) of Joint Ventures and Subsidiaries |                                                   |                                | (130,687 | )      |   |   | 28,166   |         |   |   | 950     |         |   |   | 130,169 |         |   |   | 28,598    |        
|                                                               |                                                   |                                |          |        |   |   |          |         |   |   |         |         |   |   |         |         |   |   |           |        
|Other Income and (Deductions)                                  |                                                   |                                |          |        |   |   |          |         |   |   |         |         |   |   |         |         |   |   |           |        
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Interest income                                   |                                |          | 19,572 |   |   |          | 4,165   |   |   |         | 1,934   |   |   |         | (19,508 | ) |   |           | 6,163   |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Interest on long-term debt                        |                                |          | 403    |   |   |          | (15,637 | ) |   |         | (22,719 | ) |   |         |        |   |   |           | (37,953 | )
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Other interest expense                            |                                |          | (659   | ) |   |          | (25,403 | ) |   |         | (5,148  | ) |   |         | 19,547  |   |   |           | (11,663 | )
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Dividends on preferred securities of subsidiaries |                                |          |       |   |   |          |        |   |   |         |        |   |   |         | (18,984 | ) |   |           | (18,984 | )
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Loss on sale of E&P properties                    |                                |          |       |   |   |          |        |   |   |         |        |   |   |         |        |   |   |           |        |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Investment losses                                 |                                |          |       |   |   |          | (6,135  | ) |   |         |         |   |   |         |         |   |   |           | (6,135  | )
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Minority interest                                 |                                |          |        |   |   |          | (102    | ) |   |         | (1,143  | ) |   |         |         |   |   |           | (1,245  | )
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Other                                             |                                |          | (507   | ) |   |          | 13,762  |   |   |         | 706     |   |   |         |        |   |   |           | 13,961  |  
|                                                               |                                                   |                                |          |        |   |   |          |         |   |   |         |         |   |   |         |         |   |   |           |        
|                                                               |                                                   |                                | 18,809   |        |   |   | (29,350  | )       |   |   | (26,370 | )       |   |   | (18,945 | )       |   |   | (55,856   | )      
|                                                               |                                                   |                                |          |        |   |   |          |         |   |   |         |         |   |   |         |         |   |   |           |        
|Income (Loss) Before Income Taxes                              |                                                   |                                | (110,402 | )      |   |   | (322,647 | )       |   |   | 100,211 |         |   |   | 111,224 |         |   |   | (221,614  | )      
|                                                              
|                                                              
|                                                              
|                                                              
|Income Tax Provision (Benefit)                                 |                                                   |                                | 244      |        |   |   | (123,650 | )       |   |   | 35,533  |         |   |   |        |         |   |   | (87,873   | )      
|                                                               |                                                   |                                |          |        |   |   |          |         |   |   |         |         |   |   |         |         |   |   |           |        
|Net Income (Loss)                                              |                                                   |                                | (110,646 | )      |   |   | (198,997 | )       |   |   | 64,678  |         |   |   | 111,224 |         |   |   | (133,741  | )      
|                                                              
|                                                              
|                                                              
|                                                              
|Dividends on Preferred Securities                              |                                                   |                                | 18,984   |        |   |   |         |         |   |   |        |         |   |   | (18,984 | )       |   |   |          |        
|                                                               |                                                   |                                |          |        |   |   |          |         |   |   |         |         |   |   |         |         |   |   |           |        
|Net Income (Loss) Available for Common Stock                   |                                                   | $                              | (129,630 | )      |   | $ | (198,997 | )       |   | $ | 64,678  |         |   | $ | 130,208 |         |   | $ | (133,741  | )      
|                                                               |                                                   |                                |          |        |   |   |          |         |   |   |         |         |   |   |         |         |   |   |           |        

38



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


CONSOLIDATING STATEMENTS OF OPERATIONS(Unaudited)

|                                                               |                                                   |                                   |          |         |   |         |           |              |   |              |           |         |   |   |         |         |   |   |           |           |  
|-------------------------------------------------------------- | ------------------------------------------------- | --------------------------------- | -------- | ------- | - | ------- | --------- | ------------ | - | ------------ | --------- | ------- | - | - | ------- | ------- | - | - | --------- | --------- | -
|                                                               |                                                   | MCN                               |          |         |   |         |           | Eliminations |   |             
|                                                               |                                                   | and Other                         |          |         |   |         |           | and          |   | Consolidated
|                                                               |                                                   | Subsidiaries                      |          | MCNIC   |   | MichCon |           | Reclasses    |   | Total       
|                                                               |                                                   |                                   |          |         |   |         |           |              |   |             
|                                                               |                                                   |                                   |          |         |   |         |           |              |   |             
|                                                               |                                                   |                                  
|                                                               |                                                   | Twelve Months Ended June 30, 1999
|                                                               |                                                   |                                  
|(in Thousands)                                                 |                                                   |                                   |          |         |   |         |           |              |   |              |           |         |   |   |         |         |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|Operating Revenues                                             |                                                   | $                                 | 28,165   |         |   | $       | 1,079,225 |              |   | $            | 1,115,289 |         |   | $ | (14,285 | )       |   | $ | 2,208,394 |          
|                                                               |                                                   |                                   |          |         |   |         |           |              |   |              |           |         |   |   |         |         |   |   |           |          
|Operating Expenses                                             |                                                   |                                   |          |         |   |         |           |              |   |              |           |         |   |   |         |         |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Cost of sales                                     |                                   |          | 18,901  |   |         |           | 847,508      |   |              |           | 485,189 |   |   |         | (9,536  | ) |   |           | 1,342,062 |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Operation and maintenance                         |                                   |          | (11,281 | ) |         |           | 159,574      |   |              |           | 259,795 |   |   |         | (4,749  | ) |   |           | 403,339   |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Depreciation, depletion and amortization          |                                   |          | 3,674   |   |         |           | 75,594       |   |              |           | 96,312  |   |   |         |        |   |   |           | 175,580   |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Property and other taxes                          |                                   |          | 1,325   |   |         |           | 12,098       |   |              |           | 55,345  |   |   |         |        |   |   |           | 68,768    |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Property write-downs and restructuring charges    |                                   |          | 8,669   |   |         |           | 277,827      |   |              |           | 24,800  |   |   |         |        |   |   |           | 311,296   |  
|                                                               |                                                   |                                   |          |         |   |         |           |              |   |              |           |         |   |   |         |         |   |   |           |          
|                                                               |                                                   |                                   | 21,288   |         |   |         | 1,372,601 |              |   |              | 921,441   |         |   |   | (14,285 | )       |   |   | 2,301,045 |          
|                                                               |                                                   |                                   |          |         |   |         |           |              |   |              |           |         |   |   |         |         |   |   |           |          
|Operating Income (Loss)                                        |                                                   |                                   | 6,877    |         |   |         | (293,376  | )            |   |              | 193,848   |         |   |   |        |         |   |   | (92,651   | )        
|                                                               |                                                   |                                   |          |         |   |         |           |              |   |              |           |         |   |   |         |         |   |   |           |          
|Equity in Earnings (Losses) of Joint Ventures and Subsidiaries |                                                   |                                   | (143,524 | )       |   |         | 56,687    |              |   |              | 2,009     |         |   |   | 143,079 |         |   |   | 58,251    |          
|                                                               |                                                   |                                   |          |         |   |         |           |              |   |              |           |         |   |   |         |         |   |   |           |          
|Other Income and (Deductions)                                  |                                                   |                                   |          |         |   |         |           |              |   |              |           |         |   |   |         |         |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Interest income                                   |                                   |          | 20,708  |   |         |           | 4,432        |   |              |           | 5,699   |   |   |         | (22,244 | ) |   |           | 8,595     |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Interest on long-term debt                        |                                   |          | (583    | ) |         |           | (47,660      | ) |              |           | (44,656 | ) |   |         |        |   |   |           | (92,899   | )
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Other interest expense                            |                                   |          | (9,127  | ) |         |           | (49,094      | ) |              |           | (10,801 | ) |   |         | 40,964  |   |   |           | (28,058   | )
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Dividends on preferred securities of subsidiaries |                                   |          |        |   |         |           |             |   |              |           |        |   |   |         | (38,055 | ) |   |           | (38,055   | )
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Loss on sale of E&P properties                    |                                   |          |        |   |         |           | (68,798      | ) |              |           |        |   |   |         |        |   |   |           | (68,798   | )
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Investment losses                                 |                                   |          | (8,500  | ) |         |           | (7,456       | ) |              |           |        |   |   |         |        |   |   |           | (15,956   | )
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Minority interest                                 |                                   |          |        |   |         |           | 151          |   |              |           | 6,347   |   |   |         |        |   |   |           | 6,498     |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Other                                             |                                   |          | (356    | ) |         |           | 16,932       |   |              |           | (601    | ) |   |         | (1      | ) |   |           | 15,974    |  
|                                                               |                                                   |                                   |          |         |   |         |           |              |   |              |           |         |   |   |         |         |   |   |           |          
|                                                               |                                                   |                                   | 2,142    |         |   |         | (151,493  | )            |   |              | (44,012   | )       |   |   | (19,236 | )       |   |   | (212,699  | )        
|                                                               |                                                   |                                   |          |         |   |         |           |              |   |              |           |         |   |   |         |         |   |   |           |          
|Income (Loss) Before Income Taxes                              |                                                   |                                   | (134,505 | )       |   |         | (388,182  | )            |   |              | 151,845   |         |   |   | 123,743 |         |   |   | (247,099  | )        
|                                                              
|                                                              
|                                                              
|                                                              
|Income Tax Provision (Benefit)                                 |                                                   |                                   | (3,781   | )       |   |         | (140,175  | )            |   |              | 47,409    |         |   |   |        |         |   |   | (96,547   | )        
|                                                               |                                                   |                                   |          |         |   |         |           |              |   |              |           |         |   |   |         |         |   |   |           |          
|Income (Loss) Before Cumulative Effect of Accounting Change    |                                                   |                                   | (130,724 | )       |   |         | (248,007  | )            |   |              | 104,436   |         |   |   | 123,743 |         |   |   | (150,552  | )        
|                                                              
|                                                              
|                                                              
|                                                              
|Cumulative Effect of Accounting Change, Net of Taxes           |                                                   |                                   |         |         |   |         | (2,872    | )            |   |              |          |         |   |   |        |         |   |   | (2,872    | )        
|                                                               |                                                   |                                   |          |         |   |         |           |              |   |              |           |         |   |   |         |         |   |   |           |          
|Net Income (Loss)                                              |                                                   |                                   | (130,724 | )       |   |         | (250,879  | )            |   |              | 104,436   |         |   |   | 123,743 |         |   |   | (153,424  | )        
|                                                              
|                                                              
|                                                              
|                                                              
|Dividends on Preferred Securities                              |                                                   |                                   | 38,055   |         |   |         |          |              |   |              |          |         |   |   | (38,055 | )       |   |   |          |          
|                                                               |                                                   |                                   |          |         |   |         |           |              |   |              |           |         |   |   |         |         |   |   |           |          
|Net Income (Loss) Available for Common Stock                   |                                                   | $                                 | (168,779 | )       |   | $       | (250,879  | )            |   | $            | 104,436   |         |   | $ | 161,798 |         |   | $ | (153,424  | )        
|                                                               |                                                   |                                   |          |         |   |         |           |              |   |              |           |         |   |   |         |         |   |   |           |          

|                                                               |                                                   |                                   |         |        |   |   |           |         |   |   |           |         |   |   |         |         |   |   |           |           |  
|-------------------------------------------------------------- | ------------------------------------------------- | --------------------------------- | ------- | ------ | - | - | --------- | ------- | - | - | --------- | ------- | - | - | ------- | ------- | - | - | --------- | --------- | -
|                                                               |                                                   |                                  
|                                                               |                                                   | Twelve Months Ended June 30, 1998
|                                                               |                                                   |                                  
|Operating Revenues                                             |                                                   | $                                 | 16,186  |        |   | $ | 1,019,010 |         |   | $ | 1,118,448 |         |   | $ | (14,789 | )       |   | $ | 2,138,855 |          
|                                                               |                                                   |                                   |         |        |   |   |           |         |   |   |           |         |   |   |         |         |   |   |           |          
|Operating Expenses                                             |                                                   |                                   |         |        |   |   |           |         |   |   |           |         |   |   |         |         |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Cost of gas                                       |                                   |         | 8,763  |   |   |           | 761,742 |   |   |           | 521,026 |   |   |         | (9,279  | ) |   |           | 1,282,252 |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Operation and maintenance                         |                                   |         | 1,865  |   |   |           | 126,572 |   |   |           | 263,231 |   |   |         | (5,510  | ) |   |           | 386,158   |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Depreciation, depletion and amortization          |                                   |         | 2,491  |   |   |           | 83,712  |   |   |           | 97,715  |   |   |         |        |   |   |           | 183,918   |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Property and other taxes                          |                                   |         | 1,821  |   |   |           | 13,091  |   |   |           | 58,064  |   |   |         |        |   |   |           | 72,976    |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Property write-downs and restructuring charges    |                                   |         |       |   |   |           | 333,022 |   |   |           |        |   |   |         |        |   |   |           | 333,022   |  
|                                                               |                                                   |                                   |         |        |   |   |           |         |   |   |           |         |   |   |         |         |   |   |           |          
|                                                               |                                                   |                                   | 14,940  |        |   |   | 1,318,139 |         |   |   | 940,036   |         |   |   | (14,789 | )       |   |   | 2,258,326 |          
|                                                               |                                                   |                                   |         |        |   |   |           |         |   |   |           |         |   |   |         |         |   |   |           |          
|Operating Income                                               |                                                   |                                   | 1,246   |        |   |   | (299,129  | )       |   |   | 178,412   |         |   |   |        |         |   |   | (119,471  | )        
|                                                               |                                                   |                                   |         |        |   |   |           |         |   |   |           |         |   |   |         |         |   |   |           |          
|Equity in Earnings (Losses) of Joint Ventures and Subsidiaries |                                                   |                                   | (77,835 | )      |   |   | 58,038    |         |   |   | 1,508     |         |   |   | 77,715  |         |   |   | 59,426    |          
|                                                               |                                                   |                                   |         |        |   |   |           |         |   |   |           |         |   |   |         |         |   |   |           |          
|Other Income and (Deductions)                                  |                                                   |                                   |         |        |   |   |           |         |   |   |           |         |   |   |         |         |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Interest income                                   |                                   |         | 40,507 |   |   |           | 8,729   |   |   |           | 4,107   |   |   |         | (40,390 | ) |   |           | 12,953    |  
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Interest on long-term debt                        |                                   |         | 599    |   |   |           | (27,740 | ) |   |           | (45,931 | ) |   |         |        |   |   |           | (73,072   | )
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Other interest expense                            |                                   |         | (1,414 | ) |   |           | (46,562 | ) |   |           | (9,063  | ) |   |         | 40,717  |   |   |           | (16,322   | )
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Dividends on preferred securities of subsidiaries |                                   |         |       |   |   |           |        |   |   |           |        |   |   |         | (38,516 | ) |   |           | (38,516   | )
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Investment loss                                   |                                   |         |       |   |   |           | (6,135  | ) |   |           |        |   |   |         |        |   |   |           | (6,135    | )
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Minority interest                                 |                                   |         |       |   |   |           | (150    | ) |   |           | (2,092  | ) |   |         |        |   |   |           | (2,242    | )
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Other                                             |                                   |         | (406   | ) |   |           | 21,201  |   |   |           | 1,345   |   |   |         |        |   |   |           | 22,140    |  
|                                                               |                                                   |                                   |         |        |   |   |           |         |   |   |           |         |   |   |         |         |   |   |           |          
|                                                               |                                                   |                                   | 39,286  |        |   |   | (50,657   | )       |   |   | (51,634   | )       |   |   | (38,189 | )       |   |   | (101,194  | )        
|                                                               |                                                   |                                   |         |        |   |   |           |         |   |   |           |         |   |   |         |         |   |   |           |          
|Income (Loss) Before Income Taxes                              |                                                   |                                   | (37,303 | )      |   |   | (291,748  | )       |   |   | 128,286   |         |   |   | 39,526  |         |   |   | (161,239  | )        
|                                                              
|                                                              
|                                                              
|                                                              
|Income Tax Provision (Benefit)                                 |                                                   |                                   | 1,251   |        |   |   | (122,590  | )       |   |   | 47,712    |         |   |   |        |         |   |   | (73,627   | )        
|                                                               |                                                   |                                   |         |        |   |   |           |         |   |   |           |         |   |   |         |         |   |   |           |          
|Net Income (Loss)                                              |                                                   |                                   | (38,554 | )      |   |   | (169,158  | )       |   |   | 80,574    |         |   |   | 39,526  |         |   |   | (87,612   | )        
|                                                              
|                                                              
|                                                              
|                                                              
|Dividends on Preferred Securities                              |                                                   |                                   | 38,516  |        |   |   |          |         |   |   |          |         |   |   | (38,516 | )       |   |   |          |          
|                                                               |                                                   |                                   |         |        |   |   |           |         |   |   |           |         |   |   |         |         |   |   |           |          
|Net Income (Loss) Available for Common Stock                   |                                                   | $                                 | (77,070 | )      |   | $ | (169,158  | )       |   | $ | 80,574    |         |   | $ | 78,042  |         |   | $ | (87,612   | )        
|                                                               |                                                   |                                   |         |        |   |   |           |         |   |   |           |         |   |   |         |         |   |   |           |          

39



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


CONSOLIDATING STATEMENT OF FINANCIAL POSITION (Unaudited)

|                                                               |                                                                 |                                        |           |         |    |         |           |              |       |              |           |           |        |   |            |            |   |   |           |           |        | 
|-------------------------------------------------------------- | --------------------------------------------------------------- | -------------------------------------- | --------- | ------- | -- | ------- | --------- | ------------ | ----- | ------------ | --------- | --------- | ------ | - | ---------- | ---------- | - | - | --------- | --------- | ------ | 
|                                                               |                                                                 | MCN                                    |           |         |    |         |           | Eliminations |       |             
|                                                               |                                                                 | and Other                              |           |         |    |         |           | and          |       | Consolidated
|                                                               |                                                                 | Subsidiaries                           |           | MCNIC   |    | MichCon |           | Reclasses    |       | Total       
|                                                               |                                                                 |                                        |           |         |    |         |           |              |       |             
|                                                               |                                                                 |                                       
|                                                               |                                                                 | June 30, 1999                         
|                                                               |                                                                 |                                       
|(in Thousands)                                                 |                                                                 |                                        |           |         |    |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|ASSETS                                                         |                                                                 |                                        |           |         |    |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|Current Assets                                                 |                                                                 |                                        |           |         |    |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Cash and cash equivalents, at cost                              |                                        | $         | 434     |    |         | $         | 8,819        |       |              | $         | 10,823    |        |   | $          |           |   |   | $         | 20,076    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Accounts receivable                                             |                                        |           | 7,065   |    |         |           | 193,029      |       |              |           | 155,509   |        |   |            | (13,611    | ) |   |           | 341,992   |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               |                                                                 | Less  Allowance for doubtful accounts |           |         | 79 |         |           |              | 1,773 |              |           |           | 13,492 |   |            |            |  |   |           |           | 15,344 | 
|                                                               |                                                                 |                                        |           |         |    |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                               | Accounts receivable, net                                        |                                        |           | 6,986   |    |         |           | 191,256      |       |              |           | 142,017   |        |   |            | (13,611    | ) |   |           | 326,648   |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Accrued unbilled revenues                                       |                                        |           | 214     |    |         |           |             |       |              |           | 20,302    |        |   |            |           |   |   |           | 20,516    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Gas in inventory                                                |                                        |           |        |    |         |           | 78,644       |       |              |           | 43,892    |        |   |            |           |   |   |           | 122,536   |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Property taxes assessed applicable to future periods            |                                        |           | 170     |    |         |           | 1,952        |       |              |           | 48,473    |        |   |            |           |   |   |           | 50,595    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Other                                                           |                                        |           | 4,555   |    |         |           | 58,586       |       |              |           | 34,512    |        |   |            | (51,234    | ) |   |           | 46,419    |       
|                                                               |                                                                 |                                        |           |         |    |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                               |                                                                 |                                        | 12,359    |         |    |         | 339,257   |              |       |              | 300,019   |           |        |   | (64,845    | )          |   |   | 586,790   |          
|                                                               |                                                                 |                                        |           |         |    |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|Deferred Charges and Other Assets                              |                                                                 |                                        |           |         |    |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Deferred income taxes                                           |                                        |           | 10,660  |    |         |           | 120,966      |       |              |           |          |        |   |            | (103,490   | ) |   |           | 28,136    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Investments in debt and equity securities                       |                                        |           |        |    |         |           | 3,714        |       |              |           | 66,202    |        |   |            | 600        |   |   |           | 70,516    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Deferred swap losses and receivables                            |                                        |           |        |    |         |           | 64,567       |       |              |           |          |        |   |            |           |   |   |           | 64,567    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Deferred environmental costs                                    |                                        |           | 2,770   |    |         |           |             |       |              |           | 28,404    |        |   |            |           |   |   |           | 31,174    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Prepaid benefit costs                                           |                                        |           |        |    |         |           |             |       |              |           | 134,590   |        |   |            | (1,785     | ) |   |           | 132,805   |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Other                                                           |                                        |           | 13,806  |    |         |           | 29,983       |       |              |           | 66,758    |        |   |            | 3,954      |   |   |           | 114,501   |       
|                                                               |                                                                 |                                        |           |         |    |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                               |                                                                 |                                        | 27,236    |         |    |         | 219,230   |              |       |              | 295,954   |           |        |   | (100,721   | )          |   |   | 441,699   |          
|                                                               |                                                                 |                                        |           |         |    |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|Investments in and Advances to Joint Ventures and Subsidiaries |                                                                 |                                        | 1,526,376 |         |    |         | 843,517   |              |       |              | 19,853    |           |        |   | (1,524,398 | )          |   |   | 865,348   |          
|                                                               |                                                                 |                                        |           |         |    |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|Property, Plant and Equipment, at cost                         |                                                                 |                                        | 48,752    |         |    |         | 844,272   |              |       |              | 2,942,856 |           |        |   |           |            |   |   | 3,835,880 |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Less  Accumulated depreciation and depletion                   |                                        |           | 18,684  |    |         |           | 220,428      |       |              |           | 1,445,967 |        |   |            |           |   |   |           | 1,685,079 |       
|                                                               |                                                                 |                                        |           |         |    |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                               |                                                                 |                                        | 30,068    |         |    |         | 623,844   |              |       |              | 1,496,889 |           |        |   |           |            |   |   | 2,150,801 |          
|                                                               |                                                                 |                                        |           |         |    |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                               |                                                                 | $                                      | 1,596,039 |         |    | $       | 2,025,848 |              |       | $            | 2,112,715 |           |        | $ | (1,689,964 | )          |   | $ | 4,044,638 |          
|                                                               |                                                                 |                                        |           |         |    |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|LIABILITIES AND SHAREHOLDERS EQUITY                           |                                                                 |                                        |           |         |    |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|Current Liabilities                                            |                                                                 |                                        |           |         |    |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Accounts payable                                                |                                        | $         | 6,148   |    |         | $         | 168,281      |       |              | $         | 89,662    |        |   | $          | (11,300    | ) |   | $         | 252,791   |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Notes payable                                                   |                                        |           | 156,440 |    |         |           | 162,886      |       |              |           | 28,319    |        |   |            | (836       | ) |   |           | 346,809   |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Current portion of long-term debt and capital lease obligations |                                        |           |        |    |         |           | 216          |       |              |           | 46,135    |        |   |            |           |   |   |           | 46,351    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Gas inventory equalization                                      |                                        |           |        |    |         |           | 193          |       |              |           | 22,774    |        |   |            |           |   |   |           | 22,967    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Federal income, property and other taxes payable                |                                        |           | (387    | )  |         |           | 2,450        |       |              |           | 86,097    |        |   |            | (44,959    | ) |   |           | 43,201    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Deferred gas cost recovery revenues                             |                                        |           |        |    |         |           |             |       |              |           |          |        |   |            |           |   |   |           |          |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Gas payable                                                     |                                        |           |        |    |         |           | 18,003       |       |              |           | 20,845    |        |   |            |           |   |   |           | 38,848    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Customer deposits                                               |                                        |           | 26      |    |         |           |             |       |              |           | 15,830    |        |   |            |           |   |   |           | 15,856    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Interest payable                                                |                                        |           | 1,486   |    |         |           | 11,680       |       |              |           | 9,250     |        |   |            |           |   |   |           | 22,416    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Other                                                           |                                        |           | 13,833  |    |         |           | 17,007       |       |              |           | 33,875    |        |   |            | (2,580     | ) |   |           | 62,135    |       
|                                                               |                                                                 |                                        |           |         |    |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                               |                                                                 |                                        | 177,546   |         |    |         | 380,716   |              |       |              | 352,787   |           |        |   | (59,675    | )          |   |   | 851,374   |          
|                                                               |                                                                 |                                        |           |         |    |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|Deferred Credits and Other Liabilities                         |                                                                 |                                        |           |         |    |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Deferred income taxes                                           |                                        |           |        |    |         |           |             |       |              |           | 103,198   |        |   |            | (103,198   | ) |   |           |          |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Unamortized investment tax credit                               |                                        |           | 259     |    |         |           |             |       |              |           | 28,823    |        |   |            |           |   |   |           | 29,082    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Tax benefits amortizable to customers                           |                                        |           |        |    |         |           |             |       |              |           | 128,869   |        |   |            |           |   |   |           | 128,869   |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Deferred swap gains and payables                                |                                        |           |        |    |         |           | 62,617       |       |              |           |          |        |   |            |           |   |   |           | 62,617    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Accrued environmental costs                                     |                                        |           | 3,000   |    |         |           |             |       |              |           | 31,704    |        |   |            |           |   |   |           | 34,704    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Minority interest                                               |                                        |           |        |    |         |           | 2,166        |       |              |           | 8,363     |        |   |            |           |   |   |           | 10,529    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Other                                                           |                                        |           | 12,879  |    |         |           | 12,685       |       |              |           | 51,663    |        |   |            | (2,370     | ) |   |           | 74,857    |       
|                                                               |                                                                 |                                        |           |         |    |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                               |                                                                 |                                        | 16,138    |         |    |         | 77,468    |              |       |              | 352,620   |           |        |   | (105,568   | )          |   |   | 340,658   |          
|                                                               |                                                                 |                                        |           |         |    |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|Long-Term Debt,including capital lease obligations             |                                                                 |                                        |          |         |    |         | 777,752   |              |       |              | 686,004   |           |        |   |           |            |   |   | 1,463,756 |          
|                                                               |                                                                 |                                        |           |         |    |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|Redeemable Preferred Securities of Subsidiaries                |                                                                 |                                        | 502,232   |         |    |         |          |              |       |              |          |           |        |   |           |            |   |   | 502,232   |          
|                                                               |                                                                 |                                        |           |         |    |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|Common Shareholders Equity                                    |                                                                 |                                        |           |         |    |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Common stock                                                    |                                        |           | 855     |    |         |           | 5            |       |              |           | 10,300    |        |   |            | (10,305    | ) |   |           | 855       |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Additional paid-in capital                                      |                                        |           | 966,956 |    |         |           | 1,080,379    |       |              |           | 230,399   |        |   |            | (1,310,778 | ) |   |           | 966,956   |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Retained earnings (deficit)                                     |                                        |           | (45,400 | )  |         |           | (276,967     | )     |              |           | 480,605   |        |   |            | (203,638   | ) |   |           | (45,400   | )     
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Accumulated other comprehensive loss                            |                                        |           |        |    |         |           | (13,505      | )     |              |           |          |        |   |            |           |   |   |           | (13,505   | )     
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Yield enhancement, contract and issuance costs                  |                                        |           | (22,288 | )  |         |           |             |       |              |           |          |        |   |            |           |   |   |           | (22,288   | )     
|                                                               |                                                                 |                                        |           |         |    |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                               |                                                                 |                                        | 900,123   |         |    |         | 789,912   |              |       |              | 721,304   |           |        |   | (1,524,721 | )          |   |   | 886,618   |          
|                                                               |                                                                 |                                        |           |         |    |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          
|                                                               |                                                                 | $                                      | 1,596,039 |         |    | $       | 2,025,848 |              |       | $            | 2,112,715 |           |        | $ | (1,689,964 | )          |   | $ | 4,044,638 |          
|                                                               |                                                                 |                                        |           |         |    |         |           |              |       |              |           |           |        |   |            |            |   |   |           |          

40



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


CONSOLIDATING STATEMENT OF FINANCIAL POSITION (Unaudited)

|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |        |   |            |          |   |   |           |           |        | 
|-------------------------------------------------------------- | --------------------------------------------------------------- | -------------------------------------- | --------- | ------- | -- | ------- | --------- | ------------ | --- | ------------ | --------- | --------- | ------ | - | ---------- | -------- | - | - | --------- | --------- | ------ | 
|                                                               |                                                                 | MCN                                    |           |         |    |         |           | Eliminations |     |             
|                                                               |                                                                 | and Other                              |           |         |    |         |           | and          |     | Consolidated
|                                                               |                                                                 | Subsidiaries                           |           | MCNIC   |    | MichCon |           | Reclasses    |     | Total       
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |             
|                                                               |                                                                 |                                       
|                                                               |                                                                 | June 30, 1998                         
|                                                               |                                                                 |                                       
|(in Thousands)                                                 |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |        |   |            |          |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|ASSETS                                                         |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |        |   |            |          |   |   |           |          
|Current Assets                                                 |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |        |   |            |          |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Cash and cash equivalents, at cost                              |                                        | $         | 53      |    |         | $         | 60,914       |     |              | $         | 20,032    |        |   | $          |         |   |   | $         | 80,999    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Accounts receivable                                             |                                        |           | 16,343  |    |         |           | 193,634      |     |              |           | 150,380   |        |   |            | (18,022  | ) |   |           | 342,335   |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               |                                                                 | Less  Allowance for doubtful accounts |           |         | 97 |         |           |              | 453 |              |           |           | 14,132 |   |            |          |  |   |           |           | 14,682 | 
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |        |   |            |          |   |   |           |          
|                                                               | Accounts receivable, net                                        |                                        |           | 16,246  |    |         |           | 193,181      |     |              |           | 136,248   |        |   |            | (18,022  | ) |   |           | 327,653   |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Accrued unbilled revenues                                       |                                        |           | 225     |    |         |           |             |     |              |           | 15,500    |        |   |            |         |   |   |           | 15,725    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Gas in inventory                                                |                                        |           |        |    |         |           | 68,054       |     |              |           | 35,617    |        |   |            |         |   |   |           | 103,671   |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Property taxes assessed applicable to future periods            |                                        |           | 98      |    |         |           | 1,276        |     |              |           | 43,152    |        |   |            |         |   |   |           | 44,526    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Other                                                           |                                        |           | 2,815   |    |         |           | 45,819       |     |              |           | 28,408    |        |   |            | (70      | ) |   |           | 76,972    |       
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |        |   |            |          |   |   |           |          
|                                                               |                                                                 |                                        | 19,437    |         |    |         | 369,244   |              |     |              | 278,957   |           |        |   | (18,092    | )        |   |   | 649,546   |          
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |        |   |            |          |   |   |           |          
|Deferred Charges and Other Assets                              |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |        |   |            |          |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Investments in debt and equity securities                       |                                        |           |        |    |         |           | 12,084       |     |              |           | 36,532    |        |   |            | 351      |   |   |           | 48,967    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Deferred swap losses and receivables                            |                                        |           |        |    |         |           | 63,123       |     |              |           |          |        |   |            |         |   |   |           | 63,123    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Deferred environmental costs                                    |                                        |           | 2,534   |    |         |           |             |     |              |           | 27,934    |        |   |            |         |   |   |           | 30,468    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Prepaid benefit costs                                           |                                        |           | 630     |    |         |           |             |     |              |           | 95,008    |        |   |            | (6,927   | ) |   |           | 88,711    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Other                                                           |                                        |           | 8,956   |    |         |           | 32,424       |     |              |           | 52,612    |        |   |            | (2,955   | ) |   |           | 91,037    |       
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |        |   |            |          |   |   |           |          
|                                                               |                                                                 |                                        | 12,120    |         |    |         | 107,631   |              |     |              | 212,086   |           |        |   | (9,531     | )        |   |   | 322,306   |          
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |        |   |            |          |   |   |           |          
|Investments in and Advances to Joint Ventures and Subsidiaries |                                                                 |                                        | 1,374,445 |         |    |         | 667,961   |              |     |              | 20,436    |           |        |   | (1,365,624 | )        |   |   | 697,218   |          
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |        |   |            |          |   |   |           |          
|Property, Plant and Equipment, at cost                         |                                                                 |                                        | 42,928    |         |    |         | 1,192,544 |              |     |              | 2,843,708 |           |        |   |           |          |   |   | 4,079,180 |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Less  Accumulated depreciation and depletion                   |                                        |           | 14,274  |    |         |           | 191,267      |     |              |           | 1,356,842 |        |   |            |         |   |   |           | 1,562,383 |       
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |        |   |            |          |   |   |           |          
|                                                               |                                                                 |                                        | 28,654    |         |    |         | 1,001,277 |              |     |              | 1,486,866 |           |        |   |           |          |   |   | 2,516,797 |          
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |        |   |            |          |   |   |           |          
|                                                               |                                                                 | $                                      | 1,434,656 |         |    | $       | 2,146,113 |              |     | $            | 1,998,345 |           |        | $ | (1,393,247 | )        |   | $ | 4,185,867 |          
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |        |   |            |          |   |   |           |          
|LIABILITIES AND SHAREHOLDERS EQUITY                           |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |        |   |            |          |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|Current Liabilities                                            |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |        |   |            |          |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Accounts payable                                                |                                        | $         | 6,752   |    |         | $         | 240,244      |     |              | $         | 89,329    |        |   | $          | (18,432  | ) |   | $         | 317,893   |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Notes payable                                                   |                                        |           |        |    |         |           | 147,822      |     |              |           | 4,067     |        |   |            | (2,192   | ) |   |           | 149,697   |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Current portion of long-term debt and capital lease obligations |                                        |           |        |    |         |           | 211,486      |     |              |           | 58,204    |        |   |            |         |   |   |           | 269,690   |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Gas inventory equalization                                      |                                        |           |        |    |         |           | 12           |     |              |           | 15,478    |        |   |            |         |   |   |           | 15,490    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Federal income, property and other taxes payable                |                                        |           | 543     |    |         |           | (2,098       | )   |              |           | 80,931    |        |   |            |         |   |   |           | 79,376    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Deferred gas cost recovery revenues                             |                                        |           |        |    |         |           |             |     |              |           | 29,139    |        |   |            |         |   |   |           | 29,139    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Gas payable                                                     |                                        |           |        |    |         |           | 13,279       |     |              |           | 26,998    |        |   |            |         |   |   |           | 40,277    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Customer deposits                                               |                                        |           | 24      |    |         |           |             |     |              |           | 14,900    |        |   |            |         |   |   |           | 14,924    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Interest payable                                                |                                        |           | 1,686   |    |         |           | 17,032       |     |              |           | 10,355    |        |   |            |         |   |   |           | 29,073    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Other                                                           |                                        |           | 5,860   |    |         |           | 5,317        |     |              |           | 26,886    |        |   |            | (29      | ) |   |           | 38,034    |       
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |        |   |            |          |   |   |           |          
|                                                               |                                                                 |                                        | 14,865    |         |    |         | 633,094   |              |     |              | 356,287   |           |        |   | (20,653    | )        |   |   | 983,593   |          
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |        |   |            |          |   |   |           |          
|Deferred Credits and Other Liabilities                         |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |        |   |            |          |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Deferred income taxes                                           |                                        |           | (4,549  | )  |         |           | (41,824      | )   |              |           | 89,549    |        |   |            |         |   |   |           | 43,176    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Unamortized investment tax credit                               |                                        |           | 286     |    |         |           |             |     |              |           | 31,823    |        |   |            |         |   |   |           | 32,109    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Tax benefits amortizable to customers                           |                                        |           |        |    |         |           |             |     |              |           | 123,444   |        |   |            |         |   |   |           | 123,444   |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Deferred swap gains and payables                                |                                        |           |        |    |         |           | 50,014       |     |              |           |          |        |   |            |         |   |   |           | 50,014    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Accrued environmental costs                                     |                                        |           | 3,000   |    |         |           |             |     |              |           | 32,000    |        |   |            |         |   |   |           | 35,000    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Minority interest                                               |                                        |           |        |    |         |           | 2,565        |     |              |           | 16,600    |        |   |            | 1        |   |   |           | 19,166    |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Other                                                           |                                        |           | 17,063  |    |         |           | 61,438       |     |              |           | 43,926    |        |   |            | (6,929   | ) |   |           | 115,498   |       
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |        |   |            |          |   |   |           |          
|                                                               |                                                                 |                                        | 15,800    |         |    |         | 72,193    |              |     |              | 337,342   |           |        |   | (6,928     | )        |   |   | 418,407   |          
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |        |   |            |          |   |   |           |          
|Long-Term Debt, including capital lease obligations            |                                                                 |                                        |          |         |    |         | 781,238   |              |     |              | 624,014   |           |        |   |           |          |   |   | 1,405,252 |          
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |        |   |            |          |   |   |           |          
|Redeemable Preferred Securities of Subsidiaries                |                                                                 |                                        | 405,428   |         |    |         |          |              |     |              |          |           |        |   |           |          |   |   | 405,428   |          
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |        |   |            |          |   |   |           |          
|Common Shareholders Equity                                    |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |        |   |            |          |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Common stock                                                    |                                        |           | 789     |    |         |           | 5            |     |              |           | 10,300    |        |   |            | (10,305  | ) |   |           | 789       |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Additional paid-in capital                                      |                                        |           | 816,285 |    |         |           | 697,823      |     |              |           | 230,399   |        |   |            | (928,221 | ) |   |           | 816,286   |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Retained earnings                                               |                                        |           | 203,777 |    |         |           | (26,092      | )   |              |           | 440,003   |        |   |            | (427,140 | ) |   |           | 190,548   |       
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Accumulated other comprehensive loss                            |                                        |           |        |    |         |           | (12,148      | )   |              |           |          |        |   |            |         |   |   |           | (12,148   | )     
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Yield enhancement, contract and issuance costs                  |                                        |           | (22,288 | )  |         |           |             |     |              |           |          |        |   |            |         |   |   |           | (22,288   | )     
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |        |   |            |          |   |   |           |          
|                                                               |                                                                 |                                        | 998,563   |         |    |         | 659,588   |              |     |              | 680,702   |           |        |   | (1,365,666 | )        |   |   | 973,187   |          
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |        |   |            |          |   |   |           |          
|                                                               |                                                                 | $                                      | 1,434,656 |         |    | $       | 2,146,113 |              |     | $            | 1,998,345 |           |        | $ | (1,393,247 | )        |   | $ | 4,185,867 |          
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |        |   |            |          |   |   |           |          

41



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


CONSOLIDATING STATEMENT OF FINANCIAL POSITION(Unaudited)

|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |           |       | 
|-------------------------------------------------------------- | --------------------------------------------------------------- | -------------------------------------- | --------- | ------- | -- | ------- | --------- | ------------ | --- | ------------ | --------- | --------- | ----- | - | ---------- | ---------- | - | - | --------- | --------- | ----- | 
|                                                               |                                                                 | MCN                                    |           |         |    |         |           | Eliminations |     |             
|                                                               |                                                                 | and Other                              |           |         |    |         |           | and          |     | Consolidated
|                                                               |                                                                 | Subsidiaries                           |           | MCNIC   |    | MichCon |           | Reclasses    |     | Total       
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |             
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |             
|                                                               |                                                                 |                                       
|                                                               |                                                                 | December 31, 1998                     
|                                                               |                                                                 |                                       
|(in Thousands)                                                 |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|ASSETS                                                         |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|Current Assets                                                 |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Cash and cash equivalents, at cost                              |                                        | $         | 1,400   |    |         | $         | 9,036        |     |              | $         | 6,603     |       |   | $          |           |   |   | $         | 17,039    |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Accounts receivable                                             |                                        |           | 10,039  |    |         |           | 265,312      |     |              |           | 151,746   |       |   |            | (17,312    | ) |   |           | 409,785   |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               |                                                                 | Less  Allowance for doubtful accounts |           |         | 84 |         |           |              | 653 |              |           |           | 8,928 |   |            |            |  |   |           |           | 9,665 | 
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|                                                               | Accounts receivable, net                                        |                                        |           | 9,955   |    |         |           | 264,659      |     |              |           | 142,818   |       |   |            | (17,312    | ) |   |           | 400,120   |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Accrued unbilled revenues                                       |                                        |           | 1,121   |    |         |           |             |     |              |           | 86,767    |       |   |            |           |   |   |           | 87,888    |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Gas in inventory                                                |                                        |           |        |    |         |           | 90,418       |     |              |           | 56,969    |       |   |            |           |   |   |           | 147,387   |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Property taxes assessed applicable to future periods            |                                        |           | 214     |    |         |           | 1,172        |     |              |           | 71,165    |       |   |            |           |   |   |           | 72,551    |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Other                                                           |                                        |           | 5,143   |    |         |           | 11,872       |     |              |           | 30,169    |       |   |            | (4,712     | ) |   |           | 42,472    |      
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|                                                               |                                                                 |                                        | 17,833    |         |    |         | 377,157   |              |     |              | 394,491   |           |       |   | (22,024    | )          |   |   | 767,457   |          
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|Deferred Charges and Other Assets                              |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Deferred income taxes                                           |                                        |           | 3,305   |    |         |           | 128,807      |     |              |           |          |       |   |            | (81,565    | ) |   |           | 50,547    |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Investments in debt and equity securities                       |                                        |           |        |    |         |           | 3,548        |     |              |           | 65,556    |       |   |            | 601        |   |   |           | 69,705    |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Deferred swap losses and receivables                            |                                        |           |        |    |         |           | 63,147       |     |              |           |          |       |   |            |           |   |   |           | 63,147    |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Deferred environmental costs                                    |                                        |           | 2,604   |    |         |           |             |     |              |           | 28,169    |       |   |            |           |   |   |           | 30,773    |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Prepaid benefit costs                                           |                                        |           |        |    |         |           |             |     |              |           | 113,879   |       |   |            | (2,104     | ) |   |           | 111,775   |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Other                                                           |                                        |           | 9,401   |    |         |           | 26,870       |     |              |           | 59,007    |       |   |            | 3,662      |   |   |           | 98,940    |      
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|                                                               |                                                                 |                                        | 15,310    |         |    |         | 222,372   |              |     |              | 266,611   |           |       |   | (79,406    | )          |   |   | 424,887   |          
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|Investments in and Advances to Joint Ventures and Subsidiaries |                                                                 |                                        | 1,550,770 |         |    |         | 782,471   |              |     |              | 19,343    |           |       |   | (1,549,353 | )          |   |   | 803,231   |          
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|Property, Plant and Equipment,at cost                          |                                                                 |                                        | 48,681    |         |    |         | 1,103,716 |              |     |              | 2,889,020 |           |       |   |           |            |   |   | 4,041,417 |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Less  Accumulated depreciation and depletion                   |                                        |           | 17,210  |    |         |           | 229,944      |     |              |           | 1,396,940 |       |   |            |           |   |   |           | 1,644,094 |      
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|                                                               |                                                                 |                                        | 31,471    |         |    |         | 873,772   |              |     |              | 1,492,080 |           |       |   |           |            |   |   | 2,397,323 |          
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|                                                               |                                                                 | $                                      | 1,615,384 |         |    | $       | 2,255,772 |              |     | $            | 2,172,525 |           |       | $ | (1,650,783 | )          |   | $ | 4,392,898 |          
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|LIABILITIES AND SHAREHOLDERS EQUITY                           |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|Current Liabilities                                            |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Accounts payable                                                |                                        | $         | 4,123   |    |         | $         | 218,851      |     |              | $         | 98,891    |       |   | $          | (17,516    | ) |   | $         | 304,349   |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Notes payable                                                   |                                        |           | 260,771 |    |         |           | 137,762      |     |              |           | 221,169   |       |   |            | (851       | ) |   |           | 618,851   |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Current portion of long-term debt and capital lease obligations |                                        |           |        |    |         |           | 211,433      |     |              |           | 58,288    |       |   |            |           |   |   |           | 269,721   |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Federal income, property and other taxes payable                |                                        |           | 1,441   |    |         |           | 6,965        |     |              |           | 61,059    |       |   |            |           |   |   |           | 69,465    |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Deferred gas cost recovery revenues                             |                                        |           |        |    |         |           |             |     |              |           | 14,980    |       |   |            |           |   |   |           | 14,980    |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Gas payable                                                     |                                        |           |        |    |         |           | 17,332       |     |              |           | 25,337    |       |   |            |           |   |   |           | 42,669    |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Customer deposits                                               |                                        |           | 22      |    |         |           |             |     |              |           | 18,769    |       |   |            |           |   |   |           | 18,791    |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Interest payable                                                |                                        |           | 2,835   |    |         |           | 16,519       |     |              |           | 10,960    |       |   |            |           |   |   |           | 30,314    |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Other                                                           |                                        |           | 15,502  |    |         |           | 8,757        |     |              |           | 56,262    |       |   |            | (2,525     | ) |   |           | 77,996    |      
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|                                                               |                                                                 |                                        | 284,694   |         |    |         | 617,619   |              |     |              | 565,715   |           |       |   | (20,892    | )          |   |   | 1,447,136 |          
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|Deferred Credits and Other Liabilities                         |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Deferred income taxes                                           |                                        |           | (10,308 | )  |         |           |             |     |              |           | 88,567    |       |   |            | (78,259    | ) |   |           |          |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Unamortized investment tax credit                               |                                        |           | 272     |    |         |           |             |     |              |           | 29,784    |       |   |            |           |   |   |           | 30,056    |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Tax benefits amortizable to customers                           |                                        |           |        |    |         |           |             |     |              |           | 130,120   |       |   |            |           |   |   |           | 130,120   |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Deferred swap gains and payables                                |                                        |           |        |    |         |           | 62,956       |     |              |           |          |       |   |            |           |   |   |           | 62,956    |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Accrued environmental costs                                     |                                        |           | 3,000   |    |         |           |             |     |              |           | 32,000    |       |   |            |           |   |   |           | 35,000    |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Minority interest                                               |                                        |           |        |    |         |           | 2,697        |     |              |           | 8,201     |       |   |            |           |   |   |           | 10,898    |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Other                                                           |                                        |           | 10,435  |    |         |           | 15,741       |     |              |           | 51,460    |       |   |            | (2,197     | ) |   |           | 75,439    |      
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|                                                               |                                                                 |                                        | 3,399     |         |    |         | 81,394    |              |     |              | 340,132   |           |       |   | (80,456    | )          |   |   | 344,469   |          
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|Long-Term Debt, including capital lease obligations            |                                                                 |                                        |          |         |    |         | 687,333   |              |     |              | 619,835   |           |       |   |           |            |   |   | 1,307,168 |          
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|Redeemable Preferred Securities of Subsidiaries                |                                                                 |                                        | 502,203   |         |    |         |          |              |     |              |          |           |       |   |           |            |   |   | 502,203   |          
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|Common Shareholders Equity                                    |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Common stock                                                    |                                        |           | 797     |    |         |           | 5            |     |              |           | 10,300    |       |   |            | (10,305    | ) |   |           | 797       |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Additional paid-in capital                                      |                                        |           | 832,966 |    |         |           | 1,071,390    |     |              |           | 230,399   |       |   |            | (1,301,789 | ) |   |           | 832,966   |      
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Retained earnings (deficit)                                     |                                        |           | 13,613  |    |         |           | (185,393     | )   |              |           | 406,144   |       |   |            | (237,341   | ) |   |           | (2,977    | )    
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Accumulated other comprehensive loss                            |                                        |           |        |    |         |           | (16,576      | )   |              |           |          |       |   |            |           |   |   |           | (16,576   | )    
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Yield enhancement, contract and issuance costs                  |                                        |           | (22,288 | )  |         |           |             |     |              |           |          |       |   |            |           |   |   |           | (22,288   | )    
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|                                                               |                                                                 |                                        | 825,088   |         |    |         | 869,426   |              |     |              | 646,843   |           |       |   | (1,549,435 | )          |   |   | 791,922   |          
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          
|                                                               |                                                                 | $                                      | 1,615,384 |         |    | $       | 2,255,772 |              |     | $            | 2,172,525 |           |       | $ | (1,650,783 | )          |   | $ | 4,392,898 |          
|                                                               |                                                                 |                                        |           |         |    |         |           |              |     |              |           |           |       |   |            |            |   |   |           |          

42



---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Concluded)

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS


|                                                     |                                                       |                                                        |        |          |         |         |        |              |         |              |         |          |          |   |         |        |        |   |         |          |          |  
|---------------------------------------------------- | ----------------------------------------------------- | ------------------------------------------------------ | ------ | -------- | ------- | ------- | ------ | ------------ | ------- | ------------ | ------- | -------- | -------- | - | ------- | ------ | ------ | - | ------- | -------- | -------- | -
|                                                     |                                                       | MCN                                                    |        |          |         |         |        | Eliminations |         |             
|                                                     |                                                       | and Other                                              |        |          |         |         |        | and          |         | Consolidated
|                                                     |                                                       | Subsidiaries                                           |        | MCNIC    |         | MichCon |        | Reclasses    |         | Total       
|                                                     |                                                       |                                                        |        |          |         |         |        |              |         |             
|(in Thousands)                                       |                                                       |                                                       
|                                                     |                                                       | Six Months Ended June 30, 1999                        
|                                                     |                                                       |                                                       
|Net Cash Flow From Operating Activities              |                                                       | $                                                      | 41,353 |          |         | $       | 65,837 |              |         | $            | 222,622 |          |          | $ | (38,844 | )      |        |   | 290,968 |         
|                                                     |                                                       |                                                        |        |          |         |         |        |              |         |              |         |          |          |   |         |        |        |   |         |         
|Cash Flow From Financing Activities                  |                                                       |                                                        |        |          |         |         |        |              |         |              |         |          |          |   |         |        |        |   |         |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Notes payable, net                                    |                                                        |        | (104,331 | )       |         |        | 25,124       |         |              |         | (192,850 | )        |   |         | 15     |        |   |         | (272,042 | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Capital paid to affiliates, net                       |                                                        |        |         |         |         |        | 8,993        |         |              |         |         |          |   |         | (8,993 | )      |   |         |         |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Dividends paid                                        |                                                        |        | (41,726  | )       |         |        |             |         |              |         | (17,500  | )        |   |         | 17,500 |        |   |         | (41,726  | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Preferred securities dividends paid                   |                                                        |        | (20,669  | )       |         |        |             |         |              |         |         |          |   |         | 20,669 |        |   |         |         |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Issuance of common stock                              |                                                        |        | 135,120  |         |         |        |             |         |              |         |         |          |   |         |       |        |   |         | 135,120  |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Reacquisition of common stock                         |                                                        |        | (783     | )       |         |        |             |         |              |         |         |          |   |         |       |        |   |         | (783     | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Issuance of long-term debt                            |                                                        |        |          |         |         |        |              |         |              |         | 106,535  |          |   |         |        |        |   |         | 106,535  |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Long-term commercial paper and bank borrowings, net   |                                                        |        |         |         |         |        | 92,344       |         |              |         |         |          |   |         |       |        |   |         | 92,344   |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Retirement of long-term debt and preferred securities |                                                        |        |         |         |         |        | (212,855     | )       |              |         | (55,918  | )        |   |         |       |        |   |         | (268,773 | )       
|                                                     |                                                       |                                                        |        |          |         |         |        |              |         |              |         |          |          |   |         |        |        |   |         |         
|                                                     |                                                       | Net cash provided from (used for) financing activities |        |          | (32,389 | )       |        |              | (86,394 | )            |         |          | (159,733 | ) |         |        | 29,191 |   |         |          | (249,325 | )
|                                                     |                                                       |                                                        |        |          |         |         |        |              |         |              |         |          |          |   |         |        |        |   |         |         
|Cash Flow From Investing Activities                  |                                                       |                                                        |        |          |         |         |        |              |         |              |         |          |          |   |         |        |        |   |         |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Capital expenditures                                  |                                                        |        | (637     | )       |         |        | (101,146     | )       |              |         | (58,097  | )        |   |         |       |        |   |         | (159,880 | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Acquisitions                                          |                                                        |        |         |         |         |        | (31,153      | )       |              |         |         |          |   |         |       |        |   |         | (31,153  | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Investment in debt and equity securities              |                                                        |        |         |         |         |        | (1,952       | )       |              |         |         |          |   |         | (645   | )      |   |         | (2,597   | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Investment in joint ventures and subsidiaries         |                                                        |        | (9,493   | )       |         |        | (39,477      | )       |              |         | (14      | )        |   |         | 8,993  |        |   |         | (39,991  | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Sale of property and joint venture interests          |                                                        |        |         |         |         |        | 200,387      |         |              |         |         |          |   |         | 318    |        |   |         | 200,705  |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Return of investment in joint ventures                |                                                        |        |         |         |         |        | 1,193        |         |              |         |         |          |   |         |       |        |   |         | 1,193    |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Other                                                 |                                                        |        | 200      |         |         |        | (7,512       | )       |              |         | (558     | )        |   |         | 987    |        |   |         | (6,883   | )       
|                                                     |                                                       |                                                        |        |          |         |         |        |              |         |              |         |          |          |   |         |        |        |   |         |         
|                                                     |                                                       | Net cash provided from (used for) investing activities |        |          | (9,930  | )       |        |              | 20,340  |              |         |          | (58,669  | ) |         |        | 9,653  |   |         |          | (38,606  | )
|                                                     |                                                       |                                                        |        |          |         |         |        |              |         |              |         |          |          |   |         |        |        |   |         |         
|Net Increase (Decrease) in Cash and Cash Equivalents |                                                       |                                                        | (966   | )        |         |         | (217   | )            |         |              | 4,220   |          |          |   |        |        |        |   | 3,037   |         
|                                                    
|                                                    
|                                                    
|                                                    
|Cash and Cash Equivalents, January 1                 |                                                       |                                                        | 1,400  |          |         |         | 9,036  |              |         |              | 6,603   |          |          |   |        |        |        |   | 17,039  |         
|                                                     |                                                       |                                                        |        |          |         |         |        |              |         |              |         |          |          |   |         |        |        |   |         |         
|Cash and Cash Equivalents, June 30                   |                                                       | $                                                      | 434    |          |         | $       | 8,819  |              |         | $            | 10,823  |          |          | $ |        |        |        | $ | 20,076  |         
|                                                     |                                                       |                                                        |        |          |         |         |        |              |         |              |         |          |          |   |         |        |        |   |         |         

|                                                     |                                               |                                                        |        |          |          |   |         |          |          |   |         |          |          |   |         |          |          |   |         |          |          |  
|---------------------------------------------------- | --------------------------------------------- | ------------------------------------------------------ | ------ | -------- | -------- | - | ------- | -------- | -------- | - | ------- | -------- | -------- | - | ------- | -------- | -------- | - | ------- | -------- | -------- | -
|                                                     |                                               |                                                       
|                                                     |                                               | Six Months Ended June 30, 1998                        
|                                                     |                                               |                                                       
|Net Cash Flow From Operating Activities              |                                               | $                                                      | 19,014 |          |          | $ | (11,058 | )        |          | $ | 286,618 |          |          | $ | (19,354 | )        |          | $ | 275,220 |         
|                                                     |                                               |                                                        |        |          |          |   |         |          |          |   |         |          |          |   |         |          |          |   |         |         
|Cash Flow From Financing Activities                  |                                               |                                                        |        |          |          |   |         |          |          |   |         |          |          |   |         |          |          |   |         |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Notes payable, net                            |                                                        |        |         |          |   |         | 75,066   |          |   |         | (237,624 | )        |   |         | 886      |          |   |         | (161,672 | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Capital contributions paid to affiliates, net |                                                        |        |         |          |   |         | (136,716 | )        |   |         |         |          |   |         | 136,716  |          |   |         |         |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Dividends paid                                |                                                        |        | (41,441  | )        |   |         |         |          |   |         |         |          |   |         |         |          |   |         | (41,441  | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Preferred securities dividends paid           |                                                        |        | (18,984  | )        |   |         |         |          |   |         |         |          |   |         | 18,984   |          |   |         |         |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Issuance of common stock                      |                                                        |        | 10,374   |          |   |         |         |          |   |         |         |          |   |         |         |          |   |         | 10,374   |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Issuance of long-term debt                    |                                                        |        |         |          |   |         | 307,109  |          |   |         | 153,052  |          |   |         |         |          |   |         | 460,161  |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Long-term commercial paper, net               |                                                        |        |         |          |   |         | 109,643  |          |   |         |         |          |   |         |         |          |   |         | 109,643  |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Retirement of long-term debt                  |                                                        |        | (100,365 | )        |   |         | (100,826 | )        |   |         | (122,263 | )        |   |         |         |          |   |         | (323,454 | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Other                                         |                                                        |        | 263      |          |   |         | 8,243    |          |   |         |         |          |   |         |         |          |   |         | 8,506    |         
|                                                     |                                               |                                                        |        |          |          |   |         |          |          |   |         |          |          |   |         |          |          |   |         |         
|                                                     |                                               | Net cash provided from (used for) financing activities |        |          | (150,153 | ) |         |          | 262,519  |   |         |          | (206,835 | ) |         |          | 156,586  |   |         |          | 62,117   |  
|                                                     |                                               |                                                        |        |          |          |   |         |          |          |   |         |          |          |   |         |          |          |   |         |         
|Cash Flow From Investing Activities                  |                                               |                                                        |        |          |          |   |         |          |          |   |         |          |          |   |         |          |          |   |         |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Capital expenditures                          |                                                        |        | (5,164   | )        |   |         | (197,988 | )        |   |         | (74,503  | )        |   |         |         |          |   |         | (277,655 | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Acquisitions                                  |                                                        |        |         |          |   |         | (36,731  | )        |   |         |         |          |   |         |         |          |   |         | (36,731  | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Investment in debt and equity securities      |                                                        |        |         |          |   |         | 45,663   |          |   |         | (1,422   | )        |   |         |         |          |   |         | 44,241   |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Investment in joint ventures and subsidiaries |                                                        |        | 136,216  |          |   |         | (96,161  | )        |   |         | 12       |          |   |         | (136,714 | )        |   |         | (96,647  | )       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Sale of property and joint venture interests  |                                                        |        |         |          |   |         | 81,026   |          |   |         |         |          |   |         |         |          |   |         | 81,026   |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Return of investment in joint ventures        |                                                        |        |         |          |   |         | 4,801    |          |   |         |         |          |   |         |         |          |   |         | 4,801    |         
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Other                                         |                                                        |        | 117      |          |   |         | (16,276  | )        |   |         | 1,809    |          |   |         | (518     | )        |   |         | (14,868  | )       
|                                                     |                                               |                                                        |        |          |          |   |         |          |          |   |         |          |          |   |         |          |          |   |         |         
|                                                     |                                               | Net cash provided from (used for) investing activities |        |          | 131,169  |   |         |          | (215,666 | ) |         |          | (74,104  | ) |         |          | (137,232 | ) |         |          | (295,833 | )
|                                                     |                                               |                                                        |        |          |          |   |         |          |          |   |         |          |          |   |         |          |          |   |         |         
|Net Increase (Decrease) in Cash and Cash Equivalents |                                               |                                                        | 30     |          |          |   | 35,795  |          |          |   | 5,679   |          |          |   |        |          |          |   | 41,504  |         
|                                                    
|                                                    
|                                                    
|                                                    
|Cash and Cash Equivalents, January 1                 |                                               |                                                        | 23     |          |          |   | 25,119  |          |          |   | 14,353  |          |          |   |        |          |          |   | 39,495  |         
|                                                     |                                               |                                                        |        |          |          |   |         |          |          |   |         |          |          |   |         |          |          |   |         |         
|Cash and Cash Equivalents, June 30                   |                                               | $                                                      | 53     |          |          | $ | 60,914  |          |          | $ | 20,032  |          |          | $ |        |          |          | $ | 80,999  |         
|                                                     |                                               |                                                        |        |          |          |   |         |          |          |   |         |          |          |   |         |          |          |   |         |         

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OTHER INFORMATION


Supplementary Information for Gas and Oil Producing Activities (Unaudited)

In December 1998, MCN accounted for its E&P segment as a
 discontinued operation as a result of its decision to sell all
of its gas and oil properties. In August 1999, MCN announced
 a significantly revised strategic direction. Consistent with
this revised strategy, as well as the result of the lowering of
the bid for the Michigan E&P properties, MCN will now retain
its natural gas producing properties in Michigan and continue
selling its other E&P oil and gas properties. Accordingly,
E&Ps operating results have been reclassified from
discontinued operations to continuing operations. Refer to
Managements Discussion and Analysis and
Note 6 to the Consolidated Financial Statements, included
herein, for additional information regarding the E&P segment
and managements decision to retain the properties in
Michigan. The following information is prepared in accordance
with SFAS No. 69, Disclosures About Oil and Gas
Producing Activitiesand related Securities and
Exchange Commission (SEC) accounting rules. The information, as
of or for the years ended December 31, would have been provided
in MCNs 1998 Annual Report on Form 10-K/ A if the
E&P segment had not been classified as a discontinued
operation.

MCNIC Oil & Gas Company (MOG), an indirect subsidiary of MCN,
 is engaged in natural gas and oil exploration, development and
production. The full cost accounting method prescribed by the SEC
 is followed for investments in gas and oil properties. Under the
 full cost method, substantially all acquisition, exploration and
 development costs are capitalized.

The unit of production method is used for calculating
depreciation, depletion and amortization (DD&A) on proved gas
 and oil properties. The average DD&A expense per thousand
cubic feet equivalent was $.82, $.75 and $.70 in 1998, 1997 and
1996, respectively. Costs directly associated with the
acquisition and evaluation of unproved gas and oil properties are
 excluded from the amortization base until the related properties
 are evaluated. Such unproved properties are assessed
periodically, and a provision for impairment is made when
appropriate.

Capitalized Costs

|                                                     |  |      |           |      |  |   |           | 
|---------------------------------------------------- |  | ---- | --------- | ---- |  | - | --------- | 
|                                                     |  | 1998 |           | 1997
|                                                     |  |      |           |     
|(in Thousands)                                       |  |      |           |      |  |   |           | 
|                                                    
|                                                    
|                                                    
|                                                    
|Proved Properties                                    |  | $    | 1,357,413 |      |  | $ | 1,033,492 | 
|                                                    
|                                                    
|                                                    
|                                                    
|Unproved Properties                                  |  |      | 99,611    |      |  |   | 265,809   | 
|                                                     |  |      |           |      |  |   |           | 
|                                                     |  |      | 1,457,024 |      |  |   | 1,299,301 | 
|                                                    
|                                                    
|                                                    
|                                                    
|SEC Ceiling Test Write-downs (Note 2c)               |  |      | 416,977   |      |  |   |          | 
|                                                    
|                                                    
|                                                    
|                                                    
|Accumulated Depreciation, Depletion and Amortization |  |      | 224,795   |      |  |   | 150,015   | 
|                                                     |  |      |           |      |  |   |           | 
|Net Capitalized Costs                                |  | $    | 815,252   |      |  | $ | 1,149,286 | 
|                                                     |  |      |           |      |  |   |           | 

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OTHER INFORMATION


Capitalized Costs Excluded From Amortization

Unproved properties held by MCN are excluded from amortization
until they have been evaluated. A summary of costs excluded from
amortization at December 31, 1998, and the year in which
they were incurred, follows:

|               |  |       |        |                     |  |        |        |      |  |       |        |  |  |   |        |  |  |   |       | 
|-------------- |  | ----- | ------ | ------------------- |  | ------ | ------ | ---- |  | ----- | ------ |  |  | - | ------ |  |  | - | ----- | 
|               |  |       |        |                    
|               |  |       |        | Year Costs Incurred
|               |  |       |        |                    
|               |  |       |        |                     |  | 1995 &
|               |  | Total |        | 1998                |  | 1997   |        | 1996 |  | Prior
|               |  |       |        |                     |  |        |        |      |  |      
|(in Thousands) |  |       |        |                     |  |        |        |      |  |       |        |  |  |   |        |  |  |   |       | 
|              
|              
|              
|              
|Acquisition    |  | $     | 43,131 |                     |  | $      | 14,254 |      |  | $     | 17,119 |  |  | $ | 9,321  |  |  | $ | 2,439 | 
|              
|              
|              
|              
|Exploration    |  |       | 56,480 |                     |  |        | 13,757 |      |  |       | 32,655 |  |  |   | 9,935  |  |  |   | 132   | 
|               |  |       |        |                     |  |        |        |      |  |       |        |  |  |   |        |  |  |   |       | 
|               |  | $     | 99,611 |                     |  | $      | 28,011 |      |  | $     | 49,774 |  |  | $ | 19,256 |  |  | $ | 2,571 | 
|               |  |       |        |                     |  |        |        |      |  |       |        |  |  |   |        |  |  |   |       | 

The acquisition amount includes all costs incurred to purchase or
 lease property with unproved reserves.

Cost Incurred

|               |                     |      |         |        |  |      |         |        |  |   |         |         | 
|-------------- | ------------------- | ---- | ------- | ------ |  | ---- | ------- | ------ |  | - | ------- | ------- | 
|               |                     | 1998 |         | 1997   |  | 1996
|               |                     |      |         |        |  |     
|(in Thousands) |                     |      |         |        |  |      |         |        |  |   |         |        
|              
|              
|              
|              
|Acquisition:   |                     |      |         |        |  |      |         |        |  |   |         |        
|              
|              
|              
|              
|               | Proved properties   |      | $       | 53,377 |  |      | $       | 35,695 |  |   | $       | 60,340  | 
|              
|              
|              
|              
|               | Unproved properties |      |         | 7,498  |  |      |         | 66,721 |  |   |         | 136,142 | 
|               |                     |      |         |        |  |      |         |        |  |   |         |        
|               |                     |      | 60,875  |        |  |      | 102,416 |        |  |   | 196,482 |        
|              
|              
|              
|              
|Exploration    |                     |      | 52,948  |        |  |      | 143,580 |        |  |   | 65,160  |        
|              
|              
|              
|              
|Development    |                     |      | 86,607  |        |  |      | 129,001 |        |  |   | 120,569 |        
|               |                     |      |         |        |  |      |         |        |  |   |         |        
|               |                     | $    | 200,430 |        |  | $    | 374,997 |        |  | $ | 382,211 |        
|               |                     |      |         |        |  |      |         |        |  |   |         |        

Results of Operations

|                                                              |                                |      |          |          |   |      |         |         |   |   |         |         |  
|------------------------------------------------------------- | ------------------------------ | ---- | -------- | -------- | - | ---- | ------- | ------- | - | - | ------- | ------- | -
|                                                              |                                | 1998 |          | 1997     |   | 1996
|                                                              |                                |      |          |          |   |     
|(in Thousands)                                                |                                |      |          |          |   |      |         |         |   |   |         |        
|                                                             
|                                                             
|                                                             
|                                                             
|Operating Revenues:                                           |                                |      |          |          |   |      |         |         |   |   |         |        
|                                                             
|                                                             
|                                                             
|                                                             
|                                                              | Unaffiliated customers         |      | $        | 150,504  |   |      | $       | 144,041 |   |   | $       | 94,615  |  
|                                                             
|                                                             
|                                                             
|                                                             
|                                                              | Affiliated customers           |      |          | 56,598   |   |      |         | 71,787  |   |   |         | 43,326  |  
|                                                              |                                |      |          |          |   |      |         |         |   |   |         |        
|                                                              |                                |      | 207,102  |          |   |      | 215,828 |         |   |   | 137,941 |        
|                                                              |                                |      |          |          |   |      |         |         |   |   |         |        
|Production Costs                                              |                                |      | 79,245   |          |   |      | 68,364  |         |   |   | 48,255  |        
|                                                             
|                                                             
|                                                             
|                                                             
|SEC Ceiling Test Write-downs                                  |                                |      | 416,977  |          |   |      |        |         |   |   |        |        
|                                                             
|                                                             
|                                                             
|                                                             
|Depreciation, Depletion and Amortization                      |                                |      | 80,576   |          |   |      | 73,910  |         |   |   | 44,469  |        
|                                                              |                                |      |          |          |   |      |         |         |   |   |         |        
|                                                              |                                |      | 576,798  |          |   |      | 142,274 |         |   |   | 92,724  |        
|                                                              |                                |      |          |          |   |      |         |         |   |   |         |        
|Income (Loss) Before Income Taxes                             |                                |      | (369,696 | )        |   |      | 73,554  |         |   |   | 45,217  |        
|                                                              |                                |      |          |          |   |      |         |         |   |   |         |        
|Income Taxes:                                                 |                                |      |          |          |   |      |         |         |   |   |         |        
|                                                             
|                                                             
|                                                             
|                                                             
|                                                              | Income tax provision (benefit) |      |          | (129,698 | ) |      |         | 26,997  |   |   |         | 16,438  |  
|                                                             
|                                                             
|                                                             
|                                                             
|                                                              | Gas production tax credits     |      |          | (10,485  | ) |      |         | (17,797 | ) |   |         | (15,878 | )
|                                                              |                                |      |          |          |   |      |         |         |   |   |         |        
|                                                              |                                |      | (140,183 | )        |   |      | 9,200   |         |   |   | 560     |        
|                                                              |                                |      |          |          |   |      |         |         |   |   |         |        
|Results of Operations, Excluding Corporate And Interest Costs |                                | $    | (229,513 | )        |   | $    | 64,354  |         |   | $ | 44,657  |        
|                                                              |                                |      |          |          |   |      |         |         |   |   |         |        

Reserve Quantity Information

MCNs proved reserves are located in the United States.
Information on estimated gas and oil reserves that follows was
obtained by MOG from the independent petroleum engineering

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OTHER INFORMATION


consultants Ryder Scott Company, Miller and Lents, Ltd., S.A.
Holditch & Associates, Netherland, Sewell &
Associates, Inc., and Williamson Petroleum Consultants, Inc.

|                                           |                   |                                 |  |           |         |        |  |        |        |   |  |           |         |   |  |        |        |  
|------------------------------------------ | ----------------- | ------------------------------- |  | --------- | ------- | ------ |  | ------ | ------ | - |  | --------- | ------- | - |  | ------ | ------ | -
|                                           |                   |                                 |  |          
|                                           |                   | 1998                            |  | 1997     
|                                           |                   |                                 |  |          
|                                           |                   | Gas                             |  | Oil       |         | Gas    |  | Oil   
|                                           |                   | (MMcf)                          |  | (MBbl)    |         | (MMcf) |  | (MBbl)
|                                           |                   |                                 |  |           |         |        |  |       
|Proved Developed and Undeveloped Reserves: |                   |                                 |  |           |         |        |  |        |        |   |  |           |         |   |  |       
|                                          
|                                          
|                                          
|                                          
|                                           | Beginning of year |                                 |  | 1,166,174 |         |        |  | 25,843 |        |   |  | 1,137,729 |         |   |  | 17,214 |       
|                                          
|                                          
|                                          
|                                          
|                                           |                   | Revisions of previous estimates |  |           | (66,188 | )      |  |        | (2,865 | ) |  |           | (30,260 | ) |  |        | (430   | )
|                                          
|                                          
|                                          
|                                          
|                                           |                   | Extensions and discoveries      |  |           | 59,729  |        |  |        | 534    |   |  |           | 165,283 |   |  |        | 4,435  |  
|                                          
|                                          
|                                          
|                                          
|                                           |                   | Production                      |  |           | (82,040 | )      |  |        | (2,635 | ) |  |           | (78,218 | ) |  |        | (3,346 | )
|                                          
|                                          
|                                          
|                                          
|                                           |                   | Sales of minerals in place      |  |           | (37,661 | )      |  |        | (8,389 | ) |  |           | (51,465 | ) |  |        | (1,019 | )
|                                          
|                                          
|                                          
|                                          
|                                           |                   | Purchases of minerals in place  |  |           | 52,959  |        |  |        | 499    |   |  |           | 23,105  |   |  |        | 8,989  |  
|                                           |                   |                                 |  |           |         |        |  |        |        |   |  |           |         |   |  |       
|                                           | End of year       |                                 |  | 1,092,973 |         |        |  | 12,987 |        |   |  | 1,166,174 |         |   |  | 25,843 |       
|                                           |                   |                                 |  |           |         |        |  |        |        |   |  |           |         |   |  |       
|Proved Developed Reserves:                 |                   |                                 |  |           |         |        |  |        |        |   |  |           |         |   |  |       
|                                          
|                                          
|                                          
|                                          
|                                           | Beginning of year |                                 |  | 590,299   |         |        |  | 12,601 |        |   |  | 688,995   |         |   |  | 9,554  |       
|                                          
|                                          
|                                          
|                                          
|                                           | End of year       |                                 |  | 630,130   |         |        |  | 6,367  |        |   |  | 590,299   |         |   |  | 12,601 |       

Standardized Measure of Discounted Future Net Cash Flows

The following presentation of the standardized measure of
discounted future net cash flows is intended to be neither a
measure of the fair market value of MCNs gas and oil
properties, nor an estimate of the present value of actual future
 cash flows to be obtained as a result of their development and
production. It is based upon subjective estimates of proved
reserves only and attributes no value to categories of reserves
other than proved reserves, such as probable or possible
reserves, or to unproved acreage. Furthermore, as it is based on
year-end prices and costs adjusted only for existing contractual
arrangements and assumes an arbitrary annual discount rate of
10%, it does not reflect the impact of future price and cost
changes. Future income tax expenses were computed by applying
statutory tax rates, adjusted for permanent differences and tax
credits, to estimated future pre-tax net cash flows.

The standardized measure is intended to provide a better means
for comparing the value of MCNs proved reserves at a given
time with those of other gas and oil producing companies than is
provided by a simple comparison of raw proved reserve quantities.

|                                                           |  |      |           |      |  |      |           |   |  |   |           |  
|---------------------------------------------------------- |  | ---- | --------- | ---- |  | ---- | --------- | - |  | - | --------- | -
|                                                           |  | 1998 |           | 1997 |  | 1996
|                                                           |  |      |           |      |  |     
|(in Thousands)                                             |  |      |           |      |  |      |           |   |  |   |           |  
|                                                          
|                                                          
|                                                          
|                                                          
|Future Revenues                                            |  | $    | 2,795,786 |      |  | $    | 3,121,124 |   |  | $ | 3,867,785 |  
|                                                          
|                                                          
|                                                          
|                                                          
|Future Production Costs                                    |  |      | 984,042   |      |  |      | 1,155,734 |   |  |   | 1,322,108 |  
|                                                          
|                                                          
|                                                          
|                                                          
|Future Development Costs                                   |  |      | 264,631   |      |  |      | 328,739   |   |  |   | 340,190   |  
|                                                           |  |      |           |      |  |      |           |   |  |   |           |  
|Future Net Cash Flows Before Income Taxes                  |  |      | 1,547,113 |      |  |      | 1,636,651 |   |  |   | 2,205,487 |  
|                                                          
|                                                          
|                                                          
|                                                          
|Discount to Present Value at 10%                           |  |      | 806,746   |      |  |      | 812,605   |   |  |   | 1,139,507 |  
|                                                           |  |      |           |      |  |      |           |   |  |   |           |  
|Present Value of Future Net Cash Flows Before Income Taxes |  |      | 740,367   |      |  |      | 824,046   |   |  |   | 1,065,980 |  
|                                                          
|                                                          
|                                                          
|                                                          
|Future Income Taxes Discounted at 10%                      |  |      |          |      |  |      | 105,371   |   |  |   | 226,913   |  
|                                                          
|                                                          
|                                                          
|                                                          
|Future Tax Credits Discounted at 10%                       |  |      |          |      |  |      | (50,889   | ) |  |   | (62,207   | )
|                                                           |  |      |           |      |  |      |           |   |  |   |           |  
|Standardized Measure of Discounted Future Net Cash Flows   |  | $    | 740,367   |      |  | $    | 769,564   |   |  | $ | 901,274   |  
|                                                           |  |      |           |      |  |      |           |   |  |   |           |  

Future income taxes and tax credits have been excluded from the
1998 calculation since MOG is in a net operating loss position,
and it is more likely than not that these tax benefits would not
be realized by MOG on a stand-alone basis. However, MCN files a
consolidated federal income tax return, which includes the
taxable income or loss of MOG as well as MOGs tax credits.

46



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OTHER INFORMATION


Accordingly, it is managements opinion that any tax
benefits earned by MOG will be utilized by MCN in its
consolidated tax returns.

The principal sources of change in the standardized measure of
discounted future net cash flows were as follows:

|                  |                                                                                 |      |         |         |   |      |         |          |   |   |         |         |  
|----------------- | ------------------------------------------------------------------------------- | ---- | ------- | ------- | - | ---- | ------- | -------- | - | - | ------- | ------- | -
|                  |                                                                                 | 1998 |         | 1997    |   | 1996
|                  |                                                                                 |      |         |         |   |     
|(in Thousands)    |                                                                                 |      |         |         |   |      |         |          |   |   |         |        
|                 
|                 
|                 
|                 
|Beginning of Year |                                                                                 | $    | 769,564 |         |   | $    | 901,274 |          |   | $ | 521,907 |        
|                 
|                 
|                 
|                 
|                  | Net changes in sales prices and production costs                                |      |         | (67,085 | ) |      |         | (261,154 | ) |   |         | 126,526 |  
|                 
|                 
|                 
|                 
|                  | Net change due to revisions in quantity estimates                               |      |         | (59,106 | ) |      |         | (26,015  | ) |   |         | 5,061   |  
|                 
|                 
|                 
|                 
|                  | Extensions, discoveries, additions and improved recovery, net of
	related costs |      |         | 46,739  |   |      |         | 153,291  |   |   |         | 200,026 |  
|                 
|                 
|                 
|                 
|                  | Development costs incurred, previously estimated                                |      |         | 86,607  |   |      |         | 103,201  |   |   |         | 86,810  |  
|                 
|                 
|                 
|                 
|                  | Changes in estimated future development costs                                   |      |         | (26,573 | ) |      |         | (120,219 | ) |   |         | (81,069 | )
|                 
|                 
|                 
|                 
|                  | Net change in future income taxes                                               |      |         | 105,371 |   |      |         | 116,366  |   |   |         | (85,616 | )
|                 
|                 
|                 
|                 
|                  | Net change in federal tax credits                                               |      |         | (41,997 | ) |      |         | (17,797  | ) |   |         | (15,878 | )
|                 
|                 
|                 
|                 
|                  | Sales of reserves in place                                                      |      |         | (56,924 | ) |      |         | (83,985  | ) |   |         |        |  
|                 
|                 
|                 
|                 
|                  | Purchases of reserves in place                                                  |      |         | 41,525  |   |      |         | 48,685   |   |   |         | 193,550 |  
|                 
|                 
|                 
|                 
|                  | Accretion of discount and other                                                 |      |         | 70,103  |   |      |         | 103,381  |   |   |         | 39,643  |  
|                  |                                                                                 |      |         |         |   |      |         |          |   |   |         |        
|End of Year       |                                                                                 | $    | 740,367 |         |   | $    | 769,564 |          |   | $ | 901,274 |        
|                  |                                                                                 |      |         |         |   |      |         |          |   |   |         |        

Additional data relating to E&P activities follows:

|                                             |  |      |       |      |  |      |       |  |  |   |       | 
|-------------------------------------------- |  | ---- | ----- | ---- |  | ---- | ----- |  |  | - | ----- | 
|                                             |  | 1998 |       | 1997 |  | 1996
|                                             |  |      |       |      |  |     
|Production                                   |  |      |       |      |  |      |       |  |  |   |       | 
|                                            
|                                            
|                                            
|                                            
|Average Gas Sales Price (per Mcf)            |  | $    | 2.04  |      |  | $    | 1.95  |  |  | $ | 1.96  | 
|                                            
|                                            
|                                            
|                                            
|Average Oil Sales Price (per Bbl)            |  | $    | 12.58 |      |  | $    | 16.87 |  |  | $ | 20.18 | 
|                                            
|                                            
|                                            
|                                            
|Average Production Cost (per Mcf equivalent) |  | $    | .81   |      |  | $    | .70   |  |  | $ | .76   | 

|                                            |            |                   |     |      |     |       |     |     |     |       |     |     |     |  |     |     |     |  |     |     |     |  |     |     |     | 
|------------------------------------------- | ---------- | ----------------- | --- | ---- | --- | ----- | --- | --- | --- | ----- | --- | --- | --- |  | --- | --- | --- |  | --- | --- | --- |  | --- | --- | --- | 
|                                            |            |                   |     |      |     |      
|                                            |            | 1998              |     | 1997 |     | 1996 
|                                            |            |                   |     |      |     |      
|                                            |            | Gross             |     | Net  |     | Gross |     | Net |     | Gross |     | Net
|                                            |            |                   |     |      |     |       |     |     |     |       |     |    
|Drilling Activity                           |            |                   |     |      |     |       |     |     |     |       |     |     |     |  |     |     |     |  |     |     |     |  |     |    
|                                           
|                                           
|                                           
|                                           
|Working Interest Well Completions:          |            |                   |     |      |     |       |     |     |     |       |     |     |     |  |     |     |     |  |     |     |     |  |     |    
|                                           
|                                           
|                                           
|                                           
|Exploratory:                                |            |                   |     |      |     |       |     |     |     |       |     |     |     |  |     |     |     |  |     |     |     |  |     |    
|                                           
|                                           
|                                           
|                                           
|                                            | Productive |                   |     | 58   |     |       |     | 26  |     |       |     | 63  |     |  |     | 30  |     |  |     | 63  |     |  |     | 28  |    
|                                           
|                                           
|                                           
|                                           
|                                            | Dry        |                   |     | 37   |     |       |     | 14  |     |       |     | 39  |     |  |     | 19  |     |  |     | 37  |     |  |     | 15  |    
|                                            |            |                   |     |      |     |       |     |     |     |       |     |     |     |  |     |     |     |  |     |     |     |  |     |    
|                                            |            | Total Exploratory |     |      | 95  |       |     |     | 40  |       |     |     | 102 |  |     |     | 49  |  |     |     | 100 |  |     |     | 43  | 
|                                            |            |                   |     |      |     |       |     |     |     |       |     |     |     |  |     |     |     |  |     |     |     |  |     |    
|Development:                                |            |                   |     |      |     |       |     |     |     |       |     |     |     |  |     |     |     |  |     |     |     |  |     |    
|                                           
|                                           
|                                           
|                                           
|                                            | Productive |                   |     | 536  |     |       |     | 335 |     |       |     | 574 |     |  |     | 354 |     |  |     | 355 |     |  |     | 230 |    
|                                           
|                                           
|                                           
|                                           
|                                            | Dry        |                   |     | 15   |     |       |     | 6   |     |       |     | 20  |     |  |     | 9   |     |  |     | 12  |     |  |     | 6   |    
|                                            |            |                   |     |      |     |       |     |     |     |       |     |     |     |  |     |     |     |  |     |     |     |  |     |    
|                                            |            | Total Development |     |      | 551 |       |     |     | 341 |       |     |     | 594 |  |     |     | 363 |  |     |     | 367 |  |     |     | 236 | 
|                                            |            |                   |     |      |     |       |     |     |     |       |     |     |     |  |     |     |     |  |     |     |     |  |     |    
|Total Working Interest Well Completions     |            |                   | 646 |      |     |       | 381 |     |     |       | 696 |     |     |  | 412 |     |     |  | 467 |     |     |  | 279 |    
|                                            |            |                   |     |      |     |       |     |     |     |       |     |     |     |  |     |     |     |  |     |     |     |  |     |    
|Wells in Process of Drilling at End of Year |            |                   | 77  |      |     |       | 30  |     |     |       | 150 |     |     |  | 92  |     |     |  | 167 |     |     |  | 108 |    
|                                            |            |                   |     |      |     |       |     |     |     |       |     |     |     |  |     |     |     |  |     |     |     |  |     |    

|                            |  |       |           |      |  |       |           |     |  |       |           |     |  |  |           |  |  |  |           |  |  |  |         | 
|--------------------------- |  | ----- | --------- | ---- |  | ----- | --------- | --- |  | ----- | --------- | --- |  |  | --------- |  |  |  | --------- |  |  |  | ------- | 
|                            |  |       |           |      |  |      
|                            |  | 1998  |           | 1997 |  | 1996 
|                            |  |       |           |      |  |      
|                            |  | Gross |           | Net  |  | Gross |           | Net |  | Gross |           | Net
|                            |  |       |           |      |  |       |           |     |  |       |           |    
|Producing Wells and Acreage |  |       |           |      |  |       |           |     |  |       |           |     |  |  |           |  |  |  |           |  |  |  |         | 
|Producing Wells             |  |       |           |      |  |       |           |     |  |       |           |     |  |  |           |  |  |  |           |  |  |  |         | 
|                            |  |       |           |      |  |       |           |     |  |       |           |     |  |  |           |  |  |  |           |  |  |  |         | 
|United States               |  |       | 3,143     |      |  |       | 1,782     |     |  |       | 2,917     |     |  |  | 1,677     |  |  |  | 2,890     |  |  |  | 1,481   | 
|                            |  |       |           |      |  |       |           |     |  |       |           |     |  |  |           |  |  |  |           |  |  |  |         | 
|Developed Lease Acreage     |  |       |           |      |  |       |           |     |  |       |           |     |  |  |           |  |  |  |           |  |  |  |         | 
|                            |  |       |           |      |  |       |           |     |  |       |           |     |  |  |           |  |  |  |           |  |  |  |         | 
|United States               |  |       | 623,076   |      |  |       | 352,315   |     |  |       | 663,767   |     |  |  | 344,818   |  |  |  | 519,107   |  |  |  | 287,964 | 
|                            |  |       |           |      |  |       |           |     |  |       |           |     |  |  |           |  |  |  |           |  |  |  |         | 
|Undeveloped Lease Acreage   |  |       |           |      |  |       |           |     |  |       |           |     |  |  |           |  |  |  |           |  |  |  |         | 
|                            |  |       |           |      |  |       |           |     |  |       |           |     |  |  |           |  |  |  |           |  |  |  |         | 
|United States               |  |       | 2,693,767 |      |  |       | 1,148,920 |     |  |       | 2,592,915 |     |  |  | 1,239,908 |  |  |  | 1,701,063 |  |  |  | 970,873 | 
|                            |  |       |           |      |  |       |           |     |  |       |           |     |  |  |           |  |  |  |           |  |  |  |         | 

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EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits

| |  |         |      |             |  |                                                                                  
| |  | ------- | ---- | ----------- |  | ---------------------------------------------------------------------------------
| |  | Exhibit |      |            
| |  | Number  |      | Description
| |  |         |      |            
| |  |         | 12-1 |             |  | Computation of Ratio of Earnings to Fixed Charges for MCN Energy
	Group Inc.     
| |  |         | 12-2 |             |  | Computation of Ratio of Earnings to Fixed Charges for MCN
	Investment Corporation
| |  |         | 23-1 |             |  | Consent of Ryder Scott Company                                                   
| |  |         | 23-2 |             |  | Consent of Miller and Lents, Ltd.                                                
| |  |         | 23-3 |             |  | Consent of S.A. Holditch & Associates                                            
| |  |         | 23-4 |             |  | Consent of Netherland, Sewell & Associates, Inc.                                 
| |  |         | 23-5 |             |  | Consent of Williamson Petroleum Consultants, Inc.                                
| |  |         | 27-1 |             |  | Financial Data Schedule  1999.                                                  
| |  |         | 27-2 |             |  | Financial Data Schedule  1998.                                                  

(b)  Reports on Form 8-K



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Registrant filed a report on Form 8-K dated August 2,
	1999, under Item 5. The contents of the Form 8-K were
	three press releases issued by MCN on August 2, 1999
	outlining its revised strategic direction, the naming of the
	leadership team to implement the new strategy and the 1999 second
	 quarter earnings release.                                                                                                                                                                                                                                                                                                                                                                                               
|
| | MCN announced a significantly revised strategic direction. Key
	aspects of the new corporate strategy include a regional rather
	than North American focus, and an emphasis on achieving
	operational efficiencies and growth through integration of
	existing businesses rather than building a portfolio of diverse,
	non-operated energy investments. Consistent with the new
	strategy, as well as the result of the lowering of the bid for
	the Michigan Exploration & Production (E&P) properties,
	MCN will retain its natural gas producing properties in Michigan.
	 At year-end 1998, the E&P segment was classified as
	discontinued operations in preparation for the sale of the
	companys entire E&P business.
|
| | Key aspects of the new strategy include reorganizing the MCN
	family of businesses to include four primary operating segments
	(Gas Distribution, Midstream & Supply, Energy Marketing and
	Power) and an investment arm (Energy Holdings). Changes to the
	leadership team include:                                                                                                                                                                                                                                                                                                                                                                                                                                          

|                 |  |                                                                   
|---------------- |  | ------------------------------------------------------------------
|Stephen E. Ewing |  | President & Chief Operating Officer (COO),
	MCN Energy  Group Inc.
|Anne Cooke       |  | President & CEO, MCN Energy Marketing                             
|Steve Kurmas     |  | President & CEO, MCN Midstream & Supply                           
|Joseph Roberts   |  | President & CEO, MCN Power                                        
|                 |  | President & CEO, MCN Energy Holdings                              

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##### Table of Contents








SIGNATURE


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



| |                      
| | ---------------------
| | MCN ENERGY GROUP INC.

Date: August 16, 1999

| |     |                     
| | --- | --------------------
| | By: | /s/ GERARD KABZINSKI

| |                              
| | -----------------------------
| | Gerard Kabzinski             
| | Vice President and Controller

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##### Table of Contents






EXHIBIT INDEX

| |  |         |      |             |  |                                                                                  
| |  | ------- | ---- | ----------- |  | ---------------------------------------------------------------------------------
| |  | Exhibit |      |            
| |  | Number  |      | Description
| |  |         |      |            
| |  |         | 12-1 |             |  | Computation of Ratio of Earnings to Fixed Charges for MCN Energy
	Group Inc.     
| |  |         | 12-2 |             |  | Computation of Ratio of Earnings to Fixed Charges for MCN
	Investment Corporation
| |  |         | 23-1 |             |  | Consent of Ryder Scott Company                                                   
| |  |         | 23-2 |             |  | Consent of Miller and Lents, Ltd.                                                
| |  |         | 23-3 |             |  | Consent of S.A. Holditch & Associates                                            
| |  |         | 23-4 |             |  | Consent of Netherland, Sewell & Associates, Inc.                                 
| |  |         | 23-5 |             |  | Consent of Williamson Petroleum Consultants, Inc.                                
| |  |         | 27-1 |             |  | Financial Data Schedule.  1999                                                  
| |  |         | 27-2 |             |  | Financial Data Schedule.  1998