<PAGE>   1
 
================================================================================
 
                       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 MARCH 31, 1997
 
                                       OR
 
[  ]           TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
 
             FOR THE TRANSITION PERIOD FROM           TO
 
                         COMMISSION FILE NUMBER 1-2700
 
                            ------------------------
 
                          EL PASO NATURAL GAS COMPANY
             (Exact Name of Registrant as Specified in its Charter)
 
<TABLE>
<C>                                            <C>
                   DELAWARE                                      74-0608280
         (State or Other Jurisdiction                         (I.R.S. Employer
      of Incorporation or Organization)                     Identification No.)
           EL PASO ENERGY BUILDING
        1001 LOUISIANA, HOUSTON, TEXAS                             77002
   (Address of Principal Executive Offices)                      (Zip Code)
</TABLE>
 
      Registrant's Telephone Number, Including Area Code:  (713) 757-2131
 
     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 [ ]
 
     Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
 
<TABLE>
<CAPTION>
                    CLASS                                       OUTSTANDING
                    -----                                       -----------
<C>                                            <C>
   Common Stock, par value $3.00 per share
              as of May 12, 1997                             59,757,630 shares
</TABLE>
 
================================================================================
<PAGE>   2
 
                                    GLOSSARY
 
     The following abbreviations, acronyms, or defined terms used in this Form
10-Q are defined below:
 
<TABLE>
<CAPTION>
                                                       DEFINITIONS
                                                       -----------
<S>                     <C>
CAPSA.................  Companias Asociadas Petroleras SA, a privately held integrated energy
                        company in Argentina
Company...............  El Paso Natural Gas Company and its subsidiaries
Cornerstone...........  Cornerstone Natural Gas, Inc.
Court of Appeals......  United States Court of Appeals for the District of Columbia Circuit
Distributions.........  Various intercompany transfers and distributions which restructured,
                        divided and separated the businesses, assets and liabilities of Old
                        Tenneco and its subsidiaries so that all the assets, liabilities and
                        operations related to the automotive parts, packaging and administrative
                        services businesses and the shipbuilding business were spun-off to Old
                        Tenneco's then existing common stockholders.
EPG...................  El Paso Natural Gas Company, unless the context otherwise requires
EPTPC.................  El Paso Tennessee Pipeline Co. (formerly Tenneco Inc.), an indirect
                        subsidiary of El Paso Natural Gas Company
FERC..................  The Federal Energy Regulatory Commission
GSR...................  Gas supply realignment
Merger................  The acquisition of El Paso Tennessee Pipeline Co. by El Paso Natural Gas
                        Company in December 1996
MW(s).................  Megawatt(s)
NGL(s)................  Natural gas liquid(s)
New Tenneco...........  Tenneco Inc., subsequent to the Merger and Distributions, consisting of
                        the automotive parts, packaging and administrative services businesses
Old Tenneco...........  Tenneco Inc. (renamed El Paso Tennessee Pipeline Co.), prior to its
                        acquisition by the Company
PCB(s)................  Polychlorinated biphenyl(s)
Pemex.................  Pemex Gas Petroquimica Basica, the Mexican state-owned energy company
PRP(s)................  Potentially responsible party(ies)
SFAS..................  Statement of Financial Accounting Standards
TGP...................  Tennessee Gas Pipeline Company, a wholly owned subsidiary of El Paso
                        Tennessee Pipeline Co.
TransAmerican.........  TransAmerican Natural Gas Corporation
</TABLE>
 
                                        i
<PAGE>   3
 
                        PART I -- FINANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS
 
                          EL PASO NATURAL GAS COMPANY
 
                       CONSOLIDATED STATEMENTS OF INCOME
                 (IN MILLIONS, EXCEPT PER COMMON SHARE AMOUNTS)
                                  (UNAUDITED)
 
<TABLE>
<CAPTION>
                                                                 FIRST QUARTER
                                                              -------------------
                                                               1997        1996
                                                              -------     -------
<S>                                                           <C>         <C>
Operating revenues..........................................  $ 1,831     $   606
                                                              -------     -------
Operating expenses
  Cost of gas and other products............................    1,439         434
  Operation and maintenance.................................      158          73
  Employee separation and asset impairment charge...........       --          99
  Depreciation, depletion, and amortization.................       67          22
  Taxes, other than income taxes............................       28          11
                                                              -------     -------
                                                                1,692         639
                                                              -------     -------
Operating income (loss).....................................      139         (33)
                                                              -------     -------
Other (income) and expense
  Interest and debt expense.................................       61          23
  Other -- net..............................................       (9)          2
                                                              -------     -------
                                                                   52          25
                                                              -------     -------
Income (loss) before income taxes and minority interest.....       87         (58)
Income taxes (benefit)......................................       34         (23)
                                                              -------     -------
Income before minority interest.............................       53         (35)
Minority interest
  Preferred stock dividend requirement of EPTPC.............        6          --
                                                              -------     -------
Net income (loss)...........................................  $    47     $   (35)
                                                              =======     =======
Earnings (loss) per common share............................  $  0.85     $ (1.01)
                                                              =======     =======
Average common shares outstanding...........................     55.6        35.1
                                                              =======     =======
Dividends declared per common share.........................  $ .3650     $ .3475
                                                              =======     =======
</TABLE>
 
  The accompanying Notes are an integral part of these Consolidated Financial
                                  Statements.
 
                                        1
<PAGE>   4
 
                          EL PASO NATURAL GAS COMPANY
 
                          CONSOLIDATED BALANCE SHEETS
                      (IN MILLIONS, EXCEPT SHARE AMOUNTS)
 
                                     ASSETS
 
<TABLE>
<CAPTION>
                                                               MARCH 31,
                                                                 1997        DECEMBER 31,
                                                              (UNAUDITED)        1996
                                                              -----------    ------------
<S>                                                           <C>            <C>
Current assets
  Cash and temporary investments............................    $  125          $  200
  Accounts and notes receivable, net........................     1,058           1,273
  Inventories...............................................        74              87
  Deferred income tax benefit...............................       107             141
  Other.....................................................       437             395
                                                                ------          ------
          Total current assets..............................     1,801           2,096
Property, plant, and equipment, net.........................     6,176           5,938
Other.......................................................       769             809
                                                                ------          ------
          Total assets......................................    $8,746          $8,843
                                                                ======          ======
 
                          LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
  Accounts payable..........................................    $  977          $1,089
  Short-term borrowings (including current maturities of
     long-term debt)........................................       541             841
  Accrual for regulatory issues.............................       163             309
  Other.....................................................       674             604
                                                                ------          ------
          Total current liabilities.........................     2,355           2,843
                                                                ------          ------
Long-term debt, less current maturities.....................     2,194           2,215
                                                                ------          ------
Deferred income taxes, less current portion.................     1,252           1,092
                                                                ------          ------
Other.......................................................       772             720
                                                                ------          ------
Minority interest
  Preferred stock of subsidiary.............................       300             296
                                                                ------          ------
  Other minority interest...................................        40              39
                                                                ------          ------
Commitments and contingent liabilities (See Note 2)
Stockholders' equity
  Common stock, par value $3 per share; authorized
     100,000,000 shares; issued 60,378,201 and 56,726,734
     shares.................................................       181             170
  Additional paid-in capital................................     1,520           1,355
  Retained earnings.........................................       253             227
  Less: Treasury stock (at cost) 1,452,485 and 1,451,922
        shares..............................................        45              45
         Deferred compensation..............................        76              69
                                                                ------          ------
          Total stockholders' equity........................     1,833           1,638
                                                                ------          ------
          Total liabilities and stockholders' equity........    $8,746          $8,843
                                                                ======          ======
</TABLE>
 
  The accompanying Notes are an integral part of these Consolidated Financial
                                  Statements.
 
                                        2
<PAGE>   5
 
                          EL PASO NATURAL GAS COMPANY
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN MILLIONS)
                                  (UNAUDITED)
 
<TABLE>
<CAPTION>
                                                               FIRST QUARTER
                                                              ---------------
                                                               1997      1996
                                                              -------    ----
<S>                                                           <C>        <C>
Cash flows from operating activities
  Net income (loss).........................................  $    47    $(35)
  Adjustments to reconcile net income (loss) to net cash
     provided by operating activities
     Depreciation, depletion, and amortization..............       67      22
     Deferred income taxes (benefit)........................       44     (23)
     Net employee separation and asset impairment charge....       --      98
     Working capital changes................................      (21)      4
     Other..................................................       (5)      7
                                                              -------    ----
          Net cash provided by operating activities.........      132      73
                                                              -------    ----
Cash flows from investing activities
  Capital expenditures......................................      (30)    (29)
  Investment in equity securities...........................      (71)     --
  Collection of note receivable from partnership............       53      --
  Other.....................................................       11      10
                                                              -------    ----
          Net cash used in investing activities.............      (37)    (19)
                                                              -------    ----
Cash flows from financing activities
  Net commercial paper repayments...........................       --     (60)
  Revolving credit borrowings...............................       --      75
  Revolving credit repayments...............................   (1,100)    (60)
  Long-term debt retirements................................     (104)     --
  Net proceeds from long-term debt issuance.................      883      --
  Net proceeds from equity offering.........................      152      --
  Dividends paid on common stock............................      (13)    (11)
  Dividends paid on preferred stock of EPTPC................       (6)     --
  Other.....................................................       18       4
                                                              -------    ----
          Net cash used in financing activities.............     (170)    (52)
                                                              -------    ----
Increase (decrease) in cash and temporary investments.......      (75)      2
Cash and temporary investments
          Beginning of period...............................      200      39
                                                              -------    ----
          End of period.....................................  $   125    $ 41
                                                              =======    ====
</TABLE>
 
  The accompanying Notes are an integral part of these Consolidated Financial
                                  Statements.
 
                                        3
<PAGE>   6
 
                          EL PASO NATURAL GAS COMPANY
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)
 
1. BASIS OF PRESENTATION
 
     The 1996 Annual Report on Form 10-K for the Company includes a summary of
significant accounting policies and other disclosures and should be read in
conjunction with this Form 10-Q. The condensed consolidated financial statements
at March 31, 1997, and for the quarters ended March 31, 1997, and 1996, are
unaudited. The condensed balance sheet at December 31, 1996, is derived from
audited financial statements. These financial statements do not include all
disclosures required by generally accepted accounting principles. In the opinion
of management, all material adjustments necessary to present fairly the results
of operations for such periods have been included. All such adjustments are of a
normal recurring nature. Results of operations for any interim period are not
necessarily indicative of the results of operations for the entire year due to
the cyclical nature of the Company's businesses. Financial statements for the
previous periods include certain reclassifications which were made to conform to
current presentation. Such reclassifications have no effect on reported net
income or stockholders' equity.
 
2. COMMITMENTS AND CONTINGENCIES
 
  Rates and Regulatory Matters
 
     TGP -- On February 28, 1997, TGP filed with FERC a proposed settlement of
all issues related to the recovery by TGP of its GSR and other transition costs
and related proceedings (the "GSR Stipulation and Agreement"). On April 16,
1997, FERC approved the settlement and TGP implemented the settlement on May 1,
1997. Under the terms of the GSR Stipulation and Agreement, TGP will be entitled
to collect from customers a total of $770 million, of which approximately $625
million has been collected as of March 31, 1997. The remaining $145 million will
be collected through a two-year demand transportation surcharge and an
interruptible transportation surcharge. The terms of the GSR Stipulation and
Agreement also provide for a rate case moratorium through November 2000 (subject
to certain limited exceptions) and provide a rate cap, indexed to inflation,
through October 31, 2005, for certain of TGP's customers.
 
     In January 1995, FERC accepted TGP's rate case filed in December 1994,
suspended its effectiveness for the maximum period of five months pursuant to
the normal regulatory process, and set the matter for hearing. On July 1, 1995,
TGP began collecting rates, subject to refund, reflecting an $87 million
increase in TGP's annual revenue requirement. A stipulation was filed with an
Administrative Law Judge in this proceeding in April 1996. This stipulation
resolves the rates that are the subject of the December 1994 rate case,
including a structural rate design change that results in a larger proportion of
TGP's transportation revenues being dependent upon throughput. In October 1996,
FERC approved the stipulation with certain modifications and clarifications
which are not material. In January 1997, FERC issued an order denying requests
for rehearing of the October 1996 order. Under the stipulation agreement, TGP's
refund obligation was approximately $185 million, inclusive of interest, of
which $152 million was refunded to customers in March 1997 with the remaining
$33 million offset against GSR recoveries per customer election. TGP had
provided for these rate refunds. One party to the rate proceeding, a competitor
of TGP, filed with the Court of Appeals a Petition for Review of the FERC orders
approving the stipulation. The Company believes the FERC orders will be upheld.
 
     EPG -- In January 1997, the Chief Administrative Law Judge certified EPG's
settlement, filed in March 1996, to FERC and severed the then contesting
parties. In April 1997, FERC approved EPG's settlement as filed and determined
that only Southern California Edison Company should be severed for separate
determination of the rate it pays EPG. Hearings to determine Southern California
Edison Company's rate are scheduled to begin January 1998. Revenues collected
subject to refund as of March 31, 1997, were $154 million, including interest.
It is anticipated that refunds to the customers that were parties to the
settlement will be made in the third quarter of 1997. EPG has provided, and will
continue to provide, a reserve for rate refunds as revenues are collected.
 
                                        4
<PAGE>   7
 
     Under FERC procedures, take-or-pay cost recovery filings may be challenged
by pipeline customers on prudence and certain other grounds. Certain parties
sought review in the Court of Appeals of FERC's determination in the October
1992 order that certain buy-down/buy-out costs were eligible for recovery. In
January 1996, the Court of Appeals remanded the order to FERC with direction to
clarify the basis for its decision that the take-or-pay buy-down/buy-out costs
were eligible for recovery. In March 1996, FERC issued an order to the effect
that categories of costs which had been determined to be eligible for recovery
might in fact be ineligible for recovery and established a technical conference
which was held in May 1996. In March 1997, following a technical conference and
the submission of statements of position and replies, FERC issued an order
determining that the costs related to all but one of EPG's disputed contracts
were eligible for recovery. The costs ruled ineligible for recovery, including
interest, totaled approximately $3 million, and EPG anticipates refunding this
amount to its customers in the second quarter of 1997. The contesting parties,
which contended that EPG should have been ordered to refund up to $42 million
plus interest, have filed a request for rehearing of FERC's March 1997 order.
 
  Environmental Matters
 
     As of March 31, 1997, the Company had a reserve of approximately $238
million related to the environmental assessments and remediation activities
discussed below.
 
     Since 1988, TGP has been engaged in an internal project to identify and
deal with the presence of PCBs and other substances of concern, including
substances on the United States Environmental Protection Agency List of
Hazardous Substances, at compressor stations and other facilities operated by
both its interstate and intrastate natural gas pipeline systems. While there are
still uncertainties relating to the ultimate costs which may be incurred, based
upon the Company's evaluation and experience to date, the Company believes that
the recorded estimate for the reserve is adequate.
 
     Following negotiations with its customers, TGP in May 1995 filed with FERC
a separate Stipulation and Agreement (the "Environmental Stipulation") that
established a mechanism for recovering a substantial portion of the
environmental costs. In November 1995, FERC issued an order approving the
Environmental Stipulation. Although one shipper filed for rehearing, FERC denied
rehearing of its order in February 1996. This shipper filed a Petition of Review
in April 1996 in the Court of Appeals; TGP believes the FERC order approving the
Environmental Stipulation will be upheld on appeal. The Environmental
Stipulation, which was effective July 1, 1995, had no material effect on the
Company's financial position or results of operations. As of March 31, 1997, a
balance of $43 million remains to be collected.
 
     The Company and certain of its subsidiaries have been designated, have
received notice that they could be designated, or have been asked for
information to determine whether they could be designated as a PRP with respect
to 32 sites under the Comprehensive Environmental Response, Compensation and
Liability Act (CERCLA or Superfund) or state equivalents. The Company has sought
to resolve its liability as a PRP with respect to these Superfund sites through
indemnification by third parties and/or settlements which provide for payment of
the Company's allocable share of remediation costs. Because the clean-up costs
are estimates and are subject to revision as more information becomes available
about the extent of remediation required, the Company's estimate of its share of
remediation costs could change. Moreover, liability under the federal Superfund
statute is joint and several, meaning that the Company could be required to pay
in excess of its pro rata share of remediation costs. The Company's
understanding of the financial strength of other PRPs has been considered, where
appropriate, in its determination of its estimated liability as described
herein. The Company presently believes that the costs associated with the
Superfund sites referenced above will not have a materially adverse effect on
the Company's financial position or results of operations.
 
     In addition, the Company has identified a number of formerly owned or
leased sites, and certain other sites associated with its discontinued
operations, where environmental remediation may be required. The Company
presently believes that the costs to remediate these sites will not have a
materially adverse effect on its financial position or results of operations.
 
                                        5
<PAGE>   8
 
  Legal Proceedings
 
     In November 1993, TransAmerican filed a complaint in a Texas state court,
TransAmerican Natural Gas Corporation v. El Paso Natural Gas Company, et al.,
alleging fraud, tortious interference with contractual relationships, economic
duress, civil conspiracy, and violation of state antitrust laws arising from a
settlement agreement entered into by EPG, TransAmerican, and others in 1990 to
settle litigation then pending and other potential claims. The complaint, as
amended, seeks unspecified actual and exemplary damages. EPG is defending the
matter in the State District Court of Dallas County, Texas. In April 1996, a
former employee of TransAmerican filed a related case in Harris County, Texas,
Vickroy Stone v. Godwin & Carlton, P.C., et al. (including EPG), seeking
indemnification and other damages in unspecified amounts relating to litigation
consulting work allegedly performed for various entities, including EPG, in
cases involving TransAmerican. The trials in TransAmerican and Stone are set to
commence in May 1998 and January 1998, respectively. Based on information
available at this time, management believes that the claims asserted against it
in both cases have no factual or legal basis and that the ultimate resolution of
these matters will not have a materially adverse effect on the Company's
financial position or results of operations.
 
     In July 1996, EPG and TGP were served with a complaint in the matter of
Jack J. Grynberg v. Alaska Pipeline Co., et al., filed in the U.S. District
Court for the District of Columbia (the "Court"). The plaintiff filed this
action under the False Claims Act against most interstate pipelines and others
alleging that the defendants mismeasured natural gas produced from federal and
Indian land, which deprived the United States of royalties otherwise due it.
Among other things, the plaintiff sought to recover unspecified treble damages
on behalf of the United States. The plaintiff also sought to recover his
finder's fee and attorneys' fees. In response to motions filed by most
defendants, the Court, on March 27, 1997, issued an order dismissing the
complaint without prejudice because the defendants had not been properly joined
and because the complaint did not plead fraud with the requisite specificity.
EPG and TGP cannot predict what action the plaintiff will take in response to
the Court's order. Based on information available at this time, EPG and TGP do
not believe that the ultimate resolution of this matter will have a materially
adverse effect on the Company's financial position or results of operations.
 
     In Commonwealth of Kentucky, Natural Resources and Environmental Protection
Cabinet v. Tennessee Gas Pipeline Company (Franklin County Circuit Court, Docket
No. 88-C1-1531, November 16, 1988), the Kentucky environmental agency alleged
that TGP discharged pollutants into the waters of the state without a permit and
disposed of PCBs without a permit. The agency sought an injunction against
future discharges, sought an order to remediate or remove PCBs, and sought a
civil penalty. TGP has entered into agreed orders with the agency to resolve
many of the issues raised in the original allegations, has received water
discharge permits for its Kentucky stations from the agency, and continues to
work to resolve the remaining issues. Management believes that the resolution of
this issue will not have a materially adverse effect on the Company's financial
position or results of operations.
 
     The Company is a named defendant in numerous lawsuits and a named party in
numerous governmental proceedings arising in the ordinary course of business.
While the outcome of such lawsuits or other proceedings against the Company
cannot be predicted with certainty, management currently does not expect these
matters to have a materially adverse effect on the Company's financial position
or results of operations.
 
3. FINANCING TRANSACTIONS
 
     The Company had short-term borrowings at March 31, 1997 and December 31,
1996, as follows:
 
<TABLE>
<CAPTION>
                                                              1997    1996
                                                              ----    ----
<S>                                                           <C>     <C>
EPG Revolving Credit Facility...............................  $ --    $ 17
EPTPC Revolving Credit Facility.............................   517     700
Commercial paper............................................    --      --
                                                              ----    ----
                                                              $517    $717
                                                              ====    ====
</TABLE>
 
                                        6
<PAGE>   9
 
     At December 31, 1996, EPTPC had an additional $900 million outstanding
under its credit facility. This amount was reflected as long-term debt at
December 31, 1996.
 
     In February 1997, EPG issued an additional 3 million shares of common
stock. Proceeds of approximately $152 million, net of issuance costs, were used
to repay a portion of EPTPC's credit facility and for general corporate
purposes.
 
     In March 1997, TGP closed the sale of $300 million aggregate principal of
7 1/2% debentures due 2017, $300 million aggregate principal of 7% debentures
due 2027, and $300 million aggregate principal of 7 5/8% debentures due 2037.
Proceeds of approximately $883 million, net of issuance costs, were used to
repay a portion of EPTPC's credit facility and for general corporate purposes.
 
     In January 1997, EPG's 6.90% notes, which had an aggregate principal amount
of $100 million, matured and were retired.
 
4. PROPERTY, PLANT, AND EQUIPMENT
 
     Property, plant, and equipment at March 31, 1997, and December 31, 1996,
consisted of the following:
 
<TABLE>
<CAPTION>
                                                               1997      1996
                                                              ------    ------
                                                               (IN MILLIONS)
<S>                                                           <C>       <C>
Property, plant, and equipment, at cost.....................  $5,535    $5,420
Less accumulated depreciation and depletion.................   1,244     1,207
                                                              ------    ------
                                                               4,291     4,213
Additional acquisition cost assigned to utility plant, net
  of accumulated amortization...............................   1,885     1,725
                                                              ------    ------
          Total property, plant, and equipment, net.........  $6,176    $5,938
                                                              ======    ======
</TABLE>
 
     The increase in additional acquisition cost assigned to plant is a result
of the Company's continuing efforts to evaluate the fair market value of the
assets and liabilities acquired in conjunction with the Merger.
 
5. INVENTORIES
 
     Inventories at March 31, 1997, and December 31, 1996, consisted of the
following:
 
<TABLE>
<CAPTION>
                                                              1997        1996
                                                              ----        ----
                                                               (IN MILLIONS)
<S>                                                           <C>         <C>
Materials and supplies......................................  $48         $51
Gas in storage..............................................   26          36
                                                              ---         ---
                                                              $74         $87
                                                              ===         ===
</TABLE>
 
     Materials and supplies and gas in storage are valued at the lower of cost
or market, with cost determined using the average cost method.
 
6. ACCOUNTING FOR REGULATED OPERATIONS
 
     The Company's businesses that are subject to the regulations and accounting
requirements of FERC have followed the accounting requirements of SFAS No. 71,
Accounting for the Effects off Certain Types of Regulation, which accounting
methods may differ from those used by non-regulated entities. Changes in the
regulatory and economic environment may, at some point in the future, create
circumstances in which the application of regulatory accounting principles would
no longer be appropriate. During the first quarter of 1997, FERC approved TGP's
GSR Stipulation and Agreement and EPG's settlement (discussed previously in
Rates and Regulatory Matters of Note 2). The Company is currently evaluating the
impact the FERC approvals may have on the continued application of regulatory
accounting principles. If these accounting principles should no longer be
applied, an amount would be charged to earnings as an extraordinary item. At
March 31, 1997, this amount was estimated to be approximately $102 million, net
of income taxes. Any
 
                                        7
<PAGE>   10
 
potential charge would be non-cash and would not have a direct effect on the
regulated companies' ability to seek recovery of the underlying deferred costs
in their future rate proceedings or on their ability to collect the rates set
thereby.
 
7. RECENT PRONOUNCEMENTS
 
  Earnings per share
 
     In March 1997, the Financial Accounting Standards Board issued SFAS No.
128, Earnings Per Share, which establishes new guidelines for calculating
earnings per share. The pronouncement is effective for reporting periods ending
after December 15, 1997, with earlier application not permitted; however, pro
forma presentations as shown below are permitted for interim periods. SFAS No.
128 requires companies to present both a basic and diluted earnings per share on
the face of the statement of income and to restate prior period earnings per
share amounts. Basic and diluted earnings per share amounts calculated in
accordance with SFAS No. 128 are presented below for the first quarter of 1997
and 1996.
 
<TABLE>
<CAPTION>
                                                                  PRO FORMA SFAS NO. 128
                                                           -------------------------------------
                                                                1997                  1996
                                                           ---------------      ----------------
                                                           BASIC   DILUTED      BASIC    DILUTED
                                                           -----   -------      ------   -------
<S>                                                        <C>     <C>          <C>      <C>
(In millions, except per common share amounts)
Net income (loss)........................................  $47.3    $47.3       $(35.2)  $(35.2)
Average common shares outstanding........................   55.6     55.6         35.1     35.1
Effect of dilutive securities
          Stock options..................................     --      1.0           --       --
Adjusted average common shares outstanding...............   55.6     56.6         35.1     35.1
Earnings (loss) per common share.........................  $ .85    $ .84       $(1.01)  $(1.01)
</TABLE>
 
  Capital structure
 
     In March 1997, the Financial Accounting Standards Board issued SFAS No.
129, Disclosure of Information about Capital Structure, which consolidates
capital structure reporting requirements previously required by other accounting
standards. This pronouncement, which will become effective for reporting periods
ending after December 15, 1997, will have no impact on the Company's disclosure
of capital structure information.
 
  Other
 
     The Company adopted SFAS No. 125, Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities, SFAS No. 127, Deferral of
the Effective Date of Certain Provisions of FASB Statement No. 125, and
Statement of Position No. 96-1, Environmental Remediation Liabilities, effective
January 1, 1997. These pronouncements did not have a material impact on the
Company's financial position or results of operations.
 
                                        8
<PAGE>   11
 
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
 
     The information contained in Item 2 updates, and should be read in
conjunction with, information set forth in Part II, Items 7 and 8, in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996, in
addition to the interim consolidated financial statements and accompanying notes
presented in Item 1 of this Form 10-Q.
 
                             RESULTS OF OPERATIONS
 
FIRST QUARTER 1997 COMPARED TO FIRST QUARTER 1996
 
  Natural Gas Transmission
 
<TABLE>
<CAPTION>
                                                              FIRST QUARTER
                                                              -------------
                                                              1997     1996
                                                              ----     ----
                                                              (IN MILLIONS)
<S>                                                           <C>      <C>
Operating revenues..........................................  $343     $128
Operating expenses..........................................   201       81
                                                              ----     ----
Operating income............................................  $142     $ 47
                                                              ====     ====
</TABLE>
 
     Operating revenues for the quarter ended March 31, 1997, were $215 million
higher than for the same period of 1996 primarily due to the acquisition of
EPTPC.
 
     Operating expenses for the quarter ended March 31, 1997, were $120 million
higher than for the same period of 1996 primarily due to the acquisition of
EPTPC. This increase in operating expenses was partially offset by lower
operation and maintenance expense, specifically the cost of labor and benefits,
as a result of the reduction in staffing levels.
 
  Field and Merchant Services
 
<TABLE>
<CAPTION>
                                                              FIRST QUARTER
                                                              -------------
                                                              1997     1996
                                                              ----     ----
                                                              (IN MILLIONS)
<S>                                                           <C>      <C>
Gathering and treating margin...............................  $ 36     $ 19
Processing margin...........................................    19        6
Marketing margin............................................    (5)      20
Other.......................................................     1       --
                                                              ----     ----
          Total gross margin................................    51       45
Operating expenses..........................................    41       27
                                                              ----     ----
Operating income............................................  $ 10     $ 18
                                                              ====     ====
</TABLE>
 
     Total gross margin (revenue less cost of sales) for the quarter ended March
31, 1997, was $6 million higher than for the same period of 1996. The increases
experienced in the gathering and treating margin and the processing margin were
primarily the result of higher natural gas prices in the San Juan Basin, higher
NGL prices, an increase in gathering and treating volumes due to the acquisition
of Cornerstone and EPTPC, and an increase in NGLs attributable to the Chaco
cryogenic plant, which began processing in the second quarter of 1996. A
substantial amount of gathering revenues is tied to San Juan Basin index prices
at the beginning of the previous month. During December 1996 and January 1997,
the San Juan Basin index achieved near historic highs which significantly
impacted gathering revenues for much of the first quarter of 1997. NGL prices,
which directly affect processing revenues, were higher in the first quarter of
1997 compared to the same period of 1996. The Company does not anticipate that
these price levels will be experienced during the remainder of the year.
Partially offsetting the increase in gross margin was a decrease in marketing
margin attributable to natural gas marketing and trading positions which
experienced extreme volatility during the quarter and from the disposition of
firm physical gas supplies, purchased at high prices at the beginning of
 
                                        9
<PAGE>   12
 
January, which became uneconomical as gas demand and market prices fell during
the remainder of January and the quarter.
 
     Operating expenses for the quarter ended March 31, 1997, were $14 million
higher than for the same period of 1996 primarily due to the acquisitions of
Cornerstone and EPTPC.
 
  Corporate and Other
 
     The operating loss for the quarter ended March 31, 1997, was $85 million
less than for the same period in 1996 primarily as a result of the employee
separation and asset impairment charge recorded in March 1996.
 
  Other Income and Expense
 
     Interest and debt expense for the quarter ended March 31, 1997, was $38
million higher than for the same period of 1996 due primarily to the debt
assumed in connection with the acquisition of EPTPC.
 
     Other income for the quarter ended March 31, 1997, was $11 million higher
than for the same period of 1996 primarily due to an increase in equity income
from unconsolidated subsidiaries resulting from the acquisition of EPTPC.
 
                        LIQUIDITY AND CAPITAL RESOURCES
 
  Cash From Operating Activities
 
     Net cash provided by operating activities was $59 million higher for the
quarter ended March 31, 1997, compared to the same period of 1996. This increase
was primarily a result of the acquisition of EPTPC, an income tax refund in
1997, and other working capital changes. The increase was partially offset by
higher interest payments resulting from debt assumed in the acquisition of EPTPC
and a rate refund to TGP's customers in March 1997.
 
  Cash From Investing Activities
 
     Net cash used in investing activities was $18 million higher for the
quarter ended March 31, 1997, compared to the same period of 1996. This change
was due to the acquisition of an interest in CAPSA and additional construction
funding for the Aguaytia and Pakistan projects.
 
     In March 1997, the Company acquired an interest in CAPSA consisting of a
10.5 percent acquisition of CAPSA stock and an equity swap for an additional
18.5 percent of CAPSA stock. The total 29 percent interest is valued at $157
million. The assets of CAPSA include an interest in CAPEX, a company publicly
traded on the Argentine and Luxembourg stock exchanges which owns certain power
plants and gas and oil reserves in Argentina.
 
     During the first quarter of 1997, the Aguaytia project consortium completed
loan negotiations with the Inter-American Development Bank which reduced the
project equity requirements from 60 percent to approximately 40 percent. In
addition, the Company increased its economic interest in the Aguaytia project by
approximately 2 percent to 26 percent in April 1997.
 
     The increase in net cash used in investing activities was partially offset
by the collection of a $53 million note receivable from the Company's
partnership in a 103 MW cogeneration plant near Bartow, Florida. This completes
the project financing for the plant.
 
     Future funding for capital expenditures, acquisitions, and other investing
expenditures is expected to be provided by internally generated funds,
commercial paper issuances, and/or available credit facilities.
 
  Cash From Financing Activities
 
     Net cash used in financing activities was $118 million higher for the
quarter ended March 31, 1997, compared to the same period of 1996 due in large
part to the Company's efforts to realign its debt and capital
 
                                       10
<PAGE>   13
 
structure following the EPTPC acquisition. Specifically, this change was
primarily a result of increased credit facility repayments from the proceeds
received from long-term debt and common stock issuances. Also contributing to
the change were the retirement of EPG's 6.90% notes in January 1997 and
increased common and preferred stock dividends.
 
     In February 1997, the Company sold an additional 3 million shares of its
common stock and, in March 1997, TGP issued $900 million of long-term debt. The
proceeds from the long-term debt and common stock issuances were used to repay
borrowings under EPTPC's credit facility and for general corporate purposes.
 
     The following table reflects quarterly dividends declared and paid on EPG's
common stock:
 
<TABLE>
<CAPTION>
                                           AMOUNT PER
            DECLARATION DATE              COMMON SHARE      PAYMENT DATE       TOTAL AMOUNT
            ----------------              ------------      ------------       -------------
                                                                               (IN MILLIONS)
<S>                                       <C>             <C>                  <C>
October 11, 1996........................      0$.3475      January 2, 1997          $13
January 22, 1997........................      0$.3650       April 1, 1997           $22
</TABLE>
 
     On April 23, 1997, the Board declared a quarterly dividend of $.3650 per
share on EPG's common stock, payable on July 1, 1997, to stockholders of record
on June 6, 1997.
 
     Also during the first quarter of 1997, quarterly dividends of $6 million
were paid on EPTPC's Series A Preferred Stock.
 
     Future funding for long-term debt retirements, dividends, and other
financing expenditures are expected to be provided by internally generated
funds, commercial paper issuances, and/or available credit facilities.
 
     At March 31, 1997, the Company had $1 billion available under its revolving
credit facilities which were established in November 1996. The availability of
borrowings under the Company's credit agreements is subject to certain specified
conditions, which management believes it currently meets.
 
                         COMMITMENTS AND CONTINGENCIES
 
  Rates and Regulatory Matters
 
     See Part I, Financial Information, Note 2, which is incorporated herein by
reference.
 
  Legal Proceedings
 
     See Part I, Financial Information, Note 2, which is incorporated herein by
reference.
 
  Environmental Matters
 
     See Part I, Financial Information, Note 2, which is incorporated herein by
reference.
 
                                     OTHER
 
  Future Projects
 
     Czech Republic Project. In March 1997, the Company acquired a 17.8 percent
interest in a $400 million project to expand a 363 MW gas and coal-fired power
plant located in Kladno, Czech Republic. Project financing is being arranged for
approximately 75 percent of the cost and is expected to close during the second
quarter of 1997. The Company is currently negotiating with the other partners in
the project to purchase an additional 13.4 percent. The acquisition of the
additional ownership interest is anticipated to be completed in the second
quarter bringing the Company's total ownership in the project to 31.2 percent.
 
     Mexico. In March 1997, the consortium constructing the pipeline expansion
which connects EPG's existing pipeline system in west Texas to Pemex's pipeline
system in northern Mexico signed a contract with
 
                                       11
<PAGE>   14
 
Willbros Engineering for the construction of the 22 miles of pipeline on the
U.S. side of the border and the 23 miles of pipeline in Mexico. Construction is
expected to begin in the second quarter of 1997 with completion projected for
December 1997.
 
     Hungary Project. The Company's acquisition of a 50 percent controlling
interest in an operating 70 MW power plant located in Dunaujvaros, Hungary, is
now scheduled to close in the second quarter of 1997.
 
     Eastern Express Project. The Eastern Express Project involves expansion of
TGP's system at an estimated cost of up to $400 million. At this time,
preliminary plans call for adding compression, pipeline looping and an
approximate 35-mile pipeline segment extension to the Leidy market hub located
near central Pennsylvania. The final design of the project will be based on the
results of an open season being held through June 16, 1997, the results of a
separate capacity turn back open season, and the execution of precedent
agreements.
 
  Purchase Price Allocation
 
     The Company is continuing to evaluate the fair market value of the assets
and liabilities acquired in conjunction with the Merger. Management believes
that the final adjustments to the purchase price allocation will not have a
material impact on the Company's financial position or results of operations.
 
  Accounting for Regulated Operations
 
     EPG's interstate pipelines are subject to the regulations and accounting
procedures of FERC, and therefore, continue to follow the reporting and
accounting requirements of SFAS No. 71, Accounting for the Effects of Certain
Types of Regulation. For a further discussion, see Part I, Financial
Information, Note 6, which is incorporated herein by reference.
 
  Recent Pronouncements
 
     See Part I, Financial Information, Note 7, which is incorporated herein by
reference.
 
                                       12
<PAGE>   15
 
      CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF
             THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.
 
     This report contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Where any such forward-looking
statement includes a statement of the assumptions or bases underlying such
forward-looking statement, the Company cautions that, while such assumptions or
bases are believed to be reasonable and are made in good faith, assumed facts or
bases almost always vary from the actual results, and the differences between
assumed facts or bases and actual results can be material, depending upon the
circumstances. Where, in any forward-looking statement, the Company or its
management expresses an expectation or belief as to future results, such
expectation or belief is expressed in good faith and is believed to have a
reasonable basis, but there can be no assurance that the statement of
expectation or belief will result or be achieved or accomplished. The words
"believe," "expect," "estimate," "anticipate" and similar expressions may
identify forward-looking statements.
 
     Taking into account the foregoing, the following are identified as
important factors that could cause actual results to differ materially from
those expressed in any forward-looking statement made by, or on behalf of, the
Company:
 
  Highly Competitive Industry
 
     The ability to maintain or increase current transmission, gathering,
processing, and sales volumes, or to remarket unsubscribed capacity, can be
subject to the impact of future weather conditions, including those that favor
hydroelectric generation or other alternative energy sources, price competition;
drilling activity and supply availability; and service competition, especially
due to excess pipeline capacity into California. Future profitability also may
be affected by the Company's ability to compete with the services offered by
other energy enterprises which may be larger, offer more services, and possess
greater resources. The ability of TGP to negotiate new contracts and to
renegotiate existing contracts (70 percent of which are expiring over the next
four years, principally in November 2000) could be adversely affected by the
proposed construction of additional pipeline capacity in the Northeast U.S.,
reduced demand due to higher gas prices, the availability of alternative energy
sources, and other factors that are not within its control.
 
  Impact of Natural Gas and Natural Gas Liquids Prices
 
     The value of natural gas transmission services is based on an all-in cost,
including the cost of the natural gas. Therefore, the Company's ability to
compete with other transporters is impacted by natural gas prices in the supply
basins connected to its pipeline systems compared to prices in other gas
producing regions, especially Canada. Additionally, revenues generated by the
Company from its gathering and processing contracts are dependent upon volumes
and rates, both of which can be affected by the prices of natural gas and
natural gas liquids. Fluctuations in energy prices are caused by a number of
factors, including regional, domestic and international demand, availability and
adequacy of transportation facilities, energy legislation, federal or state
taxes, if any, on the sale or transportation of natural gas and natural gas
liquids and the price and abundance of supplies of alternative energy sources.
 
  Use of Derivative Financial Instruments
 
     In the ordinary course and conduct of its business, some of the Company's
non-regulated subsidiaries are engaged in the gathering, processing and
marketing of natural gas and other energy commodities and utilize futures and
option contracts traded on the New York Mercantile Exchange and over-the-counter
options and price and basis swaps with other gas merchants and financial
institutions The Company could incur financial losses in future periods as a
result of volatility in the market values of the underlying commodities.
 
  Acquisitions and Investments
 
     Opportunities for growth through acquisitions and investments in joint
ventures, and future operating results and the success of acquisitions and joint
ventures within and outside the U.S. may be subject to the effects of, and
changes in, U.S. and foreign trade and monetary policies, laws and regulations,
political and
 
                                       13
<PAGE>   16
 
economic developments, inflation rates, and the effects of taxes and operating
conditions. Activities in areas outside the U.S. also are subject to the risks
inherent in foreign operations, including loss of revenue, property and
equipment as a result of hazards such as expropriation, nationalization, wars,
insurrection and other political risks, and the effects of currency fluctuations
and exchange controls. Such legal and regulatory delays and other unforeseeable
obstacles may be beyond the Company's control or ability to manage.
 
  Potential Environmental Liabilities
 
     The Company may incur significant costs and liabilities in order to comply
with existing environmental laws and regulations. It is also possible that other
developments, such as increasingly strict environmental laws, regulation and
enforcement polices thereunder, and claims for damages to property, employees,
other persons and the environment resulting from current or discontinued
operations, could result in substantial costs and liabilities in the future.
 
  Operating Hazards and Uninsured Risks
 
     While the Company maintains insurance against certain of the risks normally
associated with the transportation, gathering and processing of natural gas,
including explosions, pollution and fires, the occurrence of a significant event
that is not fully insured against could have a material adverse effect on the
Company.
 
  Potential Liabilities Related to the Merger
 
     The amount of the actual and contingent liabilities of EPTPC, which
remained the liabilities of the Company after the Merger, could vary materially
from the amount estimated by the Company, which was based upon assumptions which
could prove to be inaccurate. If New Tenneco or Newport News Shipbuilding Inc.
were unable or unwilling to pay their respective liabilities, a court could
require the Company, under certain legal theories which may or may not be
applicable to the situation, to assume responsibility for such obligations,
which could have a material adverse effect on the Company.
 
  Uncertainty Surrounding Integration of Operations
 
     The Company has begun to integrate the business and operations of EPTPC and
its subsidiaries to increase operating and administrative efficiency through
consolidation and reengineering of facilities, workforce reductions and
coordination of purchasing, sales and marketing activities. Management
anticipates that the complementary interstate and intrastate pipeline operations
and energy marketing activities of the combined company should provide increased
operating flexibility and access to additional customers and markets, although
the amount and timing of the realization of such benefits will depend upon the
Company's ability to integrate successfully the businesses and operations of the
companies, and the time period over which such integration is effected.
 
  Potential Federal Income Tax Liabilities
 
     In connection with the Merger and Distributions, the Internal Revenue
Service issued a private letter ruling to Old Tenneco, in which the Internal
Revenue Service ruled that for U.S. federal income tax purposes (i) the
Distributions would be tax-free to Old Tenneco and, except to the extent cash
was received in lieu of fractional shares, to its then existing stockholders,
(ii) the Merger would constitute a tax-free reorganization, and (iii) that
certain other transactions effected in connection with the Merger and
Distributions would be tax-free. If the Distributions were not to qualify as
tax-free distributions, then a corporate level federal income tax would be
assessed to the consolidated group of which Old Tenneco was the common parent.
This corporate level federal income tax would be payable by EPTPC. Under certain
limited circumstances, however, New Tenneco and Newport News Shipbuilding Inc.
have agreed to indemnify EPTPC for a defined portion of such tax liabilities.
 
                                       14
<PAGE>   17
 
  Refinancing and Interest Rate Exposure Risks
 
     The business and operating results of the Company can be adversely affected
by factors such as the availability or cost of capital, changes in interest
rates, changes in the tax rates due to new tax laws, market perceptions of the
natural gas industry or the Company, or credit ratings.
 
  Potential for Changes in Accounting Standards
 
     Authoritative generally accepted accounting principles or policy changes
from such standard setting bodies as the Financial Accounting Standards Board,
FERC, and the Securities and Exchange Commission may affect the Company's
results of operations or financial position.
 
                                       15
<PAGE>   18
 
                          PART II -- OTHER INFORMATION
 
ITEM 1. LEGAL PROCEEDINGS
 
     See Part I, Financial Information, Note 2, which is incorporated herein by
reference.
 
ITEM 2. CHANGES IN SECURITIES
 
     None.
 
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
 
     None.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
 
     None.
 
ITEM 5. OTHER INFORMATION
 
     None.
 
ITEM. 6. EXHIBITS AND REPORTS ON FORM 8-K
 
     a. Exhibits
 
     Each exhibit identified below is filed as a part of this report.
 
<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<S>                      <C>
         *11             -- Computation of Earnings per Common Share.
         *27             -- Financial Data Schedule.
</TABLE>
 
     Undertaking
 
          The undersigned hereby undertakes, pursuant to Regulation S-K, Item
     601(b), paragraph (4)(iii), to furnish to the Securities and Exchange
     Commission upon request all constituent instruments defining the rights of
     holders of long-term debt of EPG and its consolidated subsidiaries not
     filed herewith for the reason that the total amount of securities
     authorized under any of such instruments does not exceed 10 percent of the
     total consolidated assets of EPG and its consolidated subsidiaries.
 
     b. Reports on Form 8-K
 
          During the quarter ended March 31, 1997, EPG filed with the Securities
     and Exchange Commission the following Current Reports on Form 8-K:
 
        1. Current Report on Form 8-K/A dated January 21, 1997, and January 22,
           1997, amending its Current Report on Form 8-K dated December 26,
           1996, with respect to the Company's acquisition of EPTPC.
 
        2. Current Report on Form 8-K dated February 5, 1997, in which EPG
           described under Item 5 therein its offering of 2,750,000 shares of
           its common stock and a related option of the underwriters to purchase
           up to an additional 412,500 shares of its common stock.
 
                                       16
<PAGE>   19
 
                                   SIGNATURES
 
     Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
 
                                           EL PASO NATURAL GAS COMPANY
 
Date: May 14, 1997                                 /s/ H. BRENT AUSTIN
                                            ------------------------------------
                                                      H. Brent Austin
                                                Executive Vice President and
                                                  Chief Financial Officer
 
Date: May 14, 1997                                /s/ JEFFREY I. BEASON
                                            ------------------------------------
                                                     Jeffrey I. Beason
                                              Vice President, Controller, and
                                                  Chief Accounting Officer
 
                                       17
<PAGE>   20
 
                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
         *11             -- Computation of Earnings per Common Share.
         *27             -- Financial Data Schedule.
</TABLE>