UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                           Washington, D.C.  20549
                                  FORM 10-K



(Mark One)
          
[ X ]  Annual Report Pursuant to Section 13 or 15(d) of the Securities
       Exchange Act of 1934
       For the fiscal year ended December 31, 1996
                             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 1-7297


                               NICOR Inc.                    
         (Exact name of registrant as specified in its charter)
          
                Illinois                                        36-2855175    
     (State or other jurisdiction of                         (I.R.S. Employer
      incorporation or organization)                        Identification No.)
                 

                   1844 Ferry Road                                             
                Naperville, Illinois                            60563-9600   
      (Address of principal executive offices)                  (Zip Code)      
            

Registrant's telephone number, including area code (630) 305-9500

Securities registered pursuant to Section 12(b) of the Act:

                                                   Name of each exchange on
          Title of each class                          which registered     
Common Stock, par value $2.50 per share            New York Stock Exchange
                                                   Chicago Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:  None

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, and (2) has been subject to such
filing requirements for the past 90 days.  Yes  X   No    
 
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.  [ X ]

As of February 28, 1997, 49,224,465 common shares were outstanding, and the
aggregate market value of voting securities held by non-affiliates of the
registrant was approximately $1.6 billion.

                 DOCUMENTS INCORPORATED BY REFERENCE

Portions of the company's 1997 Annual Meeting Definitive Proxy Statement,
dated March 6, 1997 are incorporated by reference into Part III.




NICOR Inc.                                                           Page i 

Table of Contents

Item No.                                                                 Page
             Part I
    1.       Business................................................       1
                                                                                
    2.       Properties..............................................       6

    3.       Legal Proceedings.......................................       6
             
    4.       Submission of Matters to a Vote of Security Holders.....       6

             Executive Officers of the Registrant....................       7

             Part II
    5.       Market for Registrant's Common Equity and Related
               Stockholder Matters...................................       8

    6.       Selected Financial Data.................................       9

    7.       Management's Discussion and Analysis of Financial 
               Condition and Results of Operations...................      10

    8.       Financial Statements and Supplementary Data.............      20

    9.       Changes in and Disagreements with Accountants on
               Accounting and Financial Disclosure...................      37

             Part III
   10.       Directors and Executive Officers of the Registrant......      37

   11.       Executive Compensation..................................      37

   12.       Security Ownership of Certain Beneficial Owners
               and Management........................................      37

   13.       Certain Relationships and Related Transactions..........      37

             Part IV
   14.       Exhibits, Financial Statement Schedule, and Reports
               on Form 8-K...........................................      38

             Signatures..............................................      40

             Exhibit Index...........................................      41


Selected abbreviations:

FERC - Federal Energy Regulatory Commission
Ill.C.C. - Illinois Commerce Commission
Mcf, Bcf - Thousand cubic feet, billion cubic feet
TEU - Twenty-foot equivalent unit



NICOR Inc.                                                           Page 1 

PART I

Item 1.   Business

NICOR Inc. (NICOR), incorporated in 1976, is a holding company and through
its wholly owned subsidiaries is engaged in gas distribution (Northern
Illinois Gas) and containerized shipping (Tropical Shipping).  NICOR had
approximately 3,300 employees at year-end 1996.

Gas distribution is NICOR's primary business, representing approximately
90 percent of consolidated operating income and assets.  NICOR provides
financial information on both of its business segments in Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations, on pages 10 through 19.

The mailing address of the company's general office is P.O. Box 3014,
Naperville, Illinois 60566-7014.  The telephone number is (630) 305-9500.

GAS DISTRIBUTION

General

Northern Illinois Gas, formed in 1954, is one of the nation's largest gas
distribution utilities.  The company delivers natural gas to about
1.9 million customers, including transportation service, gas storage and gas
supply backup to approximately 21,000 commercial and industrial customers
who purchase their own gas supplies.  The company has approximately 2,200
employees.  The company's service territory spans over 17,000 square miles,
covering more than 600 communities and adjacent areas in 35 counties and
encompasses most of the northern third of Illinois, excluding the city of
Chicago.  Northern Illinois Gas maintains franchise agreements with 474
municipalities with terms ranging up to 50 years.  More than 65 percent, or
approximately 315 franchise agreements, will expire in 15 years or more. 
Only 23 agreements, or 5 percent, will expire in less than five years. 
These agreements allow the company to construct, operate and maintain
distribution facilities in the municipalities served.

The Northern Illinois Gas service territory has a stable economic base that
provides strong and balanced demand among residential, commercial and
industrial customers.  Residential customers account for about 45 percent of
the company's total gas deliveries, while industrial and commercial
customers account for approximately 30 percent and 25 percent of deliveries,
respectively.  In addition, the company's industrial and commercial 
customer base is well-diversified, lessening the impact of industry-specific 
economic swings.  See Operating Statistics on page 16 for operating revenues, 
deliveries and customers by customer classification.

Gas deliveries are seasonal since approximately 50 percent are used for
space heating.  Typically, 70 percent to 75 percent of deliveries and
revenues occur from October through March.



NICOR Inc.                                                           Page 2 

Item 1.   Business (continued)

Customer Services

In addition to gas sales to all customer classes, Northern Illinois Gas
provides transportation, storage and backup services to commercial and
industrial customers who purchase their own gas supplies.  Transportation
service provides customers the opportunity to lower their overall costs by
purchasing gas directly and transporting it to their facilities through the
company's distribution system.  The company provides transportation
customers with supply backup which may vary from zero to 100 percent.

Northern Illinois Gas makes about 35 Bcf, or nearly one quarter of company-
owned storage capacity, available to its transportation customers.

In recent years, Northern Illinois Gas has developed several nontraditional
activities that are intended to maximize the value of the company's assets,
expertise and customer base.  These activities included: providing
transportation service to neighboring pipelines and gas distribution
companies; providing a variety of hub services to buyers and sellers of
natural gas; providing storage services to customers, gas marketers and
others; selling space to outside vendors for direct-mail inserts in customer
bills; and providing water meter reading and other services to
municipalities.

Sources of Gas Supply

Northern Illinois Gas purchases gas supplies on a deregulated basis directly
from producers, marketers and affiliates of pipelines.  Pipeline
transportation and purchased storage services are contracted for at rates
regulated by the FERC.

Northern Illinois Gas has been able to obtain sufficient supplies of natural
gas to meet customer requirements.  The company believes natural gas supply
availability will be sufficient to meet market demands in the foreseeable
future.

Gas supply.  Northern Illinois Gas maintains a diversified portfolio of gas
supply contracts.  Firm gas supply contracts are diversified by supplier,
producing region, quantity, available transportation, contract length and
contract expiration date.  Contract pricing is generally tied to published
price indices so as to approximate current market prices.  The contracts
also generally provide for the payment of fixed demand charges to ensure the
availability of supplies on any given day.  At the end of 1996, the company
had about 45 firm gas supply contracts, of which nearly 60 percent of the 
contracted volumes will expire in 1997 and the remainder by 2001. 
The company also purchases gas supplies on the spot market to fulfill its 
supply requirements or to take advantage of favorable short-term pricing.



NICOR Inc.                                                           Page 3 

Item 1.   Business (continued)

The sources of gas purchased for the past three years were:
<TABLE>
<CAPTION>
                                             Year Ended December 31              
                                   1996                  1995                   1994    
      Source                   Bcf        %          Bcf        %           Bcf        %  

<S>                           <C>        <C>        <C>        <C>         <C>        <C>
Firm gas supply               189.7      54.3       237.4      78.2        246.8      84.6
Spot gas                      159.8      45.7        66.2      21.8         44.8      15.4

                              349.5     100.0       303.6     100.0        291.6     100.0
</TABLE>

Customers served under the company's transportation service tariffs purchase
their own gas supplies.  Approximately 40 percent of the gas that the
company delivered in 1996 was purchased by transportation customers directly
from producers and marketers rather than from the company.

Pipeline transportation contracts.  Northern Illinois Gas is directly
connected to five interstate pipelines which provide access to most of the
major natural gas producing regions in North America.  The company's primary
firm transportation contracts with these pipelines at the end of 1996 are
summarized below:
<TABLE>
<CAPTION>
                                                                        Total maximum
                                          Year of service              daily contract
                                             agreement                    capacity
      Major pipelines                        expiration                     (Bcf)    

Natural Gas Pipeline Company
  <S>                                            <C>                          <C>
  of America                                     2000                         .92(a)
Midwestern Gas Transmission
  Company                                        2000                         .29
Northern Natural Gas Company                  1999/2000                       .19

<F1>
                                                                             1.40
(a) Excludes .49 Bcf of delivered storage service.
</TABLE>

The company contracts for transportation capacity necessary to meet peak day
requirements.  Contracted capacity that is temporarily not needed can be
released in the secondary market under FERC-mandated capacity release
provisions, with proceeds reducing the company's cost of gas charged to
customers.

Storage.  Northern Illinois Gas owns and operates seven underground gas
storage facilities.  This storage system is one of the largest in the gas
distribution industry and is able to meet up to 60 percent of the company's
peak day deliveries and approximately 30 percent of its normal winter
deliveries.  On an annual basis, the company cycles about 130 Bcf of gas
through its storage fields.  In addition to the company-owned facilities,
Northern Illinois Gas purchases about 43 Bcf of storage service from
interstate pipelines and other storage facility operators.  Storage
facilities provide supply flexibility, improve reliability of deliveries and
reduce costs.



NICOR Inc.                                                           Page 4 

Item 1.   Business (continued)

Competition/Demand

Northern Illinois Gas is one of the largest utility energy suppliers in
Illinois, delivering about one-third of all utility energy consumed in the
state.  About 95 percent of all single-family homes in Northern Illinois
Gas' service territory are heated with natural gas.  The company's gas
services compete with other forms of energy, such as electricity and oil. 
Significant factors that impact demand for gas include weather, economic
conditions and the price of gas relative to competitive fuels. 

The natural gas industry has been going through deregulation at both the
federal and state levels for several years.  Deregulation has also recently
spread to the electric utility industry, and many electric utilities have
begun reducing their costs in anticipation of increased competition. 
Although Northern Illinois Gas' traditional pricing advantage compared to
electricity may decrease as the price of electricity declines, the company
expects to maintain a pricing advantage in the foreseeable future.

Additional information on competition and demand is presented in Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations, on pages 12 and 13.

Regulation

Northern Illinois Gas is regulated by the Ill.C.C. which establishes the
rules and regulations governing utility rates and services in Illinois. 
Rates are designed to allow the company to recover its costs and provide an
opportunity to earn a fair return on investment.

The cost of gas the company purchases for customers is recovered through a
monthly gas supply charge, which accounts for approximately 70 percent of a
typical residential customer's annual bill.  The company's cost of gas is
passed on to the customer with no markup.

In April 1996, the Ill.C.C. granted Northern Illinois Gas a 2.8 percent,
$33.7 million general rate increase.  In August 1996, Northern Illinois Gas
filed a performance-based rate plan with the Ill.C.C. for gas supply costs
and in January 1997 announced its intention to withdraw the filing.  For
further information relating to these items, see Regulatory Matters on page
28.

Properties

The gas distribution, transmission and storage system includes approximately
28,000 miles of steel, plastic and cast iron main; approximately 25,000
miles of steel, plastic/aluminum composite, plastic and copper service pipe
connecting the mains to customers' premises; and seven underground storage
fields.  Other properties include buildings, land, motor vehicles, meters,
regulators, compressors, construction equipment, tools, and communication,
computer and office equipment.



NICOR Inc.                                                           Page 5 

Item 1.   Business (concluded)

The principal real properties are held under easements, permits, licenses or
in fee.  Land in fee is owned for essentially all administrative offices and
for certain transmission mains and underground storage fields.  Substantial-
ly all properties are subject to the lien of the indenture securing the
company's first mortgage bonds.

SHIPPING

Tropical Shipping transports containerized freight between Florida and
26 ports in the Caribbean region.  The company is one of the largest
containerized cargo carriers in the region and has leading market shares in
most of the ports it serves.  Tropical Shipping carries cargo primarily
southbound to markets which are heavily dependant upon the tourist industry
and northbound for export trade.  The company also provides additional
related services including inland transportation and cargo insurance.

Tropical Shipping's owned fleet consists of 14 vessels with a container
capacity totaling approximately 3,100 TEUs.  Whenever practical, excess
capacity in Tropical Shipping's fleet is chartered out on a short-term
basis.  In addition, the company owns containers, container-handling
equipment, chassis and other equipment.  Real property, a significant
portion of which is leased, includes office buildings, cargo handling
facilities and warehouses located in the United States, as well as in some
of the ports served.

Additional information about factors affecting Tropical Shipping's business
is presented in Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations, on page 13.

OTHER UNREGULATED BUSINESSES

NICOR has formed several unregulated ventures that build on the company's
strengths in the gas distribution business.  Additional information is
presented in Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations, on page 14.

ENVIRONMENTAL MATTERS

Information with respect to environmental matters is presented in the
Contingencies section of the Notes to the Consolidated Financial Statements
on pages 35 and 36.



NICOR Inc.                                                           Page 6 

Item 2.   Properties

Information with respect to this item concerning NICOR and its subsidiaries'
properties is included in Item 1, Business, above, and is incorporated
herein by reference.  These properties are suitable, adequate and utilized
in the company's operations.

Item 3.  Legal Proceedings

For information concerning legal proceedings, see Regulatory Matters on
page 28 and Contingencies on pages 35 and 36 in Notes to the Consolidated
Financial Statements, which are incorporated herein by reference.

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

None.

NICOR Inc.                                                           Page 7 

Executive Officers of the Registrant

         Name             Age             Current Position and Background       

Thomas L. Fisher           52     Chairman, NICOR and Northern Illinois Gas
                                  (since 1996), Chief Executive Officer, NICOR
                                  (since 1995) and Northern Illinois Gas (since
                                  1988), President, NICOR (since 1994) and
                                  Northern Illinois Gas (since 1988) and Chief
                                  Operating Officer, NICOR (1994).

Phil S. Cali               49     Senior Vice President Operations, Northern
                                  Illinois Gas (since 1995), Vice President
                                  Engineering, Codes and Environmental Affairs,
                                  Northern Illinois Gas (1994-1995), Vice
                                  President New Business Development, Costain
                                  Holdings Inc. (company engaged in natural
                                  resource development)(1987-1994).

David L. Cyranoski         53     Senior Vice President, NICOR and Northern
                                  Illinois Gas (since 1995), Secretary, NICOR
                                  (since 1992) and Northern Illinois Gas (since
                                  1993), Controller, NICOR (since 1992) and
                                  Northern Illinois Gas (since 1984) and Vice
                                  President, NICOR (1992-1995) and Northern
                                  Illinois Gas (1984-1995).

Kathleen L. Halloran       44     Senior Vice President Information Services,
                                  Rates and Human Resources, Northern Illinois
                                  Gas (since 1996), Vice President Information
                                  Services, Rates and Human Resources, Northern
                                  Illinois Gas (1995-1996), Vice President
                                  Information Services and Rates, Northern
                                  Illinois Gas (1994-1995), Vice President
                                  Information Services and General Accounting,
                                  Northern Illinois Gas (1992-1994), Vice
                                  President and Secretary, Northern Illinois Gas
                                  and Vice President, Secretary and Controller,
                                  NICOR (1989-1992).

Thomas A. Nardi            42     Senior Vice President Nonutility Operations
                                  and Business Development, NICOR (since 1995),
                                  and Senior Vice President Business
                                  Development, Northern Illinois Gas (since
                                  1995), Vice President Business Development,
                                  NICOR (1994-1995), Vice President Supply and
                                  Business Development, Northern Illinois Gas
                                  (1994-1995), Vice President Rates and Supply,
                                  Northern Illinois Gas (1993-1994) and Vice
                                  President Rates and Personnel and Secretary,
                                  Northern Illinois Gas (1991-1992).



NICOR Inc.                                                           Page 8 

         Name             Age             Current Position and Background       

Richard J. Lannon          48     Vice President Human Resources, NICOR (since
                                  1996), Vice President Administration Northern
                                  Illinois Gas (since 1996), Vice President
                                  Marketing/Sales and Treasurer, Northern
                                  Illinois Gas (1995-1996), Vice President and
                                  Treasurer, Northern Illinois Gas (1994-1995)
                                  and Vice President Divisions, Northern
                                  Illinois Gas (1991-1994).

Donald W. Lohrentz         60     Treasurer, NICOR (since 1990) and Northern
                                  Illinois Gas (since 1996, 1990-1993) and Vice
                                  President, Northern Illinois Gas (since 1985).

Edwin M. Werneke           58     Vice President Supply Ventures, NICOR (since
                                  1995) and Northern Illinois Gas (since 1996),
                                  Vice President Supply Administration, Northern
                                  Illinois Gas (1995) and Assistant Vice
                                  President, Northern Illinois Gas (1980-1995).

Executive officers of the company are elected annually by the Board of
Directors.


PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder
         Matters

NICOR common stock is listed on the New York and Chicago Stock Exchanges. 
At February 28, 1997, there were approximately 40,000 common stockholders of
record.  On March 11, 1997, the Board of Directors declared a quarterly
common stock dividend of 35 cents per share, payable May 1, 1997, to
stockholders of record March 31, 1997.  This payment represents an annual
rate of $1.40 per share.

The common stock price range and dividends declared per common share by
quarter for 1996 and 1995, are as follows:

                                    Stock price               Dividends
                Quarter          High           Low            declared
               1996
                 First         $29-3/8        $25-7/8           $ .33
                 Second         29             25-3/8             .33
                 Third          34-3/4         27-5/8             .33
                 Fourth         37-1/8         33-1/2             .33

               1995
                 First         $25-3/8        $21-3/4           $ .32
                 Second         27-7/8         24-1/2             .32
                 Third          28-1/2         25-1/8             .32
                 Fourth         28-1/2         24-7/8             .32



<TABLE>
NICOR Inc.                                                                             Page 9 

Item 6.  Selected Financial Data
<CAPTION>
                                                                  Year Ended December 31               
(Millions, except per share data)                    1996         1995         1994         1993         1992  

<S>                                                <C>          <C>          <C>          <C>          <C>
Operating revenues                                 $1,850.7     $1,480.1     $1,609.4     $1,673.9     $1,546.5

Operating income                                   $  233.1     $  189.8     $  189.5     $  198.1     $  188.3

Net income                                         
  Continuing operations                            $  121.2     $   99.8     $  109.5     $  109.4     $   95.0
  Discontinued operations                              15.0            -            -          2.3         13.3

                                                   $  136.2     $   99.8     $  109.5     $  111.7     $  108.3

Average shares of common stock
  outstanding                                          50.0         50.7         52.6         55.1         56.0

Earnings per average share of common
  stock
     Continuing operations                         $   2.42     $   1.96     $   2.07     $   1.97     $   1.67
     Discontinued operations                            .30            -            -          .04          .24

                                                   $   2.72     $   1.96     $   2.07     $   2.01     $   1.91

Dividends declared per share of common
  stock                                            $   1.32     $   1.28     $   1.26     $   1.22     $   1.18

Total assets                                       $2,438.6     $2,259.1     $2,209.9     $2,222.1     $2,339.2

Capitalization
  Long-term debt                                   $  518.0     $  468.7     $  458.9     $  458.9     $  417.2
  Redeemable preferred and preference
     stock                                              7.4          8.8          9.3         16.6         17.2
  Nonredeemable preferred and preference
     stock                                               .1           .1           .1           .1           .1
  Common equity                                       729.6        687.6        683.4        703.9        711.6

                                                   $1,255.1     $1,165.2     $1,151.7     $1,179.5     $1,146.1
</TABLE>



NICOR Inc.                                                           Page 10

Item 7.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations

The purpose of this financial review is to explain changes in NICOR's
operating results and financial condition from 1994 to 1996.  This review
also discusses business trends and uncertainties that might affect NICOR.
A summary of operating performance during this period is presented below,
followed by a more detailed discussion.  Certain abbreviations used herein
are defined in the Table of Contents.

SUMMARY

NICOR's two major business segments are gas distribution and shipping.  Gas
distribution is NICOR's primary business, representing approximately
90 percent of consolidated operating income and assets. 

NICOR's 1996 income from continuing operations of $121.2 million increased
21 percent from 1995 as a result of improved operating results in the gas
distribution segment.  In the second quarter of 1996, NICOR made a positive
after-tax adjustment of $15 million to its reserve for discontinued
operations.  Including this adjustment, NICOR's 1996 net income was
$136.2 million.  In 1995, NICOR's net income of $99.8 million declined
9 percent from 1994 due primarily to the negative impact of a higher
effective tax rate and lower nonoperating income.

Earnings per common share from continuing operations were $2.42 in 1996
compared with $1.96 in 1995 and $2.07 in 1994.  Earnings per common share
were $2.72, $1.96 and $2.07 in 1996, 1995 and 1994, respectively.  Per share
results in each period benefited from the company's common stock buyback
programs.  Dividends declared per common share were $1.32, $1.28 and $1.26
for 1996, 1995 and 1994, respectively.

Gas distribution operating income increased to $215.6 million in 1996 from
$170.7 million in 1995 due to the impact of a general rate increase and an
increase in deliveries of natural gas, partially offset by higher
depreciation.  Higher deliveries were attributable to the positive impact of
weather that was 5 percent colder than in 1995, demand growth among existing
customers and customer additions.  In 1995, gas distribution operating
income decreased $4.2 million to $170.7 million as higher depreciation and
higher operating and maintenance expenses more than offset the impact of
higher demand unrelated to weather.

Shipping operating income was $22.2 million, down $1.2 million from 1995. 
Revenues increased to $195 million compared with $163.6 million a year ago
on a 23 percent increase in volumes shipped, but the increase was more than
offset by higher costs primarily associated with business expansion and the
fourth quarter exit from Central American liner operations.  In 1995,
shipping operating income rose $4.8 million to $23.4 million due to higher
revenue per unit related to an improved mix of cargo shipped. 




NICOR Inc.                                                           Page 11

Item 7.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations (continued)

Net cash flow from operating activities decreased $169 million in 1996 to
$104.6 million due to changes in gas distribution working capital.  These
changes are further explained within the Financial Condition and Liquidity
section to follow.

In April 1996, the Ill.C.C. granted Northern Illinois Gas a 2.8 percent,
$33.7 million general rate increase.  In August 1996, Northern Illinois Gas
filed a performance-based rate plan with the Ill.C.C. for gas supply costs
and in January 1997 announced its intention to withdraw the filing.  For
further information relating to these items, see Regulatory Matters on
page 28. 

In March 1996, NICOR completed a $50 million common stock buyback program
initiated in October 1994.  In June 1996, another $50 million common stock
repurchase program was initiated.  During the last three years, the company
has purchased and retired nearly 4.5 million common shares at a cost of
$120 million.

(Millions)                             1996             1995            1994  

Operating revenues
  Gas distribution                  $ 1,610.2        $ 1,312.7       $ 1,455.0
  Shipping                              195.0            163.6           153.0
  Other                                  45.5              3.8             1.4

                                    $ 1,850.7        $ 1,480.1       $ 1,609.4

Depreciation        
  Gas distribution                  $   111.8        $    98.8       $    90.1
  Shipping                               13.4             12.9            13.0
  Other                                    .1               .1               -

                                    $   125.3        $   111.8       $   103.1

Operating income (loss)
  Gas distribution                  $   215.6        $   170.7       $   174.9
  Shipping                               22.2             23.4            18.6
  Other                                  (4.7)            (4.3)           (4.0)

                                    $   233.1        $   189.8       $   189.5




NICOR Inc.                                                           Page 12

Item 7.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations (continued)

FACTORS AFFECTING BUSINESS PERFORMANCE

The following factors can impact year-to-year comparisons and may affect the
future performance of NICOR's businesses.

Gas distribution.  Since approximately 50 percent of gas deliveries are used
for space heating, fluctuations in weather can have a significant impact on
year-to-year comparisons of operating income and cash flow.  In addition,
significant changes in gas prices or economic conditions can impact gas
usage.  However, Northern Illinois Gas' large residential customer base
provides relative stability during weak economic periods.  Also, the
industrial and commercial customer base is well-diversified, lessening the
impact of industry-specific economic swings.

Northern Illinois Gas competes with other suppliers of energy based on such
factors as price, service and reliability.  The company is well-positioned
to deal with the possibility of fuel switching by customers because it has
rates and services designed to compete against alternative fuels and because
of its competitively priced supply of gas.  In addition, the company has a
rate which allows negotiation with potential bypass customers and no
customer has bypassed since the rate became effective in 1987.  Northern
Illinois Gas also offers commercial and industrial customers flexibility and
alternatives in rates and service, increasing its ability to compete in
these markets.

Direct connection to five interstate pipelines and extensive underground
storage capacity allow the company to maintain rates that are among the
lowest in the nation, while also providing transportation customers with
direct access to gas supplies and storage services.  Northern Illinois Gas'
storage capabilities enable the company to minimize purchases of premium-
cost pipeline services.  In addition, in an effort to ensure supply
reliability, the company purchases gas from several different producing
regions under varied contract terms.
<TABLE>
Gas Distribution Operating Statistics
<CAPTION>
                                                  1996           1995            1994 

<S>                                             <C>            <C>             <C>
Year-end customers (Thousands)                  1,863.0        1,833.5         1,802.7
Margin per Mcf delivered                        $   .90        $   .83         $   .86
Average gas cost per Mcf sold                   $  2.99        $  2.52         $  3.16
Degree days (Normal 6,116)                        6,429          6,111           5,865
</TABLE>

Northern Illinois Gas has been able to increase gas deliveries in recent
years in part because of more diversified uses of natural gas.  The majority
of the company's growth in the past has been driven by customer additions. 
However, diversified uses, such as large-tonnage gas air conditioning and
gas-fired cogeneration, are expected to continue to contribute to Northern
Illinois Gas' growth in deliveries.

Beyond efforts to increase natural gas deliveries in its service territory,
Northern Illinois Gas is working to increase profitability through
nontraditional activities.  During 1996, these nontraditional activities
included:  providing transportation service to neighboring pipelines and gas
distribution companies; providing a variety of hub services to buyers and
sellers of natural gas; and providing storage services to customers, gas
marketers and others.




NICOR Inc.                                                           Page 13

Item 7.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations (continued)

The natural gas industry has been going through deregulation at both the
federal and state levels for several years.  Deregulation has also recently
spread to the electric utility industry, and many electric utilities have
begun reducing their costs in anticipation of increased competition. 
Although Northern Illinois Gas' traditional pricing advantage compared to
electricity may decrease as the price of electricity declines, the company
expects to maintain a pricing advantage in the foreseeable future.  Ongoing
efforts to maintain this pricing advantage include:  continuing to reduce
fixed gas supply and pipeline transportation costs; reducing the level of
capital spending from historic levels while maintaining or improving system
integrity; and reducing operating and maintenance expenses while increasing
the level of customer satisfaction.

Northern Illinois Gas is regulated by the Ill.C.C. which establishes the
rules and regulations governing utility rates and services in Illinois. 
Rates are designed to allow the company to recover its costs and provide an
opportunity to earn a fair return for its investors.  Changes in the
regulatory environment could affect the longer-term performance of Northern
Illinois Gas.

Shipping.  Tropical Shipping's financial results can be significantly
affected by general economic conditions in the United States and the
Caribbean.  Most of the markets served by the company depend on imports of
food and other essential provisions.  Tourism is a key element in their
economies.

Tropical Shipping is one of the largest containerized cargo carriers in the
Caribbean region, which is characterized by modest market growth and
intensifying price competition.  The company intends to take advantage of
opportunities in the region by expanding services to selected destinations
and initiating service to new areas when appropriate.  Additional growth is
expected from value-added services, such as handling of less-than-container
load shipments and providing service via other carriers to ports not served
by Tropical vessels.

At present, all shipping companies engaged in the foreign commerce of the
United States are required to file their rates and tariff terms with the
Federal Maritime Commission (FMC).  There is currently a bill before
Congress to partially deregulate international shipping by eliminating the
FMC.  Tropical's competitive rates and service levels should allow the
company to meet the challenges of increased competition; however, the full
impact of deregulation is uncertain at this time.

<TABLE>
Shipping Operating Statistics
<CAPTION>
                                                    1996        1995        1994  
TEUs shipped (Thousands)
  <S>                                                 <C>         <C>         <C>
  Southbound                                          97.4        76.2        75.2
  Northbound                                          14.3        15.7        16.7
  Interisland                                          7.5         5.0         4.0

                                                     119.2        96.9        95.9

Ports served                                            26          23          22
Vessels owned                                           14          14          14
</TABLE>

NICOR Inc.                                                           Page 14

Item 7.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations (continued)

Other Unregulated Businesses.  While working to achieve growth through its
regulated utility operations, NICOR has formed several unregulated ventures
that build on the company's strengths in the gas distribution business. 
Currently, these ventures include:  providing gas marketing and related
services for customers who purchase their own natural gas; participating
with other industry leaders to develop, administer and operate natural gas
market-area hubs; providing consulting services, field testing and
evaluation of materials, and product development and commercialization;
acting as a general contractor for cogeneration and other energy development
projects; and offering maintenance and repair contracts for heating, air
conditioning and water heating equipment to residential and small commercial
customers.

Contingencies.  The company is conducting environmental investigations at
former barge-cleaning facilities and gas manufacturing plant sites. 
Although unable to determine the outcome of these contingencies, management
believes that appropriate accruals have been recorded.  Final disposition of
these matters is not expected to have a material impact on the company's
financial condition or results of operations.  For further information, see
Contingencies on pages 35 and 36.

RESULTS OF OPERATIONS

Details of various financial and operating information by segment can be
found in the tables throughout this review.  The following discussion
summarizes the major items impacting NICOR's earnings.

Revenues.  NICOR's operating revenues in 1996 increased 25 percent from the
prior year to $1,850.7 million.  Gas distribution revenues of $1,610.2
million were up 23 percent due to the recovery from customers of higher
natural gas supply costs, an increase in deliveries and the impact of the
rate order.  Higher deliveries were attributable to the positive impact of
colder weather, demand growth among existing customers and customer
additions.  Shipping revenues rose 19 percent to $195 million due to
additional volumes shipped.  In 1995, NICOR's operating revenues decreased
8 percent to $1,480.1 million.  Gas distribution revenues of $1,312.7
million were down 10 percent as a result of the recovery from customers of
lower gas costs.  Shipping revenues rose 7 percent to $163.6 million due to
an improved cargo mix, additional volumes shipped and increased charter
activity.

Margin.  Gas distribution margin, defined as operating revenues less cost of
gas and revenue taxes, which are both passed directly through to customers,
rose $60.2 million to $502.5 million in 1996 due primarily to the positive
effect of the rate order and the impact of higher deliveries.  In 1995,
margin rose $10.2 million to $442.3 million due to increased deliveries. 
Margin per Mcf delivered in 1996 rose primarily as a result of the rate
order.  In 1995, margin per Mcf delivered was adversely affected by an
increase in lower margin deliveries for electric power generation.




NICOR Inc.                                                           Page 15

Item 7.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations (continued)

Operating and Maintenance.  In 1996, operating and maintenance expenses
increased $39.4 million to $326.7 million due principally to higher costs in
the shipping segment caused primarily by volume-related shore and vessel
costs.  In 1995, operating and maintenance expenses were $287.3 million, up
$14.6 million from the prior year.  The gas distribution segment accounted
for $6.1 million of the increase due to several factors, including a higher
pension provision, increased expenditures for information technology and
costs associated with the company's rate filing.  Operating and maintenance
expenses in the shipping segment were $5.8 million higher due to shore and
vessel costs.

Depreciation.  Depreciation rose 12 percent to $125.3 million in 1996 due to
an increase in the gas distribution composite depreciation rate and gas
plant additions.  For further information on the change in the composite
depreciation rate, see Accounting Policies on page 27.  In 1995,
depreciation increased 8 percent to $111.8 million mainly as a result of gas
plant additions.

Nonoperating items.  Other income decreased $2.6 million in 1996 to
$3.6 million due primarily to a change in interest on income tax adjustments
and the impact of lower investment levels on interest income which were
partially offset by a $1.8 million gain on property sales.  In 1995, other
income decreased $5 million to $6.2 million primarily as a result of a 1994
gain of $4.2 million on property sales.

In 1996, interest expense rose $6 million to $47.8 million due primarily to
higher borrowing levels.  Interest expense rose $1.7 million in 1995 due to
the impact of higher interest rates.

Effective income tax rates were 35.9 percent, 35.3 percent and 31.8 percent
for 1996, 1995 and 1994, respectively.  The increase from 1994 was primarily
the result of a higher state tax provision and less excess deferred taxes
turning around.

Discontinued operations.  In the second quarter of 1996, the company made a
positive after-tax  adjustment of $15 million to its reserve for
discontinued operations.  For further information on this adjustment, see
Discontinued Operations on page 30.




NICOR Inc.                                                           Page 16

Item 7.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations (continued)
<TABLE>
Gas Distribution Operating Statistics
<CAPTION>
                                              1996              1995              1994  

Gas distribution revenues (Millions)
  Sales
    <S>                                    <C>               <C> <C>           <C> <C>
    Residential                            $ 1,040.2         $   849.8         $   939.2
    Commercial                                 281.9             217.8             260.0
    Industrial                                  54.4              35.9              50.2
                                             1,376.5           1,103.5           1,249.4
  
  Transportation
    Commercial                                  55.7              50.3              41.8
    Industrial                                  54.0              62.5              51.2
                                               109.7             112.8              93.0
  Revenue taxes and other                      124.0              96.4             112.6

                                           $ 1,610.2         $ 1,312.7         $ 1,455.0

Deliveries (Bcf)
  Sales
    Residential                                247.0             231.4             215.8
    Commercial                                  67.0              59.3              60.5
    Industrial                                  15.0              10.5              12.4
                                               329.0             301.2             288.7
  Transportation
    Commercial                                  73.5              64.0              54.2
    Industrial                                 154.1             165.6             156.9
                                               227.6             229.6             211.1

                                               556.6             530.8             499.8

Year-end customers (Thousands)
  Sales
    Residential                              1,688.5           1,660.6           1,632.0
    Commercial                                 142.1             141.7             141.5
    Industrial                                  11.6              11.6              11.6
                                             1,842.2           1,813.9           1,785.1
  Transportation
    Commercial                                  18.1              17.1              15.3
    Industrial                                   2.7               2.5               2.3
                                                20.8              19.6              17.6

                                             1,863.0           1,833.5           1,802.7
</TABLE>



NICOR Inc.                                                           Page 17

Item 7.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations (continued)

FINANCIAL CONDITION AND LIQUIDITY

Overall, NICOR's financial condition is sound.  Long-term debt continues to
be about 40 percent of capitalization.

The company believes it has access to adequate resources to meet planned
capital expenditures, debt and stock redemptions, dividends and working
capital needs.  These resources include net cash flow from operating
activities, access to capital markets, unused lines of credit and short-term
investments.

Operating.  Net cash flow from operating activities was $104.6 million in
1996, $273.6 million in 1995 and $297.1 million in 1994.  The 1996 decrease
was due to the impact of increased gas in storage, the timing of the
recovery of gas costs from customers, a 1995 gas pipeline refund and a
return to normal levels of customer advance payments in the gas distribution
segment.  These factors were partially offset by a favorable $35 million
income tax settlement in the second quarter of 1996.  The 1995 decrease from
1994 was due primarily to the timing of gas cost recoveries.

The working capital component of net cash flow from operating activities can
swing sharply from year to year due primarily to certain gas distribution
factors, including weather, the timing of collections from customers and
gas-purchasing practices.  The company generally relies on short-term
financing to meet temporary increases in working capital needs.

Investing.  NICOR's capital expenditures, which are mainly in the gas
distribution segment, were $119.9 million in 1996 compared with
$156.9 million in 1995 and $172.1 million in 1994.  Capital expenditures in
1995 and 1994 were higher than normal due to the construction of the Elgin-
Volo transmission and storage system improvement, a two-year, $65 million
project.  Reduced 1996 capital expenditures also reflect continuing cost
management efforts.  The decline in 1995 capital spending in the shipping
segment related primarily to a delay in certain equipment purchases.




NICOR Inc.                                                           Page 18

Item 7.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations (continued)

Capital spending in 1997 is projected to be about $140 million, with
$105 million for gas distribution and $35 million for shipping.  In the
shipping segment, 1997 capital expenditures are expected to increase as a
result of potential investments to improve vessel fleet effectiveness and
anticipated expansion into new markets.

<TABLE>
<CAPTION>
                                     Estimated                    Actual            
(Millions)                              1997           1996          1995          1994  

Capital Expenditures
  <S>                                <C>   <C>       <C>           <C>           <C>
  Gas distribution                   $     105       $  107.7      $  152.2      $  160.3
  Shipping                                  35           11.2           4.5          11.8
  Other                                      -            1.0            .2             -

                                     $     140       $  119.9      $  156.9      $  172.1

Identifiable assets at December 31
  Gas distribution                                   $2,236.8      $2,080.3      $2,011.7
  Shipping                                              167.6         164.3         180.6
  Other                                                  34.2          14.5          17.6

                                                     $2,438.6      $2,259.1      $2,209.9
</TABLE>

Financing.  NICOR's long-term debt outstanding was $518 million,
$468.7 million, and $458.9 million at December 31, 1996, 1995 and 1994,
respectively.  Long-term debt as a percent of capitalization was
41.3 percent, 40.2 percent and 39.9 percent at year-end 1996, 1995 and 1994,
respectively.

Long-term debt.  In August 1996, Northern Illinois Gas sold $75 million of
6.45% First Mortgage Bonds due in 2001.  The net proceeds from the sale of
the bonds replenished corporate funds which were used for the March 1996
maturity of $50 million of 4-1/2% First Mortgage Bonds and for general
corporate purposes.

In October 1995, Northern Illinois Gas issued $50 million of 7.26% First
Mortgage Bonds due in 2025.  The net proceeds of the sale replenished
corporate funds which were used for the maturity of $50 million of 5-1/2%
unsecured notes due in July 1995.

In September 1995, Tropical Shipping issued $22.5 million of 6.83% unsecured
senior notes due in September 2000.  Proceeds from the sale were used for
replacement of a $12.5 million promissory note due in December 1996 and for
general corporate purposes.

In August 1994, Northern Illinois Gas issued $50 million of 8-1/4% First
Mortgage Bonds due in 2024.  The net proceeds from the sale of the bonds
were used for general corporate purposes, including construction programs.

In July 1994, Northern Illinois Gas redeemed $50 million of 8.70% First
Mortgage Bonds due in 1995 with proceeds from the issuance of $50 million of
5-1/2% unsecured notes due in July 1995.




NICOR Inc.                                                           Page 19

Item 7.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations (concluded)

Northern Illinois Gas filed a $225 million First Mortgage Bond shelf
registration statement with the Securities and Exchange Commission in 1994,
of which $100 million remained available for issuance at December 31, 1996. 
The net proceeds from any securities issued are expected to be used for the
refinancing of certain outstanding debt, for construction programs to the
extent not provided by internally generated funds and for general corporate
purposes.

In 1997, Northern Illinois Gas anticipates issuing, depending upon market
conditions, $50 million of debt to finance maturing debt and for general
corporate purposes.

Short-term debt.  NICOR and its gas distribution subsidiary maintain short-
term credit agreements with major domestic and foreign banks.  At
December 31, 1996, these agreements, which serve as backup for the issuance
of commercial paper, totaled $303 million.  The company had $292 million and
$198.8 million of commercial paper outstanding at year-end 1996 and 1995,
respectively.  At December 31, 1996, the unused lines of credit under these
credit agreements were $11 million.

Preference stock.  In May 1994, NICOR redeemed its 7.90% preference stock at
a price of $505 per share.

Common stock.  Through common stock repurchase programs, NICOR has purchased
and retired .8 million, 1.2 million and 2.4 million common shares in 1996,
1995 and 1994, respectively, at a cost of $26 million, $31 million and
$63 million.  These repurchases were financed in large part by cash flow
from operations.  At December 31, 1996, approximately $28 million remained
authorized for the repurchase of common stock under an existing program.

The company increased its quarterly common stock dividend rate during 1996
for the ninth consecutive year.  The company paid dividends of $66 million,
$65.2 million and $66.9 million in 1996, 1995 and 1994, respectively.

Other.  Restrictions imposed by regulatory agencies and loan agreements
limiting the amount of subsidiary net assets that can be transferred to
NICOR are not expected to have a material impact on the company's ability to
meet its cash obligations.



NICOR Inc.                                                           Page 20

Item 8.  Financial Statements and Supplementary Data
                                                                        Page

Report of Independent Public Accountants                                  21

Financial Statements:

  Consolidated Statement of Income                                        22

  Consolidated Statement of Cash Flows                                    23

  Consolidated Balance Sheet                                              24

  Consolidated Statement of Capitalization                                25

  Consolidated Statement of Common Equity                                 26

  Notes to the Consolidated Financial Statements                          27




NICOR Inc.                                                           Page 21

Report of Independent Public Accountants



To the Shareholders and Board of Directors of NICOR Inc.:


We have audited the accompanying consolidated balance sheet and statement of
capitalization of NICOR Inc. (an Illinois corporation) and subsidiary
companies as of December 31, 1996 and 1995, and the related consolidated
statements of income, common equity and cash flows for each of the three
years in the period ended December 31, 1996.  These financial statements and
the schedule referred to below are the responsibility of the company's
management.  Our responsibility is to express an opinion on these financial
statements and the schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement.  An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. 
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation.  We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of NICOR Inc. and
subsidiary companies as of December 31, 1996 and 1995, and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted
accounting principles.

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole.  The financial statement schedule
listed in the accompanying index (page 38) is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not
part of the basic financial statements.  This schedule has been subjected to
the auditing procedures applied in the audits of the basic financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.

                                                                                
                                        ARTHUR ANDERSEN LLP
                                        Arthur Andersen LLP

Chicago, Illinois
January 28, 1997

<TABLE>
NICOR Inc.                                                                                                 Page 22

Consolidated Statement of Income
(Millions, except per share data)
<CAPTION>
                                                                                                Year Ended December 31         
                                                                                     1996               1995               1994    
<S>                                                                               <C>                <C>                <C>
Operating revenues                                                                $ 1,850.7          $ 1,480.1          $ 1,609.4
Operating expenses
  Cost of gas                                                                       1,044.7              787.2              929.1
  Operating and maintenance                                                           326.7              287.3              272.7
  Depreciation                                                                        125.3              111.8              103.1
  Taxes, other than income taxes                                                      120.9              104.0              115.0  
                                                                                    1,617.6            1,290.3            1,419.9
Operating income                                                                      233.1              189.8              189.5

Other income (expense)
  Interest income                                                                       1.6                3.1                2.3
  Other, net                                                                            2.0                3.1                8.9
                                                                                        3.6                6.2               11.2

Income before interest on debt and income taxes                                       236.7              196.0              200.7

Interest on debt, net of amounts capitalized                                           47.8               41.8               40.1

Income before income taxes                                                            188.9              154.2              160.6

Income taxes                                                                           67.7               54.4               51.1

Income from continuing operations                                                     121.2               99.8              109.5

Income from discontinued operations,
  net of income taxes                                                                  15.0                  -                  -

Net income                                                                            136.2               99.8              109.5

Dividends on preferred and preference stock                                              .4                 .4                 .6

Earnings applicable to common stock                                               $   135.8          $    99.4          $   108.9


Average shares of common stock outstanding                                             50.0               50.7               52.6

Earnings per average share of common stock
  Continuing operations                                                           $    2.42          $    1.96          $    2.07
  Discontinued operations                                                               .30                  -                  -

                                                                                  $    2.72          $    1.96          $    2.07

<F1>
The accompanying notes are an integral part of this statement.
</TABLE>


<TABLE>
NICOR Inc.                                                                                                 Page 23

Consolidated Statement of Cash Flows
(Millions)
<CAPTION>
                                                                                                Year Ended December 31       
                                                                                          1996             1995              1994
Operating activities
  <S>                                                                                   <C>              <C>               <C>
  Net income                                                                            $ 136.2          $  99.8           $ 109.5
  Adjustments to reconcile net income to net cash 
     flow provided from operating activities:
       Depreciation                                                                       125.3            111.8             103.1
       Deferred income tax expense (benefit)                                               (1.4)            (3.1)            (32.7)
       Change in working capital items and other:
          Receivables, less allowances                                                    (78.3)           (43.0)             58.5
          Gas in storage                                                                  (55.2)             7.0               6.6
          Deferred gas costs                                                              (42.4)            25.9              22.3
          Accounts payable                                                                 25.5             50.0              29.4
          Gas refunds due customers                                                       (22.9)            21.9                .7
          Other                                                                            17.8              3.3               (.3)
  
  Net cash flow provided from operating activities                                        104.6            273.6             297.1

Investing activities
  Capital expenditures                                                                   (119.9)          (156.9)           (172.1)
  Short-term investments                                                                    6.9              8.2              23.8
  Other                                                                                      .5              2.1               1.3

  Net cash flow used for investing activities                                            (112.5)          (146.6)           (147.0)
   
Financing activities
  Net proceeds from issuing long-term debt                                                 74.2             72.0              99.1
  Disbursements to retire long-term debt                                                  (50.0)           (62.5)            (50.0)
  Short-term borrowings (repayments), net                                                  93.2            (47.6)            (57.6)
  Dividends paid                                                                          (66.0)           (65.2)            (66.9)
  Disbursements to reacquire stock                                                        (35.7)           (33.6)            (71.6)
  Other                                                                                     5.9              2.2                .9
  
  Net cash flow provided from (used for) financing activities                              21.6           (134.7)           (146.1)

Net increase (decrease) in cash and cash equivalents                                       13.7             (7.7)              4.0

Cash and cash equivalents, beginning of year                                                6.8             14.5              10.5

Cash and cash equivalents, end of year                                                  $  20.5          $   6.8           $  14.5

Supplemental information
  Income taxes paid, net of refunds                                                     $  75.3          $  52.9           $  77.7
  Interest paid, net of amounts capitalized                                                46.4             41.6              39.5

<F1>
The accompanying notes are an integral part of this statement.
</TABLE>


<TABLE>
NICOR Inc.                                                                                                 Page 24

Consolidated Balance Sheet
(Millions, except share data)
<CAPTION>
                                                                                                         December 31         
                          Assets                                                                  1996                     1995  

Current assets
  <S>                                                                                          <C>  <C>                 <C>   <C>
  Cash and cash equivalents                                                                    $    20.5                $     6.8
  Short-term investments, at cost which
     approximates market                                                                            12.7                     19.6
  Receivables, less allowances of $7.7 and $5.8,
     respectively                                                                                  340.0                    261.7
  Gas in storage, at last-in, first-out cost                                                       118.2                     63.0
  Deferred gas costs                                                                                51.1                      8.7
  Other                                                                                             30.9                     30.0

                                                                                                   573.4                    389.8

Property, plant and equipment, at cost
  Gas distribution                                                                               2,957.3                  2,886.2
  Shipping                                                                                         233.9                    223.8
  Other                                                                                              1.5                       .4
                                                                                                 3,192.7                  3,110.4
  Less accumulated depreciation                                                                  1,420.8                  1,331.1

                                                                                                 1,771.9                  1,779.3

Other assets                                                                                        93.3                     90.0

                                                                                               $ 2,438.6                $ 2,259.1

               Liabilities and Capitalization 

Current liabilities                                                                              
  Long-term obligations due within one year                                                    $    25.0                $    50.0
  Short-term borrowings                                                                            292.0                    198.8
  Accounts payable                                                                                 333.9                    308.4
  Gas refunds due customers                                                                          1.3                     24.2
  Other                                                                                             47.6                     44.3

                                                                                                   699.8                    625.7
Deferred credits and other liabilities
  Deferred income taxes                                                                            211.6                    210.0
  Regulatory income tax liability                                                                   83.8                     86.5
  Unamortized investment tax credits                                                                48.4                     50.8
  Other                                                                                            139.9                    120.9

                                                                                                   483.7                    468.2
Capitalization
  Long-term debt                                                                                   518.0                    468.7
  Preferred stock                                                                                    7.5                      8.9
  Common stock, par value $2.50, authorized 80,000,000 shares
     (reserved for conversion and other purposes 4,112,839 and
     4,399,110 shares, respectively), outstanding 49,491,823
     and 50,301,587 shares, respectively                                                           123.7                    125.8
  Paid-in capital                                                                                   23.8                     49.6
  Retained earnings                                                                                582.1                    512.2

                                                                                                 1,255.1                  1,165.2

                                                                                               $ 2,438.6                $ 2,259.1

<F1>
The accompanying notes are an integral part of this statement.
</TABLE>


<TABLE>
NICOR Inc.                                                                                                 Page 25

Consolidated Statement of Capitalization
(Millions, except share data)
<CAPTION>
                                                                                                  December 31                 
                                                                                       1996                             1995       

First mortgage bonds
     Maturity                  Interest rate
       <S>                         <S>                                         <C>    <S>                       <C> <C>
       1996                        4.50 %                                      $      -                         $   50.0
       1997                        5.50                                            25.0                             25.0
       1998                        5.875                                           25.0                             25.0
       1999                        6.25                                            25.0                             25.0
       2000                        5.875                                           50.0                             50.0
       2001                        6.45                                            75.0                                -
       2019                        9.0                                             50.0                             50.0
       2021                        8.875                                           50.0                             50.0
       2022                        8.25                                            75.0                             75.0
       2023                        7.375                                           50.0                             50.0
       2024                        8.25                                            50.0                             50.0
       2025                        7.26                                            50.0                             50.0
                                                                                  525.0                            500.0
  Less:  Amount due within one year                                                25.0                             50.0
          Unamortized debt discount, net of premium                                 4.5                              3.8

                                                                                  495.5     39.5%                  446.2     38.3%

Other long-term debt
  Notes payable due 2000, 6.83%                                                    22.5      1.8                    22.5      1.9
  
Preferred and preference stock
  Cumulative, par value $50, authorized 1,600,000 shares
     for preferred; and cumulative, without par value,
     authorized 20,000,000 shares for preference
       Redeemable preferred stock, 4.48% and 5.00% series,
       outstanding 147,673 and 175,385 shares, respectively                         7.4                              8.8
       Other                                                                         .1                               .1
                                                                                    7.5       .6                     8.9       .8

Common equity
  Common stock                                                                    123.7                            125.8
  Paid-in capital                                                                  23.8                             49.6
  Retained earnings                                                               582.1                            512.2

                                                                                  729.6     58.1                   687.6     59.0 

                                                                               $1,255.1    100.0%               $1,165.2    100.0%

<F1>
The accompanying notes are an integral part of this statement.
</TABLE>


<TABLE>
NICOR Inc.                                                                                                 Page 26

Consolidated Statement of Common Equity
(Millions, except per share data)
<CAPTION>
                                                                                               Year Ended December 31               
                                                                                         1996             1995              1994 
Common stock
    <S>                                                                                <C>               <C>              <C>
    Balance at beginning of year                                                       $ 125.8           $ 128.9          $ 134.9
    Issued and converted                                                                    .6                .1               .1
    Reacquired and cancelled                                                              (2.7)             (3.2)            (6.1)

    Balance at end of year                                                               123.7             125.8            128.9

Paid-in capital
    Balance at beginning of year                                                          49.6              77.1            134.5
    Issued and converted                                                                   5.9               2.0               .8
    Reacquired and cancelled                                                             (31.7)            (29.5)           (58.2)

    Balance at end of year                                                                23.8              49.6             77.1

Retained earnings
    Balance at beginning of year                                                         512.2             477.4            434.5
    Net income                                                                           136.2              99.8            109.5
    Dividends on common stock ($1.32, $1.28 and
      $1.26 per share, respectively)                                                     (65.9)            (64.6)           (66.0)
    Dividends on preferred and preference stock                                            (.4)              (.4)             (.6)

    Balance at end of year                                                               582.1             512.2            477.4

Total common equity at end of year                                                     $ 729.6           $ 687.6          $ 683.4

<F1>
The accompanying notes are an integral part of this statement.
</TABLE>




NICOR Inc.                                                           Page 27

Notes to the Consolidated Financial Statements

NICOR Inc. is a holding company with its principal business being Northern
Illinois Gas, one of the nation's largest gas distribution companies. 
Northern Illinois Gas serves almost 1.9 million customers in a service
territory that encompasses most of the northern third of Illinois, excluding
the city of Chicago.  NICOR also owns Tropical Shipping, which transports
containerized freight between Florida and 26 ports in the Caribbean region.

ACCOUNTING POLICIES

Consolidation.  The consolidated financial statements include the accounts
of NICOR Inc. and its subsidiaries.  All significant intercompany balances
and transactions have been eliminated.  The preparation of the consolidated
financial statements requires management to make estimates that affect the
reported amounts.  Actual results could differ from those estimates. 
Certain reclassifications were made to conform the prior years' financial
statements to the current year presentation.

Regulation.  Northern Illinois Gas is regulated by the Ill.C.C. which
establishes the rules and regulations governing utility rates and services
in Illinois.  The company applies accounting standards that recognize the
economic effects of rate regulation and, accordingly, has recorded
regulatory assets and liabilities.  At December 31, 1996, the company had a
net regulatory liability of about $25 million.

Operating revenues and gas costs.  The cost of gas purchased, adjusted for
inventory activity, is reflected in volumetric charges to customers through
operation of the Uniform Purchased Gas Adjustment Clause (PGA).  Any
difference between PGA revenues and recoverable gas costs is deferred or
accrued with a corresponding decrease or increase in cost of gas.  This
difference is amortized as it is collected from or refunded to customers
through the PGA.

Depreciation.  Property, plant and equipment are depreciated over estimated
useful lives on a straight-line basis.  In April 1996, the gas distribution
composite depreciation rate was increased to 4.1 percent from 3.7 percent. 
The useful life estimates of vessels range from 15 to 25 years.

Income taxes.  Deferred income taxes are provided for temporary differences
between the tax basis of an asset or liability and its reported amount in
the financial statements.  Although the federal investment tax credit has
been eliminated, Northern Illinois Gas continues to amortize prior deferred
amounts to income over the lives of the applicable properties.

Cash and cash equivalents.  The company considers investments purchased with
a maturity of three months or less to be cash equivalents.

Receivable credit risk.  Each NICOR subsidiary has a diversified base of
customers, typical for its industry, and prudent creditworthiness policies
which limit risk.




NICOR Inc.                                                           Page 28

Notes to the Consolidated Financial Statements (continued)

REGULATORY MATTERS

Rate proceedings.  On April 3, 1996, the Ill.C.C. granted Northern Illinois
Gas a $33.7 million general rate increase, of which $12 million relates to a
change in the company's composite depreciation rate.  The order, effective
April 11, 1996, allows the company a rate of return on original-cost rate
base of 9.67 percent, which reflects an 11.13 percent cost of common equity. 
The new rate structure will allow Northern Illinois Gas to recover a larger
proportion of its fixed costs during warmer months.  The overall result is
that the company's earnings are now less sensitive to the effects of weather
and seasonal variations in quarterly earnings are now reduced.

In May 1996, the Ill.C.C. denied requests for rehearing filed by several
parties, including Northern Illinois Gas.  The company and other parties
have subsequently appealed certain aspects of the Ill.C.C.'s order to the
Third District Appellate Court of Illinois.

On August 15, 1996, Northern Illinois Gas filed a performance-based rate
plan with the Ill.C.C. for gas supply costs.  The filing was in response to
a recent amendment to the Illinois Public Utilities Act which allows
utilities to propose programs consisting of alternatives to traditional
cost-of-service regulation.  In January 1997, the company announced its
intention to withdraw the filing after concluding that a performance-based
rate program is not likely under Illinois law at this time.

FERC Order 636.  In April 1992, the FERC issued Order 636 which
substantially restructured the interstate sale and transportation of gas. 
The FERC authorized pipelines to recover transition costs, such as gas
supply realignment and certain other costs, caused by compliance with
Order 636.  The company estimates that the total transition costs from all
pipeline transporters could approximate $300 million.  However, the ultimate
level of costs is dependent upon the future market price of natural gas,
pipeline negotiations with producers and other factors.  Approximately
$220 million of such costs has been recorded, of which $213 million has been
paid to the pipeline transporters, subject to refund.  Since 1994, the
company has been recovering these costs through the PGA in accordance with
Ill.C.C. authorization.  As such, Order 636 will not have a material impact
on the company's financial condition or results of operations.

GAS IN STORAGE

Based on the average cost of gas purchased in December 1996 and 1995, the
estimated replacement cost of gas in inventory at December 31, 1996 and 1995
exceeded the last-in, first-out cost by approximately $351 million and
$161 million, respectively.




NICOR Inc.                                                           Page 29

Notes to the Consolidated Financial Statements (continued)

INCOME TAXES
<TABLE>
The components of income tax expense are presented below:
<CAPTION>
(Millions)                                      1996          1995          1994 

Current
  <S>                                          <C>           <C>           <C>
  Federal                                      $ 61.7        $ 52.7        $ 74.8
  State                                           9.4           7.1          11.2
                                                 71.1          59.8          86.0
Deferred
  Federal                                        (1.4)         (2.3)        (24.9)
  State                                             -           (.8)         (7.8)
                                                 (1.4)         (3.1)        (32.7)

Amortization of investment
  tax credits, net                               (2.4)         (2.7)         (2.4)
Foreign taxes                                      .4            .4            .2

Income tax expense                             $ 67.7        $ 54.4        $ 51.1
</TABLE>

The temporary differences which gave rise to significant portions of the net
deferred tax liability at December 31, 1996 and 1995 were as follows:

(Millions)                                            1996             1995 

Deferred tax liabilities
  Property, plant and equipment                     $  238.4        $  237.7
  Investment in foreign subsidiaries                    36.6            37.4
  Purchased gas adjustment                              17.3               -
  Other                                                 13.4            20.8
                                                       305.7           295.9
Deferred tax assets
  Unamortized investment tax credits                    31.8            33.6
  Regulatory income tax liability                       20.6            21.0
  Other                                                 44.5            46.4
                                                        96.9           101.0

Net deferred tax liability                          $  208.8        $  194.9




NICOR Inc.                                                           Page 30

Notes to the Consolidated Financial Statements (continued)

The effective combined federal and state income tax rate was 35.9 percent,
35.3 percent and 31.8 percent in 1996, 1995 and 1994, respectively. 
Differences between federal income taxes computed using the statutory rate
and reported income tax expense are shown below:
<TABLE>
<CAPTION>
(Millions)                                             1996        1995       1994 

Federal income taxes using
  <S>                                                <C>         <C>        <C>
  statutory rate                                     $  66.1     $  54.0    $  56.2
State income taxes, net                                  6.2         4.7        2.5
Amortization of investment
  tax credits                                           (2.5)       (2.6)      (2.7)
Other, net                                              (2.1)       (1.7)      (4.9)

Income tax expense                                   $  67.7     $  54.4    $  51.1
</TABLE>

DISCONTINUED OPERATIONS

In the second quarter of 1996, the company made a positive after-tax
adjustment of $15 million to its reserve for discontinued operations. 
Factors contributing to the adjustment include the settlement of certain
contingencies at terms more favorable than originally anticipated and
revisions in management's estimate of the remaining costs related to
discontinued contract drilling, oil and gas, inland barging and extractive
operations.  The balance of the reserve will continue to be evaluated as the
remaining environmental, legal, tax and other contingencies are resolved.

POSTRETIREMENT BENEFITS

Pension benefits.  Northern Illinois Gas maintains non-contributory defined
benefit pension plans covering substantially all employees.  Pension
benefits consider job level or the highest average salary earned during five
consecutive years of employment and years of service.  The plans are
generally funded to the extent deductible for federal income tax purposes. 
Plan assets are invested primarily in corporate and government securities.
<TABLE>
Net periodic pension cost (benefit) included:
<CAPTION>
(Millions)                                            1996          1995          1994 

<S>                                                 <C>  <C>      <C>  <C>      <C> <C>
Service cost                                        $    7.7      $    6.4      $   7.0
Interest cost                                           19.8          19.3         18.5
Loss (return) on plan assets                           (61.9)        (61.5)       (17.1)
Net amortization and deferral                           26.8          27.0        (19.4)

                                                    $   (7.6)     $   (8.8)     $ (11.0)

Expected long-term rate of return
  on plan assets                                         8.5%          9.0%         8.5%
</TABLE>



NICOR Inc.                                                           Page 31

Notes to the Consolidated Financial Statements (continued)
<TABLE>
The following table reflects the funded status of the pension plans at
October 1, 1996 and 1995 reconciled to amounts recorded in the financial
statements at December 31, 1996 and 1995, respectively:
<CAPTION>
(Millions)                                                      1996          1995  

<S>                                                           <C>           <C>
Vested benefits                                               $  192.6      $  217.8
Nonvested benefits                                                21.4          25.7
Accumulated benefit obligation                                   214.0         243.5
Effect of assumed increase in
  compensation level                                              31.3          32.5
Projected benefit obligation                                     245.3         276.0
Plan assets at market value                                      381.9         379.4
Plan assets in excess of projected
  benefit obligation                                             136.6         103.4
Unrecognized net gain                                            (64.5)        (40.7)
Unrecognized net transition asset                                (20.1)        (23.9)
Unrecognized prior service cost                                    4.1           4.5
Other                                                              1.9           3.4

Prepaid pension cost                                          $   58.0      $   46.7

Weighted average discount rate                                     7.5%          7.5%
Rate of compensation increase                                    3.5-5           4-5
</TABLE>

Northern Illinois Gas has historically amended the collectively bargained
pension plan every two to three years so that such pension benefits are
based on the most current wages.  Northern Illinois Gas intends, subject to
collective bargaining, to continue making similar amendments to the plan. 
These future amendments have been anticipated and are reflected in the
projected benefit obligation and pension expense.

Other postretirement benefits.  Health care and life insurance benefits are
provided for retired employees if they become eligible for retirement while
working for Northern Illinois Gas.  The plans are generally funded to the
extent deductible for federal income tax purposes.  Plan assets are invested
primarily in corporate and government securities.
<TABLE>
Net periodic postretirement benefit cost included:
<CAPTION>
(Millions)                                                1996        1995         1994 

<S>                                                     <C> <C>     <C> <C>      <C> <C>
Service cost                                            $   2.6     $   2.3      $   2.3
Interest cost                                               9.0         9.0          8.1
Loss (return) on plan assets                               (1.6)       (1.8)         (.4)
Amortization of transition obligation                       3.7         3.7          3.7
Net amortization and deferral                                .5         1.0          (.1)

                                                        $  14.2     $  14.2      $  13.6

Expected long-term rate of return
  on plan assets                                            8.5%        9.0%         8.5%
</TABLE>



NICOR Inc.                                                           Page 32

Notes to the Consolidated Financial Statements (continued)
<TABLE>
The following table reflects the funded status of the postretirement health
care and life insurance plans at October 1, 1996 and 1995 reconciled to
amounts recorded in the financial statements at December 31, 1996 and 1995,
respectively:
<CAPTION>
(Millions)                                                    1996             1995  

Accumulated postretirement benefit
  obligation (APBO):
     <S>                                                   <C>  <C>         <C>  <C>
     Retirees                                              $    79.2        $    76.9
     Fully eligible active plan participants                    12.0             16.9
     Other active plan participants                             29.0             29.6    
Total APBO                                                     120.2            123.4
Plan assets at market value                                     13.4             11.5
APBO in excess of plan assets                                 (106.8)          (111.9)
Unrecognized transition obligation                              59.8             63.5
Unrecognized prior service cost                                 (1.2)            (1.2)
Unrecognized net loss                                            4.1             12.8
Other                                                            (.6)            (2.1)

Accrued postretirement benefit cost                        $   (44.7)       $   (38.9)

Weighted average discount rate                                   7.5%             7.5%
Rate of compensation increase                                  3.5-5              4-5
</TABLE>

The health care cost trend rate for pre-Medicare benefits was assumed to be
9 percent for 1997, declining to 5 percent for 2001 and remaining at that
level thereafter.  The health care cost trend rate for post-Medicare
benefits was assumed to be 6 percent for 1997, declining to 5 percent for
1998 and remaining at that level thereafter.  Increasing the assumed health
care cost trend rate by 1 percentage point would increase the APBO as of
December 31, 1996, by about $16 million, the aggregate of the service and
interest cost components of 1996 net postretirement health care costs by
$2 million, and operating expense by $1.5 million, after capitalization.

SHORT- AND LONG-TERM DEBT
<TABLE>
The company's short-term borrowings at December 31 included:
<CAPTION>
(Millions)                                             1996        1995       1994 

Balance
  <S>                                                <C>         <C>        <C>
  Commercial paper                                   $ 292.0     $ 198.8    $ 243.9
  Bank loans                                               -           -        2.5
Weighted average interest rate
  Commercial paper                                      5.36%       5.69%      5.95%
  Bank loans                                               -           -       6.55
</TABLE>


NICOR Inc.                                                           Page 33

Notes to the Consolidated Financial Statements (continued)

The company establishes lines of credit with major domestic and foreign
banks to support outstanding commercial paper.  At December 31, 1996, lines
of credit totaled $303 million, of which $292 million served as backup for
commercial paper borrowings.  Commitment fees of up to .08 percent per annum
were paid on these lines.  All credit agreements have variable interest-rate
options tied to short-term markets.

Bank cash balances averaged about $3.6 million during 1996, which partially
compensated for the cost of maintaining accounts and other banking services. 
Such demand balances may be withdrawn at any time.

First mortgage bonds are secured by liens on substantially all gas
distribution property and franchises.

Interest on debt was net of amounts capitalized of $.9 million and
$.2 million in 1995 and 1994, respectively.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The recorded amount of short-term investments and short-term borrowings
approximates fair value because of the short maturity of the instruments. 
Based on quoted market interest rates, the recorded amount of the long-term
debt outstanding, including current maturities, also approximates fair
value.

STOCK-BASED COMPENSATION

NICOR has a plan which permits the granting of stock options, alternate
stock rights and restricted stock to key executives and managerial
employees, as well as an employee stock purchase plan (ESPP).  The company
accounts for these plans in accordance with Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees, under which no
compensation expense has been recognized.  If compensation expense for these
plans had been recognized based on the fair value of awards at the grant
dates consistent with Financial Accounting Standards Board Statement
No. 123, Accounting for Stock-Based Compensation, the impact on the
company's net income and earnings per share would not have been material.

The company may grant options for up to 2.5 million shares and has granted
options on 1.3 million shares through December 31, 1996.  The stock option
exercise price equals the stock's market price on the date of grant. 
Options are vested after one year, generally become exercisable after three
years and expire after ten years.




NICOR Inc.                                                           Page 34

Notes to the Consolidated Financial Statements (continued)
<TABLE>
A summary of stock option activity is presented below:
<CAPTION>
                                                                           Weighted
                                                                            average
                                                       Number              exercise
                                                     of shares               price

Options outstanding at:
<S>                                                   <C>                  <C>
December 31, 1993                                     429,000              $ 23.19
  Granted                                             145,000                27.50
  Exercised                                           (14,000)               18.77
  Cancelled                                            (1,000)               28.94

December 31, 1994                                     559,000                24.40
  Granted                                             240,000                24.63
  Exercised                                           (40,000)               19.25
  Cancelled                                            (2,000)               24.63

December 31, 1995                                     757,000                24.74
  Granted                                             143,000                28.25
  Exercised                                          (261,000)               22.51
  Cancelled                                           (10,000)               28.18

December 31, 1996                                     629,000                26.41


Options exercisable at:
  December 31, 1994                                   195,000              $ 19.85
  December 31, 1995                                   215,000                19.90
  December 31, 1996                                   142,000                26.50
</TABLE>

As of December 31, 1996, the 629,000 stock options outstanding have exercise
prices ranging from $18.50 to $28.94 and a weighted-average remaining
contractual life of eight years.

The fair value of each option is estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions used for
grants in 1996 and 1995, respectively: dividend yield of 4.7 percent and
5.5 percent, volatility of 15.8 percent and 15 percent, risk-free interest
rate of 6.2 percent and 6.6 percent, and expected period outstanding of
three years for both years.  The weighted-average fair value of options
granted in 1996 and 1995 was $3.22 and $2.48, respectively.

During 1996, 2,000 shares of restricted stock became unrestricted.  No
shares of restricted stock or alternate stock rights were outstanding at
December 31, 1996.

The company may sell up to 1.5 million shares of common stock to its
employees under the ESPP.  Under the terms of this plan, all employees with
a minimum of five months service are eligible to purchase shares at 90
percent of the stock's market price at the date of purchase.  The company
sold 25,000 shares and 29,000 shares to employees in 1996 and 1995,
respectively, and has sold 790,000 shares through December 31, 1996.  The
weighted-average fair value of shares sold in 1996 and 1995 was $30.00 and
$26.32, respectively.




NICOR Inc.                                                           Page 35

Notes to the Consolidated Financial Statements (continued)

CHANGE IN COMMON SHARES

Changes in common shares outstanding are summarized below:

(Thousands)                                         1996       1995       1994 

Beginning of year                                  50,302     51,540     53,959
Issued and converted                                  279         75         43
Reacquired and cancelled                           (1,089)    (1,313)    (2,462)
End of year                                        49,492     50,302     51,540


NICOR repurchased 822,000 shares in 1996, 1,238,000 shares in 1995 and
2,407,000 shares in 1994, under common stock repurchase programs.

INDUSTRY SEGMENT INFORMATION

See Management's Discussion and Analysis of Financial Condition and Results
of Operations beginning on page 10 for industry segment information
regarding operating revenues, depreciation, operating income, identifiable
assets and capital expenditures.

CONTINGENCIES

The company is involved in legal or administrative proceedings before
various courts and agencies with respect to rates, taxes and other matters.

Current environmental laws require treatment of certain waste materials on
sites owned by NICOR that may have been generated by barge-cleaning
facilities previously owned and operated by certain discontinued businesses
of the company.  The cost of evaluation and cleanup is currently estimated
to range from $5 million to $15 million.  The company is evaluating whether
any of these costs will be recoverable from insurance or other sources.

Until the early 1950s, certain manufactured gas facilities were operated in
the Northern Illinois Gas service territory.  Manufactured gas is now known
to have created various by-products that may still be present at these
sites.  Current environmental laws may require cleanup of these former
manufactured gas plant sites.  The company has identified up to 40
properties in its service territory believed to be the location of such
sites.  Of these properties, Northern Illinois Gas currently owns 15 and
formerly owned or leased 13.  The remaining properties were never owned or
leased by the company.  Information regarding preliminary reviews of the
company's currently owned and formerly owned or leased properties has been
presented to the Illinois Environmental Protection Agency.  More detailed
investigations are either currently in progress or planned at many of these
sites.  The results of continued testing and analysis should determine to
what extent remediation is necessary and may provide a basis for estimating
any additional future costs which, based on industry experience, could be
significant.  Since 1994, the company has been recovering these costs from
its customers in accordance with Ill.C.C. authorization.

At certain sites, the current owners are seeking to allocate cleanup costs
to former owners or lessees, including Northern Illinois Gas.




NICOR Inc.                                                           Page 36

Notes to the Consolidated Financial Statements (concluded)

On December 20, 1995, Northern Illinois Gas filed suit in the Circuit Court
of Cook County against certain insurance carriers seeking recovery of
environmental cleanup costs of former manufactured gas plant sites. 
Presently, management cannot predict the outcome of this lawsuit.  Any
recoveries from such litigation or other sources will be flowed back to the
company's customers.

Although unable to determine the outcome of these contingencies, management
believes that appropriate accruals have been recorded.  Final disposition of
these matters is not expected to have a material impact on the company's
financial condition or results of operations.

QUARTERLY RESULTS (UNAUDITED)
<TABLE>
Quarterly results fluctuate due mainly to the seasonal nature of the gas
distribution business.  Northern Illinois Gas' restructured rates, effective
April 11, 1996, result in the shifting of some revenues from cold-weather
quarters to warm-weather quarters.
<CAPTION>
(Millions,                                         1996 Quarter Ended           
  except per share data)
                                          Mar. 31     June 30     Sept. 30     Dec. 31

<S>                                       <C>         <C>          <C>         <C>
Operating revenues                        $ 700.9     $ 336.5      $ 220.4     $ 592.9
Operating income                             82.1        52.0         35.3        63.7

Income from continuing
  operations                              $  45.5     $  25.4      $  15.1     $  35.1
Discontinued operations, net                    -        15.0            -           -
Net income                                $  45.5     $  40.4      $  15.1     $  35.1

Earnings per share
  Continuing operations                   $   .90     $   .50      $   .30     $   .71
  Discontinued operations                       -         .30            -           -

                                          $   .90     $   .80      $   .30     $   .71


                                                   1995 Quarter Ended           
                                          Mar. 31     June 30     Sept. 30     Dec. 31

Operating revenues                       $  609.8     $ 246.9      $ 157.1     $ 466.3
Operating income                             74.1        34.1         17.8        63.8
Net income                                   40.9        17.1          6.1        35.7
Earnings per share                            .80         .34          .12         .71
</TABLE>


NICOR Inc.                                                           Page 37

Item 9.  Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosure

None.


PART III

Items 10. and 11.  Directors and Executive Officers of the Registrant and
                   Executive Compensation

Information on directors and executive compensation is contained on pages 2
through 6 and 14 through 18 of the Definitive Proxy Statement, dated
March 6, 1997, and is incorporated herein by reference.  Information
relating to the executive officers of the registrant is provided on pages 7
and 8 in Part I of this document.

Item 12. and 13.  Security Ownership of Certain Beneficial Owners and
                  Management and Certain Relationships and Related
                  Transactions

Information about shares beneficially owned by directors and executive
officers and certain relationships and related transactions is contained on
pages 7 through 8 of the Definitive Proxy Statement, dated March 6, 1997,
and is incorporated herein by reference.




NICOR Inc.                                                           Page 38

PART IV

Item 14.  Exhibits, Financial Statement Schedule, and Reports on
          Form 8-K

(a)   1)    Financial Statements:

            See Item 8, Financial Statements and Supplementary Data, on page
            20 filed herewith, for a list of financial statements.
  
      2)    Financial Statement Schedule:

            Schedule
             Number                                                         Page

                        Report of Independent Public Accountants             21
               II       Valuation and Qualifying Accounts                    39

            Schedules other than those listed are omitted because they are
            either not required or not applicable.

      3)    Exhibits Filed:

            See Exhibit Index on pages 41 through 44 filed herewith.

(b)         The company did not file a report on Form 8-K during the fourth
            quarter of 1996.

<TABLE>
NICOR Inc.                                                                                           Page 39

Schedule II

VALUATION AND QUALIFYING ACCOUNTS
(Millions)


<CAPTION>
             Column A                          Column B                Column C                    Column D           Column E 
                                                                       Additions       
                                              Balance at       Charged to         Charged                            Balance at
                                               beginning        costs and         to other                             end of
           Description                         of period        expenses          accounts        Deductions           period  

1996

  Allowance
     for uncollectible
     <S>                                       <C>  <C>         <C> <C>          <C>    <S>         <C> <C>           <C>  <C>
     accounts receivable                       $    5.8         $   12.7         $      -           $   10.8(a)       $    7.7
  Reserve for estimated
     future costs related to
     discontinued businesses(b)                    18.2                -              2.1(c)             5.8(d)           14.5


1995

  Allowance
     for uncollectible
     accounts receivable                       $    5.2         $    8.0         $      -           $    7.4(a)       $    5.8
  Reserve for estimated
     future costs related to
     discontinued businesses(b)                    20.6                -                -                2.4(c)           18.2


1994

  Allowance
     for uncollectible
     accounts receivable                       $    6.8         $    8.5         $      -           $   10.1(a)       $    5.2
  Reserve for estimated
     future costs related to
     discontinued businesses(b)                    20.0                -               .6(c)           -                  20.6

<F1>
(a)  Accounts receivable written off, net of recoveries.
<F2>
(b)  Excludes the related reserve for federal and state income taxes.
<F3>
(c)  Net receipts, expenditures, operating results, gains and losses related to discontinued businesses
     credited or charged to reserve.
<F4>
(d)  Adjustment credited to income.
</TABLE>



NICOR Inc.                                                           Page 40

Signatures



Pursuant to the requirements of Section 13 or 15(d) 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.

                                    NICOR Inc.


Date    March 25, 1997              By       DAVID L. CYRANOSKI      
                                             David L. Cyranoski
                                           Senior Vice President,
                                           Secretary and Controller

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 25, 1997.

             Signature                                     Title            

          THOMAS L. FISHER                      Chairman, President, Chief
          Thomas L. Fisher                    Executive Officer and Director

         DAVID L. CYRANOSKI                      Senior Vice President,
         David L. Cyranoski                   Secretary and Controller and
                                               Principal Financial Officer

      ROBERT M. BEAVERS, JR.*                            Director

      BRUCE P. BICKNER*                                  Director

      JOHN H. BIRDSALL, III*                             Director

      W. H. CLARK*                                       Director

      JOHN E. JONES*                                     Director

      DENNIS J. KELLER*                                  Director

      CHARLES S. LOCKE*                                  Director

      SIDNEY R. PETERSEN*                                Director

      DANIEL R. TOLL*                                    Director

      PATRICIA A. WIER*                                  Director




                        *By            MARIANNE T. LORENZ          
                                       Marianne T. Lorenz (Attorney-in-fact)


NICOR Inc.                                                           Page 41

                                        Exhibit Index

Exhibit
 Number                           Description of Document                     

  3.01    *  Articles of Incorporation of the company.  (File No. 2-55451,
             Form S-14, NICOR Inc., Exhibit 1-03 and Exhibit B of Amendment
             No. 1 thereto.)

  3.02    *  Amendment to Articles of Incorporation of the company.  (Proxy
             Statement dated April 20, 1979, NICOR Inc., Item 3 thereto.)

  3.03    *  Amendment to Articles of Incorporation of the company.  (File
             No. 2-68777, Form S-16, NICOR Inc., Exhibit 2-01.)

  3.04    *  Amendment to Articles of Incorporation of the company.  (File
             No. 1-7297, Form 10-K for 1985, NICOR Inc., Exhibit 3-03.)

  3.05    *  Amendment to Articles of Incorporation of the company.  (Proxy
             Statement dated March 12, 1987, NICOR Inc., Exhibit A and
             Exhibit B thereto.)

  3.06    *  Amendment to Articles of Incorporation of the company.  (File
             No. 1-7297, Form 10-K for 1992, NICOR Inc., Exhibit 3-06.)

  3.07    *  Amendments to Articles of Incorporation of the company.  (Proxy
             Statement dated March 9, 1994, NICOR Inc., Exhibit A-1 and
             Exhibit B thereto.)

  3.08    *  By-Laws of the company as amended by the company's Board of
             Directors on May 3, 1995.  (File No. 1-7297, Form 10-Q for
             March 1995, NICOR Inc., Exhibit 3(ii).01.)

  4.01    *  Indenture of Commonwealth Edison Company to Continental Illinois
             National Bank and Trust Company of Chicago, Trustee, dated as of
             January 1, 1954.  (File No. 1-7296, Form 10-K for 1995, Northern
             Illinois Gas Company, Exhibit 4.01.)

  4.02    *  Indenture of Adoption of Northern Illinois Gas Company to
             Continental Illinois National Bank and Trust Company of Chicago,
             Trustee, dated February 9, 1954.  (File No. 1-7296, Form 10-K for
             1995, Northern Illinois Gas Company, Exhibit 4.02.)

  4.03    *  Supplemental Indenture, dated June 1, 1963, of Northern Illinois
             Gas Company to Continental Illinois National Bank and Trust
             Company of Chicago, Trustee, under Indenture dated as of
             January 1, 1954.  (File No. 2-21490, Form S-9, Northern Illinois
             Gas Company, Exhibit 2-8.)

  4.04    *  Supplemental Indenture, dated May 1, 1966, of Northern Illinois
             Gas Company to Continental Illinois National Bank and Trust
             Company of Chicago, Trustee, under Indenture dated as of
             January 1, 1954.  (File No. 2-25292, Form S-9, Northern Illinois
             Gas Company, Exhibit 2-4.)

  4.05    *  Supplemental Indenture, dated June 1, 1971, of Northern Illinois
             Gas Company to Continental Illinois National Bank and Trust
             Company of Chicago, Trustee, under Indenture dated as of
             January 1, 1954.  (File No. 2-44647, Form S-7, Northern Illinois
             Gas Company, Exhibit 2-03.)




NICOR Inc.                                                           Page 42

                                  Exhibit Index (continued)

Exhibit
 Number                           Description of Document                     

  4.06    *  Supplemental Indenture, dated April 30, 1976, between the company
             and Continental Illinois National Bank and Trust Company of
             Chicago, Trustee, under Indenture dated as of January 1, 1954. 
             (File No. 2-56578, Form S-9, Northern Illinois Gas Company,
             Exhibit 2-25.)

  4.07    *  Supplemental Indenture, dated April 30, 1976, of Northern
             Illinois Gas Company to Continental Illinois National Bank and
             Trust Company of Chicago, Trustee, under Indenture dated as of
             January 1, 1954.  (File No. 2-56578, Form S-9, Northern Illinois
             Gas Company, Exhibit 2-21.)

  4.08    *  Supplemental Indenture, dated July 1, 1989, of Northern Illinois
             Gas Company to Continental Bank, National Association, Trustee,
             under Indenture dated as of January 1, 1954.  (File No. 1-7296,
             Form 8-K for June 1989, Northern Illinois Gas Company,
             Exhibit 4-01.)   

  4.09    *  Supplemental Indenture, dated August 15, 1991, of Northern
             Illinois Gas Company to Continental Bank, National Association,
             Trustee, under Indenture dated as of January 1, 1954.  (File
             No. 1-7296, Form 8-K for August 1991, Northern Illinois Gas
             Company, Exhibit 4-01.)

  4.10    *  Supplemental Indenture, dated July 15, 1992, of Northern Illinois
             Gas Company to Continental Bank, National Association, Trustee,
             under Indenture dated as of January 1, 1954.  (File No. 1-7296,
             Form 10-Q for June 1992, Northern Illinois Gas Company,
             Exhibit 4-01.)

  4.11    *  Supplemental Indenture, dated February 1, 1993, of Northern
             Illinois Gas Company to Continental Bank, National Association,
             Trustee, under Indenture dated as of January 1, 1954.  (File
             No. 1-7296, Form 10-K for 1992, Northern Illinois Gas Company,
             Exhibit 4-17.)

  4.12    *  Supplemental Indenture, dated May 1, 1993, of Northern Illinois
             Gas Company to Continental Bank, National Association, Trustee,
             under Indenture dated as of January 1, 1954.  (File No. 1-7296,
             Form 10-Q for March 1993, Northern Illinois Gas Company,
             Exhibit 4-02.)

  4.13    *  Supplemental Indenture, dated July 1, 1993, of Northern Illinois
             Gas Company to Continental Bank, National Association, Trustee,
             under Indenture dated as of January 1, 1954.  (File No. 1-7296,
             Form 10-Q for June 1993, Northern Illinois Gas Company,
             Exhibit 4-01.)

  4.14    *  Supplemental Indenture, dated August 15, 1994, of Northern
             Illinois Gas Company to Continental Bank, Trustee, under
             Indenture dated as of January 1, 1954.  (File No. 1-7296,
             Form 10-Q for September 1994, Northern Illinois Gas Company,
             Exhibit 4.01.)




NICOR Inc.                                                           Page 43

                                  Exhibit Index (continued)

Exhibit
 Number                           Description of Document                     

  4.15    *  Supplemental Indenture, dated October 15, 1995, of Northern
             Illinois Gas Company to Bank of America Illinois, Trustee, under
             Indenture dated as of January 1, 1954.  (File No. 1-7296,
             Form 10-Q for September 1995, Northern Illinois Gas Company,
             Exhibit 4.01.)

  4.16    *  Supplemental Indenture, dated May 10, 1996, of Northern Illinois
             Gas Company to Harris Trust and Savings Bank, Trustee, under
             Indenture dated as of January 1, 1954.  (File No. 1-7296,
             Form 10-Q for June 1996, Northern Illinois Gas Company,
             Exhibit 4.01.)

  4.17    *  Supplemental Indenture, dated August 1, 1996, of Northern
             Illinois Gas Company to Harris Trust and Savings Bank, Trustee,
             under Indenture dated as of January 1, 1954.  (File No. 1-7296,
             Form 10-Q for June 1996, Northern Illinois Gas Company,
             Exhibit 4.02.)

             Other debt instruments are omitted in accordance with Item     
             601(b)(4)(iii)(A) of Regulation S-K.  Copies of such agreements
             will be furnished to the Commission upon request.

 10.01    *  Security Payment Plan.  (File No. 1-7297, Form 10-K for 1980,
             NICOR Inc., Exhibit 10-09.)

 10.02    *  1984 NICOR Officers' Capital Accumulation Plan Participation
             Agreement.  (File No. 1-7297, Form 10-K for 1988, NICOR Inc.,
             Exhibit 10-10.)

 10.02(a) *  1985 NICOR Officers' Capital Accumulation Plan Participation
             Agreement.  (File No. 1-7297, Form 10-K for 1988, NICOR Inc.,
             Exhibit 10-10(a).)

 10.03    *  1984 NICOR Directors' Capital Accumulation Plan Participation
             Agreement.  (File No. 1-7297, Form 10-K for 1983, NICOR Inc.,
             Exhibit 10-13.)

 10.03(a) *  1985 NICOR Directors' Capital Accumulation Plan Participation
             Agreement.  (File No. 1-7297, Form 10-K for 1984, NICOR Inc.,
             Exhibit 10-13(a).)

 10.04    *  Directors' Deferred Compensation Plan.  (File No. 1-7297,
             Form 10-K for 1983, NICOR Inc., Exhibit 10-16.)

 10.05    *  Directors' Pension Plan.  (File No. 1-7297, Form 10-K for 1985,
             NICOR Inc., Exhibit 10-18.)

 10.06    *  Flexible Spending Account for Executives.  (File No. 1-7297,
             Form 10-K for 1986, NICOR Inc., Exhibit 10-20.)

 10.07    *  Amendment and Restatement of the NI-GAS Incentive Compensation
             Plan.  (File No. 1-7297, Form 10-K for 1986, NICOR Inc.,
             Exhibit 10-21.)




NICOR Inc.                                                           Page 44

                                  Exhibit Index (concluded)

Exhibit
 Number                           Description of Document                     

 10.08    *  NICOR Inc. 1989 Long-Term Incentive Plan.  (Filed with NICOR Inc.
             Proxy Statement, dated April 20, 1989, Exhibit A.)

 10.09    *  NI-GAS Supplementary Retirement Plan.  (File No. 1-7297,
             Form 10-K for 1989, NICOR Inc., Exhibit 10-24.)

 10.10    *  NI-GAS Supplementary Savings Plan.  (File No. 1-7297, Form 10-K
             for 1989, NICOR Inc., Exhibit 10-25.)

 10.11    *  NICOR Salary Deferral Plan.  (File No. 1-7297, Form 10-K for
             1989, NICOR Inc., Exhibit 10-29.)

 10.12    *  1996 NICOR Incentive Compensation Plan.  (File No. 1-7297,
             Form 10-K for 1995, NICOR Inc., Exhibit 10.17.)

 10.13    *  1996 NI-GAS Incentive Compensation Plan.  (File No. 1-7297,
             Form 10-K for 1995, NICOR Inc., Exhibit 10.18.)

 10.14    *  1996 Long-Term Incentive Program.  (File No. 1-7297, Form 10-K
             for 1995, NICOR Inc., Exhibit 10.19.)

 10.15    *  NICOR Stock Deferral Plan.  (File No. 1-7297, Form 10-Q for
             September 1996, NICOR Inc., Exhibit 10.01.)

 10.16    *  NICOR 1995 Directors' Stock Plan.  (File No. 1-7297, Form 10-Q
             for September 1996, NICOR Inc., Exhibit 10.02.)

 10.17       1997 NICOR Incentive Compensation Plan.

 10.18       1997 NI-GAS Incentive Compensation Plan.

Exhibits 10.01 through 10.18 constitute management contracts and
compensatory plans and arrangements required to be filed as exhibits to this
Form pursuant to Item 14(c) of Form 10-K.

 21.01       Subsidiaries.

 23.01       Consent of Independent Public Accountants.

 24.01       Powers of Attorney.

 27.01       Financial Data Schedule.

 27.02       Restated Financial Data Schedule for 1994.


* These exhibits have been previously filed with the Securities and Exchange
  Commission as exhibits to registration statements or to other filings with
  the Commission and are incorporated herein as exhibits by reference.  The
  file number and exhibit number of each such exhibit, where applicable, are
  stated, in parentheses, in the description of such exhibit.

Upon written request, the company will furnish free of charge a copy of any
exhibit.  Requests should be sent to Investor Relations at the corporate
headquarters.