Nicor Inc.
                                                            Form 10-K/A
                                                            Exhibit 99.03



                        INDEPENDENT AUDITORS' REPORT



To the Nicor Gas Thrift
  Plan Committee:


We have audited the accompanying statements of net assets available for
benefits, with fund information, of the Nicor Gas Thrift Plan (the Plan) as
of December 31, 1997 and 1996, and the related statements of changes in net
assets available for benefits, with fund information, for the years then
ended.  These financial statements are the responsibility of the Plan's
management.  Our responsibility is to express an opinion on these financial
statements 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 net assets available for benefits of the Plan
as of December 31, 1997 and 1996, and the changes in net assets available
for benefits for the years then ended in conformity with generally accepted
accounting principles.

Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole.  The fund information in the
statements of net assets available for benefits and the statements of
changes in net assets available for benefits is presented for purposes of
additional analysis rather than to present the net assets available for
benefits and changes in net assets available for benefits of each fund.  The
fund information has been subjected to the auditing procedures applied in
the audits of the basic financial statements and, in our opinion, is fairly
stated in all material respects in relation to the basic financial
statements taken as a whole.



                                         ARTHUR ANDERSEN LLP

Chicago, Illinois
June 26, 1998


                                - 1 -




<TABLE>
                                                           Nicor Gas Thrift Plan
                                    Statements of Net Assets Available for Benefits, with Fund Information

<CAPTION>
                                                                  December 31, 1997                                         
                             Nicor       Stated     Common Stock  International   Balanced       Small
                          Stock Fund   Return Fund   Index Fund     Stock Fund      Fund       Stock Fund      Total   
Assets:

 Investment in the
   <S>                   <C>          <C>           <C>            <C>          <C>           <C>          <C>
   Trust                 $ 16,227,189 $ 62,080,666  $ 15,427,387   $  3,276,134 $  7,184,593  $  7,003,155 $111,199,124

 Miscellaneous
   receivable                  26,407       75,702        35,139         13,823       19,822        24,104      194,997

Net assets available
 for benefits            $ 16,253,596 $ 62,156,368  $ 15,462,526   $  3,289,957 $  7,204,415  $  7,027,259 $111,394,121




                                                                  December 31, 1996                                         
                             Nicor       Stated     Common Stock  International   Balanced       Small
                          Stock Fund   Return Fund   Index Fund     Stock Fund      Fund       Stock Fund      Total   
Assets:

 Investment in the
   Trust                 $ 16,255,106 $ 65,457,642  $  9,999,426   $  3,288,793 $  4,642,166  $  4,605,929 $104,249,062

 Miscellaneous
   receivable                  46,284      122,407             -              -            -        70,180      238,871
                           16,301,390   65,580,049     9,999,426      3,288,793    4,642,166     4,676,109  104,487,933

Liabilities:

 Miscellaneous payable              -            -       133,844         13,269       44,275         1,311      192,699

Net assets available
 for benefits            $ 16,301,390 $ 65,580,049  $  9,865,582   $  3,275,524 $  4,597,891  $  4,674,798 $104,295,234


<F1>
The accompanying notes are an integral part of these statements.
</TABLE>

                                                                    - 2 -
                                                                    
                                                                    
                                                                    
                                                                    
<TABLE>
                                                            Nicor Gas Thrift Plan
                                Statements of Changes in Net Assets Available for Benefits, with Fund Information
<CAPTION>
                                                         Year ended December 31, 1997                                    
                          Nicor        Stated    Common Stock International    Balanced       Small
                       Stock Fund    Return Fund  Index Fund    Stock Fund       Fund       Stock Fund      Total   
Net increase
 (decrease) in Plan
 assets from invest-
 ment activities
 <S>                  <C>           <C>          <C>           <C>  <C>      <C>           <C>          <C>
 of the Trust         $  3,246,438  $  4,360,511 $  3,312,653  $    (28,908) $  1,124,125  $  1,158,010 $ 13,172,829

Contributions:
 Participants              566,744     1,538,030      602,301       260,290       356,129       447,219    3,770,713
 Employer                  221,432       622,565      221,433        97,425       127,867       157,351    1,448,073

Distributions to
 participants           (1,463,001)   (6,981,534)    (982,699)     (217,736)     (470,202)     (424,942) (10,540,114)

Transfers, net          (2,619,407)   (2,963,253)   2,443,256       (96,638)    1,468,605     1,014,823     (752,614)

Net increase
 (decrease)                (47,794)   (3,423,681)   5,596,944        14,433     2,606,524     2,352,461    7,098,887

Net assets available
 for benefits at
 beginning of year      16,301,390    65,580,049    9,865,582     3,275,524     4,597,891     4,674,798  104,295,234

Net assets available
 for benefits at
 end of year          $ 16,253,596  $ 62,156,368 $ 15,462,526  $  3,289,957  $  7,204,415  $  7,027,259 $111,394,121

                                                          
                                                          Year ended December 31, 1996                                  
                          Nicor        Stated    Common Stock International    Balanced       Small
                       Stock Fund    Return Fund  Index Fund    Stock Fund       Fund       Stock Fund      Total   
Net increase in Plan
 assets from invest-
 ment activities of
 the Trust            $  4,306,830  $  4,655,772 $  1,783,920  $    193,204  $    544,253  $    589,925 $ 12,073,904

Contributions:
 Participants              576,713     1,825,685      479,541       267,019       329,517       355,645    3,834,120
 Employer                  233,246       734,281      178,294        98,493       116,392       127,099    1,487,805

Distributions to
 participants           (1,335,867)   (8,755,831)    (776,158)     (300,054)     (449,412)     (303,998) (11,921,320)

Transfers, net            (726,240)   (2,784,569)     945,747       (14,556)      813,476       860,771     (905,371)

Net increase
 (decrease)              3,054,682    (4,324,662)   2,611,344       244,106     1,354,226     1,629,442    4,569,138

Net assets available
 for benefits at
 beginning of year      13,246,708    69,904,711    7,254,238     3,031,418     3,243,665     3,045,356   99,726,096

Net assets available
 for benefits at
 end of year          $ 16,301,390  $ 65,580,049 $  9,865,582  $  3,275,524  $  4,597,891  $  4,674,798 $104,295,234
<F1>
The accompanying notes are an integral part of these statements.    
</TABLE>

                                      - 3 -






                             NICOR GAS THRIFT PLAN
                      NOTES TO THE FINANCIAL STATEMENTS


PLAN INFORMATION

In conjunction with the sponsor's name change from Northern Illinois Gas Com-
pany to Nicor Gas Company, the NI-Gas Thrift Plan, NI-Gas Savings Investment 
Plan and NI-Gas Savings Investment and Thrift Trust have been designated as the
Nicor Gas Thrift Plan, Nicor Gas Savings Investment Plan and Nicor Gas
Savings Investment and Thrift Trust, respectively.

The following description of the Nicor Gas Thrift Plan (the Plan) provides
only general information.  Participants should refer to the Plan agreement
for more detailed information.

The Plan.  The Plan is a defined contribution plan which was established on
January 1, 1978, to provide supplemental retirement security to
substantially all employees of Nicor Gas Company (the Company), represented
by a collective bargaining agreement.  The funds of the Plan are commingled
with the funds of the Nicor Gas Savings Investment Plan and held for
safekeeping and investment by the Nicor Gas Savings Investment and Thrift
Trust (the Trust).  The Plan is subject to the provisions of the Employee
Retirement Income Security Act of 1974 (ERISA).

Plan Administration.  Authority to control and manage the operation and
administration of the Plan is vested in a committee appointed by the Board
of Directors of the Company.  Under the terms of a trust agreement, the
Northern Trust Company acts as trustee for the Trust and holds the
investments of the Plan.  The Northern Trust Company also acts as investment
manager for certain investments of the Plan.  Administrative expenses
associated with operation of the Plan are paid from Plan assets.

Contributions.  The participant may elect to make either tax-deferred or
after-tax contributions, or any combination thereof, by payroll deduction,
that are partially matched by the Company.

Investment Options.  A participant may direct contributions in any of six
investment options.

Nicor Stock Fund.  The Nicor Stock Fund offers participants the
opportunity to acquire the common stock of Nicor Inc., the parent company
of Nicor Gas Company.  The fund is an Employee Stock Ownership Plan. 
Dividends on shares are paid in cash to Plan participants rather than
being reinvested in additional shares.

Stated Return Fund.  The Stated Return Fund seeks stability of principal
and competitive returns by investing primarily in group annuity contracts
issued by life insurance companies.

Common Stock Index Fund.  The Common Stock Index Fund seeks to earn
investment returns which, over time, approximate those of the Standard &
Poor's 500 Stock Index.  The fund invests solely in common stocks of
companies included in that index.



                                - 4 -                        
                                
                                
                                
                                
                                
                          NICOR GAS THRIFT PLAN
            NOTES TO THE FINANCIAL STATEMENTS (Continued)


PLAN INFORMATION (Concluded)

International Stock Fund.  The International Stock Fund seeks to earn
investment returns which, over time, approximate those of the Morgan
Stanley Capital International Europe, Australia and Far East Stock Index. 
The fund invests in a large number of common stocks of foreign companies
included in that index.

Balanced Fund.  The Balanced Fund invests in a diversified mix of common
stocks and bonds.  The fund seeks to achieve a rate of return which
approximates the weighted average returns of a diversified mix of three
indices comprising a cross section of U.S. markets for common stocks and
bonds.

Small Stock Fund.  The Small Stock Fund seeks to earn investment returns
which, over time, approximate the returns of small stock indices such as
the Russell 2000 Stock Index and CRSP 6-10 Stock Index.  The fund invests
in a diverse group of common stocks of smaller U.S. companies included
within those indices.

The Common Stock Index Fund, International Stock Fund, Balanced Fund and
Small Stock Fund utilize registered investment companies and common/
collective trusts to meet the objectives stated above.

Vesting and Forfeitures.  The participant's contributions and earnings
thereon are immediately vested.  The Company's contributions and earnings
thereon are vested after the participant's completion of five years of
service, the participant's death while employed by the Company or
retirement.

If the participant's interest in the Company's contributions and earnings
thereon is not vested, such interest will be forfeited if the participant's
employment with the Company or an affiliate is terminated and the
participant is not reemployed within five years by the Company or an
affiliate.  Any amounts forfeited by a participant are applied to reduce the
amount of the Company's contributions under the Plan.  Forfeitures for 1997
and 1996 totalled $27,988 and $7,039, respectively.

Suspensions and Withdrawals.  The participant may suspend contributions by
written notification filed with the Plan administration committee.  The
participant will not cease to be a participant during the suspension period.

The participant may elect, under certain conditions, to withdraw participant
contributions and earnings thereon prior to termination of employment.  The
Company's matching contributions and earnings thereon will not be
distributed until the vested participant's attainment of age 59-1/2 or
employment has been terminated.

Plan Termination.  The Company expects to continue the Plan indefinitely,
but reserves the right to amend or discontinue it at any time in a manner
consistent with any collective bargaining agreement and subject to the
provisions of ERISA.  In the event of plan termination, participants will
become fully vested in their account balances.
                                
                                
                                
                                     - 5 -

                             
                             
                             
                             NICOR GAS THRIFT PLAN
                 NOTES TO THE FINANCIAL STATEMENTS (Continued)


ACCOUNTING POLICIES

Investment Valuation.  The Plan states its investment in the Trust at the
underlying value of the investments of the Trust as follows:

Group annuity contracts are recorded at contract value.  Contract value
represents contributions made plus interest at the various contract rates,
less Plan withdrawals and administrative expenses.  The aggregate market
value of the group annuity contracts at December 31, 1997 and 1996,
approximated contract value.  Estimated market value is based on a variety
of factors, such as contract terms, interest rate, maturity date and credit
worthiness of the issue.  For the year ended December 31, 1997 and 1996, the
average return was approximately 7.1 percent and 7.3 percent, respectively.

The market value for Nicor Inc. common stock is based on the closing price
on the New York Stock Exchange Composite Tape.

The market value of the units of the common/collective trusts and registered
investment companies are determined based on the underlying market value of
the investments of the funds.

Allocation Provisions.  The Trust's net investment gain is allocated monthly
to the Plan based on the beginning ratio of the Plan's investment balance to
total Trust investments.

Use of Estimates.  The preparation of financial statements requires
management to make estimates that affect the reported amounts.  Actual
results could differ from those estimates.

INCOME TAXES

The Internal Revenue Service has determined and informed the Company by a
letter dated January 16, 1997, that the Plan is qualified and the Trust
established under the Plan is tax exempt under Section 401(a) of the
Internal Revenue Code (the Code).  The Plan's management believes that the
Plan and related Trust continue to be designed and operated in compliance
with the requirements of the Code.

NET TRANSFER TO NICOR GAS SAVINGS INVESTMENT PLAN

If an employee transfers between the Plans, their account balance is
transferred into a new account in their current plan.  During 1997 and 1996,
a net transfer of $752,614 and $905,371, respectively, was made from the
Nicor Gas Thrift Plan to the Nicor Gas Savings Investment Plan.

                                - 6 -
                                
                                


                          NICOR GAS THRIFT PLAN
               NOTES TO THE FINANCIAL STATEMENTS (Continued)


RECONCILIATION TO FORM 5500

At December 31, 1997 and 1996, the Plan had $571,278 and $1,143,341, 
respectively, of pending participant distributions.  Pending distributions
are recorded as a liability in the Plan's Form 5500; however, they are not
recognized as liabilities in the accompanying financial statements.  These
distributions are reflected in the statement of changes in net assets
available for benefits when actually paid.

TRUST FINANCIAL INFORMATION

The following schedules present the Trust's net assets as of December 31,
1997 and 1996, the increase in the Trust net assets derived from investment
activities for the years then ended and the Plan's share of each:

                            Net Assets in Trust

                                                      December 31         
                                                 1997            1996    
Assets

General Investments:
  Group annuity contracts                    $126,065,845    $137,602,036
  Common/collective trusts*                    54,609,441      47,102,917
  Nicor Inc. common stock*                     26,313,652      25,273,440
Registered investment companies*               25,885,654      11,177,015
  Interest bearing cash                         6,384,056       2,080,636

Other assets                                    5,348,369         164,038

                                              244,607,017     223,400,082
Liabilities

Operating payables                              5,147,656         264,439

Net assets in Trust                          $239,459,361    $223,135,643

Plan's interest in Trust net assets          $111,199,124    $104,249,062

* Includes Party-in-Interest Investments.


                                   - 7 -


                            NICOR GAS THRIFT PLAN
                NOTES TO THE FINANCIAL STATEMENTS (Concluded)


TRUST FINANCIAL INFORMATION (Concluded)

                        Trust Investment Activities

                                                Year Ended December 31     
                                                 1997             1996   
Investment income:
  Interest                                   $  9,485,841    $ 10,253,039
  Dividends                                     1,197,270         952,860
  Net appreciation in market value
    of investments                              4,233,500       5,926,190
  Net investment gain from common/
    collective trusts                          13,087,463       6,792,574
  Net investment gain from registered
    investment companies                        1,419,925       1,160,926

                                               29,423,999      25,085,589

Administrative expenses                          (319,366)       (283,470)

Increase in Trust net assets
  derived from investment activities         $ 29,104,633    $ 24,802,119

Plan's interest in Trust investment
  activities                                 $ 13,172,829    $ 12,073,904

                                   - 8 -