================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    FORM 10-Q

(Mark One)
[X]    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                    SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 1997

                                       OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                    SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to _____________

Commission file number 1-7176


                             THE COASTAL CORPORATION
            (Exact name of registrant as specified in its character)



           Delaware                                            74-1734212
(State or other jurisdiction of                             (I.R.S. Employer
 incorporation or organization)                            Identification No.)



              Coastal Tower
           Nine Greenway Plaza
             Houston, Texas                                    77046-0995
(Address of principal executive offices)                       (Zip Code)



       Registrant's telephone number, including area code: (713) 877-1400



                           ---------------------------





     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 _____

     As of July 31, 1997, there were outstanding 105,624,543 shares of Common
Stock, 33-1/3 cents par value per share, and 372,428 shares of Class A Common
Stock, 33-1/3 cents par value per share, of the Registrant.

================================================================================

<PAGE>

                                     PART I

                              FINANCIAL INFORMATION


Item 1. Financial Statements.

     The financial statements of The Coastal Corporation and its subsidiaries
(the "Company") are presented herein and are unaudited, except for balances as
of December 31, 1996, and therefore are subject to year-end adjustments;
however, all adjustments which are, in the opinion of management, necessary for
a fair statement of the results of operations for the periods covered have been
made. The adjustments which have been made are of a normal recurring nature.
Such results are not necessarily indicative of results to be expected for the
year due to seasonal variations and market conditions affecting sales and/or
deliveries of natural gas and petroleum products.



                    THE COASTAL CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                              (Millions of Dollars)


<TABLE>
<CAPTION>
                                                                                   June 30,         December 31,
                                     ASSETS                                         1997                1996
                                                                                --------------      ------------
                                                                                 (Unaudited)

<S>                                                                               <C>                <C>        
Current Assets:
   Cash and cash equivalents...............................................       $      50.8        $     106.3
   Receivables, less allowance for doubtful accounts of $15.8 million
      (1997) and $23.4 million (1996)......................................           1,201.3            1,801.0
   Inventories.............................................................             775.7            1,143.9
   Prepaid expenses and other..............................................             161.1              145.2
                                                                                  -----------        -----------
      Total Current Assets.................................................           2,188.9            3,196.4
                                                                                  -----------        -----------

Property, Plant and Equipment - at cost:
   Natural gas systems.....................................................           5,810.6            5,691.5
   Refining, crude oil and chemical facilities.............................           2,249.7            2,213.9
   Gas and oil properties - at full-cost...................................           1,874.7            1,669.4
   Other...................................................................             380.5              386.7
                                                                                  -----------        -----------
                                                                                     10,315.5            9,961.5
   Accumulated depreciation, depletion and amortization....................           3,498.3            3,306.6
                                                                                  -----------        -----------
                                                                                      6,817.2            6,654.9
                                                                                  -----------        -----------

Other Assets:
   Goodwill................................................................             499.3              508.9
   Investments - equity method.............................................             700.1              589.1
   Other...................................................................             697.1              663.8
                                                                                  -----------        -----------
                                                                                      1,896.5            1,761.8
                                                                                  -----------        -----------
                                                                                  $  10,902.6        $  11,613.1
                                                                                  ===========        ===========
</TABLE>


                 See Notes to Consolidated Financial Statements.


                                      - 1 -

<PAGE>

                    THE COASTAL CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                              (Millions of Dollars)


<TABLE>
<CAPTION>
                                                                                   June 30,        December 31,
                 LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
                                                                                --------------    --------------
                                                                                 (Unaudited)

<S>                                                                               <C>               <C>        
Current Liabilities:
   Notes payable...........................................................       $     115.0       $     105.0
   Accounts payable........................................................           1,729.3           2,425.9
   Accrued expenses........................................................             314.8             408.3
   Current maturities on long-term debt....................................              20.2               8.0
                                                                                  -----------       -----------
      Total Current Liabilities............................................           2,179.3           2,947.2
                                                                                  -----------       -----------

Debt:
   Long-term debt, excluding current maturities............................           3,536.8           3,526.1
                                                                                  -----------       -----------

Deferred Credits and Other:
   Deferred income taxes...................................................           1,412.2           1,404.8
   Other deferred credits..................................................             573.7             598.5
                                                                                  -----------       -----------
                                                                                      1,985.9           2,003.3
                                                                                  -----------       -----------

Preferred Stock:
   Issued by subsidiaries..................................................             100.0             100.0
                                                                                  -----------       -----------

Common Stock and Other Stockholders' Equity:
   Cumulative preferred stock (with aggregate liquidation preference
      of $208.6 million)...................................................               2.6               2.6
   Class A common stock....................................................                .1                .1
   Common stock............................................................              36.7              36.6
   Additional paid-in capital..............................................           1,243.5           1,239.6
   Retained earnings.......................................................           1,950.2           1,890.1
                                                                                  -----------       -----------
                                                                                      3,233.1           3,169.0
   Less common stock in treasury - at cost.................................             132.5             132.5
                                                                                  -----------       -----------
                                                                                      3,100.6           3,036.5
                                                                                  -----------       -----------
                                                                                  $  10,902.6       $  11,613.1
                                                                                  ===========       ===========
</TABLE>


                 See Notes to Consolidated Financial Statements.


                                      - 2 -

<PAGE>

                    THE COASTAL CORPORATION AND SUBSIDIARIES
                      STATEMENT OF CONSOLIDATED OPERATIONS
                     (Millions of Dollars, Except Per Share)


<TABLE>
<CAPTION>
                                                                    Three Months Ended         Six Months Ended
                                                                         June 30,                  June 30,
                                                                  ----------------------    ---------------------
                                                                     1997        1996         1997         1996
                                                                  ---------   ----------    ---------   ---------
                                                                        (Unaudited)               (Unaudited)

<S>                                                               <C>         <C>           <C>         <C>      
Operating Revenues............................................    $ 2,079.6   $  2,940.1    $ 5,285.4   $ 6,037.9
                                                                  ---------   ----------    ---------   ---------

Operating Costs and Expenses:
   Purchases..................................................      1,396.2      2,252.4      3,861.6     4,612.9
   Operating expenses.........................................        399.1        408.9        803.6       847.3
   Depreciation, depletion and amortization...................        106.4        106.0        222.3       206.3
                                                                  ---------   ----------    ---------   ---------
                                                                    1,901.7      2,767.3      4,887.5     5,666.5
                                                                  ---------   ----------    ---------   ---------

Operating Profit..............................................        177.9        172.8        397.9       371.4
                                                                  ---------   ----------    ---------   ---------

Other Income - net............................................         18.7         18.3         43.3        36.4
                                                                  ---------   ----------    ---------   ---------

Other Expenses:
   General and administrative.................................         14.1         14.1         29.1        28.6
   Interest and debt expense, less $2.4 million (1997)
      and $1.8 million (1996) three months and $4.8
      million (1997) and $3.3 million (1996)
      six months capitalized..................................         73.2         95.1        152.4       190.7
   Taxes on income............................................         30.0         15.8         79.2        39.9
                                                                  ---------   ----------    ---------   ---------
                                                                      117.3        125.0        260.7       259.2
                                                                  ---------   ----------    ---------   ---------

Earnings Before Extraordinary Item............................         79.3         66.1        180.5       148.6
   Extraordinary item - loss on early extinguishment
      of debt.................................................            -        (12.0)       (90.6)      (12.0)
                                                                  ---------   ----------    ---------   ---------

Net Earnings..................................................         79.3         54.1         89.9       136.6
Dividends on Preferred Stock..................................          4.4          4.4          8.7         8.7
                                                                  ---------   ----------    ---------   ---------

   Net Earnings Available
      to Common Stockholders..................................    $    74.9   $     49.7    $    81.2   $   127.9
                                                                  =========   ==========    =========   =========

Earnings Per Share:
   Before extraordinary item..................................    $     .70   $      .58    $    1.61   $    1.32
   Extraordinary item.........................................            -         (.11)        (.85)       (.11)
                                                                  ---------   ----------    ---------   ---------

   Net Earnings Per Common
      and Common Equivalent Share.............................    $     .70   $      .47    $     .76   $    1.21
                                                                  =========   ==========    =========   =========

Cash Dividends Per Common Share...............................    $     .10   $      .10    $     .20   $     .20
                                                                  =========   ==========    =========   =========
</TABLE>

                 See Notes to Consolidated Financial Statements.


                                      - 3 -

<PAGE>

                    THE COASTAL CORPORATION AND SUBSIDIARIES
      STATEMENT OF CONSOLIDATED COMMON STOCK AND OTHER STOCKHOLDERS' EQUITY
                  (Thousands of Shares and Millions of Dollars)


<TABLE>
<CAPTION>
                                                                          Six Months Ended June 30,
                                                           ------------------------------------------------------
                                                                     1997                          1996
                                                           ------------------------      ------------------------
                                                             Shares        Amount          Shares        Amount
                                                           -----------   ----------      -----------   ----------
                                                                                 (Unaudited)

<S>                                                        <C>           <C>             <C>           <C>       
Preferred stock, par value
   33-1/3 cents per share, authorized 50,000,000 shares:
      Cumulative convertible preferred:
      $1.19, Series A, redemption or liquidation
         amount of $33 per share:
           Beginning balance...........................             60   $        -               61   $        -
           Converted to common.........................             (2)           -               (1)           -
                                                           -----------   ----------      -----------   ----------
           Ending balance..............................             58            -               60            -
                                                           ===========   ----------      ===========   ----------

      $1.83, Series B, redemption or liquidation
         amount of $50 per share:
           Beginning balance...........................             74            -               79           .1
           Converted to common.........................             (3)           -               (3)           -
                                                           -----------   ----------      -----------   ----------
           Ending balance..............................             71            -               76           .1
                                                           ===========   ----------      ===========   ----------

      $5.00, Series C, redemption or liquidation
         amount of $100 per share:
           Beginning balance...........................             32            -               33            -
           Converted to common.........................             (1)           -               (1)           -
                                                           -----------   ----------      -----------   ----------
           Ending balance..............................             31            -               32            -
                                                           ===========   ----------      ===========   ----------

      Cumulative preferred:
      $2.125, Series H, liquidation amount
         of $25 per share:
           Beginning and ending balance                          8,000          2.6            8,000          2.6
                                                           ===========   ----------      ===========   ----------

Class A common  stock,  par value 33-1/3 cents per share,
  authorized 2,700,000 shares:
      Beginning balance................................            382           .1              404           .1
      Converted to common..............................            (10)           -              (25)           -
      Conversion of preferred stock and
         exercise of stock options.....................              1            -               13            -
                                                           -----------   ----------      -----------   ----------
      Ending balance...................................            373           .1              392           .1
                                                           ===========   ----------      ===========   ----------

Common stock, par value 33-1/3 cents per share, authorized
  250,000,000 shares:
      Beginning balance................................        109,756         36.6          109,168         36.4
      Conversion of preferred stock....................             21            -               22            -
      Conversion of Class A common stock...............             10            -               25            -
      Exercise of stock options........................            219           .1              342           .1
                                                           -----------   ----------      -----------   ----------
      Ending balance...................................        110,006   $     36.7          109,557   $     36.5
                                                           ===========   ----------      ===========   ----------
</TABLE>

                 See Notes to Consolidated Financial Statements.


                                      - 4 -

<PAGE>

                    THE COASTAL CORPORATION AND SUBSIDIARIES
      STATEMENT OF CONSOLIDATED COMMON STOCK AND OTHER STOCKHOLDERS' EQUITY
                  (Thousands of Shares and Millions of Dollars)
                                   (Continued)


<TABLE>
<CAPTION>
                                                                          Six Months Ended June 30,
                                                           ------------------------------------------------------
                                                                     1997                          1996
                                                           ------------------------      ------------------------
                                                             Shares        Amount          Shares        Amount
                                                           -----------   ----------      -----------   ----------
                                                                                 (Unaudited)

<S>                                                        <C>           <C>             <C>           <C>
Additional paid-in capital:
   Beginning balance...................................                  $  1,239.6                    $  1,225.0
   Exercise of stock options...........................                         3.9                           8.0
                                                                         ----------                    ----------
   Ending balance......................................                     1,243.5                       1,233.0
                                                                         ----------                    ----------

Retained earnings:
   Beginning balance...................................                     1,890.1                       1,547.1
   Net earnings for period.............................                        89.9                         136.6
   Dividends on preferred stock........................                        (8.7)                         (8.7)
   Dividends on common stock...........................                       (21.1)                        (21.1)
                                                                         ----------                    ----------
   Ending balance......................................                     1,950.2                       1,653.9
                                                                         ----------                    ----------
Less treasury stock - at cost..........................          4,395       (132.5)           4,395       (132.5)
                                                           ===========   ----------      ===========   ----------

Total..................................................                  $  3,100.6                    $  2,793.7
                                                                         ==========                    ==========
</TABLE>

                 See Notes to Consolidated Financial Statements.


                                      - 5 -

<PAGE>

                    THE COASTAL CORPORATION AND SUBSIDIARIES
                      STATEMENT OF CONSOLIDATED CASH FLOWS
                              (Millions of Dollars)


<TABLE>
<CAPTION>
                                                                                        Six Months Ended
                                                                                            June 30,
                                                                                   --------------------------
                                                                                      1997            1996
                                                                                   ---------        ---------
                                                                                           (Unaudited)

<S>                                                                                <C>              <C>      
Net Cash Flow From Operating Activities:
   Earnings before extraordinary item..........................................    $   180.5        $  148.6
   Add (subtract) items not requiring (providing) cash:
      Depreciation, depletion and amortization.................................        223.9           208.4
      Deferred income taxes....................................................         28.7             (.4)
      Amortization of producer contract reformation costs......................            -            15.9
      Distributed (undistributed) earnings from equity investments.............        (17.4)            1.8

   Working capital and other  changes,  excluding  changes  relating to cash and
      non-operating activities:
         Accounts receivable...................................................        599.7           (88.1)
         Inventories...........................................................        327.1           (38.4)
         Prepaid expenses and other............................................         (7.8)           28.5
         Accounts payable......................................................       (694.1)            3.1
         Accrued expenses......................................................        (72.8)          (60.5)
         Other.................................................................          7.0            73.5
                                                                                   ---------        --------
                                                                                       574.8           292.4
                                                                                   ---------        --------

Cash Flow From Investing Activities:
   Purchases of property, plant and equipment..................................       (407.7)         (340.9)
   Proceeds from sale of property, plant and equipment.........................         23.0             5.3
   Additions to investments....................................................       (166.2)          (66.2)
   Proceeds from investments...................................................         52.7            13.6
   Recovery of gas supply prepayments..........................................            -              .1
                                                                                   ---------        --------
                                                                                      (498.2)         (388.1)
                                                                                   ---------        --------

Cash Flow From Financing Activities:
   Increase in short-term notes ...............................................        335.0            46.8
   Redemption of mandatory redemption preferred stock..........................            -             (.1)
   Proceeds from issuing common stock..........................................          4.0             8.1
   Proceeds from long-term debt issues.........................................        627.6           630.3
   Payments to retire long-term debt...........................................     (1,068.9)         (563.1)
   Dividends paid..............................................................        (29.8)          (29.8)
                                                                                   ---------        --------
                                                                                      (132.1)           92.2
                                                                                   ---------        --------

Net Decrease in Cash and Cash Equivalents......................................        (55.5)           (3.5)

Cash and Cash Equivalents at Beginning of Period...............................        106.3            58.4
                                                                                   ---------        --------

Cash and Cash Equivalents at End of Period.....................................    $    50.8        $   54.9
                                                                                   =========        ========
</TABLE>

                 See Notes to Consolidated Financial Statements.


                                      - 6 -

<PAGE>

                    THE COASTAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. Summary of Significant Accounting Policies

     For additional information relative to operations and financial position,
reference is made to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996. Certain minor reclassifications of prior period
statements have been made to conform with current reporting practices. The
effect of the reclassifications was not material to the Company's consolidated
results of operations, financial position or cash flows.

     The interstate natural gas pipeline and certain storage subsidiaries are
subject to the regulations and accounting procedures of the Federal Energy
Regulatory Commission ("FERC"). The Company's subsidiaries historically followed
the reporting and accounting requirements of Statement of Financial Accounting
Standards No. 71, " Accounting for the Effects of Certain Types of Regulation"
("FAS 71"). Effective November 1, 1996, these subsidiaries discontinued
application of FAS 71. This accounting change has no direct effect on either the
subsidiaries' ability to include the deferred items in future rate proceedings
or on their ability to collect the rates set thereby. The Company believes this
accounting change results in financial reporting which better reflects the
results of operations in the economic environment in which these subsidiaries
operate.

     The Company adopted Statement of Financial Accounting Standards No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities" in 1997. The application of the new standard did not have a
material effect on the Company's consolidated results of operations, financial
position or cash flows.

     The Company adopted Statement of Position 96-1 on Environmental Remediation
Liabilities in 1997. The application of the new statement is not expected to
have a material effect on the Company's consolidated results of operations,
financial position or cash flows.

     The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("FAS 128") to be
effective for periods ending after December 15, 1997. FAS 128 replaces the
presentation of primary earnings per share with a presentation of basic earnings
per share. It also requires dual presentation of basic and diluted earnings per
share on the face on the income statement for all entities with complex capital
structures. The Company has computed basic and diluted earnings per share for
the three month and six month periods ended June 30, 1997 and 1996,
respectively, following the guidance in FAS 128. The results are not materially
different from the amounts presented in the Statement of Consolidated
Operations.

     The FASB has issued Statement of Financial Accounting Standards No. 129,
"Disclosure of Information about Capital Structure" ("FAS 129") to be effective
for periods ending after December 15, 1997. FAS 129 establishes standards for
disclosing information about an entity's capital structure. The Company does not
believe that the application of the new standard will have a material effect on
its consolidated results of operations, financial position or cash flows.

     The FASB has issued Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("FAS 130") to be effective for periods
beginning after December 15,1997. FAS 130 establishes standards for reporting
and display of comprehensive income and its components (revenues, expenses,
gains and losses) in a full set of general purpose financial statements. The
Company does not believe that the application of the new standard will have a
material effect on its consolidated results of operations, financial position or
cash flows.

     The FASB has issued Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("FAS
131") to be effective for periods beginning after December 15,1997. FAS 131
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports. It also establishes standards for related disclosures
about products and services, geographic


                                      - 7 -

<PAGE>

areas, and major customers. The Company does not believe that the
application of the new standard will have a material effect on its consolidated
results of operations, financial position or cash flows.

     Supplemental information relative to the Statement of Consolidated Cash
Flows includes the following: The Company made cash payments for interest and
financing fees, net of amounts capitalized, of $148.6 million and $203.6 million
for the six months ended June 30, 1997 and 1996, respectively. Cash payments for
income taxes amounted to $50.0 million and $41.7 million for the six months
ended June 30, 1997 and 1996, respectively.

2. Inventories

     Inventories were as follows (millions of dollars):

<TABLE>
<CAPTION>
                                                                                   June 30,        December 31,
                                                                                    1997               1996
                                                                               ---------------     ------------
                                                                                 (Unaudited)

   <S>                                                                           <C>                 <C>       
   Refined products, crude oil and chemicals...............................      $     607.4         $    920.3
   Natural gas in underground storage......................................             21.2               77.7
   Coal, materials and supplies............................................            147.1              145.9
                                                                                 -----------         ----------
                                                                                 $     775.7         $  1,143.9
                                                                                 ===========         ==========
</TABLE>

     Elements included in inventory cost are material, labor and manufacturing
expense. Natural gas in underground storage at December 31, 1996 included $41.1
million which was transferred to Property, Plant and Equipment.

3. Notes Payable

     At June 30, 1997, the Company had $440.0 million of outstanding
indebtedness to banks under short-term lines of credit. The Company's financial
statements at June 30, 1997 reflect $325.0 million of short-term borrowings
which have been reclassified as long-term, based on the availability of
committed credit lines with maturities in excess of one year and the Company's
intent to maintain such amounts as long-term borrowings. There was no such
reclassification as of December 31, 1996.

4. Common Stock

     On June 30, 1997, 2,915,990 shares of Common Stock of the Company were
reserved for employee stock option plans, 688,623 shares were reserved for
conversion of the Series A, B, and C Preferred Stocks, 372,904 shares were
reserved for conversion of outstanding Class A Common Stock and 21,343 shares
were reserved for conversion of Class A Common Stock subject to future issuance.
The Class A Common Stock reserved for future issuance consists of 2,280 shares
reserved for employee stock option plans and 19,063 shares reserved for
conversion of the Series A, B, and C Preferred Stocks.

     During 1997, the Company has granted options to purchase Common Stock of
the Company under stock option plans as follows - 759,300 options with an
exercise price of $47.06, 4,750 options with an exercise price of $47.69 and
16,227 options with an exercise price of $50.75. The exercise prices are equal
to the market price of the common shares at grant date.



                                      - 8 -

<PAGE>

5. Income Taxes

     Provisions for income taxes were as follows (millions of dollars):

<TABLE>
<CAPTION>
                                                                    Three Months Ended         Six Months Ended
                                                                         June 30,                  June 30,
                                                                  ----------------------    ---------------------
                                                                     1997        1996         1997         1996
                                                                  ---------   ----------    ---------   ---------
                                                                        (Unaudited)               (Unaudited)

   <S>                                                            <C>         <C>           <C>         <C>      
   Current Income Taxes:
      Federal.................................................    $     2.9   $     17.9    $    40.9   $    32.5
      Foreign.................................................           .5           .3          2.0          .9
      State...................................................          2.5          3.4          7.6         6.9
                                                                  ---------   ----------    ---------   ---------
                                                                        5.9         21.6         50.5        40.3
                                                                  ---------   ----------    ---------   ---------
   Deferred Income Taxes:
      Federal.................................................         23.0         (6.0)        27.5           -
      Foreign.................................................           .9           .9          1.8         1.4
      State...................................................           .2          (.7)         (.6)       (1.8)
                                                                  ---------   ----------    ---------   ---------
                                                                       24.1         (5.8)        28.7         (.4)
                                                                  ---------   ----------    ---------   ---------

                                                                  $    30.0   $     15.8    $    79.2   $    39.9
                                                                  =========   ==========    =========   =========
</TABLE>

     Interim period provisions for federal income taxes are based on estimated
effective annual income tax rates.

6. Extraordinary Item

     In February 1997, the Company purchased and retired $798.0 million of notes
and debentures with interest rates ranging from 9-3/4% to 10-3/4%. None of the
issues were eligible for redemption and the purchase included payment of a
premium. The Company incurred an after-tax extraordinary charge in the first
quarter of 1997 of $90.6 million ($.85 per share), net of income taxes of $48.7
million, in connection with the repurchase of these debt securities.

7. Litigation, Regulatory and Environmental Matters

     Litigation Matters

     In connection with the December 20, 1996 sale of the Company's western coal
operations, the Company has assumed control of a pending dispute with
Intermountain Power Agency ("IPA") involving two coal sales agreements of
Coastal States Energy Company, which contracts were included in the sale, and
for which the Company continues to have certain responsibilities. The dispute
involves a claim by IPA to expanded audit rights under the contracts. The
Company vigorously disputes IPA's claim and filed a counterclaim for certain
contractual payments wrongfully withheld by IPA. On July 14, 1997, IPA made a
demand for arbitration between the parties, asserting a claim of a gross
inequity under the contracts requiring a reduction in the purchase price of coal
sold before and after the sale of these coal operations. The Company believes
that no gross inequity has occurred and that it should prevail in the
arbitration on the merits. The Company has also asserted that the pending
lawsuit, which presents several common legal issues between the two proceedings,
should be resolved before any related arbitration proceeding is allowed to
proceed. A motion to this effect is pending in the U.S. District Court for Utah.

     A subsidiary of Coastal initiated a suit against TransAmerican Natural Gas
Corporation ("TransAmerican") in the District Court of Webb County, Texas for
breach of two gas purchase agreements. In February 1993, TransAmerican filed a
Third Party Complaint and a Counterclaim in this action against Coastal and
certain subsidiaries. TransAmerican alleged breach of contract, fraud,
conspiracy, duress, tortious interference and violations of the Texas Free
Enterprises and Anti-trust Act arising out of the gas purchase agreements. Final
judgment in this matter was entered April 22, 1994. The subsidiary was awarded
approximately $2 million, including pre-judgment interest and attorney fees. All
of TransAmerican's claims and causes of action were denied. The Court of Appeals
for the Fourth Judicial District has


                                      - 9 -

<PAGE>

denied TransAmerican's appeal in this case. TransAmerican subsequently filed a
Writ of Error with the Texas Supreme Court, which was denied in December 1996.
In January 1997, TransAmerican's Motion for Rehearing of its Writ of Error was
filed and subsequently denied. On March 24, 1997, the Texas Supreme Court
issued its Mandate. Payment of the judgment was made by TransAmerican to the
Coastal subsidiary on May 27, 1997 and release of the monetary portion of the
judgment and lien executed by such Coastal subsidiary exchanged. This matter is
now concluded.

     In December 1992, certain of Colorado Interstate Gas Company's ("CIG")
natural gas lessors in the West Panhandle Field filed a complaint in the U.S.
District Court for the Northern District of Texas, claiming underpayment, breach
of fiduciary duty, fraud and negligent misrepresentation. Management believes
that CIG has numerous defenses to the lessors' claims, including (i) that the
royalties were properly paid, (ii) that the majority of the claims were released
by written agreement and (iii) that the majority of the claims are barred by the
statute of limitations. In March of 1995, the Trial Court granted a partial
summary judgment in favor of CIG, holding that the four-year statute of
limitations had not been tolled, that the releases are valid, and dismissing all
tort claims and claims for breach of any duty of disclosure. The remaining claim
for underpayment of royalties was tried to a jury which, in May 1995, made
findings favorable to CIG. On June 7, 1995, the Trial Court entered a judgment
that the lessors recover no monetary damages from CIG and permanently estopping
the lessors from asserting any claim based on an interpretation of the contract
different than that asserted by CIG in the litigation. The lessors' motion for a
new trial was denied on July 18, 1997. On June 7, 1996, the same plaintiffs sued
CIG in state court in Amarillo, Texas for underpayment of royalties. CIG removed
the second lawsuit to federal court which granted a stay of the second suit
pending the outcome of the first lawsuit.

     In October 1996, the Company, along with several subsidiaries, was named as
a defendant in a suit filed by several former and current African American
employees in the United States District Court, Southern District of Texas. The
suit alleges racially discriminatory employment policies and practices and seeks
damages in the amount of at least $100 million and punitive damages of at least
three times that amount. Plaintiffs' counsel are seeking to have the suit
certified as a class action. Coastal vigorously denies these allegations and has
filed responsive pleadings.

     Numerous other lawsuits and other proceedings which have arisen in the
ordinary course of business are pending or threatened against the Company or its
subsidiaries.

     Although no assurances can be given and no determination can be made at
this time as to the outcome of any particular lawsuit or proceeding, the Company
believes there are meritorious defenses to substantially all of the above claims
and that any liability which may finally be determined should not have a
material adverse effect on the Company's consolidated financial position,
results of operations or cash flows.

     Regulatory Matters

     From November 1, 1992 to November 1, 1993, gas inventory demand charges
were collected from ANR Pipeline Company's ("ANR Pipeline") former resale
customers. This method of gas cost recovery required refunds for any over-
collections. In April 1994, ANR Pipeline filed with the FERC a refund report
showing over-collections and proposing refunds totaling $45.1 million. Certain
customers disputed the level of those refunds. The FERC approved ANR Pipeline's
refund allocation methodology and ANR Pipeline, in March 1995, paid undisputed
refunds of $45.1 million, together with applicable interest, subject to further
investigation of customers' claims. The FERC's approval of ANR Pipeline's refund
allocation methodology was upheld by the United States Court of Appeals for the
D.C. Circuit in April 1996. Disputed issues related to the refunds are the
subject of further proceedings before the FERC. In March 1997, an Initial
Decision was issued, which adopted most of ANR Pipeline's positions, but which
will not take effect until the FERC has reviewed the exceptions that have been
filed.

     ANR Pipeline filed a general rate increase on November 1, 1993. Issues
related to the general rate increase are the subject of continuing FERC and
judicial proceedings. Under a March 1994 order, certain costs were reduced or
eliminated, resulting in revised rates that reflect an $85.7 million increase in
the cost of service underlying that approved and a $182.8 million increase over
the cost of service underlying ANR Pipeline's approved rates for its Order 636
restructured services. In September 1994, the FERC accepted ANR Pipeline's
filing to place the new rates into effect May 1, 1994, subject to further
modifications. ANR Pipeline submitted revised rates in compliance with this
order in October 1994, which rates are currently in effect, subject to refund.
In January 1997, an Initial Decision was issued on


                                     - 10 -

<PAGE>

the issues set for hearing by the March 1994 order. That Initial Decision,
which accepted some but not all of ANR Pipeline's rate change proposals, does
not take effect until reviewed by the FERC. ANR Pipeline and other parties have
filed exceptions regarding some of the findings in the Initial Decision.
Settlement discussions are also taking place among the parties.

     The FERC has also issued a series of orders in ANR Pipeline's rate
proceeding that apply a new policy governing the order of attribution of
revenues received by ANR Pipeline related to transition costs under Order 636.
Under that new policy, ANR Pipeline is required to first attribute the revenues
it receives for its services to the recovery of its transition costs under Order
636 rather than to the recovery of its base cost of service. The FERC's change
in its revenue attribution policy has the effect of understating ANR Pipeline's
currently effective maximum rates and accelerating its amortization of
transition costs for regulatory accounting purposes. In light of the FERC's
policy, ANR Pipeline filed with the FERC to increase its discount recovery
adjustment in its pending rate proceeding. ANR Pipeline also sought judicial
review of these orders before the United States Court of Appeals for the D.C.
Circuit, which appeals were dismissed as premature in light of the pending
general rate increase proceeding discussed above.

     In May 1997, certain of ANR Pipeline's customers filed a motion with the
FERC for immediate refund of approximately $77 million, which is related to ANR
Pipeline's settlement with Dakota Gasification Company. ANR Pipeline has
responded to the FERC,demonstrating that the customers' claim is grossly
overstated by identifying the appropriate amounts to be refunded to its
customers. On June 30, 1997, ANR Pipeline paid such refunds (totaling $21.1
million) to its customers, which amount is subject to further proceedings before
the FERC.

     On March 29, 1996, CIG filed with the FERC under Docket No. RP96-190 to
increase its rates by approximately $30 million annually, to realign certain
transportation services and to add tariff language that would allow CIG to enter
into "negotiated" rates (rates which could exceed CIG's "cost-based" rates) in
certain circumstances, subject to FERC policies. On April 25, 1996, the FERC
accepted the rate change filing and the transportation service realignment to
become effective October 1, 1996, subject to refund, and also accepted the
"negotiated rate" tariff provision to become effective May 1, 1996. While
certain parties have sought judicial review of the acceptance of the "negotiated
rate" tariff provisions, those provisions are currently in effect although CIG
has so far not entered into any "negotiated rate" agreements under these
provisions. CIG and the parties to the case have had extensive negotiations
leading to a possible settlement of the proceeding and the procedural schedule
has been suspended to allow the parties more time to pursue settlement.

     In July 1996, the United States Court of Appeals for the D.C. Circuit
upheld the basic structure of the FERC's Order 636 (issued in April 1992), but
remanded to the FERC, for further consideration, certain limited aspects of the
Order. In its order responding to the remand (Order 636-C, issued February 27,
1997) the FERC: (1) reaffirmed the right of pipelines to recover 100% of their
prudently incurred transition costs, but required pipelines to file within 180
days a proposal for the level of costs to be allocated to interruptible
transportation customers; and (2) reduced from 20-years to 5-years, the term
"cap" to be applied to evaluation of bids for renewal of contracts on existing
volumes. ANR Pipeline and CIG have sought rehearing and clarification of these
holdings as they relate to past and future periods, and will also make the
appropriate compliance filings with the FERC.

     CIG, ANR Pipeline, ANR Storage Company and Wyoming Interstate Company,
Ltd., subsidiaries of the Company, are regulated by the FERC. Certain of the
above regulatory matters and other regulatory issues remain unresolved among
these companies, their customers, their suppliers and the FERC. The Company has
made provisions which represent management's assessment of the ultimate
resolution of these issues. As a result, the Company anticipates that these
regulatory matters will not have a material adverse effect on its consolidated
financial position, results of operations or cash flows. While the Company
estimates the provisions to be adequate to cover potential adverse rulings on
these and other issues, it cannot estimate when each of these issues will be
resolved.

     Environmental Matters

     The Company's operations are subject to extensive and evolving federal,
state and local environmental laws and regulations. The Company anticipates
capital expenditures of approximately $42 million in 1997 in order to comply
with such laws and regulations. The majority of the 1997 expenditures is
attributable to construction projects at the


                                     - 11 -

<PAGE>

Company's refining, chemical and terminal facilities. The Company currently
anticipates capital expenditures for environmental compliance for the years 1998
through 2000 of $20 to $40 million per year. Additionally, appropriate
governmental authorities may enforce the laws and regulations with a variety of
civil and criminal enforcement measures, including monetary penalties and
remediation requirements.

     The Comprehensive Environmental Response, Compensation and Liability Act,
also known as "Superfund," as reauthorized, imposes liability, without regard to
fault or the legality of the original act, for disposal of a "hazardous
substance." Certain subsidiaries of the Company and a company in which Coastal
owns a 50% interest have been named as a potentially responsible party ("PRP")
in several "Superfund" waste disposal sites. At the 16 sites for which there is
sufficient information, total clean-up costs are estimated to be approximately
$333 million, and the Company estimates its pro-rata exposure, to be paid over a
period of several years, is approximately $7.4 million and has made appropriate
provisions. At 4 other sites, the Environmental Protection Agency ("EPA") is
currently unable to provide the Company with an estimate of total clean-up costs
and, accordingly, the Company is unable to calculate its share of those costs.
Finally at 10 other sites, the Company has paid amounts to other PRPs or to the
EPA as its proportional share of associated clean-up costs. As to these latter
sites, the Company believes that its activities were de minimis. Additionally,
certain subsidiaries of the Company have been named as PRPs in two state sites.
At one site, the North Carolina Department of Health, Environment and Natural
Resources has estimated the total clean-up costs to be approximately $50
million, but the Company believes that the subsidiaries' activities at this site
were de minimis. At the other state site, the Florida Department of
Environmental Protection has demanded reimbursement of its costs, which total
$100,000, and suitable remediation. There is not sufficient information to
estimate the remedial costs or the Company's pro-rata exposure at this site.

     On January 15, 1996, the EPA issued a Notice of Violation to Coastal Eagle
Point Oil Company, a subsidiary of the Company, and Eagle Point Cogeneration
Partnership ("EPCP"), in which a Company subsidiary is a 50 percent partner. The
Notice alleged violations of the Clean Air Act for the failure to obtain a
Prevention of Significant Deterioration ("PSD") permit when the EPCP was
constructing and for alleged violations of the facility's operating permits. On
June 25, 1997, the Department of Justice sent the companies a letter on behalf
of the EPA demanding $3 million in penalties for the violations of the operating
permits. The PSD allegation was not included in the demand. The companies are
currently discussing the matter. If the EPA were to initiate an action, the
Company believes the EPA would seek penalties which, while not material to the
Company, could exceed $100,000.

     Future information and developments will require the Company to continually
reassess the expected impact of these environmental matters. However, the
Company has evaluated its total environmental exposure based on currently
available data, including its potential joint and several liability, and
believes that compliance with all applicable laws and regulations will not have
a material adverse impact on the Company's liquidity, consolidated financial
position or results of operations.




Item 2.A.  Management's Discussion and Analysis of Financial Condition and
           Results of Operations.

     Management's Discussion and Analysis of Financial Condition and Results of
Operations includes certain forward- looking statements reflecting the Company's
expectations in the near future; however, many factors which may affect the
actual results, including commodity prices, market conditions, industry
competition and changing regulations, are difficult to predict. Accordingly,
there is no assurance that the Company's expectations will be realized.

     The Notes to Consolidated Financial Statements contain information that is
pertinent to the following analysis.



                                     - 12 -

<PAGE>

                         Liquidity and Capital Resources

     The Company uses the following consolidated ratios to measure liquidity and
its ability to meet future funding needs and debt service requirements.

<TABLE>
<CAPTION>
                                                                                   Twelve Months Ended
                                                                           --------------------------------
                                                                              June 30,        December 31,
                                                                                1997              1996
                                                                           --------------    --------------
                                                                             (Unaudited)

      <S>                                                                       <C>               <C>  
      Net return on average common stockholders' equity..............           12.3%             14.8%
      Cash flow from operating activities to long-term debt..........           23.9%             15.9%
      Total debt to total capitalization.............................           53.4%             53.7%
      Times interest earned (before tax).............................            2.7               2.5
</TABLE>

     The decrease in the net return on average common stockholders' equity can
be attributed to the extraordinary charge in the 1997 first quarter. The cash
flows from operating activities to long-term debt ratio increased primarily due
to changes in working capital.

     In February 1997, the Company purchased and retired $798 million of notes
and debentures with interest rates ranging from 9-3/4% to 10-3/4%. None of the
issues were eligible for redemption and the purchase included payment of a
premium. The Company incurred an after-tax extraordinary charge in the first
quarter of 1997 of $90.6 million ($.85 per share), net of income taxes of $48.7
million, in connection with the repurchase of these debt securities.

     Also in February 1997, the Company issued $200.0 million of 6.70% senior
debentures due in 2027 and $200.0 million of 7.42% senior debentures due in
2037. The net proceeds from the sale of the debentures were used to refinance a
portion of the bank borrowings incurred in connection with the retirement of the
debt securities referred to above. The 6.70% senior debentures are not
redeemable at the option of the Company prior to maturity; but each holder of
such senior debentures has the right to require the Company to redeem such
debentures, in whole or in part, on February 15, 2007, at a redemption price
equal to 100% of the aggregate principal amount thereof plus accrued and unpaid
interest. The 7.42% senior debentures are not redeemable prior to maturity.

     In June 1997, CIG completed a public offering of $100.0 million of 6.85%
senior debentures due in 2037. The 6.85% senior debentures are not redeemable at
the option of CIG prior to maturity; but each holder of such senior debentures
has the right to require CIG to redeem such debentures, in whole or in part, on
June 15, 2007, at a redemption price equal to 100% of the aggregate principal
amount thereof plus accrued and unpaid interest. The net proceeds from the
offering were used to retire a $50.0 million term loan and for general corporate
purposes.

     Financing for capital expansion, mandatory debt retirements and other
expenditures will be provided by internally generated funds, existing credit
lines, proceeds from the sale of selective non-core assets and new financings.

     Funding for certain proposed projects is anticipated to be provided through
non-recourse project financings in which the projects' assets and contracts will
be pledged as collateral. Equity participation by other entities will be
considered. To the extent required, cash for equity contributions to projects
will be from general corporate funds.

     The Company continues to maintain a financial position that will enable it
to generate and obtain capital for financing needs in the foreseeable future.
Unused lines of credit at June 30, 1997 were as follows (millions of dollars):

     Short-term.............................................    $   892.5
     Long-term*.............................................        598.0
                                                                ---------

                                                                $ 1,490.5
                                                                =========

*$52.4 million of unused long-term credit lines was dedicated to a specific use.


                                     - 13 -

<PAGE>

     The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("FAS 128") to be
effective for periods ending after December 15, 1997. FAS 128 replaces the
presentation of primary earnings per share with a presentation of basic earnings
per share. It also requires dual presentation of basic and diluted earnings per
share on the face on the income statement for all entities with complex capital
structures. The Company has computed basic and diluted earnings per share for
the three month and six month periods ended June 30, 1997 and 1996,
respectively, following the guidance in FAS 128. The results are not materially
different from the amounts presented in the Statement of Consolidated
Operations.

     The FASB has issued Statement of Financial Accounting Standards No. 129,
"Disclosure of Information about Capital Structure" ("FAS 129") to be effective
for periods ending after December 15, 1997. FAS 129 establishes standards for
disclosing information about an entity's capital structure. The Company does not
believe that the application of the new standard will have a material effect on
its consolidated results of operations, financial position or cash flows.

     The FASB has issued Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("FAS 130") to be effective for periods
beginning after December 15,1997. FAS 130 establishes standards for reporting
and display of comprehensive income and its components (revenues, expenses,
gains and losses) in a full set of general purpose financial statements. The
Company does not believe that the application of the new standard will have a
material effect on its consolidated results of operations, financial position or
cash flows.

     The FASB has issued Statement of Financial Accounting Standards No. 131,
"Disclosure about Segments of an Enterprise and Related Information" ("FAS 131")
to be effective for periods beginning after December 15,1997. FAS 131
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports. It also establishes standards for related disclosures
about products and services, geographic areas, and major customers. The Company
does not believe that the application of the new standard will have a material
effect on its consolidated results of operations, financial position or cash
flows.

                              Results of Operations

     The changes in the Company's earnings for the three and six month periods
ended June 30, 1997 in comparison to the same periods in 1996 are a result of
the following:

     Operating Revenues. The operating revenues by segment were as follows
(millions of dollars):

<TABLE>
<CAPTION>
                                                                    Three Months Ended         Six Months Ended
                                                                         June 30,                  June 30,
                                                                  ----------------------    ---------------------
                                                                     1997        1996         1997         1996
                                                                  ---------   ----------    ---------   ---------
                                                                        (Unaudited)               (Unaudited)

      <S>                                                         <C>         <C>           <C>         <C>      
      Natural gas.............................................    $   264.3   $    925.0    $ 1,495.4   $ 1,928.4
      Refining, marketing and chemicals.......................      1,696.5      1,876.0      3,550.5     3,832.9
      Exploration and production..............................        117.2        117.6        284.5       205.3
      Coal....................................................         59.0        106.3        113.3       213.6
      Power...................................................         25.7         25.8         51.7        46.0
      Other...................................................          8.1          8.2         16.1        16.2
      Adjustments and eliminations............................        (91.2)      (118.8)      (226.1)     (204.5)
                                                                  ---------   ----------    ---------   ---------

                                                                  $ 2,079.6   $  2,940.1    $ 5,285.4   $ 6,037.9
                                                                  =========   ==========    =========   =========
</TABLE>


                                     - 14 -

<PAGE>

     Operating Profit (Loss). The operating profit (loss) by segment was as
follows (millions of dollars):

<TABLE>
<CAPTION>
                                                                    Three Months Ended         Six Months Ended
                                                                         June 30,                  June 30,
                                                                  ----------------------    ---------------------
                                                                     1997        1996         1997         1996
                                                                  ---------   ----------    ---------   ---------
                                                                        (Unaudited)               (Unaudited)

      <S>                                                         <C>         <C>           <C>         <C>      
      Natural gas.............................................    $    94.3   $     73.8    $   279.8   $   199.9
      Refining, marketing and chemicals.......................         42.7         23.5         (8.1)       58.3
      Exploration and production..............................         30.5         41.0         96.6        55.1
      Coal ...................................................          6.3         23.9         18.8        42.3
      Power...................................................          1.8          7.8          5.9        10.2
      Other...................................................          2.3          2.8          4.9         5.6
                                                                  ---------   ----------    ---------   ---------
                                                                  $   177.9   $    172.8    $   397.9   $   371.4
                                                                  =========   ==========    =========   =========
</TABLE>

     Natural Gas. In September 1996, Coastal and Westcoast Energy Inc.
("Westcoast") jointly announced plans to form one of North America's largest
marketers of natural gas and electricity through the combination of the
operations of the two companies' related marketing and service subsidiaries.
Agreements were concluded in February 1997, which created Engage Energy US, L.P.
and Engage Energy Canada, L.P. (collectively, "Engage") in which Coastal and
Westcoast indirectly own 50% each. Subsequent to the combination, Coastal's
share of Engage's net earnings is included in other income-net.

     The decrease in operating revenues of $660.7 million for the second quarter
and $433.0 million for the six months ended June 30, 1997 can be primarily
attributed to the Company's unregulated gas marketing operations which became a
part of Engage. The revenues from those operations, which are not included in
the Company's revenues after February 1997, resulted in decreases of $649.6
million and $873.1 million for the three month and six month periods of 1997,
respectively. Partially offsetting the decreases noted above in the six month
period were increased prices and volumes for gas sales, primarily during the
first two months of 1997, and a $42.0 million gain recognized in connection with
the Engage combination. Transportation, storage and gathering revenues also
increased in the six month period.

     Purchases decreased by $671.8 million for the three months and $493.9
million for the six months ended June 30, 1997, primarily due to the combination
of the unregulated gas marketing operations noted above and increased prices and
volumes in the first two months of 1997. Gross profit increased by $11.1 million
and $60.9 million for the three months and six months ended June 30, 1997.

     The operating profit increase of $20.5 million for the second quarter
results from increased sales volumes of $9.8 million; decreased depreciation,
depletion and amortization of $4.1 million; decreased operating expenses of $3.2
million and other increases of $3.4 million. For the six month period, operating
profit increased by $79.9 million as reduced operating expenses of $23.4
million; increased gas sales volumes of $13.9 million; the $42.0 million gain
discussed above; increased transportation, storage and gathering revenue of $2.7
million; reduced depreciation, depletion and amortization of $2.1 million and
other increases of $8.0 million were partially offset by decreased gross margins
from gas sales of $12.2 million. The decreases in operating expenses for the
three month and six month period result from reductions for transmission
expenses and gas purchase deferrals and recovery amortizations.

     Refining, Marketing and Chemicals. Operating revenues decreased by $179.5
million in the 1997 second quarter and $282.4 million in the six months ended
June 30, 1997 due to reduced prices and volumes. Purchases decreased by $214.7
million and $238.8 million in the three and six months, respectively, due to
reduced prices and volumes, resulting in a gross profit increase of $35.2
million for the second quarter and a gross profit decrease of $43.6 million for
the six month period.

     The operating profit increase of $ 19.2 million for the second quarter
results from improved margins of $42.6 million and other increases of $2.2
million offset by reduced volumes of $9.5 million; increased operating expenses
of $ 15.1 million; and higher depreciation, depletion and amortization of $ 1.0
million. For the six months ended June 30, 1997, operating profit decreased by
$66.4 million due to reduced volumes of $38.5 million; increased operating


                                     - 15 -

<PAGE>

expenses of $19.6 million; increased depreciation, depletion and amortization
of $3.1 million; decreased gross profit from the sale, trading and exchanging
of third party products of $4.3 million; and other decreases of $0.9 million.
Included in the operating loss for the 1997 six month period is an inventory
loss of $60.0 million in the first quarter which resulted from falling product
and crude oil prices. The increased operating expenses are primarily due to
increased fuel costs, maintenance and other expenses at the Company's
refineries. The volume decreases can be partially attributed to the ongoing
refocusing of the Company's marketing assets, which is eliminating marginal
activities and expanding operations directly supporting the Company's core
refining assets.

     Exploration and Production. Operating revenues decreased by $.4 million in
the second quarter as a result of lower prices and the net effects of hedging
and asset monetization activities in 1996 partially offset by increased natural
gas volumes. The increase in operating revenues of $79.2 million for the six
months ended June 30, 1997 resulted from increased prices and volumes. The
higher volumes reflect the continued growth of Coastal's drilling program.
Operating profit for the three month period decreased by $10.5 million as
reduced prices of $8.9 million; $9.0 million from the net effects of hedging and
asset monetization activities in 1996; increased operating expenses of $.8
million; and increased depreciation, depletion and amortization of $9.8 million
were partially offset by increased volumes of $16.7 million and other of $1.3
million. The operating profit increase of $41.5 million for the six month period
results from higher prices of $32.7 million, increased volumes of $56.9 million
and other increases of $.2 million offset by increased operating expenses of
$12.4 million; increased depreciation, depletion and amortization of $26.9
million and the net effects of hedging and asset monetization activities in 1996
of $9.0 million. The higher operating expenses for both 1997 periods result from
increased levels of offshore activity and increased production. Increased
production volumes in both 1997 periods resulted in the depreciation, depletion
and amortization increases.

     Coal. Operating revenues from the coal segment decreased by $47.3 million
in the three months and $100.3 million in the six months ending June 30, 1997
due primarily to the sale of the Company's Utah coal operations in December
1996. Operating profit decreased by $17.6 million in the second quarter of 1997
as reductions from the sale of the Utah coal operations of $13.7 million, lower
prices for the mines in the eastern United States of $2.2 million, increased
operating expenses of $1.3 million and other decreases of $1.9 million were
partially offset by increased volumes from the remaining mines of $1.5 million.
The decrease in operating profit of $23.5 million for the six month period
resulted from decreases due to the sale of the Utah coal operations of $26.9
million, reduced prices for the Eastern mines of $3.3 million and other
decreases of $5.7 million partially offset by volume increases of $3.4 million
and the favorable resolution of a contingency in the first quarter of 1997 for
$9.0 million. The other decreases for both periods result primarily from
nonrecurring income related to the sale of coke from the Company's Aruba
refinery.

     Power. The operating revenue decrease of $.1 million for the three months
ended June 30, 1997 results from a development fee in 1996 partially offset by
increases from the El Salvador operations. The $5.7 million increase for the six
month period resulted from increased revenues from the El Salvador operations
offset by the development fee noted above. Operating profit for the quarter
decreased by $6.0 million from the comparable 1996 three month period due to the
development fee of $3.5 million, decreases at a domestic cogeneration plant due
primarily to mechanical problems of $ 1.5 million and other decreases of $ 1.0
million. The operating profit decrease of $4.3 million for the six month period
resulted from the $3.5 million development fee noted above and other decreases
of $.8 million. The other decreases for both periods are the result of increased
expenses related to the operations of joint venture projects.

     Most of the plants in which the Power segment has investments are
partially-owned, thus the equity earnings from those plants are classified as
other income-net rather than operating profit. Equity income from
partially-owned plants amounted to $8.2 million for the second quarter of 1997,
compared with $3.6 million for the same period in 1996. For the first six
months, equity earnings were $14.5 million and $8.7 million in 1997 and 1996,
respectively. The increased equity earnings are due to improved earnings from
plants in operation during 1996 as well as additional plants now in operation.

     Other Income-Net. The increases of $.4 million for the second quarter and
$6.9 million for the six months ended June 30, 1997 result from increased equity
income from investments partially offset by dividends on preferred stock of
subsidiaries.



                                     - 16 -

<PAGE>

     Interest and Debt Expense. Interest and debt expense decreased by $21.9
million in the three month period and $38.3 million in the six month period
ended June 30, 1997 due to reduced rates and lower debt levels.

     Taxes on Income. Federal income taxes increased by $14.0 million in the
1997 second quarter and $35.9 million in the six month period as a result of
increased earnings before taxes and a higher effective federal income tax rate.
State and foreign income taxes increased by $.2 million in the three months and
by $3.4 million in the six months ended June 30, 1997.

     Extraordinary Item. The 1997 and 1996 extraordinary items, net of income
taxes, resulted from the early retirement of debt.

                              Environmental Matters

     The Company's operations are subject to extensive and evolving federal,
state and local environmental laws and regulations. The Company anticipates
capital expenditures of approximately $42 million in 1997 in order to comply
with such laws and regulations. The majority of the 1997 expenditures is
attributable to construction projects at the Company's refining, chemical and
terminal facilities. The Company currently anticipates capital expenditures for
environmental compliance for the years 1998 through 2000 of $20 to $40 million
per year. Additionally, appropriate governmental authorities may enforce the
laws and regulations with a variety of civil and criminal enforcement measures,
including monetary penalties and remediation requirements.

     The Comprehensive Environmental Response, Compensation and Liability Act,
also known as "Superfund," as reauthorized, imposes liability, without regard to
fault or the legality of the original act, for disposal of a "hazardous
substance." Certain subsidiaries of the Company and a company in which Coastal
owns a 50% interest have been named as a potentially responsible party ("PRP")
in several "Superfund" waste disposal sites. At the 16 sites for which there is
sufficient information, total clean-up costs are estimated to be approximately
$333 million, and the Company estimates its pro-rata exposure, to be paid over a
period of several years, is approximately $7.4 million and has made appropriate
provisions. At 4 other sites, the Environmental Protection Agency ("EPA") is
currently unable to provide the Company with an estimate of total clean-up costs
and, accordingly, the Company is unable to calculate its share of those costs.
Finally at 10 other sites, the Company has paid amounts to other PRPs or to the
EPA as its proportional share of associated clean-up costs. As to these latter
sites, the Company believes that its activities were de minimis. Additionally,
certain subsidiaries of the Company have been named as PRPs in two state sites.
At one site, the North Carolina Department of Health, Environment and Natural
Resources has estimated the total clean-up costs to be approximately $50
million, but the Company believes that the subsidiaries' activities at this site
were de minimis. At the other state site, the Florida Department of
Environmental Protection has demanded reimbursement of its costs, which total
$100,000, and suitable remediation. There is not sufficient information to
estimate the remedial costs or the Company's pro-rata exposure at this site.

     Future information and developments will require the Company to continually
reassess the expected impact of these environmental matters. However, the
Company has evaluated its total environmental exposure based on currently
available data, including its potential joint and several liability, and
believes that compliance with all applicable laws and regulations will not have
a material adverse impact on the Company's liquidity, consolidated financial
position or results of operations.

Item 2.B. Other Developments.

     CIG's Wind River Lateral has been expanded by 68 million cubic feet per day
("Mmcf/d") to a total capacity of 263 Mmcf/d. The Wind River Lateral, located in
central and north-central Wyoming, carries natural gas from the Wind River and
Big Horn Basins to CIG and its affiliate's, Wyoming Interstate Company, Ltd.,
pipeline systems near Rawlins, Wyoming. Expansion of the lateral required
construction of a new compressor station with over 10,000 horsepower at Muddy
Gap, Wyoming, located approximately fifty miles north of Rawlins. The expansion
was placed into service on August 1, 1997.



                                     - 17 -

<PAGE>

     In July 1997, Independence Pipeline Company, a general partnership formed
of wholly-owned subsidiaries of ANR Pipeline and Transcontinental Gas Pipe Line
Corporation ("Transco"), reached an agreement in principle with National Fuel
Gas Supply Corporation ("National"), pursuant to which National will join as an
equal partner in the development of the new interstate natural gas pipeline (the
"Independence Pipeline"), with an estimated cost of $630 million. As proposed,
the Independence Pipeline would consist of approximately 370 miles of 36-inch
diameter pipe, with an initial winter capacity of up to 900 Mmcf/d, and would
serve markets for natural gas in the Eastern United States. It would extend from
ANR Pipeline's compressor station at Defiance, Ohio, to Transco's facilities at
Leidy, Pennsylvania. The Independence Pipeline is planned to be in service
November 1999, subject to receipt of satisfactory regulatory approvals.

     In June 1997, Coastal announced that an affiliate of the Company's
exploration and production subsidiary, Coastal Oil & Gas Corporation, won two
bids for permits from the Australian government to drill for oil and gas in the
Bonaparte Basin on Australia's Northwest Shelf. Coastal's affiliate will have a
50% percent working interest in a block of more than 360,000 acres and a 40%
working interest in a block of more than 380,000 acres and shall be the operator
for both blocks. Coastal is obligated to conduct both seismic and drilling
operations in each of the blocks and expects to begin the seismic work late this
year.




                                     - 18 -

<PAGE>

                                     PART II

                                OTHER INFORMATION

Item 1. Legal Proceedings.

     The information required hereunder is incorporated by reference into Part
II of this Report from Note 7 of the Notes to Consolidated Financial Statements
set forth in Part I of this Report and from Item 2.A., "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Environmental
Matters" set forth in Part I of this Report.

Item 2. Changes in Securities.

     None.

Item 3. Defaults Upon Senior Securities.

     None.

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

     The 1997 Annual Meeting of Stockholders of the Company was held on May 8,
1997. At such meeting all four directors nominated as a Class II director were
elected uncontested: (i) 92,819,608 votes were cast for the election of David A.
Arledge and 755,209 votes were withheld; (ii) 125,860,094 votes were cast for
the election of George L. Brundrett, Jr. and 941,823 votes were withheld; (iii)
125,988,681 votes were cast for the election of L. D. Wooddy, Jr. and 813,236
votes were withheld; and (iv) 125,889,272 votes were cast for the election of O.
S. Wyatt, Jr. and 912,645 votes were withheld.

     A stockholder proposal requesting that the Company (a) make a greater
effort to find qualified women and minority candidates for nomination to the
Company's Board of Directors; (b) issue a statement committing the Company to a
policy of board inclusiveness; and (c) issue a report describing the criteria
for board qualification and the process of selecting the board candidates, was
voted upon at such meeting. The stockholder proposal was defeated: 13,787,982
affirmative votes and 98,670,250 negative votes were cast with respect to such
matter. There were also 6,319,492 abstentions and 10,024,193 broker non-votes.

Item 5. Other Information.

     Oscar S. Wyatt, Jr., the Company's founder and only Chairman, retired on
July 15, 1997. David A. Arledge, President and Chief Executive Officer, assumed
the role of Chairman on the same date. Mr. Wyatt will remain on the Board of
Directors and continue as Chairman of the Executive Committee.

Item 6. Exhibits and Reports on Form 8-K.

     (a) Exhibits.

         11 - Statement re Computation of Per Share Earnings.
         27 - Financial Data Schedule.

     (b) Reports on Form 8-K.

         No reports on Form 8-K were filed during the quarter ended June 30,
         1997.



                                     - 19 -

<PAGE>

                                   SIGNATURES


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

                                                 THE COASTAL CORPORATION
                                                      (Registrant)

Date:  August 12, 1997                    By:          COBY C. HESSE
                                              --------------------------------
                                                       Coby C. Hesse
                                                   Executive Vice President
                                              and Principal Accounting Officer
                                                 (As Authorized Officer and
                                                  Chief Accounting Officer)


                                     - 20 -

<PAGE>

                                INDEX TO EXHIBITS


Exhibit
Number                              Description
--------------------------------------------------------------------------------
  11            Statement Re Computation of Per Share Earnings
  27            Financial Data Schedule



                                     - 21 -

<PAGE>

                                                                      EXHIBIT 11

                    THE COASTAL CORPORATION AND SUBSIDIARIES
                 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
                 (Millions of Dollars, Except Per Share Amounts,
                            and Thousands of Shares)


<TABLE>
<CAPTION>
                                                                    Three Months Ended         Six Months Ended
                                                                         June 30,                  June 30,
                                                                  ----------------------    ---------------------
                                                                     1997        1996         1997         1996
                                                                  ---------   ----------    ---------   ---------
                                                                        (Unaudited)               (Unaudited)

<S>                                                               <C>         <C>           <C>         <C>      
COMMON STOCK AND EQUIVALENTS:
Net earnings applicable to common stock and
   common stock equivalents...................................    $    74.9   $     49.7    $    81.2   $   127.9
                                                                  =========   ==========    =========   =========

Average number of common shares outstanding...................      105,524      105,079      105,470     104,967
Class A common shares.........................................          376          395          378         395
Common share and Class A equivalents:
   $1.19 Cumulative Convertible Preferred, Series A*..........          216          223          216         223
Dilutive effect of outstanding stock options after
   application of treasury stock method*......................          760          593          769         561
                                                                  ---------   ----------    ---------   ---------
Average common and common equivalent shares...................      106,876      106,290      106,833     106,146
                                                                  =========   ==========    =========   =========

Net earnings per average common and common equivalent share outstanding:
   Earnings before extraordinary item.........................    $     .70   $      .58    $    1.61   $    1.32
   Extraordinary item.........................................            -         (.11)        (.85)       (.11)
                                                                  ---------   ----------    ---------   ---------
   Net earnings...............................................    $     .70   $      .47    $     .76   $    1.21
                                                                  =========   ==========    =========   =========

ASSUMING FULL DILUTION:
Net earnings applicable to common stock and
   common stock equivalents...................................    $    74.9   $     49.7    $    81.2   $   127.9
Dividends applicable to dilutive preferred stock:
   Series B...................................................           .1           .1           .1          .1
   Series C...................................................           .1            -           .1          .1
                                                                  ---------   ----------    ---------   ---------
Adjusted net earnings assuming full dilution..................    $    75.1   $     49.8    $    81.4   $   128.1
                                                                  =========   ==========    =========   =========

Average number of common shares outstanding...................      105,524      105,079      105,470     104,967
Class A common shares.........................................          376          395          378         395
Common and Class A common share equivalents:
   Series A Preferred Stock*..................................          216          223          216         223
Equivalent common and Class A common shares from
   Series B and C Preferred Stock*............................          492          518          492         518
Dilutive effect of outstanding stock options after
   application of treasury stock method*......................          924          680          924         680
                                                                  ---------   ----------    ---------   ---------
Fully diluted shares..........................................      107,532      106,895      107,480     106,783
                                                                  =========   ==========    =========   =========

Fully diluted earnings per share:
   Earnings before extraordinary item.........................    $     .70   $      .58    $    1.61   $    1.31
   Extraordinary item.........................................            -         (.11)        (.85)       (.11)
                                                                  ---------   ----------    ---------   ---------
   Net earnings**.............................................    $     .70   $      .47    $     .76   $    1.20
                                                                  =========   ==========    =========   =========

<FN>
*    Convertible securities and options are not considered in the calculations
     if the effect of the conversion is anti-dilutive.

**   Reporting not required by generally accepted accounting principles because
     of small variances from earnings on average common and common equivalent
     shares.
</FN>
</TABLE>

                                     - 22 -