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

                       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, 1998
                                                        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, 1998, there were outstanding 212,233,139 shares of Common
Stock, 33 1/3(cent) par value per share, and 357,256 shares of Class A Common
Stock, 33 1/3(cent) par value per share, of the Registrant.

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


<PAGE>



                                     PART I

                              FINANCIAL INFORMATION


Item 1.    Financial Statements.

      The financial statements of The Coastal Corporation ("Coastal") and its
subsidiaries (collectively the "Company") are presented herein and are
unaudited, except for balances as of December 31, 1997, 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 of natural gas and petroleum products.



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


<CAPTION>
                                                                                   June 30,         December 31,
                                     ASSETS                                         1998                1997
                                                                               ---------------     -------------
                                                                                  (Unaudited)

<S>                                                                               <C>                <C>        
Current Assets:
   Cash and cash equivalents...............................................       $      83.5        $      20.5
   Receivables, less allowance for doubtful accounts of $16.9 million
      (1998) and $16.6 million (1997)......................................           1,337.7            1,570.8
   Inventories.............................................................             554.8              684.7
   Prepaid expenses and other..............................................             245.7              252.7
                                                                                  -----------        -----------
      Total Current Assets.................................................           2,221.7            2,528.7
                                                                                  -----------        -----------

Property, Plant and Equipment - at cost:
   Natural gas systems.....................................................           5,953.6            5,859.0
   Refining, crude oil and chemical facilities.............................           2,339.4            2,254.8
   Gas and oil properties - at full-cost...................................           2,537.5            2,152.0
   Other...................................................................             387.5              395.0
                                                                                  -----------        -----------
                                                                                     11,218.0           10,660.8
   Accumulated depreciation, depletion and amortization....................           3,702.0            3,539.2
                                                                                  -----------        -----------
                                                                                      7,516.0            7,121.6
                                                                                  -----------        -----------

Other Assets:
   Goodwill................................................................             480.3              489.8
   Investments - equity method.............................................             822.1              722.8
   Other...................................................................             786.9              762.3
                                                                                  -----------        -----------
                                                                                      2,089.3            1,974.9
                                                                                  -----------        -----------
                                                                                  $  11,827.0        $  11,625.2
                                                                                  ===========        ===========
</TABLE>



                 See Notes to Consolidated Financial Statements.


                                      - 1 -

<PAGE>



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


<CAPTION>
                                                                                   June 30,         December 31,
                      LIABILITIES AND STOCKHOLDERS' EQUITY                          1998                1997
                                                                               ---------------     -------------
                                                                                  (Unaudited)

<S>                                                                               <C>               <C>        
Current Liabilities:
   Notes payable...........................................................       $      93.0       $     114.0
   Accounts payable........................................................           1,588.6           2,074.0
   Accrued expenses........................................................             369.2             270.7
   Current maturities on long-term debt....................................             161.9              42.0
                                                                                  -----------       -----------
      Total Current Liabilities............................................           2,212.7           2,500.7
                                                                                  -----------       -----------

Debt:
   Long-term debt, excluding current maturities............................           3,698.5           3,663.2
                                                                                  -----------       -----------

Deferred Credits and Other:
   Deferred income taxes...................................................           1,642.5           1,564.9
   Other deferred credits..................................................             597.6             514.0
                                                                                  -----------       -----------
                                                                                      2,240.1           2,078.9
                                                                                  -----------       -----------

Preferred Stock:
   Company-obligated mandatory redemption
      preferred securities of a consolidated trust.........................             300.0                 -
   Issued by subsidiaries..................................................             100.0             100.0
                                                                                  -----------       -----------
                                                                                        400.0             100.0
                                                                                  -----------       -----------

Common Stock and Other Stockholders' Equity:
   Cumulative preferred stock (with aggregate liquidation preference
      of $8.0 million).....................................................                 -               2.6
   Class A common stock....................................................                .1                .1
   Common stock............................................................              72.2              36.7
   Additional paid-in capital..............................................           1,016.3           1,243.6
   Retained earnings.......................................................           2,319.6           2,131.9
                                                                                  -----------       -----------
                                                                                      3,408.2           3,414.9
   Less common stock in treasury - at cost.................................             132.5             132.5
                                                                                  -----------       -----------
                                                                                      3,275.7           3,282.4
                                                                                  -----------       -----------
                                                                                  $  11,827.0       $  11,625.2
                                                                                  ===========       ===========
</TABLE>



                 See Notes to Consolidated Financial Statements.


                                      - 2 -

<PAGE>



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


<CAPTION>
                                                                    Three Months Ended         Six Months Ended
                                                                         June 30,                  June 30,
                                                                  ----------------------    ---------------------
                                                                     1998        1997         1998         1997
                                                                  ---------   ----------    ---------   ---------
                                                                        (Unaudited)               (Unaudited)

<S>                                                               <C>         <C>           <C>         <C>      
Operating Revenues............................................    $ 1,924.4   $  2,156.6    $ 3,880.9   $ 5,362.4
                                                                  ---------   ----------    ---------   ---------

Operating Costs and Expenses:
   Purchases..................................................      1,176.8      1,473.2      2,363.2     3,938.6
   Operating and general expenses.............................        427.1        413.2        849.2       832.7
   Depreciation, depletion and amortization...................        116.7        106.4        223.7       222.3
                                                                  ---------   ----------    ---------   ---------
                                                                    1,720.6      1,992.8      3,436.1     4.993.6
                                                                  ---------   ----------    ---------   ---------

Other Income - net............................................          5.0         18.7         24.4        43.3
                                                                  ---------   ----------    ---------   ---------

Earnings Before Interest and Income Taxes.....................        208.8        182.5        469.2       412.1
                                                                  ---------   ----------    ---------   ---------

Interest and debt expense, less $6.3 million (1998) and
   $2.4 million (1997) three months and $11.8
    million (1998) and $4.8 million (1997)
   six months capitalized.....................................         75.8         73.2        151.1       152.4
Taxes on income...............................................         38.4         30.0        100.6        79.2
                                                                  ---------   ----------    ---------   ---------

Earnings Before Extraordinary Item............................         94.6         79.3        217.5       180.5
Extraordinary item - loss on early extinguishment
   of debt....................................................            -            -            -       (90.6)
                                                                  ---------   ----------    ---------   ---------

Net Earnings..................................................         94.6         79.3        217.5        89.9
Dividends on Preferred Stock..................................          1.6          4.4          5.9         8.7
                                                                  ---------   ----------    ---------   ---------

Net Earnings Available
   to Common Stockholders.....................................    $    93.0   $     74.9    $   211.6   $    81.2
                                                                  =========   ==========    =========   =========

Basic Earnings Per Share:
   Before extraordinary item..................................    $     .44   $      .35    $    1.00   $     .81
   Extraordinary item.........................................            -            -            -        (.43)
                                                                  ---------   ----------    ---------   ---------
   Net basic earnings per share...............................    $     .44   $      .35    $    1.00   $     .38
                                                                  =========   ==========    =========   =========

Diluted Earnings Per Share:
   Before extraordinary item..................................    $     .43   $      .35    $     .98   $     .80
   Extraordinary item.........................................            -            -            -        (.42)
                                                                  ---------   ----------    ---------   ---------
   Net diluted earnings per share.............................    $     .43   $      .35    $     .98   $     .38
                                                                  =========   ==========    =========   =========

Cash Dividends Per Common Share...............................    $   .0625   $      .05    $   .1125   $     .10
                                                                  =========   ==========    =========   =========
</TABLE>


                 See Notes to Consolidated Financial Statements.


                                      - 3 -

<PAGE>



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


<CAPTION>
                                                                          Six Months Ended June 30,
                                                           ------------------------------------------------------
                                                                     1998                          1997
                                                           ------------------------      ------------------------
                                                             Shares        Amount          Shares        Amount
                                                           -----------   ----------      -----------   ----------
                                                                                 (Unaudited)

<S>                                                        <C>           <C>             <C>           <C>       
Preferred stock, par value
   33 1/3(cent) per share, authorized 50,000,000 shares:
      Cumulative convertible preferred:
      $1.19, Series A, redemption or liquidation
         amount of $33 per share:
           Beginning balance...........................             58   $        -               60   $        -
           Converted to common.........................             (1)           -               (2)           -
                                                           -----------   ----------      -----------   ----------
           Ending balance..............................             57            -               58            -
                                                           ===========   ----------      ===========   ----------

      $1.83, Series B, redemption or liquidation
         amount of $50 per share:
           Beginning balance...........................             68            -               74            -
           Converted to common.........................             (3)           -               (3)           -
                                                           -----------   ----------      -----------   ----------
           Ending balance..............................             65            -               71            -
                                                           ===========   ----------      ===========   ----------

      $5.00, Series C, redemption or liquidation
         amount of $100 per share:
           Beginning balance...........................             30            -               32            -
           Converted to common.........................             (2)           -               (1)           -
                                                           -----------   ----------      -----------   ----------
           Ending balance..............................             28            -               31            -
                                                           ===========   ----------      ===========   ----------

      Cumulative preferred:
      $2.125, Series H, liquidation amount
         of $25 per share:
           Beginning balance...........................          8,000          2.6            8,000          2.6
           Redeemed....................................         (8,000)        (2.6)               -            -
                                                           -----------   ----------      -----------   ----------
           Ending balance..............................              -            -            8,000          2.6
                                                           ===========   ----------      ===========   ----------

Class A common stock, par value 33 1/3(cent) per share,
   authorized 2,700,000 shares:
      Beginning balance................................            366           .1              382           .1
      Converted to common..............................             (8)           -              (10)           -
      Conversion of preferred stock....................              -            -                1            -
                                                           -----------   ----------      -----------   ----------
      Ending balance...................................            358           .1              373           .1
                                                           ===========   ----------      ===========   ----------

Common stock, par value 33 1/3(cent) per share,
  authorized 250,000,000 shares:
      Beginning balance................................        110,117         36.7          109,756         36.6
      Conversion of preferred stock....................             19            -               21            -
      Conversion of Class A common stock...............              8            -               10            -
      Two-for-one stock split..........................        106,268         35.4
      Exercise of stock options........................            169           .1              219           .1
                                                           -----------   ----------      -----------   ----------
      Ending balance...................................        216,581   $     72.2          110,006   $     36.7
                                                           ===========   ----------      ===========   ----------
</TABLE>


                 See Notes to Consolidated Financial Statements.


                                      - 4 -

<PAGE>



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


<CAPTION>
                                                                          Six Months Ended June 30,
                                                           ------------------------------------------------------
                                                                     1998                          1997
                                                           ------------------------      ------------------------
                                                             Shares        Amount          Shares        Amount
                                                           -----------   ----------      -----------   ----------
                                                                                 (Unaudited)

<S>                                                        <C>           <C>             <C>           <C>    
Additional paid-in capital:
   Beginning balance...................................                  $  1,243.6                    $  1,239.6
   Exercise of stock options...........................                         5.5                           3.9
   Two-for-one stock split.............................                       (35.4)                            -
   Redemption of Series H preferred stock..............                      (197.4)                            -
                                                                         ----------                    ----------
   Ending balance......................................                     1,016.3                       1,243.5
                                                                         ----------                    ----------

Retained earnings:
   Beginning balance...................................                     2,131.9                       1,890.1
   Net earnings for period.............................                       217.5                          89.9
   Dividends on preferred stock........................                        (5.9)                         (8.7)
   Dividends on common stock...........................                       (23.9)                        (21.1)
                                                                         ----------                    ----------
   Ending balance......................................                     2,319.6                       1,950.2
                                                                         ----------                    ----------
Less treasury stock - at cost..........................          4,396       (132.5)           4,395       (132.5)
                                                           ===========   ----------      ===========   ----------

Total..................................................                  $  3,275.7                    $  3,100.6
                                                                         ==========                    ==========
</TABLE>


                 See Notes to Consolidated Financial Statements.


                                      - 5 -

<PAGE>



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


<CAPTION>
                                                                                        Six Months Ended
                                                                                            June 30,
                                                                                   -------------------------
                                                                                      1998            1997
                                                                                   ---------        --------
                                                                                           (Unaudited)

<S>                                                                                <C>              <C>     
Net Cash Flow From Operating Activities:
   Earnings before extraordinary item..........................................    $   217.5        $  180.5
   Add (subtract) items not requiring (providing) cash:
      Depreciation, depletion and amortization.................................        224.6           223.9
      Deferred income taxes....................................................         70.2            28.7
      Undistributed earnings from equity investments...........................         (8.4)          (17.4)

   Working capital and other changes, excluding changes relating to cash and
      non-operating activities:
         Accounts receivable...................................................        233.1           599.7
         Inventories...........................................................        129.8           327.1
         Prepaid expenses and other............................................        (20.4)           (7.8)
         Accounts payable......................................................       (477.0)         (694.1)
         Accrued expenses......................................................        107.8           (72.8)
         Other.................................................................        105.9             7.0
                                                                                   ---------        --------
                                                                                       583.1           574.8
                                                                                   ---------        --------

Cash Flow From Investing Activities:
   Purchases of property, plant and equipment..................................       (627.2)         (407.7)
   Proceeds from sale of property, plant and equipment.........................          2.8            23.0
   Additions to investments....................................................       (114.0)         (166.2)
   Proceeds from investments...................................................         11.3            52.7
                                                                                   ---------        --------
                                                                                      (727.1)         (498.2)
                                                                                   ---------        --------

Cash Flow From Financing Activities:
   Increase in short-term notes ...............................................         29.0           335.0
   Redemption of preferred stock...............................................       (200.0)              -
   Proceeds from issuing common stock..........................................          5.6             4.0
   Proceeds from long-term debt issues.........................................        397.0           627.6
   Proceeds from issuing Company-obligated mandatory
      redemption preferred securities of a consolidated trust..................        300.0               -
   Payments to retire long-term debt...........................................       (294.8)       (1,068.9)
   Dividends paid..............................................................        (29.8)          (29.8)
                                                                                   ---------        --------
                                                                                       207.0          (132.1)
                                                                                   ---------        --------

Net Increase (Decrease) in Cash and Cash Equivalents...........................         63.0           (55.5)

Cash and Cash Equivalents at Beginning of Period...............................         20.5           106.3
                                                                                   ---------        --------

Cash and Cash Equivalents at End of Period.....................................    $    83.5        $   50.8
                                                                                   =========        ========
</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, 1997. 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. In 1997, the Company
reexamined the useful lives of certain assets associated with the interstate
natural gas pipeline and storage subsidiaries. In July 1997, the depreciation
rates related to these assets were revised. This revision had the effect of
increasing "Earnings Before Extraordinary Item" and "Net Earnings" by
approximately $9.5 million ($.05 per share) and $19.0 million ($.09 per share)
for the three- and six-month periods ended June 30, 1998, respectively.

      The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income," in 1998. The application of the new standard
did not have a material effect on the Company's consolidated financial
statements as the Company currently does not have any material items of other
comprehensive income.

      The Company adopted Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("FAS
131"), in 1998. See Note 7 for additional information on FAS 131.

      The Company adopted Statement of Financial Accounting Standards No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits" ("FAS
132"), in 1998. FAS 132, which revises employer disclosures regarding pension
plans and other postretirement plans, is not expected to have a material effect
on the Company's consolidated financial statements.

      The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("FAS 133"), to be effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. FAS 133 requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The accounting for changes
in the fair value of a derivative will depend on the intended use of the
derivative and the resulting designation. The Company is currently evaluating
the impact of FAS 133.

      The Accounting Standards Executive Committee of the American Institute of
Certified Public Accountants ("AICPA") has issued Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" ("SOP 98-1"), to be effective for periods beginning after December
15, 1998. The Company adopted SOP 98-1 in 1998. SOP 98-1 establishes standards
for the treatment of costs associated with software developed or obtained for
internal use. SOP 98-1 is not expected to have a material effect on the
Company's consolidated financial statements.

      The AICPA has issued Statement of Position 98-5, "Reporting on the Costs
of Start-Up Activities" ("SOP 98-5"), to be effective for periods beginning
after December 15, 1998. SOP 98-5 provides guidance on accounting for costs
incurred to open new facilities, conduct business in new territories or
otherwise commence some new operation. The application of SOP 98-5 is not
expected to have a material effect on the Company's consolidated financial
statements.

      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 $156.9 million and $148.6 million
for the six months ended June 30, 1998 and 1997, respectively. Cash payments for
income taxes amounted to $14.1 million and $50.0 million for the six months
ended June 30, 1998 and 1997, respectively.



                                      - 7 -

<PAGE>



2.    Inventories

      Inventories were as follows (millions of dollars):

<TABLE>
<CAPTION>
                                                                                   June 30,         December 31,
                                                                                    1998                1997
                                                                               ---------------     -------------
                                                                                 (Unaudited)

<S>                                                                              <C>                 <C>       
   Refined products, crude oil and chemicals...............................      $     370.6         $    492.3
   Natural gas in underground storage......................................             29.4               40.5
   Coal, materials and supplies............................................            154.8              151.9
                                                                                 -----------         ----------
                                                                                 $     554.8         $    684.7
                                                                                 ===========         ==========
</TABLE>

      Elements included in inventory cost are material, labor and manufacturing
expense.

3.    Stock Split

      On May 7, 1998, the Board of Directors of Coastal authorized a two-for-one
stock split of the Coastal common stock. On July 1, 1998, stockholders of record
received one additional share of common stock for each share of common stock
and/or Class A common stock held of record on May 29, 1998. The stock split has
been reflected in the accompanying financial statements, and all applicable
references as to the number of common shares and per share information have been
restated. Appropriate adjustments have been made in the conversion ratios of
shares of convertible preferred stock and in the exercise price and number of
shares subject to stock options. Effective with the stock split, the annual cash
dividend rate on the common stock is $.25 per share. The newly issued shares
will receive the dividend at the new rate.

4.    Notes Payable

      At June 30, 1998, the Company had $393.0 million of outstanding
indebtedness to banks under short-term lines of credit. The Company's financial
statements at June 30, 1998 reflect $300.0 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 a similar
reclassification of $250.0 million as of December 31, 1997.

5.    Common and Preferred Stock

      On June 30, 1998, 13,337,636 shares of Common Stock of the Company were
reserved for employee stock option plans, 1,306,654 shares were reserved for
conversion of the Series A, B, and C Preferred Stocks, 357,735 shares were
reserved for conversion of outstanding Class A Common Stock and 20,118 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 17,838 shares reserved for
conversion of the Series A, B, and C Preferred Stocks.

      During 1998, the Company has granted options to purchase 2,073,374 common
shares under stock option plans with exercise prices ranging from $27.75 to
$32.75. The exercise prices are equal to the market price of the common shares
at grant date.

      On April 15, 1998, the Company redeemed all 8,000,000 outstanding shares
of its $2.125 Cumulative Preferred Stock, Series H. Redemption price for the
Series H stock was $25 per share plus accrued dividends of $.182986 to April 15,
1998.

6.    Company-Obligated Mandatory Redemption Preferred Securities of a
Consolidated Trust

      On May 13, 1998, Coastal completed a public offering of 12,000,000
Coastal-obligated mandatory redemption preferred securities through an
affiliate, Coastal Finance I, a business trust (the "Trust"), for $300 million
in cash. The


                                      - 8 -

<PAGE>



Trust holds debt securities of Coastal (the "Debt Securities") purchased with
the proceeds of the preferred securities offering. Cumulative quarterly
distributions are being paid on the preferred securities at an annual rate of
8.375% of the liquidation amount of $25 per preferred security. The proceeds
were used to refinance borrowings incurred to finance the redemption of the
Series H Preferred Stock discussed in Note 5 and to repay certain outstanding
subsidiary indebtedness. The preferred securities are mandatorily redeemable on
the maturity date, May 13, 2038, or earlier to the extent of any redemption by
Coastal of any Debt Securities. The redemption price to be paid is $25 per
preferred security, plus accrued and unpaid distributions to the date of
redemption.

7.    Segment Information

      The Company adopted FAS 131 in 1998. FAS 131 establishes standards for the
way that public business enterprises report information about operating segments
and requires those companies to report selected information about the operating
segments. Data for 1997 has been reclassified to conform with current reporting
practices following the standards in FAS 131 (millions of dollars):

<TABLE>
<CAPTION>
                                                                    Three Months Ended         Six Months Ended
                                                                         June 30,                  June 30,
                                                                  ----------------------    ---------------------
                                                                     1998        1997         1998         1997
                                                                  ---------   ----------    ---------   ---------
                                                                        (Unaudited)               (Unaudited)

<S>                                                               <C>         <C>           <C>         <C>      
   Operating Revenues From External Customers:
      Natural gas.............................................    $   311.6   $    276.0    $   727.7   $ 1,481.5
      Refining, marketing and chemicals.......................      1,388.3      1,693.9      2,740.9     3,547.7
      Exploration and production..............................        117.1         97.1        221.5       158.5
      Coal....................................................         61.7         59.0        115.5       113.3
      Power...................................................         41.5         25.7         69.3        51.7
      Corporate and other.....................................          4.2          4.9          6.0         9.7
                                                                  ---------   ----------    ---------   ---------
                                                                  $ 1,924.4   $  2,156.6    $ 3,880.9   $ 5,362.4
                                                                  =========   ==========    =========   =========
</TABLE>

      Intersegment revenues for the three-month period were as follows: Natural
gas - $5.6 million (1997); Refining, marketing and chemicals - $.8 million
(1998), $2.6 million (1997); Exploration and production - $7.1 million (1998),
$2.8 million (1997); and Corporate and other - $1.8 million (1998), $3.2 million
(1997).

      Intersegment revenues for the six-month period were as follows: Natural
gas - $49.5 million (1997); Refining, marketing and chemicals - $1.8 million
(1998), $2.8 million (1997); Exploration and production - $15.1 million (1998),
$90.4 million (1997); and Corporate and other - $6.3 million (1998), $6.4
million (1997).

<TABLE>
<CAPTION>
                                                                    Three Months Ended         Six Months Ended
                                                                         June 30,                  June 30,
                                                                  ----------------------    ---------------------
                                                                     1998        1997         1998         1997
                                                                  ---------   ----------    ---------   ---------
                                                                        (Unaudited)               (Unaudited)

<S>                                                               <C>         <C>           <C>         <C>      
   Earnings (Loss) Before Interest and Income Taxes:
      Natural gas.............................................    $    99.6   $    119.2    $   293.4   $   330.2
      Refining, marketing and chemicals.......................         70.0         44.1        117.6        (3.2)
      Exploration and production..............................         30.3         25.0         55.8        87.2
      Coal....................................................          4.5          6.3          7.3        18.8
      Power...................................................         25.8         10.0         37.4        20.4
      Corporate and other.....................................        (21.4)       (22.1)       (42.3)      (41.3)
                                                                  ---------   ----------    ---------   ---------
                                                                  $   208.8   $    182.5    $   469.2   $   412.1
                                                                  =========   ==========    =========   =========
</TABLE>

8.    Fulton Power Plant

      In June 1998, the power purchase agreement associated with the Company's
Fulton Power Plant ("Plant") was restructured. In connection with the
restructuring, a net gain of $13.6 million was recorded in the Power segment for
the


                                      - 9 -

<PAGE>



second quarter. The net gain reflects a $23.0 million reduction in the Plant's
carrying value (to estimated fair value following the restructuring) and
deferral of certain proceeds to cover estimated future costs.

9.    Income Taxes

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

<TABLE>
<CAPTION>
                                                                    Three Months Ended         Six Months Ended
                                                                         June 30,                  June 30,
                                                                  ----------------------    ---------------------
                                                                     1998        1997         1998         1997
                                                                  ---------   ----------    ---------   ---------
                                                                        (Unaudited)               (Unaudited)

<S>                                                               <C>         <C>           <C>         <C>      
   Current Income Taxes:
      Federal.................................................    $    (1.8)  $      2.9    $    19.4   $    40.9
      Foreign.................................................          1.5           .5          3.0         2.0
      State...................................................          2.0          2.5          8.0         7.6
                                                                  ---------   ----------    ---------   ---------
                                                                        1.7          5.9         30.4        50.5
                                                                  ---------   ----------    ---------   ---------
   Deferred Income Taxes:
      Federal.................................................         33.7         23.0         65.2        27.5
      Foreign.................................................           .7           .9          1.5         1.8
      State...................................................          2.3           .2          3.5         (.6)
                                                                  ---------   ----------    ---------   ---------
                                                                       36.7         24.1         70.2        28.7
                                                                  ---------   ----------    ---------   ---------

                                                                  $    38.4   $     30.0    $   100.6   $    79.2
                                                                  =========   ==========    =========   =========
</TABLE>

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

10.   Earnings Per Share

      Earnings per share are calculated following Statement of Financial
Accounting Standards No. 128. The following data shows the amounts used in
computing basic earnings per share and the effects on income and the weighted
average number of shares of dilutive securities.

<TABLE>
<CAPTION>
                                     Three Months Ended June 30, 1998             Six Months Ended June 30, 1998
                                   -------------------------------------    ---------------------------------------
                                     Income        Shares                      Income         Shares
                                   (Numerator)  (Denominator)  Per-Share     (Numerator)   (Denominator)  Per-Share
                                   (Millions)    (Thousands)    Amount       (Millions)     (Thousands)    Amount
                                   ----------   ------------   ---------     ----------    ------------   ---------
                                                 (Unaudited)                                (Unaudited)

<S>                                <C>               <C>       <C>           <C>                <C>       <C>      
      Earnings before extraordinary
      item.....................    $     94.6                                $    217.5
      Less preferred stock
      dividends................           1.6                                       5.9
                                   ----------                                ----------
      Basic earnings per share
        Income available to
        common stockholders....          93.0        212,473   $     .44          211.6         212,362   $    1.00
                                                               =========                                  =========
      Effect of dilutive securities
        Options................             -          2,484                          -           2,300
        Convertible preferred stock        .1          1,333                         .2           1,343
                                   ----------   ------------                 ----------    ------------
      Diluted earnings per share
        Income available to
        common stockholders
        plus assumed conversions   $     93.1        216,290   $     .43     $    211.8         216,005   $     .98
                                   ==========   ============   =========     ==========    ============   =========
</TABLE>




                                     - 10 -

<PAGE>



<TABLE>
<CAPTION>
                                     Three Months Ended June 30, 1997             Six Months Ended June 30, 1997
                                   -------------------------------------    ---------------------------------------
                                     Income        Shares                      Income         Shares
                                   (Numerator)  (Denominator)  Per-Share     (Numerator)   (Denominator)  Per-Share
                                   (Millions)    (Thousands)    Amount       (Millions)     (Thousands)    Amount
                                   ----------   ------------   ---------     ----------    ------------   ---------
                                                 (Unaudited)                                (Unaudited)

<S>                                <C>               <C>       <C>           <C>                <C>       <C>      
      Earnings before extraordinary
      item.....................    $     79.3                                $    180.5
      Less preferred stock
      dividends................           4.4                                       8.7
                                   ----------                                ----------
      Basic earnings per share
        Income available to
        common stockholders....          74.9        211,800   $     .35          171.8         211,696   $     .81
                                                               =========                                  =========
      Effect of dilutive securities
        Options................             -          1,521                          -           1,537
        Convertible preferred stock        .1          1,431                         .2           1,416
                                   ----------   ------------                 ----------    ------------
      Diluted earnings per share
        Income available to
        common stockholders
        plus assumed conversions   $     75.0        214,752   $     .35     $    172.0         214,649   $     .80
                                   ==========   ============   =========     ==========    ============   =========
</TABLE>


11.   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 the
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. 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.

      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, and both parties have filed appeals. 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. In January 1998, the plaintiffs amended their suit
to exclude ANR Pipeline Company ("ANR Pipeline") employees from the potential
class. A new suit was then filed in state court in Wayne County, Michigan,
seeking to have the Michigan suit certified as a class action of African
American employees of ANR Pipeline and seeking unspecified damages as well as
attorneys and expert fees. ANR Pipeline has filed responsive pleadings denying
these allegations.


                                     - 11 -

<PAGE>



      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 or
results of operations.

      Regulatory Matters

      Under an interim gas sales program that was in effect from November 1,
1992 to November 1, 1993, ANR Pipeline collected monthly charges from its former
sales customers. The monthly charges were intended to compensate ANR Pipeline
for the costs of maintaining an inventory of gas supply to meet its firm sales
obligations under that program. In April 1994, ANR Pipeline filed with the
Federal Energy Regulatory Commission ("FERC") a reconciliation report, comparing
its total costs and revenues under that interim sales program, and proposing
refunds totaling $45.1 million (which refunds, together with applicable
interest, were paid in March 1995). After certain customers disputed this level
of proposed refunds, and following a FERC hearing on the matter, the FERC issued
an order in March 1998, which adopted most of ANR Pipeline's positions, but
required additional refunds. No party sought rehearing of the March 1998 order
and it became final. As required by the March 1998 order, ANR Pipeline submitted
a revised reconciliation report on April 13, 1998. The April 1998 filing was
accepted by FERC order issued June 12, 1998, and that FERC order has
subsequently become final. In June 1998, ANR Pipeline paid additional refunds
and interest of approximately $7 million in compliance with the revised
reconciliation report.

      ANR Pipeline filed a general rate increase application with the FERC on
November 1, 1993. The FERC permitted ANR Pipeline to place its increased rates
into effect on May 1, 1994, subject to refund and hearing procedures. After
extensive procedures, an administrative law judge issued an Initial Decision in
January 1997, which accepted some of ANR Pipeline's proposed changes, but
rejected others. ANR Pipeline and other parties filed exceptions to certain of
the findings in the Initial Decision. Before the FERC reviewed the exceptions,
ANR Pipeline filed a comprehensive settlement to resolve all outstanding issues
in the case. The settlement included provisions for lower rates, refunds and
procedures to resolve certain reserved matters, as well as a proposal for a new
short-term firm service that would allow ANR Pipeline to charge higher rates for
shippers electing to purchase such service. By order issued February 13, 1998,
the FERC approved the settlement in all respects, except the proposed new
short-term firm service (which was rejected by the FERC), and addressed two of
the three reserved matters that the parties had requested the FERC review. The
settlement became effective on March 16, 1998 and, in compliance with the
settlement, ANR Pipeline paid refunds and interest of $66.6 million on April 15,
1998. ANR Pipeline had estimated and recorded provisions for potential rate
refunds, which exceeded the final refund requirements by $38.7 million. On June
3, 1998, the FERC denied rehearing of its February 13, 1998 order. The
proceeding is now final in all respects, other than disposition of the remaining
reserved matter which is still pending before the FERC.

      On January 31, 1996, the FERC issued a "Statement of Policy and Request
for Comments" ("Policy"). Under this Policy, (i) a pipeline and a customer are
allowed to negotiate a contract which provides for rates and charges that exceed
the pipeline's posted maximum tariff rates, provided that the shipper agreeing
to such negotiated rates has the ability to elect to receive service at the
pipeline's posted maximum rate (known as a "recourse rate"), and (ii) a pipeline
must also make subsequent tariff filings each time the pipeline negotiates a
rate for service which is outside of the minimum and maximum range for the
pipeline's cost-based recourse rates. To implement this Policy, a pipeline must
make an initial tariff filing with the FERC to indicate that it intends to
contract for services under this Policy.

      On July 29, 1998, the FERC issued a "Notice of Proposed Rulemaking," in
which the FERC has proposed a number of further significant changes to the
industry, including, among other things, removal of price caps in the short-term
market (less than one year), capacity auctions, changed reporting obligations,
the ability to negotiate terms and conditions of all service, elimination of the
requirement of a matching term cap on the renewal of existing contracts and a
review of its policies for approving capacity construction. On the same day, the
FERC also issued a "Notice of Inquiry" soliciting industry input on various
matters affecting the pricing of long-term service and certificate pricing in
light of changing market conditions. Comments on both of these matters are due
on November 9, 1998.



                                     - 12 -

<PAGE>



      On March 29, 1996, CIG filed with the FERC to change its rates, and as
part of that filing, included tariff sheets that would allow CIG to implement
"negotiated rate" transactions pursuant to the Policy. The rate change aspects
of that filing have been fully resolved, although certain parties have appealed
the FERC's acceptance of the "negotiated rate" tariff provisions. That appeal
was dismissed by the United States Court of Appeals for the D.C. Circuit as
being premature. Separately, CIG has appealed the FERC's holding that pipelines
which have entered into "negotiated rate" contracts will not be allowed discount
adjustments in connection with such contracts. That appeal was consolidated with
other similar appeals, and those appeals are being held in abeyance by the
Court. During the appeal process, the "negotiated rate" tariff provisions
approved by the FERC in CIG's general rate case are fully effective. During 1997
and for the six-month period ended June 30, 1998, CIG did not enter into any
"negotiated rate" transactions.

      On May 30, 1997, Wyoming Interstate Company, Ltd. ("WIC") filed with the
FERC to increase its rates by approximately $5.7 million annually. On June 27,
1997, the FERC accepted the filing effective as of December 1, 1997, subject to
refund. After the filing of testimony by WIC and other parties on July 2, 1998,
WIC filed a settlement offer which, if approved, will resolve all issues in the
case. Initial comments on the settlement offer were filed on August 3, 1998, and
reply comments are due August 14, 1998. The comments indicate that, while the
settlement offer is widely accepted, certain parties disagree with the level of
rates provided for in the settlement. Action on the settlement offer by the FERC
is anticipated by late 1998 or early 1999.

      In July 1996, the United States Court of Appeals for the D. C. Circuit
upheld the basic structure of FERC Order 636 (issued in April 1992), but
remanded to the FERC, for further consideration, certain limited aspects of the
Order. In response to the remand, the FERC issued Order 636-C on February 27,
1997. Order 636-C: (i) 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 (ii) reduced from 20 years to five years, the
maximum "cap" to be included in bids to renew existing contracts in order to
retain capacity. ANR Pipeline and CIG sought rehearing and clarification of
Order 636-C, and also made the appropriate compliance filings with the FERC.
While rehearing was pending, however, ANR Pipeline's proposal to retain its
current transition cost allocation level to interruptible service was accepted
by the FERC as part of an uncontested settlement. As to the term "cap" issue, in
its order on rehearing (Order No. 636-D issued May 28, 1998), the FERC confirmed
that it would consider the existence of settlements in determining whether any
existing contracts should be shortened. ANR Pipeline and CIG did not appeal
Orders 636-C and 636-D, but certain other parties have submitted appeals.

      Certain of the above regulatory matters and other regulatory issues remain
unresolved among CIG, ANR Pipeline, ANR Storage Company and WIC, 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 or results of
operations. 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 $35 million in 1998 in order to comply
with such laws and regulations. The majority of the 1998 expenditures is
attributable to projects at the Company's refining, chemical and terminal
facilities. The Company currently anticipates capital expenditures for
environmental compliance for the years 1999 through 2001 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 13 sites for which there is
sufficient information, total clean-up costs are estimated to be approximately
$295 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 eight other sites, the Environmental Protection Agency ("EPA") is
currently unable to provide the


                                     - 13 -

<PAGE>



Company with an estimate of total clean-up costs and, accordingly, the Company
is unable to calculate its share of those costs. Additionally, certain
subsidiaries of the Company have been named as PRPs in three 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 the subsidiary's activities at this site were de minimis. At a
second 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. At the third state site, the
North Dakota Department of Health has estimated the total clean-up costs to be
approximately $1 million, but the Company believes the subsidiary's activities
at this site were de minimis.

      In Michigan, where ANR Pipeline has extensive operations, the
Environmental Response Act requires individuals (including corporations) who
have caused contamination to remediate the contamination to regulatory
standards. Owners or operators of contaminated property who did not cause the
contamination are not required to remediate the contamination, but must exercise
due care in their use of the property so that the contamination is not
exacerbated and the property does not pose a threat to human health. ANR
Pipeline estimates that its costs to comply with the Michigan regulations will
be approximately $12 million, which will be expended over a period of two to ten
years and for which appropriate provisions have been made.

      By letter dated April 8, 1997, the United States Department of Justice
(the "Justice Department") notified ANR Coal Company, LLC ("ANR Coal"), a
subsidiary of Coastal, that the EPA has requested the Justice Department to
bring an action against ANR Coal for alleged violations of the Clean Water Act
resulting from discharges from a mine in which ANR Coal had a leasehold interest
in the minerals. The letter offers to settle the matter prior to litigation for
$900,000 and agreement to implement certain injunctive relief which includes the
necessary improvements to the existing water treatment system. ANR Coal has
negotiated a settlement of the matter with the EPA and the West Virginia
Division of Environmental Protection ("WVDEP"). Under the settlement, the
Company will pay a $100,000 penalty and implement a project to abate the
discharge. The WVDEP will make a substantial contribution to the project. The
settlement agreement is currently under review by the Company and the agencies.

      In April 1996, Coastal Oil & Gas Corporation ("COG"), a subsidiary of
Coastal, received a letter from the EPA Region VIII notifying it that the EPA
believes that COG's facility located in Patrick Draw, Wyoming is in violation of
certain PCB regulations promulgated pursuant to the Toxic Substances Control
Act. The EPA has offered COG an opportunity to resolve this matter without
litigation. The Company has complied with the EPA's suggested remediation and
the EPA has approved the remediation. If the EPA were to initiate an action with
regard to penalties, the Company believes that the EPA could seek penalties
which, although not material, could exceed $100,000.

      In January 1996, the EPA issued a Notice of Violation ("NOV") to Coastal
Eagle Point Oil Company and Eagle Point Cogeneration Partnership ("EPCP"), in
which Company subsidiaries hold a 50% interest. The NOV alleged violations of
the Clean Air Act for the failure to obtain a Prevention of Significant
Deterioration ("PSD") permit when EPCP was constructing the facility and for
alleged violations of the facility's operating permits. On June 25, 1997, the
Justice Department 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, along with Coastal
Technology, Inc., a subsidiary of Coastal that operates the EPCP facility, have
agreed to pay $300,000 as a penalty and to implement a Supplemental
Environmental Project. The EPA will withdraw, without prejudice, the PSD
allegation in the NOV. The settlement agreement, in the form of a consent
decree, will soon be lodged in federal district court.

      On August 10, 1998, the Javelina Company ("Javelina"), in which a wholly
owned subsidiary of the Company is a 40 percent partner, received a Notice of
Enforcement Action from the Texas Natural Resource Conservation Commission
("TNRCC") related to alleged violations of the Texas Health and Safety Code
pertaining to air pollution by Javelina's plant located in Corpus Christi,
Texas. The notice offers to resolve the alleged violations in exchange for the
payment of a $190,000 civil penalty and the implementation of certain specified
remedial measures. Javelina is reviewing the allegations and will discuss
settlement of the matter with the TNRCC if it finds them to be meritorious. The
Company believes that, if an action is brought, the TNRCC will seek monetary
sanctions, while not material to the Company and its subsidiaries, could exceed
$100,000.



                                     - 14 -

<PAGE>



      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 consolidated financial position
or results of operations.


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

      This report, including Management's Discussion and Analysis of Financial
Condition and Results of Operations, includes certain forward-looking statements
reflecting the Company's expectations and objectives in the near future;
however, many factors which may affect the actual results, including commodity
prices, market and economic conditions, industry competition and changing
regulations, are difficult to predict. Accordingly, there is no assurance that
the Company's expectations and objectives will be realized. The forward-looking
statements contained herein are intended to qualify for the safe harbor
provisions of Section 21E of the Securities Exchange Act of 1934.

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

                         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,
                                                                                1998              1997
                                                                           --------------   --------------
                                                                             (Unaudited)

<S>                                                                             <C>               <C>  
      Return on average common stockholders' equity..................           13.5%             12.9%
      Cash flow from operating activities to long-term debt..........           26.2%             26.2%
      Total debt to total capitalization.............................           51.8%             53.0%
      Times interest earned (before tax).............................            2.9               2.7
</TABLE>

      The increase in the return on average common stockholders' equity and
times interest earned ratios are primarily due to increased earnings in the 1998
period.

      On April 15, 1998, the Company redeemed all 8,000,000 outstanding shares
of its $2.125 Cumulative Preferred Stock, Series H. Redemption price for the
Series H stock was $25 per share plus accrued dividends of $.182986 to April 15,
1998.

      On May 13, 1998, Coastal completed a public offering of 12,000,000
Coastal-obligated mandatory redemption preferred securities through an
affiliate, Coastal Finance I, a business trust (the "Trust"), for $300 million
in cash. The Trust holds debt securities of Coastal (the "Debt Securities")
purchased with the proceeds of the preferred securities offering. Cumulative
quarterly distributions are being paid on the preferred securities at an annual
rate of 8.375% of the liquidation amount of $25 per preferred security. The
proceeds were used to refinance borrowings incurred to finance the redemption of
the Series H Preferred Stock discussed above and to repay certain outstanding
subsidiary indebtedness. The preferred securities are mandatorily redeemable on
the maturity date, May 13, 2038, or earlier to the extent of any redemption by
Coastal of any Debt Securities. The redemption price to be paid is $25 per
preferred security, plus accrued and unpaid distributions to the date of
redemption.

      In June 1998, the Company completed public offerings of $200.0 million of
6.5% senior debentures due 2008 and $200.0 million of 6.95% senior debentures
due 2028. The net proceeds from the sale were used to repay variable rate
indebtedness, including indebtedness of a subsidiary under a revolving credit
facility.



                                     - 15 -

<PAGE>



      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, 1998 were as follows (millions of dollars):

<TABLE>
<CAPTION>
<S>                                                                                                <C>      
         Short-term............................................................................    $   866.3
         Long-term*............................................................................        636.4
                                                                                                   ---------

                                                                                                   $ 1,502.7
                                                                                                   =========
<FN>

         *$45.1 million of unused long-term credit lines was dedicated to a specific use.
</FN>
</TABLE>

      The Financial Accounting Standards Board has issued FAS 133, to be
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
FAS 133 requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. The accounting for changes in the fair value of a derivative will
depend on the intended use of the derivative and the resulting designation. The
Company is currently evaluating the impact of FAS 133.

      The AICPA has issued SOP 98-5, to be effective for periods beginning after
December 15, 1998. SOP 98-5 provides guidance on accounting for costs incurred
to open new facilities, conduct business in new territories or otherwise
commence some new operation. The application of SOP 98-5 is not expected to have
a material effect on the Company's consolidated financial statements.

                              Results of Operations

      The changes in the Company's earnings for the three and six month periods
ended June 30, 1998 in comparison to the same periods in 1997 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,
                                                                  ----------------------    ---------------------
                                                                     1998        1997         1998         1997
                                                                  ---------   ----------    ---------   ---------
                                                                        (Unaudited)               (Unaudited)

<S>                                                               <C>         <C>           <C>         <C>      
      Natural gas.............................................    $   311.6   $    281.6    $   727.7   $ 1,531.0
      Refining, marketing and chemicals.......................      1,389.1      1,696.5      2,742.7     3,550.5
      Exploration and production..............................        124.2         99.9        236.6       248.9
      Coal....................................................         61.7         59.0        115.5       113.3
      Power...................................................         41.5         25.7         69.3        51.7
      Other...................................................          6.0          8.1         12.3        16.1
      Adjustments and eliminations............................         (9.7)       (14.2)       (23.2)     (149.1)
                                                                  ---------   ----------    ---------   ---------

                                                                  $ 1,924.4   $  2,156.6    $ 3,880.9   $ 5,362.4
                                                                  =========   ==========    =========   =========
</TABLE>



                                     - 16 -

<PAGE>



      Earnings (Loss) Before Interest and Income Taxes. The earnings (loss)
before interest and income taxes by segment was as follows (millions of
dollars):

<TABLE>
<CAPTION>
                                                                    Three Months Ended         Six Months Ended
                                                                         June 30,                  June 30,
                                                                  ----------------------    ---------------------
                                                                     1998        1997         1998         1997
                                                                  ---------   ----------    ---------   ---------
                                                                        (Unaudited)               (Unaudited)

<S>                                                               <C>         <C>           <C>         <C>      
      Natural gas.............................................    $    99.6   $    119.2    $   293.4   $   330.2
      Refining, marketing and chemicals.......................         70.0         44.1        117.6        (3.2)
      Exploration and production..............................         30.3         25.0         55.8        87.2
      Coal ...................................................          4.5          6.3          7.3        18.8
      Power...................................................         25.8         10.0         37.4        20.4
      Corporate and other.....................................        (21.4)       (22.1)       (42.3)      (41.3)
                                                                  ---------   ----------    ---------   ---------
                                                                  $   208.8   $    182.5    $   469.2   $   412.1
                                                                  =========   ==========    =========   =========
</TABLE>

      Natural Gas. The increase in operating revenues of $30.0 million for the
second quarter can be attributed to increased gas sales volumes and the
recognition of gain on the sale of certain assets partially offset by reduced
transportation, storage and gathering revenues. Operating revenues decreased by
$803.3 million in the six months ended June 30, 1998, primarily as a result of
the Company's unregulated gas marketing operations which became a part of Engage
Energy US, L.P. and Engage Energy Canada, L.P. (collectively, "Engage Energy").
The revenues from these operations, which are included in the Company's revenues
through February 1997, resulted in a decrease of $833.5 million for the
six-month period of 1998. Revenues for the 1997 six-month period also included a
$42 million gain from an equalization payment associated with the formation of
Engage Energy.

      Purchases increased $52.0 million for the three months ended June 30, 1998
due primarily to increased volume and higher average gas purchase rates,
resulting in a gross profit decrease of $22.0 million. For the six-month period,
purchases decreased by $754.8 million, primarily due to the combination of the
Company's unregulated gas marketing operations noted above. Gross profit
decreased by $48.5 million for the six-month period ended June 30, 1998.

      Earnings before interest and income taxes ("EBIT") decreased by $19.6
million for the second quarter as a result of reduced transportation, storage
and gathering revenues of $18.8 million; decreased earnings from equity
investments of $19.0 million and other decreases of $.7 million offset by a gain
of $11.3 million recognized on the sale of certain assets and reduced
depreciation, depletion and amortization of $7.6 million. The six-month EBIT
decrease of $36.8 million results from the $42 million gain discussed above;
reduced transportation, storage and gathering revenues of $30.3 million;
decreased earnings from equity investments of $22.7 million and other decreases
of $2.7 million offset by increases of $38.7 million from a rate case settlement
and reduced depreciation, depletion and amortization of $22.2 million.
Depreciation, depletion and amortization decreased in both periods due to the
revision of depreciation rates for certain assets as discussed in Note 1 of
Notes to Consolidated Financial Statements. The decreased earnings from equity
investments for both periods ended June 30, 1998 include a one-time charge of
$14.6 million in the second quarter of 1998 related primarily to the default on
delivery obligations by a supplier of electricity to Engage Energy. The other
decreases for the six-month period are primarily due to nonrecurring provisions
of $16.1 million for environmental compliance and other matters partially offset
by an increase for interest income and a gain on the sale of certain assets.

      Refining, Marketing and Chemicals. Operating revenues decreased by $307.4
million in the 1998 second quarter and $807.8 million in the six months ended
June 30, 1998 due to reduced prices partially offset by increased volumes.
Purchases decreased by $346.7 million and $938.0 million in the three and six
months, respectively, also due to reduced prices and increased volumes,
resulting in gross profit increases of $39.3 million for the second quarter and
$130.2 million for the six-month period. The reduced purchases can also be
attributed to the Company's increasing ability to use less expensive heavy and
sour crudes. The gross profit increase of $39.3 million for the second quarter
resulted from increased margins of $34.9 million and higher sales volumes of
$5.7 million partially offset by decreases of $1.3 million. The six-month gross
profit increase of $130.2 million is due to increased margins of $112.8 million;
higher sales volumes of $8.2 million and an increase of $10.7 million from the
sale, trading and exchanging of third-party products offset by decreases of $1.5
million. Included in the gross profit for the 1997 six-month period was an
inventory loss of $60.0 million which resulted from falling product and crude
oil prices.


                                     - 17 -

<PAGE>



      The EBIT increase of $25.9 million for the second quarter resulted from
increased gross profit of $39.3 million offset by increased operating expenses
of $9.2 million; increased depreciation, depletion and amortization of $2.4
million and reduced earnings from equity investments of $1.8 million. EBIT
increased by $120.8 million for the six months ended June 30, 1998 due to
increased gross profit of $130.2 million partially offset by increased
depreciation, depletion and amortization of $3.2 million; reduced earnings from
equity investments of $5.9 million and other of $.3 million. The increased
operating expenses for the second quarter result from higher costs at the
refineries due to increased throughput.

      Exploration and Production. Operating revenues increased by $24.3 million
in the second quarter as a result of increased volumes and higher natural gas
prices partially offset by lower crude oil and condensate prices. The decrease
in operating revenues of $12.3 million for the six months ended June 30, 1998
resulted from lower prices being partially offset by increased volumes. The
volume increases reflect the continued success of Coastal's drilling programs.
EBIT increased by $5.3 million in the second quarter of 1998 as increases from
higher volumes of $25.9 million, improved natural gas prices of $7.2 million and
other of $2.4 million were partially offset by lower crude oil and condensate
prices of $11.5 million; increased operating expenses of $3.6 million and
increased depreciation, depletion and amortization of $15.1 million. The EBIT
decrease of $31.4 million for the six-month period results from lower prices of
$52.5 million and increased depreciation, depletion and amortization of $19.7
million partially offset by increased volumes of $35.3 million and other
increases of $5.5 million. The other increases for the six-month period are
primarily due to the net effects of hedging activities. The depreciation,
depletion and amortization increases for both periods resulted from increased
production volumes and a higher rate.

      Coal. Operating revenues from the coal segment increased by $2.7 million
in the three months and $2.2 million in the six months ending June 30, 1998 as a
result of increased volumes being partially offset by lower prices. EBIT
decreased by $1.8 million in the three months ended June 30, 1998 due to
increased operating and general expenses of $4.2 million and other decreases of
$.3 million being partially offset by increased revenues of $2.7 million. The
decrease in EBIT of $11.5 million for the six-month period resulted from a
non-recurring favorable resolution of a contingency in the first quarter of 1997
for $9.0 million, increased operating and general expenses of $3.9 million and
other of $.8 million partially offset by increased revenues of $2.2 million. The
increased operating and general expenses, which include coal costs, are
primarily due to the increased volumes sold.

      Power. The operating revenue increases of $15.8 million in the three
months and $17.6 million in the six-month period are primarily due to a net gain
of $13.6 million recorded in the second quarter of 1998 resulting from the
restructuring of the power purchase agreement for the Company's Fulton power
plant ("Plant"). The net gain reflects a $23.0 million reduction in the Plant's
carrying value (to estimated fair value following the restructuring) and
deferral of certain proceeds to cover estimated future costs. The EBIT increase
of $15.8 million for the second quarter results from the $15.8 million revenue
increase and increased earnings from equity investments of $3.5 million
partially offset by increased operating expenses of $3.4 million and other of
$.1 million. EBIT increased by $17.0 million for the six-month period ended June
30, 1998 due to increased revenues of $17.6 million and increased earnings from
equity investments of $6.9 million partially offset by increased operating
expenses of $7.3 million and higher depreciation, depletion and amortization of
$.2 million. The operating expense increases for both periods are a result of
increased Fulton operating levels and increased administrative and development
costs related to joint venture projects.

      Corporate and Other. The EBIT for these operations, which include equity
income from trucking, real estate activities and corporate income and expense
not allocated to the operating segments, increased in the second quarter as a
result of increased earnings from equity investments in trucking partially
offset by dividends on the Company-obligated mandatory redemption preferred
securities of a consolidated trust. The EBIT for the six months ended June 30,
1998 decreased as a result of the sale of certain real estate properties in 1997
and the dividends noted above, partially offset by the increased earnings from
equity investments in trucking.

      Interest and Debt Expense. Interest and debt expense increased by $2.6
million in the three-month period due primarily to higher average debt. The
decrease of $1.3 million for the six months ended June 30, 1998 results from
reduced average interest rates and increased capitalized interest partially
offset by increases due to higher average debt.

      Taxes on Income. Federal income taxes increased by $6.0 million and $16.2
million in the three-month and six-month periods, respectively, as a result of
increased earnings before taxes and a higher effective federal income tax


                                     - 18 -

<PAGE>



rate. State and foreign income taxes increased by $2.4 million in the three
months and $5.2 million in the six months ended June 30, 1998.

      Extraordinary Item.  The 1997 extraordinary item, 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 $35 million in 1998 in order to comply
with such laws and regulations. The majority of the 1998 expenditures is
attributable to projects at the Company's refining, chemical and terminal
facilities. The Company currently anticipates capital expenditures for
environmental compliance for the years 1999 through 2001 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 13 sites for which there is
sufficient information, total clean-up costs are estimated to be approximately
$295 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 eight 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.
Additionally, certain subsidiaries of the Company have been named as PRPs in
three 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 the subsidiary's activities
at this site were de minimis. At a second 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. At
the third state site, the North Dakota Department of Health has estimated the
total clean-up costs to be approximately $1 million, but the Company believes
the subsidiary's activities at this site were de minimis.

      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.

      In July 1998, the Government of Pakistan issued letters purporting to be
"Notices of Intent to Terminate" (the "Notices") to two independent power
projects affiliated with Coastal Power Company, a subsidiary of Coastal, as well
as to several other independent power projects. The Notices received by the
Company's projects alleged unsubstantiated, unspecified charges, including
kickbacks, over invoicing and unlawful commissions. The Company has asserted
that the Notices are deficient under the terms of the applicable agreement and
has unequivocally denied the allegations contained in the Notices. The Company
is pursuing available legal remedies to secure a retraction of the Notices and
to enforce its and the projects' contractual rights.

      On July 30, 1998, the Company, through a subsidiary, entered into an
agreement with a subsidiary of Petroleos Mexicanos, Mexico's national oil
company, for the supply of up to 100,000 barrels per day ("bpd") of crude oil to
support an upgrade of the Company's Aruba refinery. The upgrade at the refinery
includes the installation of a new 30,000 bpd delayed coking unit and other
modifications aimed at increasing the refinery's heavy crude refining and
conversion capacity to approximately 280,000 bpd. The upgrade is projected to be
in service during the first half of the year 2000.



                                     - 19 -

<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 11 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 1998 Annual Meeting of Stockholders of the Company was held on May
7, 1998. At such meeting all five directors nominated as a Class III director
were elected uncontested: (i) 95,718,492 votes were cast for the election of
James F. Cordes and 1,965,901 votes were withheld; (ii) 128,363,569 votes were
cast for the election of Roy L. Gates and 1,965,624 votes were withheld; (iii)
95,695,545 votes were cast for the election of Kenneth O. Johnson and 1,988,848
votes were withheld; (iv) 128,417,020 votes were cast for the election of J.
Carleton MacNeil, Jr. and 1,912,173 votes were withheld; and (v) 128,290,196
votes were cast for the election of Thomas R. McDade and 2,038,997 votes were
withheld.

          The Company proposed that The Coastal Corporation 1998 Incentive Stock
Plan be adopted. The proposal was approved; 124,551,692 affirmative votes and
5,308,474 negative votes were cast with respect to such matter. There were also
457,260 abstentions and 11,757 broker non-votes.

          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: 18,080,613
affirmative votes and 98,374,979 negative votes were cast with respect to such
matter. There were also 4,033,524 abstentions and 9,840,077 broker non-votes.

          Stockholders who desire to submit proposals to the Company for
consideration for inclusion in the Company's Proxy Statement and form of proxy
for the 1999 Annual Meeting of Stockholders of Coastal must submit such
proposals to the Secretary of the Company by November 27, 1998. Stockholders who
intend to submit a proposal at the Annual Meeting without requesting its
inclusion in the Proxy Statement must submit such proposal to the Secretary of
the Company by February 9, 1999.

Item 5.   Other Information.

          None.

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

          (a) Exhibits.

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


                                     - 20 -

<PAGE>



          (b) Reports on Form 8-K.

              (1) A report on Form 8-K was filed on May 5, 1998. The item
reported was:

                  Item 7.    Financial Statements and Exhibits.

                  (c) Exhibits.

                      (12)   Computation of Ratio of Earnings to Combined Fixed
                             Charges and Preferred Stock Dividends.

              (2) A report on Form 8-K was filed on June 3, 1998. The item
reported was:

                  Item 7.    Financial Statements and Exhibits.

                  (c) Exhibits.

                      (12)   Computation of Ratio of Earnings to Fixed Charges.


                                   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 13, 1998            By:                 COBY C. HESSE
                                       ----------------------------------------
                                                      Coby C. Hesse
                                                Executive Vice President
                                            and Principal Accounting Officer
                                               (As Authorized Officer and
                                                Chief Accounting Officer)



                                     - 21 -

<PAGE>



                                INDEX TO EXHIBITS
-------------------------------------------------------------------------------

Exhibit
Number                           Description

   11                Statement Re Computation of Per Share Earnings
   27                Financial Data Schedule



                                     - 22 -

<PAGE>



                                                                     EXHIBIT 11

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


<CAPTION>
                                                                    Three Months Ended         Six Months Ended
                                                                         June 30,                  June 30,
                                                                  ----------------------    ---------------------
                                                                     1998        1997         1998         1997
                                                                  ---------   ----------    ---------   ---------
                                                                        (Unaudited)               (Unaudited)

<S>                                                               <C>         <C>           <C>         <C>      
BASIC EARNINGS PER SHARE

   Net earnings...............................................    $    94.6   $     79.3    $   217.5   $    89.9
   Dividends on preferred stock...............................          1.6          4.4          5.9         8.7
                                                                  ---------   ----------    ---------   ---------
   Net earnings available to common stockholders..............    $    93.0   $     74.9    $   211.6   $    81.2
                                                                  =========   ==========    =========   =========

Average number of common shares outstanding...................      212,113      211,424      212,000     211,318
Average number of Class A common shares outstanding...........          360          376          362         378
                                                                  ---------   ----------    ---------   ---------
                                                                    212,473      211,800      212,362     211,696
                                                                  =========   ==========    =========   =========

Basic earnings per share:
   Before extraordinary item..................................    $     .44   $      .35    $    1.00   $     .81
   Extraordinary item.........................................            -            -            -        (.43)
                                                                  ---------   ----------    ---------   ---------
   Net basic earnings per share...............................    $     .44   $      .35    $    1.00   $     .38
                                                                  =========   ==========    =========   =========


DILUTED EARNINGS PER SHARE

   Net earnings used in calculating basic earnings per share..    $    93.0   $     74.9    $   211.6   $    81.2
   Dividends applicable to dilutive preferred stock:
      Series A................................................            -            -            -           -
      Series B................................................           .1           .1           .1          .1
      Series C................................................            -            -           .1          .1
                                                                  ---------   ----------    ---------   ---------
   Income available to common shareholders plus
      assumed conversions.....................................    $    93.1   $     75.0    $   211.8   $    81.4
                                                                  =========   ==========    =========   =========

Average number of shares used in calculating basic earnings
   per share..................................................      212,473      211,800      212,362     211,696
Effect of dilutive securities:
   Options....................................................        2,484        1,521        2,300       1,537
   Series A, B and C preferred stock..........................        1,333        1,431        1,343       1,416
                                                                  ---------   ----------    ---------   ---------
                                                                    216,290      214,752      216,005     214,649
                                                                  =========   ==========    =========   =========

Diluted earnings per share:
   Before extraordinary item..................................    $     .43   $      .35    $     .98   $     .80
   Extraordinary item.........................................            -            -            -        (.42)
                                                                  ---------   ----------    ---------   ---------
   Net basic earnings per share...............................    $     .43   $      .35    $     .98   $     .38
                                                                  =========   ==========    =========   =========
</TABLE>



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


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



                                     - 23 -