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

                       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 September 30, 1997

                                       OR

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

For the transition period from __________ to __________

Commission file number 1-7176



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



           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 October 31, 1997, there were outstanding 105,693,281 shares of Common
Stock, 33-1/3(cent) par value per share, and 368,132 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 and its subsidiaries
(the "Company") are presented herein and are unaudited, except for balances as
of December 31, 1996, and therefore are subject to year-end adjustments;
however, all adjustments which are, in the opinion of management, necessary for
a fair statement of the results of operations for the periods covered have been
made. The adjustments which have been made are of a normal recurring nature.
Such results are not necessarily indicative of results to be expected for the
year due to seasonal variations and market conditions affecting sales of natural
gas and petroleum products.



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

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

<S>                                                                               <C>                <C>        
Current Assets:
   Cash and cash equivalents...............................................       $      62.5        $     106.3
   Receivables, less allowance for doubtful accounts of $16.7 million
      (1997) and $23.4 million (1996)......................................           1,296.6            1,801.0
   Inventories.............................................................             906.2            1,143.9
   Prepaid expenses and other..............................................             173.6              145.2
                                                                                  -----------        -----------
      Total Current Assets.................................................           2,438.9            3,196.4
                                                                                  -----------        -----------

Property, Plant and Equipment - at cost:
   Natural gas systems.....................................................           5,831.5            5,691.5
   Refining, crude oil and chemical facilities.............................           2,226.2            2,213.9
   Gas and oil properties - at full-cost...................................           1,984.2            1,669.4
   Other...................................................................             384.2              386.7
                                                                                  -----------        -----------
                                                                                     10,426.1            9,961.5
   Accumulated depreciation, depletion and amortization....................           3,553.5            3,306.6
                                                                                  -----------        -----------
                                                                                      6,872.6            6,654.9
                                                                                  -----------        -----------

Other Assets:
   Goodwill................................................................             494.6              508.9
   Investments - equity method.............................................             732.3              589.1
   Other...................................................................             703.7              663.8
                                                                                  -----------        -----------
                                                                                      1,930.6            1,761.8
                                                                                  -----------        -----------
                                                                                  $  11,242.1        $  11,613.1
                                                                                  ===========        ===========
</TABLE>


                 See Notes to Consolidated Financial Statements.


                                      - 1 -

<PAGE>

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

<TABLE>
<CAPTION>
                                                                                 September 30,      December 31,
                      LIABILITIES AND STOCKHOLDERS' EQUITY                          1997                1996
                                                                                ---------------     ------------
                                                                                  (Unaudited)
<S>                                                                               <C>                <C>        
Current Liabilities:
   Notes payable...........................................................       $    200.0         $     105.0
   Accounts payable........................................................          1,907.2             2,425.9
   Accrued expenses........................................................            292.2               408.3
   Current maturities on long-term debt....................................             19.2                 8.0
                                                                                  ----------         -----------
      Total Current Liabilities............................................          2,418.6             2,947.2
                                                                                  ----------         -----------

Debt:
   Long-term debt, excluding current maturities............................          3,635.8             3,526.1
                                                                                  ----------         -----------

Deferred Credits and Other:
   Deferred income taxes...................................................          1,427.6             1,404.8
   Other deferred credits..................................................            491.3               598.5
                                                                                  ----------         -----------
                                                                                     1,918.9             2,003.3
                                                                                  ----------         -----------

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

Common Stock and Other Stockholders' Equity:
   Cumulative preferred stock (with aggregate liquidation preference
      of $208.4 million)...................................................              2.6                 2.6
   Class A common stock....................................................               .1                  .1
   Common stock............................................................             36.7                36.6
   Additional paid-in capital..............................................          1,246.3             1,239.6
   Retained earnings.......................................................          2,015.6             1,890.1
                                                                                  ----------         -----------
                                                                                     3,301.3             3,169.0
   Less common stock in treasury - at cost.................................            132.5               132.5
                                                                                  ----------         -----------
                                                                                     3,168.8             3,036.5
                                                                                  ----------         -----------
                                                                                  $ 11,242.1         $  11,613.1
                                                                                  ==========         ===========
</TABLE>


                 See Notes to Consolidated Financial Statements.


                                      - 2 -

<PAGE>

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

<TABLE>
<CAPTION>
                                                                    Three Months Ended        Nine Months Ended
                                                                       September 30,            September 30,
                                                                  ----------------------    ---------------------
                                                                     1997        1996         1997         1996
                                                                  ---------   ----------    ---------   ---------
                                                                        (Unaudited)               (Unaudited)

<S>                                                               <C>         <C>           <C>         <C>      
Operating Revenues............................................    $ 2,143.0   $  2,786.1    $ 7,428.4   $ 8,824.0
                                                                  ---------   ----------    ---------   ---------

Operating Costs and Expenses:
   Purchases..................................................      1,427.9      2,089.4      5,289.5     6,702.3
   Operating expenses.........................................        423.8        435.6      1,227.4     1,282.9
   Depreciation, depletion and amortization...................        108.5        113.2        330.8       319.5
                                                                  ---------   ----------    ---------   ---------
                                                                    1,960.2      2,638.2      6,847.7     8,304.7
                                                                  ---------   ----------    ---------   ---------

Operating Profit..............................................        182.8        147.9        580.7       519.3
                                                                  ---------   ----------    ---------   ---------

Other Income - net............................................         25.8         27.2         69.1        63.6
                                                                  ---------   ----------    ---------   ---------

Other Expenses:
   General and administrative.................................         14.4         13.8         43.5        42.4
   Interest and debt expense, less $2.3 million (1997)
      and $2.2 million (1996) three months and $7.1
      million (1997) and $5.5 million (1996) nine
      months capitalized......................................         77.9         87.5        230.3       278.2
   Taxes on income............................................         35.9         15.2        115.1        55.1
                                                                  ---------   ----------    ---------   ---------
                                                                      128.2        116.5        388.9       375.7
                                                                  ---------   ----------    ---------   ---------

Earnings Before Extraordinary Item............................         80.4         58.6        260.9       207.2
   Extraordinary item - loss on early extinguishment
      of debt.................................................            -            -        (90.6)      (12.0)
                                                                  ---------   ----------    ---------   ---------

Net Earnings..................................................         80.4         58.6        170.3       195.2
Dividends on Preferred Stock..................................          4.3          4.3         13.0        13.0
                                                                  ---------   ----------    ---------   ---------

   Net Earnings Available
      to Common Stockholders..................................    $    76.1   $     54.3    $   157.3   $   182.2
                                                                  =========   ==========    =========   =========

Earnings Per Share:
   Before extraordinary item..................................    $     .71   $      .51    $    2.32   $    1.83
   Extraordinary item.........................................            -            -         (.85)       (.11)
                                                                  ---------   ----------    ---------   ---------

   Net Earnings Per Common
      and Common Equivalent Share.............................    $     .71   $      .51    $    1.47   $    1.72
                                                                  =========   ==========    =========   =========

Cash Dividends Per Common Share...............................    $     .10   $      .10    $     .30   $     .30
                                                                  =========   ==========    =========   =========
</TABLE>


                 See Notes to Consolidated Financial Statements.


                                      - 3 -

<PAGE>

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

<TABLE>
<CAPTION>
                                                                       Nine Months Ended September 30,
                                                           ------------------------------------------------------
                                                                     1997                          1996
                                                           ------------------------      ------------------------
                                                             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...........................             60   $        -               61   $        -
           Converted to common.........................             (2)           -               (1)           -
                                                           -----------   ----------      -----------   ----------
           Ending balance..............................             58            -               60            -
                                                           ===========   ----------      ===========   ----------

      $1.83, Series B, redemption or liquidation
         amount of $50 per share:
           Beginning balance...........................             74            -               79           .1
           Converted to common.........................             (4)           -               (4)           -
                                                           -----------   ----------      -----------   ----------
           Ending balance..............................             70            -               75           .1
                                                           ===========   ----------      ===========   ----------

      $5.00, Series C, redemption or liquidation
         amount of $100 per share:
           Beginning balance...........................             32            -               33            -
           Converted to common.........................             (2)           -               (1)           -
                                                           -----------   ----------      -----------   ----------
           Ending balance..............................             30            -               32            -
                                                           ===========   ----------      ===========   ----------

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

Class A common stock, par value 33-1/3(cent) per share,
   authorized  2,700,000 shares:
      Beginning balance................................            382           .1              404           .1
      Converted to common..............................            (13)           -              (32)           -
      Conversion of preferred stock and
         exercise of stock options.....................              1            -               13            -
                                                           -----------   ----------      -----------   ----------
      Ending balance...................................            370           .1              385           .1
                                                           ===========   ----------      ===========   ----------

Common stock, par value 33-1/3(cent) per share,
   authorized 250,000,000 shares:
      Beginning balance................................        109,756         36.6          109,168         36.4
      Conversion of preferred stock....................             35            -               27            -
      Conversion of Class A common stock...............             13            -               32            -
      Exercise of stock options........................            277           .1              397           .1
                                                           -----------   ----------      -----------   ----------
      Ending balance...................................        110,081   $     36.7          109,624   $     36.5
                                                           ===========   ----------      ===========   ----------
</TABLE>


                 See Notes to Consolidated Financial Statements.


                                      - 4 -

<PAGE>

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

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

<S>                                                        <C>           <C>            <C>           <C>       
Additional paid-in capital:
   Beginning balance...................................                  $  1,239.6                    $  1,225.0
   Exercise of stock options...........................                         6.7                          10.3
                                                                         ----------                    ----------
   Ending balance......................................                     1,246.3                       1,235.3
                                                                         ----------                    ----------

Retained earnings:
   Beginning balance...................................                     1,890.1                       1,547.1
   Net earnings for period.............................                       170.3                         195.2
   Dividends on preferred stock........................                       (13.0)                        (13.0)
   Dividends on common stock...........................                       (31.8)                        (31.6)
                                                                         ----------                    ----------
   Ending balance......................................                     2,015.6                       1,697.7
                                                                         ----------                    ----------
Less treasury stock - at cost..........................          4,395       (132.5)           4,395       (132.5)
                                                           ===========   ----------      ===========   ----------

Total..................................................                  $  3,168.8                    $  2,839.8
                                                                         ==========                    ==========
</TABLE>


                 See Notes to Consolidated Financial Statements.


                                      - 5 -

<PAGE>

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

<TABLE>
<CAPTION>
                                                                                        Nine Months Ended
                                                                                          September 30,
                                                                                   --------------------------
                                                                                      1997            1996
                                                                                   ---------        ---------
                                                                                           (Unaudited)

<S>                                                                                <C>              <C>     
Net Cash Flow From Operating Activities:
   Earnings before extraordinary item..........................................    $   260.9        $  207.2
   Add (subtract) items not requiring (providing) cash:
      Depreciation, depletion and amortization.................................        333.1           322.5
      Deferred income taxes....................................................         32.9             (.5)
      Amortization of producer contract reformation costs......................            -            23.5
      Distributed (undistributed) earnings from equity investments.............        (29.2)           17.0

   Working capital and other changes, excluding changes relating to cash and
      non-operating activities:
         Accounts receivable...................................................        512.3          (294.0)
         Inventories...........................................................        194.5          (240.5)
         Prepaid expenses and other............................................        (17.8)           (4.7)
         Accounts payable......................................................       (529.0)          478.4
         Accrued expenses......................................................        (39.7)          (22.8)
         Other.................................................................       (114.2)           85.2
                                                                                   ---------        --------
                                                                                       603.8           571.3
                                                                                   ---------        --------

Cash Flow From Investing Activities:
   Purchases of property, plant and equipment..................................       (638.3)         (598.1)
   Proceeds from sale of property, plant and equipment.........................         77.1            13.0
   Additions to investments....................................................       (195.2)          (90.7)
   Proceeds from investments...................................................         70.1            13.6
   Recovery of gas supply prepayments..........................................            -              .2
                                                                                   ---------        --------
                                                                                      (686.3)         (662.0)
                                                                                   ---------        --------

Cash Flow From Financing Activities:
   Increase (decrease) in short-term notes ....................................        400.0           (48.2)
   Redemption of mandatory redemption preferred stock..........................            -             (.6)
   Proceeds from issuing common stock..........................................          6.8            10.4
   Proceeds from long-term debt issues.........................................        782.8           744.5
   Payments to retire long-term debt...........................................     (1,106.1)         (564.8)
   Dividends paid..............................................................        (44.8)          (44.6)
                                                                                   ---------        --------
                                                                                        38.7            96.7
                                                                                   ---------        --------

Net Increase (Decrease) in Cash and Cash Equivalents...........................        (43.8)            6.0

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

Cash and Cash Equivalents at End of Period.....................................    $    62.5        $   64.4
                                                                                   =========        ========
</TABLE>


                 See Notes to Consolidated Financial Statements.


                                      - 6 -

<PAGE>

                    THE COASTAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. Summary of Significant Accounting Policies

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

     The interstate natural gas pipeline and certain storage subsidiaries are
subject to the regulations and accounting procedures of the Federal Energy
Regulatory Commission ("FERC"). The Company's subsidiaries historically followed
the reporting and accounting requirements of Statement of Financial Accounting
Standards No. 71, " Accounting for the Effects of Certain Types of Regulation"
("FAS 71"). Effective November 1, 1996, these subsidiaries discontinued
application of FAS 71. This accounting change has no direct effect on either the
subsidiaries' ability to include the deferred items in future rate proceedings
or on their ability to collect the rates set thereby. The Company believes this
accounting change results in financial reporting which better reflects the
results of operations in the economic environment in which these subsidiaries
operate. Further, the Company has reexamined the useful lives of certain assets
corresponding to these subsidiaries. In July 1997, the depreciation rates
associated with these assets were revised, which had the effect of increasing
"Earnings Before Extraordinary Item" and "Net Earnings" by approximately $4.4
million ($.04 per share).

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

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

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

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

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

     The FASB has issued Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("FAS
131") to be effective for periods beginning after December 15,1997. FAS 131
establishes standards for the way that public business enterprises report
information about operating segments in


                                      - 7 -

<PAGE>



annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. The Company does not believe that the
application of the new standard will have a material effect on its consolidated
results of operations, financial position or cash flows.

     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 $209.3 million and $284.0 million
for the nine months ended September 30, 1997 and 1996, respectively. Cash
payments for income taxes amounted to $52.9 million and $44.5 million for the
nine months ended September 30, 1997 and 1996, respectively.

2. Inventories

     Inventories were as follows (millions of dollars):

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

   <S>                                                                           <C>                 <C>       
   Refined products, crude oil and chemicals...............................      $     719.6         $    920.3
   Natural gas in underground storage......................................             33.8               77.7
   Coal, materials and supplies............................................            152.8              145.9
                                                                                 -----------         ----------
                                                                                 $     906.2         $  1,143.9
                                                                                 ===========         ==========
</TABLE>

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

3. Notes Payable

     At September 30, 1997, the Company had $505.0 million of outstanding
indebtedness to banks under short-term lines of credit. The Company's financial
statements at September 30, 1997 reflect $305.0 million of short-term borrowings
which have been reclassified as long-term, based on the availability of
committed credit lines with maturities in excess of one year and the Company's
intent to maintain such amounts as long-term borrowings. There was no such
reclassification as of December 31, 1996.

4. Common Stock

     On September 30, 1997, 2,869,296 shares of Common Stock of the Company were
reserved for stock option plans, 674,589 shares were reserved for conversion of
the Series A, B, and C Preferred Stocks, 369,763 shares were reserved for
conversion of outstanding Class A Common Stock and 20,954 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 18,674 shares reserved for conversion of the
Series A, B, and C Preferred Stocks.

     During 1997, the Company has granted 782,056 options to purchase Common
Stock of the Company under stock option plans with exercise prices ranging from
$47.06 to $54.37. The exercise prices are equal to the market price of the
common shares at grant date.


                                      - 8 -

<PAGE>

5. Income Taxes

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

<TABLE>
<CAPTION>
                                                                    Three Months Ended         Nine Months Ended
                                                                       September 30,             September 30,
                                                                  ----------------------    ---------------------
                                                                     1997        1996         1997         1996
                                                                  ---------   ----------    ---------   ---------
                                                                        (Unaudited)               (Unaudited)

   <S>                                                            <C>         <C>           <C>         <C>      
   Current Income Taxes:
      Federal.................................................    $    28.0   $      9.9    $    68.9   $    42.4
      Foreign.................................................          1.5          2.5          3.5         3.4
      State...................................................          2.2          2.9          9.8         9.8
                                                                  ---------   ----------    ---------   ---------
                                                                       31.7         15.3         82.2        55.6
                                                                  ---------   ----------    ---------   ---------

   Deferred Income Taxes:
      Federal.................................................          2.5            -         30.0           -
      Foreign.................................................           .7           .8          2.5         2.2
      State...................................................          1.0          (.9)          .4        (2.7)
                                                                  ---------   ----------    ---------   ---------
                                                                        4.2          (.1)        32.9         (.5)
                                                                  ---------   ----------    ---------   ---------

                                                                  $    35.9   $     15.2    $   115.1   $    55.1
                                                                  =========   ==========    =========   =========
</TABLE>

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

6. Extraordinary Item

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

7. Litigation, Regulatory and Environmental Matters

     Litigation

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

     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


                                      - 9 -

<PAGE>

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.

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

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

     Regulatory Matters

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

     ANR Pipeline filed a general rate increase on November 1, 1993. Issues
related to the general rate increase are the subject of continuing FERC and
judicial proceedings. Under a March 1994 order, certain costs were reduced or
eliminated, resulting in revised rates that reflect a $182.8 million increase
over the cost of service underlying ANR Pipeline's approved rates for its Order
636 restructured services. In September 1994, the FERC accepted ANR Pipeline's
filing to place the new rates into effect May 1, 1994, subject to further
modifications. ANR Pipeline submitted revised rates in compliance with this
order in October 1994, which rates are currently in effect, subject to refund.
In January 1997, an Initial Decision was issued on the issues set for hearing by
the March 1994 order. That Initial Decision, which accepted some but not all of
ANR Pipeline's rate change proposals, does not take effect until reviewed by the
FERC. ANR Pipeline and other parties have filed exceptions regarding some of the
findings in the Initial Decision. On October 17, 1997, ANR Pipeline filed a
comprehensive settlement that will, if approved, resolve all issues in the
proceeding, as well as result in the voluntary dismissal of pending court
appeals. Under the settlement ANR Pipeline agreed to place the settlement rates
in effect on November 1, 1997, subject to the prospective restoration of ANR
Pipeline's currently filed rates if the settlement is not approved. By order
issued October 31, 1997, the FERC authorized ANR Pipeline to proceed on that
basis. The settlement includes provisions for lower rates, refunds, procedures
to resolve certain reserved matters, as well as a proposal for a new short-term
firm service that will enable ANR Pipeline to charge higher rates for shippers
electing to purchase such service. The settlement is either supported by or not
opposed by all active parties in the proceeding. The FERC is expected to act on
the settlement in early 1998.

                                     - 10 -

<PAGE>

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

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

     On March 29, 1996, CIG filed with the FERC under Docket No. RP96-190 to
increase its rates by approximately $30 million annually, to realign certain
transportation services and to add tariff language that would allow CIG to enter
into "negotiated rates" (rates which could exceed CIG's "cost-based" rates) in
certain circumstances, subject to FERC policies. On April 25, 1996, the FERC
accepted the rate change filing and the transportation service realignment to
become effective October 1, 1996, subject to refund, and also accepted the
"negotiated rate" tariff provision to become effective May 1, 1996. Certain
parties sought judicial review of the acceptance of the "negotiated rate" tariff
provisions. On October 16, 1997, the FERC approved an unopposed settlement filed
by CIG that resolves all issues in this general rate case except the issues that
are on appeal relating to the "negotiated rate" tariff provisions. The final
settlement modifies the services provided by CIG, and the charges for those
services. The final settlement does not take effect until the conclusion of any
period for rehearing at the FERC or judicial review in the courts with respect
to the FERC's order approving the settlement. Petitions for rehearing are due to
be filed with the FERC on or before November 17, 1997. On October 16, 1997, the
FERC also approved an unopposed interim settlement that implements (on an
interim basis) the terms of the final settlement. The final settlement
supersedes the interim settlement once the final settlement takes effect.

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

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

     Environmental Matters

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

                                     - 11 -

<PAGE>

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

     The Comprehensive Environmental Response, Compensation and Liability Act,
also known as "Superfund," as reauthorized, imposes liability, without regard to
fault or the legality of the original act, for disposal of a "hazardous
substance." Certain subsidiaries of the Company and a company in which Coastal
owns a 50% interest have been named as a potentially responsible party ("PRP")
in several "Superfund" waste disposal sites. At the 16 sites for which there is
sufficient information, total clean-up costs are estimated to be approximately
$313 million, and the Company estimates its pro-rata exposure, to be paid over a
period of several years, is approximately $7.4 million and has made appropriate
provisions. At 4 other sites, the Environmental Protection Agency ("EPA") is
currently unable to provide the Company with an estimate of total clean-up costs
and, accordingly, the Company is unable to calculate its share of those costs.
Finally at 10 other sites, the Company has paid amounts to other PRPs or to the
EPA as its proportional share of associated clean-up costs. As to these latter
sites, the Company believes that its activities were de minimis. Additionally,
certain subsidiaries of the Company have been named as PRPs in two state sites.
At one site, the North Carolina Department of Health, Environment and Natural
Resources has estimated the total clean-up costs to be approximately $50
million, but the Company believes that the subsidiaries' activities at this site
were de minimis. At the other state site, the Florida Department of
Environmental Protection has demanded reimbursement of its costs, which total
$100,000, and suitable remediation. There is not sufficient information to
estimate the remedial costs or the Company's pro-rata exposure at this site.

     On September 15, 1997, Javelina Company, a partnership in which Coastal
Javelina, Inc., a subsidiary of the Company, is a partner and the operator of
the facility, received a Notice of Violation ("NOV") from the EPA for alleged
violations of limits in its Clean Water Act discharge permit. The NOV required
Javelina Company to submit a report detailing what measures it has implemented
to abate the alleged violations and to meet with the EPA to discuss why an
enforcement action should not be taken for the alleged violations. Coastal
Javelina, Inc. is currently discussing these allegations with the EPA. If the
EPA were to initiate an action, the Company believes the EPA would seek
penalties which, while not material to the Company, could exceed $100,000.

     On August 27, 1997, the EPA issued a NOV to Coastal Refining & Marketing,
Inc., a subsidiary of the Company. The NOV alleged that six violations of the
Clean Air Act were observed during inspections of the subsidiary's refinery in
Corpus Christi, Texas conducted during March and April of 1996. On October 7,
1997, the EPA and Department of Justice demanded $375,000 as a penalty for these
alleged violations. The subsidiary is currently discussing the matter with the
EPA. If the EPA were to initiate an action, the Company believes the EPA would
seek penalties which, while not material to the Company, could exceed $100,000.

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

                                     - 12 -

<PAGE>

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

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

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

                         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
                                                                            ------------------------------
                                                                            September 30,     December 31,
                                                                                1997              1996
                                                                            -------------     ------------
                                                                             (Unaudited)

      <S>                                                                       <C>              <C>  
      Net return on average common stockholders' equity..............           12.7%            14.8%
      Cash flow from operating activities to long-term debt..........           16.3%            15.9%
      Total debt to total capitalization.............................           54.1%            53.7%
      Times interest earned (before tax).............................            2.9              2.5
</TABLE>

     The decrease in the net return on average common stockholders' equity ratio
can be attributed to the extraordinary charge in the 1997 first quarter. The
times interest earned ratio increase resulted from reduced interest expense in
the 1997 period.

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

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

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

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

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

                                     - 13 -

<PAGE>

     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 September 30, 1997 were as follows (millions of
dollars):

         Short-term..................................     $     849.5
         Long-term*..................................           498.0
                                                          -----------
                                                          $   1,347.5
                                                          ===========

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

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

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

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

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

                                     - 14 -

<PAGE>

                              Results of Operations

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

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

<TABLE>
<CAPTION>
                                                                    Three Months Ended         Nine Months Ended
                                                                       September 30,             September 30,
                                                                  ----------------------    ----------------------
                                                                     1997        1996         1997         1996
                                                                  ---------   ----------    ---------   ----------
                                                                        (Unaudited)               (Unaudited)

      <S>                                                         <C>         <C>           <C>         <C>      
      Natural gas.............................................    $   275.4   $    942.0    $ 1,770.8   $ 2,870.5
      Refining, marketing and chemicals.......................      1,658.7      1,690.8      5,209.2     5,523.7
      Exploration and production..............................        127.3        103.4        411.8       308.7
      Coal....................................................         55.7        120.0        169.0       333.5
      Power...................................................         26.5         21.4         78.2        67.4
      Other...................................................          6.2          8.5         22.3        24.7
      Adjustments and eliminations............................         (6.8)      (100.0)      (232.9)     (304.5)
                                                                  ---------   ----------    ---------   ----------
                                                                  $ 2,143.0   $  2,786.1    $ 7,428.4   $ 8,824.0
                                                                  =========   ==========    =========   =========
</TABLE>

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

<TABLE>
<CAPTION>
                                                                    Three Months Ended         Nine Months Ended
                                                                       September 30,             September 30,
                                                                  ----------------------    ---------------------
                                                                     1997        1996         1997         1996
                                                                  ----------  ----------    ---------   ---------
                                                                        (Unaudited)               (Unaudited)

      <S>                                                         <C>         <C>           <C>         <C>      
      Natural gas.............................................    $    89.0   $     76.4    $   368.8   $   276.3
      Refining, marketing and chemicals.......................         53.7         17.5         45.6        75.8
      Exploration and production..............................         36.6         23.0        133.2        78.1
      Coal ...................................................          3.3         25.5         22.1        67.8
      Power...................................................           .3          2.1          6.2        12.3
      Other...................................................          (.1)         3.4          4.8         9.0
                                                                  ----------  ----------    ---------   ---------
                                                                  $   182.8   $    147.9    $   580.7   $   519.3
                                                                  =========   ==========    =========   =========
</TABLE>

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

     The decreases in operating revenues of $666.6 million for the third quarter
and $1,099.7 million for the nine months ended September 30, 1997 can be
primarily attributed to the Company's unregulated gas marketing operations which
became a part of Engage. The revenues from those operations, which are not
included in the Company's revenues after February 1997, resulted in decreases of
$724.8 million and $1,597.9 million for the three month and nine month periods
of 1997, respectively. Partially offsetting the decreases noted above in both
periods were increased prices and volumes for gas sales, primarily during the
first two months of 1997, and a $42.0 million gain recognized in connection with
the Engage combination in the first quarter of 1997. Transportation, storage and
gathering revenues also increased in both the three and nine month periods.

     Purchases decreased by $680.7 million for the three months and $1,174.7
million for the nine months ended September 30, 1997, primarily due to the
combination of the unregulated gas marketing operations noted above,

                                     - 15 -

<PAGE>

partially offset by increased prices and volumes for gas purchases, primarily in
the first two months of 1997. Gross profit increased by $14.1 million and $75.0
million for the three months and nine months ended September 30, 1997.

     The operating profit increase of $12.6 million for the third quarter
results from increased gas sales volumes of $6.4 million; increased
transportation, storage and gathering revenues of $10.0 million; reduced
depreciation, depletion and amortization of $5.4 million and other increases of
$.8 million partially offset by decreased margins from gas sales of $5.1 million
and reduced operating profit resulting from the combination of the gas marketing
operations noted above of $4.9 million. For the nine month period, operating
profit increased by $92.5 million due to increased gas sales volumes of $20.3
million; increased transportation, storage and gathering revenues of $12.7
million; reduced operating expenses of $30.8 million; decreased depreciation,
depletion and amortization of $7.5 million; the $42.0 million gain discussed
above and other increases of $2.7 million partially offset by lower gross
margins from gas sales of $17.3 million and decreased operating profit of $6.2
million resulting from the combination of the gas marketing operations. The
decrease in operating expenses for the nine month period resulted from
reductions for gas purchase deferrals and recovery amortizations. The decrease
in depreciation, depletion and amortization for the three month period results
from the revision of depreciation for certain assets, as discussed in Note 1 to
the Consolidated Financial Statements.

     Refining, Marketing and Chemicals. Operating revenues decreased by $32. l
million in the 1997 third quarter and $314.5 million in the nine months ended
September 30 1997 due to reduced volumes and prices. Purchases decreased by
$68.0 million and $306.8 million in the three and nine month periods,
respectively, also due to reduced prices and volumes, resulting in a gross
profit increase of $35.9 million for the third quarter and a gross profit
decrease of $7.7 million for the nine month period.

     The operating profit increase of $36.2 million for the third quarter
results from increased margins of $56.7 million, decreased operating expenses of
$1.9 million and other increases of $4.0 million partially offset by decreased
volumes of $24.7 million and increased depreciation, depletion and amortization
of $1.7 million. For the nine months ended September 30, 1997, operating profit
decreased by $30.2 million due to reduced volumes of $63.2 million; increased
operating expenses of $17.7 million; increased depreciation, depletion and
amortization of $4.8 million; and other decreases of $1.1 million partially
offset by increased margins of $56.6 million. Included in the operating profit
for the 1997 nine month period is an inventory loss in the first quarter which
resulted from falling product and crude oil prices. The increased operating
expenses for the nine months are primarily due to increased fuel costs,
maintenance and other expenses at the Company's refineries. The volume decreases
can be partially attributed to the ongoing refocusing of the Company's marketing
assets, which is eliminating marginal activities and expanding operations
directly supporting the Company's core refining assets. The improved margins can
be partially attributed to high refinery utilization levels and strong demand.

     Exploration and Production. Operating revenues increased by $23.9 million
in the three months and $103.1 million in the nine months ended September 30,
1997 as a result of increased volumes and prices for natural gas. Production of
natural gas was up 14% for the third quarter and 39% for the nine month period.
Operating profit for the third quarter increased by $13.6 million as increased
volumes of $6.7 million, higher prices of $3.5 million, $9.9 million from the
effects of hedging activities and other increases of $3.5 million were partially
offset by increases for operating expenses of $4.7 million and depreciation,
depletion and amortization of $5.3 million. The operating profit increase of
$55.1 million for the nine month period results from increased volumes of $62.3
million, higher prices of $37.6 million and other increases of $4.6 million
partially offset by increases for depreciation, depletion and amortization of
$32.2 million and operating expenses of $17.2 million. The higher operating
expenses for both 1997 periods resulted primarily from increased levels of
offshore activity and increased production. Increased production volumes in both
1997 periods resulted in the depreciation, depletion and amortization increases.

     Coal. Operating revenues from the coal segment decreased by $64.3 million
in the third quarter and $164.5 million in the nine month period due primarily
to the sale of the Company's Utah coal operations in December 1996. Operating
profit decreased by $22.2 million in the third quarter due to reductions from
the sale of the Utah coal operations of $15.2 million, lower prices of $2.5
million and decreased volumes of $1.7 million from the mines in the Eastern
United States and other decreases of $2.8 million. The decrease in operating
profit of $45.7 million for the nine months ended September 30, 1997 resulted
from a decrease due to the sale of the Utah coal operations of $42.6 million,
reduced prices for the Eastern mines of $5.8 million and other decreases of $8.1
million partially offset by volume increases of $1.8 million and the favorable
resolution of a contingency in the first quarter of 1997 for $9.0 million. The
other decreases for both periods result primarily from nonrecurring income
related to the sale of coke from the Company's Aruba refinery.

                                     - 16 -

<PAGE>

     Power. The operating revenue increase of $5.1 million for the third quarter
results from increased revenues related to the El Salvador operations. The $10.8
million increase for the nine month period ended September 30, 1997 results from
increased revenues related to the El Salvador operations partially offset by a
development fee in 1996. Operating profit for the quarter decreased by $1.8
million from the comparable 1996 three month period due primarily to increased
development and administrative expenses related to the operations of joint
venture projects. The operating profit decrease of $6.1 million for the nine
month period resulted from the $3.5 million development fee noted above,
decreases at a domestic cogeneration plant of $1.4 million due primarily to
mechanical problems and other decreases of $1.2 million. The other decreases are
due to increases for development and administrative expenses.

     Most of the plants in which the Power segment has investments are
partially-owned, thus the equity earnings from these plants are classified as
other income-net rather than operating profit. Equity income from
partially-owned plants amounted to $11.0 million for the third quarter of 1997,
compared with $8.3 million for the same period in 1996. For the nine months,
equity earnings were $25.5 million and $17.0 million in 1997 and 1996,
respectively. The increased equity earnings are due to improved earnings from
plants in operation during 1996 as well as additional plants now in operation.

     Other Income-Net. The decrease of $1.4 million for the third quarter
results primarily from dividends on preferred stock of subsidiaries. The nine
months' increase of $5.5 million results primarily from increased equity income
from investments partially offset by dividends on preferred stock of
subsidiaries.

     Interest and Debt Expense. Interest and debt expense decreased by $9.6
million in the three month period and $47.9 million in the nine month period due
to reduced rates and lower debt levels.

     Taxes on Income. Federal income taxes increased by $20.6 million in the
1997 third quarter and $56.5 million in the nine month period as a result of
increased earnings before taxes and a higher effective federal income tax rate.
State and foreign income taxes increased by $.1 million in the three months and
$3.5 million in the nine months ended September 30, 1997.

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

                              Environmental Matters

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

     The Comprehensive Environmental Response, Compensation and Liability Act,
also known as "Superfund," as reauthorized, imposes liability, without regard to
fault or the legality of the original act, for disposal of a "hazardous
substance." Certain subsidiaries of the Company and a company in which Coastal
owns a 50% interest have been named as a potentially responsible party ("PRP")
in several "Superfund" waste disposal sites. At the 16 sites for which there is
sufficient information, total clean-up costs are estimated to be approximately
$313 million, and the Company estimates its pro-rata exposure, to be paid over a
period of several years, is approximately $7.4 million and has made appropriate
provisions. At 4 other sites, the Environmental Protection Agency ("EPA") is
currently unable to provide the Company with an estimate of total clean-up costs
and, accordingly, the Company is unable to calculate its share of those costs.
Finally at 10 other sites, the Company has paid amounts to other PRPs or to the
EPA as its proportional share of associated clean-up costs. As to these latter
sites, the Company believes that its activities were de minimis. Additionally,
certain subsidiaries of the Company have been named as PRPs in two state sites.
At one site, the North Carolina Department of Health, Environment and Natural
Resources has estimated the total clean-up costs to be approximately $50
million, but the Company believes that the subsidiaries' activities at this site
were de minimis. At the other state site, the Florida Department of
Environmental Protection has demanded reimbursement of its costs, which total
$100,000, and suitable remediation. There is not sufficient information to
estimate the remedial costs or the Company's pro-rata exposure at this site.


                                     - 17 -

<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 liquidity, consolidated financial
position or results of operations.

Item 2.B. Other Developments.

     In October 1997, Coastal announced that one of its subsidiaries completed
agreements with the state government of Victoria in Australia to build, own and
operate a 104-mile natural gas pipeline in Western Victoria, about 250 miles
west of Melbourne. This project will be the first privately owned and operated
transmission pipeline in Victoria. Construction of the pipeline is scheduled to
begin in November of 1997, and it is currently anticipated to be completed by
mid-1998.

     In October 1997, Coastal announced that its exploration and production
subsidiary, Coastal Oil & Gas Corporation ("COG"), drilled a potentially
significant gas discovery well in Wharton County, Texas. Two intervals in the
well tested at a combined flowing rate of 21.7 million cubic feet of gas per day
("Mmcf/d"). Actual production history and additional seismic data will be
required to more fully evaluate the well's potential. COG, the operator of the
well, holds a 55% working interest in the well and in approximately 16,000 acres
in the immediate area of the well.

     In September 1997, the Company announced that it has acquired an 11% equity
and capacity interest in the Alliance Pipeline Project for approximately $127
million. The Alliance Pipeline Project is a proposed 1,900 mile pipeline
designed to carry 1.325 billion cubic feet of natural gas per day from western
Canada to the Chicago area, along with an associated natural gas liquids
extraction plant. Service is currently anticipated to commence in 1999, subject
to receipt of satisfactory regulatory approvals.

     In September 1997, the Company announced that one of its subsidiaries is a
25% equity holder in the partnership DirectLink Gas Marketing Company
("DirectLink"). The other partners, who each hold 25% equity interests, are The
Williams Company, Inc., MidCon Corporation and National Fuel Gas Company.
DirectLink is a natural gas marketing partnership which will buy, sell and ship
natural gas to markets in the Midwestern and eastern United States. DirectLink
has entered into a precedent agreement for 500 Mmcf/d of natural gas on the
Independence Pipeline. The Independence Pipeline is a proposed 370 mile pipeline
that is estimated to be in service in November 1999.

     In September 1997, CIG filed an application with the FERC for authorization
to construct the Campo Lateral, a new 115-mile, 16-inch pipeline connecting
CIG's Picketwire Lateral near Trinidad, Colorado, with CIG's mainline in Baca
County, Colorado. The cost of the project is estimated to be approximately $20.7
million, with an initial transportation capacity of 100 Mmcf/d out of the Raton
Basin in southern Colorado. The projected in-service date of the full expansion
is during the third quarter of 1998, subject to receipt of satisfactory
regulatory approvals.

     During the third quarter of 1997, CIG completed construction and placed
into service additional compression at its Muddy Gap, Wyoming location. This
compression, along with the 18 mile Cave Gulch Lateral placed in service last
year, increased CIG's capacity on its Wind River Lateral by 68 Mmcf/d.

                                     - 18 -

<PAGE>

                                     PART II

                                OTHER INFORMATION

Item 1. Legal Proceedings.

     The information required hereunder is incorporated by reference into Part
II of this Report from Note 7 of the Notes to Consolidated Financial Statements
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.

     None.

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.

     (b) Reports on Form 8-K.

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



                                   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)

                                                       COBY C. HESSE
Date:  November 11, 1997                  By:----------------------------------
                                                       Coby C. Hesse
                                                  Executive Vice President
                                              and Principal Accounting Officer
                                                 (As Authorized Officer and
                                                  Chief Accounting Officer)

                                     - 19 -

<PAGE>

                                INDEX TO EXHIBITS


Exhibit
Number                                Description
--------------------------------------------------------------------------------
  11        Statement Re Computation of Per Share Earnings

  27        Financial Data Schedule



                                     - 20 -

<PAGE>

                                                                      EXHIBIT 11


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

<TABLE>
<CAPTION>
                                                                    Three Months Ended        Nine Months Ended
                                                                       September 30,            September 30,
                                                                  ----------------------    ---------------------
                                                                     1997        1996         1997         1996
                                                                  ---------   ----------    ---------   ---------
                                                                        (Unaudited)               (Unaudited)

<S>                                                               <C>         <C>           <C>         <C>      
COMMON STOCK AND EQUIVALENTS:
Net earnings applicable to common stock and
   common stock equivalents...................................    $    76.1   $     54.3    $   157.3   $   182.2
                                                                  =========   ==========    =========   =========

Average number of common shares outstanding...................      105,643      105,189      105,528     105,041
Class A common shares.........................................          372          387          376         392
Common share equivalents:
   $1.19 Cumulative Convertible Preferred, Series A*..........          215          223          218         223
Dilutive effect of outstanding stock options after
   application of treasury stock method*......................          994          600          844         574
                                                                  ---------   ----------    ---------   ---------
Average common and common equivalent shares...................      107,224      106,399      106,966     106,230
                                                                  =========   ==========    =========   =========

Net earnings per average common and common
   equivalent share outstanding:
   Earnings before extraordinary item.........................    $     .71   $      .51    $    2.32   $    1.83
   Extraordinary item.........................................            -            -         (.85)       (.11)
                                                                  ---------   ----------    ---------   ---------
   Net earnings...............................................    $     .71   $      .51    $    1.47   $    1.72
                                                                  =========   ==========    =========   =========

ASSUMING FULL DILUTION:
Net earnings applicable to common stock and
   common stock equivalents...................................    $    76.1   $     54.3    $   157.3   $   182.2
Dividends applicable to dilutive preferred stock:
   Series B...................................................            -            -           .1          .1
   Series C...................................................            -            -           .1          .1
                                                                  ---------   ----------    ---------   ---------
Adjusted net earnings assuming full dilution..................    $    76.1   $     54.3    $   157.5   $   182.4
                                                                  =========   ==========    =========   =========

Average number of common shares outstanding...................      105,643      105,189      105,528     105,041
Class A common shares.........................................          372          387          376         392
Common and Class A common share equivalents:
   Series A Preferred Stock*..................................          215          223          218         223
Equivalent common and Class A shares from
   Series B and C Preferred Stock*............................          487          514          496         514
Dilutive effect of outstanding stock options after
   application of treasury stock method*......................        1,104          617        1,104         630
                                                                  ---------   ----------    ---------   ---------
Fully diluted shares..........................................      107,821      106,930      107,722     106,800
                                                                  =========   ==========    =========   =========

Fully diluted earnings per share:
   Earnings before extraordinary item.........................    $     .71   $      .51    $    2.30   $    1.82
   Extraordinary item.........................................            -            -         (.84)       (.11)
                                                                  ---------   ----------    ---------   ---------
   Net earnings**.............................................    $     .71   $      .51    $    1.46   $    1.71
                                                                  =========   ==========    =========   =========

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

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


                                     - 21 -