UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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                                    FORM 10-Q
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|X|   Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
      Exchange Act of 1934
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      For the quarterly period ended June 30, 1998
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                                       OR
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|_|   Transition Report Pursuant to Section 13 or 15(d) of the Securities
      Exchange Act of 1934
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      For the transition period from                to

      COMMISSION FILE NUMBER  0-10007


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                              COLONIAL GAS COMPANY
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            (Exact name of registrant as specified in its charter)
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                  Massachusetts                             04-1558100
           (State or other jurisdiction of               (I.R.S. Employer
           incorporation or organization)             Identification Number)

       40 Market Street, Lowell, Massachusetts               01852
       (Address of principal executive offices)          (Zip Code)


Registrant's telephone number, including area code:  (978) 322-3000


Former name, former address and former fiscal year, if changed since last
report:  Not applicable

      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  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.

                     Yes  |X|  No   |_|


      The number of shares of the  registrant's  common stock,  $3.33 par value,
outstanding as of July 1, 1998 was 8,766,178.


<PAGE>




                              COLONIAL GAS COMPANY

                                      INDEX




PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

   Consolidated Condensed Statements of Income -
        Three Months Ended June 30, 1998 and 1997
        Six Months Ended June 30, 1998 and 1997

   Consolidated Condensed Balance Sheets -
        June 30, 1998,  December 31, 1997 and
        June 30, 1997

   Consolidated Condensed Statements of Cash Flows -
        Six Months Ended June 30, 1998 and 1997

   Notes to Consolidated Condensed Financial Statements

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


PART II - OTHER INFORMATION

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

Item 5. Other Information

Item 6. Exhibits and Reports on Form 8-K


<PAGE>


                         PART I - FINANCIAL INFORMATION

Item 1. Financial Statements
<TABLE>

                      COLONIAL GAS COMPANY AND SUBSIDIARIES
                  CONSOLIDATED CONDENSED STATEMENTS OF INCOME
                                   (UNAUDITED)
                                           Three Months Ended
                                                June 30,
                                           1998        1997
                                          (In Thousands Except
                                           Per Share Amounts)
<S>                                       <C>          <C>
Operating Revenues                       $25,684      $26,927
   Cost of gas sold                       13,662       16,317
                                         ----------  -----------
        Operating Margin                  12,022       10,610
                                         ----------  -----------

Operating Expenses:
   Operations                              6,958        7,115
   Maintenance                             1,136        1,114
   Depreciation and Amortization           3,229        2,973
   Taxes, other than income                1,494        1,394
                                         ----------  -----------
        Total Operating Expenses          12,817       12,596
                                         ----------  -----------

Income Taxes (Credit)                     (1,051)     (1,430)
                                         ----------  -----------

Utility Operating Loss                       256        (556)

Other Operating Income (Loss):
   Energy Trucking revenues                  617         451
   Energy Trucking expenses, including
       income taxes and interest             825         673

                                         ----------  -----------
        Energy Trucking loss                (208)       (222)
   Other, net of income taxes                107          57
                                         ----------  -----------
Total Other Operating Loss                  (101)       (165)

Non-Operating Income, Net                    260         152
                                         ----------  -----------

Income (Loss) Before Interest and Debt       415        (569)
   Expense
Interest and Debt Expense                  2,186       1,932
                                         ----------  -----------


Net Loss                                 $(1,771)   $ (2,501)
                                         ==========  ===========

Average Common Shares Outstanding          8,740       8,576
                                         ==========  ===========
                                         ==========  ===========

Loss per Average Common Share            $ (0.20)    $  (0.29)
                                         ==========  ===========
                                         ==========  ===========


Dividends Paid per Common Share          $  .345      $  .335
                                         ==========  ===========


</TABLE>

    (See accompanying notes to consolidated condensed financial statements)


<PAGE>


                      COLONIAL GAS COMPANY AND SUBSIDIARIES
                  CONSOLIDATED CONDENSED STATEMENTS OF INCOME
<TABLE>
                                   (UNAUDITED)

                                            Six Months Ended
                                                June 30,
                                            1998       1997
                                          (In Thousands Except
                                           Per Share Amounts)
<S>                                       <C>          <C>
Operating Revenues                      $103,507     $109,988
   Cost of gas sold                       54,579       60,034
                                         ----------  -----------
        Operating Margin                  48,928       49,954
                                         ----------  -----------
Operating Expenses:
   Operations                             13,608       14,553
   Maintenance                             2,204        2,260
   Depreciation and Amortization           6,413        5,946
   Taxes, other than income                2,748        2,775
                                         ----------  -----------
        Total Operating Expenses          24,973       25,534
                                         ----------  -----------

Income Taxes                               7,624        8,002
                                         ----------  -----------

Utility Operating Income                  16,331       16,418
Other Operating Income (Loss):
   Energy Trucking revenues                1,023        1,790
   Energy Trucking expenses, including
      income taxes and interest            1,186        1,931

                                         ----------  -----------
        Energy Trucking net loss            (163)        (141)
   Other, net of income taxes                158          106
                                         ----------  -----------
Total Other Operating Income (Loss)           (5)         (35)
Non-Operating Income, Net
                                             436          246
                                         ----------  -----------

Income Before Interest and Debt Expense   16,762       16,629

Interest and Debt Expense                  4,321        3,837
                                         ----------  -----------

Net Income                               $12,441     $ 12,792
                                         ==========  ===========
                                         ==========  ===========


Average Common Shares Outstanding          8,722        8,554
                                         ==========  ===========
                                         ==========  ===========

Income per Average Common Share          $  1.43      $  1.50
                                         ==========  ===========
                                         ==========  ===========


Dividends Paid per Common Share          $  0.68      $  0.66
                                         ==========  ===========


</TABLE>


    (See accompanying notes to consolidated condensed financial statements)



<PAGE>


<TABLE>
                      COLONIAL GAS COMPANY AND SUBSIDIARIES
                      CONSOLIDATED CONDENSED BALANCE SHEETS
                                     ASSETS
<CAPTION>

                                   June 30,    December 31    June 30,
                                     1998         1997          1997
                                  -----------  ------------  ----------
                                  (Unaudited)               (Unaudited)
                                              (In Thousands)
<S>                               <C>          <C>          <C>
Utility Property:
At original cost                   $ 379,866    $ 362,742    $ 345,572
   Accumulated depreciation          (94,832)     (88,210)     (88,447)
                                   ---------    ---------    ---------
        Net utility property         285,034      274,532      257,125

Non-Utility Property - Net             7,423        7,312        6,873
                                   ---------    ---------    ---------

        Net property                 292,458      281,844      263,998
                                   ---------    ---------    ---------

Capital Leases - Net                   1,740        2,630        2,392
                                   ---------    ---------    ---------

Current Assets:
   Cash and cash equivalents           1,218          259          100
   Accounts receivable                15,940       21,788       16,629
        Allowance for doubtful        (3,420)      (3,203)      (3,429)
           accounts
   Accrued utility revenues              821        7,417          739
   Unbilled gas costs                  8,125       19,266        8,902
   Fuel and other inventories         12,144       12,959       10,321
   Prepayments and other current       6,994        9,481        5,946
      assets
                                   ---------    ---------    ---------

        Total current assets          41,822       67,967       39,208
                                   ---------    ---------    ---------

Deferred Charges and Other
Assets:
   Unrecovered deferred income
      taxes                            8,626        9,014        9,386
   Unrecovered Demand Side
      Management -  costs              8,058        8,273        8,242
   Unrecovered environmental
      expenses - incurred              3,349        3,833        3,397
   Unrecovered environmental
       expenses - accrued                607          707          900
   Unrecovered transition costs        2,800        2,800        4,500
       - accrued

   Other                              12,898       11,923       11,697
                                    ---------    ---------    ---------
        Total deferred charges
           and other assets           36,338       36,550       38,122
                                   =========    =========    =========

Total Assets                       $ 372,358    $ 388,991    $ 343,720
                                   =========    =========    =========
</TABLE>

    (See accompanying notes to consolidated condensed financial statements)

<PAGE>


                      COLONIAL GAS COMPANY AND SUBSIDIARIES
                      CONSOLIDATED CONDENSED BALANCE SHEETS
                         LIABILITIES AND CAPITALIZATION
<TABLE>

<CAPTION>
                                   June 30,  December 31    June 30,
                                     1998       1997         1997
                                  ----------- ------------  ----------
                                  (Unaudited)               (Unaudited)
                                                  (In
                                              Thousands)
<S>                                 <C>          <C>         <C>
Capitalization:
   Common equity:
        Common Stock - part value $ 3.33 per share
           Authorized - 15,000 shares
           Issued and outstanding - 8,766
           8,688 and 8,602         $29,191     $ 28,931     $28,643
        Premium on common stock     59,177       57,277      55,669
        Retained earnings           42,433       35,924      38,464
                                 ----------- ------------  ----------
           Total Common equity     130,801      122,132     122,776
   Long-term debt                  110,015      100,102     100,185
                                  ----------- ------------  ----------

           Total capitalization    240,816      222,234     222,961
                                  ----------- ------------  ----------

Capital Lease Obligations              276        1,617       1,471
                                  ----------- ------------  ----------

Current Liabilities:
   Current maturities of
      long-term debt                   171       10,164      15,158
   Current capital lease
      obligations                    1,464        1,013         921
   Notes payable                    37,000       49,400      12,700
   Gas inventory purchase
      obligations                    8,084       14,895       6,477
   Accounts payable                  8,997       15,674       7,615
   Other                            12,070       11,362      15,504
                                  ----------- ------------  ----------

           Total current            67,786      102,508      58,375
              liabilities          ----------- ------------  ----------


Deferred Credits and Reserves:
   Deferred income taxes-funded     43,364       41,443      37,794
   Deferred income taxes-unfunded    8,626        9,014       9,386
   Accrued environmental expenses      607          707         900
   Accrued transition costs          2,800        2,800       4,500
   Other                             8,083        8,668       8,333
                                  -----------  ------------  ----------


      Total deferred credits and    63,480       62,632      60,913
          reserves                =========== ============  ==========


Total Capitalization and          $372,358     $388,991     $343,720
   Liabilities                    =========== ============  ==========

</TABLE>

    (See accompanying notes to consolidated condensed financial statements)


<PAGE>

<TABLE>

                      COLONIAL GAS COMPANY AND SUBSIDIARIES
                CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

                                            Six Months Ended
                                                June 30,
                                           1998       1997
                                             (In Thousands)
<S>                                       <C>         <C>
Cash Flows From Operating Activities:
   Net income                             $12,441     $12,792
   Adjustments to reconcile net income
      to net cash                           8,166       7,601
   Changes in current assets and
      liabilities                          21,703      24,176
                                         ----------  ----------

        Net cash provided by operating     42,310      44,569
           activities                    ----------  ----------


Cash Flows From Investing Activities:
   Capital expenditures                   (16,962)    (12,285)
   Non-utility capital expenditures          (369)     (1,158)
   Change in deferred accounts                209      (1,233)
                                          ----------  ----------

        Net cash used in investing        (17,122)    (14,676)
           activities                     ----------  ----------


Cash Flows From Financing Activities:
   Dividends paid on Common Stock          (5,932)     (5,647)
   Issuance of Common Stock                 2,160       1,725
   Issuance of long-term debt, net of
      issuance costs                       (1,570)     14,925
   Retirement of long-term debt               323         (75)
   Change in notes payable                (12,400)    (37,700)
   Change in gas inventory purchase        (6,811)     (6,562)
      obligations
                                          ----------  ----------
        Net cash used in financing        (24,229)    (33,334)
            activities                    ----------  ----------


Net (decrease) increase in cash and cash
   equivalents                                958      (3,441)
Cash and cash equivalents at beginning
   of period                                  259       3,541
                                          ----------  ----------

Cash and cash equivalents at end of        $1,218        $100
period                                    ==========  ==========


Supplemental Disclosures of Cash Flow
Information:
   Cash paid during the period for:
        Interest - net of amount
           capitalized                     $5,358      $4,645
                                          ==========  ==========
                                          ==========  ==========

        Income and franchise taxes         $3,608      $3,809
                                          ==========  ==========

</TABLE>

    (See accompanying notes to consolidated condensed financial statements)


<PAGE>


                      COLONIAL GAS COMPANY AND SUBSIDIARIES
             NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                   (UNAUDITED)


1. In the  opinion  of the  Company,  the  accompanying  unaudited  consolidated
   condensed  financial  statements contain all adjustments  (consisting of only
   normal recurring accruals) necessary to present fairly the financial position
   as of June 30, 1998 and 1997 and results of operations  for the three and six
   month  periods  ended June 30, 1998 and 1997 and cash flows for the six month
   period ended June 30, 1998 and 1997.

2. Due to the  significant  impact  of gas used for  space  heating  during  the
   heating season  (November-April)  and the Company's  seasonal rate structure,
   the results of operations  for the three month and six month  periods  ending
   June 30, 1998 and 1997 are not  necessarily  indicative  of the results to be
   expected for the full year.

3. During the six months ended June 30, 1998,  the Company  issued 38,000 shares
   of Common Stock,  $3.33 par value,  under a Dividend  Reinvestment and Common
   Stock Purchase Plan and under an Employee  Savings Plan. As a result,  Common
   Stock,  $3.33 par value,  increased  $128,000  and  Premium  on Common  Stock
   increased $915,000.

4. Contingencies

   Reference  is made to  Note  I/Contingencies  of the  Notes  to  Consolidated
   Financial  Statements  contained  within the Company's  1997 Annual Report to
   Stockholders.

5. Reclassifications  are  made  periodically  to  previously  issued  financial
   statements to conform to the current year presentation.



<PAGE>


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

Results of Operations

              Three Months Ended June 30, 1998 and June 30, 1997

  The  Company's  net  loss  for the  three  months  ended  June  30,  1998  was
$1,771,000,  or $0.20 per share,  which is a 29%, or $730,000,  improvement from
the loss of  $2,501,000,  or $0.29 per share,  reported for the same period last
year.  The Company  typically  incurs  losses for the second and third  quarters
while  reporting  profits  for the first  and  fourth  quarters.  This is due to
significantly  higher  natural gas sales  throughout  the colder  months to meet
customers'  heating  needs.  Approximately  90%  of  the  Company's  residential
customers are heating accounts. As described below, earnings for the three month
period ended June 30, 1998 were significantly impacted by a $1,121,000, or $0.08
per share, increase in operating margin due to a billing refinement.

  Effective  in the  second  quarter  of  1998,  with the  implementation  of an
improved  customer  billing  system,  bills sent during May for gas  consumed in
April were refined to reflect the Company's  higher winter rates.  Seasonal rate
changes occur on May 1 and November 1 of each year.  Previously,  May bills were
calculated  based on lower summer  rates,  even for gas  consumed in April.  The
billing  refinement  will have the opposite impact in the fourth quarter of 1998
-- November bills for October usage will now reflect the Company's  lower summer
rates instead of the higher winter rates -- and  therefore,  is expected to have
minimal  effect on  calendar  year  earnings.  Without the effect of the billing
refinement,  the Company would have reported an increase in operating  margin of
$291,000,  or 2.7%,  for the three month period.  Also  significantly  impacting
operating  margin for the three  month  period  ending June 30, 1998 was weather
which was 12% warmer than  normal and 23% warmer  than last year.  Firm gas sold
for the three  months  ended June 30  decreased to 2,956 MMcf in 1998 from 3,317
MMcf in 1997.

  Total  operating  expenses  increased  by $221,000,  or 1.8%,  compared to the
corresponding  prior  year  period,  primarily  due to a  $256,000  increase  in
depreciation  and  amortization  expense  resulting  from an increase in utility
assets.

  Revenues  for  Transgas  Inc.,  the  Company's  energy  trucking   subsidiary,
increased  $166,000,  or 37%,  primarily  due a 79%  increase  in  hauls of LNG.
Partially  offsetting this increase in revenue was a $152,000,  or 23%, increase
in energy trucking  expenses,  resulting in a $14,000,  or 6.3%,  improvement in
earnings.  Other  income  increased  $50,000,  or 50%,  primarily as a result of
increased  earnings  from the sale of natural gas related home and water heating
equipment.

  Interest and debt  expense  increased  $254,000,  or 13%,  primarily  due to a
$202,000 increase in short term debt interest expense.


                     Six Months Ended June 30, 1998 and 1997

  Net income for the six months  ended June 30, 1998 was  $12,441,000,  or $1.43
per share,  compared to $12,792,000,  or $1.50 per share, for the same period in
1997. This $351,000, or 2.7%, decrease resulted primarily from weather which was
13% warmer than normal and 13% warmer than last year.

  As a result of the warm  winter  weather,  operating  margin for the six month
period ended June 30, 1998 decreased  $1,026,000,  or 2.1%,  compared to the six
month  period  ended  June 30,  1997.  Operating  margin for the period was also
significantly  impacted  by the  billing  refinement  described  in  "Results of
Operations - Three Months Ended June 30, 1998 and 1997". The billing  refinement
resulted  in an  increase  to  operating  margin  for the six  month  period  of
$1,121,000,  or $0.08 per share.  Without the effect of the billing  refinement,
the Company would have reported a decrease in operating margin of $2,147,000, or
4.3%, for the six month period.

  Total  operating  expenses  decreased by  $561,000,  or 2.2%.  Operations  and
maintenance  expenses  decreased  by  $1,001,000,  or  6.0%,  primarily  due  to
reductions in bad debt expense and lower insurance expense. Partially offsetting
these  reductions  was  a  $467,000,  or  7.9%,  increase  in  depreciation  and
amortization expense resulting from an increase in utility assets.

  Income  taxes  decreased  $378,000,  or 4.7%,  due to a lower level of pre-tax
income.

  Energy trucking revenues fell $767,000, or 43%, primarily due to a decrease in
hauls of LNG resulting  from the warmer than normal weather during the winter of
1997-98.  The  decrease in energy  trucking  revenue was  partially  offset by a
$745,000,  or 39%, decrease in energy trucking expenses.  As a result,  earnings
from Transgas Inc. decreased by $22,000, or 16%. Other income increased $52,000,
or 50%, primarily as a result of increased earnings from the sale of natural gas
related home and water heating equipment.

  Interest and debt  expense  increased  $484,000,  or 13%,  primarily  due to a
$229,000  increase in short-term debt expense  resulting from higher  short-term
debt balances, and a $165,000 decrease in regulatory interest income.

Liquidity and Capital Resources

On April 1, 1998,  the Company  purchased  its corporate  headquarters  building
located  at 40 Market  Street  in  Lowell,  Massachusetts  for  $1,325,000.  The
purchase  terminated  the 20-year lease  between the Company and the  building's
previous owner which had been entered into in 1982.

On April 2, 1998, the Company  called  $20,000,000 of 8.05% First Mortgage Bonds
(Series CG) one year prior to their maturity, at a price of 102.02%.

On April 7, 1998, the Company issued $20,000,000 of 30-year First Mortgage Bonds
under its Medium Term Note Program  (Series B), with an effective rate of 6.68%.
The Bonds are redeemable at the option of the holder in April 2008.


<PAGE>


                           PART II - OTHER INFORMATION

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

The Annual Meeting of  Shareholders of the registrant was held on April 15, 1998
and May 7, 1998. At the Annual Meeting the shareholders voted to:

      1. Re-elect all four Class II Director nominees:

           John P.  Harrington,  with  7,294,775  shares  voting for and 90,024
           shares voting against or withholding authority;

           John F. Reilly,  Jr., with  7,277,804  shares voting for and 106,995
           shares voting against or withholding authority;

           Margaret M. Stapleton,  with 7,286,808  shares voting for and 97,991
           shares voting against or withholding authority;

           F.L.  Putnam,  Jr.,  with  7,281,114  shares  voting for and 103,685
           shares voting against or withholding authority;

      2. Approve the Company's Executive  Performance and Equity Incentive Plan,
      which  provides the Board of Directors the  flexibility  to grant cash and
      restricted  stock  bonuses  to key  members  of  senior  management,  with
      6,655,915   shares  voting  for  and  728,884  shares  voting  against  or
      withholding authority.

      3. Approve a proposal to adopt a holding company structure for the Company
      with  5,844,890  shares voting for and 1,696,552  shares voting against or
      withholding authority.

Item 5. Other Information

      On July 14, 1998, the Company filed, and is currently  awaiting a decision
on a petition with the Massachusetts Department of Telecommunications and Energy
(DTE) for  approval  to form a holding  company  which  will be called  Colonial
Energy.  Subject to DTE  approval,  Colonial  plans to have the holding  company
structure in place by the end of 1998.  As part of the  restructuring,  Colonial
Gas expects to transfer  ownership of its energy trucking  subsidiary,  Transgas
Inc.,  to the holding  company -- making both  Colonial Gas Company and Transgas
Inc. wholly-owned subsidiaries of Colonial Energy.

Item 6. Exhibits and Reports on Form 8-K

a.   Exhibits
     None

b.   Reports on Form 8-K
     None
                                   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.

                                      COLONIAL GAS COMPANY
                                             (Registrant)


Date: August 7, 1998               s/F.L. Putnam, III
                                   F.L. Putnam, III
                                   President and Chief Executive Officer


Date: August 7, 1998               s/Nickolas Stavropoulos
                                   Nickolas Stavropoulos
                                   Executive Vice President - Finance,
                                   Marketing and Chief Financial Officer