<PAGE>   1

                       SECURITIES AND EXCHANGE COMMISSION
                            Washington, D. C. 20549

                                   FORM 10-Q

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

                  For the quarterly period ended June 30, 1997

                                       OR

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

              For the transition period from ________ to ________


                         Commission File Number 1-12426

                        AQUILA GAS PIPELINE CORPORATION
             (Exact name of registrant as specified in its charter)


            DELAWARE                                       47-0731171     
  (State or other jurisdiction                            (IRS Employer   
of incorporation or organization)                      Identification No.)

               100 N.E. Loop 410, Suite 1000, San Antonio, Texas
                                   78216-4754
                    (Address of principal executive offices)
                                   (Zip Code)

                                 (210) 342-0685
              (Registrant's telephone number, including area code)

                                 Not Applicable
             (Former name, former address and former fiscal year,
                         if changed since last report)


     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 [ ]


     Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.


           Class                                  Outstanding on August 1, 1997
----------------------------                      -----------------------------
Common stock, $.01 par value                               29,400,000

<PAGE>   2
                         PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

                AQUILA GAS PIPELINE CORPORATION AND SUBSIDIARIES

                     CONDENSED CONSOLIDATED BALANCE SHEETS

                (THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)

                                     ASSETS

<TABLE>
<CAPTION>
                                                                 June 30,      December 31,
                                                                   1997            1996
                                                               ------------    ------------
                                                                (Unaudited)
<S>                                                            <C>             <C>         
CURRENT ASSETS:
  Cash and cash equivalents ................................   $     10,183    $     17,719
  Accounts receivable ......................................         95,901         156,667
  Inventories and exchanges ................................          5,031           3,630
  Materials and supplies ...................................          6,251           5,022
                                                               ------------    ------------
    Total current assets ...................................        117,366         183,038
                                                               ------------    ------------
INVESTMENT IN AFFILIATE, net ...............................         96,750         110,814
                                                               ------------    ------------
PIPELINE, PROPERTY, PLANT AND EQUIPMENT, at cost:
  Natural gas pipelines ....................................        432,694         423,222
  Plants and processing equipment ..........................         72,822          68,115
                                                               ------------    ------------
                                                                    505,516         491,337
  Less - Accumulated depreciation ..........................       (106,513)        (95,463)
                                                               ------------    ------------
                                                                    399,003         395,874
                                                               ------------    ------------
INTANGIBLE ASSETS, net .....................................         33,150          37,313
                                                               ------------    ------------
OTHER, net .................................................          1,467           1,443
                                                               ------------    ------------
TOTAL ASSETS ...............................................   $    647,736    $    728,482
                                                               ============    ============

                     LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Current maturities of long-term debt .....................   $     12,752    $     12,802
  Accounts payable .........................................         88,891         152,119
  Accrued expenses .........................................          8,497           8,712
  Accrued interest .........................................          3,568           4,393
  Income taxes payable to UtiliCorp United Inc. ............          1,919           2,833
  Intercompany payable due to Aquila Energy Corporation ....          3,810           1,038
                                                               ------------    ------------
    Total current liabilities ..............................        119,437         181,897
                                                               ------------    ------------
LONG-TERM DEBT .............................................        242,625         277,383
                                                               ------------    ------------
DEFERRED INCOME TAXES ......................................         70,817          68,987
                                                               ------------    ------------
OTHER LONG-TERM LIABILITIES ................................            204             557
                                                               ------------    ------------
COMMITMENTS AND CONTINGENCIES (Note 3)
STOCKHOLDERS' EQUITY:
  Preferred stock, $.01 par value, 10,000,000 shares
    authorized, none outstanding at June 30, 1997 and
    December 31, 1996 ......................................           --              --
  Common stock, $.01 par value, 50,000,000 shares
    authorized, 29,400,000 shares issued and outstanding
    at June 30, 1997 and December 31, 1996 .................            294             294
  Additional paid-in capital ...............................         90,297          90,297
  Retained earnings ........................................        124,062         109,067
                                                               ------------    ------------
    Total stockholders' equity .............................        214,653         199,658
                                                               ------------    ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .................   $    647,736    $    728,482
                                                               ============    ============
</TABLE>

See accompanying notes to condensed consolidated financial statements.

                                       2

<PAGE>   3
                AQUILA GAS PIPELINE CORPORATION AND SUBSIDIARIES

                  CONDENSED CONSOLIDATED STATEMENTS OF INCOME

                                  (UNAUDITED)

                (THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)


<TABLE>
<CAPTION>
                                                     Three Months Ended              Six Months Ended
                                                           June 30,                      June 30,
                                                 ---------------------------   ---------------------------
                                                     1997           1996           1997           1996
                                                 ------------   ------------   ------------   ------------
<S>                                              <C>            <C>            <C>            <C>         
OPERATING REVENUES ...........................   $    208,164   $    167,122   $    481,362   $    332,039
                                                 ------------   ------------   ------------   ------------
COSTS AND EXPENSES:
  Cost of sales ..............................        177,152        136,126        415,722        266,957
  Operating ..................................          5,802          5,629         11,363         11,484
  General and administrative .................          3,766          4,154          8,242          9,783
  Depreciation and amortization ..............          6,275          5,823         12,582         11,542
                                                 ------------   ------------   ------------   ------------
    Total costs and expenses .................        192,995        151,732        447,909        299,766
                                                 ------------   ------------   ------------   ------------
INCOME FROM OPERATIONS .......................         15,169         15,390         33,453         32,273
INTEREST AND DEBT EXPENSES, net ..............          4,270          3,285          8,783          7,651
EQUITY IN NET INCOME OF AFFILIATE ............            202             --            346             --
                                                 ------------   ------------   ------------   ------------
INCOME BEFORE INCOME TAXES ...................         11,101         12,105         25,016         24,622
PROVISION IN LIEU OF INCOME TAX EXPENSE ......          4,065          4,588          9,287          9,332
                                                 ------------   ------------   ------------   ------------
NET INCOME ...................................   $      7,036   $      7,517   $     15,729   $     15,290
                                                 ============   ============   ============   ============
EARNINGS PER SHARE ...........................   $        .24   $        .26   $        .54   $        .52
                                                 ============   ============   ============   ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING ...     29,400,000     29,400,000     29,400,000     29,400,000
                                                 ============   ============   ============   ============
CASH DIVIDENDS PER SHARE OF COMMON STOCK .....   $      .0125   $      .0125   $       .025   $       .025
                                                 ============   ============   ============   ============
</TABLE>

See accompanying notes to condensed consolidated financial statements.


                                       3
<PAGE>   4


                AQUILA GAS PIPELINE CORPORATION AND SUBSIDIARIES

                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                  (UNAUDITED)

                             (THOUSANDS OF DOLLARS)



<TABLE>
<CAPTION>
                                                                                     Six Months Ended
                                                                                         June 30,
                                                                                    ------------------
                                                                                        1997     1996
                                                                                    --------   -------
<S>                                                                                 <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income ...................................................................... $ 15,729   $15,290
  Adjustments to reconcile net income to net cash provided by operating activities:
    Depreciation and amortization .................................................   12,582    11,542
    Deferred income taxes .........................................................    1,830     4,407
    Dividends from affiliate ......................................................       92        --
    Equity in net income of affiliate .............................................     (346)       --
    Other non-cash items ..........................................................      195       150
    Changes in operating assets and liabilities:
      Accounts receivable .........................................................   60,766     2,582
      Inventories and exchanges ...................................................   (1,440)      619
      Materials and supplies ......................................................   (1,135)      455
      Accounts payable ............................................................  (63,107)   (5,993)
      Accrued expenses ............................................................     (481)    2,516
      Accrued interest ............................................................     (825)      838
      Income taxes payable to UtiliCorp United Inc. ...............................     (914)    2,021
      Intercompany payable due to Aquila Energy Corporation .......................    2,772     3,635
                                                                                    --------   -------
    Net cash provided by operating activities .....................................   25,718    38,062
                                                                                    --------   -------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Additions to pipeline, property, plant and equipment ............................  (13,046)  (17,056)
  Proceeds from asset dispositions ................................................   16,854        --
                                                                                    --------   -------
    Net cash provided by (used in) investing activities ...........................    3,808   (17,056)
                                                                                    --------   -------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Payments under revolving credit agreements, net .................................  (50,574)   (9,500)
  Borrowings under loan agreement .................................................   16,250        --
  Principal payments of debt ......................................................   (1,689)     (226)
  Dividends .......................................................................     (734)     (734)
  Other ...........................................................................     (315)      (23)
                                                                                    --------   -------
    Net cash used in financing activities .........................................  (37,062)  (10,483)
                                                                                    --------   -------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ..............................   (7,536)   10,523
CASH AND CASH EQUIVALENTS, beginning of period ....................................   17,719     8,666
                                                                                    --------   -------
CASH AND CASH EQUIVALENTS, end of period .......................................... $ 10,183   $19,189
                                                                                    ========   =======
</TABLE>

See accompanying notes to condensed consolidated financial statements.

                                       4
<PAGE>   5


                AQUILA GAS PIPELINE CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                  (UNAUDITED)

                             (THOUSANDS OF DOLLARS)

1. BASIS OF PRESENTATION

     GENERAL

     The accompanying condensed consolidated financial statements of Aquila
Gas Pipeline Corporation and subsidiaries (the Company) have been prepared
by the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. All adjustments of a normal recurring
nature have been made which the Company believes are necessary for a fair
presentation of the Company's financial position and results of operations
for such interim periods. These interim results are not necessarily
indicative of the results for a full year. Certain information and note
disclosures related to the unaudited interim periods ended June 30, 1997 and
1996, normally included in financial statements prepared in accordance with
generally accepted accounting principles, have been condensed or omitted
pursuant to such rules and regulations although the Company believes the
disclosures are adequate to make the interim period information presented
herein not misleading.

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. The significant areas requiring the use of estimates
relate to the fair value of financial instruments and useful lives for
depreciation and amortization. Actual results may differ from those
estimates.

     The Company is subject to a number of risks inherent in the industry in
which it operates, primarily fluctuating prices and gas supply. The
Company's financial condition and results of operations will depend
significantly upon the prices received for natural gas and natural gas
liquids (NGLs). These prices are subject to wide fluctuation due to a
variety of factors that are beyond the control of the Company. In addition,
the Company must continually connect new wells to its gathering systems in
order to maintain or increase throughput levels to offset natural declines
in dedicated volumes. The number of new wells drilled will depend on a
variety of factors that are beyond the control of the Company.

     The condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and the notes thereto
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996. No changes in accounting principles have occurred since
this date.

     STOCK-BASED COMPENSATION

     In 1997, the Company awarded eligible employees stock options, see Note
5. The Company accounts for the stock options in accordance with Statement
of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for
Stock-Based Compensation". Under SFAS 123, this plan requires either
recording compensation expense or disclosing the pro forma impact on net
income and earnings per share as if the Company elected to record
compensation expense. The Company has elected to disclose pro forma
information required by SFAS 123 in the annual consolidated financial
statements.

     COMMODITY RISK MANAGEMENT

         NON-TRADING ACTIVITIES

     The Company utilizes various exchange-traded and over-the-counter
commodity financial instrument contracts to hedge the anticipated purchases
and sales of natural gas and NGLs and current operating margins (non-trading
activities). The principal financial instruments utilized are futures,
options, forward contracts and price and basis swaps. Financial instruments
are designated as a hedge at inception where there is a direct relationship
to the price risk associated with the Company's future sales and purchases
of commodities used in the Company's operations. Hedges of anticipated
transactions are accounted for under the deferral method with gains and
losses on these transactions recognized in revenues when the hedged
transaction

                                       5
<PAGE>   6


                AQUILA GAS PIPELINE CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                  (UNAUDITED)

                             (THOUSANDS OF DOLLARS)

1. BASIS OF PRESENTATION (CONTINUED)

occurs. Gains and losses on the early termination or maturity of commodity
financial instrument contracts designated as hedges are deferred and
included in revenues in the period the hedged transaction is recorded. If
the direct relationship to price risk ceases to exist, the difference in the
carrying value and fair value of a commodity financial instrument is
recognized as a gain or loss in revenues in the period the direct
relationship ceases to exist. Future changes in fair value of the commodity
financial instrument are recognized as gains or losses in revenues in the
period of change. Most of the Company's hedging activities could tend to
reduce the Company's participation in rising margins but are intended to
limit the Company's exposure to loss during periods of declining margins.

     NEW ACCOUNTING STANDARD

     In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130 (SFAS 130), "Reporting
Comprehensive Income". SFAS 130 establishes standards for reporting and
display of comprehensive income and its components in a full set of
financial statements. Adoption of SFAS 130 is required for fiscal years
beginning after December 15, 1997, although earlier adoption is encouraged.
Based on the Company's current operations, SFAS 130 is not anticipated to
have a material effect on the Company's Consolidated Financial Statements.

2. STATEMENTS OF CASH FLOWS

     Supplemental disclosure of cash flow information for cash paid for
interest and income taxes by the Company:


<TABLE>
<CAPTION>
                                              Six Months Ended
                                                  June 30,
                                           ----------------------
                                            1997            1996
                                           ------          ------
<S>                                       <C>             <C>
Interest, net of amount capitalized        $9,552          $7,027
Income taxes                               $8,553          $3,044
</TABLE>

3. COMMITMENTS AND CONTINGENCIES

     LETTERS OF CREDIT AND GUARANTIES

     The Company has issued irrevocable standby letters of credit totaling
$16,016 at June 30, 1997. The standby letters of credit, which generally
have terms from one to three months, collateralize obligations to third
parties for the purchase of gas. The standby letters of credit are issued
pursuant to a line of credit maintained by the Company. The line of credit
securing the letters of credit has been amended to extend the maturity to
June 30, 1998. At June 30, 1997, the borrowing base was $18,000 with no
principal outstanding.

     The Company issued financial guarantees of approximately $250 at June
30, 1997, related to business activities of a 50% owned subsidiary.
Management does not believe it is probable that the financial guarantees
will be exercised.






                                       6
<PAGE>   7


                AQUILA GAS PIPELINE CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                  (UNAUDITED)

                             (THOUSANDS OF DOLLARS)

3. COMMITMENTS AND CONTINGENCIES (CONTINUED)

     LITIGATION

        In 1987, HECI Exploration, Inc. (HECI) instituted a suit in the
   155th Judicial District Court, Fayette County, Texas, against the Company
   alleging various breaches of a take-or-pay contract and seeking
   approximately $3,000 in damages. The Company's motion for summary
   judgment was granted by the lower court. A Texas appellate court,
   however, has remanded the case for trial.

        In the purchase and sale agreement executed in connection with the
   1987 acquisition of Clajon Gas Company by a predecessor of the Company,
   Clayton Williams, Jr., individually, and certain selling entities agreed
   to jointly and severally indemnify the purchaser from liabilities related
   to the conduct of the acquired business or arising out of any assigned
   contracts prior to the closing date of the acquisition, subject to
   certain limitations. Thus, certain claims and litigation, including the
   HECI litigation described above, involving the acquired business and
   contracts assigned to the Company are subject to these indemnification
   provisions. The indemnity provision limits Mr. Williams' personal
   liability to $3,000 in the aggregate.

        In August 1995, Mr. Charles Menke instituted suit against the
   Company in the 155th Judicial District Court, Waller County, Texas,
   alleging the Company has constructed and was operating a pipeline on
   property owned by Mr. Menke. Mr. Menke alleges the Company is a
   trespasser on his property and seeks unspecified damages for such
   trespass including punitive damages. Mr. Menke additionally seeks an
   injunction requiring the Company to cease operation of its pipeline and
   to remove such pipeline from his property. In October 1995, the Court
   denied Mr. Menke's request for a temporary injunction and set this matter
   for trial on January 15, 1996. By consent of all parties the January 15,
   1996 trial date was postponed and no new trial date has been set. The
   Company believes Mr. Menke's claims for injunctive relief are without
   merit, and believes it has meritorious defenses to the damage claims. The
   Company has filed a denial of all claims and is actively pursuing its
   defense of this litigation.

        TAXES

        The Internal Revenue Service (IRS) has examined and proposed
   adjustments to UtiliCorp United Inc.'s (UtiliCorp) consolidated Federal
   income tax returns for 1988 through 1993. The proposed adjustment
   affecting the Company is to lengthen the depreciable life of certain
   pipeline assets owned by the Company. The Company has filed a petition in
   U.S. Tax Court contesting the IRS proposed adjustments for the tax years
   of 1990 through 1992. The Company plans to file a similar petition for
   1993 of which the IRS has also proposed an adjustment on the same issue.
   The Company intends to vigorously contest the proposed adjustment and
   believes it is reasonably possible it will prevail. It is expected that
   additional assessments for the years 1994 through the present would be
   made on the same issue. Under the provisions of the tax sharing agreement
   with Aquila Energy Corporation (Aquila Energy) and UtiliCorp, the Company
   would be liable to UtiliCorp for additional taxes of approximately $7,300
   for the audit period and through the present plus potential interest of
   approximately $2,100. The additional taxes would result in an adjustment
   to the deferred tax liability with no effect on net income, while any
   payment of interest would affect net income. The Company expects that the
   ultimate resolution of this matter will not have a material adverse
   effect on its financial position.

     The Company is also a party to additional claims and is involved in
various other litigation and administrative proceedings arising in the
normal course of business. The Company believes it is unlikely that the
final outcome of any of the claims, litigation or proceedings discussed
above to which the  Company  is  a  party  would  have  a  material  adverse
effect  on  the Company's financial position or results of operations.
However, due  to  the  inherent  uncertainty  of  litigation, there can  be
no assurance that the resolution of any particular claim or proceeding would
not have an adverse effect on the Company's  results of operations for the
fiscal period in which such resolution occurred.

                                       7
<PAGE>   8


                AQUILA GAS PIPELINE CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                  (UNAUDITED)

                             (THOUSANDS OF DOLLARS)

3. COMMITMENTS AND CONTINGENCIES (CONTINUED)

     The Company, in the normal course of business of its natural gas
pipeline operations, purchases, processes and sells natural gas pursuant to
long-term contracts. Such contracts contain terms which are customary in the
industry. The Company believes that such terms are commercially reasonable
and will not have a material adverse effect on the Company's financial
position or results of operations.

4. INVESTMENT IN OASIS PIPE LINE COMPANY

     On April 1, 1997, the Company received $16,800 from El Paso Natural Gas
Company for its exercise of an option arrangement to acquire 5% of all the
capital stock of Oasis Pipe Line Company (Oasis) and the related
transportation rights. The Company, after the exercise of the option
arrangement, owns 35% of the capital stock of Oasis and has 280 million
cubic feet per day (MMcf/d) of firm intrastate transportation capacity. The
exercise of the option arrangement resulted in no gain or loss on
disposition to the Company. The proceeds were utilized to paydown on the
Company's revolving debt.

5. BENEFIT PLANS

     In May 1997, the stockholders approved the 1997 Stock Incentive Plan
(the Plan). The Plan allows for awards of up to 500,000 shares of the
Company's common stock. The Plan provides for granting of options to
purchase common stock, awards of restricted stock, stock appreciation
rights, performance units or performance shares and other stock-based awards
to eligible employees, subject to certain restrictions. Generally, options
and other stock-based awards are granted with an exercise price at not less
than 100% of the closing market price on the date of the grant.

     In 1997, the Company granted 35,000 options to purchase the Company's
common stock at an exercise price of $14.00 per share. The options become
exercisable in installments of one-third per year from the date of grant.


6. DEBT

     On April 1, 1997, the Company entered into a Loan Agreement (the Loan)
with Aquila Energy for an amount of $16,250. The Loan is unsecured and bears
interest at 6.83% due semi-annually. The principal amount of the Loan shall
be repaid to Aquila Energy by October 15, 2006. The Loan also requires the
Company to comply with certain financial covenants and limits the activities
of the Company in other ways.

     On June 1, 1997, the Company voluntarily reduced its commitment, by
$40,000, of its revolving credit agreements with Aquila Energy. The Company,
at June 30, 1997, has a commitment of $128,000, with outstanding principal
of $113,750, on its revolving credit agreements.


                                       8
<PAGE>   9
                AQUILA GAS PIPELINE CORPORATION AND SUBSIDIARIES

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS 
OF OPERATIONS.


    The following discussion and analysis relates to the condensed consolidated
financial position and results of operations of the Company for the three and
six months ended June 30, 1997 and 1996. Reference should be made to the
Condensed Consolidated Financial Statements and the Notes thereto. The increase
in 1997 off-system results of operations and the equity in net income of
affiliate are primarily the result of the July 1, 1996 acquisition of Oasis
Pipe Line Company (Oasis).


<TABLE>
<CAPTION>
                                    Three Months Ended            Period 1996           Six Months Ended           Period 1996
                                         June 30,               to 1997 Change              June 30,             to 1997 Change
                                   ----------------------      ------------------      -------------------      ------------------
                                     1997         1996         Amount     Percent       1997       1996        Amount      Percent
                                   ---------    ---------      -------    --------     -------    --------     --------    -------
                                                               (Dollars in millions, except price data)
<S>                                <C>          <C>           <C>            <C>       <C>       <C>           <C>          <C>    
FINANCIAL DATA:

Natural gas revenues               $    188.7   $  147.4      $   41.3         28 %    $  432.9    $  290.6     $  142.3       49 %
Natural gas liquids (NGLs) 
    revenues                             19.5       19.7           (.2)        (1)%        48.5        41.4          7.1       17 %
                                   ----------   --------      --------                 --------    --------     --------  
    Total operating revenues            208.2      167.1          41.1         25 %       481.4       332.0        149.4       45 %
                                   ----------   --------      --------                 --------    --------     --------
Cost of sales                           177.1      136.1          41.0         30 %       415.7       266.9        148.8       56 %
                                   ----------   --------      --------                 --------    --------     --------
    Gross margin                         31.1       31.0            .1          1 %        65.7        65.1           .6        1 %
                                   ----------   --------      --------                 --------    --------     --------
Operating expenses                        5.8        5.6            .2          4 %        11.4        11.5          (.1)      (1)%
General and administrative 
    expenses                              3.7        4.2           (.5)       (12)%         8.2         9.8         (1.6)     (16)%
Depreciation and amortization             6.3        5.8            .5          9 %        12.6        11.5          1.1       10 %
Interest and debt expenses, net           4.3        3.3           1.0         30 %         8.8         7.7          1.1       14 %
Equity in net income of affiliate          .2         --            .2        100 %          .3          --           .3      100 %
Provision in lieu of income tax 
    expense                               4.2        4.6           (.4)        (9)%         9.3         9.3           --       -- %
                                   ----------   --------      --------                 --------    --------     --------    
    Net income                     $      7.0   $    7.5      $    (.5)        (7)%   $    15.7   $    15.3    $      .4        3 %
                                   ==========   ========      ========                =========   =========    =========
OPERATING DATA:

Natural gas (MMcf/d):
    Throughput sold                       378        382            (4)        (1)%         344         375          (31)      (8)%
    Throughput transported                156        151             5          3 %         151         145            6        4 %
                                   ----------   --------      --------                 --------    --------     --------
    Total  throughput                     534        533             1          1 %         495         520          (25)      (5)%
                                   ----------   --------      --------                 --------    --------     --------
    Marketed off-system excluding 
        Oasis                             434        366            68         19 %         422         362           60       17 %
    Marketed off-system Oasis             208         --           208        100 %         224          --          224      100 %
                                   ----------   --------      --------                 --------    --------     --------
    Total marketed off-system             642        366           276         75 %         646         362          284       78 %
                                   ----------   --------      --------                 --------    --------     --------
    Total throughput and 
        marketed off-system             1,176        899           277         31 %       1,141         882          259       29 %
                                   ==========   ========      ========                =========   =========    =========
Gross NGLs production (MBbls/d)            38         40            (2)        (5)%          39          40           (1)      (3)%
Average natural gas price ($/Mcf)  $     2.02   $   2.15      $   (.13)        (6)%   $    2.38   $    2.15     $    .23       11 %
Average NGLs price ($/gallon)      $      .30   $    .32      $   (.02)        (6)%   $     .35   $     .31     $    .04       13 %

</TABLE>


    1997 OUTLOOK

    Results of operations for the remainder of the year will be influenced by
many factors, including system throughput volumes and gas marketing margins.
The Company's connection of the Brown #1-H and Eberele #1 wells during March,
1997 contributed to the increase in gas throughput volumes in the 1997 second
quarter compared to the 1997 first quarter. However, recent offset development
activity subsequent to connection of these wells has not been as favorable.

    As a result, gas throughput for the month of July has declined to
approximately 470 million cubic feet per day (MMcf/d). Producers have indicated
in discussions with the Company that they are continuing to drill in the area
of the Brown #1-H and Eberele #1 wells and plan to drill further offsets and
extension wells.

    The Company is well positioned to gather additional gas supply as it
develops because of its contractual commitments and the location of its
facilities. However, given the Company's projected flat throughput volumes and
lower gas marketing margins, the Company will be unlikely to match the
Company's 1996 earnings performance in the second half of this year.

    Gas marketing margins will be affected by the relative differential of gas
values between the West Texas Waha hub and the Katy hub near Houston due to the
Company's interest in Oasis which provides 280 MMcf/d of firm transportation
capacity. The forward market reflected by futures contracts and cash markets
shows that the differential has declined to the $.05 per Mcf range for the 1997
third quarter as contrasted to the $.09 per Mcf average for the 1997 second
quarter and $.13 per Mcf for the year 1996. The Company may mitigate the lower
differentials through its marketing operations, but the downward trend in the
forward market affects the earnings potential of the Company's gas marketing
operations if the lower forward differentials are actually realized. Such
current lower differentials may not reflect the long-term transportation value
of the pipeline service.


                                       9
<PAGE>   10
RESULTS OF OPERATIONS

    The Company's results of operations are determined by the volume of gas
purchased, processed and resold in its gas gathering systems and processing
plants, as well as its off-system marketing activities. Fluctuations in the
price levels of natural gas and NGLs also affect results of operations since
the Company generally receives a portion of the natural gas and NGLs revenue
from natural gas throughput. Most of the Company's operating costs do not vary
directly with volume on existing systems; thus, increases or decreases in
volumes on existing systems generally have a direct effect on net income.

    The Company, from time to time, enters into hedging transactions such as
contracts for future deliveries in order to minimize the risk associated with
changes in the price of natural gas and NGLs. The hedging program was
established to minimize variances in operating results due to fluctuating
commodity prices. Gains and losses related to these transactions are deferred
and recognized in the results of operations when the hedged transaction occurs.

COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 1997 AND 1996

    Total operating revenues increased 25% to $208.2 million in 1997 compared
to $167.1 million in 1996. Natural gas revenues increased 28% to $188.7 million
in 1997 compared to $147.4 million in 1996 partially as the result of the
activity related to the Oasis off-system marketing which contributed natural
gas revenues of $40.9 million with associated marketed natural gas volumes of
208 MMcf/d. Excluding Oasis off-system marketing activity, natural gas revenues
increased 1% to $147.8 million primarily due to a 9% increase in natural gas
throughput sold and marketed to 812 MMcf/d in 1997 from 748 MMcf/d in 1996
offset by a 6% decrease in the average natural gas price to $2.02 per Mcf in
1997 from $2.15 per Mcf in 1996.

    NGLs revenues decreased 1% to $19.5 million in 1997 compared to $19.7
million in 1996 as the result of a 5% decrease in gross NGLs production to
38,000 barrels per day (Bbls/d) in 1997 compared to 40,000 Bbls/d in 1996 and a
6% decrease in the average NGLs price to $.30 per gallon in 1997 from $.32 per
gallon in 1996. In 1997, the Company has recognized a gain of approximately $.8
million associated with its hedging activities of NGLs.

    Cost of sales was $177.1 million, or 85% of operating revenues, in 1997
compared to $136.1 million, or 81% of operating revenues, in 1996. The increase
in the percentage is primarily due to a higher cost of gas supply for the
pipeline systems and the increase in overall off-system marketing activities
which have lower gross margin percentages. Cost of sales increased, primarily,
as the result of an increase in the Oasis off-system marketing activity and in
the volume of natural gas sold and marketed offset by a decrease in average
natural gas price.

    Gross margin (operating revenues less cost of sales, which includes only
the direct cost of gas sold and does not include any related operating
expenses) was $31.1 million, or 15% of operating revenues, in 1997 compared to
$31.0 million, or 19% of operating revenues, in 1996. The decrease in
percentage is primarily due to a higher cost of gas supply for the pipeline
systems and to the increase in overall off-system marketing activities which
have lower gross margin percentages. The increase in the gross margin is due
mainly to an increase in the volume of natural gas sold and marketed offset by
a decrease in NGLs revenues.

    Operating expenses increased 4% to $5.8 million in 1997 compared to $5.6
million in 1996 primarily as a result of recording additional operating
expenses associated with an increase in the ownership percentage of the
Company's interest in a joint venture.

    General and administrative expenses decreased 12% to $3.7 million in 1997
compared to $4.2 million in 1996 due to a reduction in compensation costs. The
Company accrues compensation related to the stock appreciation rights (SARs)
based on the price of the Company's common stock. Based on the Company's stock
price in 1996 the Company increased its accrual for SARs while in 1997 the
Company decreased its accrual for SARs, which resulted in a decrease between
periods of $.2 million.

    Depreciation and amortization increased 9% to $6.3 million in 1997 compared
to $5.8 million in 1996 primarily as the result of fixed asset additions on the
Southeast Texas Pipeline System (SETPS) and the amortization of the
transportation rights related to Oasis.

    Interest and debt expenses increased 30% to $4.3 million in 1997 compared
to $3.3 million in the 1996 period primarily as a result of the Oasis
acquisition offset by the 1996 recording of $1.2 million of cumulative interest
associated with certain agreed-upon tax issues with the Internal Revenue
Service (IRS) resulting from the IRS examination of certain UtiliCorp United,
Inc. (UtiliCorp) Federal income tax returns (further discussed in the following
paragraph).


                                      10

<PAGE>   11
    Provision in lieu of income tax expense decreased 9% to $4.2 million in
1997 compared to $4.6 million in 1996 due, primarily, to a decrease in income
before income taxes in 1997 compared to 1996. UtiliCorp has agreed with the IRS
on certain tax issues as a result of the IRS audits of certain UtiliCorp
Federal income tax returns (hereinafter referred to as "agreed-upon tax
issues"). The Company will be liable to UtiliCorp for approximately $1.2
million, under the provisions of the tax sharing agreement, once UtiliCorp
assesses the Company for the agreed-upon tax issues. In June 1997, the Company
paid UtiliCorp $2.0 million for agreed-upon tax issues relating to 1990 and
1991 IRS audits of UtiliCorp's Federal income tax returns. The payment of the
income taxes associated with the agreed-upon tax issues will have no effect on
net income, as it will be an adjustment to the deferred tax liability.

COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996

    Total operating revenues increased 45% to $481.4 million in 1997 compared
to $332.0 million in 1996. Natural gas revenues increased 49% to $432.9 million
in 1997 compared to $290.6 million in 1996 partially as the result of the
activity related to the Oasis off-system marketing which contributed natural
gas revenues of $107.7 million with associated marketed natural gas volumes of
224 MMcf/d. Excluding Oasis off-system marketing activity, natural gas revenues
increased 12% to $325.2 million primarily due to an 11% increase in the average
natural gas price to $2.38 per Mcf in 1997 from $2.15 per Mcf in 1996. Natural
gas throughput decreased 5% to 495 MMcf/d in 1997 from 520 MMcf/d in 1996 due
to a reduction in well connect activity and normal production declines on the
SETPS.

    NGLs revenues increased 17% to $48.5 million in 1997 compared to $41.4
million in 1996 as the result of a 13% increase in the average NGLs price to
$.35 per gallon from $.31 per gallon offset by a 3% decrease in gross NGLs
production to 39,000 Bbls/d in 1997 compared to 40,000 Bbls/d in 1996. In 1997,
the Company has recognized a gain of approximately $2.7 million associated with
its hedging activities of NGLs.

    Cost of sales was $415.7 million, or 86% of operating revenues, in 1997
compared to $266.9 million, or 80% of operating revenues, in 1996. The increase
in the percentage is primarily due to a higher cost of gas supply for the
pipeline systems and the increase in overall off-system marketing activities
which have lower gross margin percentages. Cost of sales increased, primarily
as the result of an increase in the average natural gas price and the Oasis
off-system marketing activity.

    Gross margin (operating revenues less cost of sales, which includes only
the direct cost of gas sold and does not include any related operating
expenses) was $65.7 million, or 14% of operating revenues, in 1997 compared to
$65.1 million, or 20% of operating revenues, in 1996. The decrease in
percentage is primarily due to a higher cost of gas supply for the pipeline
systems and to the increase in overall off-system marketing activities which
have lower gross margin percentages. The increase in the gross margin is due
mainly to an increase in NGLs revenues offset by lower gross margin from the
pipeline systems as a result of decreased throughput volumes and higher cost of
gas supply.

    Operating expenses decreased 1% to $11.4 million in 1997 compared to $11.5
million in 1996 primarily as a result of a reduction in the insurance expense
on the pipeline systems offset by recording additional expenses associated with
an increase in the ownership percentage of the Company's interest in a joint
venture.

    General and administrative expenses decreased 16% to $8.2 million in 1997
compared to $9.8 million in 1996 due primarily to decreased compensation and
service agreement costs. The accrual for SARs between 1997 and 1996 decreased
$.8 million. In 1997, the Company's service agreement costs were lower by $.4
million as compared to 1996.

    Depreciation and amortization increased 10% to $12.6 million in 1997
compared to $11.5 million in 1996 primarily as the result of fixed asset
additions on the SETPS and the amortization of the transportation rights
related to Oasis.

    Interest and debt expenses increased 14% to $8.8 million in 1997 compared
to $7.7 million in the 1996 period primarily as a result of the Oasis
acquisition offset by the 1996 recording of $1.4 million of cumulative interest
associated with certain agreed-upon tax issues with the IRS resulting from the
IRS examination of certain UtiliCorp Federal income tax returns.

     Provision in lieu of income tax expense remained the same at $9.3 million
in 1997 and 1996 as a result of comparable income before income taxes in both
periods.


                                      11

<PAGE>   12
LIQUIDITY AND CAPITAL RESOURCES

    The Company generates significant cash from operations and expects such
cash as well as borrowings to be its primary source of liquidity. The $2.1
million working capital deficit at June 30, 1997 is expected to be satisfied by
drawings on the Company's revolving credit agreements and cash flow from
operations. The significant decrease in the Company's accounts receivable and
accounts payable at June 30, 1997 is mainly the result of lower commodity
prices at June 30, 1997 as compared to December 31, 1996. The Company's primary
uses of cash are capital expenditures, acquisitions, working capital
requirements, dividends and debt repayment. The Company's historical additions
to pipeline, property, plant and equipment were $13.0 million and $27.5 million
for the six months ended June 30, 1997 and the year ended December 31, 1996,
respectively. Capital expenditures are expected to be approximately $37.4
million in 1997, excluding business acquisitions.

    On April 1, 1997, the Company received $16.8 million from El Paso Natural
Gas Company upon their exercise of certain option arrangements to acquire 5% of
all the capital stock of Oasis and related transportation rights from the
Company. The proceeds were utilized to paydown the Company's revolving debt.

    The Company maintains revolving credit agreements (the Revolvers), as
amended, with Aquila Energy Corporation (Aquila Energy) to provide funds for
general corporate purposes. In June 1997, the Company voluntarily reduced its
commitment, by $40.0 million, on its Revolvers which reduces the available
borrowings on the Revolvers to $128.0 million. There was $113.8 million
outstanding on the Revolvers at June 30, 1997. The total amount available to
borrow on the Revolvers was $14.2 million. The maturity dates on the Revolvers
automatically renew in one year periods from each commitment period (the fourth
quarter of any given year) unless Aquila Energy gives at least one year notice
not to renew from the commitment period.
Currently, the maturity dates of the Revolvers are in the fourth quarter of
1998.

    The Company also has a Loan Agreement (the Loan) with Aquila Energy for an
amount of $50.0 million, which matures in 2005, to provide funds for general
corporate purposes. The Loan requires the Company to meet and maintain certain
financial covenants and limits the activities of the Company in other ways. At
June 30, 1997, $50.0 million was outstanding under the Loan and the Company was
in compliance with such covenants.

    In April 1997, the Company entered into a Loan Agreement (the Loan
Agreement) with Aquila Energy for an amount of $16.3 million, which matures in
2006, to provide funds for general corporate purposes. The Loan Agreement will
require the Company to meet and maintain certain financial covenants and limits
the activities of the Company in other ways. At June 30, 1997, $16.3 million
was outstanding under the Loan Agreement and the Company was in compliance with
such covenants.

    The 8.29% Senior Notes issued by Aquila Southwest Energy Corporation
(Aquila Southwest), a subsidiary of the Company, in 1992 require principal
payments of $12.5 million annually. Such principal payments are expected to be
made from cash flows from operations and borrowings. The 8.29% Senior Note
purchase agreement has numerous covenants which affect the Company and Aquila
Southwest. These covenants limit the ability to make dividend payments and
incur debt, require maintenance of certain financial ratios and limit the
activities of Aquila Southwest in other ways. Failure to maintain the required
ratios may ultimately result in an acceleration of payments due. At June 30,
1997, $75.0 million was outstanding on the Senior Notes and the Company was in
compliance with such covenants.

    The Company believes the cash generated from operations and borrowings
under the Revolvers will be adequate to fund working capital requirements, debt
service payments and planned capital expenditures. Future acquisitions or large
capital expenditures in excess of current plans would require additional
financing that the Company expects would be available through additional debt
facilities.

NEW ACCOUNTING STANDARD

    In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive
Income". SFAS 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of financial statements .
Adoption of SFAS 130 is required for fiscal years beginning after December 15,
1997, although earlier adoption is encouraged. Based on the Company's current
operations, SFAS 130 is not anticipated to have a material effect on the
Company's consolidated financial statements.



                                      12
<PAGE>   13
FORWARD-LOOKING INFORMATION

    The Company is including the following cautionary statement to make
applicable and take advantage of the new "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995 for any forward-looking
statement made by, or on behalf of, the Company. The factors identified in this
cautionary statement are important factors (but not necessarily all of the
important factors) that could cause actual results to differ materially from
those expressed in any forward-looking statement made by, or on behalf of, the
Company.

    Where any such forward-looking statement includes a statement of the
assumptions or basis underlying such forward-looking statement, the Company
cautions that, while it believes such assumptions or basis to be reasonable and
makes them in good faith, assumed facts or basis almost always vary from actual
results, and the differences between assumed facts or basis and actual results
can be material, depending upon the circumstances. Where, in any
forward-looking statement, the Company, or its management, expresses an
expectation or belief as to future results, such expectation or belief is
expressed in good faith and believed to have a reasonable basis, but there can
be no assurance that the statement of expectation or belief will result or be
achieved or accomplished.

    Taking into account the foregoing, the following are identified as
important factors that could cause actual results to differ materially from
those expressed in any forward-looking statement made by, or on behalf of, the
Company:

a)  The ability to increase transmission, gathering, processing, and sales
    volumes can be subject to the impact of prices; drilling activity and
    success of producers; and service competition, especially due to excess
    pipeline availability. Existing volumes are subject to depletion without
    addition of future developed gas supplies. The ability to contract
    additional gas supplies for the existing systems also is affected by the
    available number of drilling locations in the proximity of these existing
    gas systems and the related economic reserves of these drilling locations.

b)  Growth strategies through acquisition, internal project development, and
    investments in joint ventures may face legal and regulatory delays,
    financing difficulties, competition from other acquirers and competitors,
    and other unforeseeable obstacles beyond the Company's control.

c)  Future profitability will be affected by the Company's ability to compete
    with the services and economic contractual terms offered by other energy
    enterprises which may be larger, offer more services, and possess greater
    resources. Future profitability also will be affected by the level of
    prices of natural gas, NGLs and competitive fuels and feedstocks.

d)  Future operating results and success of business ventures may be subject to
    the effects of, and changes in, laws and regulations, political and
    governmental changes, inflation rates, taxes, and operating conditions.
    Also, future operating results are subject to unexpected items resulting
    from such events as, but not limited to, litigation settlements, adverse
    rulings or judgments, and unexpected environmental remediation.

e)  The Company's operations are subject to the risks incident to the
    gathering, transportation, processing and storage of natural gas and NGLs,
    such as explosions, product spills, leaks and fires, any of which could
    result in substantial losses to the Company and curtailment or suspension
    of operations at a Company facility.



                                      13
<PAGE>   14
                          PART II - OTHER INFORMATION


Item 1.  Legal Proceedings.

    See Note 3 to the Condensed Consolidated Financial Statements for a
description of legal proceedings.

Item 2.  Changes in Securities.

    None.

Item 3.  Defaults upon Senior Securities.

    None.

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

    The Company held its annual meeting of shareholders on May 15, 1997. The
following items were voted upon: Harvey J. Padewar and Gary L. Downey were
elected by the stockholders to hold the office of Directors of the Company
for the term of three (3) years. Continuing directors are Charles K.
Dempster, Robert L. Howell and John L. Mosle, Jr. The vote for Mr. Padewar
was 28,499,955 for, none against, 58,203 withheld, no abstentions and no
broker non-votes. The vote for Mr. Downey was 28,499,555 for, none against,
58,603 withheld, no abstentions and no broker non-votes.

    Stockholders also approved the Aquila Gas Pipeline Corporation 1997 Stock
Incentive Plan (the Plan). The vote for the Plan was 25,751,267 for, 2,759,541
against, none withheld, 47,350 abstentions and no broker non-votes.

Item 5.  Other Information.

    None.

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

    (a)   List of Exhibits.

         Incorporated herein by reference to Index to Exhibits.

    (b)   Reports on Form 8-K.

         None.



                                      14
<PAGE>   15
                                   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.




                                       AQUILA GAS PIPELINE CORPORATION
                                       (Registrant)





                                       /s/ Damon C. Button
                                       --------------------------------------
         Date:    August 14, 1997      By: Damon C. Button
                                           Vice President, Treasurer
                                           and Chief Financial Officer



                                      15
<PAGE>   16
                               INDEX TO EXHIBITS


<TABLE>
<CAPTION>

                                                                 Sequentially
    Exhibit                                                        Numbered
    Number                          Description                      Page
    ------                          -----------                  -----------
    <S>                            <C>    
    10.1                            Loan Agreement dated April 1,
                                    1997 between Aquila Gas 
                                    Pipeline Corporation and 
                                    Aquila Energy Corporation

    27                              Financial Data Schedule
</TABLE>