ANR PIPELINE CO, 10-K, 1998-03-30

ANR PIPELINE CO
10-K, 1998-03-30
NATURAL GAS TRANSMISSION

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the fiscal year ended December 31, 1997 or

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the transition period from ____________ to ____________

Commission file number 1-7320

ANR PIPELINE COMPANY
(Exact name of registrant as specified in its charter)

Delaware 38-1281775
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

500 Renaissance Center,
Detroit, Michigan 48243-1902
Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (313) 496-0200

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

Securities registered pursuant to Section 12(b) of the Act:

Name of each exchange
Title of each class on which registered

9-5/8% Debentures, due 2021
7-3/8% Debentures, due 2024 } New York Stock Exchange
7% Debentures, due 2025

Securities registered pursuant to Section 12(g) of the Act: None

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

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 _____

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

As of March 11, 1998, there were outstanding 1,000 shares of common stock
of the Registrant, $100 par value per share, its only class of common stock.
None of the voting stock of the Registrant is held by nonaffiliates.

Documents incorporated by reference: None

<PAGE>

TABLE OF CONTENTS

Item No. Page

Glossary.........................................................(ii)

PART I

1. Business......................................................... 1
Introduction................................................. 1
Natural Gas System........................................... 1
Operations............................................... 1
General.............................................. 1
Transportation Services.............................. 1
Gas Storage.......................................... 2
Competition.......................................... 2
Producing Area Deliverability............................ 3
Regulations Affecting Gas System......................... 3
General.............................................. 3
Rate Matters......................................... 4
Environmental............................................ 5
2. Properties....................................................... 6
3. Legal Proceedings................................................ 6
4. Submission of Matters to a Vote of Security Holders.............. 6

PART II

5. Market for the Registrant's Common Equity and Related
Stockholder Matters.............................................. 7
6. Selected Financial Data.......................................... 7
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................ 7
7A. Quantitative and Qualitative Disclosures About Market Risk....... 8
8. Financial Statements and Supplementary Data...................... 8
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure......................................... 8

PART III

10. Directors and Executive Officers of the Registrant............... 9
11. Executive Compensation........................................... 11
12. Security Ownership of Certain Beneficial Owners and Management... 19
13. Certain Relationships and Related Transactions................... 22

PART IV

14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.. 23

(i)

<PAGE>

GLOSSARY

"ANR" means American Natural Resources Company
"ANR Pipeline" or the "Company" means ANR Pipeline Company
"ANR Storage" means ANR Storage Company
"Bcf" means billion cubic feet
"Coastal" means The Coastal Corporation
"Coastal Natural Gas" means Coastal Natural Gas Company
"Colorado" means Colorado Interstate Gas Company
"Empire" means Empire State Pipeline
"EPA" means Environmental Protection Agency
"FAS" means Statement of Financial Accounting Standards
"FAS No. 71" means Statement of Financial Accounting Standards No. 71,
"Accounting for the Effects of Certain Types of Regulation"
"FASB" means Financial Accounting Standards Board
"FERC" means Federal Energy Regulatory Commission
"Great Lakes" means Great Lakes Gas Transmission Limited Partnership in which
affiliates of the Company have a 50% ownership interest.
"HIOS" means High Island Offshore System
"MMcf" means million cubic feet
"NGA" means Natural Gas Act of 1938, as amended
"Order 636" means FERC Order No. 636 which required significant changes in
services provided by interstate natural gas pipelines, including the
unbundling of services.
"UTOS" means U-T Offshore System
"working gas" means that volume of gas available for withdrawal from natural
gas storage fields and for use by the Company's customers

NOTES:

This Annual Report includes certain forward-looking statements reflecting
the Company's expectations and objectives in the near future; however, many
factors which may affect the actual results, including natural gas prices,
market and economic conditions, industry competition and changing regulations,
are difficult to predict. Accordingly, there is no assurance that the Company's
expectations and objectives will be realized.

Unless otherwise noted, all natural gas volumes presented in this Annual Report
are stated at a pressure base of 14.73 pounds per square inch absolute and 60
degrees Fahrenheit.

(ii)

<PAGE>

PART I

Item 1. Business.

INTRODUCTION

ANR Pipeline is a Delaware corporation organized in 1945. All of ANR
Pipeline's outstanding common stock is owned by ANR. ANR is a direct, wholly
owned subsidiary of Coastal Natural Gas, and an indirect subsidiary of Coastal.
ANR Pipeline owns and operates an interstate natural gas pipeline system. At
December 31, 1997, the Company had 1,844 employees engaged in the operation of
ANR Pipeline and 143 employees engaged in the operation of HIOS, UTOS and
Empire.

NATURAL GAS SYSTEM

OPERATIONS

General

The Company is involved in the transportation, storage, gathering and
balancing of natural gas. ANR Pipeline provides these services for various
customers through its facilities located in Arkansas, Illinois, Indiana, Iowa,
Kansas, Kentucky, Louisiana, Michigan, Mississippi, Missouri, Nebraska, Ohio,
Oklahoma, Tennessee, Texas, Wisconsin and offshore in federal waters. The
Company operates two offshore gas pipeline systems in the Gulf of Mexico which
are owned by HIOS and UTOS, general partnerships composed of ANR Pipeline
subsidiaries and subsidiaries of other companies. The Company also operates
Empire, an intrastate pipeline extending from Niagara Falls to Syracuse, New
York, in which an affiliate of the Company has a 50% interest.

The Company's two interconnected, large-diameter multiple pipeline systems
transport gas to the Midwest and increasingly to the Northeast from (a) the
Hugoton Field and other fields in the Anadarko Basin in Texas and Oklahoma, (b)
the Louisiana onshore and Louisiana and Texas offshore areas and (c) gas
originating in other basins received through interconnections located throughout
its system.

The Company's principal pipeline facilities at December 31, 1997 consisted
of 10,611 miles of pipeline and 75 compressor stations with 1,030,069 installed
horsepower. At December 31, 1997, the design peak day delivery capacity of the
transmission system, considering supply sources, storage, markets and
transportation for others, was approximately 5.9 Bcf per day.

Transportation Services

The Company offers an array of "unbundled" transportation, storage and
balancing service options under Order 636. Additional information concerning
Order 636 is set forth in "Regulations Affecting Gas System" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included herein.

ANR Pipeline transports gas to markets on its system and also transports
gas to other markets off its system under transportation and exchange
arrangements with other companies, including distributors, intrastate and
interstate pipelines, producers, brokers, marketers and end users.
Transportation service revenues amounted to $497 million for 1997 compared to
$510 million for 1996 and $572 million for 1995. During 1997, approximately 28%
of the Company's transportation service revenues were from its three largest
customers: Wisconsin Gas Company, Wisconsin Electric Power Company Inc. and
Michigan Consolidated Gas Company. Wisconsin Gas Company serves the Milwaukee
metropolitan area and numerous other communities in Wisconsin. Wisconsin
Electric Power Company Inc. serves the cities of Racine, Kenosha, Appleton and
their surrounding areas in Wisconsin. Michigan Consolidated Gas Company serves
the city of Detroit and certain surrounding areas, the cities of Grand Rapids
and Muskegon, the communities of Ann Arbor and Ypsilanti and numerous other
communities in Michigan. In 1997, ANR Pipeline provided approximately 70% and
30% of the total gas requirements of Wisconsin and Michigan, respectively.

<PAGE>

ANR Pipeline's system deliveries for the years 1997, 1996 and 1995 were as
follows:

Total System Daily Average
Year Deliveries System Deliveries
---- ------------ -----------------
(Bcf) (MMcf)

1997 1,424 3,901
1996 1,517 4,145
1995 1,404 3,847

ANR Pipeline held an open season for pipeline capacity bids in 1997 called
the "10-cent Solution" that resulted in precedent agreements totaling 190 MMcf
per day of new transportation service for the Chicago-to-Wisconsin area markets.
In connection with these new agreements, the Company filed with the FERC to
construct 11.4 miles of 30-inch looping and a meter station in Wisconsin. The
proposed facilities will provide an additional 120 MMcf per day of capacity into
Wisconsin from the Chicago area, with an anticipated completion in late 1998,
subject to receipt of satisfactory regulatory approvals.

In September 1997, Coastal acquired both an 11% equity and capacity
position in the corporations and partnerships comprising the Alliance Pipeline
Project and subsequently increased its equity participation to 14.4% in
February 1998. The Alliance Pipeline Project is a proposed 1,900-mile pipeline
initially designed to carry 1.325 Bcf of natural gas per day and associated
liquids from western Canada to the Chicago-area market center. The Alliance
Pipeline will interconnect with, among other pipelines, the Company's proposed
SupplyLink Project, which consists of the construction of approximately 73 miles
of mainline looping and an increase in the transmission capacity on the
Company's mainline between a point west of Joliet, Illinois and Defiance, Ohio
by up to 750 MMcf per day. The proposed Independence Pipeline, of which a
subsidiary of ANR owns a one-third general partnership interest, will
interconnect with the SupplyLink Project at Defiance, Ohio and will extend to
the Leidy, Pennsylvania facilities of Transcontinental Gas Pipe Line Corporation
and other interstate pipelines. The proposed Independence Pipeline project
consists of the construction of 400 miles of 36-inch diameter pipe, with a
designed delivery capacity of 917 MMcf per day in the summer and 1,001 MMcf per
day during the winter.

Gas Storage

ANR Pipeline has approximately 208 Bcf of underground working gas storage
capacity, with a maximum day delivery capacity of 3 Bcf as late as the end of
February. Working gas storage capacity operated by ANR Pipeline of 133 Bcf is
available from seven owned and eight leased underground storage facilities in
Michigan. In addition, the Company has the contracted rights for 75.4 Bcf of
working gas storage capacity of which 45.4 Bcf is provided by Blue Lake Gas
Storage Company and 30 Bcf is provided by ANR Storage. Gas storage revenues
amounted to $146 million for 1997 as compared to $131 million for both 1996 and
1995.

Competition

Natural gas competes with other forms of energy available to customers,
primarily on the basis of price paid by end users. These competitive forms of
energy include electricity, coal, propane and fuel oils. Changes in the
availability or price of natural gas or other forms of energy, as well as
changes in business conditions, conservation, legislation or governmental
regulations, capability to convert to alternate fuels, changes in rate
structure, taxes and other factors may affect the demand for natural gas in the
areas served by ANR Pipeline.

In recent years, the FERC has issued orders which have resulted in more
competition within the natural gas industry. This competition has intensified,
resulting in more rate competition among pipelines in order to increase and
maintain market share and maximize capacity utilization. ANR Pipeline's
transportation, storage and balancing services are influenced by its customers'
access to alternative service providers and the price of such services. The
FERC's orders have also resulted in competition between the Company and its
customers by allowing the customers to resell their unused capacity.

<PAGE>

The Company competes in its historical market areas of Wisconsin and
Michigan with other interstate and intrastate pipeline companies in the
transportation and storage of natural gas. The Company also faces competition in
the Northeast markets from other interstate pipelines in serving electric
generation and local distribution companies. Increasingly, ANR Pipeline also
competes with independent producers and other companies seeking to construct
interstate transmission facilities and with a number of marketing companies
which aggregate capacity released by firm shippers for the purpose of managing
gas requirements for end users.

PRODUCING AREA DELIVERABILITY

Shippers on ANR Pipeline have direct access to the two most prolific gas
producing areas in the United States, the Gulf Coast and Midcontinent.
Statistics published by the Energy Information Agency, Office of Oil and Gas, U.
S. Department of Energy, indicate that approximately 80% of all natural gas in
the lower 48 states is produced from these two areas.

In addition, interconnecting pipelines provide shippers, in general, with
access to all other major gas producing areas in the United States and Canada.
An interconnection with Colorado, an affiliate of ANR Pipeline, provides ANR
Pipeline shippers with access to the Rocky Mountain producing area. Rocky
Mountain production contributes approximately 14% of total gas production in the
lower 48 states. Gas produced in Western Canada, nearly 100% of all Canadian gas
production, is accessible to ANR Pipeline shippers through interconnections with
Great Lakes and Viking Gas Transmission Company.

Gas deliverability available to shippers on ANR Pipeline's system from the
Midcontinent and Gulf Coast producing areas through direct connections and
interconnecting pipelines and gatherers is approximately 4,200 MMcf per day. An
additional 203 MMcf per day of deliverability is accessible to shippers on
Company-owned or partially owned pipeline segments not directly connected to an
ANR Pipeline mainline.

The Company remains active in locating and connecting new sources of
natural gas to facilitate transportation arrangements made by third-party
shippers. During 1997, field development, newly connected gas wells, gas
production facilities and pipeline interconnections contributed over 1,400 MMcf
per day to total deliverability accessible to shippers on the Company's pipeline
system.

REGULATIONS AFFECTING GAS SYSTEM

General

Under the NGA, the FERC has jurisdiction over ANR Pipeline as to
transportation, storage, sales and balancing of gas, rates and charges,
construction of new facilities, extension or abandonment of service and
facilities, accounts and records, depreciation and amortization policies and
certain other matters. ANR Pipeline holds certificates of public convenience and
necessity issued by the FERC covering its jurisdictional facilities, activities
and services.

ANR Pipeline is also subject to regulation with respect to safety
requirements in the design, construction, operation and maintenance of its
interstate gas transmission and storage facilities by the Department of
Transportation. Operations on United States government land are regulated by the
Department of the Interior.

On January 31, 1996, the FERC issued a "Statement of Policy and Request for
Comments" ("Policy") with respect to a pipeline's ability to negotiate and
charge rates for individual customers' services which would not be limited to
the "cost-based" rates established by the FERC in traditional rate making. Under
this Policy, a pipeline and a customer will be allowed to negotiate a contract
which provides for rates and charges that exceed the pipeline's posted maximum
tariff rates, provided that the shipper agreeing to such negotiated rates has
the ability to elect to receive service at the pipeline's posted maximum rate
(known as a "recourse rate"). To implement this Policy, a pipeline must make an
initial tariff filing with the FERC to indicate that it intends to contract for
services under this Policy, and subsequent tariff filings will indicate each
time the pipeline negotiates a rate for service which exceeds the recourse rate.
The FERC is also

<PAGE>

considering comments on whether this "negotiated rate" program should be
extended to other terms and conditions of pipeline transportation services.

On July 31, 1996, the FERC also issued a "Notice of Proposed Rulemaking"
requesting comments on various aspects of secondary market transactions on
interstate natural gas pipelines, including the comparability of pipeline
capacity with released capacity. The matter is pending review, following rounds
of extensive public comments.

In late 1997, the FERC initiated a public conference in order to solicit
comments from interested parties addressing the financial health of the pipeline
industry in the new competitive environment created by Order 636. Among other
things, the FERC is reviewing its current policies for setting the rates of
return on pipeline investment for possible improvements.

Rate Matters

All of the Company's service options are subject to rate regulation by the
FERC. Under the NGA, ANR Pipeline must file with the FERC to establish or adjust
its service rates. The FERC may also initiate proceedings to determine whether
the Company's rates are "just and reasonable."

From November 1, 1992 to November 1, 1993, gas inventory demand charges
were collected from the Company's former resale customers. This method of gas
cost recovery required refunds for any over-collections. In April 1994, the
Company 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 the Company's refund allocation methodology
and the Company, 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 the Company'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. On March 12, 1998, the
FERC affirmed the Initial Decision in almost all aspects. Parties may seek
rehearing in thirty days.

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. On remand, 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 twenty years to
five years, the term "cap" to be applied to evaluation of bids for renewal of
contracts on existing volumes. The Company and others have sought rehearing of
certain aspects of the Order on remand. Further, the Company's compliance
filing regarding the level of costs to be allocated to interruptible service was
accepted by the FERC as part of an uncontested settlement following further
proceedings before the FERC. Several persons have also separately appealed the
rate aspects of the FERC's orders approving the Company's Order 636
restructuring filings and those appeals are the subject of further proceedings
before the Court. Since the approved rate case settlement discussed below has
become effective, these appeals will be voluntarily dismissed.

<PAGE>

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. By order issued February 13, 1998, the FERC approved
the settlement in all respects, other than the proposed new short-term firm
service. The FERC also addressed two of the three reserved matters that the
parties had requested it decide on the merits. On March 16, 1998, the Company
filed written notification with the FERC that the order on the settlement was
acceptable to the Company and all parties, and the settlement became effective
as of such date. The approved settlement includes a stipulation that the Company
will refund $66.6 million, which includes interest, for rates collected during
the period its proposed rates were in effect. Pursuant to the settlement, all
refunds must be remitted within thirty days of the effective date. During the
period the proposed rates were in effect, the Company estimated and recorded
provisions for potential rate refunds, which exceed the final refund
requirements.

The FERC has also issued a series of orders in the Company's rate
proceeding that apply a new policy governing the order of attribution of
revenues received by the Company related to transition costs under Order 636.
Under that new policy, the Company 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 the Company's
currently effective maximum rates and accelerating its amortization of
transition costs for regulatory accounting purposes. In light of the FERC's
policy, the Company filed with the FERC to increase its discount recovery
adjustment in its rate proceeding. The Company 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. As a result of the rate case settlement
described above, the Company can no longer pursue such judicial review of the
specific orders involved.

In May 1997, certain of the Company's customers filed a motion with the
FERC for immediate refund of approximately $77 million, which is related to the
Company's settlement with Dakota Gasification Company. The Company 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, the Company paid such refunds (totaling $21.1 million) to its customers.
On December 2, 1997, the FERC issued an order rejecting the customers' claims,
and found that the Company had properly calculated the level of refunds due to
the customers. The FERC's decision on this matter is now final because the
customers did not seek rehearing.

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

ENVIRONMENTAL

The Company's operations are subject to extensive and evolving federal,
state and local environmental laws and regulations which may affect such
operations and costs as a result of their effect on the construction, operation
and maintenance of its pipeline facilities. The Company spent approximately $2.8
million in 1997 on environmental capital projects and anticipates annual capital
expenditures of approximately $3 to $5 million per year over the next several
years aimed at maintaining compliance with such laws and regulations.
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." The Company has been named as a potentially responsible party in six
Superfund waste disposal sites. At these sites, there is sufficient information
to estimate total cleanup costs of approximately $60 million and the Company
estimates its pro-rata exposure, to be paid over a period of several years, is
approximately $0.3 million.

<PAGE>

There are additional areas of environmental investigation and remediation
responsibilities to which the Company may be subject. The states also have
regulatory programs that mandate environmental investigation and cleanup. In
Michigan, where the Company has extensive operations, the Environmental Response
Act requires individuals (including corporations) who have caused contamination
to remediate the contamination to regulatory standards. Owners or operators of
contaminated property who did not cause the contamination are not required to
remediate the contamination, but must exercise due care in their use of the
property so that the contamination is not exacerbated and the property does not
pose a threat to human health.

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

Item 2. Properties.

Information on properties of ANR Pipeline is in Item 1, "Business,"
included herein.

The real property owned by the Company in fee consists principally of sites
for compressor and metering stations and microwave and terminal facilities. With
respect to the seven owned storage fields, the Company holds title to gas
storage rights representing ownership of, or has long-term leases on, various
subsurface strata and surface rights and also holds certain additional gas
rights. Under the NGA, the Company may acquire by the exercise of the right of
eminent domain, through proceedings in United States District Courts or in state
courts, necessary rights-of-way to construct, operate and maintain pipelines and
necessary land or other property for compressor and other stations and equipment
necessary to the operation of pipelines.

Item 3. Legal Proceedings.

In October 1996, Coastal, along with certain of its affiliates, including
ANR Pipeline, 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 and its affiliates
vigorously deny these allegations and have filed responsive pleadings. In
January 1998, the plaintiffs amended their suit to exclude ANR Pipeline
employees from the potential class. A new suit was then filed in state court in
Wayne County, Michigan seeking to have the Michigan suit certified as a class
action of African American employees of ANR Pipeline and seeking unspecified
damages as well as attorneys and expert fees. The Company will file responsive
pleadings denying these allegations.

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 such claims
and that any liability which may finally be determined should not have a
material adverse effect on the Company's consolidated financial position or
results of operations.

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

None.

<PAGE>

PART II

Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters.

All common stock of ANR Pipeline is owned by ANR.

Item 6. Selected Financial Data.

The following selected financial data (in millions of dollars) for the
periods indicated is derived from the Consolidated Financial Statements included
herein and Item 6 of the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996, as adjusted for minor reclassifications.
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the Notes to Consolidated Financial Statements included herein
contain information relating to this data.

<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Operating Revenues:
Storage and transportation....................... $ 642.7 $ 642.2 $ 705.5 $ 706.3 $ 634.7
*Gas sales....................................... - - - - 603.5
Other revenues................................... 87.0 121.4 116.0 135.8 33.6
--------- --------- --------- --------- ---------
Total...................................... $ 729.7 $ 763.6 $ 821.5 $ 842.1 $ 1,271.8
========= ========= ========= ========= =========
Earnings Before Extraordinary Item.................. $ 168.9 $ 140.3 $ 151.3 $ 152.1 $ 157.0
========= ========= ========= ========= =========
**Net Earnings (Loss)............................... $ 168.9 $( 23.6) $ 151.3 $ 152.1 $ 157.0
========= ======== ========= ========= =========
Dividends Declared on Common Stock.................. $ 95.0 $ 300.0 $ 30.1 $ 331.0 $ 33.7
========= ========= ========= ========= =========

Total Assets........................................ $ 1,813.8 $ 1,743.8 $ 2,049.4 $ 1,858.6 $ 1,920.3
========= ========= ========= ========= =========
Capital Structure:
Common stock and other stockholder's
equity........................................ $ 660.0 $ 586.1 $ 909.7 $ 788.5 $ 969.3
Mandatory redemption cumulative
preferred stock............................... - - - - 26.0
Long-term debt and capital lease
obligations................................... 503.5 506.4 509.3 437.0 374.0
--------- --------- --------- --------- ---------
Total...................................... $ 1,163.5 $ 1,092.5 $ 1,419.0 $ 1,225.5 $ 1,369.3
========= ========= ========= ========= =========
<FN>

Since all of the outstanding common stock of ANR Pipeline is owned by ANR,
earnings and cash dividends per common share have no significance and are not
presented.

*On November 1, 1993, the Company implemented Order 636. The Order required
significant changes in the services provided by ANR Pipeline and resulted in the
elimination of the Company's merchant service effective with the implementation
date. As a consequence, the Company is no longer a seller of natural gas to
resale customers.

**Effective November 1, 1996, the Company discontinued the application of
regulatory accounting principles under FAS No. 71. As a result, the Company
recorded an extraordinary charge to income of $163.9 million in 1996. Additional
information is set forth in Management's Discussion and Analysis of Financial
Condition and Results of Operations and Note 1 of Notes to Consolidated
Financial Statements included herein.
</FN>
</TABLE>

Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.

Management's Discussion and Analysis of Financial Condition and Results of
Operations is presented on pages F-1 through F-4 herein.

<PAGE>

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

Item 8. Financial Statements and Supplementary Data.

The Financial Statements and Supplementary Data required hereunder are
included in this Annual Report as set forth in Item 14(a) herein.

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.

None.

<PAGE>

PART III

Item 10. Directors and Executive Officers of the Registrant.

The directors and executive officers of ANR Pipeline as of March 11, 1998,
were as follows:

Name (Age), Year First Elected Positions and Offices
Director and/or Officer with the Registrant
- --------------------------------------- -------------------------------------
Jeffrey A. Connelly (51), 1988 and 1983 President, Chief Executive Officer
and Director
David A. Arledge (53), 1994 Director
Harold Burrow (83), 1994 Director
Richard A. Lietz (52), 1994 and 1984 Executive Vice President, Chief
Operating Officer and Director
Jon R. Whitney (53), 1996 Director
Coby C. Hesse (50), 1994 Executive Vice President
Stanley A. Babiuk (46), 1989 Senior Vice President
Daniel F. Collins (56), 1986 Senior Vice President
Donald H. Gullquist (54), 1994 Senior Vice President
Wilbur A. Hitchcock (49), 1994 Senior Vice President
William L. Johnson (40), 1991 Senior Vice President
John P. Lucido (50), 1988 Senior Vice President
Rebecca H. Noecker (46), 1989 Senior Vice President and General
Counsel
Austin M. O'Toole (62), 1985 Senior Vice President and Assistant
Secretary
Scott P. Anger (53), 1990 Vice President
Michael J. Armiak (50), 1996 Vice President
Daniel M. Ives (50), 1995 Vice President
Thomas E. Jackson, Jr. (58), 1994 Vice President
Richard H. Leehr (48), 1991 Vice President
Michael B. Lobin (48), 1991 Vice President
Ronald D. Matthews (50), 1994 Vice President and Treasurer
Lynn M. Nichols (51), 1995 Vice President
Dennis J. Paruch (52), 1984 Vice President
Ann E. Raden (41), 1996 Vice President
Elias A. Shaptini (67), 1981 Vice President
Stephen B. Shaw (47), 1997 Vice President
Michael J. Whims (51), 1996 Vice President
Michael J. Williams (51), 1996 Vice President
Frederick H. Clark (69), 1984 Secretary
Hubert W. Pipkin (45), 1997 Assistant Vice President and
Controller

The above named persons bear no family relationship to each other, except
that Wilbur A. Hitchcock and Rebecca H. Noecker are first cousins. The
respective terms of office of the directors and officers expire coincident with
ANR Pipeline's Annual Meeting of the Sole Stockholder and Annual Meeting of the
Board of Directors to be held in May 1998. Each of the directors and officers
named above have been directors or officers of ANR Pipeline, Colorado and/or
Coastal or subsidiaries thereof for five years or more except for the following:

Mr. Armiak was elected Vice President of the Company in January 1996.
Prior thereto, he has served in various capacities with the Company since 1971.

Mr. Gullquist was elected Senior Vice President of the Company in
September 1994. From 1988 to 1989 he served as Vice President, Finance at Enron
Corporation; from 1989 to 1990 he served as President of Enron Finance
Corporation.

<PAGE>

Mr. Hitchcock was elected a Senior Vice President of ANR Pipeline in March
1994. He previously served as a Vice President of Northern Indiana Public
Service Company, where he had been employed since 1990. From 1984 to 1990, he
was employed by Natural Gas Pipeline Company in various positions.

Mr. Ives was elected Vice President of the Company in September 1995.
Prior to joining the Company, he was General Manager - Rates for Algonquin Gas
Transmission Company, a unit of Duke Energy Corporation (formerly PanEnergy
Corp) since 1992 and prior thereto, he was Director of Rates and Regulatory
Affairs for Washington Gas Light Company since 1976.

Ms. Nichols was elected Vice President in January 1995. Most recently she
served as Director - Application and Maintenance for Whirlpool Corporation,
where she worked for more than four years. Prior thereto, she served in various
capacities for the Pillsbury Corporation for 21 years.

Mr. Pipkin was elected Assistant Vice President and Controller of the
Company in December 1997. Prior to joining the Company, Mr. Pipkin spent
13 years with The Philadelphia Coca-Cola Bottling Co, where he most recently
served as corporate controller and assistant treasurer.

Ms. Raden was elected Vice President, Human Resources and Community
Affairs, of the Company in April 1996. Prior to joining the Company, she was
employed by First of America Bank Corporation, Kalamazoo, Michigan, for 17 years
where she held a series of human resources management positions, the most recent
of which was the position of Senior Vice President and Manager of Human
Resources Administration.

Mr. Shaw was elected Vice President of ANR Pipeline in August 1997. Mr.
Shaw most recently was a principal with CSC Planmetrics, a management consulting
firm in Chicago, and prior to that, he served in various increasingly
responsible positions from 1979 to 1994 at Michigan Consolidated Gas Company in
Detroit.

Mr. Whims was elected Vice President of the Company in January 1996. He
has served in various capacities with ANR Storage since 1979.

Mr. Williams was elected Vice President of the Company in January 1996. He
has served in various capacities with the Company since 1969.

<PAGE>

Item 11. Executive Compensation.

ANR Pipeline is an indirect, wholly owned subsidiary of Coastal.
Information concerning the cash compensation and certain other compensation of
the directors and officers of Coastal is contained in this section.

The following table sets forth information for the fiscal years ended
December 31, 1997, 1996 and 1995 as to cash compensation paid by Coastal and its
subsidiaries, as well as certain other compensation paid or accrued for those
years, to Coastal's Chief Executive Officer ("CEO") and its five other most
highly compensated executive officers (the "Named Executive Officers").

<TABLE>
Summary Compensation Table

<CAPTION>
Long Term Compensation
------------------------------
Annual Compensation<F1> Awards Payouts
---------------------------------- ------------ -------------
Securities All Other
Underlying LTIP Compen-
Name and Options/ Payouts sation
Principal Position Year Salary ($) Bonus ($)<F2> SARs (#)<F3> ($)<F4> $<F5>
- ------------------ ---- ---------- --------- ------------ ------------- --------------

<S> <C> <C> <C> <C> <C> <C>
David A. Arledge, 1997 722,527 400,000 50,000 57,802
Chairman of the Board, 1996 707,194 300,000 150,000 56,576
President and CEO 1995 622,867 300,000 50,000 85,875 49,829

O. S. Wyatt, Jr.,(6) 1997 593,158 -- -0- 36,800
Director and former 1996 849,093 300,000 -0- 67,928
Chairman of the Board 1995 849,093 300,000 -0- 67,928

Coby C. Hesse, 1997 297,213 140,000 30,000 23,777
Executive V.P. - 1996 254,973 120,000 15,000 20,349
Administration 1995 243,321 90,000 15,000 19,466

James A. King, 1997 343,823 90,000 10,000 17,138
Executive V.P. - 1996 343,823 80,000 10,000 13,572
Refining 1995 343,823 80,000 10,000 10,141

Jeffrey A. Connelly 1997 300,893 120,000 20,000 24,071
Senior V.P. - Natural 1996 288,014 100,000 10,000 23,041
Gas 1995 269,807 85,000 8,000 20,610 21,584

Carl A. Corrallo 1997 297,635 100,000 20,000 23,811
Senior V.P. and 1996 281,536 90,000 10,000 22,523
General Counsel 1995 266,645 80,000 10,000 20,610 21,332

<FN>
- ------------------------
<F1>
Does not include the value of perquisites and other personal benefits because
the aggregate amount of such compensation, if any, does not exceed the lesser of
$50,000 or 10 percent of annual salary and bonus for any named individual.

<F2>
Bonuses are based on the following factors: the individual's position; the
individual's responsibility; and the individual's ability to impact Coastal's
financial success.

<F3>
The options do not carry any stock appreciation rights.

<PAGE>

<F4>
During 1995, Messrs. Arledge, Connelly and Corrallo received one-time cash
payments in the amounts indicated in connection with awards made in 1987 under
Coastal's Performance Unit Plan. No further awards have been made under this
Plan.

<F5>
All Other Compensation for 1997 consists of: (i) Coastal contributions to the
Coastal Thrift Plan (David A. Arledge $12,800; O. S. Wyatt, Jr. $12,800; Coby C.
Hesse $12,800; James A. King $6,400; Jeffrey A. Connelly $12,800; and Carl A.
Corrallo $12,800); (ii) certain payments in lieu of Thrift Plan contributions
(David A. Arledge $45,002; Coby C. Hesse $10,977; James A. King $10,738; Jeffrey
A. Connelly $11,271; and Carl A. Corrallo $11,011); these payments are made to
all employees of Coastal and its subsidiaries who participate in the Thrift Plan
who must discontinue their Thrift Plan participation due to federal statutory
limits; and (iii) directors' fees of $24,000 paid to Mr. Wyatt.

<F6>
Mr. Wyatt retired as an officer of Coastal effective July 15, 1997.
</FN>
</TABLE>

Stock Options

The following table sets forth information with respect to stock options
granted on March 5, 1997 for the fiscal year ended December 31, 1997 to the
Named Executive Officers.

<TABLE>
Option/SAR Grants in Last Fiscal Year (1997)

<CAPTION>
Number of Percent of Total
Securities Options/SARs
Underlying Granted to Exercise Grant Date
Options/SARs Employees in Price Expiration Present
Name Granted<F1> Fiscal Year<F2> ($/Sh) Date Value ($)<F3>
---- ------------ ----------------- -------- ---------- ----------

<S> <C> <C> <C> <C> <C>
David A. Arledge 50,000 6.58 47.06 3/4/07 818,609

O. S. Wyatt, Jr. -0- -0- -0- -0- -0-

Coby C. Hesse 30,000 3.95 47.06 3/4/07 491,165

James A. King 10,000 1.31 47.06 3/4/07 163,722

Jeffrey A. Connelly 20,000 2.63 47.06 3/4/07 327,443

Carl A. Corrallo 20,000 2.63 47.06 3/4/07 327,443

<FN>
- ---------------------
<F1>
Options expire ten years from the date of issuance and are granted at the fair
market value of the Common Stock of Coastal on the date of grant. Options vest
cumulatively at a rate of 15% of the option shares on the first anniversary date
of the date of grant, 20% on each of the second, third and fourth anniversary
dates and 25% on the fifth anniversary date.

<F2>
The options do not carry any stock appreciation rights.

<F3>
Based on the Black-Scholes option pricing model expressed as a ratio .3479 x
exercise price x number of shares. The actual value, if any, an executive may
realize will depend on the excess of the stock price over the exercise price on
the date the option is exercised, so that there is no assurance the value
realized by an executive will be at or near the value estimated by the
Black-Scholes model. The estimated values under that model are based on
assumptions that include (i) a stock price volatility of .2205, calculated using
monthly stock prices for the three years prior to the grant date, (ii) an
interest rate of 6.90%, (iii) a dividend yield of 0.85% and (iv) an expected
option holding period of eight years. The Securities and Exchange Commission
("S.E.C.") requires disclosure of the potential realizable value or present
value of each grant. Coastal's use of the Black-Scholes model to indicate the
present value of each grant is not an endorsement of this valuation.
</FN>
</TABLE>

<PAGE>

Option/SAR Exercises and Holdings

The following table sets forth information with respect to the Named
Executive Officers, concerning the exercise of options during the last fiscal
year and unexercised options and SARs held as of the fiscal year ("FY") ended
December 31, 1997.

<TABLE>
Aggregated Option/SAR Exercises In Last Fiscal Year
And FY-End Option/SAR Values (1997)

<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
at FY-End (#) at FY-End ($)<F1>

Shares Acquired Exercisable/ Exercisable/
Name on Exercise (#) Value Realized ($) Unexercisable Unexercisable
- -------------------- --------------- ------------------ ------------------ -----------------------
<S> <C> <C> <C> <C>
David A. Arledge 40,000 1,034,728 171,373 / 254,000 5,423,414 / 6,238,520
O. S. Wyatt, Jr. -0- -0- -0- / -0- -0- / -0-
Coby C. Hesse 6,000 167,280 42,000 / 61,000 1,360,740 / 1,335,300
James A. King -0- -0- 30,000 / 30,000 1,045,680 / 724,120
Jeffrey A. Connelly 21,000 524,610 34,600 / 40,400 1,118,264 / 884,696
Carl A. Corrallo 6,000 190,800 41,500 / 42,000 1,247,385 / 937,240

<FN>
- ------------------
<F1>
$-based on the market price of $61.34 at December 31, 1997.
</FN>
</TABLE>

COMPENSATION AND EXECUTIVE DEVELOPMENT COMMITTEE
REPORT ON EXECUTIVE COMPENSATION

The following report has been provided by The Coastal Corporation's
Compensation and Executive Development Committee (the "Committee") of the Board
of Directors in accordance with current S.E.C. proxy statement disclosure
requirements. The members of the Committee include John M. Bissell (Chairman),
Roy D. Chapin, Jr., and Jerome S. Katzin.

This material states Coastal's current overall compensation philosophy and
program objectives. Detailed descriptions of Coastal's compensation programs are
provided as well as the information on Coastal's 1997 pay levels for the CEO.

Overall Objectives of the Executive Compensation Program

Coastal's compensation philosophy and program objectives are directed by
two primary guiding principles. First, the program is intended to provide fully
competitive levels of compensation - at expected levels of performance - in
order to attract, motivate and retain talented executives. Second, the program
is intended to create an alignment of interests between Coastal's executives and
stockholders such that a significant portion of each executive's compensation is
directly linked to maximizing stockholder value.

In support of this philosophy, the executive compensation program is
designed to reward performance that is directly relevant to Coastal's short-term
and long-term success. As such, Coastal attempts to provide both short-term and
long-term incentive pay that varies based on corporate and individual
performance.

<PAGE>

To accomplish these objectives, the Committee has structured the executive
compensation program with three primary underlying components: base salary,
annual incentives, and long-term incentives (i.e., stock options). Certain other
executive benefits are also provided. The following sections describe Coastal's
plans by element of compensation and discuss how each component relates to
Coastal's overall compensation philosophy.

In reviewing this information, reference is often made to the use of
competitive market data as criteria for establishing targeted compensation
levels. Coastal targets the market 50th percentile for its total compensation
program and actual total compensation rates in 1997 in aggregate were at the
targeted level. (However, Coastal's competitive pay posture varies by pay
element, as described below.) Several market data sources are used by Coastal,
including energy industry norms for the selected publicly traded peer companies,
as reflected in these companies' proxy statements. There is no effort made to
assess how Coastal's executive pay levels compare to the levels of pay provided
by the companies in Value Line's Diversified Natural Gas Group which is used in
Coastal's total shareholder return graph since these companies vary
significantly in size and scope of operations. In addition, we utilize published
survey data and data obtained from independent consultants that are for general
industry companies similar in size (i.e., revenues) to Coastal. The published
surveys include data on over 50 companies of comparable size to Coastal, as
measured by revenues. Greater emphasis is placed on the published data and data
obtained from consultants than on the data for proxy peers, since the published
data and consulting data are reflective of company size.

Base Salary Program

Coastal's base salary philosophy is to provide base pay levels that fall
between the market 50th and 75th percentiles. Coastal periodically reviews its
executive pay levels to assure consistency with the external market. Generally,
Coastal's actual base salary levels for 1997 for executives as a group were
consistent with the targeted percentiles. We believe it is crucial to provide
strongly competitive salaries over time in order to attract and retain
executives who are highly talented and capable of creating added stockholder
value.

Annual salary adjustments for Coastal are based on several factors: general
levels of market salary increases, individual performance, competitive base
salary levels, and Coastal's overall financial results. Coastal reviews
performance qualitatively considering total shareholder returns, the level of
earnings, return on equity, return on total capital and individual business unit
performance. These criteria are assessed qualitatively and are not weighted. All
base salary increases are based on a philosophy of pay-for-performance and
perceptions of an individual's long-term value to Coastal. As a result,
employees with higher levels of performance sustained over time will be paid
correspondingly higher salaries.

Annual Bonus Plan

Coastal's Annual Bonus Plan is intended to (1) reward key employees based
on company/business unit and individual performance; (2) motivate key employees;
and (3) provide competitive cash compensation opportunities to plan
participants. Under the plan, target award opportunities vary by individual
position and are expressed as a percent of base salary. The individual target
award opportunities, which are slightly below market median levels, are then
aggregated into a total target pool which is adjusted as described below. The
amount a particular executive may earn is directly dependent on the individual's
position, responsibility, and ability to impact our financial success.

The actual bonus pool is established each year by modifying the target
pool based on Coastal's overall performance against measures established by the
Committee. In fiscal year 1997, the key performance measure considered was
earnings before interest and taxes ("EBIT") against plan. This measure was
weighted 50% of the total bonus program. In 1997 Coastal's EBIT performance was
slightly below target, resulting in the EBIT portion of the bonus paid being
slightly below target. The remaining 50% of the annual bonus opportunity in 1997
is a discretionary annual bonus pool. As a result, no formula performance
measures were used in establishing the size of awards under this portion of the
plan. However, in establishing the size of the discretionary bonus pool, the
Committee considered Coastal's return on equity relative to industry peers
(using selected peers from among Value Line's Diversified Natural Gas Group
included in the shareholder return graph), return on total capital compared to
this selected group of industry peers, the EBIT performance of each business
unit, progress made toward improving Coastal's operational and financial
performance, and the need to reward unique individual contributions. These
measures were not formally weighted by the Committee. The size of the
discretionary bonus pool element was established slightly below target by the
Committee, in spite of the fact that

<PAGE>

Coastal's return on equity was equal to the peer group average and that
Coastal's return on total capital was actually slightly above the peer group
average. The Committee established the pool slightly below target because
certain other areas of operation performance were not at target levels. As a
result, actual bonus payments for 1997 were slightly below target and median
market levels.

Individual awards from the established bonus pool are recommended by
senior management, with advice and consent from the Committee. Individual awards
from the pool are based on business unit and individual employee performance,
future potential, and competitive considerations. All individual performance
assessments are conducted in a non-formula fashion without specific goal
weightings. The total bonus awards made may not exceed the amount of funds in
the bonus pool.

Long-Term Incentive Plan

Coastal's Long-Term Incentive Plan ("LTIP") is designed to focus executive
efforts on the long-term goals of Coastal and to maximize total return to our
shareholders. While Coastal's LTIP allows the Committee to use a variety of
long-term incentive devices, the Committee has relied solely on stock option
awards to provide long-term incentive opportunities in recent years.

Stock options align the interests of employees and shareholders by
providing value to the executive through stock price appreciation only. All
stock options have a ten-year term before expiration and the most recent grants
are fully exercisable within 5 years of the grant date.

Stock options were granted to certain of the Named Executive Officers in
1997 and it is anticipated that stock option awards will be made periodically at
the discretion of the Committee in the future. As in past years, the number of
shares actually granted to a particular participant is also based on Coastal's
financial success, its future business plans, and the individual's position and
level of responsibility within Coastal. All of these factors are assessed
subjectively and are not weighted. The number of stock options granted by
Coastal in 1997 was overall, slightly below market median levels.

The Committee believes stock options are an important part of Coastal's
total executive pay program, since employees only receive income from the
options if Coastal's share price rises. In addition, shareholder approval is
being sought for a new 1998 employee stock option plan. The intention of this
plan is to provide enough shares for Coastal to continue making stock option
awards to key employees.

1997 Chief Executive Officer Pay

As previously described, the Committee considers several factors in
developing an executive's compensation package. For the CEO, these include
competitive market practices (consistent with the philosophy described for other
executives), experience, achievement of strategic goals, and the financial
success of Coastal (considering the factors described under the annual bonus
plan above).

Mr. Arledge's annual salary was not adjusted in 1997, at his request. This
leaves the CEO's base salary below the market median.

Mr. Arledge's bonus for 1997 was $400,000, payable in 1998. This award was
slightly below targeted levels (and below market median levels) since Coastal's
aggregate performance on the measures described in the annual bonus section of
this report were slightly below the aggressive Coastal targets.

The Committee granted stock options for 50,000 shares to Mr. Arledge in
1997 in recognition of his performance and as an incentive to continue his
efforts to increase shareholder value. These awards are tied to performance in
that the executive only realizes income from stock options if the stock price
rises. The grant is well below market median level for the executive position
held by him.

<PAGE>

Executive Benefits

In 1997, Coastal approved a supplemental retirement plan for Coastal's
executives. This plan is intended to ensure that pensions otherwise payable to
executives under Coastal's qualified pension plan, are in fact paid in spite of
limits placed by the tax code on the tax deductibility of qualified retirement
plans for highly paid individuals.

$1 Million Pay Deductibility Cap

Under Section 162(m) of the Internal Revenue Code, public companies are
precluded from receiving a tax deduction on compensation paid to executive
officers in excess of $1 million. To address the $1 million pay deductibility
cap issue, Coastal's proposed 1998 Incentive Stock Plan is structured so that
stock option awards (which are intended to be the primary long-term incentive
vehicle for the present time) qualify for an exemption from the $1 million pay
deductibility limit.

Also, at the present time, the Chairman of the Board of Directors and CEO
is the only executive whose base salary plus target bonus exceeds $1 million. In
order to preserve Coastal's tax deduction for base salary plus bonus for this
individual, Coastal has established a nonqualified deferred compensation
program. Under this program, any annual incentive awards that bring cash
compensation to a level over $1 million may be deferred so that payments occur
after the individual is no longer a Named Executive Officer, thus preserving the
deductibility of the pay for Coastal.

Compensation and Executive Development Committee

John M. Bissell, Chairman
Roy D. Chapin, Jr.
Jerome S. Katzin

<PAGE>

Pension Plan

The following table shows for illustration purposes the estimated annual
benefits payable currently under the Pension Plan and Coastal's Replacement
Pension Plan described below upon retirement at age 65 based on the compensation
and years of credited service indicated.

<TABLE>
Pension Plan Table

<CAPTION>
Years of Credited Service
--------------------------------------------------------------------
5-Year Final
Average Pay 15 Years 20 Years 25 Years 30 Years 35 Years
----------- -------- -------- -------- -------- --------

<F1>
Compensation covered under the Pension Plan and the Replacement Pension Plan
generally includes only base salary and is limited to $160,000 for 1997. During
1997 the Board of Directors amended Coastal's Replacement Pension Plan to
include compensation (generally base salary only) of up to $500,000 (indexed for
inflation) on a prospective basis in the five year average compensation used to
calculate benefits

<F2>
At December 31, 1997 each of the individuals named in the Summary Compensation
Table who had not retired had five year average pay of $152,000 for future
benefit accrual and the following years of credited service and pension payable
at age 65: Mr. Arledge, 17 years, $61,968; Mr. Hesse, 11 years, $36,454; Mr.
King, 5 years, $17,584; Mr. Connelly, 30 years, $101,373; and Mr. Corrallo, 11
years $29,813. Mr. Wyatt reached age 70 1/2 in January, 1995 and, because of IRS
requirements concerning Coastal's qualified pension plan he began receiving
pension payments in April, 1996. Mr. Wyatt retired in 1997. His payments from
the plans aggregated $377,249 in 1997.

<F3>
The normal form of retirement income is a straight life annuity. The calculation
of benefits payable under the Pension Plan includes an offset of 1.5% of
applicable monthly social security benefits multiplied by the number of years of
credited service (up to 33-1/3 years).
</FN>
</TABLE>

<PAGE>

PERFORMANCE GRAPH - SHAREHOLDER RETURN ON COMMON STOCK

[GRAPH]

<TABLE>
Five-Year Cumulative Values
$100 Invested 12/31/92
Dividends Reinvested
<CAPTION>
DOLLAR VALUE OF $100 INVESTMENT AT DECEMBER 31,
-----------------------------------------------------------------
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Coastal $ 100 $ 120 $ 111 $ 160 $ 211 $ 268
S&P 500 100 110 112 153 189 252
Index<F1><F2> 100 119 110 127 184 195
<FN>
<F1>
The Index is based on Value Line's Diversified Natural Gas Group - the
Performance Graph reflects total shareholder returns weighted to reflect the
market capitalizations of the peer companies. The peer group is comprised of:
Cabot, Columbia Gas, Consolidated Nat'l. Gas, Eastern Enterprises, El Paso
Nat'l. Gas, Enron, Equitable Resources, KN Energy, Mapco, Mitchell Energy,
National Fuel Gas, Questar, Seagull Energy, Sonat, Southwestern Energy, Union
Pacific, and Williams Co's.

<F2>
Coastal is excluded from the Index.
</FN>
</TABLE>

Transactions with Officers and Directors

In 1987, Coastal Mart, Inc. ("Coastal Mart"), a subsidiary of Coastal,
entered into a ten-year lease/purchase agreement with Pester Marketing Company
("Pester Marketing") for 220 gasoline service stations (subsequently reduced to
182 stations through disposition of assets) located in the midwestern region of
the United States. Jack Pester, a principal stockholder and Chief Executive
Officer of Pester Marketing, subsequently became an employee, officer and
director of Coastal Mart and was elected a Senior Vice President of Coastal. Mr.
Pester is no longer active in the management of Pester Marketing, and his stock
interest in that company has been placed in trust. In 1994, the lease
transaction was terminated pursuant to an agreement under which Coastal Mart
acquired ownership of and title to 175 of the gasoline service stations and
Pester Marketing retained the seven remaining stations. During 1997, Coastal
and/or its subsidiaries sold approximately 14 million gallons of gasoline to
Pester Marketing at prevailing market prices totaling approximately $9.97
million.

During 1997, Coastal subsidiaries sold a total of approximately 30 million
gallons of jet fuel to Laker Airways, Inc. ("Laker") and L. B. Limited, a
charter airline, at prevailing market prices totaling approximately $18.8
million. O. S. Wyatt, Jr. owned approximately 51% of the stock of Laker which he
disposed of in 1997; and he owns approximately one-third of the shares of L. B.
Limited. A balance of approximately $4.8 million of Laker indebtedness to
Coastal is guaranteed by Mr. Wyatt.

<PAGE>

Item 12. Security Ownership of Certain Beneficial Owners and Management.

(a) Security ownership of certain beneficial owners.

The following is information, as of March 11, 1998, on each person known
or believed by ANR Pipeline to be the beneficial owner of 5% or more of any
class of its voting securities:

<TABLE>
<CAPTION>
Amount and Nature
Name and Address of Beneficial Percent
Title of Class of Beneficial Owner Ownership of Class
- ------------------------ -------------------------------------- ------------------- --------
<S> <C> <C> <C>
Common Stock, American Natural Resources Company 1,000 shares direct 100%
$100 par value per share One Woodward Avenue
Detroit, Michigan 48226
</TABLE>

(b) Security ownership of management.

ANR Pipeline is an indirect, wholly owned subsidiary of Coastal.
Information concerning the security ownership of certain beneficial owners and
management of Coastal is contained in this section.

The total number of shares of stock of Coastal outstanding as of March 11,
1998 is 106,297,156 consisting of: 57,537 shares of $1.19 Cumulative Convertible
Preferred Stock, Series A (the "Series A Preferred Stock"), 66,744 shares of
$1.83 Cumulative Convertible Preferred Stock, Series B (the "Series B Preferred
Stock"), and 29,204 shares of $5.00 Cumulative Convertible Preferred Stock,
Series C (the "Series C Preferred Stock") (the Series A Preferred Stock, Series
B Preferred Stock and Series C Preferred Stock are referred to herein
collectively as the "Preferred Stock"), 105,779,387 shares of Common Stock, and
364,284 shares of Class A Common Stock.

Each voting share of Common Stock or Preferred Stock entitles the holder
to one vote with respect to all matters to come before a shareholders' meeting,
while each share of Class A Common Stock entitles the holder to 100 votes.
However, 25% of Coastal's directors standing for election at each annual meeting
will be determined solely by holders of the Common Stock and voting Preferred
Stock voting as a class.

<PAGE>

The following table sets forth information, as of March 11, 1998, with
respect to each person known or believed by Coastal to be the beneficial owner,
who has or shares voting and/or investment power (other than as set forth
below), of more than five percent (5%) of any class of its voting securities.

<TABLE>
<CAPTION>
Name and Address Percent (%)
of Beneficial Owner Title of Class Number of Shares of Class <F1>
- -------------------------------- -------------- ---------------- ------------
<S> <C> <C> <C>

O. S. Wyatt, Jr. Class A Common Stock 154,577 <F2> 42.2
Eight Greenway Plaza
Houston, Texas 77046-0995

Trustee/Custodian under the Common Stock 11,522,361 <F3> 10.8
Thrift Plan, ESOP and Class A Common Stock 58,447 <F3> 15.9
Pension Plan of Coastal
and its subsidiaries
Chase Bank of Texas, N.A.
600 Travis, 10th Floor
Houston, Texas 77002

FMR Corp. Common Stock 9,846,399 9.3
82 Devonshire Street
Boston, Massachusetts 02109

Isabel H. Long Series A Preferred Stock 28,976 50.4
485 S. Parkview Ave.,
Columbus, Ohio 43209-1075

The DeZurik Family Series C Preferred Stock 29,204 <F4> 100.0
c/o David DeZurik
309F The Island Club
777 S. Federal Hwy.
Pompano Beach, Florida 33062

<FN>
- ----------

<F1>
Class includes presently exercisable stock options held by directors and
executive officers.

<F2>
Includes 7,354 shares of Class A Common Stock owned by the spouse and a son of
Mr. Wyatt, as to which shares beneficial ownership is disclaimed.

<F3>
The Trustee/Custodian is the record owner of these shares; and also is the
record owner of 423 shares of the Series B Preferred Stock, each of which is
convertible into 3.6125 shares of Common Stock and 0.1 share of Class A Common
Stock. Voting instructions are requested from each participant in the Thrift
Plan and ESOP and from the trustees under the Pension Trust. Absent timely
voting instructions, the Trustee is permitted to vote Thrift Plan and ESOP
shares on any matter, but has no authority to vote Pension Plan shares. Nor does
the Trustee/Custodian have any authority to dispose of shares except pursuant to
instructions of the administrator of the Thrift Plan and ESOP or pursuant to
instructions from the trustees under the Pension Trust.

<F4>
Members of the DeZurik family acquired the Series C Preferred Stock in
connection with a 1972 Agreement of Merger involving the acquisition of
Colorado, a subsidiary of Coastal.
</FN>
</TABLE>

<PAGE>

The following table sets forth information, as of March 11, 1998,
regarding each of the current directors, including Class III directors standing
for election, and all directors and executive officers as a group. Each director
has furnished the information with respect to age, principal occupation and
ownership of shares of stock of Coastal. Messrs. Cordes, Gates, Johnson, MacNeil
and McDade are Class III directors whose terms expire in 1998; Messrs. Bissell,
Burrow, Chapin and Katzin are Class I directors whose terms expire in 1999; and
Messrs. Arledge, Brundrett, Wooddy and Wyatt are Class II directors whose terms
expire in 2000.

<TABLE>
<CAPTION>
Number of Shares
Name, (Age), Year Offices with Coastal Beneficially Percent (%)
First Became Director and/or Principal Occupation Title of Class Owned<F1> of Class*
- --------------------- --------------------------- -------------- ---------------- ----------

<S> <C> <C> <C>
David A. Arledge Chairman of the Board, President Common Stock 247,792
(53), 1988 and Chief Executive Officer Class A Common Stock 2,352

Harold Burrow Retired; Vice Chairman of the Board Common Stock 134,177 <F2>
(83), 1973 of Coastal Class A Common Stock 13,601 3.7

John M. Bissell Chairman of the Board Common Stock 5,096
(67), 1985 of Bissell Inc. Class A Common Stock -0-

George L. Brundrett, Jr. Attorney Common Stock 4,910
(76), 1973 Class A Common Stock 2,290

Roy D. Chapin, Jr. Former Chairman and Common Stock 3,250 <F2>
(82), 1988 Chief Executive Officer Class A Common Stock -0-
of American Motors Corporation

James F. Cordes Retired; former Executive Vice Common Stock 10,835
(57), 1985 President of Coastal Class A Common Stock -0-

Roy L. Gates Ranching and Investments Common Stock 4,128
(69), 1969 Class A Common Stock 2,736

Kenneth O. Johnson Senior Vice President Common Stock 36,843
(77), 1988 Class A Common Stock 9,604 2.6

Jerome S. Katzin Retired Investment Banker Common Stock 41,803 <F2>
(79), 1983 Class A Common Stock -0-

J. Carleton MacNeil, Jr. Securities Brokerage and Investments Common Stock 1,000
(63), 1997 Class A Common Stock -0-

Thomas R. McDade Senior Partner, Law Firm of McDade, Common Stock 2,500 <F2>
(65), 1993 Fogler, Maines & Lohse L.L.P., Houston Class A Common Stock -0-

L. D. Wooddy, Jr. Former President of Exxon Common Stock 5,000
(71), 1992 Pipeline Company Class A Common Stock -0-

O. S. Wyatt, Jr. Retired; Chairman of the Executive Common Stock 2,399,505 <F2> 2.3
(73), 1955 Committee of Coastal Class A Common Stock 154,577 <F2> 42.1

All directors and executive officers as a group Common Stock 3,351,390 <F3> 3.1
(34 persons, including the above) Class A Common Stock 186,394 <F3> 50.8

(See footnotes on following page)
<FN>
* Less than one percent unless otherwise indicated. Class includes
outstanding shares and presently exercisable stock options held by
directors and executive officers. Excluding presently exercisable
stock options, directors and executive officers as a group would own
184,114 shares of Class A Common Stock, which would constitute 50.5%
of the shares of such class.

<PAGE>

<F1>
Except for the shares referred to in Notes 2 and 3 below, and the shares
represented by presently exercisable stock options, the holders are believed by
Coastal to have sole voting and investment power as to the shares indicated.
Amounts include shares in Coastal ESOP and Thrift Plan, and presently
exercisable stock options held by Messrs. Arledge (225,873 shares of Common
Stock and 2,280 shares of Class A Common Stock) and Johnson (3,848 shares of
Common Stock).

<F2>
Includes shares owned by the spouse of Mr. Burrow (5,000 shares of Common
Stock), by the spouse of Mr. Chapin (1,000 shares of Common Stock), by the
spouse of Mr. Katzin (928 shares of Common Stock), by the spouse of Mr. McDade
(1,000 shares of Common Stock) and by the spouse and a son of Mr. Wyatt (265,995
shares of Common Stock and 7,354 shares of Class A Common Stock), as to which
shares beneficial ownership is disclaimed.

<F3>
Includes presently exercisable stock options to purchase 544,459 shares of
Common Stock and 2,280 shares of Class A Common Stock; also includes 281,112
shares of Common Stock and 7,354 shares of Class A Common Stock owned by spouses
and children, as to which shares beneficial ownership is disclaimed. In
addition, one executive officer owns 8 shares of Series B Preferred Stock, each
of which is convertible into 3.6125 shares of Common Stock and 0.1 share of
Class A Common Stock.

</FN>
</TABLE>

No incumbent director is related by blood, marriage or adoption to another
director or to any executive officer of Coastal or its subsidiaries or
affiliates.

Except as hereafter indicated, the above table includes the principal
occupation of each of the directors during the past five years. The listed
executive officers have held various executive positions with Coastal during the
five-year period.

Mr. Bissell is a member of the Boards of Directors of Old Kent Financial
Corporation and Batts Inc.

Mr. Cordes is a member of the Board of Directors of Comerica Inc.

Mr. Katzin is a member of the Board of Directors of Qualcomm Incorporated.

Mr. McDade is a trial lawyer and the founding senior partner of the
Houston law firm of McDade, Fogler, Maines & Lohse L.L.P. Prior to forming
McDade, Fogler, Maines & Lohse L.L.P., he was a senior partner in the Houston
law firm of Fulbright & Jaworski. He is a member of the Board of Directors of
Equity Corporation International.

Messrs. Arledge and Burrow are directors of Colorado and ANR Pipeline.
Both of these subsidiaries of Coastal are subject to the reporting requirements
of the Securities Exchange Act of 1934, as amended.

Item 13. Certain Relationships and Related Transactions.

(a) Transactions with management and others.

ANR Pipeline participates in a program which matches short-term cash
excesses and requirements of participating affiliates, thus minimizing
borrowings from outside sources. At December 31, 1997, the Company had advanced
$265.9 million to an associated company at a market rate of interest. Such
amount is repayable on demand.

Additional information called for by this item is set forth under Item 11,
"Executive Compensation," and Note 8 of Notes to Consolidated Financial
Statements included herein.

(b) Certain business relationships.

None.

(d) Transactions with promoters.

Not applicable.

<PAGE>

PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

(a) The following documents are filed as part of this Annual Report or
incorporated herein by reference:

1. Financial Statements.

The following Consolidated Financial Statements of ANR Pipeline
and Subsidiaries are included in response to Item 8 hereof on the
attached pages as indicated:

Page
----
Independent Auditors' Report................................... F-5
Consolidated Balance Sheet at December 31, 1997 and 1996....... F-6
Statement of Consolidated Earnings for the Years Ended
December 31, 1997, 1996 and 1995............................ F-8
Statement of Consolidated Retained Earnings for the Years Ended
December 31, 1997, 1996 and 1995............................ F-8
Statement of Consolidated Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995............................... F-9
Notes to Consolidated Financial Statements..................... F-10

2. Financial Statement Schedules.

Schedules are omitted as not applicable or not required, or the
required information is shown in the Consolidated Financial
Statements or Notes thereto.

3. Exhibits.

(3.1)+ Composite Certificate of Incorporation of ANR Pipeline
effective as of December 31, 1987. (Filed as Module
ANRCertIncorp on March 29, 1994.)

(3.2)+ Amended By-laws of ANR Pipeline effective as of
September 21, 1994. (Filed as Exhibit 3.2 to ANR
Pipeline's Annual Report on Form 10-K for the fiscal
year ended December 31, 1994.)

(4) With respect to instruments defining the rights of
holders of long-term debt, the Company will furnish to
the Securities and Exchange Commission any such
document on request.

(4.1)+ Indenture dated as of February 15, 1994 and First
Supplemental Indenture dated as of February 15, 1994
for the $125 million of 7-3/8% Debentures due February
15, 2024. (Filed as Exhibit 4.4 to ANR Pipeline's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1993.)

(10.1)+ Agreement for Consulting Services between ANR Pipeline
and Harold Burrow, dated as of January 1, 1996. (Filed
as Exhibit 10.3 to ANR Pipeline's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995.)

(21)* Subsidiaries of the Company.

(24)* Power of Attorney (included on signature pages herein).

(27)* Financial Data Schedule.

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

Note:

+ Indicates documents incorporated by reference from the prior
filings indicated.
* Indicates documents filed herewith.

(b) Reports on Form 8-K.

No reports on Form 8-K were filed during the quarter ended December 31,
1997.

<PAGE>

POWER OF ATTORNEY

Each person whose signature appears below hereby appoints Coby C. Hesse,
William L. Johnson and Austin M. O'Toole and each of them, any one of whom may
act without the joinder of the others, as his attorney-in-fact to sign on his
behalf and in the capacity stated below and to file all amendments to this
Annual Report on Form 10-K, which amendment or amendments may make such changes
and additions thereto as such attorney-in-fact may deem necessary or
appropriate.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

ANR PIPELINE COMPANY
(Registrant)

By: JEFFREY A. CONNELLY
----------------------------------
Jeffrey A. Connelly
President and Chief Executive Officer
March 27, 1998

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

By: DAVID A. ARLEDGE
------------------------------------
David A. Arledge
Principal Financial Officer and Director
March 27, 1998

By: WILLIAM L. JOHNSON
------------------------------------
William L. Johnson
Principal Accounting Officer
March 27, 1998

By: HAROLD BURROW
------------------------------------
Harold Burrow
Director
March 27, 1998

By: JEFFREY A. CONNELLY
------------------------------------
Jeffrey A. Connelly
Director
March 27, 1998

By: RICHARD A. LIETZ
------------------------------------
Richard A. Lietz
Director
March 27, 1998

By: JON R. WHITNEY
------------------------------------
Jon R. Whitney
Director
March 27, 1998

<PAGE>

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

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

Liquidity and Capital Resources

Overview. Internally generated funds have been the primary source to meet
mandatory debt retirements and other cash requirements of the Company over the
past three years.

The Company paid dividends of $95 million on its common stock in 1997.
These dividends were financed from internally generated funds.

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

<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- --------

<S> <C> <C> <C>
Cash flows from operating activities to long-term debt
and capital lease obligations.......................................... 47.1% 46.2% 42.5%

Long-term debt and capital lease obligations to total capitalization.... 43.3% 46.4% 35.9%
</TABLE>

The increase in 1997 as compared to 1996 in the ratio of cash flows from
operating activities to long-term debt and capital lease obligations resulted
from higher cash flows provided by operating activities in 1997 and lower
capital lease obligations. The decrease in 1997 as compared to 1996 in the ratio
of long-term debt and capital lease obligations to total capitalization resulted
from an increase in retained earnings due to higher net earnings for 1997 and a
smaller dividend paid on common stock in 1997.

The increase in 1996 as compared to 1995 in the ratio of cash flows from
operating activities to long-term debt and capital lease obligations resulted
from higher cash flows provided by operating activities in 1996. The increase in
1996 as compared to 1995 in the ratio of long-term debt and capital lease
obligations to total capitalization resulted from a decrease in retained
earnings due to dividends paid on common stock and the extraordinary charge to
earnings resulting from the discontinued application of FAS 71 effective
November 1, 1996.

Cash flows from operating activities are expected to decline in 1998
primarily due to the Company's rate case settlement. Management believes that
the Company's stable financial position and earnings ability will enable it to
continue to generate and obtain capital for financing needs in the foreseeable
future.

Expenditures for each of the years 1995 through 1997 and the sources of
capital used to finance these expenditures are summarized in the "Statement of
Consolidated Cash Flows."

Capital Expenditures. Capital expenditures were $93.6 million in 1997 and
$70.3 million in 1996. Capital expenditures for 1998 are budgeted at $119
million. These expenditures are primarily for completion of projects in process,
development of information systems, operational necessities, environmental
requirements, expansion projects and increased efficiency.

F-1

<PAGE>

Funding for budgeted capital expenditures will be accomplished by the use
of internally generated funds. Funding for certain proposed projects is
anticipated to be provided through non-recourse project financing in which
certain of the projects' assets and contracts will be pledged as collateral.
Equity participation by other entities will also be considered. To the extent
required, cash for equity contributions to projects will be generated from
general corporate funds. Information concerning certain of these projects is
contained in Part I herein under Item 1, "Business - Other Developments."

Financing Alternatives. Alternatives to finance additional capital and
other expenditures are limited principally by the terms of a Coastal Natural Gas
debt instrument. As of December 31, 1997, ANR Pipeline and certain affiliates
could incur in the aggregate approximately $2.7 billion of additional
indebtedness.

The Company participates in a program which matches short-term cash
excesses and requirements of participating affiliates, thus minimizing
borrowings from outside sources. At December 31, 1997, the Company had advanced
$265.9 million to an associated company at a market rate of interest. Such
amount is repayable upon demand.

Year 2000 Issue. The Company, like most other companies, is faced with the
Year 2000 Issue. The Year 2000 Issue is the result of computer programs written
with two digits rather than four to define the applicable year. Any of the
Company's computer programs that have date-sensitive software may recognize a
date using "00" as the year 1900 instead of the year 2000. This could result in
a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities. The Company has
determined that it will be necessary to modify or replace portions of its
software so that its computer systems will properly utilize dates beyond
December 31, 1999. The Company believes that with modifications and conversions
to new software, the Year 2000 Issue can be mitigated. However, if such
modifications and conversions are not made, or are not completed timely, the
Year 2000 Issue could have a material impact on the operations of the Company.
There can also be no assurance that the systems of other companies on which the
Company's systems rely will be timely converted, or that any such failure to
convert by another company would not have an adverse effect on the Company's
systems.

The Company has been using both external and internal resources to
reprogram or replace its software for the Year 2000 Issue. To date, the amounts
incurred and expensed for developing and carrying out the plan have not had a
material effect on the Company's operations. The Company plans to complete the
Year 2000 modifications, including testing, by early 1999. The total remaining
cost for the Year 2000 Issue of approximately $3 million, which is based on
management's current estimates, is not expected to be material to the Company's
operations. All remaining Year 2000 Issue costs will be funded through operating
cash flows.

Environmental. The Company's operations are subject to extensive and
evolving federal, state and local environmental laws and regulations which may
affect such operations and costs as a result of their effect on the
construction, operation and maintenance of its pipeline facilities. The Company
spent approximately $2.8 million in 1997 on environmental capital projects and
anticipates annual capital expenditures of approximately $3 to $5 million per
year over the next several years aimed at maintaining compliance with such laws
and regulations. 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.

F-2

<PAGE>

but must exercise due care in their use of the property so that the
contamination is not exacerbated and the property does not pose a threat to
human health.

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

Results of Operations

ANR Pipeline operates primarily in the Midwest and increasingly in the
Northeast regions of the United States under FERC Order 636, which promulgated
the use of the straight fixed variable ("SFV") rate setting methodology. In
general, SFV provides that all fixed costs of providing service to firm
customers (including an authorized return on rate base and associated taxes) are
to be received through fixed monthly reservation charges, which are not a
function of volumes transported, while including within the commodity billing
component the pipeline's variable operating costs. The Order also eliminated the
merchant function and unbundled pipeline services, providing customers with
greater options for transporting their gas. These greater customer options have
resulted in increased competition among pipeline companies and lower rates for
customers. The Company auctions gas on the open market to handle a residual
quantity of gas committed and purchased under certain remaining gas purchase
contracts pending expiration of such contracts. The impact of these gas purchase
transactions on operations is becoming less significant as the number of
remaining contracts are reduced. The Company's Order 636 restructured tariff
provides mechanisms for recovering from its transportation customers the pricing
differential between costs incurred to purchase gas under these contracts and
the amounts recovered through the auctioning of such gas on the open market. In
addition, Order 636 has resulted in the incurrence of other transition costs and
provides mechanisms for the recovery of all such costs within a reasonable time
period.

Effective November 1, 1996, the Company discontinued the application of
regulatory accounting principles under FAS No. 71. This accounting change has no
direct effect on either the Company's ability to include the previously deferred
items in future rate proceedings or on its 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 it operates.

Revenues. Storage and transportation revenues increased by $0.5 million in
1997 as compared to 1996. The primary factors contributing to the increase were
firm storage revenue increases of $16.3 million resulting from new contract
startups in the latter part of 1996 and 1997, and adjustments to provisions for
rate related contingencies. Storage and transportation revenues included
provisions for rate related contingencies of $28.5 million and $45.6 million in
1997 and 1996, respectively. These increases were largely offset by reduced
pass-through recoveries of $11 million which are offset in operation and
maintenance, a reduction in gathering revenue of $8.2 million due to the sale of
a major portion of the Company's Southwest gathering facilities in December 1996
and reduced rates charged to customers. The reduced rates resulted from the
implementation of lower rates effective November 1, 1997 related to the
settlement of the Company's rate case, and continued, intensified competition
across the United States natural gas industry, particularly in the Company's
Midwest operating region.

Storage and transportation revenues decreased by $63.3 million in 1996 as
compared to 1995. Contributing to this decrease were lower storage and
transportation revenues of $15.2 million resulting from continued, intensified
competition across the United States natural gas industry, particularly in the
Midwest region in which the Company operates. Additional items which decreased
revenues were (a) revenue received in 1995 related to storage and transportation
contract settlements of $22.5 million, (b) reduced surcharge and other
pass-through recoveries of $19.7 million, which are offset in operation and
maintenance, and (c) increases in provisions for rate related contingencies of
$8.6 million. Provisions for rate related contingencies were $45.6 million and
$37 million in 1996 and 1995, respectively.

Other revenues decreased by $34.4 million in 1997 as compared to 1996
primarily due to a $28.7 million gain related to the 1996 sale of a major
portion of the Company's Southwest gathering facilities, reduced interest income
from

F-3

<PAGE>

a related party of $7.2 million and a reduction in the quantity of gas auctioned
on the open market of $1.8 million. These decreases were partially offset by a
$4.4 million increase in equity earnings from investments in pipeline
partnerships.

Other revenues increased by $5.4 million in 1996 as compared to 1995. The
increase was due to the $28.7 million gain related to the 1996 sale noted above.
This increase was largely offset by lower gas sales revenues of $6.6 million
resulting from a reduction in the quantity of gas auctioned on the open market
offset in part by increased spot market prices and Purchased Gas Adjustment
("PGA") recoveries of $13.2 million recorded in 1995, which were associated with
purchase periods prior to Order 636. Such recoveries were largely completed in
1995.

The revenue decline since the adoption of Order 636 reflects the increased
competition in the natural gas industry. Although firm capacity on the Company's
major interstate pipelines is largely sold out, the Company has instituted
reengineering process improvement projects and cost reduction programs to remain
competitive and improve operating profits.

Operation and Maintenance. Operation and maintenance expenses decreased by
$71.8 million in 1997 as compared to 1996. The decrease was primarily due to
lower gas purchase costs of $29 million, largely resulting from the
implementation of the Dakota Gasification Company settlement in early 1997 and
expiration of a significant gas purchase contract in the third quarter of 1997,
and gas purchase related deferrals and recovery amortizations recorded in 1996
of $11.1 million. Also contributing to the decrease were reduced third party
transportation services of $11 million, which were offset in revenue, as
discussed above, and reductions to other taxes of $5.6 million due to lower
assessed property values and lower use tax provisions in 1997.

Operation and maintenance expenses decreased by $50.9 million in 1996 as
compared to 1995. One of the major factors contributing to the decrease was a
reduction in cost of gas of $28.2 million. Cost of gas includes purchases
required under certain remaining gas purchase contracts and the amortization of
PGA recoveries from customers. Collectively, decreases in the cost of gas were
offset in revenues. Other factors contributing to lower operation and
maintenance expenses were reduced transportation services provided by others of
$18.3 million, which were offset in revenues, as discussed above, and lower
salary and benefit expenses of $8.8 million mainly due to an early retirement
incentive program which became effective December 31, 1995. Decreases in ad
valorem taxes of $3.2 million in 1995, largely due to adjustments for prior
periods, partially offset the above mentioned variances.

Depreciation and Amortization. Depreciation expense decreased by $5.2
million in 1997 as compared to 1996. The decrease was primarily due to a
revision of depreciation rates, effective October 1, 1997, for the Company's
transmission and storage assets.

Taxes on Income. Taxes on income increased $11.9 million in 1997 as
compared to 1996 primarily due to increased pre-tax income.

F-4

<PAGE>

INDEPENDENT AUDITORS' REPORT

Board of Directors and Stockholder
ANR Pipeline Company
Detroit, Michigan

We have audited the accompanying consolidated balance sheets of ANR
Pipeline Company (an indirect, wholly-owned subsidiary of The Coastal
Corporation) and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of earnings, retained earnings and cash flows for each
of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of ANR Pipeline Company and
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.

DELOITTE & TOUCHE LLP

Detroit, Michigan
February 3, 1998
(February 13, 1998 as to Note 4)

F-5

<PAGE>

<TABLE>
ANR PIPELINE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Millions of Dollars)

<CAPTION>
December 31,
----------------------
1997 1996
---------- ---------

ASSETS
------
<S> <C> <C>
Current Assets:
Cash and cash equivalents............................................................. $ 5.2 $ 34.2
Notes receivable:
Other.............................................................................. - 18.5
Related party...................................................................... 265.9 168.7
Accounts receivable:
Others............................................................................. 35.9 51.2
Related parties.................................................................... 14.7 14.9
Materials and supplies, at average cost............................................... 28.3 30.1
Current deferred income taxes......................................................... 74.7 67.9
---------- ---------
424.7 385.5
---------- ---------

Property, Plant and Equipment, at cost................................................... 3,372.9 3,314.2
Less - Accumulated depreciation....................................................... 2,125.6 2,110.0
---------- ---------
1,247.3 1,204.2
---------- ---------

Other Assets:
Investment in related parties:
Pipeline partnerships.............................................................. 46.3 47.6
Other.............................................................................. 74.1 78.1
Deferred charges and other............................................................ 21.4 28.4
---------- ---------
141.8 154.1
---------- ---------

$ 1,813.8 $ 1,743.8
========== =========
</TABLE>

See Notes to Consolidated Financial Statements.

F-6

<PAGE>

<TABLE>
ANR PIPELINE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Millions of Dollars)

<CAPTION>
December 31,
----------------------
1997 1996
---------- ---------

LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
<S> <C> <C>
Current Liabilities:
Capital lease obligations with related party.......................................... $ 3.0 $ 3.0
Accounts payable:
Others............................................................................. 74.1 114.9
Related parties.................................................................... 6.9 12.0
Taxes on income....................................................................... 37.2 33.4
Other taxes........................................................................... 24.1 21.2
Provisions for regulatory and other matters........................................... 180.6 140.7
Other................................................................................. 22.9 21.6
---------- ---------
348.8 346.8
---------- ---------

Long-Term Debt........................................................................... 497.9 497.8
---------- ---------

Capital Lease Obligations with Related Party............................................. 5.6 8.6
---------- ---------

Deferred Credits and Other:
Accumulated deferred income taxes..................................................... 160.9 151.2
Other deferred credits:
Others............................................................................. 119.2 130.1
Related parties.................................................................... 21.4 23.2
---------- ---------
301.5 304.5
---------- ---------

Common Stock and Other Stockholder's Equity:
Common stock, $100 par value, authorized, issued and
outstanding 1,000 shares........................................................... .1 .1
Additional paid-in capital............................................................ 466.2 466.2
Retained earnings..................................................................... 193.7 119.8
---------- ---------
660.0 586.1
---------- ---------

$ 1,813.8 $ 1,743.8
========== =========
</TABLE>

See Notes to Consolidated Financial Statements.

F-7

<PAGE>

<TABLE>
ANR PIPELINE COMPANY AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED EARNINGS
(Millions of Dollars)

<CAPTION>
Year Ended December 31,
-----------------------------------
1997 1996 1995
--------- ---------- ---------

<S> <C> <C> <C>
Revenues:
Storage and transportation:
Others................................................................ $ 630.4 $ 619.2 $ 698.2
Related parties....................................................... 12.3 23.0 7.3
Other revenues:
Others................................................................ 19.3 54.6 45.2
Related parties....................................................... 67.7 66.8 70.8
--------- ---------- ---------
729.7 763.6 821.5
--------- ---------- ---------

Costs and Expenses:
Operation and maintenance:
Others................................................................ 269.0 324.0 361.0
Related parties....................................................... 81.4 98.2 112.1
Depreciation and amortization............................................ 49.2 54.4 50.6
Interest expense......................................................... 63.0 60.4 59.7
Taxes on income.......................................................... 98.2 86.3 86.8
--------- ---------- ---------
560.8 623.3 670.2
--------- ---------- ---------

Earnings Before Extraordinary Item.......................................... 168.9 140.3 151.3
Extraordinary item-loss on discontinuance of FAS No. 71,
net of income taxes...................................................... - ( 163.9) -
--------- ---------- ---------

Net Earnings (Loss)......................................................... $ 168.9 ($ 23.6) $ 151.3
========= ========== =========
</TABLE>

<TABLE>
STATEMENT OF CONSOLIDATED RETAINED EARNINGS
(Millions of Dollars)

<CAPTION>
Year Ended December 31,
-----------------------------------
1997 1996 1995
--------- ---------- ---------

<S> <C> <C> <C>
Balance - Beginning of Year................................................. $ 119.8 $ 443.4 $ 322.2

Net Earnings (Loss)......................................................... 168.9 ( 23.6) 151.3

Dividends:
Common stock............................................................. ( 95.0) ( 300.0) ( 30.1)
--------- ---------- ---------

Balance - End of Year....................................................... $ 193.7 $ 119.8 $ 443.4
========= ========== =========
</TABLE>

See Notes to Consolidated Financial Statements.

F-8

<PAGE>

<TABLE>
ANR PIPELINE COMPANY AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
(Millions of Dollars)

<CAPTION>
Year Ended December 31,
--------------------------------
1997 1996 1995
-------- -------- --------

<S> <C> <C> <C>
Cash Flows from Operating Activities:
Earnings before extraordinary item.......................................... $ 168.9 $ 140.3 $ 151.3
Adjustments to reconcile earnings before extraordinary item to net cash
provided by operating activities:
Depreciation and amortization............................................ 51.6 57.7 53.2
Increase (decrease) in deferred income taxes............................. 9.7 21.4 ( 6.2)
Increase in provisions for regulatory and other matters.................. 39.9 61.5 41.1
Producer contract reformation cost recoveries............................ - 26.3 28.3
Undistributed equity in earnings of pipeline partnerships................ ( 18.8) ( 8.9) ( 7.0)
Gain on sale of plant.................................................... - ( 29.1) -
Changes in other assets and liabilities affecting operating activities:
Decrease (increase) in accounts receivable:
Others................................................................ 15.3 22.9 ( 8.1)
Related parties....................................................... .2 ( .9) 9.5
(Decrease) increase in accounts payable and other accruals:
Others................................................................ ( 34.0) ( 42.7) ( 55.0)
Related parties....................................................... ( 5.1) 6.0 ( 1.4)
Net (decrease) increase in other assets/liabilities...................... 9.6 ( 20.3) 9.3
-------- -------- --------
Total adjustments..................................................... 68.4 93.9 63.7
-------- -------- --------

Net cash provided by operating activities............................. 237.3 234.2 215.0
-------- -------- --------

Cash Flows from Investing Activities:
(Increase) decrease in notes receivable from related party.................. ( 97.2) 216.1 ( 149.6)
Decrease in note receivable - other......................................... 18.5 - -
Investment in related parties............................................... 4.0 ( 76.1) -
Proceeds from sale of plant................................................. - 10.4 2.0
Capital expenditures........................................................ ( 93.6) ( 70.3) ( 50.1)
-------- -------- --------

Net cash (used in) provided by investing activities................... ( 168.3) 80.1 ( 197.7)
-------- -------- --------

Cash Flows from Financing Activities:
Net proceeds from issuance of long-term debt................................ - - 74.6
Retirement of long-term debt and capital lease obligations.................. ( 3.0) ( 3.0) ( 60.9)
Common stock dividends paid................................................. ( 95.0) ( 300.0) ( 30.1)
-------- -------- --------

Net cash used in financing activities................................. ( 98.0) ( 303.0) ( 16.4)
-------- -------- --------

Net (Decrease) Increase in Cash and Cash Equivalents........................... ( 29.0) 11.3 .9

Cash and Cash Equivalents at Beginning of Period............................... 34.2 22.9 22.0
-------- -------- --------

Cash and Cash Equivalents at End of Period..................................... $ 5.2 $ 34.2 $ 22.9
======== ======== ========
</TABLE>

See Notes to Consolidated Financial Statements.

F-9

<PAGE>

ANR PIPELINE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

- - Basis of Presentation

ANR Pipeline is a wholly owned subsidiary of ANR, which is a direct
subsidiary of Coastal Natural Gas and an indirect subsidiary of Coastal. The
financial statements presented herewith are presented on the basis of historical
cost and do not reflect the basis of cost to Coastal Natural Gas. The
preparation of these financial statements, in conformity with generally accepted
accounting principles, requires estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues and expenses. Actual results
could differ from the estimates and assumptions used.

- - Reclassifications

Certain reclassifications of prior period statements have been made to
conform with current reporting practices. The effect of these reclassifications
was not material to the Company's consolidated financial position, results of
operations or cash flows.

- - Principles of Consolidation

The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries, after eliminating all significant
intercompany transactions. The equity method of accounting is used for
investments in which the Company has a 20% to 50% voting interest and exercises
significant influence. The equity method is also being used for an investment in
a limited partnership in which the Company has an interest of more than 5%.

- - Statement of Financial Accounting Standards No. 71, "Accounting for the
Effects of Certain Types of Regulation" ("FAS No. 71")

The Company is subject to the regulations and accounting procedures of the
FERC and has historically followed the reporting and accounting requirements of
FAS No. 71. Effective November 1, 1996, ANR Pipeline discontinued application of
FAS No. 71. As a result, ANR Pipeline recorded an extraordinary charge to income
in 1996 of $163.9 million, net of related income taxes of $91.6 million. This
charge to earnings was noncash and has no direct effect on either the Company's
ability to include the previously deferred items in future rate proceedings or
on its 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 it operates. Further,
the Company has reexamined the useful lives of its assets. During 1997, the
depreciation rates associated with certain of its assets were revised, which had
the effect of increasing net earnings by $3.6 million.

- - Property, Plant and Equipment

Property additions include capitalized interest costs allocable to
construction. Such costs amounted to $2.3 million, $1.8 million and $1.2 million
in 1997, 1996 and 1995, respectively. As a result of the Company's discontinued
application of FAS No. 71, effective November 1, 1996, the Company records
capitalized interest based on the provisions of Statement of Financial
Accounting Standards No. 34, "Capitalization of Interest Cost." Prior to
November 1, 1996, and as allowed under the provisions of FAS 71, such interest
costs reflected an allowance for equity and borrowed funds used during
construction.

The Company's annual provisions for depreciation of gas plant are computed
on a straight-line basis using rates of depreciation which vary by type of
property. The annual composite depreciation rate was approximately 1.7% for
1997, 1.8% for 1996 and 1.7% for 1995.

Costs of minor property units (or components thereof) retired or abandoned
are charged or credited, net of salvage, to accumulated depreciation. Gain or
loss on sales of major property units is credited or charged to income.

F-10

<PAGE>

- - Income Taxes

The Company is a member of a consolidated group which files a consolidated
federal income tax return. Members of the consolidated group with taxable
incomes are charged with the amount of income taxes as if they filed separate
federal income tax returns, and members providing deductions and credits which
result in income tax savings are allocated credits for such savings.

- - Statement of Consolidated Earnings

Supplemental information relative to the Statement of Consolidated
Earnings includes the following: Gas sales revenues included in Other revenues
amounted to $37.3 million, $39.1 million, and $59.2 million for the years ended
December 31, 1997, 1996 and 1995, respectively. Cost of gas included in
Operation and maintenance amounted to $25.5 million, $68.7 million and $96.9
million for the same periods.

- - Statement of Cash Flows

For purposes of this financial statement, cash equivalents include time
deposits, certificates of deposit and all highly liquid instruments with
original maturities of three months or less. The Company made cash payments for
interest, net of interest capitalized, of $49.5 million, $52.4 million and $55.7
million in 1997, 1996 and 1995, respectively. Cash payments for income taxes
amounted to $92.4 million, $100.6 million and $110.4 million in 1997, 1996 and
1995, respectively.

- - Nature of Operations and Concentrations of Credit Risk

ANR Pipeline is involved in the transportation, storage and balancing of
natural gas primarily in the Midwest and increasingly in the Northeast regions
of the United States. The Company operates under arrangements with other
companies including distributors, intrastate and interstate pipelines,
producers, brokers, marketers and end-users. As a result, the Company has a
concentration of receivables due from these customers. This may affect the
Company's overall credit risk in that the customers may be similarly affected by
changes in economic, regulatory and other factors. Trade receivables are
generally not collateralized; however, the Company analyzes customers' credit
positions prior to extending credit.

- - Statement of Financial Accounting Standards No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities" ("FAS 125")

The Company adopted FAS 125 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.

- - Statement of Position 96-1 ("SOP 96-1")

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

F-11

<PAGE>

2. Long-Term Debt

Balances at December 31 were as follows (millions of dollars):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Debentures:
9-5/8% series, due 2021.......................................................... $ 300.0 $ 300.0
7-3/8% series, due 2024.......................................................... 125.0 125.0
7% series, due 2025.............................................................. 75.0 75.0

Unamortized discount related to outstanding debt, net of premium.................... ( 2.1) ( 2.2)
-------- --------

$ 497.9 $ 497.8
======== ========
</TABLE>

None of the above debt issuances have maturity or sinking fund
requirements prior to their retirement due dates.

Alternatives to finance additional capital and other expenditures are
limited principally by the terms of a Coastal Natural Gas debt instrument. As of
December 31, 1997, ANR Pipeline and certain affiliates could incur in the
aggregate approximately $2.7 billion of additional indebtedness.

3. Value of Financial Instruments

The estimated fair value amounts of the Company's financial instruments
have been determined by the Company, using appropriate market information and
valuation methodologies. Considerable judgment is required to develop the
estimates of fair value, thus, the estimates provided herein are not necessarily
indicative of the amounts that the Company could realize in a current market
exchange.

<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
------------------------ -------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------ -------- ------------ ---------
(millions of dollars)

<S> <C> <C> <C> <C>
Nonderivatives:
Financial assets:
Cash and cash equivalents................... $ 5.2 $ 5.2 $ 34.2 $ 34.2
Note receivable from a related party........ 265.9 265.9 168.7 168.7
Note receivable - other..................... - - 18.5 17.2

Financial liabilities:
Long-term debt.............................. 500.0 606.9 500.0 571.6
</TABLE>

The note receivable from a related party is at a floating market rate of
interest and therefore, the carrying amount is a reasonable estimate of its fair
value. The estimated fair value of the note receivable - other was calculated
based on the market rate of interest at December 31, 1996. The estimated values
of the Company's long-term debt are based on interest rates at December 31, 1997
and 1996, respectively, for new issues with similar remaining maturities.

4. Litigation, Environmental and Regulatory Matters

- Litigation Matters

F-12

<PAGE>

potential class. A new suit was then filed in state court in Wayne County,
Michigan, seeking to have the Michigan suit certified as a class action of
African American employees of ANR Pipeline and seeking unspecified damages as
well as attorneys and expert fees. The Company will file responsive pleadings
denying these allegations.

- - Environmental Matters

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

- - Regulatory Matters

From November 1, 1992 to November 1, 1993, gas inventory demand charges
were collected from the Company's former resale customers. This method of gas
cost recovery required refunds for any over-collections. In April 1994, the
Company 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 the Company's refund allocation methodology
and the Company, 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 the Company'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. On March 12, 1998 the
FERC affirmed the Initial Decision in almost all aspects. Parties may seek
rehearing in thirty days.

F-13

<PAGE>

On remand, 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 twenty years to five years, the
term "cap" to be applied to evaluation of bids for renewal of contracts on
existing volumes. The Company and others have sought rehearing of certain
aspects of the Order on remand. Further, the Company's compliance filing
regarding the level of costs to be allocated to interruptible service was
accepted by the FERC as part of an uncontested settlement following further
proceedings before the FERC. Several persons have also separately appealed the
rate aspects of the FERC's orders approving the Company's Order 636
restructuring filings and those appeals are the subject of further proceedings
before the Court. Since the approved rate case settlement discussed below has
become effective, these appeals will be voluntarily dismissed.

The Company 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 the Company's approved rates for its Order
636 restructured services. In September 1994, the FERC accepted the Company's
filing to place the new rates into effect May 1, 1994, subject to further
modifications. The Company submitted revised rates in compliance with this order
in October 1994. 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 the Company'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, the
Company filed a comprehensive settlement that will resolve all issues in the
proceeding, as well as result in the voluntary dismissal of pending court
appeals. Under the settlement, the Company agreed to place the settlement rates
in effect on November 1, 1997, subject to the prospective restoration of the
Company's currently filed rates (subject to refund) if the settlement is not
approved. By order issued October 31, 1997, the FERC authorized the Company 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. By order
issued February 13, 1998, the FERC approved the settlement in all respects,
other than the proposed new short-term firm service. The FERC also addressed two
of the three reserved matters that the parties had requested it decide on the
merits. On March 16, 1998, the Company filed written notification with the FERC
that the order on the settlement was acceptable to the Company and all parties,
and the settlement became effective as of such date. The approved settlement
includes a stipulation that the Company will refund $66.6 million, which
includes interest, for rates collected during the period its proposed rates were
in effect. Pursuant to the settlement, all refunds must be remitted within
thirty days of the effective date. During the period the proposed rates were in
effect, the Company estimated and recorded provisions for potential rate
refunds, which exceed the final refund requirements.

F-14

<PAGE>

5. Lease Commitments

The Company is the lessee of eight storage fields under capital leases
from an affiliate. The storage field leases expire on May 1, 2003. However, the
Company has the option to extend each of the leases for up to two successive
five-year periods. The net present value of the future minimum lease payments is
included as part of "Property, Plant and Equipment" in the Company's
Consolidated Balance Sheet as follows (millions of dollars):

December 31,
--------------------
1997 1996
--------- ---------

Storage property........................... $ 122.1 $ 122.1
Less: Accumulated depreciation............ 113.5 110.5
--------- ---------

$ 8.6 $ 11.6
========= =========

The annual provision for depreciation included as a part of depreciation
and amortization expense was $3 million for 1997, 1996 and 1995.

Future minimum lease payments under capital leases together with the
present value of the net minimum lease payments as of December 31, 1997 are as
follows (millions of dollars):

Year ending December 31:
1998.......................................... $ 7.4
1999.......................................... 6.8
2000.......................................... 5.7
2001.......................................... 4.5
2002 through 2003............................. 4.4
--------
Total minimum lease payments.................. 28.8

Less: Amount representing executory costs.... 7.4
--------

Net minimum lease payments.................... 21.4

Less: Amount representing interest........... 12.8
--------

Present value of net minimum lease payments... $ 8.6
========

Operating lease rentals included in operating expenses amounted to $15
million for 1997, 1996 and 1995, respectively. Aggregate minimum lease payments
under existing noncapitalized, long-term leases are estimated to be $13 million
for each of the years 1998 through 2002, and $78.8 million thereafter.

F-15

<PAGE>

6. Taxes On Income

Provisions for income taxes are composed of the following (millions of
dollars):

<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Federal:
Currently payable................................................... $ 87.0 $ 93.3 $ 98.6
Deferred ........................................................... 1.9 ( 18.7) ( 17.2)
-------- -------- --------
88.9 74.6 81.4
-------- -------- --------
State and City:
Currently payable................................................... 9.3 13.2 6.8
Deferred ........................................................... - ( 1.5) ( 1.4)
-------- -------- -------
9.3 11.7 5.4
-------- -------- --------

Total income taxes................................................ $ 98.2 $ 86.3 $ 86.8
======== ======== ========
</TABLE>

Provisions for income taxes were different from the amount computed by
applying the statutory U.S. federal income tax rate to earnings before tax. The
reasons for these differences are (millions of dollars):

<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1997 1996 1995
-------- -------- --------

<S> <C> <C> <C>
Tax expense computed by applying the U.S. federal income tax rate
of 35%.............................................................. $ 93.4 $ 79.3 $ 83.3

Increases (reductions) in taxes resulting from:
State and city income taxes reduced by federal income tax benefit... 6.0 7.6 3.5
Normalization adjustment for liberalized depreciation............... ( .9) ( 1.1) -
Other............................................................... ( .3) .5 -
-------- -------- --------
Taxes on income................................................. $ 98.2 $ 86.3 $ 86.8
======== ======== ========
</TABLE>

Deferred tax liabilities (assets) which are recognized for the estimated
future tax effects attributable to temporary differences are (millions of
dollars):

December 31,
--------------------
1997 1996
-------- --------

Depreciation................................... $ 196.0 $ 192.4
Other.......................................... 14.0 12.0
-------- --------
Deferred tax liabilities.................... 210.0 204.4
-------- --------

Provision for regulatory matters............... ( 69.5) ( 54.0)
Inventory capitalization....................... ( 1.6) ( 1.6)
Purchased gas and other recoverable costs...... ( 23.2) ( 33.3)
Benefit plans and accrued expenses............. ( 12.2) ( 12.3)
Certain lease costs............................ ( 8.3) ( 9.0)
Other.......................................... ( 9.0) ( 10.9)
-------- --------
Deferred tax assets......................... ( 123.8) ( 121.1)
-------- --------

Deferred income taxes....................... $ 86.2 $ 83.3
======== ========

Coastal and the Internal Revenue Service ("IRS") Appeals Office have
reached a final settlement of the adjustments originally proposed to federal
income tax returns filed for the years 1985 through 1987. The IRS has
subsequently proposed additional adjustments to those returns, and Coastal will
contest these adjustments before the IRS Appeals

F-16

<PAGE>

Office. Coastal's federal income tax returns filed for the years 1988 through
1990 have been examined by the IRS and Coastal has received notice of proposed
adjustments to the returns for each of those years. Coastal currently is
contesting certain of these adjustments with the IRS Appeals Office. Examination
of Coastal's federal income tax returns for 1991, 1992, 1993 and 1994 began in
1997. It is the opinion of management that adequate provisions for federal
income taxes have been reflected in the Company's consolidated financial
statements.

7. Benefit Plans

The Company participates with its affiliates in the non-contributory
pension plan of Coastal (the "Plan") which covers substantially all employees.
The Plan provides benefits based on final average monthly compensation and years
of service. As of December 31, 1997, the Plan did not have an unfunded
accumulated benefit obligation. ANR Pipeline made no contributions to the Plan
for 1997, 1996 or 1995. Assets of the Plan are not segregated or restricted by
its participating subsidiaries and pension obligations for Company employees
would remain the obligation of the Plan if the Company were to withdraw.

The Company offered an early retirement incentive program to all of its
eligible employees (age 55 before January 1, 1996 and having five or more years
of service before January 1, 1996), who were employed through December 31, 1995.
All benefits provided under this program are being funded by the Plan and will
not have a material impact on the Company's consolidated cash flow or financial
position.

ANR Pipeline also makes contributions to a thrift plan, which is a
trusteed, voluntary and contributory plan for eligible employees of the Company.
The Company's contributions, which are based on matching employee contributions,
amounted to $5.6 million for each of 1997 and 1996 and $6 million for 1995.

The Company provides certain health care and life insurance benefits for
substantially all of its retired employees. The estimated costs of retiree
benefit payments are accrued during the years the employee provides services.
Certain costs were deferred and amortized through October 31, 1996 to reflect
the impact of rate regulation. Effective November 1, 1996, these costs are no
longer deferred and amortized as a result of the Company's discontinued
application of FAS No. 71. Additional information concerning FAS No. 71 is set
forth in Note 1 of Notes to Consolidated Financial Statements included herein.

The following tables set forth the accumulated postretirement benefit
obligation recognized in the Company's Consolidated Balance Sheet as of December
31, 1997 and 1996 and the benefit cost for the years ended December 31, 1997,
1996 and 1995 (millions of dollars):

<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Accumulated postretirement benefit obligation:

Retirees......................................................................... $( 39.9) $( 43.8)
Fully eligible plan participants................................................. ( .1) ( .1)
Other active plan participants................................................... ( 9.6) ( 8.6)
-------- --------
( 49.6) ( 52.5)

Plan assets at fair value........................................................... 15.2 18.1
-------- --------

Accumulated postretirement benefit obligation in excess of plan assets.............. ( 34.4) ( 34.4)
Unrecognized net transition obligation.............................................. 43.3 47.7
Unrecognized net gain from past experience different from
that assumed..................................................................... ( 16.4) ( 15.8)
-------- --------

Postretirement benefit obligation included in Consolidated Balance Sheet............ $( 7.5) $( 2.5)
======== ========
</TABLE>

F-17

<PAGE>

<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1997 1996 1995
-------- -------- --------

<S> <C> <C> <C>
Net periodic postretirement benefit cost consisted of the following
components:

Service cost - benefits earned during the period.................. $ .4 $ .5 $ .5
Interest cost on accumulated postretirement benefit obligation.... 3.3 3.6 4.1
Amortization of transition obligation............................. 2.9 3.0 3.1
Return on assets, net of deferrals................................ ( 1.6) ( 1.2) ( 1.3)
-------- -------- --------
Net periodic postretirement benefit cost.......................... 5.0 5.9 6.4
Deferred regulatory amounts....................................... - .3 ( 1.2)
-------- -------- --------
Net postretirement benefit cost recognized in Statement of
Consolidated Earnings............................................ $ 5.0 $ 6.2 $ 5.2
======== ======== ========
</TABLE>

The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 9.7% in 1997, declining gradually to 6.0%
by the year 2004. The assumed health care cost trend rate used in measuring the
accumulated postretirement benefit obligation was 10.4% and 11.2% in 1996 and
1995, respectively. A one percentage point increase in the assumed health care
cost trend rate for each year would increase both the accumulated postretirement
benefit obligation and the net postretirement health care cost as of December
31, 1997 by approximately 5.5%. The assumed discount rate used in determining
the accumulated postretirement benefit obligation was 7.25%.

8. Transactions with Major Customers and Related Parties

- Major Customers:

The Statement of Consolidated Earnings includes revenues from major
customers amounting to 10% or more of the Company's consolidated revenues
as follows (millions of dollars):

<TABLE>
<CAPTION>
1997 1996 1995
------------------ ------------------ -----------------
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
------ -------- ------ -------- ------ --------

<S> <C> <C> <C> <C> <C> <C>
Wisconsin Gas Company...................... $ 89.5 12.2% $ 83.9 11.0% $ 94.6 11.5%
</TABLE>

Revenues from any other single customer did not amount to 10% or more
of the Company's consolidated revenues for the years ended December 31,
1997, 1996 and 1995.

- Related Parties:

"Operation and maintenance" expenses within the Statement of
Consolidated Earnings includes affiliate and other related party
transactions as follows (millions of dollars):

<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------

<S> <C> <C> <C>
Storage and transportation expense - affiliates........................ $ 11.7 $ 13.7 $ 18.0
Storage and transportation expense - other related parties............. 29.9 40.6 41.2
Services provided at cost - affiliates................................. 22.5 22.8 24.4
Facilities rental expense - affiliates................................. 17.3 18.9 16.5
</TABLE>

Services provided by the Company at cost for affiliated companies were
$9.3 million for 1997, $9.9 million for 1996 and $10.3 million for 1995. The
services provided by the Company to affiliates, and by affiliates to the
Company, primarily reflect the allocation of costs relating to the sharing of
facilities and administrative functions, characteristic of group operations.
Such costs are allocated using a three-factor formula consisting of revenues,
property and payroll, which is reasonable and has been applied on a consistent
basis.

F-18

<PAGE>

The Company has lease agreements with Coastal and its affiliates for the
rental of office space, natural gas storage fields and certain pipeline
facilities. At December 31, 1997, the Company's investment in an affiliate,
Coastal Medical Services, Inc., was $74 million. The affiliate has assumed the
responsibility for facilitating the management of a portion of the medical
obligations of the Company and other Coastal subsidiaries.

9. Quarterly Results of Operations (Unaudited)

The results of operations by quarter for the years ended December 31, 1997
and 1996 were (millions of dollars):

<TABLE>
<CAPTION>
1997 Quarter Ended
--------------------------------------------------
March 31, June 30, Sept. 30, Dec. 31,
--------- --------- -------- ---------

<S> <C> <C> <C> <C>
Revenues................................................ $ 219.3 $ 166.3 $ 163.1 $ 181.0
Total costs and expenses................................ 159.4 136.2 134.3 130.9
--------- --------- -------- ---------
Net earnings......................................... $ 59.9 $ 30.1 $ 28.8 $ 50.1
========= ========= ======== =========
</TABLE>

<TABLE>
<CAPTION>
1996 Quarter Ended
--------------------------------------------------
March 31, June 30, Sept. 30, Dec. 31,
--------- --------- -------- ---------

<S> <C> <C> <C> <C>
Revenues................................................ $ 215.0 $ 173.7 $ 160.6 $ 214.3
Total costs and expenses................................ 169.7 144.8 139.1 169.7
--------- --------- -------- ---------
Earnings before extraordinary item................... 45.3 28.9 21.5 44.6
Extraordinary item*.................................. - - - ( 163.9)
--------- --------- -------- ---------
Net earnings (loss).................................. $ 45.3 $ 28.9 $ 21.5 $( 119.3)
========= ========= ======== =========

<FN>
* Effective November 1, 1996, ANR Pipeline discontinued the application of
regulatory accounting principles under FAS No. 71. As a result, the Company
recorded an extraordinary charge to income in 1996 of $163.9 million, net
of income taxes. Additional information concerning FAS No. 71 is set forth
in Management's Discussion and Analysis of Financial Condition and Results
of Operations and Note 1 of Notes to Consolidated Financial Statements
included herein.
</FN>
</TABLE>

F-19

<PAGE>

EXHIBIT INDEX

Exhibit
Number Document
- ------- ----------------------------------------------------------------
(3.1)+ Composite Certificate of Incorporation of ANR Pipeline effective
as of December 31, 1987. (Filed as Module ANRCertIncorp on March
29, 1994.)

(3.2)+ Amended By-laws of ANR Pipeline effective as of September 21,
1994. (Filed as Exhibit 3.2 to ANR Pipeline's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994.)

(4) With respect to instruments defining the rights of holders of
long-term debt, the Company will furnish to the Securities and
Exchange Commission any such document on request.

(4.1)+ Indenture dated as of February 15, 1994 and First Supplemental
Indenture dated as of February 15, 1994 for the $125 million of
7-3/8% Debentures due February 15, 2024. (Filed as Exhibit 4.4 to
ANR Pipeline's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993.)

(10.1)+ Agreement for Consulting Services between ANR Pipeline and Harold
Burrow, dated as of January 1, 1996. (Filed as Exhibit 10.3 to ANR
Pipeline's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995.)

(21)* Subsidiaries of the Company.

(24)* Power of Attorney (included on signature pages herein).

(27)* Financial Data Schedule.

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

Note:

+ Indicates documents incorporated by reference from the prior filings
indicated.
* Indicates documents filed herewith.

Exhibit 21

SUBSIDIARIES OF ANR PIPELINE COMPANY

<TABLE>
<CAPTION>
State of
Incorporation
-------------
<S> <C>
ANR Alliance Pipeline Company Canada, Inc....................................................... Canada
ANR Alliance Pipeline Company U.S., Inc......................................................... Delaware
ANR Atlantic Pipeline Company................................................................... Delaware
ANR Capital Corporation......................................................................... Delaware
ANR Energy Conversion Company................................................................... Michigan
ANR Field Services Company...................................................................... Delaware
ANR Iroquois, Inc............................................................................... Delaware
Subsidiary:
ANR New England Pipeline Company........................................................... Delaware
ANR Mayflower Company........................................................................... Delaware
ANR Southern Pipeline Company................................................................... Delaware
American Natural Offshore Company............................................................... Delaware
Subsidiaries:
Texas Offshore Pipeline System, Inc........................................................ Delaware
Unitex Offshore Transmission Company....................................................... Delaware
</TABLE>

<ARTICLE> 5
<LEGEND> THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM ANR PIPELINE COMPANY FORM 10-K
ANNUAL REPORT FOR THE PERIOD ENDED DECEMBER 31, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 5
<SECURITIES> 0
<RECEIVABLES> 317
<ALLOWANCES> 0
<INVENTORY> 28
<CURRENT-ASSETS> 425
<PP&E> 3,373
<DEPRECIATION> 2,126
<TOTAL-ASSETS> 1,814
<CURRENT-LIABILITIES> 349
<BONDS> 504
0
0
<COMMON> 0
<OTHER-SE> 660
<TOTAL-LIABILITY-AND-EQUITY> 1,814
<SALES> 0
<TOTAL-REVENUES> 730
<CGS> 0
<TOTAL-COSTS> 400
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 63
<INCOME-PRETAX> 267
<INCOME-TAX> 98
<INCOME-CONTINUING> 169
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 169
<EPS-PRIMARY> 0
<EPS-DILUTED> 0

</TABLE>