
                                  UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    FORM 10-K
                [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996

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

               FOR THE TRANSITION PERIOD FROM ________ TO ________

                          COMMISSION FILE NUMBER 1-3551

                            EQUITABLE RESOURCES, INC.
             (Exact name of registrant as specified in its charter)

              PENNSYLVANIA                              25-0464690
    (State or other jurisdiction of          (IRS Employer Identification No.)
     incorporation or organization)

       420 BOULEVARD OF THE ALLIES                         15219
        PITTSBURGH, PENNSYLVANIA                        (Zip Code)
(Address of principal executive offices)

       Registrant's telephone number, including area code: (412) 261-3000
           Securities registered pursuant to Section 12(b) of the Act:

                                                   NAME OF EACH EXCHANGE
            TITLE OF EACH CLASS                     ON WHICH REGISTERED

Common Stock, no par value                        New York Stock Exchange
                                                  Philadelphia Stock
Exchange
7 1/2% Debentures due July 1, 1999                New York Stock Exchange
9 1/2% Convertible Subordinated                   New York Stock Exchange
  Debentures due 2006

           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  (or for such  shorter  periods  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes  X    No
                                             ------    ------

Indicate  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]

The  aggregate  market  value  of  voting  stock  held by  nonaffiliates  of the
registrant  as of  February  28,  1997:  $1,051,937,624

The  number  of  shares outstanding  of the  issuer's  classes of common  stock
as of February 28, 1997:   35,508,443

                       DOCUMENTS INCORPORATED BY REFERENCE

Part III,  a portion of Item 10 and Items 11,  12,  and 13 are  incorporated  by
reference to the Proxy  Statement for the Annual Meeting of  Stockholders on May
23, 1997, to be filed with the Commission within 120 days after the close of the
Company's fiscal year ended December 31, 1996.

Index to Exhibits - Page 61

<PAGE>

                               TABLE OF CONTENTS

PART I                                                                    PAGE
Item 1           Business                                                   1
Item 2           Properties                                                 9
Item 3           Legal Proceedings                                         11
Item 4           Submission of Matters to a Vote of Security Holders       11
Item 10          Directors and Executive Officers of the Registrant        12

PART II
Item 5           Market for Registrant's Common Equity and Related
                   Stockholder Matters                                     15
Item 6           Selected Financial Data                                   15
Item 7           Management's Discussion and Analysis of Financial
                   Condition and Results of Operations                     16
Item 8           Financial Statements and Supplementary Data               24
Item 9           Changes in and Disagreements with Accountants
                   on Accounting and Financial Disclosure                  56

PART III
Item 10          Directors and Executive Officers of the Registrant        57
Item 11          Executive Compensation                                    57
Item 12          Security Ownership of Certain Beneficial Owners
                   and Management                                          57
Item 13          Certain Relationships and Related Transactions            57

PART IV
Item 14          Exhibits and Reports on Form 8-K                          58
                 Index to Financial Statements
                    Covered by Report of Independent Auditors              59
                 Index to Exhibits                                         61
                 Signatures                                                64

<PAGE>

                                    PART I
ITEM 1.  BUSINESS

      (a) Equitable  Resources,  Inc.  ("Equitable" or the "Company") was formed
under the laws of  Pennsylvania by the  consolidation  and merger in 1925 of two
constituent  companies,  the older of which was  organized in 1888.  The Company
directly, or through other wholly-owned subsidiaries, owns all the capital stock
of the principal  operating  subsidiaries:  Equitable  Resources  Energy Company
("EREC"),  ERI  Services,  Inc.  ("ERI  Services"),  Kentucky  West Virginia Gas
Company,  L.L.C.  ("Kentucky  West"),   Equitrans,   L.P.  ("Equitrans"),   Nora
Transmission Company ("Nora"),  Equitable Resources (Canada) Limited ("Equitable
Canada"),  Louisiana Intrastate Gas Company,  L.L.C. ("LIG"),  Equitable Storage
Company, L.L.C. ("Equitable Storage"),  Equitable Power Services Company ("Power
Services"), and Three Rivers Pipeline Corporation ("Three Rivers"). In 1996, the
Company  formed ERI  Services as a successor to the former  Equitable  Resources
Marketing  Company.  In January 1997,  two other  subsidiaries,  Conogen,  Inc.,
("Conogen")  and  Pequod  Associates,  Inc.  ("Pequod")  were  merged  into  ERI
Services. The Companies operate in the Appalachian area and, to a lesser extent,
in the Rocky Mountain, Northeast,  Southwest,  Louisiana and Gulf Coast offshore
areas, the Canadian  Rockies and have interests in Latin America.  The Companies
engage  primarily in the exploration  for,  development,  production,  purchase,
transmission,   storage,   distribution   and   marketing  of  natural  gas  and
electricity,  the  extraction  of natural  gas  liquids,  the  exploration  for,
development,  production  and  sale  of  oil,  contract  drilling,  cogeneration
development,  water efficiency and program  development,  central facility plant
operations  and  performance   contracting   for   commercial,   industrial  and
institutional customers and various government facilities.

      (b) and (b)(1) In order to more accurately  reflect the Company's lines of
business,  the Company began the  reporting of its business  operations in three
business  segments  beginning  in 1996:  supply and  logistics,  utilities,  and
services.  Financial  information by business  segment is presented in Note P to
the consolidated financial statements contained in Part II.

      (b)(2)  Not applicable.

      (c)(1)SUPPLY AND LOGISTICS.  The supply and logistics segment's activities
include  exploration  and production of natural gas and oil,  trading of natural
gas and  electricity,  extraction  and sale of natural gas liquids,  underground
storage, and intrastate  transportation.  Exploration and production  activities
are  conducted  by  EREC  through  its  divisions  and  Equitable  Canada.   Its
exploration and production  activities are  principally in the Appalachian  area
where it  explores  for,  develops,  produces  and  sells  natural  gas and oil,
extracts and markets natural gas liquids and performs contract drilling and well
maintenance  services.  Exploration and production activities are also conducted
in the Rocky  Mountain area  including the Canadian  Rockies where EREC explores
for,  develops and  produces  oil,  and to a lesser  extent  natural gas. In the
Southwest and Gulf Coast offshore  areas,  EREC  participates in exploration and
development  of gas and oil projects.  EREC also owns an interest in two natural
gas  liquids   plants  in  Texas.   In   Louisiana,   LIG  provides   intrastate
transportation of gas and extracts and markets natural gas liquids and Equitable
Storage  provides  underground  gas storage  services.  The supply and logistics
segment's operations also include nationwide natural gas marketing, supply, peak
shaving and transportation arrangements,  and electricity marketing conducted by
Power Services.

<PAGE>

ITEM 1.  BUSINESS (CONTINUED)

      UTILITIES.   The  utilities  segment's  activities  comprise  distribution
operations by Equitable Gas Company (a division of Equitable  Resources,  Inc.),
the Company's  state-regulated  local  distribution  company,  and  transmission
operations  conducted by three  FERC-regulated  gas  pipelines:  Kentucky  West,
Equitrans,  and  Nora.  Equitable  Gas is  regulated  by  state  public  utility
commissions  in  Pennsylvania,  West Virginia and Kentucky and is engaged in the
purchase,  distribution,  marketing  and  transportation  of  natural  gas.  The
territory served by Equitable Gas encompasses principally the city of Pittsburgh
and   surrounding   municipalities   in   southwestern   Pennsylvania,   a   few
municipalities  in  northern  West  Virginia  and field  line  sales in  eastern
Kentucky.  Natural gas  distribution  services are provided to more than 266,000
customers located mainly in the city of Pittsburgh and its environs. Residential
and  commercial  sales volumes  reflect  annual  variations  which are primarily
related to weather.

      Transmission  operations include gas transportation,  gathering,  storage,
and marketing  activities.  Kentucky West is an open access natural gas pipeline
company which provides  transportation  service to Equitable Gas, the supply and
logistics segment,  and other industrial end-users and marketed gas sales to the
services segment. Equitrans has production,  storage and transmission facilities
in Pennsylvania and West Virginia. Equitrans provides transportation service for
Equitable  Gas  Company,  the  services  segment,  and  nonaffiliates  including
customers in off-system markets. Storage services are provided for Equitable Gas
Company, the services segment, and nonaffiliated  customers.  Marketed gas sales
are to the  services  segment.  Nora  transports  the gas produced by supply and
logistics in Virginia and Kentucky.

      SERVICES.  The  services  segment was created in 1996 and  functions  in a
non-regulated environment.  Its focus is to create and deliver customized energy
solutions to improve overall energy  efficiency.  Activities include natural gas
brokering,  resource management, energy consulting and engineering services such
as  energy  use  analysis,   customized  energy  systems,  financing,   facility
management and energy procurement and management.  The segment has operations in
Pennsylvania,  Connecticut,  Massachusetts,   California,  Indiana,  Ohio,  West
Virginia and Washington, D.C.

<PAGE>

ITEM 1.  BUSINESS (CONTINUED)

      (c)(1)(i)  Operating  revenues as a percentage of total operating revenues
for each of the three business  segments  during the years 1994 through 1996 are
as follows:

                                              1996      1995       1994
                                              ----      ----       ----

      Supply and Logistics:
        Natural gas marketing                   52%       53%        53%
        Natural gas production                   4         6          8
        Oil                                      1         2          2
        Natural gas liquids                      5         5          5
        Contract drilling                        1         1          1
        Other                                    2         4          1
                                            ------     -----      -----
          Total Supply and Logistics            65        71         70
                                            ------     -----      -----

      Utilities:
        Residential                             15        19         19
        Commercial                               4         3          5
        Industrial and utility                   3         1          1
        Transportation                           2         4          3
        Other                                    1         2          2
                                            ------     -----      -----
          Total Utilities                       25        29         30
                                            ------     -----      -----

      Services:
        Natural gas marketing                    9         -          -
        Other                                    1         -          -
                                            ------     -----      -----
          Total Services                        10         -          -
                                            ------     -----      -----

      Total Revenues                           100%      100%       100%
                                            ======     =====      =====

      See Note P to the consolidated  financial  statements in Part II regarding
financial information by business segment.

      (c) (1) (ii) During 1996, the Company  created a new subsidiary  named ERI
Services.  This new unit is  designed to create and  deliver  customized  energy
solutions to businesses,  institutional customers and government facilities. ERI
Services, a non-regulated subsidiary, offers commodity brokering of all forms of
energy,  including  electricity  and natural gas. It also provides  cogeneration
development,  water efficiency and program  development,  central facility plant
operations  and  performance   contracting   for   commercial,   industrial  and
institutional customers and various government facilities.

      (c) (1) (iii) The following  tables  summarize gas supply and disposition,
gas transportation,  and sales of oil and natural gas liquids for the years 1994
through 1996.

<PAGE>
<TABLE>
<CAPTION>

ITEM 1.  BUSINESS (CONTINUED)

                                                                                        1996
                                               ------------------------------------------------------------------------------------
                                                 Supply and                                           Intersegment
                                                  Logistics         Utilities         Services        Eliminations      Consolidated
                                               -------------------------------------------------------------------------------------
<S>                                               <C>              <C>                 <C>               <C>              <C>
Gas Produced, Purchased and Sold (MMcf):
  Produced                                           57,295            2,518                                                 59,813
                                                  ---------        ---------           ---------         ---------        ---------
  Purchased:
    Other producers                                 450,080           66,127              24,189                            540,396
    Inter-segment purchases                           6,923           15,794              31,726           (54,443)
                                                  ---------        ---------           ---------         ---------        ---------
      Total purchases                               457,003           81,921              55,915           (54,443)         540,396
                                                  ---------        ---------           ---------         ---------        ---------
        Total produced and purchased                514,298           84,439              55,915           (54,443)         600,209
  Deduct:
    Net increase (decrease) in gas in storage                          1,656                                                  1,656
    Extracted natural gas liquids
      (equivalent gas volumes)                        8,391                                                                   8,391
    System use and unaccounted for                    1,876            4,972                                                  6,848
                                                  ---------        ---------           ---------         ---------        ---------
        Total                                       504,031           77,811              55,915           (54,443)         583,314
                                                  =========        =========           =========         =========        =========

Gas Sales (MMcf):
  Residential                                                         30,549                                                 30,549
  Commercial                                                          10,505                                                 10,505
  Industrial and Utility                                              26,647                                (5,434)          21,213
  Production                                         57,295                                                (34,152)          23,143
  Marketing                                         446,736           10,110              55,915           (14,857)         497,904
                                                  ---------        ---------           ---------         ---------        ---------
        Total                                       504,031           77,811              55,915           (54,443)         583,314
                                                  =========        =========           =========         =========        =========

Natural Gas Transported (MMcf)                      120,363           70,345                               (36,624)         154,084
                                                  =========        =========           =========         =========        =========

Oil Produced and Sold (thousands of bls)              1,727                                                                   1,727
                                                  =========                                                               =========

Natural Gas Liquids Sold
  (thousands of gallons)                            280,579                                                                 280,579
                                                  =========                                                               =========

Average Selling Price:
  Residential Gas Sales (per Mcf)                                     $8.892
  Commercial Gas Sales                                                 6.512
  Industrial and Utility Gas Sales                                     3.033
  Produced Natural Gas                               $1.909
  Marketed Natural Gas                                2.281            3.083              $2.890
  Oil (per barrel)                                   14.777
  Natural Gas Liquids (per gallon)                     .359

</TABLE>

<PAGE>
<TABLE>
<CAPTION>

ITEM 1.  BUSINESS (CONTINUED)

                                                                                        1995
                                               ------------------------------------------------------------------------------------
                                                 Supply and                                           Intersegment
                                                  Logistics         Utilities         Services        Eliminations      Consolidated
                                               ------------------------------------------------------------------------------------
<S>                                               <C>              <C>                 <C>               <C>              <C>
Gas Produced, Purchased and Sold (MMcf):
  Produced                                           64,984            2,700                                                 67,684
                                                  ---------        ---------           ---------         ---------        ---------
  Purchased:
    Other producers                                 463,551           49,962                                                513,513
    Inter-segment purchases                          13,356           13,286                               (26,642)
                                                  ---------        ---------           ---------         ---------        ---------
      Total purchases                               476,907           63,248                               (26,642)         513,513
                                                  ---------        ---------           ---------         ---------        ---------
        Total produced and purchased                541,891           65,948                               (26,642)         581,197
  Deduct:
    Net increase (decrease) in gas in storage                         (1,671)                                                (1,671)
    Extracted natural gas liquids
      (equivalent gas volumes)                        8,411                                                                   8,411
    System use and unaccounted for                    2,207            4,756                                                  6,963
                                                  ---------        ---------           ---------         ---------        ---------
        Total                                       531,273           62,863                               (26,642)         567,494
                                                  =========        =========           =========         =========        =========

Gas Sales (MMcf):
  Residential                                                         29,494                                                 29,494
  Commercial                                                           4,494                                                  4,494
  Industrial and Utility                                              17,991                               (10,349)           7,642
  Production                                         64,984                                                   (465)          64,519
  Marketing                                         466,289           10,884                               (15,828)         461,345
                                                  ---------        ---------           ---------         ----------       ---------
        Total                                       531,273           62,863                               (26,642)         567,494
                                                  =========        =========           =========         =========        =========

Natural Gas Transported (MMcf)                      122,405           72,265                               (35,470)         159,200
                                                  =========        =========           =========         =========        =========

Oil Produced and Sold (thousands of bls)              1,932                                                                   1,932
                                                  =========                                                               =========

Natural Gas Liquids Sold
  (thousands of gallons)                            260,987                                                                 260,987
                                                  =========                                                               =========

Average Selling Price:
  Residential Gas Sales (per Mcf)                                    $ 9.048
  Commercial Gas Sales                                                 8.752
  Industrial and Utility Gas Sales                                     2.069
  Produced Natural Gas                              $ 1.610
  Marketed Natural Gas                                1.633            1.987
  Oil (per barrel)                                   16.435
  Natural Gas Liquids (per gallon)                     .282

</TABLE>

<PAGE>
<TABLE>
<CAPTION>

ITEM 1.  BUSINESS (CONTINUED)

                                                                                        1994
                                               -------------------------------------------------------------------------------------
                                                 Supply and                                           Intersegment
                                                  Logistics         Utilities         Services        Eliminations      Consolidated
                                               -------------------------------------------------------------------------------------
<S>                                               <C>              <C>                 <C>               <C>              <C>
Gas Produced, Purchased and Sold (MMcf):
  Produced                                           62,507            2,014                                                 64,521
                                                  ---------        ---------           ---------         ---------        ---------
  Purchased:
    Other producers                                 389,710           52,895                                                442,605
    Inter-segment purchases                           6,328           12,948                               (19,276)
                                                  ---------        ---------           ---------         ---------        ---------
      Total purchases                               396,038           65,843                               (19,276)         442,605
                                                  ---------        ---------           ---------         ---------        ---------
        Total produced and purchased                458,545           67,857                               (19,276)         507,126
  Deduct:
    Net increase (decrease) in gas in storage                             60                                                     60
    Extracted natural gas liquids
      (equivalent gas volumes)                        7,923                                                                   7,923
    System use and unaccounted for                    2,082            6,659                                                  8,741
                                                  ---------        ---------           ---------         ---------        ---------
        Total                                       448,540           61,138                               (19,276)         490,402
                                                  =========        =========           =========         =========        =========

Gas Sales (MMcf):
  Residential                                                         29,570                                                 29,570
  Commercial                                                           9,681                                                  9,681
  Industrial and Utility                                              12,815                                (3,148)           9,667
  Production                                         62,507                                                 (7,237)          55,270
  Marketing                                         386,033            9,072                                (8,891)         386,214
                                                  ---------        ---------           ---------         ---------        ---------
        Total                                       448,540           61,138                               (19,276)         490,402
                                                  =========        =========           =========         =========        =========

Natural Gas Transported (MMcf)                      103,726           62,615                               (31,004)         135,337
                                                  =========        =========           =========         =========        =========

Oil Produced and Sold (thousands of bls)              1,986                                                                   1,986
                                                  =========                                                               =========

Natural Gas Liquids Sold
  (thousands of gallons)                            245,525                                                                 245,525
                                                  =========                                                               =========

Average Selling Price:
  Residential Gas Sales (per Mcf)                                     $8.974
  Commercial Gas Sales                                                 6.916
  Industrial and Utility Gas Sales                                     2.491
  Produced Natural Gas                               $1.973
  Marketed Natural Gas                                1.956            2.190
  Oil (per barrel)                                   14.723
  Natural Gas Liquids (per gallon)                     .270

</TABLE>

<PAGE>

ITEM 1.  BUSINESS (CONTINUED)

      During 1996, a total of 600,209 MMcf of gas was produced and  purchased by
the Companies  compared with 581,197 MMcf in 1995. The increase reflects greater
marketing activity.

      GAS PURCHASES.  Total purchases in 1996 amounted to 540,396 MMcf, of which
497,904  MMcf was  applicable  to marketing  operations  and 42,492 MMcf was for
system  supply,  compared with 461,345 MMcf for marketing  operations and 52,168
MMcf for  system  supply in 1995.  Through  gas  purchase  contracts  for system
supply, the Company controls proved reserves on acreage developed by independent
producers.  The majority of these  contracts  cover the productive  lives of the
wells.

      NATURAL GAS AND OIL  PRODUCTION.  Natural gas production by the supply and
logistics  segment  in 1996 of 57,295  MMcf  decreased  7,689 MMcf from the 1995
total of 64,984 MMcf.  Other  production  by the  utilities  segment in 1996 was
2,518 MMcf compared with the 1995 total of 2,700 MMcf.

      Production  of crude oil in 1996 was  1,727,000  barrels,  compared with
1,932,000 barrels in 1995.

      In 1996, the Company drilled 137 gross wells (83.8 net wells). The primary
focus of drilling  activity was in Virginia  for gas and coalbed  methane and in
the Rockies for oil.

      The Company  has been able to develop gas  reserves at costs which make it
very  competitive in marketing its gas to pipeline and commercial  buyers.  As a
result, even in periods of surplus gas supply, the Company has been able to sell
all of its gas production at a profit.

      NATURAL  GAS AND OIL  RESERVES.  The  estimate  of  proved  developed  and
undeveloped gas reserves for the Company's  exploration and production operation
comprised 849.5 Bcf as of December 31, 1996.  These reserves  included 732.2 Bcf
of proved  developed  reserves.  The Company's oil reserves at December 31, 1996
consisted of 19.5 million barrels of proved developed and undeveloped  reserves;
proved  developed oil reserves  amounted to 18.5 million  barrels.  Of the total
reserves, 78 percent is in the Appalachian area, 20 percent in the Rockies and 2
percent in the Gulf. See Note V to the consolidated financial statements in Part
II for details of gas and oil producing activities.

      STORAGE. Net storage withdrawals for system use during the 1995-96 heating
season were 7.6 Bcf,  compared  with 5.9 Bcf the previous  heating  season.  Net
withdrawals  for  storage  service  customers  of 15.0 Bcf were made  during the
1995-96  heating  season  compared  with 12.1 Bcf  during the  previous  heating
season.

      SUPPLY  OUTLOOK.  The  Company's  near-term  gas supply  for  distribution
operations  is  excellent.  The  long-range  gas  supply  outlook  also  is very
favorable.  Annual gas supply is  forecasted  to exceed  demand at least for the
next decade.  The Company's  marketing  operations also have been in a favorable
supply  position  and  present  reserves  for  the  exploration  and  production
operations are sufficient to sustain current  production levels for at least the
next decade.  However, the rate of purchase of future supplies or development of
reserves will depend largely on energy prices.

<PAGE>

ITEM 1.  BUSINESS (CONTINUED)

      (c)(1)(iv)  Equitable Gas is regulated by the Pennsylvania  Public Utility
Commission and the Public Service Commissions of West Virginia and Kentucky; LIG
is  regulated  by  the  Louisiana  Public  Service  Commission;  Kentucky  West,
Equitrans,  Nora,  LIG and EREC are regulated by the Federal  Energy  Regulatory
Commission  under the Natural Gas Act and the Natural Gas Policy Act.  Equitable
Gas, Kentucky West, Equitrans, Nora, LIG and EREC are also subject to regulation
by the Department of Transportation under the Natural Gas Pipeline Safety Act of
1968 with respect to safety requirements in the design, construction,  operation
and maintenance of pipelines and related facilities.

      (c)(1)(v) and (vi)  Approximately  65 percent of natural gas  distribution
revenue is  recorded  during the winter  heating  season from  November  through
March. Significant quantities of purchased gas are placed in underground storage
inventory during the off-peak season to accommodate high customer demands during
the winter heating season. Funds required to finance this inventory are obtained
through short-term loans.

      The supply and logistics and services  segments'  revenues are not subject
to seasonal  variation to the same degree as the utilities  segment's  revenues.
However, they are subject to price fluctuations,  particularly during the summer
months.

      (c)(1)(vii)  Not applicable.

      (c)(1)(viii)  Not applicable.

      (c) (1) (ix)  Not applicable.

      (c)(1)(x)  Equitable Gas is in competition with others for the purchase of
natural gas and EREC is in  competition  with others for the  acquisition of gas
and oil leases.

      Equitable  Gas competes for gas sales with other  utilities in its service
area,  as well as with  other  fuels and forms of energy  and other  sources  of
marketed natural gas available to existing or potential  customers.  The natural
gas  distribution  operations have been successful in meeting  competition  with
aggressive  marketing and by responding to market  requirements with a portfolio
of firm and interruptible services at competitive prices.

      The  markets  in  which  the   services   segment  is  active  are  highly
competitive,  with firms  ranging  from very small  operations  to  substantial,
vertically integrated electric and gas utilities active through marketing units.

      (c) (1) (xi)  Not material.

<PAGE>

ITEM 1.  BUSINESS (CONTINUED)

      (c)(1)(xii) The Company and its Subsidiaries are subject to federal, state
and  local  environmental  laws and  regulations.  Principal  concerns  are with
respect to oil and thermal  pollution  of  waterways,  storage  and  disposal of
hazardous wastes and liquids, and erosion and sedimentation  control in pipeline
construction  work.  For  further  discussion  of  environmental   matters,  see
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations and Note T to the consolidated financial statements in Part II.

      (c)(1)(xiii)  The Companies  had 2,109  regular  employees at the end of
1996.

      (d)  Not material.

ITEM 2.  PROPERTIES

      Principal facilities are owned by the Company's business segments with the
exception of several office locations and warehouse buildings.  The terms of the
leases on these  facilities  expire at various times from 1997 through 2014. All
leases contain adequate renewal options for various periods.  A minor portion of
equipment  is also  leased.  With  few  exceptions,  transmission,  storage  and
distribution  pipelines  are  located  on or under  (1)  public  highways  under
franchises  or permits from  various  governmental  authorities,  or (2) private
properties  owned in fee, or occupied under perpetual  easements or other rights
acquired for the most part without  examination of underlying  land titles.  The
Company's  facilities  have adequate  capacity,  are well  maintained and, where
necessary, are replaced or expanded to meet operating requirements.

      UTILITIES.  Equitable  Gas  owns and  operates  natural  gas  distribution
properties as well as other general property and equipment in Pennsylvania, West
Virginia  and  Kentucky.  Equitrans  owns and operates  production,  underground
storage  and  transmission  facilities  as well as other  general  property  and
equipment in  Pennsylvania  and West  Virginia.  Kentucky West owns and operates
gathering and  transmission  properties  as well as other  general  property and
equipment  in Kentucky.  Three Rivers  Pipeline  Corporation  owns  transmission
properties in central Pennsylvania.

      SUPPLY AND LOGISTICS.  This business segment owns or controls and operates
substantially  all of the  Company's  gas and  oil  production  properties,  the
majority of which are located in the  Appalachian  area.  This segment also owns
hydrocarbon  extraction  facilities in Kentucky with a 100-mile  liquid products
pipeline  which  extends into West  Virginia and an interest in two  hydrocarbon
extraction plants in Texas. This segment also owns an intrastate pipeline system
and four hydrocarbon extraction plants in Louisiana,  a high-deliverability  gas
storage   facility  in  Louisiana   and  a  15-mile   interchange   system  that
interconnects  the storage  facility  to LIG.  On February 4, 1997,  the Company
announced  plans to acquire a 67.2 mile pipeline in southern  Louisiana from the
U.S. Department of Energy for $22 million.

<PAGE>

ITEM 2.  PROPERTIES (CONTINUED)

      This  business  segment owns or controls  acreage of proved  developed and
undeveloped gas and oil lands located  principally in the Appalachian  area and,
to a lesser extent,  in the Rocky Mountain area including the Canadian  Rockies,
the Southwest and Gulf Coast offshore  areas and in Latin  America.  Information
relating to Company  estimates  of natural gas and oil  reserves  and future net
cash flows is summarized in Note V to the consolidated  financial  statements in
Part II.

      No report has been filed with any Federal authority or agency reflecting a
five percent or more difference from the Company's estimated total reserves.

      Gas and Oil Production (Supply and Logistics):

                                               1996      1995      1994
                                              ------    ------    ------

      Gas - Mmcf                               57,295    64,984   62,507
      Oil - Thousands of Barrels                1,727     1,932    1,986

      Natural Gas:
       Average  sales price of natural gas produced  during 1996,  1995 and 1994
       was $1.91, $1.61 and $1.97 per Mcf, respectively.
      Average  production  cost (lifting cost) of natural gas during 1996,  1995
       and 1994 was $.487, $.389, and $.424 per Mcf, respectively.

      Oil:
       Average  sales price of oil  produced  during  1996,  1995,  and 1994 was
       $14.78,  $16.44 and $14.72 per barrel,  respectively.  Average production
       cost (lifting  cost) of oil during 1996,  1995 and 1994 was $3.82,  $3.30
       and $3.73 per barrel, respectively.

                                                         Gas            Oil
                                                       -------        -------
      Total productive wells at December 31, 1996:
       Total gross productive wells                      4,386          721
       Total net productive wells                        3,906          465
      Total acreage at December 31, 1996:
       Total gross productive acres                             616,000
       Total net productive acres                               513,000
       Total gross undeveloped acres                          2,428,000
       Total net undeveloped acres                            1,941,000

<PAGE>

ITEM 2.  PROPERTIES (CONTINUED)

      Number of net  productive  and dry  exploratory  wells  and  number of net
productive and dry development wells drilled:

                                                 1996     1995     1994
                                                ------   ------   ------

      Exploratory wells:
       Productive                                 3.3       1.6      7.0
       Dry                                        5.8       2.8      5.7
      Development wells:
       Productive                                73.1      39.1    126.9
       Dry                                        1.6       2.6      5.3

      As of  December  31,  1996,  there  were no wells in the  process of being
drilled.

ITEM 3.  LEGAL PROCEEDINGS

      LIG is a party to certain  claims  involving  its gas purchase  contracts,
including take-or-pay liabilities. The seller, and/or the previous owner of LIG,
have provided indemnifications for the Company.

      There are no other material  pending legal  proceedings,  other than those
which are  adequately  covered by insurance,  to which the Company or any of its
subsidiaries is a party, or to which any of their property is subject.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      No matters were  submitted  to a vote of the  Company's  security  holders
during the last quarter of its fiscal year ended December 31, 1996.

<PAGE>

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

(b)  Identification of executive officers

-------------------------- ------------------------ ===========================
      Name and Age                  Title              Business Experience
-------------------------- ------------------------ ===========================
Frederick H. Abrew (59)    President and Chief      First  elected  to present
                           Executive Officer        position  January 1, 1995;
                                                    President      and     Chief
                                                    Operating    Officer    from
                                                    December 17, 1993; Executive
                                                    Vice   President  and  Chief
                                                    Operating  Officer from June
                                                    1,  1992;   Executive   Vice
                                                    President from June 1, 1991.
-------------------------- ------------------------ ===========================
A. Mark Abramovic (48)     Senior Vice President    First  elected  to present
                           and Chief Financial      position   May 23,   1996;
                           Officer                  Vice  President  and Chief
                                                    Financial    Officer    from
                                                    November   1,   1994;   Vice
                                                    President     -    Corporate
                                                    Development   from  June  1,
                                                    1994;   Assistant   to   the
                                                    President    from   November
                                                    1993; Vice President-Finance
                                                    and Chief Financial  Officer
                                                    of  Connecticut  Natural Gas
                                                    Corporation,  Hartford,  CT,
                                                    from January 1991.
-------------------------- ------------------------ ===========================
 R. Gerald Bennett (54)    Senior Vice President    First  elected  to present
                                                    position   June 1,   1996;
                                                    President      -      Fuel
                                                    Resources,    Inc.    from
                                                    February 1991.
 ------------------------- ------------------------ ===========================
Dan C. Eaton (48)          Vice President -         First  elected to position
                           Strategic Planning       May 23,     1996;     Vice
                           (Resigned 12/31/96)      President-Strategic    and
                                                    Financial  Planning from May
                                                    26, 1995;  Director  Finance
                                                    Analysis,     H.J.    Heinz,
                                                    Pittsburgh,  PA,  from April
                                                    1994;   Vice   President   -
                                                    Finance  of Weight  Watchers
                                                    Foods, Pittsburgh,  PA, from
                                                    August 1992;  Vice President
                                                    -  Finance  of Heinz  Canada
                                                    LTD, Toronto,  Canada,  from
                                                    June 1991.
-------------------------- ------------------------ ===========================
John C. Gongas, Jr. (52)   Senior Vice President    First  elected  to present
                                                    position   May 23,   1996;
                                                    Vice   President-Corporate
                                                    Operations  from  May  26,
                                                    1995;   Vice  President  -
                                                    Utility     Group     from
                                                    January  1,   1994;   Vice
                                                    President     -    Utility
                                                    Services    from   June 1,
                                                    1992;     President     of
                                                    Kentucky   West   Virginia
                                                    Gas  Company  since  April
                                                    20,  1992;   President  of
                                                    Equitrans,    Inc.,   from
                                                    February 26, 1988.

<PAGE>

-------------------------- ------------------------ ===========================
      Name and Age                  Title              Business Experience
-------------------------- ------------------------ ===========================
Craig G. Goodman (47)      Vice President -         First  elected  to present
                           Regulatory Affairs and   position   May 23,   1996;
                           Public Policy            Senior  Vice  President  -
                                                    Law,  Regulation  and Public
                                                    Policy  of ERI  Incorporated
                                                    from  March  1,  1996;  Vice
                                                    President   of    Government
                                                    Affairs for Mitchell  Energy
                                                    &  Development   Corporation
                                                    from November 1989.
-------------------------- ------------------------ ===========================
Augustine A. Mazzei, Jr.   Senior Vice President    First  elected  to present
(60)                       and Chief Legal Officer  position   May 26,   1995;
                           (Retired 11/1/1996)      Senior Vice  President and
                                                    General    Counsel    from
                                                    June 1, 1988.
-------------------------- ------------------------ ===========================
Edward J. Meyer (58)       Senior Vice President    First  elected  to present
                                                    position    October    28,
                                                    1996;   Manager,   Special
                                                    Projects  of Amerada  Hess
                                                    Corporation  from November
                                                    1991;   Vice  President  -
                                                    Marketing   and  Strategic
                                                    Planning  of Sun  Refining
                                                    and   Marketing    Company
                                                    (Sunoco)    from   October
                                                    1989.
-------------------------- ------------------------ ===========================
Audrey C. Moeller (61)     Vice President and       First  elected  to present
                           Corporate Secretary      position May 22, 1986.
-------------------------- ------------------------ ===========================
 Johanna G. O'Loughlin     Vice President and       First  elected  to present
 (50)                      General Counsel          position    December   19,
                                                    1996; Deputy General Counsel
                                                    from April 1996; Senior Vice
                                                    President     and    General
                                                    Counsel of Fisher Scientific
                                                    Company from June 1986.
-------------------------- ------------------------ ===========================
Gregory R. Spencer (48)    Senior Vice President    First  elected  to present
                           and Chief                position   May 23,   1996.
                           Administrative Officer   Vice     President - Human
                                                    Resources and Administration
                                                    from  May  26,  1995;   Vice
                                                    President - Human  Resources
                                                    from October 10, 1994;  Vice
                                                    President of Human Resources
                                                    Administration    of   AMSCO
                                                    International,         Inc.,
                                                    Pittsburgh,   PA,  from  May
                                                    1993; General  Manager-Human
                                                    Resources   of  U.S.   Steel
                                                    Group  of  USX  Corporation,
                                                    Pittsburgh, PA, from 1991.
 ------------------------- ------------------------ ===========================
 Richard D. Spencer (42)   Vice President and       First  elected  to present
                           Chief Information        position  April  1,  1996;
                           Officer                  Manager    -    Technology
                                                    Programs of General Electric
                                                    Corporation   from  February
                                                    1991;  Manager, GE Aerospace
                                                    Computer    Services    from
                                                    February 1990.

<PAGE>

-------------------------- ------------------------ ===========================
      Name and Age                  Title              Business Experience
 ------------------------- ------------------------ ===========================
 Jeffrey C. Swoveland      Vice President -         First  elected  to present
 (41)                      Finance and Treasurer    position   May  23,  1996.
                                                    Treasurer  from December 15,
                                                    1995;       Director      of
                                                    Alternative   Finance   from
                                                    September  27,  1994;   Vice
                                                    President - Global Corporate
                                                    Banking   of  Mellon   Bank,
                                                    Pittsburgh,  PA,  from  June
                                                    1993;     Assistant     Vice
                                                    President - Global Corporate
                                                    Banking   of  Mellon   Bank,
                                                    Pittsburgh,  PA,  from June,
                                                    1989.
===============================================================================
Officers are elected annually to serve during the ensuing year or until their
successors are chosen and qualified.  Except as indicated, the officers
listed above were elected on May 23, 1996.
===============================================================================
<PAGE>

                                     PART II


ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     a) The Company's  common stock is listed on the New York Stock Exchange and
the Philadelphia Stock Exchange.  The high and low sales prices reflected in the
New York Stock Exchange  Composite  Transactions  as reported by The Wall Street
Journal and the dividends declared and paid per share are summarized as follows:

                            1996                             1995
                  -------------------------         ------------------------
                    High     Low   Dividend           High     Low  Dividend
     1st Quarter   31 1/2   27 3/4   $.295          29 5/8    26 7/8  $.295
     2nd Quarter   30 5/8   27 3/4    .295*         31 1/4    27 5/8   .295*
     3rd Quarter   29 7/8   25 1/4    .295          30 3/4    25 7/8   .295
     4th Quarter   31 1/8   27 1/2    .295          31 3/8    28 3/4   .295

* Actually declared near the end of the preceding quarter.

      (b) As of December 31, 1996,  there were 7,735  shareholders  of record of
the Company's common stock.

      (c)(1)  The  indentures  under  which  the  Company's  long-term  debt  is
outstanding  contain  provisions  limiting the Company's right to declare or pay
dividends  and make certain other  distributions  on, and to purchase any shares
of,  its  common  stock.   Under  the  most   restrictive  of  such  provisions,
$387,188,000  of the Company's  consolidated  retained  earnings at December 31,
1996 was  available for  declarations  or payments of dividends on, or purchases
of, its common stock.

      (c)(2) The Company  anticipates  dividends  will  continue to be paid on a
regular quarterly basis.

ITEM 6.  SELECTED FINANCIAL DATA

                     1996       1995           1994        1993        1992
                 -------------------------------------------------------------
                              (Thousands Except Per Share Amounts)

Operating
  revenues       $1,861,799  $1,425,990     $1,397,280  $1,094,794  $  812,374
                 ==========  ==========     ==========  ==========  ==========

Net income       $   59,379  $    1,548(a)  $   60,729  $   73,455  $   60,026
                 ==========  ==========     ==========  ==========  ==========

Earnings per
 share of
 common stock         $1.69        $.04          $1.76       $2.27       $1.92
                      =====        ====          =====       =====       =====

Total assets     $2,096,299  $1,963,313     $2,019,122  $1,946,907  $1,468,424

Long-term debt   $  422,112  $  415,527     $  398,282  $  378,845  $  346,693

Cash dividends
 paid per share
 of common stock      $1.18       $1.18          $1.15       $1.10       $1.04

(a) Includes charge for impairment of assets and  nonrecurring gains. See Notes
    C, D and E to the consolidated financial statements.

<PAGE>

ITEM 7.  MANAGEMENT'S  DISCUSSION  AND ANALYSIS OF FINANCIAL  CONDITION AND
         RESULTS OF OPERATIONS

OVERVIEW

     Equitable's  consolidated  net income for 1996 was $59.4 million,  or $1.69
per share,  compared  with $1.5 million,  or $.04 per share,  for 1995 and $60.7
million,  or $1.76 per share,  for 1994.  Earnings for 1996 include an after-tax
gain of $4.4 million,  or $.13 per share,  from the curtailment of the Company's
defined  benefit  pension plan for certain  non-utility  employees as more fully
described  in  Note G to  the  consolidated  financial  statements.  Although  a
nonrecurring  gain, the curtailment  will reduce  operating costs in the future.
Earnings  for 1995 include an after-tax  charge of $74.2  million,  or $2.12 per
share,  due to the  recognition  of  impairment  of assets  of  $121.1  million,
pursuant to the methodology of Statement of Financial  Accounting  Standards No.
121  "Accounting  for the  Impairment  of Long-Lived  Assets and for  Long-Lived
Assets to be Disposed Of", as more fully described in Note C to the consolidated
financial  statements.  The  results  for  1995  also  include  a  non-recurring
after-tax gain of $29.1 million, or $.83 per share,  related to the Columbia Gas
Transmission  (Columbia)  bankruptcy  settlement  and $6.6 million,  or $.19 per
share, resulting from regulatory approval for accelerated recovery of future gas
costs as described in Notes E and D, respectively, to the consolidated financial
statements.

     The increase in income for 1996  compared to 1995,  excluding the effect of
the items detailed above, is due to lower depletion rates, a 19% increase in the
average selling price for produced  natural gas, lower interest costs and higher
margins from sale of natural gas liquids.  These items were partially  offset by
lower nonconventional fuels tax credits, a 12% decline in natural gas production
and costs incurred for the start-up and development of new operations. The lower
interest  costs reflect lower average  balances  outstanding,  lower  short-term
rates,  and lower  long-term  rates as a result of the July 1996  refinancing of
higher-cost long-term debt as more fully described in Note L to the consolidated
financial  statements.  The lower  nonconventional fuels tax credits reflect the
November 1995 sale of interest in certain  properties as more fully described in
Note R to the  consolidated  financial  statements.  The  decline in natural gas
production includes the October 1995 sale of non-core Appalachian  properties as
described in Note Q to the consolidated financial statements.

     The decrease in earnings for 1995 compared to 1994, excluding the effect of
the items  detailed  above,  is due  primarily  to a 19  percent  decline in the
average selling price for produced natural gas, increased operating expenses and
higher interest costs.

RESULTS OF OPERATIONS

     In 1996, the Company began reporting  operations in three business segments
-- supply and  logistics,  utilities,  and  services.  The supply and  logistics
segment  represents   primarily  the  operations   previously  reported  as  the
exploration  and  production  segment  and the  energy  marketing  segment.  The
utilities segment represents primarily the operations previously reported as the
natural gas distribution  segment and the natural gas transmission  segment. The
services segment represents a portion of marketed gas sales previously  reported
in the other segments along with several new lines of business.

<PAGE>

ITEM 7.  MANAGEMENT'S  DISCUSSION  AND ANALYSIS OF FINANCIAL  CONDITION AND
         RESULTS OF OPERATIONS (CONTINUED)

RESULTS OF OPERATIONS (CONTINUED)

     This discussion  supplements the detailed financial information by business
segment  presented  in  Note  P  to  the  consolidated   financial   statements.
Parenthetical  percentages included in the discussion of operating income denote
the approximate impact relative to the change.

SUPPLY AND LOGISTICS

     Supply and  logistics  operations  are  comprised  of the sale of  produced
natural  gas,  oil and natural gas  liquids,  contract  drilling,  marketing  of
natural  gas and  electricity,  and  storage and  intrastate  transportation  of
natural gas in  Louisiana.  Operating  revenues  were  $1,318.7  million in 1996
compared with $1,059.9  million in 1995 and $1,012.1  million in 1994.  The 1995
revenues  include  $40.2  million  of  nonrecurring  amounts  from the  Columbia
bankruptcy  settlement and $11.0 million of additional  revenue from direct bill
settlements  as described in Notes E and D,  respectively,  to the  consolidated
financial statements.  The increase in revenues for 1996 compared to 1995 is due
to an increase in average  selling prices for marketed and produced  natural gas
of 40%  and  19%,  respectively,  an  increase  in  average  selling  price  and
production  of natural  gas  liquids of 27% and 8%,  respectively,  and  initial
revenues from the  marketing of  electricity.  These  increases  were  partially
offset by the  nonrecurring  amounts  in 1995,  a 12%  decline  in  natural  gas
production,  lower marketed  natural gas sales and lower average  selling prices
and production of oil. Excluding the nonrecurring amounts in 1995, revenues were
substantially the same for 1995 and 1994. Increases in the sales of marketed and
produced natural gas of 21% and 4%, respectively,  higher production and average
selling prices for natural gas liquids and 12% higher average selling prices for
oil were offset by a decrease  in the average  selling  price for  marketed  and
produced natural gas of 17% and 19%, respectively.

SUPPLY AND LOGISTICS                         1996         1995           1994
------------------------------------------------------------------------------
OPERATING REVENUES (THOUSANDS):
   Marketed Natural Gas...............  $ 1,019,220   $   761,465  $   755,015
   Produced Natural Gas ..............      109,400       104,630      123,354
   Produced Natural Gas Liquids.......      100,628        73,620       66,357
   Produced Oil.......................       25,520        31,753       29,239
   Contract Drilling..................       19,190        14,324       15,427
   Marketed Electricity...............       15,167             -            -
   Natural Gas Transportation.........        7,670         9,405        9,266
   Natural Gas Storage................        1,099             -            -
   Direct Billing Settlements.........        7,815        32,582        7,815
   Other..............................       12,952        32,075        5,646
------------------------------------------------------------------------------
     Total Revenues...................  $ 1,318,661   $ 1,059,854  $ 1,012,119
==============================================================================
SALES QUANTITIES:
   Marketed Natural Gas (MMcf)........      446,736       466,289      386,033
   Produced Natural Gas (MMcf)........       57,295        64,984       62,507
   Oil (MBls).........................        1,727         1,932        1,986
   Natural Gas Liquids 
     (thousands of gallons)...........      280,579       260,987      245,525
   Transportation Deliveries (MMcf)...      120,363       122,405      103,726

<PAGE>

ITEM 7.  MANAGEMENT'S  DISCUSSION  AND ANALYSIS OF FINANCIAL  CONDITION AND
         RESULTS OF OPERATIONS (CONTINUED)

SUPPLY AND LOGISTICS (CONTINUED)

      Cost of energy purchased  includes  natural gas and electricity  purchased
for marketing activities and natural gas purchased for the production of natural
gas liquids.  The cost of energy purchased  amounted to $1,092.9 million in 1996
compared with $801.0 million in 1995 and $793.5 million in 1994. The increase in
cost of energy  purchased  for 1996 compared to 1995 is due to higher prices for
natural gas and the initial sales of electricity. The increase in cost of energy
purchased for 1995 compared to 1994 reflects higher  requirements  for increased
marketing activities and production of natural gas liquids,  partially offset by
lower average prices for natural gas.

      Other  operating  expenses were $173.7 million in 1996,  $291.6 million in
1995, and $183.7 million in 1994.  Other  operating  expenses for 1995 include a
charge  of $95.1  million  for  impairment  of  assets.  The  decrease  in other
operating  expenses for 1996 compared to 1995,  excluding the charge in 1995, is
due primarily to lower  depreciation  and  depletion  expense  reflecting  lower
depletion rates and a decrease in natural gas production.  The increase in other
operating  expenses for 1995 compared to 1994,  excluding the charge in 1995, is
due primarily to increased  depreciation and depletion expense reflecting higher
natural gas production.

      Operating  income was $52.0  million for 1996  compared  with an operating
loss of $32.7  million in 1995 and  operating  income of $34.9 million for 1994.
The increase in operating income for 1996 compared to 1995, excluding the effect
of  nonrecurring  items in  1995,  is due to lower  depreciation  and  depletion
expense (55%),  higher prices for produced natural gas (45%), and higher margins
from sale of natural gas liquids  (35%).  These items were  partially  offset by
lower gas production (30%) and lower margins for marketed natural gas (25%). The
decrease in operating income for 1995 compared to 1994,  excluding the effect of
nonrecurring  items in 1995, is due to lower average selling prices for produced
natural gas (100%) and lower margins for marketed  natural gas (25%),  partially
offset by higher natural gas production (20%).

      The 1997  capital  expenditure  program of $121.7  million  for supply and
logistics  includes  $107.8 million for  exploration  and production  activities
including $23.2 million for development of Appalachian  holdings,  $17.1 million
for the Rocky  Mountain  area,  and $67.5  million  for  drilling in the Gulf of
Mexico and Gulf Coast  Region.  Market and price  trends for natural gas and oil
will  continue to be the  principal  factors for the economic  justification  of
drilling  investments.  The 1997 capital  expenditure program also includes $5.0
million for  additions  to the LIG  pipeline  system and $8.9  million for other
items.

<PAGE>

ITEM 7.  MANAGEMENT'S  DISCUSSION  AND ANALYSIS OF FINANCIAL  CONDITION AND
         RESULTS OF OPERATIONS (CONTINUED)

UTILITIES

      Utilities  operations  are  comprised  of the sale and  transportation  of
natural  gas  to  retail   customers  at   state-regulated   rates,   interstate
transportation  and storage of natural gas subject to federal regulation and the
marketing of natural gas.  Revenues  were $507.4  million in 1996  compared with
$441.7  million in 1995 and $446.8  million in 1994.  Revenues  for 1995 include
$4.8 million related to the Columbia bankruptcy settlement, as described in Note
E to the consolidated  financial  statements.  The increase in revenues for 1996
compared to 1995,  excluding  the effect of the  settlement in 1995, is due to a
48%  increase  in sales to  industrial  and  utility  customers,  the  effect of
commercial  customers switching from transportation  service to gas sales, a 55%
increase in the average  selling  prices for marketed  natural gas and increased
retail gas sales reflecting 4% colder weather. The decrease in revenues for 1995
compared  to 1994,  excluding  the  effect  of the  settlement  in 1995,  is due
primarily  to the effect of  commercial  customers  switching  from gas sales to
transportation service.

UTILITIES                                    1996         1995          1994
------------------------------------------------------------------------------
OPERATING REVENUES (THOUSANDS):
   Residential Gas Sales..............    $ 271,636    $  266,855   $  265,356
   Commercial Gas Sales...............       68,408        39,331       66,956
   Industrial and Utility Gas Sales...       80,833        37,228       31,924
   Marketed Gas Sales.................       31,172        21,627       21,244
   Transportation Service.............       38,167        52,731       42,198
   Storage Service....................        7,305         8,490        9,506
   Other..............................        9,920        15,470        9,602
------------------------------------------------------------------------------
       Total Revenues.................    $ 507,441    $  441,732   $  446,786
==============================================================================
SALES QUANTITIES (MMCF):
   Residential Gas Sales..............       30,549        29,494       29,570
   Commercial Gas Sales...............       10,505         4,494        9,681
   Industrial and Utility Gas Sales...       26,647        17,991       12,815
   Marketed Gas Sales.................       10,110        10,884        9,072
   Transportation Deliveries..........       70,345        72,265       62,615
   Heating Degree Days (Normal - 5,968)       5,978         5,748        5,607

      Cost of energy  purchased  amounted  to  $246.3  million  in 1996,  $180.8
million in 1995,  and $190.7  million in 1994.  The  increase  in cost of energy
purchased for 1996 compared to 1995 reflects commercial customers switching from
transportation service to gas sales and higher industrial and utility gas sales.
The  decrease  in gas costs for 1995  compared  to 1994 is due to the  effect of
commercial  customers  switching  from  gas  sales  to  transportation  service,
partially offset by higher industrial and utility gas sales.

      Other  operating  expenses  amounted  to $171.8  million  in 1996,  $205.3
million in 1995, and $180.8 million in 1994.  Other operating  expenses for 1995
include a charge of $25.6  million for  impairment  of assets.  The  decrease in
other  operating  expenses for 1996  compared to 1995,  excluding  the charge in
1995,  reflect  savings from  reengineering  efforts  that began in 1995.  Other
operating  expenses for 1995 compared to 1994,  excluding  the charge,  remained
substantially the same.

<PAGE>

ITEM 7.  MANAGEMENT'S  DISCUSSION  AND ANALYSIS OF FINANCIAL  CONDITION AND
         RESULTS OF OPERATIONS (CONTINUED)

UTILITIES (CONTINUED)

      Operating  income was $89.3 million in 1996 compared with $55.6 million in
1995 and $75.3  million  in 1994.  The  increase  in  operating  income for 1996
compared to 1995,  excluding  the charge for  impairment  of assets and Columbia
settlement in 1995, is due primarily to lower operating  expenses (40%),  higher
margins  from  marketed  gas sales  (25%)  and  higher  distribution  throughput
reflecting colder weather (15%). Operating income for 1995, excluding the charge
for impairment of assets and Columbia  settlement,  remained  substantially  the
same as the 1994 results.

      The 1997  capital  expenditure  program  of $40.4  million  for  utilities
includes  $14.3  million  for the  distribution  operations,  $9.7  million  for
interstate  pipeline  operations  and $16.4  million for  corporate  information
systems and other items.

SERVICES

      Services   operations   are   comprised   of  marketing  of  natural  gas,
cogeneration development, water efficiency and program development,  performance
contracting, and central facility plant operations. This operation was formed by
combining  certain of the Company's  natural gas marketing  activities  with the
operations of Independent Energy Company,  Conogen,  Inc. and Pequod Associates,
Inc.  which were acquired in 1995 and 1996. In February  1997,  the Company also
acquired Scallop Thermal  Management,  Inc. Operating revenues of $172.3 million
in 1996 include  $163.5  million from the sale and marketing of natural gas, and
$8.8 million from cogeneration development and performance contracting.

      Cost of energy  purchased  amounted  to $160.0  million for 1996 and other
operating expenses, including operating,  start-up and development costs for the
new segment, were $24.8 million for 1996. Operating results were a loss of $12.5
million reflecting the start-up and development costs incurred in 1996.

      The 1997 capital  expenditure  program for services is $25.0 million to be
used for energy related projects.

CAPITAL RESOURCES AND LIQUIDITY

OPERATING ACTIVITIES

      Cash required for operations is impacted  primarily by the seasonal nature
of the Company's  natural gas distribution  operations and volatility of oil and
gas commodity prices.  Gas purchased for storage during the nonheating season is
financed  with  short-term  loans,  which are  repaid as gas is  withdrawn  from
storage and sold during the heating season.  In addition,  short-term  loans are
used to provide other working capital requirements during the nonheating season.

<PAGE>

ITEM 7.  MANAGEMENT'S  DISCUSSION  AND ANALYSIS OF FINANCIAL  CONDITION AND
         RESULTS OF OPERATIONS (CONTINUED)

CAPITAL RESOURCES AND LIQUIDITY (CONTINUED)

      The  Company  uses  exchange-traded  natural  gas,  crude oil and  propane
futures  contracts  and options and  over-the-counter  natural gas and crude oil
swap agreements and options to hedge exposures to energy price changes. See Note
M to the consolidated financial statements.

INVESTING ACTIVITIES

      The  Company's   business   requires   major  ongoing   expenditures   for
replacements,  improvements,  and additions to its utility plant and  continuing
development  and  expansion  of  its  resource   production   activities.   Such
expenditures during 1996 were $110.3 million. A total of $187.1 million has been
authorized for the 1997 capital expenditure program.

      Short-term  loans  are also used as  interim  financing  for a portion  of
capital   expenditures.   The  Company  expects  to  finance  its  1997  capital
expenditures with cash generated from operations and temporarily with short-term
loans.

      Capital expenditures,  including acquisitions,  totaled about $814 million
during the five-year  period ended  December 31, 1996, of which 64% was financed
from operations.

FINANCING ACTIVITIES

      The  Company  has  adequate  borrowing  capacity  to  meet  its  financing
requirements.  Bank loans and commercial  paper,  supported by available credit,
are used to meet  short-term  financing  requirements.  Interest  rates on these
short-term loans ranged from 5.15% to 5.77% percent during 1996. At December 31,
1996,  $199.3  million of  commercial  paper and $5.6 million of bank loans were
outstanding at an average annual interest rate of 5.44%. The Company maintains a
revolving  Credit  Agreement  with a group of banks  providing  $500  million of
available  credit.  The  agreement  requires a facility  fee of one-tenth of one
percent. Adequate credit is expected to continue to be available in the future.

      During 1996, the Company  refinanced the $75 million of 8 1/4%  Debentures
that matured on July 1, 1996 and $69.1 million of the Company's 9.9%  Debentures
due April 15, 2013.  The 9.9%  Debentures  were redeemed  through a tender offer
that commenced in June 1996. The refinancing of these amounts was funded through
issuance of $150 million of 7 3/4%  Debentures due July 15, 2026.  There is $100
million remaining available under a shelf registration filed with the Securities
and Exchange Commission in June 1996.

RATE REGULATION

      The local distribution  operations of Equitable Gas Company are subject to
rate regulation by state regulatory  commissions in Pennsylvania,  West Virginia
and  Kentucky.  In  Pennsylvania,  where  approximately  95% of its revenues are
derived, Equitable Gas has been able to sustain current base rates for customers
since  1991.  In  February,  1997,  Equitable  Gas  filed  a  request  with  the
Pennsylvania  Public Utility  Commission (PUC) for a $28 million annual increase
in base rates. Included in the request is a proposal for

<PAGE>

ITEM 7.  MANAGEMENT'S  DISCUSSION  AND ANALYSIS OF FINANCIAL  CONDITION AND
         RESULTS OF OPERATIONS (CONTINUED)

CAPITAL RESOURCES AND LIQUIDITY (CONTINUED)

unbundling  of the local  distribution  services to enable  customers  to choose
their gas supplier.  Gas purchased  from another  supplier  would continue to be
transported and delivered by Equitable Gas at regulated  rates.  The approval of
the new  rates,  and the  level of annual  increase,  will be  subject  to final
approval by the PUC. Under statutory rules for regulatory  proceedings,  the PUC
may delay implementation of the new rates until December 1, 1997.

      The  Company's  three  interstate  pipeline  companies are subject to rate
regulation by the Federal Energy  Regulatory  Commission  (FERC).  Under present
rates,  a majority of the annual costs are  recovered  through  fixed charges to
customers.  The  restructuring of rates pursuant to FERC Order 636 for Equitrans
and  Kentucky  West  Virginia  Gas  Company  was  completed  in 1994  and  1993,
respectively. Equitrans is required to file a section 4(e) rate proceeding to be
effective August 1, 1997.

      Accounting for the operations of the Company's distribution and interstate
pipeline  operations  is in  accordance  with the  provisions  of  Statement  of
Financial  Accounting  Standards No. 71  "Accounting  for the Effects of Certain
Types of  Regulation".  As  described  in Note B to the  consolidated  financial
statements,  regulatory  assets and  liabilities  are recorded to reflect future
collections or payments  through the regulatory  process.  The Company  believes
that it will continue to be subject to rate regulation that will provide for the
recovery of deferred costs.

FEDERAL INCOME TAX PROVISIONS

      Cash flow has been  affected  by the  Alternative  Minimum Tax (AMT) since
1988.  The  Company  has  incurred  an AMT  liability  in each of the years 1988
through 1996 due to the nonconventional fuels tax credits. Although AMT payments
can be carried  forward  indefinitely  and applied to income tax  liabilities in
future  periods,  they reduce cash  generated from  operations.  At December 31,
1996, the Company has available $72.5 million of AMT credit  carryforwards.  The
impact of AMT on future  cash flow will  depend on the level of taxable  income.
AMT is not expected to affect the Company's  ability to finance  future  capital
requirements.

      Under  current  law,  wells  drilled  after  1992 do not  qualify  for the
nonconventional  fuels tax credit. While production from qualified wells drilled
in the  Appalachian  area will generate tax credits through the year 2002, it is
anticipated that the amount of such credits will decline as the related reserves
are depleted.  In addition,  in 1995, the Company sold an interest in properties
producing  nonconventional  fuels,  as described  in Note R to the  consolidated
financial  statements which will significantly  reduce the generation of credits
in the future.  Therefore,  the Company expects  accelerated  utilization of AMT
credit  carryforwards.  The credits recorded in 1996, 1995, and 1994 reduced the
Company's  federal  income tax provisions by $1.3 million,  $13.1  million,  and
$16.4 million, respectively.

<PAGE>

ITEM 7.  MANAGEMENT'S  DISCUSSION  AND ANALYSIS OF FINANCIAL  CONDITION AND
         RESULTS OF OPERATIONS (CONTINUED)

ENVIRONMENTAL MATTERS

      Management does not know of any environmental liabilities that will have a
material  effect on the Company's  financial  position or results of operations.
The Company has identified  situations  that require  remedial  action for which
$3.2  million  is  accrued at  December  31,  1996.  Environmental  matters  are
described in Note T to the consolidated financial statements.

BALANCE SHEET CHANGES

      The increase in accounts  receivable and accounts payable is due primarily
to higher gas marketing activity. The increase in deferred purchased gas cost is
due to the  timing  of  pass-through  of gas  costs to  ratepayers.  Changes  in
deferred  purchased gas costs  generally do not affect results of operations due
to regulatory procedures for purchased gas cost recovery in rates. The change in
deferred  income taxes reflected in current assets and liabilities is due to the
increase in deferred  purchased  gas costs.  The goodwill  reflected in the 1996
balance  sheet is the  result  of  acquisitions  as  described  in Note S to the
consolidated financial statements.

AUDIT COMMITTEE

      The  Audit  Committee,  composed  entirely  of  outside  directors,  meets
periodically with the Company's independent auditors,  its internal auditor, and
management to review the Company's financial statements and the results of audit
activities.  The Audit Committee,  in turn, reports to the Board of Directors on
the results of its review and recommends the selection of independent auditors.

<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                                                                PAGE REFERENCE

Report of Independent Auditors                                         25

Statements of Consolidated Income
  for each of the three years in
  the period ended December 31, 1996                                   26

Statements of Consolidated Cash Flows
  for each of the three years in the
  period ended December 31, 1996                                       27

Consolidated Balance Sheets
  December 31, 1996 and 1995                                         28 - 29

Statements of Common Stockholders'
  Equity for each of the three
  years in the period ended
  December 31, 1996                                                    30

Long-term Debt, December 31,
  1996 and 1995                                                        31

Notes to Consolidated Financial
  Statements                                                         32 - 55

<PAGE>

                         REPORT OF INDEPENDENT AUDITORS


The Board of Directors and Stockholders
Equitable Resources, Inc.

     We have audited the accompanying consolidated balance sheets and statements
of long-term debt of Equitable Resources, Inc., and Subsidiaries at December 31,
1996 and  1995,  and the  related  consolidated  statements  of  income,  common
stockholders'  equity and cash  flows for each of the three  years in the period
ended  December  31, 1996.  Our audits also  included  the  financial  statement
schedule  listed in the Index at Item  14(a).  These  financial  statements  and
schedule are the responsibility of the Company's management.  Our responsibility
is to express an opinion on these financial statements and schedule 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,  the financial statements referred to above present fairly,
in all  material  respects,  the  consolidated  financial  position of Equitable
Resources,  Inc.,  and  Subsidiaries  at  December  31,  1996 and 1995,  and the
consolidated  results of their  operations  and their cash flows for each of the
three years in the period ended  December 31, 1996 in conformity  with generally
accepted  accounting  principles.  Also, in our opinion,  the related  financial
statement  schedule,   when  considered  in  relation  to  the  basic  financial
statements  taken as a whole,  presents  fairly  in all  material  respects  the
information set forth therein.

     As  described  in  Note C to the  consolidated  financial  statements,  the
Company  adopted the provisions of Statement of Financial  Accounting  Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets," in 1995.




                                             s/ Ernst & Young LLP
                                        ------------------------------
                                                Ernst & Young LLP


Pittsburgh, Pennsylvania
February 19, 1997

<PAGE>
EQUITABLE RESOURCES, INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>

STATEMENTS OF CONSOLIDATED INCOME
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994


                                                      1996            1995              1994
                                                ------------------------------------------------
                                                      (Thousands Except Per Share Amounts)

<S>                                             <C>              <C>              <C>
Operating Revenues                              $     1,861,799  $    1,425,990   $    1,397,280
Cost of Energy Purchased                              1,368,156         911,357          926,905
                                                ---------------  --------------   --------------
   Net operating revenues                               493,643         514,633          470,375
                                                ---------------  --------------   --------------
Operating Expenses:
   Operation                                            213,773         198,502          192,799
   Maintenance                                           26,544          26,635           31,737
   Depreciation and depletion                            82,381         104,625           93,347
   Impairment of assets                                       -         121,081                -
   Taxes other than income                               42,157          41,838           42,244
                                                ---------------  --------------   --------------
     Total operating expenses                           364,855         492,681          360,127
                                                ---------------  --------------   --------------
Operating Income                                        128,788          21,952          110,248
Other Income                                              2,998             387            3,163
Interest Charges                                         41,825          50,098           43,905
                                                ---------------  --------------   --------------
Income (Loss) Before Income Taxes                        89,961         (27,759)          69,506
Income Taxes (Benefit)                                   30,582         (29,307)           8,777
                                                ---------------  ---------------  --------------
Net Income                                      $        59,379  $        1,548   $       60,729
                                                ===============  ==============   ==============
Average Common Shares Outstanding                        35,188          34,793           34,509
                                                ===============  ==============   ==============
Earnings Per Share of Common Stock              $          1.69  $          .04   $         1.76
                                                ===============  ==============   ==============

                        See notes to consolidated financial statements
                                  pages 32 to 55, inclusive
</TABLE>

<PAGE>

EQUITABLE RESOURCES, INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>

STATEMENTS OF CONSOLIDATED CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

                                                                    1996        1995         1994
                                                                ------------------------------------
                                                                             (Thousands)
<S>                                                             <C>          <C>          <C>
Cash Flows from Operating Activities:
  Net income                                                    $   59,379   $    1,548   $   60,729
                                                                ----------   ----------   ----------
  Adjustments to reconcile net income to net cash
   provided by operating activities:
    Impairment of assets                                                 -      121,081            -
    Depreciation and depletion                                      82,381      104,625       93,347
    Deferred income taxes (benefits)                                26,091      (74,348)      (5,059)
    Other - net                                                      1,058         (767)       1,566
    Changes in other assets and liabilities:
       Accounts receivable and unbilled revenues                   (47,909)     (74,275)         723
       Gas stored underground                                       (9,575)       5,179        2,958
       Material and supplies                                        (5,935)         154         (615)
       Deferred purchased gas cost                                 (49,919)      14,730       (7,742)
       Prepaid expenses and other                                  (10,281)      (8,754)      (9,592)
       Regulatory assets                                               379        1,810       (1,363)
       Accounts payable                                             49,784       58,791      (20,414)
       Accrued taxes                                                 2,538       (1,481)       4,230
       Refunds due customers                                        (1,114)      (6,252)       8,049
       Deferred revenue                                            (22,200)     129,874            -
       Other - net                                                  (9,109)       7,887        8,318
                                                                ----------   ----------   ----------
        Total adjustments                                            6,189      278,254       74,406
                                                                ----------   ----------   ----------
          Net cash provided by operating activities                 65,568      279,802      135,135
                                                                ----------   ----------   ----------
Cash Flows from Investing Activities:
       Capital expenditures                                       (110,284)    (118,112)    (146,174)
       Proceeds from sale of property                                4,180       24,610        1,195
                                                                ----------   ----------   ----------
          Net cash used in investing activities                   (106,104)     (93,502)    (144,979)
                                                                ----------   ----------   ----------
Cash Flows from Financing Activities:
       Issuance of common stock                                      2,306        2,756        1,791
       Purchase of treasury stock                                      (33)        (240)        (395)
       Dividends paid                                              (41,548)     (41,098)     (39,686)
       Proceeds from issuance of long-term debt                    144,919       17,836       43,083
       Repayments and retirements of long-term debt               (150,440)     (24,500)      (1,971)
       Increase (decrease) in short-term loans                      69,900     (134,300)      15,400
                                                                ----------   ----------   ----------
          Net cash provided (used) by financing activities          25,104     (179,546)      18,222
                                                                ----------   ----------   ----------
Net (Decrease) Increase in Cash and Cash Equivalents               (15,432)       6,754        8,378
Cash and Cash Equivalents at Beginning of Year                      30,169       23,415       15,037
                                                                ----------   ----------   ----------
Cash and Cash Equivalents at End of Year                        $   14,737   $   30,169   $   23,415
                                                                ==========   ==========   ==========
Cash Paid During the Year for:
  Interest (net of amount capitalized)                          $   43,025   $   46,359   $   40,105
                                                                ==========   ==========   ==========
  Income taxes                                                  $   10,456   $   41,272   $   13,098
                                                                ==========   ==========   ==========

                        See notes to consolidated financial statements
                                  pages 32 to 55, inclusive

</TABLE>

<PAGE>

<TABLE>
<CAPTION>

EQUITABLE RESOURCES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS, DECEMBER 31, 1996 AND 1995


                       ASSETS

                                                                     1996              1995
                                                              --------------------------------
                                                                          (Thousands)
<S>                                                           <C>               <C>
Current Assets:
   Cash and cash equivalents                                  $      14,737     $      30,169
   Accounts receivable (less accumulated provision for
      doubtful accounts:  1996, $10,714; 1995, $10,539)             296,175           240,846
   Unbilled revenues                                                 24,157            31,752
   Gas stored underground - current inventory                        19,497             9,922
   Material and supplies                                             18,512            12,577
   Deferred purchased gas cost                                       60,079            10,160
   Deferred income taxes                                                  -             1,505
   Prepaid expenses and other                                        52,604            42,323
                                                              -------------     -------------
         Total current assets                                       485,761           379,254
                                                              -------------     -------------
Property, Plant and Equipment:
   Supply & Logistics (successful
      efforts method)                                             1,220,756         1,164,390
   Utilities                                                        988,425           957,119
   Services                                                           1,810               139
                                                              -------------     -------------
         Total property, plant and equipment                      2,210,991         2,121,648

   Less accumulated depreciation and depletion                      731,306           664,065
                                                              -------------     -------------
           Net property, plant and equipment                      1,479,685         1,457,583
                                                              -------------     -------------
Other Assets:
   Regulatory assets                                                 73,150            85,241
   Goodwill                                                           8,396                 -
   Other                                                             49,307            41,235
                                                              -------------     -------------
         Total other assets                                         130,853           126,476
                                                              -------------     -------------
           Total                                              $   2,096,299     $   1,963,313
                                                              =============     =============

                        See notes to consolidated financial statements
                                  pages 32 to 55, inclusive
</TABLE>

<PAGE>

<TABLE>
<CAPTION>

CONSOLIDATED BALANCE SHEETS, DECEMBER 31, 1996 AND 1995

LIABILITIES AND STOCKHOLDERS' EQUITY

                                                                    1996               1995
                                                              -------------------------------
                                                                        (Thousands)
<S>                                                           <C>               <C>
Current Liabilities:
   Short-term loans                                           $     204,900     $     135,000
   Accounts payable                                                 231,969           182,185
   Accrued taxes                                                     20,645            18,107
   Accrued interest                                                  11,852            14,842
   Refunds due customers                                             14,889            16,003
   Customer credit balances                                           7,051             9,759
   Deferred income taxes                                             19,009                 -
   Other                                                             10,099            14,888
                                                              -------------     -------------
      Total current liabilities                                     520,414           390,784
                                                              -------------     -------------
Long-Term Debt                                                      422,112           415,527
                                                              -------------     -------------
Deferred and Other Credits:
   Deferred income taxes                                            260,700           265,737
   Deferred investment tax credits                                   19,892            20,991
   Deferred revenue                                                 107,674           129,874
   Other                                                             23,224            25,321
                                                              -------------     -------------
      Total deferred and other credits                              411,490           441,923
                                                              -------------     -------------
Commitments and Contingencies                                             -                 -
                                                              -------------     -------------
Common Stockholders' Equity                                         742,283           715,079
                                                              -------------     -------------
         Total                                                $   2,096,299     $   1,963,313
                                                              =============     =============

                        See notes to consolidated financial statements
                                  pages 32 to 55, inclusive

</TABLE>

<PAGE>
<TABLE>
<CAPTION>

EQUITABLE RESOURCES, INC. AND SUBSIDIARIES

STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

                                                    Common Stock (a)
                                              ------------------------               Foreign        Common
                                                 Shares         No      Retained    Currency     Stockholders'
                                               Outstanding  Par Value   Earnings   Translation      Equity
                                               ---------------------------------------------------------------
                                                                       (Thousands)

<S>                                              <C>        <C>         <C>         <C>           <C>
Balance, January 1, 1994                         34,465     $208,178    $520,433    $   (581)     $ 728,030
   Net income for the year 1994                                           60,729
   Dividends ($1.15 per share)                                           (39,686)
   Foreign currency translation                                                         (923)
   Stock issued:
     Conversion of 9 1/2% debentures                 31          345
     Restricted stock option plan                     8          313
     Dividend reinvestment plan                      47        1,504
   Treasury stock                                   (10)        (310)
                                                 ------     --------     -------    --------      ---------
Balance, December 31, 1994 (b)                   34,541      210,030     541,476      (1,504)       750,002
   Net income for the year 1995                                            1,548
   Dividends ($1.18 per share)                                           (41,098)
   Foreign currency translation                                                          366
   Adjustment for Independent Energy
     Corporation pooling of interests               233           26         110
   Stock issued:
     Conversion of 9 1/2% debentures                146        1,611
     Restricted stock option plan                    43        1,232
     Dividend reinvestment plan                      52        1,524
   Treasury stock                                    (8)        (242)
                                                 ------     --------     -------    --------      ---------
Balance, December 31, 1995 (b)                   35,007      214,181     502,036      (1,138)       715,079
   Net income for the year 1996                                           59,379
   Dividends ($1.18 per share)                                           (41,548)
   Foreign currency translation                                                          (83)
   Acquisition of subsidiary                        239        7,000
   Stock issued:
     Conversion of 9 1/2% debentures                 16          178
     Restricted stock option plan                    36          855
     Dividend reinvestment plan                      49        1,456
     Treasury stock                                  (1)         (33)
                                                 ------     --------    --------    --------      ---------
Balance, December 31, 1996 (b)(c)(d)             35,346     $223,637    $519,867    $ (1,221)     $ 742,283
                                                 ======     ========    ========    ========      =========

<FN>

(a) Shares authorized: Common - 80,000,000 shares, Preferred - 3,000,000 shares.

(b) Net  of  treasury  stock:   1996  -  169,000  shares   ($4,023,000);   1995  -  407,000  shares
    ($9,673,000); 1994 - 632,000 shares ($14,933,000).

c)  A total of 2,508,000  shares of  authorized  but unissued  common stock was reserved  for  the  conversion  of  the
    9  1/2%  convertible  subordinated debentures, for issuance under the key employee restricted stock option and
    stock  appreciation  rights  incentive  compensation  plan,  the  long-term incentive plan, the  non-employee  directors'
    stock incentive plan, and for issuance under the Company's dividend reinvestment and stock purchase plan.
    An additional  8,000,000  shares of the Company's  authorized  but unissued common stock has been reserved for possible 
    use in  connection  with future acquisitions.

(d)  Retained  earnings  of  $387,188,000  is  available  for  dividends  on, or purchase of, common stock  pursuant to 
     restrictions  imposed by indentures securing long-term debt.

</FN>

                        See notes to consolidated financial statements
                                  pages 32 to 55, inclusive
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

EQUITABLE RESOURCES, INC. AND SUBSIDIARIES

LONG-TERM DEBT
DECEMBER 31, 1996 AND 1995


                                                          Annual Debt          Maturities After
                                                          Maturities               One Year
                                                   -------------------------------------------------
                                                      1996        1995         1996        1995
                                                   -------------------------------------------------
                                                                     (Thousands)

<S>                                                <C>        <C>         <C>           <C>
8 1/4% Debentures, due July 1, 1996 (a)            $      -   $      -    $         -   $     75,000
7 1/2% Debentures, due July 1, 1999
  ($75,000 principal amount, net of
  unamortized original issue discount) (b)                -          -         72,205         71,322
9 1/2% Convertible subordinated
  debentures, due January 15, 2006                        -          -            527            705
9.9% Debentures, due April 15, 2013 (c)(d)                -          -          5,880         75,000
7 3/4% Debentures, due July 15, 2026                      -          -        150,000              -
Medium-term notes:
  7.2% to 9.0% Series A, due 1998 thru 2021               -          -        100,000        100,000
  5.1% to 7.6% Series B, due 2003 thru 2023               -          -         75,500         75,500
  6.8% to 7.6% Series C, due 2007 thru 2018               -          -         18,000         18,000
                                                   --------   --------    -----------   ------------
  Total                                            $      -   $      -    $   422,112   $    415,527
                                                   ========   ========    ===========   ============

<FN>

(a)  8 1/4%  Debentures  were retired with  proceeds from issuance of long-term
     debt. See Note L to the consolidated financial statements.

(b)  Not redeemable prior to maturity.

(c)  $69,120,000  retired  as of  December  31,  1996  through  tender  offer.  See Note L to the
     consolidated financial statements.

(d)  Annual sinking fund payments of $3,750,000 are required beginning in 1999.
</FN>

                        See notes to consolidated financial statements
                                  pages 32 to 55, inclusive

</TABLE>
<PAGE>

EQUITABLE RESOURCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996

A.  Summary of Significant Accounting Policies

      (1) PRINCIPLES OF CONSOLIDATION:  The consolidated  financial statements
include the accounts of  Equitable  Resources,  Inc.,  and  Subsidiaries  (the
"Company" or "Companies").  All subsidiaries are 100% owned.

      (2)  PROPERTIES,   DEPRECIATION  AND  DEPLETION:   The  cost  of  property
additions,  replacements and improvements  capitalized includes labor,  material
and overhead.  The cost of property retired, plus removal costs less salvage, is
charged to accumulated depreciation.

      Depreciation  for  financial   reporting   purposes  is  provided  on  the
straight-line method at composite rates based on estimated service lives, except
for most gas and oil  production  properties as explained  below.  Service lives
range from 5 to 70 years. Depreciation rates are based on periodic studies.

      The  Company  uses  the  successful   efforts  method  of  accounting  for
exploration and production activities. Under this method, the cost of productive
wells and development dry holes, as well as productive acreage,  are capitalized
and depleted on the  unit-of-production  method.  Service  lives for gas and oil
wells range from 3 to 35 years.

      (3)  ALLOWANCE  FOR FUNDS USED DURING  CONSTRUCTION:  The  Federal  Energy
Regulatory  Commission  (FERC)  prescribes  a formula  to be used for  computing
overhead  allowances for funds used during construction (AFC). AFC applicable to
equity funds capitalized is included in other income and amounted to $.9 million
in 1996,  $1.0  million  in 1995 and $.9  million  in 1994.  AFC  applicable  to
borrowed  funds,  as well as other  interest  capitalized  for the  nonregulated
companies,  is applied as a reduction  of interest  charges and amounted to $2.6
million in 1996, $2.5 million in 1995 and $2.1 million in 1994.

      (4) INVENTORIES: Inventories are stated at cost which is below market. Gas
stored  underground--current  inventory is stated at cost under the average cost
method. Material and supplies are stated generally at average cost.

      (5) INCOME TAXES:  The Companies  file a  consolidated  federal income tax
return.  The current  provision  for income  taxes  represents  amounts  paid or
payable.  Deferred  income tax assets and  liabilities  are determined  based on
differences between financial reporting and tax bases of assets and liabilities.
Where deferred tax liabilities  will be passed through to customers in regulated
rates, the Companies establish a corresponding regulatory asset for the increase
in future revenues that will result when the temporary differences reverse.

      Investment tax credits realized in prior years were deferred and are being
amortized  over the  estimated  service  lives of the related  properties  where
required by ratemaking rules.

<PAGE>

A.  Summary of Significant Accounting Policies (Continued)

      (6) DEFERRED  PURCHASED GAS COST: Where permitted by regulatory  authority
under purchased gas adjustment clauses or similar tariff provisions, the Company
defers the difference between purchased gas cost, less refunds,  and the billing
of such  cost and  amortizes  the  deferral  over  subsequent  periods  in which
billings either recover or repay such amounts.

      (7)  REGULATORY  ASSETS:  Certain  costs,  which will be passed through to
customers under ratemaking rules for regulated  operations,  are deferred by the
Company as  regulatory  assets.  The amounts  deferred  relate  primarily to the
accounting for income taxes.

      (8) DERIVATIVE  FINANCIAL  INSTRUMENTS:  The Company uses  exchange-traded
natural gas and crude oil  futures  contracts  and options and  over-the-counter
(OTC) natural gas and crude oil swap  agreements and options to hedge  exposures
to energy price changes.  Exchange-traded instruments are generally settled with
off-setting  positions  but may be  settled  by  delivery  of  commodities.  OTC
arrangements require settlement in cash. The margin accounts for exchange-traded
futures contracts,  which reflect daily settlements as market values change, are
recorded  in  other  current  assets.  Premiums  on all  options  contracts  are
initially  recorded in other current assets based on the amount  exchanged.  The
Company sells options to reduce the overall cost of hedging.  Unrealized  losses
on sold options are  deferred to the extent of  unamortized  premiums.  The fair
values of swap agreements are generally recognized only when settled. Changes in
market value of derivative financial instruments which qualify as hedges of firm
commitments  or  anticipated  transactions  are deferred and  recognized  in net
operating revenues when hedged  transactions  occur. Cash flows from derivatives
accounted for as hedges are considered  operating  activities.  The Company also
uses  exchange-traded  natural gas futures  contracts  for  speculative  trading
purposes.  Realized  and  unrealized  gains and  losses on these  contracts  are
recorded in other income in the period in which the changes occur.

      (9) GOODWILL:  Goodwill  consists  of costs in excess of the net  assets
of businesses  acquired.  Goodwill is amortized on a straight-line  basis over
a period of twenty years.

      (10)STOCK OPTIONS: The Company has elected to follow Accounting Principles
Board Opinion No. 25,  "Accounting  for Stock Issued to  Employees"  and related
interpretations  in accounting for stock  options.  No  compensation  expense is
recognized on stock options  because the exercise  price equals the market price
of the  underlying  stock on the date of grant.  Had  compensation  cost for the
Company's  stock  option plans been  determined  based on the fair values at the
grant dates as prescribed by Statement of Financial  Accounting Standards (SFAS)
No. 123, "Accounting for Stock-Based Compensation," the effect on net income and
earnings per share would not have been material.

<PAGE>

A.  Summary of Significant Accounting Policies (Continued)

      (11)REVENUE  RECOGNITION:  Revenues  for  regulated  gas  sales to  retail
customers  are  recognized  as service is  rendered,  including  an accrual  for
unbilled  revenues  from  the  date  of  each  meter  reading  to the end of the
accounting  period.   Revenue  is  recognized  for  exploration  and  production
activities when deliveries of natural gas, oil and natural gas liquids are made.
Revenue from natural gas transportation and storage activities are recognized in
the period service is provided.  Revenues from energy  marketing  activities are
recognized when deliveries occur.

      (12)USE  OF  ESTIMATES:   The  preparation  of  financial   statements  in
conformity with generally accepted accounting  principles requires management to
make estimates and assumptions that affect the amounts reported in the financial
statements  and  accompanying  notes.  Actual  results  could  differ from those
estimates.

      (13)CASH FLOWS: The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents.

      (14)RECLASSIFICATION:  Certain amounts contained in prior year comparative
information have been reclassified to conform with the 1996 presentation.

B.  Regulatory Assets and Liabilities

      The Company's  distribution  and interstate  pipelines are subject to rate
regulation by state and federal  regulatory  commissions.  Accounting  for these
operations  is in  accordance  with the  provisions  of  Statement  of Financial
Accounting  Standards  No. 71  "Accounting  for the Effects of Certain  Types of
Regulation".  The Company records  regulatory  assets and liabilities to reflect
future  collections  or payments  through the  regulatory  process.  The Company
believes  that it will  continue  to be  subject  to rate  regulation  that will
provide for the  recovery of deferred  costs.  Regulatory  assets  (liabilities)
reflected in the consolidated balance sheets are as follows:

                                                            December 31,
                                                        1996          1995
                                                     ------------------------
                                                             (Thousands)

    Deferred purchase gas costs....................   $  60,729     $ 10,160
    Unamortized loss on reacquired debt
        included in other assets...................      10,654        3,013
    Regulatory assets:
        Deferred income tax accounting.............      64,132       76,122
        Postretirement benefits other than pensions       4,062        3,909
        Other......................................       4,956        5,210
    Estimated refunds due customers................     (14,889)     (16,003)
    Deferred investment tax credits................     (19,892)     (20,991)

<PAGE>

C.  Impairment of Assets

      In 1995, the Company evaluated the carrying value of long-lived assets for
impairment  of value  pursuant to the  methodology  prescribed  in  Statement of
Financial  Accounting  Standards  No.  121  "Accounting  for the  Impairment  of
Long-Lived  Assets and for Long-Lived  Assets to be Disposed of." Primarily as a
result of the sustained decrease in gas and oil prices, the Company recognized a
write-down in the carrying value of assets of $121.1 million which decreased net
income by $74.2 million.  The write-down  included $95.1 million for exploration
and production properties and intrastate transmission facilities included in the
supply and logistics segment and $26.0 million for information systems,  storage
development  projects,  and other assets reflected in the utilities segment. The
fair value of the assets was determined  based upon expected  discounted  future
net cash flows or a comparison with market values when available.

D.  Direct Billing Settlements

      Kentucky  West  Virginia Gas Company  received FERC approval of settlement
agreements  with all  customers  for the direct  billing  to recover  the higher
Natural Gas Policy Act (NGPA)  prices,  which the FERC had denied on natural gas
produced from exploration and production  properties  between 1978 and 1983. The
portion of the  settlement  with  Equitable  Gas  Division  has been  subject to
Pennsylvania  Public Utility Commission (PUC) review. The PUC approved Equitable
Gas  Company's  collection of $7.8 million in September  1996,  $18.8 million in
September  1995 and $7.8 million in September 1994 related to the direct billing
settlement. The 1995 amount includes $11.0 million for accelerated collection of
amounts  that would have  otherwise  been  subject to approval  by the PUC,  and
recognized  in income,  in later years.  As a result of the PUC  approvals,  net
income for 1996 includes  approximately $4.7 million, $11.3 million for 1995 and
$4.7 million for 1994 related to the  settlement.  Approximately  $10.2  million
from the settlement remains to be recovered in future gas costs filings with the
PUC over the next two years.

      In November  1995,  Kentucky  West  Virginia  Gas Company  received  $13.8
million from Columbia Gas  Transmission  Company  (Columbia) as  settlement,  in
Columbia's  bankruptcy  proceeding,  of  Kentucky  West's  claim for $19 million
related to the direct  billing  settlements.  Net income for 1995  includes $8.9
million related to the settlement.

E.  Columbia Gas Transmission Bankruptcy Settlement

      In addition to the direct billing settlement  described above, the Company
had various claims against  Columbia for abrogation of contracts to purchase gas
from the Company and collection of FERC Order 636 transition  costs. In November
1995,  the Company  received $31.2 million in Columbia's  bankruptcy  settlement
related to these items which increased net income for 1995 by $20.2 million.

<PAGE>

F.  Income Taxes

      The  following  table  summarizes  the source and tax effects of temporary
differences between financial reporting and tax bases of assets and liabilities:

                                                         December 31,
                                                   -----------------------
                                                       1996        1995
                                                   -----------------------
                                                          (Thousands)
      Deferred tax liabilities (assets):
       Exploration and development costs
         expensed for income tax reporting........  $  63,435   $  59,321
       Tax depreciation in excess of
         book depreciation .......................  $ 251,951     257,642
       Regulatory temporary differences...........     28,467      33,815
       Deferred purchased gas cost................     21,210       1,308
       Alternative minimum tax....................    (72,470)    (74,829)
       Investment tax credit......................     (7,997)     (8,438)
       Other......................................     (4,887)     (4,587)
                                                    ---------   ---------
         Total (including amounts classified as
           current liabilities of $19,009 for 1996
           and current assets of $1,505 for 1995).  $ 279,709   $ 264,232
                                                    =========   =========

      As of  December  31,  1996 and 1995,  $64.1  million  and  $76.1  million,
respectively,  of the net deferred tax liabilities are related to rate-regulated
operations and have been deferred as regulatory assets.

      Income tax expense (benefit) is summarized as follows:

                                              Years Ended December 31,
                                        ----------------------------------
                                           1996        1995        1994
                                        ----------------------------------
                                                    (Thousands)
      Current:
       Federal........................   $  3,953  $   36,681     $11,196
       State..........................        538       8,360       2,640
      Deferred:
       Federal........................     22,905     (56,953)     (6,848)
       State..........................      3,186     (17,395)      1,789
                                         --------  ----------     -------
         Total........................   $ 30,582  $  (29,307)    $ 8,777
                                         ========  ==========     =======
<PAGE>

F.  Income Taxes (Continued)

      Provisions for income taxes are less than amounts  computed at the federal
statutory  rate of 35% on pretax  income.  The  reasons for the  difference  are
summarized as follows:

                                             Years Ended December 31,
                                        -----------------------------------
                                           1996        1995        1994
                                        -----------------------------------
                                                    (Thousands)

      Tax at statutory rate...........    $ 31,487    $ (9,716)  $ 24,327
      State income taxes..............       1,913      (5,866)     3,069
      Nonconventional fuels tax credit      (1,299)    (13,114)   (16,442)
      Other...........................      (1,519)       (611)    (2,177)
                                          --------    --------   --------
       Income tax expense (benefit)...    $ 30,582    $(29,307)  $  8,777
                                           =======    ========   ========
      Effective tax rate (benefit)....       34.0%     (105.6)%     12.6%
                                             ====      ======       ====

      The  consolidated  federal  income tax liability of the Companies has been
settled through 1994.

      The Company has available $72.5 million of alternative  minimum tax credit
carryforward  which has no  expiration  date.  In addition,  the Company has net
operating  loss  carryforwards  for federal  income tax purposes of $2.2 million
which will  expire in 2003.  The net  operating  loss  carryforwards  apply to a
subsidiary of Louisiana Intrastate Gas.

      Amortization of deferred  investment tax credits  amounted to $1.1 million
for 1996, 1995 and 1994.

G.  Employee Pension Benefits

      The   Companies   have  several   trusteed   retirement   plans   covering
substantially all employees.  The Companies'  annual  contributions to the plans
are based on a 25-year  funding level.  Plans  covering union members  generally
provide  benefits of stated  amounts for each year of  service.  Plans  covering
salaried   employees  use  a  benefit  formula  which  is  based  upon  employee
compensation  and years of service to determine  benefits to be  provided.  Plan
assets consist principally of equity and debt securities.

<PAGE>

G.  Employee Pension Benefits (Continued)

      The  following  table  sets  forth the plans'  funded  status and  amounts
recognized in the Company's consolidated balance sheets:
                                                         December 31,
                                                    ----------------------
                                                       1996        1995
                                                    ----------------------
                                                         (Thousands) 
      Actuarial present value of benefit obligations:
       Vested benefit obligation..................  $  124,477  $  127,758
                                                    ==========  ==========
       Accumulated benefit obligation.............  $  130,416  $  131,405
                                                    ==========  ==========
      Market value of plan assets.................  $  165,360  $  159,607
      Projected benefit obligation................     137,477     146,078
                                                    ----------  ----------
      Excess of plan assets over projected
       benefit obligation.........................      27,883      13,529
      Unrecognized net asset......................      (1,833)     (2,208)
      Unrecognized net gain.......................     (28,871)    (20,194)
      Unrecognized prior service cost.............      11,124       9,864
                                                    ----------  ----------
      Prepaid pension cost recognized in
       the consolidated balance sheets............  $    8,303  $      991
                                                    ==========  ==========

      At year-end the discount rate used in  determining  the actuarial  present
value of benefit obligations was 7 3/4% for 1996, 7 1/2% for 1995 and 8 1/4% for
1994.  The assumed  rate of increase in  compensation  levels was 4 1/2% for all
three years.

      The  Companies'  pension  cost,  using a 9% average rate of return on plan
assets, comprised the following:
                                                  Years Ended December 31,
                                              --------------------------------
                                                 1996       1995        1994
                                              --------------------------------
                                                         (Thousands)
      Service cost benefits earned
        during the period................    $   4,053   $  3,452    $  3,916
      Interest cost on projected benefit
        obligation.......................       11,197     11,165      10,752
      Actual (return) loss on assets.....      (26,828)   (34,054)      2,757
      Net amortization and deferral......       12,756     19,806     (14,680)
      Gain on curtailment................       (7,370)         -           -
                                             ---------   --------    --------
        Net periodic pension (benefit) cost  $  (6,192)  $    369    $  2,745
                                             =========   ========    ========

      In 1996, the Company recognized a gain of $7.4 million for the curtailment
of the defined  benefit  pension  plan for certain  non-utility  employees.  Net
income for 1996 includes $4.4 million related to the curtailment.  As of January
1, 1997, the Company established a defined contribution plan for these employees
that will provide a base Company contribution.

<PAGE>

H.  Other Postretirement Benefits

      In addition to providing pension  benefits,  the Companies provide certain
health  care and  life  insurance  benefits  for  retired  employees  and  their
dependents.  In 1996,  the  Company  implemented  changes in the  postretirement
medical and life  insurance  benefits  for all nonunion  employees.  Changes for
represented  employees  are  subject  to  collective  bargaining.  Benefits  for
employees in the supply and logistics and services segments were eliminated. For
all other nonunion employees, the contributory portion of medical premiums to be
paid by employees  after  retirement  was changed to a graduated  scale based on
years of service  and the  maximum  amount of  non-contributory  life  insurance
available  at age 69 was  reduced.  The  effect  of these  changes  reduced  the
transition  obligation by $29.7 million. The Company's transition  obligation is
being amortized through 2012.

      In  determining  the  accumulated  postretirement  benefit  obligation  at
December 31, 1996, the Company used a beginning inflation factor ranging from 6%
to 8%, depending on the level of coverage,  decreasing  gradually to 4 1/4% to 4
3/4% after 4 to 8 years and a discount rate of 7 3/4%. At December 31, 1995, the
beginning inflation factor was 10% decreasing gradually to 4 3/4% after 14 years
and the discount  rate was 7 1/2%.  The following  summarizes  the status of the
Company's accrued postretirement benefit costs (OPEBS):
                                                           December 31,
                                                    ---------------------------
                                                       1996             1995
                                                    ---------------------------
                                                            (Thousands)
       Accumulated postretirement benefit obligation:
         Retired employees.......................     $  21,724      $  31,555
         Active employees:
           Fully eligible........................         4,212         10,902
           Other.................................         5,125         14,728
                                                      ---------      ---------
            Total obligation ....................        31,061         57,185
       Trust assets .............................         4,623          2,632
                                                      ---------      ---------
       Obligation in excess of trust assets......        26,438         54,553
       Unrecognized net loss.....................       (10,808)        (6,298)
       Unrecognized prior service cost ..........         2,923              -
       Unrecognized transition obligation........       (11,444)       (39,195)
                                                      ---------      ---------
               Accrued postretirement benefit cost    $   7,109      $   9,060
                                                      =========      =========
<PAGE>

H.  Other Postretirement Benefits (Continued)

     The net periodic  cost for  postretirement  health care and life  insurance
benefits includes the following:
                                                    Years Ended December 31,
                                                ------------------------------
                                                   1996       1995      1994
                                                ------------------------------
                                                            (Thousands)

       Service cost..........................   $     746  $    993  $   1,049
       Interest cost.........................       2,892     4,200      3,423
       Amortization of transition obligation.       1,329     2,306      2,305
       Expected return on assets.............        (198)        -          -
                                                ---------  --------  ---------
         Periodic cost.......................   $   4,769  $  7,499  $   6,777
                                                =========  ========  =========

      As of  December  31,  1996 and 1995,  approximately  $4.0  million  of the
accrued  OPEBS  related  to  rate-regulated  operations  have been  deferred  as
regulatory  assets.  Rate  recovery  has begun in  several  jurisdictions  which
requires  the Company to place  agreed upon  amounts in trust when  collected in
rates  until such time as they are  applied to retiree  benefits  or returned to
ratepayers. Trust assets consist principally of equity and debt securities.

      An  increase of one percent in the assumed  medical  cost  inflation  rate
would increase the accumulated postretirement benefit obligation by 9% and would
increase the periodic cost by 7%.

I.    Common Stock

      (1) EMPLOYEE STOCK PURCHASE PLAN

      In October 1995, the Company  implemented an Employee Stock Purchase Plan.
The Plan provides for employees to purchase shares of the Company's common stock
at a 10 percent discount through payroll deductions.

      (2) DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN

      Pursuant  to this  Plan,  stockholders  may  reinvest  dividends  and make
limited  additional cash investments to purchase shares of common stock.  Shares
issued  through  the Plan may be  acquired  on the open market or by issuance of
previously  unissued shares. At December 31, 1996, 92,153 shares of common stock
were reserved for issuance under the Plan.

      (3) STOCK REPURCHASE PROGRAM

      In  1995,  the  Board  of  Directors  of  the  Company   authorized  the
repurchase of up to one million  shares of outstanding  common stock.  Through
December 31, 1996, no shares have been repurchased.

<PAGE>

I.  Common Stock (Continued)

      (4) COMMON STOCK RESERVE

      On July 18, 1996, the Board of Directors of the Company reserved 8,000,000
shares of the Company's authorized but unissued common stock for possible use in
connection with future  acquisitions.  Through December 31, 1996, no shares have
been issued.

J.  Stock-Based Compensation Plans

      (1) LONG-TERM INCENTIVE PLAN

      The Company's Long-Term Incentive Plan provides for the granting of shares
of common stock to officers and key  employees of the Company.  These grants may
be made in the form of  stock  options,  restricted  stock,  stock  appreciation
rights and other types of stock-based or performance  based awards as determined
by the  Compensation  Committee  of the Board of  Directors  at the time of each
grant.  Stock  awarded  under the Plan or  purchased  through  the  exercise  of
options,  and the value of stock appreciation  units, are restricted and subject
to forfeiture should an optionee terminate employment prior to specified vesting
dates. The maximum number of shares which could have been granted under the Plan
during 1994 was 763,500 shares. In each subsequent year, an additional number of
shares equal to 1% of the total outstanding  shares as of the preceding December
31 will be  available  for grant.  In no case may the  number of shares  granted
under the Plan exceed 1,725,500 shares.  These options expire from 5 to 10 years
from the date of grant but  contain  vesting  provisions  which  are based  upon
Company performance. At December 31, 1996, 1,725,500 shares of common stock were
reserved for issuance under the Plan.

      The following schedule summarizes the stock option activity:

                                                  Years ended December 31,
                                           -------------------------------------
                                               1996         1995         1994
                                           -------------------------------------
   Options outstanding January 1.......       933,200      363,400           --
   Granted.............................       125,400      739,000      363,400
   Forfeited...........................      (185,800)    (169,200)          --
                                             --------     --------      -------
   Options outstanding December 31.....       872,800      933,200      363,400
                                             ========     ========      =======

      At December 31:
         Number of options exercisable.      363,400      363,400      363,400
         Prices of options outstanding.       $27.50      $28.625       $33.81
                                                to           to
                                              $33.81       $33.81

         Average option price..........       $30.08       $30.31       $33.81

<PAGE>

J.  Stock-Based Compensation Plans (Continued)

      (2) NON-EMPLOYEE DIRECTORS' STOCK INCENTIVE PLAN

      The Company's  Non-Employee  Directors'  Stock Incentive Plan provides for
the granting of up to 80,000  shares of common stock in the form of stock option
grants and restricted stock awards to non-employee  directors of the Company. On
the first  business  day of June in each year from 1997 to 1998,  each  Director
will be  granted  an option  for 500  additional  shares of  common  stock.  The
exercise  price  for  each  share  is 100% of the  mean of the  high and the low
trading  prices  of the  common  stock  on the date of  grant.  Each  option  is
exercisable  upon  the  earlier  of  three  years  from  the date of grant or at
Director's  retirement,  disability,  or death.  No option may be exercised more
than five years after date of grant.  At December  31,  1996,  76,400  shares of
common stock were reserved for issuance under the Plan.

      The following schedule summarizes the stock option activity:

                                                  Years ended December 31,
                                             -----------------------------------
                                                1996        1995        1994
                                             -----------------------------------
   Options outstanding January 1..........      11,000       4,000          --
   Granted................................      12,000       7,000       4,000
                                                ------      ------       -----
   Options outstanding December 31........      23,000      11,000       4,000
                                                ======      ======       =====

      At December 31:
        Number of options exercisable.....      None        None        None
        Prices of options outstanding.....     $29.81      $29.875     $34.625
                                                 to          to
                                               $34.625     $34.625

        Average option price..............     $30.67      $31.60      $34.625

<PAGE>

J.  Stock-based Compensation Plans (Continued)

      (3) KEY EMPLOYEE RESTRICTED STOCK OPTION PLAN

      The Equitable  Resources,  Inc., Key Employee  Restricted Stock Option and
Stock  Appreciation  Rights  Incentive  Compensation  Plan is  nonqualified  and
provided  for the  granting of  restricting  stock awards or options to purchase
common  stock of the Company at prices  ranging from 75% to 100% of market value
on the date of grant.  All options are exercisable  upon grant. No future grants
may be made under the Plan which was replaced by the  Long-Term  Incentive  Plan
effective May 27, 1994 as described  above.  Options  expire five years from the
date of grant. Stock awarded under the Plan or purchased through the exercise of
options,  and the value of certain stock appreciation  units, are restricted and
subject to risk of forfeiture should an optionee  terminate  employment prior to
specified  vesting  dates.  The following  schedule  summarizes the stock option
activity:

                                                  Years Ended December 31,
                                           -------------------------------------
                                               1996         1995         1994
                                           -------------------------------------
  Options outstanding January 1........       144,125      241,818      253,068
  Exercised............................       (43,425)     (54,100)      (7,650)
  Canceled, forfeited, surrendered
    or expired.........................       (24,850)     (43,593)      (3,600)
                                             --------     --------    ---------
  Options outstanding December 31......        75,850      144,125      241,818
                                             ========      =======      =======
  Price of  options  exercised  during
    the year ..........................       $20.13       $18.81       $17.50
                                                              to           to
                                                           $20.13       $20.13
  Average price of options exercised
    during the year....................       $20.13       $20.01       $22.48
  At December 31:
    Price of options outstanding.......       $36.50       $20.13       $18.81
                                                             to           to
                                                           $36.50       $36.50

    Average option price...............       $36.50       $31.57       $29.82
    Shares reserved for issuance.......       565,901      610,226      663,699

K.  Short-Term Loans

      Maximum lines of credit  available to the Company were $500 million during
1996 and 1995,  and $325  million  during  1994.  The Company is not required to
maintain compensating bank balances.  Commitment fees averaging one-tenth of one
percent were paid to maintain credit availability.  In January 1995, the Company
established  a  five-year  revolving  Credit  Agreement  with a group  of  banks
providing $500 million of available  credit.  The agreement  requires a facility
fee of one-tenth of one percent.

<PAGE>

K.  Short-Term Loans (Continued)

      At December  31, 1996,  short-term  loans  consisted of $199.3  million of
commercial  paper and $5.6  million of bank loans at a weighted  average  annual
interest rate of 5.44%;  and at December 31, 1995,  $135.0 million of commercial
paper at a weighted average annual interest rate of 5.68%. The maximum amount of
outstanding  short-term loans was $295.5 million in 1996, $314.6 million in 1995
and  $269.3  million  in 1994.  The  average  daily  total of  short-term  loans
outstanding was approximately  $147.4 million during 1996, $214.2 million during
1995 and $204.6 million  during 1994;  weighted  average  annual  interest rates
applicable thereto were 5.5% in 1996, 6.0% in 1995 and 4.4% in 1994.

L.  Long-Term Debt

      On June 25, 1996, the Company commenced a tender offer for the purchase of
all the outstanding 9.9% Debentures due April 15, 2013. As of December 31, 1996,
$69.1 million of the $75 million  Debentures were tendered for purchase  leaving
$5.9 million outstanding. Premiums paid for the redemption were $6.3 million.

      On June 28, 1996,  the Company  funded the  retirement of $75 million of
8.25% Debentures due July 1, 1996.

      The Company filed a shelf  registration  with the  Securities and Exchange
Commission  effective in June 1996 to issue $250 million of long-term  debt.  On
July 29,  1996 the  Company  issued $150  million of 30-year  Debentures  with a
coupon rate of 7.75%.  The proceeds  were used to finance the  retirement of the
8.25% Debentures and purchase of 9.9% Debentures as described above.

      The Company filed a shelf  registration  with the  Securities and Exchange
Commission  effective  June  9,  1994  to  issue  $100  million  of  Medium-Term
Notes--Series C to be used to retire  short-term loans. As of December 31, 1996,
$18 million of Series C Notes have been issued.

      The 9 1/2% Convertible Subordinated Debentures are convertible at any time
into common stock at a conversion  price of $11.06 per share.  During 1996, 1995
and 1994,  $178,000,  $1,611,000 and $345,000 of these debentures were converted
into  16,089  shares,  145,635  shares,  and  31,187  shares  of  common  stock,
respectively.  At December 31, 1996, 48,007 shares of common stock were reserved
for conversions.

      Interest  expense on  long-term  debt  amounted to $34.8  million in 1996,
$36.5  million in 1995,  and $35.5  million  in 1994.  Aggregate  maturities  of
long-term debt will be $0 in 1997, $5.0 million in 1998,  $78.8 million in 1999,
$2.1 million in 2000, and $14.0 million in 2001.

<PAGE>

M.  Derivative Financial Instruments

      The Company is exposed to risk from  fluctuations  in energy prices in the
normal  course of  business.  The Company uses  exchange-traded  natural gas and
crude oil futures contracts and options and  over-the-counter  (OTC) natural gas
and crude oil swap  agreements  and options to hedge  exposures  to energy price
changes,  primarily relating to its gas marketing  operations.  The Company also
trades  in  energy  futures.   Exchange-traded   energy  futures  contracts  are
commitments to either purchase or sell a designated commodity, generally natural
gas or crude oil, at a future date for a specified price.  These instruments are
generally settled with off-setting positions,  but may be settled by delivery of
commodities.  OTC arrangements  require settlement in cash. The  exchange-traded
contracts  used by the  Company  cover  one-month  periods  from one to eighteen
months in the future.  The OTC agreements cover one-month periods for up to five
years  in the  future.  Initial  margin  requirements  are met in cash or  other
instruments,  and changes in contract  values are settled daily.  Energy futures
contracts   have  minimal  credit  risk  because   futures   exchanges  are  the
counterparties.  The  Company  manages  the credit  risk of the other  financial
instruments by limiting dealings to those  counterparties who meet the Company's
criteria for credit and liquidity strength.

      The  following  table  summarizes  the  outstanding  derivative  financial
instruments:

--------------------------------------------------------------------------------
                                              Notional             Unrealized
                                              Quantity              Deferred
                                      Purchase          Sale        Gain/Loss
                                          (Bcf Equivalent)        ($ Millions)
--------------------------------------------------------------------------------
DECEMBER 31, 1996
Exchange traded
   Futures....................           5.3             8.7        $    1.7
================================================================================
OTC
   Swaps......................          45.0            91.2        $  (11.1)
   Options....................           1.5             1.1            (1.5)
--------------------------------------------------------------------------------
     Total....................          46.5            92.3        $  (12.6)
================================================================================
DECEMBER 31, 1995
Exchange traded
   Futures....................           4.8             1.9        $     .4
   Options....................          18.2            11.4            (1.4)
--------------------------------------------------------------------------------
     Total....................          23.0            13.3        $   (1.0)
================================================================================
OTC
   Swaps......................          27.3            52.8        $    (.3)
   Options....................          13.5            21.1             1.0
--------------------------------------------------------------------------------
     Total....................          40.8            73.9        $     .7
================================================================================

<PAGE>

M.  Derivative Financial Instruments (Continued)

      Deferred  realized  gains  (losses)  from  hedging  firm  commitments  and
anticipated  transactions  were $(.9) million and $(2.8) million at December 31,
1996 and 1995, respectively.  These amounts are included in other current assets
and recognized in earnings when the future transactions occur.

      At December 31, 1996 and 1995,  there were no  outstanding  energy futures
contracts  held for trading  purposes.  During 1996 and 1995,  the average  fair
value of traded  contracts  was $23,000  and  ($40,000),  respectively.  Trading
activity  resulted  in a net gain of $.8 million for 1996 and a net loss of $1.9
million  for 1995.  The  value of these  financial  instruments  is  subject  to
fluctuations in market prices for natural gas.  Exposure to this risk is managed
by maintaining open positions within defined trading limits.

N.  Fair Value of Financial Instruments

      The  carrying  value of cash and cash  equivalents  as well as  short-term
loans approximates fair value due to the short maturity of the instruments.

      The estimated fair value of long-term  debt, at December 31, 1996 and 1995
would be $445.6  million and $465.1  million,  respectively.  The fair value was
estimated  based on the quoted  market prices as well as the  discounted  values
using a current discount rate reflective of the remaining maturity.

      The Company's 7 1/2% Debentures may not be redeemed prior to maturity. The
9.9% Debentures  require payment of premiums for early redemption,  exclusive of
annual sinking fund requirements.

      The derivative financial  instruments described in Note M are reflected in
other  current  assets at fair  value of $(.2)  million  and  $(3.3)  million at
December 31, 1996 and 1995, respectively.

O.  Concentrations of Credit Risk

      Revenues and related  accounts  receivable  from the supply and  logistics
segment's  operations are generated  primarily from the sale of produced natural
gas to utility and industrial  customers located mainly in the Appalachian area;
the sale of  produced  oil to  refinery  customers  in the  Rocky  Mountain  and
Appalachian  areas;  the sale of  produced  natural  gas  liquids  to a refinery
customer in Kentucky;  the sale of produced  natural gas liquids and  intrastate
transportation of natural gas in Louisiana; and the marketing of natural gas and
electricity.

<PAGE>

O.  Concentrations of Credit Risk (Continued)

      The services segment's  operating revenues and related accounts receivable
are generated from the nationwide  marketing of natural gas to brokers and large
volume  utility  and  industrial   customers;   and  cogeneration   development,
performance  contracting,  and  water  efficiency  and  program  development  to
commercial,  industrial,  and  institutional  customers  and various  government
facilities.

      The utilities segment's operating revenues and related accounts receivable
are generated from state-regulated  utility natural gas sales and transportation
to more than 266,000 residential, commercial and industrial customers located in
southwest   Pennsylvania   and  parts  of  West  Virginia  and   Kentucky;   and
FERC-regulated  interstate  pipeline  transportation and storage service for the
affiliated  utility,  Equitable  Gas,  as well as  other  utility  and  end-user
customers  located in nine  mid-Atlantic  and northeastern  states.  Under state
regulations,  the  utility is  required  to provide  continuous  gas  service to
residential customers during the winter heating season.

      The Company is not aware of any  significant  credit  risks which have not
been recognized in provisions for doubtful accounts.

P.  Financial Information by Business Segment

      In 1996, the Company began reporting operations in three segments in order
to more  accurately  reflect the  Company's  lines of  business.  The supply and
logistics segment's activities comprise the exploration, development, production
and sale of natural gas and oil,  extraction  and sale of natural  gas  liquids,
intrastate transportation,  contract drilling,  nationwide natural gas marketing
and  supply,  peak  shaving,   transportation   arrangements,   and  electricity
marketing.  The services segment's activities comprise marketing of natural gas,
cogeneration development, water efficiency and program development,  performance
contracting,  and central  facility plant  operations.  The utilities  segment's
activities  comprise  the  operations  of the  Company's  state-regulated  local
distribution company, in addition to gas transportation,  gathering, storage and
marketing activities involving the Company's three FERC-regulated gas pipelines.



<PAGE>

P.  Financial Information by Business Segment (Continued)

      The  following  table sets  forth  financial  information  for each of the
business segments:
                                                Years Ended December 31,
                                        --------------------------------------
                                            1996          1995        1994
                                        --------------------------------------
                                                       (Thousands)
OPERATING REVENUES:
  Supply and logistics...............    $1,318,661   $1,059,854   $1,012,119
  Utilities..........................       507,441      441,732      446,786
  Services...........................       172,335          473            -
  Sales between segments.............      (136,638)     (76,069)     (61,625)
                                         ----------   ----------   ----------
    Total............................    $1,861,799   $1,425,990   $1,397,280
                                         ==========   ==========   ==========
OPERATING INCOME (LOSS):
  Supply and logistics...............    $   52,010   $  (32,668)  $   34,932
  Utilities..........................        89,320       55,612       75,316
  Services...........................       (12,542)        (992)           -
                                         ----------   ----------   ----------
    Total............................    $  128,788   $   21,952   $  110,248
                                         ==========   ==========   ==========
IDENTIFIABLE ASSETS:
  Supply and logistics...............    $1,089,669   $1,044,045   $1,120,311
  Utilities..........................       998,064      932,529      971,825
  Services...........................        50,584        3,419            -
  Eliminations.......................       (42,018)     (16,680)     (73,014)
                                         ----------   -----------  -----------
    Total............................    $2,096,299   $1,963,313   $2,019,122
                                         ==========   ==========   ==========
DEPRECIATION AND DEPLETION:
  Supply and logistics...............    $   55,415   $   78,444   $   68,898
  Utilities..........................        26,608       26,181       24,449
  Services...........................           358            -            -
                                         ----------   ----------   ----------
    Total............................    $   82,381   $  104,625   $   93,347
                                         ==========   ==========   ==========
CAPITAL EXPENDITURES:
  Supply and logistics...............    $   72,617   $   68,950   $  100,225
  Utilities..........................        36,831       49,131       45,949
  Services...........................           836           31            -
                                         ----------   ----------   ----------
    Total............................    $  110,284   $  118,112   $  146,174
                                         ==========   ==========   ==========

<PAGE>

Q.  Sale Of Property

      In October  1995,  the Company sold most of its gas and oil  properties in
the  northern  Appalachian  basin  areas  of New  York,  Pennsylvania  and  West
Virginia.  The  properties  comprised  less than four  percent of the supply and
logistics  segment's  total gas and oil  production  and  reserves.  The Company
previously  operated the majority of these  properties with its working interest
averaging  approximately 25 percent.  Proceeds from the sale were  approximately
$17.3 million.

R.  Deferred Revenue

      In November 1995, the Company sold an interest in certain  Appalachian gas
properties,  the production from which qualifies for  nonconventional  fuels tax
credit.  The Company  retained an interest in the properties  that will increase
based on  performance.  As such, the proceeds of $133.5 million were recorded as
deferred  revenues and are being  recognized in income as financial  targets are
met.

S.  Acquisitions

      In December 1996, the Company  purchased all of the  outstanding  stock of
Three Rivers Pipeline Corporation (Three Rivers) for $3.3 million.  Three Rivers
owns a 120-mile intrastate natural gas pipeline in central Pennsylvania.

      In September 1996, the Company  purchased all of the outstanding  stock of
Pequod  Associates,  Inc.  (Pequod) for $1.7 million.  Pequod is an  engineering
consulting firm specializing in water efficiency and program development, energy
efficiency studies, and technical training for water agency personnel.

      In March  1996,  the  Company  acquired  all of the  outstanding  stock of
Conogen,  Inc.  (Conogen) in exchange for 239,316 shares of the Company's common
stock valued at $7 million and subject to an additional  contingent  amount. The
Company  used  shares  held in  treasury  for  this  acquisition.  Conogen  is a
design-builder  and performance  contractor in self-funded  energy and resources
efficiency projects for commercial,  industrial, and institutional customers and
various government facilities.

      The 1996  acquisitions  were  accounted  for under the purchase  method of
accounting.  Three  Rivers is  included  in the  utilities  segment.  Pequod and
Conogen are included in the services segment.  The effect of these  acquisitions
on the consolidated financial statements of the Company is not material.

      In July  1995,  the  Company  acquired  all of the  outstanding  stock  of
Independent  Energy  Corporation  (IEC) in exchange  for  232,564  shares of the
Company's  common  stock held in  treasury.  IEC is engaged in the  development,
construction,   operation  and  ownership  of  private  power  and  cogeneration
projects.  The  acquisition  was accounted  for as a pooling of  interests.  The
effect on the Company's financial statements is not material.

<PAGE>

T.  Commitments and Contingencies

      Rent  expense  was $10.9  million in 1996,  $9.9  million in 1995 and $9.7
million in 1994.  Long-term leases are for certain  facilities and equipment and
have renewal options ranging to 17 years from December 31, 1996.  Future minimum
rentals  for all  noncancelable  long-term  leases at  December  31, 1996 are as
follows:  1997, $7.2 million; 1998, $6.6 million; 1999, $5.5 million; 2000, $5.0
million;  2001, $5.3 million,  and $25.1 million thereafter for a total of $54.7
million.

      The Company has annual commitments of approximately $35 million for demand
charges under existing  long-term  contracts with pipeline suppliers for periods
extending up to 16 years at December 31, 1996,  which relate to gas distribution
operations.  However,  substantially  all of  these  costs  are  recoverable  in
customer rates.

      The Company is subject to federal,  state and local environmental laws and
regulations.  These laws and  regulations,  which are constantly  changing,  can
require  expenditures  for  remediation and may in certain  instances  result in
assessment  of fines.  The  Company  has  established  procedures  for  on-going
evaluation of its operations to identify potential  environmental  exposures and
assure compliance with regulatory  policies and procedures.  The estimated costs
associated with identified  situations that require remedial action are accrued.
However,  certain  of  these  costs  are  deferred  as  regulatory  assets  when
recoverable through regulated rates.  On-going  expenditures for compliance with
environmental  laws  and  regulations,   including   investments  in  plant  and
facilities  to  meet  environmental   requirements,   have  not  been  material.
Management   believes   that  any  such  required   expenditures   will  not  be
significantly  different in either their nature or amount in the future and does
not know of any  environmental  liabilities  that will have a material effect on
the Company's financial position or results of operations.

<PAGE>

U.  Interim Financial Information (Unaudited)

      The following  quarterly summary of operating results reflects  variations
due primarily to the seasonal nature of the Company's business and volatility of
oil and gas commodity prices:

                                     March      June     September   December
                                      31         30         30          31
                                -----------------------------------------------
                                         (Thousands except per share amounts)
        1996

Operating revenues               $ 640,278   $ 391,767   $ 357,011   $ 472,743
Operating income                    69,403       8,983       3,860      46,542
Net income (loss)                   38,726         928      (3,687)     23,412
Earnings (loss) per share            $1.11        $.03       $(.10)       $.66

        1995

Operating revenues               $ 404,691   $ 316,534   $ 270,992   $ 433,773
Operating income (loss)             48,312       5,032      14,458     (45,850)
Net income (loss)                   27,754      (1,162)      1,684     (26,728)
Earnings (loss) per share             $.80      $(.03)        $.05       $(.76)

V.  Natural Gas and Oil Producing Activities

      The supplementary  information  summarized below presents the results of
natural  gas and oil  activities  for the  supply  and  logistics  segment  in
accordance   with  Statement  of  Financial   Accounting   Standards  No.  69,
"Disclosures About Oil and Gas Producing Activities."

      The  information  presented  excludes  data  associated  with  natural gas
reserves related to rate-regulated operations. These reserves (proved developed)
are less than 5% of total Company proved reserves for the years presented.

<PAGE>

V.  Natural Gas and Oil Producing Activities (Continued)

      (1) PRODUCTION COSTS

      The following  table presents the costs  incurred  relating to natural gas
and oil production activities:

                                           1996        1995        1994
                                      -------------------------------------
                                                    (Thousands)
      At December 31:
       Capitalized costs.............. $ 840,136   $803,124    $ 909,443
       Accumulated depreciation
         and depletion................   342,950     311,524     304,835
                                       ---------     -------     -------

      Net capitalized costs........... $ 497,186   $ 491,600   $ 604,608
                                       =========   =========   =========

      Costs incurred :
       Property acquisition:
         Proved properties............ $      68   $     222   $   8,335
         Unproved properties..........     6,411           -           -
       Exploration....................    17,934      14,844      22,783
       Development....................    33,298      31,802      60,690

      (2) RESULTS OF OPERATIONS FOR PRODUCING ACTIVITIES

      The following table presents the results of operations  related to natural
gas and oil production,  including the effect in 1995 of impairment of assets as
described in Note C:

                                           1996        1995        1994
                                      -------------------------------------
                                                    (Thousands)

      Revenues:
       Affiliated..................... $  50,968   $  20,619   $  16,564
       Nonaffiliated .................    89,096     114,247     136,029
      Production costs................    34,523      31,626      33,891
      Exploration expenses............    15,714      13,312      16,634
      Depreciation and depletion......    40,872      62,212      52,505
      Impairment of assets............         -      65,563           -
      Income tax expense (benefit)....    18,062     (27,992)      3,602
                                       ---------   ---------   ---------
      Results of operations from
        producing activities
       (excluding corporate overhead)  $  30,893   $  (9,855)  $  45,961
                                       =========   =========   =========
<PAGE>

V.  Natural Gas and Oil Producing Activities (Continued)

      (3) RESERVE INFORMATION (UNAUDITED)

      The information presented below represents estimates of proved gas and oil
reserves prepared by Company engineers. Proved developed reserves represent only
those  reserves  expected  to be  recovered  from  existing  wells  and  support
equipment.  Proved undeveloped reserves represent proved reserves expected to be
recovered  from new wells  after  substantial  development  costs are  incurred.
Substantially all reserves are located in the United States.

NATURAL GAS                                    1996          1995        1994
                                             ----------------------------------
                                                   (Millions of Cubic Feet)
Proved developed and undeveloped reserves:
  Beginning of year.......................    845,771      874,964     822,583
  Revision of previous estimates..........      6,710       16,999      18,663
  Purchase (sale) of natural gas in 
     place - net                                  443      (31,729)      6,307
  Extensions, discoveries and other
     additions............................     53,901       50,521      89,918
  Production..............................    (57,295)     (64,984)    (62,507)
                                             --------     --------    --------
  End of year (a).........................    849,530      845,771     874,964
                                             ========     ========    ========
Proved developed reserves:
  Beginning of year.......................    739,249      771,635     759,282

  End of year (b).........................    732,158      739,249     771,635

(a)   Includes proved  reserves in Canada of 66,000 Mmcf in 1996,  70,000 MMcf
      in 1995 and 67,000 MMcf in 1994.

(c)   Includes  proved  developed  reserves  in Canada  of 42,000  Mmcf in 1996,
      46,000 MMcf in 1995, and 43,000 MMcf in 1994.

<PAGE>

V.  Natural Gas and Oil Producing Activities (Continued)

OIL                                              1996        1995       1994
                                              ---------------------------------
                                                    (Thousands of Barrels)

Proved developed and undeveloped reserves:
  Beginning of year....................         18,201      18,283      16,468
  Revision of previous estimates.......          1,867        (356)      2,601
  Sale of oil in place - net...........           (168)     (1,071)       (169)
  Extensions, discoveries and other
     additions.........................          1,344       3,278       1,369
  Production...........................         (1,727)     (1,933)     (1,986)
                                               -------      ------      ------
  End of year (a)......................         19,517      18,201      18,283
                                               =======      ======      ======

Proved developed reserves:
  Beginning of year....................         16,834      18,110      16,442
  End of year (b)......................         18,482      16,834      18,110

(a) Includes  proved  reserves in Canada of 78,000 barrels in 1996,
    91,000 barrels in 1995 and 75,000 barrels in 1994.

(b) Includes proved  developed  reserves in Canada  of  50,000  barrels
    in 1996,  64,000  barrels  in 1995 and  50,000 barrels in 1994.

<PAGE>

V.  Natural Gas and Oil Producing Activities (Continued)

      (4)  STANDARD MEASURE OF DISCOUNTED FUTURE CASH FLOW (UNAUDITED)

      Management  cautions that the standard  measure of discounted  future cash
flows should not be viewed as an  indication of the fair market value of gas and
oil producing properties,  nor of the future cash flows expected to be generated
therefrom. The information presented does not give recognition to future changes
in estimated  reserves,  selling  prices or costs and has been  discounted at an
arbitrary rate of 10%.  Estimated future net cash flows from natural gas and oil
reserves  based on selling  prices  and costs at  year-end  price  levels are as
follows:
                                            1996          1995           1994
                                       ----------------------------------------
                                                       (Thousands)

Future cash inflows.................   $  3,610,060  $ 2,279,509   $ 1,983,757
Future production costs.............       (790,140)    (635,540)     (562,841)
Future development costs............        (50,708)     (51,081)      (46,985)
Future income tax expenses..........     (1,007,421)    (539,106)     (361,486)
                                       ------------  -----------   -----------
Future net cash flow................      1,761,791    1,053,782     1,012,445

10% annual discount for estimated
  timing of cash flows..............       (877,077)    (535,921)     (471,778)
                                       ------------  -----------   -----------
Standardized measure of discounted
  future net cash flows (a).........   $    884,714  $   517,861   $   540,667
                                       ============  ===========   ===========

(a)   Includes  $23,074,000 in 1996,  $11,293,000  in 1995 and  $10,043,000 in
      1994 related to Canada.

      Summary of changes in the  standardized  measure of discounted  future net
cash flows:
                                            1996          1995           1994
                                       ----------------------------------------
                                                       (Thousands)
Sales and transfers of gas
  and oil produced - net............   $   (105,541) $  (103,240)  $  (118,702)
Net changes in prices, production
  and development costs.............        482,376       54,806      (135,742)
Extensions, discoveries, and
  improved recovery, less 
  related costs.....................         86,306       65,603        74,900
Development costs incurred..........         13,543       18,620        16,037
Purchase (sale) of minerals in
  place - net.......................          1,506      (22,990)        9,627
Revisions of previous quantity 
  estimates.........................         47,545        5,278        19,189
Accretion of discount...............         72,375       64,875        72,058
Net change in income taxes..........       (232,841)     (97,808)       45,012
Other ..............................          1,584       (7,950)       (9,192)
                                       ------------  -----------   -----------
Net increase (decrease).............        366,853      (22,806)      (26,813)
Beginning of year...................        517,861      540,667       567,480
                                       ------------  -----------   -----------
End of year.........................   $    884,714  $   517,861   $   540,667
                                       ============  ===========   ===========

<PAGE>

ITEM 9. CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
        FINANCIAL DISCLOSURE

        Not Applicable.

<PAGE>

                                    PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

        Information   required  by  Item  10  with   respect  to   directors  is
incorporated  herein  by  reference  to  the  section  describing  "Election  of
Directors" in the Company's  definitive  proxy statement  relating to the annual
meeting of stockholders to be held on May 23, 1997, which will be filed with the
Commission  within 120 days after the close of the  Company's  fiscal year ended
December 31, 1996.

        Information  required by Item 10 with respect to  executive  officers is
included herein after Item 4 at the end of Part I.

ITEM 11.    EXECUTIVE COMPENSATION

        Information  required by Item 11 is incorporated  herein by reference to
the section  describing  "Executive  Compensation",  "Employment  Contracts  and
Change-In-Control  Arrangements" and "Pension Plan" in the Company's  definitive
proxy statement relating to the annual meeting of stockholders to be held on May
23, 1997.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

        Information  required by Item 12 is incorporated  herein by reference to
the section  describing  "Voting  Securities  and Record Date" in the  Company's
definitive proxy statement  relating to the annual meeting of stockholders to be
held on May 23, 1997.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        Information  required by Item 13 is incorporated  herein by reference to
the section describing "Certain  Relationships and Related  Transactions" in the
Company's   definitive  proxy  statement  relating  to  the  annual  meeting  of
stockholders to be held on May 23, 1997.

<PAGE>

                                     PART IV

ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K

     (a)    1.   Financial statements

            The  financial  statements  listed  in  the  accompanying  index  to
            financial  statements  (see  below) are filed as part of this annual
            report.

            2.   Financial Statement Schedule

            The financial statement schedule listed in the accompanying index to
            financial  statements and financial schedule (see below) is filed as
            part of this annual report.

            3.   Exhibits

            The exhibits listed on the accompanying  index to exhibits (pages 61
            through 63) are filed as part of this annual report.

     (b)    Reports  on Form 8-K filed  during the quarter  ended  December  31,
            1996.

            None

     (c)    Each management  contract and compensatory  arrangement in which any
            director or any named executive officer participates has been marked
            with an asterisk (*) in the Index to Exhibits.

<PAGE>

EQUITABLE RESOURCES, INC.

INDEX TO FINANCIAL STATEMENTS COVERED
BY REPORT OF INDEPENDENT AUDITORS

(ITEM 14 (A))

1. The following  consolidated  financial  statements of Equitable  Resources,
   Inc. and Subsidiaries are included in Item 8:

                                                           PAGE REFERENCE

   Statements of Consolidated Income
      for each of the three years in
      the period ended December 31, 1996                         26
   Statements of Consolidated Cash Flows
      for each of the three years in the
      period ended December 31, 1996                             27
   Consolidated Balance Sheets
      December 31, 1996 and 1995                               28 & 29
   Statements of Common Stockholders'
      Equity for each of the three years in the
      period ended December 31, 1996                             30
   Long-term Debt, December 31, 1996 and 1995                    31
   Notes to Consolidated Financial Statements                32 thru 55

2. Schedule for the Years Ended December 31,
      1996, 1995 and 1994 included in Part IV:

      II -  Valuation and Qualifying
            Accounts and Reserves                                60


      All other schedules are omitted since the subject matter thereof is either
      not present or is not present in amounts  sufficient to require submission
      of the schedules.

<PAGE>

EQUITABLE RESOURCES, INC. AND SUBSIDIARIES

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE THREE YEARS ENDED DECEMBER 31, 1996

        Column A          Column B      Column C         Column D     Column E
-------------------------------------------------------------------------------
                         Balance At  Additions Charged                 Balance
                          Beginning      To Costs                      At End
       Description        Of Period    and Expenses     Deductions    Of Period
-------------------------------------------------------------------------------
                                                (Thousands)

1996
  Accumulated Provision
   for Doubtful Accounts   $10,539       $ 17,707       $17,532(A)     $10,714

1995
  Accumulated Provision
   for Doubtful Accounts   $10,890       $ 10,810       $11,161(A)     $10,539

1994
  Accumulated Provision
   for Doubtful Accounts   $10,106       $ 10,010       $ 9,226(A)     $10,890




Note:

(A) Customer accounts written off, less recoveries.

<PAGE>
                                INDEX TO EXHIBITS


       EXHIBITS             DESCRIPTION                   METHOD OF FILING
-------------- -------------------------------- ===============================
   3.01        Restated       Articles      of  Filed as Exhibit  3(i) to Form
               Incorporation  of  the  Company  10-Q  for  the  quarter  ended
               dated May 27,  1996  (effective  March 31, 1996
               May 28, 1996)
-------------- -------------------------------- ===============================
   3.02        By-Laws    of    the    Company  Filed  as  Exhibit   3(ii)  to
               (amended   through   March  21,  Form  10-Q  for  the   quarter
               1996)                            ended March 31, 1996
-------------- -------------------------------- ===============================
   4.01 (a)    Indenture  dated as of April 1,  Filed    as    Exhibit    4.01
               1983  between  the  Company and  (Revised)  to   Post-Effective
               Pittsburgh     National    Bank  Amendment     No.     1     to
               relating to Debt Securities      Registration         Statement
                                                (Registration No. 2-80575)
-------------- -------------------------------- ===============================
   4.01 (b)    Instrument appointing Bankers    Filed as Exhibit 4.01 (b) to
               Trust Company as successor       Form 10-K for the year ended
               trustee to Pittsburgh National   December 31, 1993
               Bank
-------------- -------------------------------- ===============================
   4.01 (d)    Resolutions  adopted  June  22,  Filed as  Exhibit  4.01 (d) to
               1987 by the  Finance  Committee  Form  10-K for the year  ended
               of the  Board of  Directors  of  December 31, 1993
               the  Company  establishing  the
               terms  of  the   75,000   units
               (debentures    with   warrants)
               issued July 1, 1987
-------------- -------------------------------- ===============================
   4.01 (e)    Resolution   adopted  April  6,  Filed as  Exhibit  4.01 (e) to
               1988  by  the  Ad  Hoc  Finance  Form  10-K for the year  ended
               Committee   of  the   Board  of  December 31, 1993
               Directors    of   the   Company
               establishing   the   terms  and
               provisions    of    the    9.9%
               Debentures   issued  April  14,
               1988
-------------- -------------------------------- ===============================
   4.01 (f)    Supplemental  indenture  dated  Refiled  herewith as Exhibit
               March 15,  1991 with  Bankers   4.01(f)  pursuant to Rule 24 
               Trust Company  eliminating      of  SEC's Rules of Practice 
               limitations  on liens
               and additional funded debt
-------------- -------------------------------- ===============================
   4.01 (g)    Resolution  adopted  August 19,  Refiled  herewith  as  Exhibit
               1991  by  the  Ad  Hoc  Finance  4.01(g)  pursuant  to  Rule 24
               Committee   of  the   Board  of  of the SEC's Rules of Practice
               Directors    of   the   Company
               Addenda   Nos.   1   thru   27,
               establishing   the   terms  and
               provisions   of  the  Series  A
               Medium-Term Notes
-------------- -------------------------------- ===============================
   4.01 (h)    Resolutions   adopted  July  6,  Filed as Exhibit  4.05 to Form
               1992 and  February  19, 1993 by  10-K   for  the   year   ended
               the  Ad Hoc  Finance  Committee  December 31, 1992
               of the  Board of  Directors  of
               the Company and Addenda  Nos. 1
               thru 8,  establishing the terms
               and  provisions of the Series B
               Medium-Term Notes
-------------- -------------------------------- ===============================
   4.01 (i)    Resolution adopted July 14,      Filed as Exhibit 4.01(i) to
               1994 by the Ad Hoc Finance       Form 10-K for the year ended
               Committee of the Board of        December 31, 1995
               Directors of the Company and
               Addenda Nos. 1 and 2,
               establishing the terms and
               provisions of the Series C
               Medium-Term Notes
-------------- -------------------------------- ===============================

<PAGE>

-------------- -------------------------------- ===============================
    4.01 (j)   Resolution adopted January 18    Filed herewith as Exhibit
               and July 18, 1996 by the Board   4.01(j)
               of Directors of the Company
               and Resolutions adopted July
               18, 1996 by the Executive
               Committee of the Board of
               Directors of the Company,
               establishing the terms and
               provisions of the 7.75%
               Debentures issued July 29, 1996
-------------- -------------------------------- ===============================
  *10.01       Equitable Resources, Inc. Key    Filed as Exhibit 10.01 to
               Employee Restricted Stock        Form 10-K for the year ended
               Option and Stock Appreciation    December 31, 1994
               Rights Incentive Compensation
               Plan (as amended through March
               17, 1989)
-------------- -------------------------------- ===============================
  *10.02       Employment Agreement dated as    Filed as Exhibit 10.02 to
               of March 18, 1988 and restated   Form 10-K for the year ended
               as of March 15, 1996, with       December 31, 1995
               Frederick H. Abrew
-------------- -------------------------------- ===============================
  *10.04 (a)   Agreement dated May 29, 1996     Filed herewith as Exhibit
               with Paul Christiano for         10.04 (a)
               deferred payment of 1996
               director fees beginning May
               29, 1996
-------------- -------------------------------- ===============================
  *10.04 (b)   Agreement  dated  November 26,   Filed herewith as Exhibit 
               1996 with  Paul  Christiano      10.04(b)
               for deferred  payment  of 1997
               director fees
-------------- -------------------------------- ===============================
  *10.05       Supplemental Executive           Filed as Exhibit 10.05 to
               Retirement Plan (as amended      Form 10-K for the year ended
               and restated through October     December 31, 1995
               20, 1995)
-------------- -------------------------------- ===============================
  *10.06       Retirement Program for the       Filed as Exhibit 10.06 to
               Board of Directors of            Form 10-K for the year ended
               Equitable Resources, Inc. (as    December 31, 1994
               amended through August 1, 1989)
-------------- -------------------------------- ===============================
  *10.07       Supplemental Pension Plan (as    Filed as Exhibit 10.07 to
               amended and restated through     Form 10-K for the year ended
               December 16, 1994)               December 31, 1994
-------------- -------------------------------- ===============================
  *10.08       Policy to Grant  Supplemental    Filed as Exhibit 10.08 to 
               Deferred Compensation  Benefits  Form 10-K for the year ended
               in  Selected Instances to a      December 31, 1994 
               Select  Group of  Management or
               Highly  Compensated  Employees
               (as amended and restated
               through August 1, 1989)
-------------- -------------------------------- ===============================
  *10.09       Equitable Resources, Inc. and    Filed herewith as Exhibit
               Subsidiaries Short-Term          10.09
               Incentive Compensation Plan as
               amended March 1997
-------------- -------------------------------- ===============================
  *10.10 (a)   Agreement dated December 31,     Filed as Exhibit 10.10 (a) to
               1987 with Malcolm M. Prine for   Form 10-K for the year ended
               deferred payment of 1988         December 31, 1993
               director fees
-------------- -------------------------------- ===============================
  *10.10 (b)   Agreement dated December 30,     Filed as Exhibit 10.10 (b) to
               1988 with Malcolm M. Prine for   Form 10-K for the year ended
               deferred payment of 1989         December 31, 1993
               director fees
-------------- -------------------------------- ===============================
<PAGE>
-------------- -------------------------------- ===============================
   10.11       Trust Agreement with             Filed as Exhibit 10.12 to
               Pittsburgh National Bank to      Form 10-K for the year ended
               act as Trustee for               December 31, 1994
               Supplemental Pension Plan,
               Supplemental Deferred
               Compensation Benefits,
               Retirement Program for Board
               of Directors, and Supplemental
               Executive Retirement Plan
-------------- -------------------------------- ===============================
  *10.12       Equitable Resources, Inc.        Filed as Exhibit 10.13 to
               Non-Employee Directors' Stock    Form 10-K for the year ended
               Incentive Plan                   December 31, 1994
-------------- -------------------------------- ===============================
  *10.13       Equitable Resources, Inc.        Filed as Exhibit 10.14 to
               Long-Term Incentive Plan         Form 10-K for the year ended
                                                December 31, 1994
-------------- -------------------------------- ===============================
  *10.14 (a)   Agreement dated May 24, 1996     Filed herewith as Exhibit
               with Phyllis A. Savill for       10.14(a)
               deferred payment of 1996
               director fees beginning May
               24, 1996
-------------- -------------------------------- ===============================
  *10.14 (b)   Agreement dated November 27,     Filed herewith as Exhibit
               1996 with Phyllis A. Savill      10.14 (b)
               for deferred payment of 1997
               director fees
-------------- -------------------------------- ===============================
  *10.15       Change in Control Agreement      Filed as Exhibit 10.15 to the
               executed with certain key        Form 10-K for the year ended
               employees                        December 31, 1995
-------------- -------------------------------- ===============================
  *10.16       Equitable Resources, Inc. and    Filed as Exhibit 10.16 to the
               Subsidiaries Deferred            Form 10-K for the year ended
               Compensation Plan                December 31, 1995
-------------- -------------------------------- ===============================
   11.01       Statement re Computation of      Filed herewith as Exhibit
               Earnings Per Share               11.01
-------------- -------------------------------- ===============================
    21         Schedule of Subsidiaries         Filed herewith as Exhibit 21
-------------- -------------------------------- ===============================
   23.01       Consent of Independent Auditors  Filed herewith as Exhibit
                                                23.01
-------------- -------------------------------- ===============================

      The Company agrees to furnish to the Commission,  upon request,  copies of
instruments with respect to long-term debt which have not previously been filed.

<PAGE>

                                   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.

                                      By:        EQUITABLE RESOURCES, INC.
                                          -------------------------------------
                                                       (Registrant)


                                      By:   /s/     Frederick H. Abrew
                                          -------------------------------------
                                                    Frederick H. Abrew
                                          President and Chief Executive Officer


Date:  March 20, 1997

      Pursuant to the  requirements  of the Securities and 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.


                               President and Chief Executive
                                    Officer and Director
  /s/ Frederick H. Abrew       (Principal Executive Officer)   March 20, 1997
-----------------------------
      Frederick H. Abrew


                                 Senior Vice President and
  /s/ A. Mark Abramovic           Chief Financial Officer      March 20, 1997
-----------------------------
      A. Mark Abramovic


  /s/ Paul Christiano                    Director              March 20, 1997
      Paul Christiano


  /s/ E. Lawrence Keyes, Jr.             Director              March 20, 1997
-----------------------------
      E. Lawrence Keyes, Jr.


  /s/ Thomas A. McConomy                 Director              March 20, 1997
-----------------------------
      Thomas A. McConomy


  /s/ Donald I. Moritz                   Director              March 20, 1997
-----------------------------
      Donald I. Moritz


  /s/ Malcolm M. Prine                   Director              March 20, 1997
-----------------------------
      Malcolm M. Prine


<PAGE>

                             SIGNATURES (Continued)


  /s/ James E. Rohr                      Director              March 20, 1997
-----------------------------
      James E. Rohr


  /s/ Phyllis A. Savill                  Director              March 20, 1997
-----------------------------
      Phyllis A. Savill


  /s/ David S. Shapira                   Director              March 20, 1997
-----------------------------
      David S. Shapira


  /s/ J. Michael Talbert                 Director              March 20, 1997
-----------------------------
      J. Michael Talbert


