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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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

For the fiscal year ended DECEMBER 31, 1997

Commission File number 33-51630:

CHIEFTAIN INTERNATIONAL FUNDING CORP.
(Exact name of registrant as specified in its charter)

NEVADA 98-0127391
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

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

1201 TORONTO DOMINION TOWER, EDMONTON CENTRE,
EDMONTON, ALBERTA, CANADA T5J 2Z1
(Address of Registrant's principal executive offices) (Postal code)

Registrant's telephone number, including area code: (403) 425-1950

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

Title of each class Name of each exchange on which registered

$1.8125 Convertible Redeemable Preferred Stock American Stock Exchange

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 period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /x/ No / /
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CHIEFTAIN INTERNATIONAL FUNDING CORP.
1997 FORM 10-K ANNUAL REPORT

Table of Contents
Page
PART I

Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . 3

PART II

Item 5. Market for the Registrant's Securities and Related Stockholder Matters. . 4
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . .. . . . . 5
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . 5
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . 6
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . 6

PART III

Item 10. Directors and Executive Officers . . . . . . . . . . . . . . . . . . . . . 6
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . 8
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . 9

PART IV

Item 14. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . 9

Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

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PART I

ITEM 1. BUSINESS

Chieftain International Funding Corp. ("Funding Corp." or the "Company") is a
Nevada subsidiary of Chieftain International (U.S.) Inc. ("Chieftain U.S."), a
Nevada corporation which is, in turn, a wholly-owned subsidiary of Chieftain
International, Inc., an Alberta, Canada corporation. The primary purpose of
Funding Corp. is to finance business operations of Chieftain U.S.

On each of August 28, 1992 and November 5, 1992, Funding Corp. issued 100,000
common shares to Chieftain U.S. for total cash proceeds of $15.0 million.

Funding Corp. commenced operations on November 6, 1992 with the initial public
offering of 2,400,000 $1.8125 Convertible Redeemable Preferred Shares
("Preferred Shares"). An additional 326,700 Preferred Shares were issued
pursuant to the underwriter's exercise of an over-allotment option. Proceeds of
the issuance of Preferred Shares, net of offering costs of $4.7 million, were
$63.4 million. The Preferred Shares are redeemable at the option of the
Company at $25.8056 per share during 1998 declining to $25.00 per share after
December 31, 2001 plus accumulated and unpaid dividends. Each preferred share is
convertible at any time at the option of the holder into 1.25 common shares of
Chieftain International, Inc. (the ultimate parent company). Dividends on the
Preferred Shares are paid quarterly at the annual rate of $1.8125 per share.

On November 6, 1992, Funding Corp. purchased 2,840,000 $1.8125 Redeemable Class
B Preferred Shares of Chieftain U.S., its parent company, at $25.00 per share,
and subsequently purchased an additional 300,000 of such shares to hold a total
of 3,140,000 such shares. Funding Corp. receives quarterly dividends on such
shares at the annual rate of $1.8125 per share. The shares are redeemable at the
option of the issuer at $25.8056 per share during 1998 declining to $25.00
during 2002 and thereafter.

Since December 31, 1992, Funding Corp. has, from time to time, purchased
short-term notes, payable by Chieftain U.S., with funds in excess of working
capital requirements. Such notes bear interest at competitive money market
rates.

Chieftain U.S. is engaged in the acquisition of gas and oil reserves through
purchase and through exploration and development and in gas and oil production
and sales in the United States. Its principal properties are located in the U.S.
federal waters of the Gulf of Mexico and in southeast Utah. Reference is made to
the information describing United States properties and operations in the Form
10-K Annual Report of Chieftain International, Inc. for the year ended December
31, 1997, which is attached as Exhibit 28 hereto. Chieftain International, Inc.
has guaranteed dividend, conversion and redemption obligations of Funding Corp.
with respect to the Preferred Shares.

EMPLOYEES

At December 31, 1997, Funding Corp. had no employees. Management services are
provided by Chieftain International, Inc.

ITEM 2. PROPERTIES

Funding Corp. owns no physical properties. Its assets consist of investments in
and advances to Chieftain U.S., its parent company.

ITEM 3. LEGAL PROCEEDINGS

Funding Corp. is not a party to any material legal proceeding.

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

No matters were submitted to a vote of security holders of the Company during
the fourth quarter of 1997.

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PART II

ITEM 5. MARKET FOR THE REGISTRANT'S SECURITIES AND RELATED STOCKHOLDER MATTERS

The high and low prices of the Chieftain International Funding Corp. $1.8125
Convertible Redeemable Preferred Shares (the "Preferred Shares") during each
quarter since December 31, 1995 are shown below.

Price History of Chieftain International Funding Corp. $1.8125
Convertible Redeemable Preferred Shares on the American Stock Exchange

(U.S. dollars) High Low
-----------------------------------------------------------

1996
First quarter $ 27.25 $ 25.13
Second quarter 27.63 25.00
Third Quarter 29.63 26.00
Fourth Quarter 33.00 27.75

1997
First quarter 32.50 27.13
Second quarter 30.88 26.88
Third quarter 34.50 29.50
Fourth quarter 35.00 28.00

1998
January 29.00 26.75
February 30.25 28.63
March 1 to March 13 31.25 30.00

All of the Company's issued common shares are owned by its parent, Chieftain
International (U.S.) Inc. The Preferred Shares were held by 53 shareholders of
record on December 31, 1997.

The Company has made timely payment of quarterly dividends on the Preferred
Shares, amounting to $0.453125 per share, for each quarter since the shares were
issued in 1992.

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ITEM 6. SELECTED FINANCIAL DATA

The selected financial data for each of the five years in the period ended
December 31, 1997 has been derived from the financial statements of Funding
Corp. and should be read in conjunction with such financial statements and the
related notes.

CHIEFTAIN INTERNATIONAL FUNDING CORP.
YEAR ENDED DECEMBER 31, 1997 1996 1995 1994 1993
------- ------- ------- ------- -------
(in thousands except shares and per share amounts)

INCOME STATEMENT DATA:
Revenue ................................... $ 5,867 $ 5,826 $ 5,792 $ 5,736 $ 5,704
General and administrative expenses ....... 77 46 44 44 49
Income before dividends on preferred shares 5,755 5,748 5,748 5,692 5,668
Dividends on preferred shares ............. 4,942 4,942 4,942 4,942 4,942
Net income applicable to common shares .... 813 806 806 750 726
Net income per common share ............... 4.07 4.03 4.03 3.75 3.63
Number of common shares outstanding ....... 200,000 200,000 200,000 200,000 200,000

OTHER DATA:
Cash provided from operating activities ... $ 815 $ 993 $ 617 $ 748 $ 261

BALANCE SHEET DATA (at end of period):
Working capital ........................... $ 3,920 $ 3,106 $ 2,300 $ 1,494 $ 745
Total assets .............................. $ 82,425 $ 81,610 $ 82,040 $ 80,000 $ 79,252
Preferred shares issued ................... $ 63,403 $ 63,403 $ 63,403 $ 63,403 $ 63,403
Common shareholder's equity ............... $ 19,017 $ 18,203 $ 17,398 $ 16,592 $ 15,842

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

Funding Corp., a special purpose subsidiary of Chieftain International (U.S.)
Inc., was formed in 1992 for the primary purpose of financing the U.S. business
operations of its parent.

ANALYSIS OF OPERATING RESULTS

Funding Corp.'s income is derived from dividends on preferred shares and
interest on short-term notes, all of which are issued by its parent company,
Chieftain International (U.S.) Inc.

Dividends received on 3,140,000 redeemable Class B preferred shares amounted to
$5,691,250 in each of the years 1997 and 1996. In addition to such dividend
income, interest of $175,599 and $134,272 in 1997 and 1996,respectively, was
earned on short-term investments.

Dividend income is expected to remain the same for 1997 while interest income is
expected to increase, reflecting the larger amount of short-term investments
held.

Dividends in the amount of $4,942,144 were paid in 1997, unchanged from 1996.

CAPITAL RESOURCES AND LIQUIDITY

Funding Corp. is dependent upon the dividend income from its investment in
preferred shares of its parent company to provide funds for payment of dividends
on its publicly-held preferred shares.

Funds provided from operations decreased to $815,049 in 1997 compared with
$992,999 in 1996. Most of these funds were invested in short-term notes issued
and payable by the parent company. Cash balances at December 31, 1997 and 1996
were $45,351 and $80,857 respectively.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following financial statements of Chieftain International Funding Corp. are
included in Part IV of this report.

Auditors' Report

Balance Sheet as at December 31, 1997 and 1996

Statement of Income and Retained Earnings for the years ended December 31,
1997, 1996 and 1995

Statement of Changes in Financial Position for the years ended December 31,
1997, 1996 and 1995

Notes to Financial Statements

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

There have been no disagreements between Funding Corp. and Funding Corp.'s
auditors on accounting or financial disclosure matters.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS

The Board of Directors of the Company consists of not less than three nor more
than ten directors. The number of directors within these limits is fixed from
time to time by resolution of the Board of Directors and is currently eight.
Directors are elected annually by the common stockholder to hold office until
the close of the next ensuing annual meeting.

Information is presented below with respect to the directors of the Company. The
information includes age as of the date hereof, present position with the
Company and other business experience during the past five years. Except as
noted, all of the directors of the Company have served as such since the
Company's formation in November, 1992 and all are also directors of Chieftain
International (U.S.) Inc., the immediate parent of the Company and Chieftain
International, Inc., the ultimate parent of the Company. S.C. Hurley became a
director of each of such companies in 1997. Also presented is information with
respect to directors' ownership of securities of the Company and its ultimate
parent, and the ownership of such securities by the directors and executive
officers as a group. A director need not be a shareholder of the Company.

SHARES BENEFICIALLY OWNED AND PERCENT OF CLASS (1)
AS AT FEBRUARY 27, 1998
----------------------------------------------------
COMMON SHARES PREFERRED SHARES
OF OF
CHIEFTAIN INTERNATIONAL, INC. CHIEFTAIN FUNDING (2)
----------------------------- ---------------------

STEPHEN C. HURLEY, 48, Director
Senior Vice President and Chief Operating Officer of
Chieftain International, Inc. 52,271(3) -- -- --

HUGH J. KELLY, 72, Director
Corporate Director and
Energy Consultant. (4) 27,666(5) -- 10,000 --

JOHN E. MAYBIN, 73, Director
Corporate Director 27,666(6) -- -- --

STANLEY A. MILNER, A.O.E.,LL.D., 69, Director
President and Chief Executive Officer of
Chieftain International, Inc. (7) 661,636(8) 4.83% 39,000 1.43%

DAVID E. MITCHELL, O.C., 71,
Chairman of the Board
Chairman of Alberta Energy Company Ltd. (9) 36,666(5) -- -- --

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LOUIS G. MUNIN, 64, Director
Corporate Director and
Financial Consultant (10) 30,666(5) -- 2,000 --

ESTHER S. ONDRACK, 57, Director
Senior Vice President and Secretary of
Chieftain International, Inc. 97,708(11) -- -- --

STUART T. PEELER, 68, Director
Corporate Director and
Petroleum Industry Consultant. (12) 26,667(13) -- 21,500 --

DIRECTORS AND EXECUTIVE
OFFICERS AS A GROUP 1,146,456(14) 8.14% 72,500 2.66%

(1) Percentages of less than one are omitted.

(2) Each $1.8125 Convertible Redeemable Preferred Share of Chieftain
International Funding Corp. is convertible into 1.25 common shares of
Chieftain International, Inc.

(3) Includes options, exercisable within 60 days, to purchase 50,000 shares.

(4) H.J. Kelly is a director of Baroid Corporation, Central Louisiana Electric
Company Inc., Hibernia National Bank and Tidewater Inc.

(5) Includes options, exercisable within 60 days, to purchase 26,666 shares.

(6) Includes options, exercisable within 60 days, to purchase 26,166 shares.

(7) S.A. Milner is a director of Alberta Energy Company Ltd., Canadian Imperial
Bank of Commerce and Canadian Pacific Limited.

(8) Includes options, exercisable within 60 days, to purchase 115,000 shares.
In addition, an associate of Mr. Milner owns 15,000 common shares.

(9) D.E. Mitchell is a director of Alberta Energy Company Ltd. and Air Canada.

(10) L.G. Munin is a director of Lafarge Canada Inc. and Walden Residential
Properties, Inc.

(11) Includes options, exercisable within 60 days, to purchase 75,833 shares.

(12) S.T. Peeler is a director of Calmat Co. and Homestake Mining Company.

(13) Includes options, exercisable within 60 days, to purchase 14,167 shares.

(14) Includes options, exercisable within 60 days, to purchase 495,328 shares.

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EXECUTIVE OFFICERS

The following table lists the name and age of each Executive Officer and all
positions and offices with the Company held by each such person. The officers
are appointed each year at the directors' meeting immediately following the
annual meeting of the shareholder. The next such meeting will be held on May 14,
1998.

NAME AGE POSITION/OFFICE
- ---- --- ---------------

S.A. Milner, A.O.E.,LL.D 69 Director, President and Chief Executive Officer
S.C. Hurley 48 Director, Senior Vice President and Chief Operating Officer
E.L. Hahn 60 Senior Vice President, Finance and Treasurer
E.S. Ondrack 57 Director, Senior Vice President and Secretary
R.A. McDougall 62 Vice President, Land
S.J. Milner 40 Vice President, Drilling and Production
R.J. Stefure 50 Controller

With the following exceptions all of the officers have held positions as
officers of the Company since its incorporation in 1992 and each officer
presently holds and has held for more than five years positions as officers of
Chieftain International, Inc. and Chieftain International (U.S.) Inc., the
former, in each case, being his or her principal occupation. S.C. Hurley joined
Chieftain in September, 1995 prior to which time he was the Vice President
Exploration of a U.S. based integrated oil company. S.J. Milner and R.J. Stefure
were appointed officers of the Company in June, 1995 and prior thereto held
management positions with the Company and its immediate and ultimate parents.

There are no family relationships among the executive officers and directors
except between S.A. Milner and D.E. Mitchell, O.C. who are first cousins and
between S.A. Milner and S.J. Milner who are father and son.

ITEM 11. EXECUTIVE COMPENSATION

The directors and officers, including the chief executive officer, receive no
compensation in their capacities as directors and officers of Funding Corp. All
of the officers are employees of and receive remuneration from Chieftain
International, Inc.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table shows the share ownership in the voting securities of the
Company of each person or company beneficially owning, or exercising control or
direction over, more than five per cent of the outstanding shares of the
Company.

Class Number of shares Percent of
Name and address of beneficial owner of shares beneficially owned class owned
- ------------------------------------ --------- ------------------ -----------

Chieftain International (U.S.) Inc.
1201 Toronto Dominion Tower
Edmonton Centre
Edmonton, Alberta, Canada
T5J 2Z1 Common 200,000 100%

Information with respect to shares beneficially owned in the registrant and its
ultimate parent, Chieftain International, Inc., by directors and executive
officers of the Company, is presented in Item 10, "Directors and Executive
Officers".

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Under the terms of an informal understanding between the Company and Chieftain
International, Inc.("Chieftain Canada"), Chieftain Canada provides management
services as required to enable the Company to carry on its business.

Chieftain Canada has unconditionally guaranteed certain obligations of the
Company with respect to the Preferred Shares. The Preferred Shares are
redeemable, at the option of the Company, at $25.8056 per share during 1998,
declining to $25.00 per share after December 31, 2001 plus accumulated and
unpaid dividends. Each Preferred Share has a liquidation preference of $25.00
and is convertible at any time into 1.25 common shares of Chieftain Canada at
the option of the holder. Reference is made to Exhibits 4(a), "Form of
Certificate of Designation of Preferred Stock of Funding Corp.", and 4(b), "Form
of Subordinated Guarantee Agreement of Chieftain International, Inc.".

PART IV

ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K

The following is a listing of the financial statements which are included in
this Form 10-K report.

FINANCIAL STATEMENTS

Reference is made to the list of financial statements on page 6 of this report.

EXHIBITS

Reference is made to the Index to Exhibits on page 17 of this report.

REPORTS ON FORM 8-K

The registrant filed no reports on Form 8-K during the fourth quarter of the
year ended December 31, 1997.

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AUDITORS' REPORT

To the Shareholders of
Chieftain International Funding Corp.

We have audited the balance sheets of Chieftain International Funding Corp. as
at December 31, 1997 and 1996 and the statements of income and retained earnings
and changes in financial position for each of the years in the three-year period
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance 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.

In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 1997 and 1996
and the results of its operations and the changes in its financial position for
each of the years in the three-year period ended December 31, 1997 in accordance
with generally accepted accounting principles.

PRICE WATERHOUSE
Chartered Accountants

Edmonton, Alberta
February 4, 1998

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CHIEFTAIN INTERNATIONAL FUNDING CORP.

(a subsidiary of Chieftain International (U.S.) Inc.)

BALANCE SHEET

December 31, 1997 1996
----------- -----------
(U.S. $)

ASSETS

Current assets:
Cash $ 45,351 $ 80,857
Due from affiliated companies 3,879,982 3,029,427
----------- -----------
3,925,333 3,110,284
Investment in preferred shares of Chieftain International (U.S.) Inc.
at cost (Note 2) 78,500,000 78,500,000
----------- -----------
$82,425,333 $81,610,284
=========== ===========

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Accounts payable and accrued $ 5,776 $ 4,100

Preferred shares issued (Note 3) 63,402,903 63,402,903

Common shareholder's equity:
Share capital (Note 4)
Authorized
10,000,000 common shares, par value $0.01 each
Issued
200,000 common shares 2,000 2,000
Additional paid in capital 14,998,000 14,998,000
Retained earnings 4,016,654 3,203,281
----------- -----------
19,016,654 18,203,281
----------- -----------
$82,425,333 $81,610,284
=========== ===========

APPROVED BY THE BOARD

/s/ S.A. Milner Director

/S/ L.G. Munin Director

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CHIEFTAIN INTERNATIONAL FUNDING CORP.

STATEMENT OF INCOME AND RETAINED EARNINGS

Year ended December 31, 1997 1996 1995
----------- ----------- -----------
(U.S. $)

Revenue
Dividends $ 5,691,250 $ 5,691,250 $ 5,691,250
Interest 175,599 134,272 100,690
----------- ----------- -----------
5,866,849 5,825,522 5,791,940

General and administrative expenses 76,553 46,081 44,260
----------- ----------- -----------
Income before income taxes and dividends on preferred shares 5,790,296 5,779,441 5,747,680

Income taxes (Note 5) 34,779 31,600 --
----------- ----------- -----------
Income before dividends on preferred shares 5,755,517 5,747,841 5,747,680

Dividends on preferred shares (4,942,144) (4,942,144) (4,942,144)
----------- ----------- -----------
Net income applicable to common shares 813,373 805,697 805,536

Retained earnings, beginning of period 3,203,281 2,397,584 1,592,048
----------- ----------- -----------
Retained earnings, end of period $ 4,016,654 $ 3,203,281 $ 2,397,584
=========== =========== ===========
Net income per common share $ 4.07 $ 4.03 $ 4.03
=========== =========== ===========

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CHIEFTAIN INTERNATIONAL FUNDING CORP.

STATEMENT OF CHANGES IN FINANCIAL POSITION

Year ended December 31, 1997 1996 1995
--------- ----------- -----------
(U.S. $)

Operating activities:
Net income applicable to common shares $ 813,373 $ 805,697 $ 805,536
Change in non-cash working capital
Dividend receivable -- 1,422,813 (1,422,813)
Current liabilities 1,676 (1,235,511) 1,234,511
--------- ----------- -----------
815,049 992,999 617,234
Investing activities:
Advances to affiliated companies (850,555) (1,008,390) (563,638)
--------- ----------- -----------
Change in cash (35,506) (15,391) 53,596

Cash, beginning of year 80,857 96,248 42,652
--------- ----------- -----------
Cash, end of year $ 45,351 $ 80,857 $ 96,248
========= =========== ===========

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CHIEFTAIN INTERNATIONAL FUNDING CORP.

NOTES TO FINANCIAL STATEMENTS

December 31, 1997, 1996 and 1995

Chieftain International Funding Corp. ("Funding Corp."), a special purpose
subsidiary of Chieftain International (U.S.) Inc., was formed in 1992 for the
primary purpose of financing the U.S. business operations of its parent. Funding
Corp.'s income is derived from dividends on preferred shares and interest on
short-term notes, all of which are issued by its parent company, Chieftain
International (U.S.) Inc. The financial statements are expressed in U.S.
currency since the assets and operations of Funding Corp. are denominated in
U.S. dollars.

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ACCOUNTING POLICIES

The financial statements of Funding Corp. are prepared in conformity with
Canadian generally accepted accounting principles. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make informed judgements and estimates. Actual results may differ
from those estimates. Material differences between Canadian and U.S. accounting
principles which affect Funding Corp. are specifically referred to in these
Notes to Financial Statements.

FINANCIAL ASSETS AND LIABILITIES

Funding Corp.'s financial instruments that are included in the Balance Sheet are
comprised of cash, intercompany receivables, all current liabilities and
preferred shares issued, the fair values of which, other than the preferred
shares issued (see Note 3), approximate their carrying amounts due to their
short-term or demand nature.

INCOME TAXES

Funding Corp. and its parent company file corporate income tax returns on a
consolidated basis. As a result, income taxes payable have been offset by the
parent company's tax losses and are reflected in the amount due from the parent
company.

Funding Corp. follows the tax allocation method of accounting for the tax effect
of all timing differences between taxable income and accounting income.

U.S. accounting principles require corporations to account for deferred income
taxes using the liability method. The effect on Funding Corp. of the application
of such method is not material.

2. INVESTMENT IN PREFERRED SHARES OF PARENT

On November 6, 1992, Funding Corp. purchased 2,840,000 $1.8125 Redeemable Class
B Preferred Shares at $25.00 per share of Chieftain International (U.S.) Inc.,
its parent company. Subsequent to that date, FundingCorp. purchased an
additional 300,000 of such shares to hold a total of 3,140,000 shares. The
shares pay quarterly dividends at the annual rate of $1.8125 per share. The
shares are redeemable at the option of the parent company at $25.8056 during
1998 declining to $25.00 per share after December 31, 2001, plus accumulated and
unpaid dividends.

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3. PREFERRED SHARES

The Articles of Funding Corp. authorize the issue of a maximum of 10,000,000
preferred shares with a par value $1.00 each.

On November 6, 1992, Funding Corp. sold 2,400,000 shares of $1.8125 convertible
redeemable preferred stock at $25.00 per share through an underwritten public
offering in the United States. On December 2, 1992, Funding Corp. sold an
additional 326,700 preferred shares pursuant to an over-allotment option granted
to the underwriters, resulting in a total issuance of 2,726,700 shares. Proceeds
of the issuance of preferred shares, net of offering costs of $4.7 million, were
$63.4 million. The preferred shares are redeemable, at the option of Funding
Corp., at $25.8056 per share during 1998, declining to $25.00 per share after
December 31, 2001 plus accumulated and unpaid dividends. Each preferred share
has a liquidation preference of $25.00 and is convertible at any time at the
option of the holder into 1.25 common shares of Chieftain International, Inc.
(the ultimate parent company). Chieftain International, Inc. has guaranteed
dividend, conversion and redemption obligations of Funding Corp. with respect to
the preferred shares.

Canadian generally accepted accounting principles require the disclosure of the
fair value of a financial instrument of this nature and define the fair value as
the amount at which the instrument could be exchanged in a current transaction
between willing parties. The estimated fair value of Funding Corp.'s preferred
shares at December 31, 1997 is $72,427,969 (1996 - $88,617,750) which is the
market value of the securities into which these shares are convertible.

4. SHARE CAPITAL

On August 28, 1992, Funding Corp. issued 100,000 common shares, par value $0.01
each, for net cash proceeds of $1,000 and, on November 5, 1992 issued 100,000
common shares, par value $0.01 each, to its parent for net cash proceeds of
$14,999,000.

5. INCOME TAXES

The actual tax rate differed from the expected tax rate for the following
reason:

Year ended December 31, 1997 1996 1995
---- ---- ----

Expected percentage 35.5% 35.8% 35.5%
Deduct the effect of dividends from the parent received by
the company on a "tax-free" basis 34.9 35.3 35.5
---- ---- ----
Actual percentage of income tax expense on pre-tax income 0.6% 0.5% 0.0%
==== ==== ====

6. TRANSACTIONS WITH AFFILIATES

All dividend and interest income of Funding Corp. is received from Chieftain
International (U.S.) Inc. Certain administrative services are provided to
Funding Corp. by Chieftain International, Inc.

15
16
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.

CHIEFTAIN INTERNATIONAL FUNDING CORP.

by: /s/ STANLEY A. MILNER by: /s/ EDWARD L. HAHN
------------------------- ------------------------
Stanley A. Milner, A.O.E., LL.D. Edward L. Hahn
President and Senior Vice President, Finance and Treasurer
Chief Executive Officer and Chief Financial Officer

Dated: March 20, 1997

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

/s/ D.E. MITCHELL Director March 20, 1998
- --------------------------
D.E. Mitchell O.C

/s/ S.A. MILNER President, Chief Executive Officer and March 20, 1998
- -------------------------- Director
S.A. Milner, A.O.E., LL.D

/s/ S.C. HURLEY Director March 20, 1998
- --------------------------
S.C. Hurley

/s/ H.J. KELLY Director March 20, 1998
- --------------------------
H.J. Kelly

/s/ J.E. MAYBIN Director March 20, 1998
- --------------------------
J.E. Maybin

/s/ L.G. MUNIN Director March 20, 1998
- --------------------------
L.G. Munin

/s/ E.S. ONDRACK Director March 20, 1998
- --------------------------
E.S. Ondrack

/s/ S.T. PEELER Director March 20, 1998
- --------------------------
S.T. Peeler

/s/ E.L. HAHN Senior Vice President, Finance and Treasurer March 20, 1998
- -------------------------- and Chief Financial Officer
E.L. Hahn

/s/ R.J. STEFURE Controller and Chief Accounting Officer March 20, 1998
- --------------------------
R.J. Stefure

16
17
INDEX TO EXHIBITS

EXHIBIT
NUMBER EXHIBIT
- --------- -------

** 3(e) Articles of Incorporation of Funding Corp.
** 3(f) Amended Articles of Incorporation of Funding Corp.
** 3(g) Bylaws of Funding Corp.
** 4(a) Form of Certificate of Designation of Preferred Stock of Funding
Corp.
** 4(b) Form of Subordinated Guarantee Agreement of Chieftain
International, Inc.
**** 24 Consent of Price Waterhouse.
27 Financial Data Schedule.
**** 28 Form 10-K of Chieftain International, Inc. for the year ended
December 31, 1997.

** Previously filed as an exhibit to the Registration Statement of the
registrant on Form S-1/S-3, File No. 33-51630.
**** Filed herewith.