<PAGE>

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

                         Commission file number 1-8483
                              UNOCAL CORPORATION
            (Exact name of registrant as specified in its charter)

          DELAWARE                                    95-3825062
(State or other jurisdiction of                    (I.R.S. Employer
incorporation or organization)                     Identification No.)

2141 ROSECRANS AVENUE, SUITE 4000, EL SEGUNDO, CALIFORNIA           90245
       (Address of principal executive offices)                  (Zip Code)

      Registrant's telephone number, including area code:  (310) 726-7600

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

      Title of each class            Name of each exchange on which registered
      -------------------            -----------------------------------------
Common Stock, par value $1.00 per share    New York Stock Exchange
                                           Pacific Exchange
                                           Chicago Stock Exchange
Preferred Stock Purchase Rights            New York Stock Exchange
                                           Pacific Exchange
                                           Chicago 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
                                               -----      -----

   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.  [   ]

   The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 17, 1997 (based upon the average of the high and low
prices of these shares reported in the New York Stock Exchange Composite
Transactions listing for that date) was $9,785 million.

     Shares of Common Stock outstanding as of March 17, 1997:  250,086,778

                      DOCUMENTS INCORPORATED BY REFERENCE

   Portions of the registrant's definitive Proxy Statement for its 1997 Annual
Meeting of Stockholders (to be filed with the Securities and Exchange Commission
on or about April 21, 1997) are incorporated by reference into Part III.
<PAGE>

                                    PART I

ITEMS 1 AND 2 - BUSINESS AND PROPERTIES

  Unocal Corporation was incorporated in Delaware on March 18, 1983, to operate
as the parent of Union Oil Company of California (Union Oil), which was
incorporated in California on October 17, 1890.  Virtually all operations are
conducted by Union Oil and its subsidiaries.  The terms "Unocal" and "the
company" as used in this report mean Unocal Corporation and its subsidiaries,
except where the context indicates otherwise.

  Unocal explores for, develops, produces and markets crude oil and natural gas
resources around the world.  The company's largest operations are in the Gulf
Coast region of the United States and in Southeast Asia.  In addition, Unocal is
the world's leading geothermal energy producer and manufactures and markets
nitrogen-based fertilizers, petroleum coke, graphites, solvents and specialty
minerals.


STRATEGIC FOCUS

  Today's global energy environment has changed dramatically.  In response to
this changing environment, Unocal is moving aggressively to implement a growth
strategy that will ensure its participation in new global energy opportunities.
To help realize these new opportunities, the company established a second
corporate office in Kuala Lumpur, Malaysia.  This office will focus on building
high-level business relationships and opportunities.

  The company will continue to build on its basic strengths of an established
presence and solid business relationships in Asia, an international reputation
for technical competence and innovation and a proven record as an efficient, low
cost project operator.  During 1996, the company built on its operational
strengths by selling assets that had historically low returns and by increasing
capital spending in international areas in which the company has a strong
competitive position.

  In April 1996, the company completed the sale of nearly all of its crude oil
and natural gas producing properties in California.  Proceeds of $472 million
from the sale were used primarily to reduce debt.  In December 1996, the company
signed a definitive agreement with Tosco Corporation for the sale of
substantially all of its West Coast petroleum refining, marketing and
transportation assets.  The sale is valued at approximately $2 billion.
Proceeds from the sale are expected to be used to reduce debt, repurchase common
stock and fund potentially higher return projects overseas.  For additional
information on the sale, see Management's Discussion and Analysis under Item 7
and Note 3 to the Consolidated Financial Statements under Item 8.  The company
also signed a letter of intent in December 1996 to restructure The UNO-VEN
Company, a refining and marketing partnership in the Midwest, of which it owns
50 percent.  Under the terms of the proposed agreement, the refining and
marketing assets of UNO-VEN, together with substantially all of its non-
environmental liabilities, would be distributed to an affiliate of the partner.
UNO-VEN, which would become wholly owned indirectly by Unocal, would realize
approximately $250 million.  The company's involvement in the petroleum refining
and marketing business would essentially end with the sale of the West Coast
refining, marketing and transportation assets and restructuring of UNO-VEN.

  During 1996, the company continued to focus on international oil and gas
operations and infrastructure project development.  The company is aggressively
pursuing opportunities in areas that have recently opened up due to a changing
global energy environment.  Political barriers are falling and, as a result,
access to known energy resources has greatly expanded.  Also contributing to
this improved energy environment are growing cooperation and interdependence
between energy suppliers and users.  These changes have created new growth
opportunities, and the company's goal is to participate in those opportunities
which offer the greatest potential.   In keeping with this strategic focus, the
company's estimated 1997 capital expenditures for foreign oil and gas
exploration and production are 44 percent above the 1996 level.

                                       1
<PAGE>

OPERATIONAL AUTONOMY

  To improve Unocal's competitiveness, the company organized its operating
groups into business units with greater autonomy.

  In August 1996, the company formed the Spirit Energy 76 business unit (Spirit
Energy).  Spirit Energy will focus on growth in the contiguous United States by
maximizing efficiencies and lowering costs of existing operations.  In addition,
the new unit will invest in higher return projects and expects to increase the
overall return on the company's domestic oil and gas assets.  Spirit Energy will
focus primarily in the Gulf of Mexico region, where the company has significant
natural gas operations with excellent growth opportunities.

  During 1996, the company organized the New Ventures group into teams of
professionals from various disciplines that are pursuing potentially high-return
energy projects in Asia and Latin America.  The focus of these teams is to
identify and capture new market-to-resource and value-added opportunities.  The
new opportunities include exploration in known resource areas and key
infrastructure projects such as pipelines, power plants and fertilizer plants.

  The company also created a new International Operations group that will focus
on overseas oil, gas and geothermal projects and smooth the transition of the
New Ventures group's projects into operations.

  In addition, the company merged the Alaska oil and gas operations with the
Agricultural Products business unit.  Natural gas from the company's South
Alaska operations is the feedstock for the agricultural products plants in
Kenai.  The merger is expected to strengthen the long-term value of the
company's Alaska operations by improving operating efficiencies and providing
greater coordination between the natural gas operations and ammonia/urea
manufacturing.

 During 1997, the company organized into the following reporting segments:

 . EXPLORATION AND PRODUCTION
       United States
         Spirit Energy 76
         Other
       International
 . GEOTHERMAL OPERATIONS
 . DIVERSIFIED BUSINESS GROUP
       Agricultural Products
       Carbon and Minerals
       Pipelines
 . CORPORATE AND UNALLOCATED
       New Ventures Group
       Other

  For detailed analysis of the company's results of operations and financial
condition, see Management's Discussion and Analysis under Item 7 beginning on
page 19 of this report.

SEGMENT AND GEOGRAPHIC INFORMATION

  Financial information relating to the company's business segments, geographic
areas of operations, and sales revenues by classes of products is presented
under Note 26 to the Consolidated Financial Statements and Selected Financial
Data on pages 62 and 75, respectively, of this report.

EXPLORATION AND PRODUCTION

  Information regarding oil and gas financial data and oil and gas reserve data
and the related present value of future net cash flows from oil and gas
operations is presented on pages 67 through 73 of this report.  During 1996,

                                       2
<PAGE>

certain estimates of underground oil and gas reserves were filed with the
Department of Energy under the name of Union Oil.  Such estimates were
consistent with reserve data filed with the Securities and Exchange Commission.

WORLDWIDE OIL AND GAS ACTIVITIES

  Unocal conducts exploration, production and development activities, including
low-risk exploration within producing areas, with major operations in the United
States, Thailand, Indonesia and Canada.  At December 31, 1996, exploration and
production operations accounted for approximately 62 percent of Unocal's assets
from continuing operations, and of this, operations in the United States make up
60 percent of the asset base.  Unocal's future growth will focus principally in
the foreign sector, with concentration in the Far East and Central Asia.  In
addition, growth opportunities in the United States will focus primarily in the
Gulf of Mexico.

<TABLE>
<CAPTION>


Worldwide                                                 1996            1995            1994
----------------------------------------------------------------------------------------------
<S>                                                     <C>             <C>             <C>
Net proved reserves at year end: (a)
        Crude oil and condensate - million barrels          513             667             697
        Natural gas - billion cubic feet                  6,795           6,765           6,911
Net daily production: (a)
        Crude oil and condensate - thousand barrels         207             240             260
        Natural gas - million cubic feet                  1,812           1,765           1,766
        Natural gas liquids - thousand barrels               20              21              22
Natural gas sales to public - million cubic feet daily    1,596           1,513           1,529
---------------------------------------------------------------------------------------------
</TABLE>

(a)  Includes foreign production sharing agreements on a gross basis (see
     Foreign Reserve/Production table on page 6 for host country share
     information). Natural gas is reported on a wet-gas basis; production
     excludes gas consumed on lease.

  The decrease in worldwide crude oil production was mainly due to the sale of
California properties and natural production declines.  Worldwide natural gas
production increased during 1996, primarily due to increased development of
fields in Thailand, Indonesia and in the Gulf of Mexico.

  Higher crude oil prices in 1996 resulted in increased expenses for crude oil
and product purchases as compared to 1995.  This was partially offset by
decreased operating expenses in California as a result of the sale of oil and
gas producing properties.  During 1996, total operating expense increased
partially due to new gas production in Thailand and the Gulf of Mexico.  The
company's continuing efforts to increase production and decrease operating costs
resulted in decreased 1996 average production costs per barrel of oil equivalent
to $2.73, down from $2.94 and $3.00 for 1995 and 1994, respectively.

  Unocal pursues exploration opportunities and business development projects to
help sustain the long-term growth of the company.  The company's exploration
program remains primarily focused on low-risk market-to-resource and value-added
opportunities.

UNITED STATES

EXPLORATION

  After several years of focusing on exploration opportunities in and around
producing fields and increasing domestic production from existing reserves,
Spirit Energy is planning to expand its domestic operations.  Spirit Energy will
focus exclusively on opportunities in the contiguous United States, primarily
the Gulf of Mexico region.  Spirit Energy will continue its exploration efforts
near established fields, but will also renew its emphasis on new field wildcat
drilling.  In 1997, Spirit Energy expects to participate in 16 onshore and 28
offshore exploratory wells, including 15 new wildcat wells in the transition
zone and deep water areas in the Gulf of Mexico.

  The company holds approximately 893,000 net acres of unproved lands in the
United States.  Most of the prospective lands are located in Alaska, Louisiana
and Texas.  Unproved acreage in federal offshore exploration and production
areas is included in the contiguous states.

                                       3
<PAGE>

  In March 1997, Spirit Energy was high bidder for interests in 55 deep-water
and 18 continental shelf blocks in the Gulf of Mexico.  The company expects
exploration activity to begin as soon as the new blocks are awarded, and
drilling in some prospects could begin in early 1998.  The company has a 100
percent interest on all bids for blocks on the continental shelf and on 36 of
the 55 deep-water blocks.  The remaining 19 deep-water bids were acquired with
partners.  The company's interest in these 19 blocks ranges from 50 percent to
75 percent.  In addition, the company entered into an agreement in December 1996
with Forcenergy Inc. to further develop the company's leasehold position in the
Cook Inlet area of South Alaska.  The agreement requires Forcenergy to spend $30
million over a five year period on lease acquisition, development and
exploratory drilling on programs generated from the company's prospective
inventory.  Under the terms of the agreement, the company will contribute
existing geologic and geophysical information in return for a 50 percent
interest in the results of the efforts.

PRODUCTION

  In 1996, the company realigned its Alaska upstream oil and gas operations with
its Alaska Agricultural Products business unit to take advantage of existing
synergy.  Consolidation of these two operations is also expected to provide
overall cost savings through operating efficiencies.

  In the lower 48 states, Spirit Energy will continue its efforts to increase
production through the development of established fields.  In 1997, the business
unit plans to participate in drilling 88 new development wells, including 30
offshore wells.

  The company holds approximately 709,000 net acres of proved lands in 19
states.  Most of these lands are located in Texas, Louisiana, Alaska, Oklahoma,
and New Mexico.  Proved acreage in federal offshore exploration and production
areas is included in the contiguous states.

  Unocal's 1996 domestic crude oil production came principally from fields in
Alaska (38%), Texas (24%) and Louisiana (25%).  Various other states contributed
the remaining amount (13%).  Domestic natural gas production in 1996 was
primarily from offshore and onshore fields in Louisiana (45%), Texas (27%) and
Alaska (14%).  Various other states contributed the remainder (14%).

  Unocal has various ownership interests in 18 natural gas processing plants
located near major gas fields in the United States.  The company operates nine
of these plants and has full ownership in two.  Fifteen of the 18 plants were
active in 1996.

<TABLE>
<CAPTION>


United States                                                   1996            1995            1994
----------------------------------------------------------------------------------------------------
<S>                                                         <C>             <C>             <C>
Net proved reserves at year end:
        Crude oil and condensate - million barrels             236             387             419
        Natural gas - billion cubic feet (a)                 2,575           3,261           3,580
Net daily production:
        Crude oil and condensate - thousand barrels             96             125             137
        Natural gas - million cubic feet (a)                 1,075           1,103           1,095
        Natural gas liquids - thousand barrels                  14              16              16
Natural gas sales to public - million cubic feet daily         891             882             873
----------------------------------------------------------------------------------------------------
</TABLE>

(a) Natural gas is reported on a wet-gas basis; production excludes gas consumed
    on lease.

  The decrease in crude oil and condensate production reflects the sale of the
California oil and gas producing properties and natural production declines.
The company expects oil production to further decline in 1997 due to the full
year effect of the California oil and gas producing properties sale, which was
completed in April 1996.  Domestic natural gas production in 1997 is expected to
remain at or slightly above the 1996 level, with most of the company's
production coming from the Louisiana/Gulf Coast area.  Production increases in
the Gulf of Mexico have virtually offset diminished gas production due to the
divestment of the California oil and gas properties.

  Most of the company's crude oil production in the United States is sold to
third parties.  A substantial portion of the natural gas produced domestically
is sold to third parties under contracts having terms of less than two years.
The company believes that it has sufficient production capacity in the U.S. to
meet the contracted deliveries.  Another significant portion of the domestic gas
production is sold to third parties in the spot market.  The remainder

                                       4
<PAGE>

is primarily used in the company's agricultural products manufacturing
operations or as fuel in its oil and gas operations.

FOREIGN

EXPLORATION

  Unocal pursues oil and gas exploration and development opportunities around
the world. Major areas of interest currently include Thailand, Indonesia,
Myanmar and Azerbaijan.  Unocal is also pursuing oil and gas exploration and
development opportunities in Bangladesh, China, Pakistan, Turkmenistan and
Vietnam.

  THAILAND.  Thailand's increasing demand for electrical power from natural gas-
fired power generating plants is expected to provide a steady market for natural
gas for the next 10 to 15 years.  The company intends to capitalize on this
demand by intensifying its oil and gas exploration projects.  In October 1996, a
Unocal-led consortium launched a six-year exploration program on two blocks
offshore Thailand in the deep-water section of the Andaman Sea.  Seismic work
has begun in anticipation of drilling two exploratory wells in late 1997.

  In November 1996, the company discovered the Plamuk natural gas field in the
Gulf of Thailand. Further work is planned on the field in 1997 to confirm its
size and finalize its development schedule. This exploration program also
confirmed extensions to several existing fields in the area and proved the
commerciality of the Pladang field.

  INDONESIA.  The application of innovative exploration techniques has allowed
the company to continue its successful exploration activities in Indonesia. In
1996, the company drilled 20 exploration and delineation wells using the new
Saturation Exploration (SX) "slimhole" well technology. This drilling technique
enabled the company to decrease its average drilling costs per well in Indonesia
by approximately 70 percent.

  Plans call for the drilling of 30 exploration wells offshore East Kalimantan
in 1997, including deep-water and transition zone plays. These wells are part of
a 2-1/2 year exploration program that may eventually include more than 70
possible wells.  New 3-D seismic and low-cost exploration will continue to
create opportunities to enhance the company's reserve base in this region.

  MYANMAR.  Progress continues on the Yadana natural gas field offshore Myanmar.
Production from this natural gas project should begin by mid-1998.  When fully
developed, estimated gross production is expected to reach 650 million cubic
feet of natural gas per day in late 1999 or early 2000.  Construction of the
onshore section of the Myanmar to Thailand natural gas pipeline is currently
underway.  Once completed, the Yadana field production will be shipped by
pipeline to an electric power plant southwest of Bangkok, Thailand.  Unocal has
a 28.26 percent working interest in the Yadana field.

  In March 1996, the company and its partners discovered two  potentially
significant new gas fields near the Yadana field.  Further studies are underway
to prove the commerciality of the new discoveries.  These fields could be
produced through the Yadana platform complex currently under construction.  In
January 1997, the company signed an agreement with Myanmar's state-owned oil and
gas enterprise for exploration of two new blocks in the Andaman Sea.  Seismic
work is scheduled for mid-1997.

  AZERBAIJAN.  Unocal is a member in two international consortia participating
in the development of Caspian Sea oil fields, offshore Azerbaijan.  The
Azerbaijan International Operating Company (AIOC) is currently developing the
Azeri, Chirang and Gunashli oil fields.  The company has a 10 percent interest
in AIOC.  Initial production is scheduled in late 1997 or early 1998.  In
December 1996, the company signed a production-sharing agreement with the State
Oil Company of the Azerbaijan Republic to develop the Ashrafi and Dan Ulduzu oil
fields also in the Caspian Sea, offshore Azerbaijan.  First production from
these fields is expected in 2003.  The company has a 25-1/2 percent working
interest in the prospect.  Many challenges still lie ahead as the consortia must
resolve issues related to proposed pipeline routes and the construction of oil
export pipelines and facilities.

PRODUCTION

  Unocal has oil and gas production in six foreign countries:  Thailand,
Indonesia, Canada, The Netherlands, United Kingdom and Zaire.  Unocal is the
operator in each of these countries, except Zaire.  The company sells

                                       5
<PAGE>

most of its foreign natural gas production to third parties under long-term
contracts.  The crude oil and condensate produced overseas are primarily sold at
spot market prices to third parties.

<TABLE>
<CAPTION>


Foreign                                                                                    1996            1995            1994
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                    <C>             <C>             <C>
Net proved reserves at year end: (a)
        Crude oil and condensate - million barrels                                        277             280             278
        Natural gas - billion cubic feet                                                4,220           3,504           3,331
Net daily production: (b)
        Crude oil and condensate - thousand barrels                                       111             115             123
        Natural gas - million cubic feet                                                  737             662             671
        Natural gas liquids - thousand barrels                                              6               5               6
Natural gas sales to public - million cubic feet daily                                    705             631             656
-------------------------------------------------------------------------------------------------------------------------------

(a)  Includes host countries' shares under certain production sharing contracts of:
        Crude oil and condensate - million barrels                                         70              71              69
        Natural gas - billion cubic feet                                                  530             457             386

Natural gas is reported on a wet basis.

(b)  Includes host country share in Indonesia of:
        Crude oil and condensate - thousand barrels                                        28              30              30
        Natural gas - million cubic feet                                                   27              22              26

Natural gas is reported on a wet basis; production excludes gas consumed on lease.  Host country share
of  natural gas liquids production is insignificant.
</TABLE>

  THAILAND.  At the time production began at Unocal's Erawan field in 1981,
Thailand was importing about 95 percent of its commercial energy resources.  In
1996, the company's natural gas production supported approximately 30 percent of
Thailand's electricity generation and satisfied approximately 20 percent of its
total energy requirements.  Once the construction of additional onshore
processing facilities is completed in the second quarter of 1997,  the company
expects gross production from the nine fields it currently operates in the Gulf
of Thailand to reach one billion cubic feet (bcf) of natural gas per day.

  In 1996, gross natural gas production averaged approximately 789 million cubic
feet (mmcf) per day (509 mmcf net) compared with approximately 720 mmcf per day
(466 mmcf net) in 1995. Production increases were primarily attributable to the
Satun, Platong, Jakrawan and Gomin fields. Development of the new Pailin natural
gas field continues as four wells, completed in January and February 1997,
showed net gas pay and confirmed the future locations for two production
platforms. Five additional wells are planned for the remainder of 1997 in the
Pailin field. In 1996, the company signed a 30-year natural gas purchase
agreement with the state-run Petroleum Authority of Thailand (PTT) for sales of
Pailin field production. Initial production from the Pailin field is expected to
be nearly 165 mmcf per day in 1999 rising to approximately 330 mmcf per day by
2001 once the reserves are fully delineated. Unocal has a 35 percent working
interest in this field. In November 1996, the company discovered the Plamuk
field, a new natural gas field also in the Gulf of Thailand. Further work is
planned for this field in 1997 to confirm its size and delineation schedule.

  Unocal's natural gas production in Thailand is sold under long-term contracts.
The contract prices are based on formulas that allow prices to fluctuate with
market prices.  The company has typically supplied more natural gas to PTT than
is called for in the daily contract quantity provisions of its sales contracts.
In any event, the company's obligation to deliver gas to PTT is limited to the
available economic production from its properties in Thailand.

  INDONESIA.  The company signed its first production sharing contract with
Indonesia in 1968, and has been operating there ever since.  In 1996, Unocal
operated nine producing oil and gas fields offshore East Kalimantan with daily
gross production of almost 90,000 barrels (bbls) of oil and 255 mmcf of gas per
day compared with 68,000 bbls of oil per day and 179 mmcf of gas per day in
1995.  In 1996, production began from the new Seguni oil field, offshore East
Kalimantan.  Initial gross production averaged about 3,900 bbls per day from
five completions during 1996.  The company is continuing its development of
existing oil and gas fields in Indonesia.   In 1996, horizontal development
drilling in the Attaka oil field has deferred natural production declines and
stabilized field output at

                                       6
<PAGE>

nearly 46,000 gross bbls per day.  A total of 14 horizontal wells were drilled
in the Attaka and Serang oil fields in 1996. The company plans to drill
approximately 16 additional horizontal wells in these fields in 1997.

  Development of newly discovered oil and gas fields is also progressing. In
1997, the company plans to begin production from the Santan oil and gas field.
Natural gas production of 40 mmcf per day and oil production of 1,500 bbls per
day is expected once the field is fully delineated and the reserves are
stabilized in early 1998. In addition, first production for the Peciko field
is expected in 1999.  The company has a 100% working interest in the Santan and
Peciko fields.

  CANADA.  Net crude oil production averaged 13,400 barrels per day in 1996,
down from 13,900 barrels per day in 1995.  The decrease was due to natural
production declines in mature fields.  Partially offsetting these declines was
increased production at the Southwest Saskatchewan field due to a horizontal
drilling program initiated in 1996.

  As part of Unocal Canada's plans to maximize its 94 percent working interest
ownership of the Aitken Creek natural gas storage facility in Northern British
Columbia, the company is planning multiple seismic programs over seven
exploration blocks in the Southern Northwest Territories in 1997.  In addition,
three exploration wells are also planned for these blocks during the year.

  NETHERLANDS.  Daily gross production from the company's five offshore fields
averaged nearly 11,000 bbls of oil per day in 1996, down approximately 3,000
bbls per day from 1995.  Unocal holds an 80 percent working interest in all five
fields.  Gross natural gas production from the L-11 and Halfweg offshore gas
fields averaged 58 mmcf per day in 1996, up from 39 mmcf per day in 1995.
Unocal holds a 48 percent working interest in the L-11 gas field and a 46
percent working interest in the Halfweg gas field.

  The company is planning an exploration well for late 1997 to test a gas
prospect in the Q/1 block.  This block appears to have geological structures
comparable to those in the company's Halfweg gas field.

  UNITED KINGDOM.  Gross production from the Heather field averaged
approximately 6,300 bbls of oil per day in 1996, down 100 bbls of oil per day
from a year ago.  The company expects to abandon the field within the next few
years as it is approaching the end of its economic life.  Unocal holds a 31.25
percent working interest in this field.

  ZAIRE.  Gross production from five fields averaged nearly 21,800 barrels of
oil per day in 1996, compared with 19,600 barrels per day in 1995.  Production
increases are the result of the completion of five additional development wells
in new fault blocks during 1996.  Unocal has a 17.7 percent working interest in
these fields.

  The changing political climates and relationships between international oil
companies and host governments in the foregoing countries and other parts of the
world, including changes in posted or tax-reference prices for crude oil,
increases in tax rates (sometimes retroactive) and demands for increased
participation in the ownership of operations, could lead to changes in the
status of Unocal's exploration and production activities in these and other
foreign countries during the coming years.

<TABLE>
<CAPTION>
                                      As of December 31, 1996
                                       (thousands of acres)
                     ------------------------------------------------------------
                          Proved Acreage                  Prospective Acreage
                     ------------------------        ----------------------------
                      Gross            Net             Gross              Net
                     --------        --------        ----------        ----------
<S>                  <C>             <C>             <C>               <C>
United States         1,010             709             1,096               893
Far East                453             265            25,187            11,929
Other Foreign           267             150            11,307             5,418
                     ------          ------          --------          --------
   Total              1,730           1,124            37,590            18,240
                     ======          ======          ========           =======
</TABLE>

                                       7
<PAGE>

<TABLE>
<CAPTION>

Producible Oil and Gas Wells               As of December 31, 1996
                                     Oil                             Gas
                           ------------------------        ------------------------
                            Gross            Net            Gross            Net
                           --------        --------        --------        --------
<S>                        <C>             <C>             <C>             <C>
United States               3,298           1,847           1,701             822
Far East                      235             166             389             287
Other Foreign               1,146             457             112              61
                           ------          ------          ------          ------
   Total                    4,679           2,470           2,202           1,170
                           ======          ======          ======          ======
</TABLE>
The company had 195 gross and 136 net producible wells with multiple
completions.

<TABLE>
<CAPTION>

Drilling in Progress                            As of December 31, 1996
                                                   Oil and Gas Wells
                                                ------------------------
                                                 Gross             Net
                                                --------        --------
<S>                                             <C>             <C>
United States                                       14               6
Far East                                            56              35
Other Foreign                                        5               2
                                                --------        --------
   Total                                            75              43
                                                 =======         =======
</TABLE>

The company had one waterflood project in process at December 31, 1996.


<TABLE>
<CAPTION>

Net Oil and Gas Wells Completed and Dry Holes

                              Productive                      Dry
                      --------------------------  ---------------------------
                        1996     1995     1994      1996     1995      1994
                      -------- -------- --------  -------- --------  --------
<S>                   <C>      <C>      <C>       <C>      <C>       <C>
Exploratory
   United States        13       15        7        11       11        10
   Far East             15        7        9        14        7         3
   Other Foreign         2        3        4         5        5         6
                       ---      ---      ---       ---      ---       ---
         Total          30       25       20        30       23        19
                       ===      ===      ===       ===      ===       ===

Development
   United States        76      113      137         4        5         2
   Far East             90       38       50         -        -         4
   Other Foreign        26       32       19         2        1         4
                       ---      ---      ---       ---      ---       ---
         Total         192      183      206         6        6        10
                       ===      ===      ===       ===      ===       ===
</TABLE>

REFINING, MARKETING AND TRANSPORTATION - 76 PRODUCTS

  In December 1996, the company signed a definitive agreement with Tosco
Corporation for the sale of virtually all of its West Coast petroleum refining,
marketing and transportation assets.  The sale is valued at approximately $2
billion.  The results of operations and assets of this segment have been
classified as discontinued operations.  For additional information see
Management's Discussion and Analysis under Item 7 on page 24 and Note 3 to the
Consolidated Financial Statements under Item 8 on page 44.

  The company's decision to sell the refining, marketing and transportation
assets was based on its strategic focus of selling assets that have historically
low returns.  The sale of these assets will enable the company to shift capital
spending to higher return projects.

                                       8
<PAGE>

GEOTHERMAL OPERATIONS

  This business segment explores for and produces and sells geothermal resources
used to generate electricity.  Unocal is the world's largest supplier of
geothermal energy for power generation, with major operations in California, the
Philippines and Indonesia.  The production of geothermal resources for power
generation has been a core business for Unocal for a quarter of a century.
Unocal holds over 100 geothermal patents primarily in the United States and the
Philippines.  The company currently supplies geothermal energy for about 1,890
megawatts of installed generating capacity worldwide.

  In Indonesia, at the Salak field on the island of Java, the company supplies
steam to two 55-megawatt power plants owned by PLN, Indonesia's state-owned
electrical corporation.  During 1997, the company expects to begin supplying
steam to four additional 55-megawatt power plants.  PLN is building and will
operate one of the four 55-megawatt power plants.  A 50 percent owned affiliate
is building and will operate the remaining three power plants.  By year-end
1997, the Salak project is expected to generate a combined capacity of 330-
megawatts (100 million barrels of oil equivalent over a project life of 30
years).

  During 1995, the company drilled a discovery well in the Sarulla contract area
on the Indonesian island of Sumatra.  Subsequent drilling and testing during
1996 have confirmed a resource capable of generating 80-megawatts of electric
power.  The company previously negotiated a power sales agreement allowing for
the development of up to 1,000-megawatts of generating capacity in the Sarulla
contract area.  The first Sarulla power plant is expected to begin operation in
1999.  The company is actively pursuing commercialization of this project.

  During 1996, a contract dispute arose between the company's subsidiary,
Philippine Geothermal Inc. (PGI), and the National Power Corporation (Napocor)
of the Philippines. Under a service agreement, PGI operates the Tiwi and Mak-Ban
steam fields on Luzon. The service agreement, originally signed in 1971,
provided for a 25-year term with a 25-year renewal option. Napocor has raised a
constitutional challenge to PGI's unilateral right to renew the contract for
another 25 years. On September 30, 1996, Napocor and PGI entered into a
provisional agreement. PGI will continue to operate the fields under the same
terms and conditions of the original agreement except for the service fee
payment. The provisional agreement requires 60 percent of the service fee to be
escrowed until the dispute is resolved. The provisional agreement expires June
30, 1997. The parties are currently negotiating a resolution to the dispute.

 The company's geothermal reserves and operating data are summarized below:

<TABLE>
<CAPTION>
                                                      1996              1995              1994
----------------------------------------------------------------------------------------------
<S>                                             <C>               <C>               <C>
Net proved geothermal reserves at year end:
   billion kilowatt-hours                            155               144               143
   million equivalent oil barrels                    232               216               215
Net daily production
   million kilowatt-hours                             18                16                21
   thousand equivalent oil barrels                    26                24                31
Net geothermal lands in acres
   proved                                         16,450            20,240            20,240
   prospective                                   383,563           457,380           457,380
Net producible geothermal wells                      208               260               261
----------------------------------------------------------------------------------------------

</TABLE>

  During 1996, the company experienced a 12 percent increase in steam
generation, primarily at The Geysers in Northern California due to the use of
discount pricing and expansion  of electrical generation at Mak-Ban in the
Philippines.

  The present value of future net cash flows from proved geothermal reserves at
year-end 1996 was $544 million.  The net future cash flows are based on
estimated future revenues less future development and production costs and
income taxes.  The net present value of $544 million does not include future
cash flows for the company's PGl subsidiary due to an unresolved contract
dispute as discussed above.  Resolution of this dispute will enhance the value.
A 10 percent discount factor was used in calculating the present value.
Estimated future revenues are based on estimated generation of electricity from
proved reserves from existing and new facilities under development, actual
prices for geothermal steam pursuant to long-term service and energy sales
contracts at

                                       9
<PAGE>

year-end and successful resolution of the contract dispute between PGI and
Napocor.  Development and production costs related to future production are
based on year-end cost levels and assume continuation of existing economic
conditions.  Income tax is computed by applying the appropriate year-end
statutory tax rates to pre-tax future cash flows less recovery of the tax basis
of proved properties, and reduced by applicable tax credits.

  The company cautions readers that the data on the present value of future net
cash flows of geothermal reserves are based on many subjective judgments and
assumptions. Different, but equally valid, assumptions and judgments could lead
to significantly different results. Additionally, estimates of physical
quantities of geothermal reserves, power plant efficiency factors, minimum
contract purchase quantities, future rates of production and related prices and
costs for such production are subject to extensive revisions and a high degree
of variability as a result of economic and political changes. Any subsequent
price changes will alter the results and the indicated present value of
geothermal reserves.

DIVERSIFIED BUSINESS GROUP

AGRICULTURAL PRODUCTS

  The Agricultural Products business unit manufactures and markets nitrogen-
based products for wholesale agricultural and industrial markets supplying the
western United States and the Pacific Rim.

  Agricultural Products' largest fertilizer manufacturing facility, located in
Kenai, Alaska, produces ammonia and urea for agricultural applications using
natural gas as feedstock and sells a portion of this production abroad for
industrial uses.  During 1996, the company merged the Alaska oil and gas
operations with the Agricultural Products business unit.  Natural gas from the
company's South Alaska operations is the feedstock for the Kenai facilities.
The merger will strengthen the long-term value of the company's Alaska
operations by improving operating efficiencies and will provide greater
coordination between the natural gas operations and ammonia/urea manufacturing.
Agricultural Products is also involved in the manufacturing of nitrogen-based
products through its terminal facilities located in the Western United States
and the upgrading of nitrogen-based products through its upgrading plants
located in Kennewick, Washington and West Sacramento, California.

CARBON AND MINERALS

  The Carbon and Minerals business unit produces and markets petroleum coke,
graphites, solvents and specialty minerals.

  Green petroleum coke, a by-product of refining operations, is calcined for use
in aluminum production and other industrial applications.  Green coke is also
sold in the United States and overseas as fuel.  A calcining plant is located
adjacent to The UNO-VEN Company's (UNO-VEN) Chicago refinery.

  The Needle Coker Company, a joint venture equally owned by Unocal and UNO-VEN,
produces calcined needle coke at facilities also adjacent to UNO-VEN's Chicago
refinery.  Needle coke is a high quality petroleum coke used to make graphite
electrodes for the production of steel in electric arc furnaces.

  Through its wholly owned subsidiary, Poco Graphite, Inc., the company
manufactures premium graphite materials for use in electrodes, semiconductors,
biomedical products and other advanced technologies.  The subsidiary experienced
its tenth consecutive year of sales growth.

  Unocal's mineral operations are carried out by Molycorp, Inc. (Molycorp), a
wholly owned subsidiary, which mines, processes and markets lanthanides and
molybdenum products.  It operates a lanthanide mine and mill and a chemical
plant at Mountain Pass, California.  Lanthanides have a variety of applications
in industrial and electronic products, including high-strength magnets,
television phosphors, and automobile and refining catalysts.  Lanthanide markets
have become highly competitive over the past 10 years with the entry of
suppliers from China, Japan and Eastern Europe.  Molycorp continued to focus its
production on cerium, the demand for which is growing for use in automobile
catalytic converters, polishing powders and glass to help filter ultraviolet
radiation.

  Molycorp, in response to increased molybdenum demand and prices, resumed
operations in late 1996 at its molybdenum mine and mill in Questa, New Mexico.
After being idle for approximately five years, this mine is expected to produce
about 14 million pounds of molybdenum per year when it reaches full production
in 1997.

                                       10
<PAGE>

Molybdenum is used in the production of stainless and alloy steels, nonferrous
alloys, pigments, lubricants and catalysts.

  Molycorp also owns an approximate 45 percent interest in Companhia Brasileira
de Metalurgia e Mineracao, a Brazilian company which is the world's largest
niobium producer.  Niobium is used as a hardening agent in steel.

PIPELINES

  The Pipelines business unit principally includes the company's equity
interests in petroleum pipeline companies and wholly owned pipeline systems
throughout the United States, other than California.

  Included in Unocal's pipeline investments is the Colonial Pipeline Company, in
which the company holds a 20.75 percent equity interest.  The Colonial Pipeline
system runs from Texas to New Jersey and transports a significant portion of all
petroleum products consumed in its 13-state market area.  Also included is the
Unocal Pipeline Company, a wholly owned subsidiary of Unocal, which holds a 1.36
percent participation interest in the TransAlaska Pipeline System (TAPS).  TAPS
transports crude oil from the North Slope of Alaska to the port of Valdez in
Alaska.  During 1996, the company acquired a 30 percent interest in the
Transandean oil pipeline.  This pipeline transports crude oil from Argentina to
Chile.

  In February 1996, Unocal sold its 15 percent interest in the Platte Pipeline
Company, which owns 1,282 miles of crude oil pipeline.

OTHER OPERATIONS

  Unocal, through subsidiaries, owns a 50 percent interest in UNO-VEN, which
owns and operates a refinery near Chicago, Illinois, 11 product terminals, two
lubricant terminals and a lube oil blending and packaging plant.  UNO-VEN has a
long-term crude oil supply agreement with a subsidiary of Petroleos de
Venezuela, S.A. (PDVSA), which provides 135,000 barrels per day of crude oil as
feedstock for the refinery through the year 2009.  The purchase prices of the
crude oil are tied to refined product prices at the time of delivery.  While
this arrangement limits UNO-VEN's refining margins, it has provided UNO-VEN with
earnings stability.  All products produced from its refinery operations are
marketed under the "76" trade name.  UNO-VEN supplies, directly or through
jobbers and marketers, approximately 2,500 service stations.  UNO-VEN's
wholesale marketing and bulk distribution network consists of 250 terminals.

  UNO-VEN is an Illinois general partnership.  The managing general partners,
each with a 50 percent interest, are Midwest 76, Inc., a subsidiary of Union
Oil, and a subsidiary of PDV America Corp.  PDV America Corp. is a wholly owned
indirect subsidiary of PDVSA.

  In December 1996, the company signed a letter of intent to restructure the
UNO-VEN partnership.  Under the terms of the proposed agreement, the refining
and marketing assets of UNO-VEN, together with substantially all of its non-
environmental liabilities, would be distributed to an affiliate of the partner.
UNO-VEN would become 100 percent owned by the company.

COMPETITION

  The energy industry is highly competitive.  Unocal competes with numerous
companies in all phases of its petroleum operations.  The company competes with
other producers and marketers of non-petroleum energy.

  Competition for finding, developing and producing oil and gas resources occurs
in bidding for domestic prospective leases or foreign exploration rights,
acquisition of geological, geophysical and engineering knowledge, and the cost-
efficient development and production of proved oil and gas reserves.  The future
availability of prospective domestic leases is subject to competing land uses
and federal, state and local statutes and policies.  The company's geothermal
and power operations are in competition with producers of other energy
resources.

  In the Agricultural Products business, the key competitive factors for the
company's ammonia, urea and fertilizer products are prices, cost and
availability of natural gas and other raw materials.

                                       11
<PAGE>

EMPLOYEES

  As of December 31, 1996, Unocal had 11,658 employees compared to 12,509 in
1995.  The decrease principally reflects the impact of asset sales and a two-
year restructuring program.  The number of employees will continue to decrease
in 1997 due to the sale of the refining, marketing and transportation assets,
which had approximately 3,100 employees at year-end 1996.  Of the total Unocal
employees at year-end 1996, 2,015 were represented by various labor unions
(1,256 employees were from the refining, marketing and transportation segment).

  Collective bargaining agreements covering represented employees at Unocal's
refineries and various other facilities were entered into during 1996.  Most of
these new labor agreements are for three-year terms.  See page 75 of this report
for information on total payroll and employee benefits costs.

GOVERNMENT REGULATION

  Certain interstate crude oil pipeline subsidiaries of Unocal are regulated (as
common carriers) by the Federal Energy Regulatory Commission.  As a lessee from
the United States government, Unocal is subject to Department of the Interior
regulations covering activities onshore and on the Outer Continental Shelf
(OCS).  In addition, state regulations impose strict controls on both state-
owned and privately-owned lands.

  Some federal and state bills would, if enacted, significantly and adversely
affect Unocal and the petroleum industry.  These include the imposition of
additional taxes, land use controls, prohibitions against operating in certain
foreign countries and restrictions on development.

  Regulations promulgated by the Environmental Protection Agency (EPA), the
Department of the Interior, the Department of Energy, the State Department, the
Department of Commerce and other government agencies are complex and subject to
change.  New regulations may be adopted.  The company cannot predict how
existing regulations may be interpreted by enforcement agencies or court
rulings, whether amendments or additional regulations will be adopted, or what
effect such changes may have on its business or financial condition.

ENVIRONMENTAL REGULATION

  Federal, state and local laws and provisions regulating the discharge of
materials into the environment or otherwise relating to environmental protection
have continued to impact the company's operations.  Significant federal
legislation applicable to the company's operations includes the following:  the
Clean Water Act, as amended in 1977; the Clean Air Act, as amended in 1977 and
1990; the Solid Waste Disposal Act, as amended by the Resource Conservation and
Recovery Act of 1976, as amended in 1984; the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended in 1986; the Toxic
Substances Control Act of 1976, as amended in 1986; and the Oil Pollution Act of
1990.  Various state and local governments have adopted or are considering the
adoption of similar laws and regulations.

  The California Air Resources Board and the federal government have both
adopted new standards for gasoline.  The Federal Clean Air Act Amendments of
1990 required the manufacture and sale of reformulated gasoline in areas not
meeting specified air quality standards commencing January 1, 1995.  These
requirements apply to the nine areas which have the worst ozone pollution,
including Los Angeles and San Diego.  The California Air Resources Board has
established stricter standards than those imposed by the federal rules.  These
standards for reformulated gasoline became effective for fuel production at
refineries commencing March 1, 1996 and for retail sales commencing on June 1,
1996.  Modifications to the company's refineries to meet these regulatory
standards were performed between 1993 and 1995 at a cost of approximately $400
million.

  The company believes it can continue to meet substantially all the
requirements of existing environmental laws and regulations.  The impact of
these laws and regulations upon Unocal will be reduced after the sale of the
company's West Coast refining, marketing and transportation assets, although the
company will retain certain responsibilities related to environmental laws and
regulations that affected the operation of these assets prior to the close of
the sale.

  The company has been a party to a number of administrative and judicial
proceedings under federal, state and local provisions relating to environmental
protection.  These proceedings include actions for civil penalties or fines

                                       12
<PAGE>

for alleged environmental violations, permit proceedings including hearing
requests into the issuance or modification of National Pollution Discharge
Elimination System (NPDES) permits, requests for temporary variances from air
pollution regulations for refinery operations, and similar matters.  The company
has also joined or intervened with the American Petroleum Institute, the Western
States Petroleum Association and with other oil companies in actions relating to
guidelines and proposed and final regulations of the EPA, the Department of the
Interior and other agencies.

  For information regarding the company's environment-related capital
expenditures, charges to earnings and possible future environmental exposure,
see Item 3 - Legal Proceedings below, the Environmental Matters section of
Management's Discussion and Analysis under Item 7 of this report and Note 19
to the Consolidated Financial Statements under Item 8 of this report.

ITEM 3 - LEGAL PROCEEDINGS

  There is incorporated by reference the information regarding environmental
remediation reserves in Note 18 to the Consolidated Financial Statements on page
55, the discussion thereof in the Environmental Matters section of Management's
Discussion and Analysis, on pages 26 through 29, and the information regarding
certain legal proceedings and other contingent liabilities in Note 19 to the
Consolidated Financial Statements on pages 55 through 57 of this report.

(1)  The matter previously reported and described as People of the State of
                                                     ----------------------
     California v. Unocal Corporation, et al., Superior Court of Ventura County,
     ----------------------------------------
     Civil No. 152925, was settled, and the company paid $26,000 to the County
     of Ventura on February 17, 1996.

(2)  The matter previously reported and described as an administrative
     compliance order issued by the U.S. Minerals Management Service (MMS) and
     assessing the company approximately $21 million in royalty fees and
     interest associated with Federal Energy Regulatory Commission Order No. 94
     was settled as part of an overall settlement of several outstanding issues
     between the company and the MMS.

(3)  The matter previously reported and described as a notice of alleged
     violations from the U.S. Environmental Protection Agency (EPA), Region IX,
     relating to New Source Performance Standards at the Los Angeles Refinery -
     Carson Plant was settled without the payment of any penalty.

(4)  The matter previously reported and described as an administrative complaint
     issued by the EPA against the company seeking $252,000 in civil penalties
     for alleged late filing of certain reports regarding gas processing plant
     inventories under the Toxic Substances Control Act Inventory Update Rule
     was settled by the company's agreement to pay $60,000.

(5)  The matter previously reported and described as claims made by the District
     Attorney's office for purported environmental violations involving various
     underground storage tanks, product lines and monitoring systems for Unocal
     branded service stations in Santa Barbara County, California, was settled
     on December 5, 1996.  The company paid $108,106 in civil penalties and
     $19,894 in administrative and investigative costs to the County of Santa
     Barbara.

(6)  Atlantic Richfield Company, Chevron U.S.A., Inc., Exxon Corporation, Mobil
     Oil Corporation, Shell Oil Products Company and Texaco Refining and
     Marketing, Inc. have filed a lawsuit against the company in the U.S.
     District Court for the Central District of California regarding U.S.
     Letters Patent No. 5,288,393 issued to the company and covering several
     patent claims for the composition of reformulated gasoline (Atlantic
                                                                 --------
     Richfield Company, et al. v. Unocal Corporation, et al, No. CV-95-2379-RG).
     ------------------------------------------------------
     The plaintiffs allege that the company's patent is invalid and
     unenforceable, and seek declaratory relief for equitable estoppel and an
     injunction against enforcement.  The company has filed its answer as well
     as a counterclaim for patent infringement, lost royalties and further
     injunctive relief.  Discovery and pretrial proceedings are continuing.
     Trial is likely to commence in July 1997.

(7)  Between August 22 and September 6, 1994, a chemical known as "Catacarb" was
     released into the environment at the company's San Francisco refinery near
     Rodeo, California.  Persons in the surrounding area have claimed that they
     were exposed to the chemical in varying degrees and, as discussed in Note
     19

                                       13
<PAGE>

     to the Consolidated Financial Statements, have filed over 50 lawsuits
     alleging that they or their property were adversely affected by the
     releases.

     Region 9 of the EPA issued an Administrative Complaint proposing penalties
     of $489,800 for the company's failure to make timely notifications of the
     Catacarb releases and subsequent hydrogen sulfide releases in September
     1994.  Settlement of this matter has been completed, subject to delivery of
     final documentation.

(8)  Citizens for a Better Environment, et al. v. Union Oil Company of
     -----------------------------------------------------------------
     California, No C94-0712, filed in the U.S. District Court for the Northern
     ----------
     District of California, alleges that as of February 28, 1994, the company's
     San Francisco refinery was in violation of the selenium limit in its
     National Pollution Discharge Elimination System permit.  Unocal denies that
     any violations have occurred.  By a prior Cease and Desist Order, issued
     after notice and hearing, the permitting agency, the California Regional
     Water Quality Control Board, deferred to July, 1998, the effective date of
     the selenium limitation in question.  Unocal's motion to dismiss the

     Citizens action was denied by the trial court.  The Ninth Circuit Court of
     --------
     Appeals affirmed the trial court's decision.  Unocal's Petition for Writ of
     Certiorari to the U.S. Supreme Court was denied, and the case will now
     proceed to a trial in the District Court.

(9)  In September 1994, the California Regional Water Quality Control Board
     issued a Cleanup or Abatement Order relating to prior petroleum leaks along
     Front Street and vicinity in the town of Avila Beach, California.  In
     October 1994, the company initiated an administrative appeal proceeding and
     a related civil suit in the California Superior Court for the County of San
     Luis Obispo for declaratory and injunctive relief and writ of mandate with
     respect to the soil and shallow ground water standard to be applied to the
     remediation.  The company has been working with local agencies for several
     years regarding the hydrocarbon presence in this location, and with
     property owners.  Various related civil suits have been filed or
     threatened.

(10) In March 1994, a civil suit seeking various forms of penalties, restitution
     and remediation regarding contamination at the Guadalupe oil field on the
     central coast of California was filed against the company by the California
     Attorney General on behalf of the Department of Fish and Game, the Regional
     Water Quality Control Board and the Department of Toxic Substances Control

     (People v. Union Oil Company of California, Superior Court of San Luis
     ------------------------------------------
     Obispo County, Civil No. 75194).  The complaint alleges several categories
     of violations, namely discharge into marine and state waters, failure to
     report discharge, destruction of natural resources, failure to warn and
     exposure to known carcinogens, public nuisance, unauthorized disposal of
     hazardous waste, and labeling violations for "recycled" diluent material.
     Injunctive relief and civil penalties are demanded for the various claimed
     violations as well as prejudgment interest, costs, and reasonable attorney
     fees.  Several related follow-on private actions have been filed, including
     a purported class action, or threatened, each seeking damages and various
     other forms of relief similar to those sought by the Attorney General.

(11) On October 23, 1995, the State of Texas and several individuals filed a
     lawsuit in the District Court of Lee County, Texas (State of Texas, et al.
                                                         ----------------------
     v. Amerada Hess, et al., 21st Judicial District Court, No. 10,652).  The
     ----------------------
     suit was filed by the County Attorney and also as a class action on behalf
     of all Texas residents.  The allegations are that the defendants engaged in
     a conspiracy to fix "posted prices" for crude oil and also discriminated
     against the class by purchasing oil "attributable" to the plaintiff class
     at prices lower than the prices realized from defendants' own production in
     the same fields.  Plaintiffs seek civil penalties, actual and

                                       14
<PAGE>

     statutory damages, costs and attorneys' fees. The State seeks civil
     penalties in its sovereign capacity. Other lawsuits containing similar
     allegations might be filed in other states.

     A similar lawsuit was filed in Cameron Parish, Louisiana, and seeks to
     recover under paid royalties under the Louisiana Mineral Code.  The
     plaintiff, Cameron Parish School Board, filed the lawsuit on behalf of
     itself and a class consisting of all entities and persons to whom
     defendants have underpaid royalties since January 1, 1986, (Cameron Parish
                                                                 --------------
     School Board, et al. v. Texaco, et al., Cameron Parish, Louisiana, 38th JDC
     ---------------------------------------
     #10-14264).

     Another complaint alleging an unreasonable restraint of trade was filed in
     U.S. District Court for the Southern District of Texas, Houston Division,
     on April 10, 1996 (The McMahon Foundation, et al. v. Amerada Hess et al.,
                        -----------------------------------------------------
     including Unocal Corporation and Union Oil Company of California, Civil No.
     H-96-1155).  Plaintiffs seek to represent a nationwide class consisting of
     private owners of royalty and working interests in the United States.  They
     allege that the defendants purchase most of the crude oil produced on
     private lands in the U.S. and that since October 1986, the defendants have
     agreed, combined and conspired to set and have paid artificially low prices
     for crude oil and purchased from leases in which the purported class
     members own interests.  Plaintiffs seek treble damages and attorneys' fees.

(12) On August 12, 1996, the Office of the Attorney General for the State of
     Illinois announced its intention to seek approximately $2.1 million in
     civil penalties for Unocal's alleged failure to comply with the State's
     environmental statute and Air Pollution regulations since January 1992 at
     the company's Carbon Plant in Lemont, Illinois.  The company is presently
     negotiating with the Attorney General's office.

(13) The company has been served with a lawsuit which is purportedly brought by
     unidentified representatives on behalf of an alleged class of plaintiffs
     consisting of all residents of the Tenasserim region of Myanmar allegedly
     affected by the defendants' alleged acts of mistreatment and forced labor,
     and by a California resident, Louisa Benson, who claims that the defendants
     have engaged in unfair business practices.  (John Doe, et al. and Louise
                                                  ---------------------------
     Benson v. Unocal Corp., et al., U.S. District Court for the Central
     -----------------------------
     District of California, Civil No. 96-6959-LGB, filed October 3, 1996).
     Defendants include Total S.A., the Myanma Oil and Gas Enterprise, the State
     Law and Order Restoration Council (SLORC) of Myanmar, John F. Imle and
     Roger C. Beach.

     Plaintiffs' claims are based on the company's joint venture activities in
     Myanmar for the exploration for and production of natural gas in the
     Andaman Sea and shipment of that gas to Thailand through a pipeline
     crossing Myanmar (the Yadana project).  The complaint contains numerous
     counts and alleged violations of several U.S. and California laws and U.S.
     treaties.  Plaintiffs seek compensatory and punitive damages on behalf of
     the purported class, and Louisa Benson seeks disgorgement of profits.
     Injunctive and declaratory relief is also requested to direct defendants to
     cease payments to SLORC and to cease participation in the Yadana project.

     The company was also served with a lawsuit making similar claims but
     without the class action allegations (National Coalition Government of the
                                          -------------------------------------
     Union of Burma, et al. v. Unocal Inc. and the Yadana Natural Gas Project,
     ------------------------------------------------------------------------
     U.S. District Court for the Central District of California, Civil No. 96-
     6112-RAP, filed September 3, 1996).

(14) On February 9, 1996, Bridas Corporation filed a petition in the District
     Court of Fort Bend County, Texas, alleging that defendants conspired to and
     did tortiously interfere with certain agreements and prospective business
     relations between Bridas and the government of Turkmenistan (Bridas
                                                                  ------
     Corporation v. Unocal Corporation, et al., Case No 94144, 268th Judicial
     ----------------------------------------
     District).  Plaintiff alleges that as a result of defendants' conduct, it
     has lost the ability to timely and reasonably develop, produce, transport,
     export and sell its interest in the Yashlar area of Turkmenistan, an area
     that includes the Yashlar field.  Plaintiff maintains the Yashlar field has
     natural gas reserves of 27 trillion cubic feet and that it is entitled to
     70 percent of such reserves.  Bridas also claims it has lost the
     opportunity to participate in a Turkmenistan-Pakistan pipeline project.
     Plaintiff seeks unspecified actual damages as well as punitive damages,
     plus interest at the highest lawful rate.  Defendants attempt to remove the
     case to the U.S. District Court, Southern District of Texas, was
     unsuccessful and proceedings are continuing in the Fort Bend County Court,
     where a trial date has tentatively been set for November 1997.

                                       15
<PAGE>

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - None.

EXECUTIVE OFFICERS OF THE REGISTRANT


NAME, AGE AND PRESENT
POSITIONS WITH UNOCAL              BUSINESS EXPERIENCE DURING PAST FIVE YEARS
--------------------------------------------------------------------------------
ROGER C. BEACH, 60              Mr. Beach has been Chairman of the Board since
Chairman of the Board and       1995 and Chief Executive Officer since 1994.  He
 Chief Executive Officer        served as President and Chief Operating Officer
Director since 1988             from 1992 to 1994.  Mr. Beach was President of
Chairman of Management and      the Unocal Refining & Marketing Division from
 Executive Committees           1986 to 1992, and from 1987 to 1992 also served
                                as Senior Vice President of the company.
-------------------------------------------------------------------------------
JOHN F. IMLE, JR., 56           Mr. Imle has been President since 1994.  He is
President                       responsible for corporate strategic planning and
Director since 1988             for all major new ventures and business
Member of Management            development activities worldwide.  From 1992 to
 Committee                      1994, he served as Executive Vice President and
                                President of the Energy Resources Division,
                                which encompassed the company's worldwide oil,
                                gas and geothermal businesses.  Mr. Imle was
                                Senior Vice President from 1988 until his
                                appointment as Executive Vice President.
-------------------------------------------------------------------------------
NEAL E. SCHMALE, 50             Mr. Schmale has been Chief Financial Officer
Chief Financial Officer         since 1994. He served as Senior Vice President
Director since 1991             from 1988 to 1994.  Mr. Schmale was President of
Member of Management            the Petroleum Products & Chemicals Division
 Committee                      (which encompassed refining, marketing,
                                chemicals and minerals operations) from  1992 to
                                1994.  He was President of the Unocal Chemicals
                                & Minerals Division from 1991 to 1992.
-------------------------------------------------------------------------------
LAWRENCE M. HIGBY, 51           Mr. Higby has been a Group Vice President and
Group Vice President and        President of the company's 76 Products Company
 President, 76 Products         business segment since 1994.  From 1992 to 1994,
 Company                        he was Executive Vice President, Marketing, for
                                the Los Angeles Times and Chairman of the Orange
                                County Edition.  In 1991, he was Senior Vice
                                President, Consumer Marketing for the Los
                                Angeles Times and President of the Orange County
                                Edition.  Prior to 1991, he was Senior Vice
                                President for Marketing, Programming and Sales
                                for Times Mirror Cable Television.
-------------------------------------------------------------------------------
JOHN W. SCHANCK, 45             Mr. Schanck has been Group Vice President and
Group Vice President and        President of Spirit Energy 76, the company's
 President, Spirit Energy 76    U.S. Lower 48 oil and gas business unit, since
                                August 1996.  He had been Group Vice President,
                                Oil and Gas Operations, from 1994 to 1996.  From
                                1992  to 1994, he was Vice President, Worldwide
                                Exploration, of the Energy Resources Division.
                                From 1989 through 1991, he was President of
                                Unocal Canada Limited.
-------------------------------------------------------------------------------
L. E. (ED) SCOTT, 54            Mr. Scott has been Group Vice President of the
Group Vice President,           company's Diversified Business Group since 1994.
 Diversified Business Group     From 1990 to 1994, he was Vice President,
                                Petroleum Supply and Transportation.  From 1986
                                to 1990, he served as Vice President, Crude
                                Supply.
-------------------------------------------------------------------------------
CHARLES R. WILLIAMSON, 48       Mr. Williamson has been Group Vice President,
Group Vice President,           International Operations, since August 1996.  He
 International Operations       had been Vice President, Planning and Economics
                                from 1994 to 1995.  He served as Vice President,
                                Technology, from 1992 to 1994 and in various
                                managerial positions prior to 1992.
-------------------------------------------------------------------------------

                                       16
<PAGE>

-------------------------------------------------------------------------------
DENNIS P.R. CODON, 48           Mr. Codon has been Vice President, General
Vice President, General         Counsel and Chief Legal Officer since 1992.  He
 Counsel and                    was also Corporate Secretary from 1990 to 1996.
Chief Legal Officer             He served as Deputy General Counsel in 1990 and
                                various other positions in the Law Department
                                prior thereto.
-------------------------------------------------------------------------------
CHARLES S. McDOWELL, 55         Mr. McDowell has been a Vice President since
Vice President and              1991 and Comptroller since 1986.
 Comptroller
-------------------------------------------------------------------------------

  The bylaws of the company provide that each executive officer shall hold
office until the annual organizational meeting of the Board of Directors held
June 2, 1997 and until his successor shall be elected and qualified, unless he
shall resign or shall be removed or otherwise disqualified to serve.

                                       17
<PAGE>

                                    PART II

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

<TABLE>
<CAPTION>
                                                                 1996 Quarters                             1995 Quarters
                                                  ---------------------------------------------------------------------------------
                                                       1st       2nd       3rd       4th         1st       2nd       3rd       4th
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                               <C>        <C>       <C>       <C>       <C>        <C>        <C>       <C>
Market price per share of common stock
                                           - High   $34      $34-1/2   $ 37-3/8  $ 42-1/8  $ 29-1/8   $30-1/8    $ 30-1/2  $ 29-7/8
                                           -  Low    27-3/4   29-5/8     30-1/2    35-1/2    25-1/4    27-5/8      26-7/8    24-3/4
Cash dividends paid per share of common stock          0.20     0.20       0.20      0.20      0.20      0.20        0.20      0.20
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

  Prices in the foregoing table are from the New York Stock Exchange Composite
Transactions listing.  On March 17, 1997, the high price per share was $39-1/2
and the low price per share was $38-7/8.

  Unocal common stock is listed for trading on the New York, Pacific and Chicago
Stock Exchanges in the United States, and on the Stock Exchanges of Singapore
and Switzerland.

  As of March 17, 1997, the approximate number of holders of record of Unocal
common stock was 32,629 and the number of shares outstanding was 250,086,778.

  Unocal's quarterly dividend declared has been $.20 per common share since the
third quarter of 1993.  The previous quarterly dividend rate was $.175 per share
since the third quarter of 1989.  The company has paid a quarterly dividend for
81 consecutive years.

 ITEM 6 - SELECTED FINANCIAL DATA - see page 75.

                                       18
<PAGE>

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

  Unocal explores for, develops, produces and markets crude oil and natural gas
resources around the world, with its largest operations in the Gulf Coast region
of the United States and in Southeast Asia.  In addition, Unocal is the world's
leading geothermal energy producer and manufactures and markets nitrogen-based
fertilizers, petroleum coke, graphites, solvents and specialty minerals.

  The following discussion and analysis of the consolidated results of
operations and financial condition of Unocal should be read in conjunction with
the historical financial information provided in the Consolidated Financial
Statements and accompanying Notes.

CONSOLIDATED RESULTS

<TABLE>
<CAPTION>

Millions of Dollars                                                           1996            1995            1994
------------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>             <C>             <C>
After-tax earnings from continuing operations
   before cumulative effect of accounting change                            $456            $249            $110
Cumulative effect of accounting change                                        -               -             (277)
                                                                          ----------------------------------------
      After-tax earnings (loss) from continuing operations                  $456            $249           $(167)
Special items:
    Cumulative effect of accounting change                                    -               -             (277)
    Impairment of long-lived assets (SFAS No. 121)                           (46)            (53)             -
    Litigation                                                               (59)            (37)            (41)
    Environmental remediation provisions                                     (64)            (26)           (111)
    Sale of California oil and gas properties                                 65              -               -
    Settlement of Federal leases                                               7              18              -
    Write-downs of assets                                                     -              (12)            (24)
    Asset sales                                                                5              70               7
    Mesa Petroleum settlement                                                 -               -               24
    Other                                                                    (14)              2              (8)
------------------------------------------------------------------------------------------------------------------
   Total special items                                                      (106)            (38)           (430)
------------------------------------------------------------------------------------------------------------------
     After-tax earnings from continuing operations
       excluding special items                                              $562            $287            $263
After-tax earnings (loss) from discontinued operations                      (420)             11              14
Special items:
   Loss on disposal                                                         (491)             -               -
   Other                                                                       5               1             (23)
------------------------------------------------------------------------------------------------------------------
      After-tax earnings from discontinued
         operations excluding special items                                   66              10              37
        Total after-tax earnings from operations excluding special items    $628            $297            $300
------------------------------------------------------------------------------------------------------------------

</TABLE>

1996 VS 1995

  During 1996, the company built on its operational strengths by selling assets
that had historically low returns and by increasing capital spending in
international areas in which the company has a strong competitive position.
Unocal completed the sale of its California oil and gas properties and entered
into agreements to sell its West Coast refining, marketing and transportation
assets.  The results of operations for the West Coast refining, marketing and
transportation segment are presented as discontinued operations.

                                       19
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)

  Unocal's 1996 adjusted after-tax earnings from continuing operations reflected
higher average sales prices for worldwide crude oil and condensate and for
natural gas, increased foreign natural gas production, and increased production
and sales volumes for agricultural products.  Partially offsetting these
positive factors were lower worldwide crude oil production and lower
agricultural products sales prices.

1995 VS 1994

  During 1995, adjusted after-tax earnings from continuing operations reflected
higher worldwide average crude oil sales prices and higher average sales prices
for agricultural products.  Partially offsetting these positive factors were
lower production for worldwide crude oil and geothermal steam and lower average
sales prices for natural gas.

OTHER SPECIAL ITEMS FROM CONTINUING OPERATIONS

   In the preceding table, the Other category of special items from continuing
operations for 1996 primarily consisted of a $7 million restructuring provision
and a $6 million receivable write down.  For 1995, the category included a $34
million benefit from a bankruptcy settlement with Columbia Gas Transmission
Corporation, an $18 million charge for a deferred tax adjustment and a $14
million receivable write down.  For 1994, the amount consisted primarily of a
$15 million restructuring provision and a $9 million benefit related to the
lease cancellation on the former Unocal headquarters building in downtown Los
Angeles.

REVENUES

   Total revenues from continuing operations were $5.3 billion in 1996, $4.4
billion in 1995 and $4.3 billion in 1994.  The increase in 1996 from 1995 was
primarily due to higher worldwide crude oil and natural gas sales prices and
increased natural gas production and agricultural products sales volumes.  The
increase in 1995 from 1994 was largely due to higher agricultural products
average sales prices and gains on sales of assets.

COSTS AND OTHER DEDUCTIONS (PRETAX)

<TABLE>
<CAPTION>

Millions of Dollars                                                        1996              1995              1994
-------------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>               <C>               <C>
Costs and other deductions from continuing operations:
Crude oil and product purchases                                        $1,502            $  979            $1,064
Operating expense                                                       1,386             1,302             1,366
Special items:
   Environmental provision                                               (103)              (41)             (179)
   Litigation provision                                                   (93)              (60)              (65)
   Other                                                                  (11)                -                 -
-------------------------------------------------------------------------------------------------------------------
       Crude oil and product purchases and operating expense
           from continuing operatons excluding special items           $2,681            $2,180            $2,186
-------------------------------------------------------------------------------------------------------------------
Selling, administrative and general expense                            $  151            $  151              $194
Special items:
   Other                                                                    -                 -               (24)
-------------------------------------------------------------------------------------------------------------------
     Selling, administrative and general expense from
         continuing operations excluding special items                 $  151            $  151              $170
-------------------------------------------------------------------------------------------------------------------

</TABLE>

                                       20
<PAGE>

 MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)

<TABLE>
<CAPTION>

Millions of Dollars                                       1996            1995            1994
----------------------------------------------------------------------------------------------
<S>                                                   <C>             <C>             <C>
Depreciation, depletion and amortization                 $914            $911            $811
Special items:
   Impairment of long-lived assets                        (75)            (87)              -
   Write-downs of assets                                    -             (19)            (38)
----------------------------------------------------------------------------------------------
      Total depreciation, depletion and
           amortization excluding special items          $839            $805            $773
Dry hole costs                                           $139             $61             $84
Interest expense                                         $279            $291            $275
----------------------------------------------------------------------------------------------

</TABLE>

  The higher adjusted crude oil and product purchases and operating expense for
1996 were principally due to increased expense for crude oil and product
purchases resulting from higher average crude oil prices.  Comparing years 1996
and 1995 to 1994, the company's continued cost reduction efforts resulted in an
average decrease of 11 percent in selling, administrative and general costs.

   In 1996, dry hole costs were higher primarily due to increased exploratory
drilling in the United States.  Reduced worldwide exploratory drilling in 1995
resulted in lower dry hole costs.

  During 1996, the company reduced interest expense as a result of paying down
debt.  The company's interest expense was higher by six percent in 1995 due
principally to increased borrowing to fund the 1995 capital program.

EXPLORATION AND PRODUCTION

  This business segment explores for, and produces and markets crude oil,
condensate, natural gas and natural gas liquids.

<TABLE>
<CAPTION>

Millions of Dollars                                    1996            1995            1994
-------------------------------------------------------------------------------------------
<S>                                                <C>             <C>             <C>
After-tax earnings                                    $728            $421            $378
Special items:
     Impairment of long-lived assets                   (32)            (53)              -
     Environmental provision                             -               -             (16)
     Sale of California oil and gas properties (a)      65               -               -
     Settlement of Federal leases                        7              18               -
     Write-downs of assets                               -              (8)            (15)
     Asset sales                                        42              35               3
     Columbia gas settlement                             -              34               -
     Other                                              (4)              -               -
-------------------------------------------------------------------------------------------
         Total special items                            78              26             (28)
-------------------------------------------------------------------------------------------
           After-tax earnings excluding special items $650            $395            $406
-------------------------------------------------------------------------------------------
</TABLE>

(a)  Net of provision for environmental remediation of $10 million.

   During 1996, this business segment reported a 65 percent increase in adjusted
after-tax earnings primarily due to strong worldwide crude oil and natural gas
prices, higher foreign natural gas production and increased demand for fuel
during the winter months.

1996 VS 1995

   Increases in the average worldwide sales price for crude oil and condensate
contributed significantly to improved earnings.  The average worldwide sales
price for crude oil and condensate increased $3.80 per barrel (or

                                       21
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)

25 percent) and the average worldwide sales price for natural gas increased $.55
per mcf (or 32 percent) above the 1995 levels.

   In 1996, foreign natural gas production increased 11 percent, principally due
to improved production levels in Thailand, Indonesia and the Netherlands.
Worldwide crude oil production averaged 206,600 barrels per day compared to
240,400 in 1995.  This decrease of 14 percent was primarily due to lower
domestic production resulting from the sale of California oil and gas properties
and natural production declines.

1995 VS 1994

   During 1995, the company experienced lower worldwide crude oil production and
lower average domestic natural gas sales prices.  Worldwide crude oil production
in 1995 averaged 240,400 barrels per day compared to 259,800 in 1994.  The
decrease was mainly due to natural production declines and the sale of domestic
properties.

GEOTHERMAL OPERATIONS

  This business segment explores for, and produces and sells geothermal
resources used to generate electricity.

<TABLE>
<CAPTION>

Millions of Dollars                                       1996            1995            1994
----------------------------------------------------------------------------------------------
<S>                                                   <C>             <C>             <C>
After-tax earnings (loss)                                ($55)            $26             $32
Special items:
    Impairment of long-lived assets                       (14)              -               -
   Asset sales                                            (57)              7               -
   Other                                                    2               -               -
----------------------------------------------------------------------------------------------
      Total special items                                 (69)              7               -
----------------------------------------------------------------------------------------------
    After-tax earnings excluding special items            $14             $19             $32
----------------------------------------------------------------------------------------------
</TABLE>

1996 VS 1995

   During 1996, the company experienced higher development, exploratory and dry
hole expenses principally in Indonesia.  In addition, earnings were adversely
impacted due to a contract dispute between the Philippine Geothermal, Inc.
subsidiary and the Philippine National Power Corporation.  Partially offsetting
these negative factors were a 12 percent increase in steam generation, primarily
due to the use of discount pricing at The Geysers in Northern California and
electrical generation expansion at Mak-Ban in the Philippines.

1995 VS 1994

   The decrease in 1995 adjusted after-tax earnings was the result of lower
steam production at The Geysers in Northern California and at the Tiwi
facilities in the Philippines.  The lower production at The Geysers was due to
seven months of discretionary curtailments by the public utility company that
purchases the steam to generate electricity.  The lower production at the Tiwi
facilities was due to typhoon damage sustained in 1995.  These negative factors
were partially offset by increased production and prices for Indonesian
operations.  The increased production resulted from a full year of supplying
steam from the Gunung Salak field to operate two 55-megawatt power generating
plants.

DIVERSIFIED BUSINESS GROUP

   The Agricultural Products business unit manufactures and markets nitrogen-
based products for wholesale agricultural and industrial markets supplying the
western United States and the Pacific Rim.  The Carbon and Minerals business
unit produces and markets petroleum coke, graphites, solvents and specialty
minerals.  The Pipelines business unit principally includes the company's equity
interests in petroleum pipeline companies.  The Other category includes the
company's equity interest in The UNO-VEN Company.

                                       22
<PAGE>

   MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)

<TABLE>
<CAPTION>

Millions of Dollars                                   1996            1995            1994
------------------------------------------------------------------------------------------
<S>                                               <C>             <C>             <C>
After-tax earnings:
   Agricultural Products                              $98             $74             $29
   Carbon and Minerals                                 47              52              42
   Pipelines                                           69              66              56
   Other                                               14               9              14
------------------------------------------------------------------------------------------
   Total                                              228             201             141
Special items:
   Agricultural Products (Asset sales)                  -               4               2
   Carbon and Minerals (Litigation)                    (1)              -               -
   Pipelines (Asset sales)                              9               -               -
------------------------------------------------------------------------------------------
   Total special items                                  8               4               2
------------------------------------------------------------------------------------------
      After-tax earnings excluding special items     $220            $197            $139
------------------------------------------------------------------------------------------
</TABLE>

1996 VS 1995

  The Agricultural Products business unit's adjusted after-tax earnings for 1996
were 40 percent higher due to increased sales and production volumes primarily
resulting from the startup of the Finley, Washington ammonia plant.  In
addition, maintenance expenses were lower in 1996 than in 1995.  The higher 1995
expenses were the result of the Finley plant start-up and scheduled maintenance
at the Kenai, Alaska ammonia plant.  Partially offsetting these positive factors
were lower sales prices for ammonia and urea.

  During 1996, the Carbon and Minerals business unit's adjusted after-tax
earnings decreased principally due to higher mining expenses and lower solvent
margins.  The increased mining expenses were primarily the result of the start-
up of the Questa molybdenum mine.

1995 VS 1994

  In 1995, the Agricultural Products business unit benefited from significant
increases in ammonia and urea product sales prices because of higher demand in
international markets.  This was partially offset by higher raw material and
manufacturing costs, due to the start-up expenses associated with the Finley
plant, and scheduled maintenance at the Kenai plant.

  In 1995, the Carbon and Minerals business unit benefited from higher petroleum
coke and lanthanide earnings.

CORPORATE AND UNALLOCATED

  Corporate expense includes general corporate overhead, the New Ventures group
and other unallocated costs.  Net interest expense represents interest expense,
net of interest income and capitalized interest.  The New Ventures group pursues
foreign business development opportunities.  During 1996, the New Ventures
group's infrastructure projects included proposed oil and gas pipelines from
Turkmenistan to Pakistan, an equity joint venture in Zhangjiagang, China to
construct a liquefied petroleum gas terminal, and the acquisition of a 30
percent interest in the Transandean oil pipeline.  For 1995 and 1994, the New
Ventures group's infrastructure project costs were not significant.  The Other
category principally includes real estate businesses and miscellaneous expenses
associated with assets sold or being phased-out.

                                       23
<PAGE>

   MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)

<TABLE>
<CAPTION>

Millions of Dollars                                                 1996            1995            1994
--------------------------------------------------------------------------------------------------------
<S>                                                             <C>             <C>             <C>
After-tax earnings effect:
Administrative and general expense                                 ($79)           ($84)           ($70)
Net interest expense                                               (175)           (178)           (174)
Environmental and litigation expense                               (143)            (92)           (186)
New Ventures                                                        (23)              -               -
Other                                                               (25)            (45)            (11)
--------------------------------------------------------------------------------------------------------
   Total                                                           (445)           (399)           (441)
Special items:
     Environmental and litigation provisions                       (122)            (63)           (138)
     Tax adjustments (Other)                                          -             (18)              -
     Receivable write-down (Other)                                   (6)            (14)              -
     Write-downs of assets (Other)                                    -              (4)             (9)
     Asset sales (Other)                                             11              24               2
     Mesa settlement (Other)                                          -               -              24
     Restructuring costs (A&G)                                        -               -             (15)
     UOC lease termination (Other)                                    -               -               9
     Miscellaneous (Other)                                           (6)              -               -
--------------------------------------------------------------------------------------------------------
   Total special items                                             (123)            (75)           (127)
--------------------------------------------------------------------------------------------------------
      After-tax earnings effect excluding special items           ($322)          ($324)          ($314)
--------------------------------------------------------------------------------------------------------
</TABLE>

DISCONTINUED OPERATIONS

  In December 1996, the company signed a definitive agreement for the sale of
substantially all of its West Coast petroleum refining, marketing and
transportation assets (discussed on pages 32 through 33).  The results of
operations and assets of the refining, marketing and transportation segment have
been classified as discontinued operations.  For summary financial statements
and other detailed financial information see Note 3.

FINANCIAL CONDITION

<TABLE>
<CAPTION>

Millions of Dollars                                 1996              1995              1994
--------------------------------------------------------------------------------------------
<S>                                           <C>               <C>               <C>
Current ratio (a)                                   2.0               1.2               1.2
Total debt                                       $3,058            $3,706            $3,466
Convertible preferred securities                 $  522            $    -            $    -
Stockholders' equity                             $2,275            $2,930            $2,815
Capitalization                                   $5,855            $6,636            $6,281
Total debt/capitalization                            52%               56%               55%
Floating-rate debt/total debt                        17%               24%               25%
--------------------------------------------------------------------------------------------
(a)  1996 includes net assets of discontinued operations.

</TABLE>

  Cash flow from operating activities, including discontinued operations and
working capital and other changes, was $1,684 million in 1996, $1,277 million in
1995 and $1,299 million in 1994.  The 1996 amount reflects higher commodity
prices and increased natural gas production and agricultural products sales.
These benefits were partially offset by increased working capital requirements.
Cash flow from operating activities for 1995 included $200 million of proceeds
from the sale of trade receivables (see Note 25), $71 million from the Columbia
Gas settlement and $34 million for the settlement of Federal leases.  These
benefits were more than offset by temporary working capital changes.  The 1994
operating cash flow reflected decreased working capital requirements and
significant income tax refunds received during the year.  These benefits were
partially offset by lower operational earnings.

   During 1996, the company generated $609 million in pre-tax proceeds from
sales of assets.  The 1996 amount included $472 million in proceeds from the
sale of California oil and gas properties, $28 million from the sale of

                                       24
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)

geothermal assets, and $23 million from the sale of exploration blocks in the
North Sea.  Proceeds from asset sales in 1995 amounted to $204 million,
primarily from the sale of miscellaneous oil and gas properties and the
company's Process, Technology and Licensing business.  Proceeds from sales of
assets in 1994 totaled $156 million, principally from the sale of oil and gas
properties.

  In 1996 and 1995, the company also generated approximately $33 million and $55
million, respectively, in cash from the sale of its common stock, primarily
through the exercise of employee stock options and the Dividend Reinvestment and
Common Stock Purchase Plan.

  In September 1996, the company exchanged 10,437,873 new 6-1/4 percent Trust
convertible preferred securities of Unocal Capital Trust for 9,352,962 shares of
Unocal's outstanding $3.50 convertible preferred stock.  On September 11, 1996,
the company called the 897,038 unexchanged shares of $3.50 convertible preferred
stock for redemption.  All of the unexchanged shares of preferred stock were
converted into Unocal common stock by the October 11, 1996 redemption date (see
Note 20).

  The company's total debt at year-end 1996 decreased $648 million from year-end
1995, to $3,058 million.  The decrease was primarily due to retirement of a $175
million Swiss Franc bond issue and a reduction of commercial paper borrowings.
Funding for debt retirements primarily consisted of proceeds from asset sales.

  For 1997, the company expects cash generated from operational earnings and
asset sales to be adequate to meet its operating requirements, capital spending
and dividend payments.  The company expects to use a portion of the proceeds
from the sale of the West Coast refining, marketing and transportation assets to
reduce debt by approximately $800 million and to repurchase up to $400 million
of common stock.  In addition, the company has substantial borrowing capacity to
meet unanticipated cash requirements.  At December 31, 1996, the company had
approximately $1.3 billion of undrawn commitments under various credit
facilities with major banks.

   The company's foreign operations have limited exposures to foreign currency
risks.  In most countries, energy products are valued and sold in U.S. dollars,
and foreign currency operating cost exposures have not been significant.  In the
Philippines and Thailand, the company is paid for product deliveries in the
local currencies, but at prices indexed to U.S. dollar valuations.  Such funds,
less amounts required for local currency-denominated obligations, are converted
to U.S. dollars as soon as  practicable and periodically remitted to the U.S.
parent.  The company's Canadian subsidiary is paid in Canadian dollars for its
crude oil and natural gas sales.  Excess Canadian funds generally have been
invested in other Unocal foreign operations rather than remitted to the U.S.
parent.

   The company has only limited involvement with derivative financial
instruments.  The majority are debt-related and are used to manage interest rate
and foreign currency exchange rate risks.  The company also uses futures
contracts to hedge its exposure to fluctuations in petroleum commodity prices.
At year-end 1996 such contracts covered less than one percent of the company's
annual oil and gas production.

CAPITAL EXPENDITURES FOR CONTINUING OPERATIONS

<TABLE>
<CAPTION>
                                         Estimated
Millions of Dollars                           1997              1996              1995            1994
-------------------------------------------------------------------------------------------------------
<S>                                      <C>               <C>               <C>               <C>
Exploration and Production
   Domestic                                $  330            $  418            $  497            $486
   Foreign                                    735               509               353             310
-------------------------------------------------------------------------------------------------------
   Total                                    1,065               927               850             796
Geothermal Operations                         110               114                51              35
Diversified Business Group
   Agricultural Products                       20                12                55               8
   Carbon and Minerals                         26                16                12               8
   Pipelines                                    8                54                 5               5
Corporate and Unallocated
   New Ventures                                60                 5                 6              12
Other                                          51                46                58              41
-------------------------------------------------------------------------------------------------------
      Total                                $1,340            $1,174            $1,037            $905
-------------------------------------------------------------------------------------------------------
</TABLE>

                                       25
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)


   Capital spending in 1996 on foreign oil and gas exploration and production
increased 44 percent from 1995 reflecting increased expenditures in Thailand,
Indonesia, Myanmar, and Azerbaijan.  Capital spending on geothermal energy
projects in 1996 primarily focused on development work at the Salak field on the
island of Java and exploration drilling on the island of Sumatra, in Indonesia.

   Capital spending in 1997 will focus on the development of overseas oil, gas
and geothermal projects, particularly in Myanmar, Thailand, Indonesia and
Azerbaijan.  The sale of the West Coast refining, marketing and transportation
assets will enable the company to shift capital spending to higher return
projects, with 67 percent of total planned capital spending directed to Asian
projects.

   In 1997, the foreign exploration and production group's capital spending plan
will increase 44 percent from the 1996 level.  A major focus of this spending
will be the Yadana field development offshore Myanmar and the related pipeline
project. This natural gas project is expected to be in operation by mid-1998.
In Thailand, the company plans to develop the Plamuk gas field, discovered in
1996, and extend development of its existing fields to increase natural gas
production when a second pipeline to shore and related facilities become fully
operational in the second quarter of 1997.  In Indonesia, the company plans to
further develop new oil and gas reserves offshore East Kalimantan and to
accelerate its successful exploratory drilling program by drilling 30
exploratory wells in known producing basins during 1997.  Other important
projects are in the Caspian Sea, offshore Azerbaijan.  Unocal is a member of two
international consortia that are moving forward with development programs in
this oil rich area.

   The United States Lower 48 accounts for 88 percent of the 1997 domestic
capital budget, as the company's new business unit, Spirit Energy 76, focuses on
development of key natural gas projects.

   The 1997 capital expenditures for the Geothermal Operations segment are
expected to approximate the 1996 level, focusing on projects in Indonesia.  The
company expects to accelerate development of resource production facilities at
the Salak field and to conduct additional exploration at the Sarulla contract
area on the island of Sumatra. The company has a 50 percent interest in a joint
venture that is building and will operate three power plants at the Salak field
that will utilize its steam production.

   The decrease in the Agricultural Products business unit's capital spending in
1996 reflects reduced expenditures due to the startup of the Finley, Washington
ammonia manufacturing plant in 1995.  The planned increase in capital spending
for the Carbon and Minerals business unit in 1997 is due to capital requirements
for its lanthanides operations in Mountain Pass, California.  The Pipelines
business unit's capital expenditures in 1996 included miscellaneous upgrades to
existing facilities and acquisition of a 30 percent interest in the Transandean
oil pipeline, which transports crude oil from Argentina to Chile.

ENVIRONMENTAL MATTERS

  The company continues to incur substantial capital and operating expenditures
for environmental protection and to comply with federal, state and local laws
and provisions regulating the discharge of materials into the environment.  In
many cases, investigatory or remedial work is now required at various sites even
though past operations followed practices and procedures that were considered
acceptable under environmental laws and regulations, if any, existing at the
time.

                                       26
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)


<TABLE>
<CAPTION>
                                                 Estimated
Millions of dollars                                  1997            1996            1995            1994
---------------------------------------------------------------------------------------------------------
<S>                                              <C>             <C>             <C>             <C>
Environment-related capital expenditures
   Continuing operations                             $36             $15             $33             $37
   Discontinued operations                           $10             $57            $197            $193
---------------------------------------------------------------------------------------------------------

</TABLE>

   Environment-related capital expenditures include additions and modifications
to company facilities to mitigate and/or eliminate emissions and waste
generation.  Most of these capital expenditures are required to comply with
federal, state and local laws and regulations.  The decrease in 1996 capital
expenditures for discontinued operations reflects the completion of major
modifications to the company's refineries to manufacture cleaner burning
reformulated gasoline for the California market.  These modifications were
performed between 1993 and 1995 at a cost of approximately $400 million.

   Amounts charged to earnings for environment-related expense were $230 million
in 1996, $170 million in 1995 and $370 million in 1994.  Environmental expenses
include remediation costs and operating, maintenance and administrative costs
related to environmental compliance.  These expenses include provisions for
future remediation costs that were identified during the company's on-going
review of its environmental obligations.  In 1996, these provisions consisted
primarily of remediation costs for active company facilities, the Guadalupe oil
field, the Avila Beach site and sold California oil and gas properties.  The
provisions for these sites are discussed in more detail below.

   At December 31, 1996, the company's reserves for environmental remediation
obligations totaled $250 million, of which $73 million was included in other
current liabilities.  The total amount is grouped into the following five
categories:

<TABLE>
<CAPTION>
                                                             Year-end
Millions of Dollars                                              1996
---------------------------------------------------------------------
<S>                                                          <C>
   Superfund and similar sites                                   $27
   Former company-operated sites                                  26
   Company facilities sold with
     retained liabilities                                         60
   Inactive or closed company facilities                          77
   Active company facilities                                      60
--------------------------------------------------------------------
      Total reserves                                            $250
--------------------------------------------------------------------
</TABLE>

SUPERFUND AND SIMILAR SITES

  At year-end 1996, Unocal received notification from the U.S. Environmental
Protection Agency that the company may be a potentially responsible party (PRP)
at 39 sites and may share certain liabilities at these sites.  In addition,
various state agencies and private parties had identified 37 other similar PRP
sites that may require investigation and remediation.  Of the total, the company
has denied responsibility at five sites and at another eight sites the company's
liability, although unquantified, appears to be de minimis.  The total also
includes 19 sites which are under investigation or in litigation, for which the
company's potential liability is not presently determinable.  At another four
sites, the company has made settlement payments and is in the final process of
resolving its liabilities.  Of the remaining 40 sites, where probable costs can
be estimated, reserves of $27 million have been established for future
remediation and settlement costs.  These 76 sites exclude 50 sites where the
company's liability has been settled, or where the company has both no evidence
of liability and there has been no further indication of liability by government
agencies or third parties for at least a 12-month period.

  Unocal does not consider the number of sites for which it has been named a PRP
as a relevant measure of liability.  Although the liability of a PRP is
generally joint and several, the company is usually just one of several
companies designated as a PRP.  The company's ultimate share of the remediation
costs at those sites often is not

                                       27
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)

determinable due to many unknown factors as discussed in Note 19.  The solvency
of other responsible parties and disputes regarding responsibilities may also
impact the company's ultimate costs.

FORMER COMPANY-OPERATED SITES

  Reserves of $26 million have been established for this category of sites.  Of
the total, $9 million was for approximately 120 service station sites on leased
properties at which operations have ceased and which the company is obligated to
remediate before returning them to the owners.  Also included was $8 million for
approximately 175 service station sites that the company previously owned or
leased. The  current owners of such properties are holding the company
responsible for environmental remediation costs.

COMPANY FACILITIES SOLD WITH RETAINED LIABILITIES

  This category has reserves of $60 million for environmental liabilities
related to former company businesses and assets that have been sold.  Included
are the company's former auto/truckstop facilities, a former mine site in
Wyoming, industrial chemical and polymer sites and agricultural chemical sites.
Facilities which were transferred to the UNO-VEN Company in 1989 in connection
with its formation are also in this category.  In each sale, the company
retained a contractual remediation or indemnification obligation and is
responsible only for certain environmental problems associated with its past
operations.  The reserves represent presently estimated future costs for
investigation/feasibility studies and identified remediation work as a result of
claims made by buyers of the properties.

  Also included in this category are the company's California oil and gas
properties and facilities sold in April 1996.  Under the sale agreement the
company retained certain environmental liabilities for some of the properties
sold.  During the course of the sale, the company also identified environmental
liabilities for certain properties that were ultimately excluded from the sale.
As a result, in 1996 the company added $17 million to the reserve for estimated
future assessment and remediation costs.  Additional related costs may be
incurred but cannot be determined until further assessments and investigations
of the properties are performed.

INACTIVE OR CLOSED COMPANY FACILITIES

  Reserves of $77 million have been established for these types of facilities.
The major sites in this category are the Guadalupe oil field on the central
California coast and the Avila Beach, California site.  Also included in this
category are the former Beaumont refinery in Texas, the shale oil project and a
chemical facility in Colorado.

  The Guadalupe oil field reserve includes estimated costs for the cleanup of
underground releases of a diesel-like additive that was formerly used to produce
the field's heavy crude oil.  During 1996, $37 million was added to the reserve
for estimated assessment and remediation expenses, including implementation of a
preliminary draft remedial action plan submitted to the  Regional Water Quality
Control Board and the county of San Luis Obispo.  Also included are costs to
complete an environmental impact report and for additional studies and
investigations.  The company expects to incur additional, but currently
indeterminate, expenses for this site.

  Also included in this category is the Avila Beach, California, site.  In 1988,
petroleum hydrocarbon contamination was discovered under the Front Street
section of the town.  It was determined that the source of the contamination had
been leaking pipelines that ran between a tank farm and wharf operated by the
company.  During 1996, the company  added $28 million to the reserve, primarily
for the estimated implementation costs associated with remedial action plans
submitted to the Regional Water Quality Control Board and the county of San Luis
Obispo for the cleanup of the beach and town areas of the site.  The reserve
also includes estimated expenses for the completion of an environmental impact
report.  The company expects to incur additional, but currently indeterminate,
expenses for this site.

ACTIVE COMPANY FACILITIES

  The company has provided $60 million for estimated future costs of remedial
orders, corrective actions and other investigation, remediation and monitoring
obligations at certain operating facilities and producing oil and gas fields.
Also included in this category is the Questa molybdenum mine in New Mexico which
resumed operations in 1996.

                                       28
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)

  In 1996, the company added $37 million to the reserve for active facilities,
primarily for service stations.  Some of the remediation is being performed as
the company replaces underground storage tank (UST) systems at these sites.
Federal regulations require all UST systems to meet new standards by December
1998.  The additional reserve also includes remediation to be performed in
conjunction with the company's program to upgrade its service stations.

  The agreement for the sale of the company's West Coast refining, marketing and
transportation assets specifies that the company will share in a portion of
environmental liabilities arising from operation of the assets prior to the
closing of the sale.  The company's liability for environmental costs will
expire 25 years after the closing date.  In addition to the costs for service
stations described above, the company has accrued its estimate of the probable
future costs for known environmental liabilities related to the other assets to
be sold.

  The company is subject to federal, state and local environmental laws and
regulations, including the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, and the Resource Conservation and
Recovery Act (RCRA).  Under these laws, the company is subject to possible
obligations to remove or mitigate the environmental effects of the disposal or
release of certain chemical and petroleum substances at various sites.

  Corrective investigations and actions pursuant to RCRA are being performed at
the company's San Francisco and Los Angeles refineries, the Beaumont facility,
and at the company's closed shale oil project, and Washington, Pennsylvania
facility.  The company also must provide financial assurance for future closure
and post-closure costs of its RCRA-permitted facilities.  Because these costs
will be incurred at different times and over a period of many years, the company
believes that these obligations are not likely to have a material adverse effect
on the company's results of operations or financial condition.

  The total environmental remediation reserves recorded on the Consolidated
Balance Sheet represent the company's estimates of assessment and remediation
costs based on currently available facts, existing technology, and presently
enacted laws and regulations.  The remediation cost estimates, in many cases,
are based on plans recommended to the regulatory agencies for approval and are
subject to future revisions.  The ultimate costs to be incurred will likely
exceed the total amounts reserved, since many of the sites are relatively early
in the remedial investigation or feasibility study phases.  Additional
liabilities may be accrued as the assessment work is completed and formal
remedial plans are formulated.

  The company has estimated, to the extent that it was able to do so, that it
could incur approximately $160 million of additional costs in excess of the $250
million accrued at December 31, 1996.  The amount of such possible additional
costs reflects, in most cases, the high end of the range of costs of feasible
alternatives identified by the company for those sites with respect to which
investigation or feasibility studies have advanced to the stage of analyzing
such alternatives.  However, such estimated possible additional costs are not an
estimate of the total remediation costs beyond the amounts reserved, since at a
large number of sites the company is not yet in a position to estimate any
possible additional costs.

  Both the amounts reserved and estimates of possible additional costs may
change in the near term, in some cases, substantially, as additional information
becomes available regarding the nature and extent of site contamination,
required or agreed-upon remediation methods, and other actions by government
agencies and private parties.

 See Notes 18 and 19 for additional information.

FUTURE ACCOUNTING CHANGES

  In 1996, the American Institute of Certified Public Accountants issued
Statement of Position (SOP) 96-1, "Environmental Remediation Liabilities",
covering the recognition and reporting of environmental remediation liabilities
effective for fiscal years beginning after December 15, 1996.  The initial
application of this statement will be reflected as a change in accounting
estimate.  Revisions of previously issued financial statements are not
permitted.  The company is reviewing the potential financial statement impact of
adopting the provisions of the SOP.

                                       29
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)

  In 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities."  This
statement is to be applied prospectively to transactions occurring after
December 31, 1996.  The company is reviewing the potential financial statement
impact of adopting the new accounting standard.

OUTLOOK

  Certain of the statements in this discussion, as well as other forward-looking
statements within this document, contain estimates and projections of amounts of
or increases in future revenues, earnings, cash flows, capital expenditures,
assets, liabilities and other financial items.  Certain statements may also
contain estimates and projections of future levels of or increases in reserves,
production, sales including related costs and prices, and other statistical
items; plans and objectives of management regarding the company's future
operations, products and services; and certain assumptions underlying such
estimates, projection plans and objectives.  While these forward-looking
statements are made in good faith, future operating, market, competitive, legal,
economic, political, environmental, and other conditions and events could cause
actual results to differ materially from those in the forward-looking
statements.

  Crude oil prices are expected to fluctuate in 1997 due to anticipated changes
in the world's oil supply.  Conditions that may influence crude oil prices
include the resumption of Iraq's oil exports and OPEC's expected mid-1997
production quota increase.  Domestic natural gas prices have declined as milder
weather approaches and natural gas inventories are replenished.  While the
company expects to maintain domestic natural gas production at existing levels,
crude oil is expected to decrease due to natural declines.

  In August 1996, the company formed Spirit Energy 76, a new upstream domestic
crude oil and natural gas business unit, to focus exclusively on opportunities
in the contiguous United States and the Gulf of Mexico.  Spirit Energy 76 will
direct its efforts toward promising deep-water prospects in the Gulf of Mexico
as well as further developing its fields in the transition zones offshore
Louisiana, Alabama and Mississippi.  One area currently under development is
Mobile Bay off the Alabama and Mississippi coasts.

  In 1997, the company's foreign natural gas production is expected to increase
10 percent over 1996 due to increased demand in Thailand.  The new offshore
pipeline and processing facilities in Thailand are expected to be fully
operational in the second quarter of 1997.  Natural gas production increases are
also scheduled for Indonesia in 1997 as the company continues development of its
new Seguni field and other fields in the Mahakam Delta area, offshore East
Kalimantan.  Foreign crude oil and condensate production for 1997 is expected to
be up seven percent over last year primarily due to the ongoing development
activities in Thailand and Indonesia.

   In Thailand, the company expects to spend $220 million on natural gas
projects including the development of the Pailin field in the Gulf of Thailand.
Negotiations for a Pailin field natural gas sales contract were concluded in
1996 resulting in a 30-year natural gas purchase arrangement with the state-run
Petroleum Authority of Thailand.  Initial production from the Pailin field is
expected to be nearly 165 mmcf of natural gas per day in 1999 rising to
approximately 330 mmcf of natural gas per day by 2001 once the reserves are
fully delineated.  Unocal has a 35 percent working interest in the Pailin field.
In October 1996, the company began an extensive exploration program commencing
with a seismic geophysical survey on two blocks in the deep-water section of the
Andaman Sea.  The company has a 46.66 percent working interest in the blocks and
plans to drill two exploratory wells in late 1997.  Thailand's natural gas-fired
power plants and its increasing demand for electricity are expected to provide a
steady growth market for natural gas for the next 10 to 15 years.  The company
expects to further capitalize on Thailand's increased demand for gas-fired
electricity by employing its market-to-resource strategy.  During 1996, the
company announced plans to partner with affiliates of Thai Oil and Westinghouse
to construct a 700-megawatt power plant.  In October 1996, the consortium signed
an initial agreement with the state-run Electrical Generating Authority of
Thailand (EGAT).  The agreement guarantees that EGAT will purchase power from
the consortium beginning in 2002.  The proposed plant is also expected to
provide a stable market for the company's future natural gas production.

                                       30
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)

   In Indonesia, the company plans to spend nearly $175 million in 1997 on oil
and natural gas projects including development of the Santan field.  First
production is expected by August 1997.  Santan field production is expected to
stabilize by 1998 to average 40 mmcf of natural gas and 1,500 barrels of oil per
day.  Drilling is also scheduled for the Peciko field with first production
expected in 1999.  The company has a 100 percent working interest in these
fields.  The company is also pursuing gas-to-power opportunities in the East
Kalimantan region, in Java, and in other prospective areas of Indonesia.

   Capital spending in Myanmar will increase to $140 million in 1997, primarily
for the Yadana natural gas project.  First production of 525 mmcf per day is
expected in mid-1998, with full production expected to average 650 mmcf per day
by 1999.  Construction of the onshore section of the 416-mile Myanmar to
Thailand natural gas pipeline began in December 1996.  When completed in 1998,
the pipeline will transport natural gas production from the Yadana field in the
Andaman Sea, offshore Myanmar, to markets in Thailand.  First production is
scheduled for sale to Thailand under a 30-year gas sales contract and a pipeline
agreement calling for natural gas deliveries of 525 mmcf per day beginning in
mid-1998.  A separate sales agreement calls for 125 mmcf per day of natural gas
to be supplied to Myanmar for its domestic use.  Unocal has a 28.26 percent
working interest in the Yadana project.  In March 1996, Unocal and its partners
discovered two potentially significant gas bearing sand structures adjacent to
the Yadana field.  The company and its partners are evaluating the commerciality
of these offshore discoveries.  Both fields could easily be produced through the
nearby Yadana platform complex.  Unocal has a 28.26 percent working interest in
these discoveries.  In January 1997, the company and its partners in the Yadana
field signed an agreement with Myanmar's state owned oil and gas enterprise for
new exploration blocks in the Andaman Sea.  Unocal has a 47.5 percent working
interest in this area.  Seismic work on the project is expected to begin in
1997.

   As part of its market-to-resource strategy, the company and its partners
signed a preliminary memorandum of understanding with Myanmar's Ministry of
Foreign Energy in May 1996 to study the commerciality and feasibility of
developing a natural gas utilization project in Myanmar.  The project would
consist of a natural gas transmission pipeline from the company's offshore
Yadana field to the delta area near the city of Yangon, construction of a 1,750-
ton per day fertilizer plant and a 200 megawatt electricity generating plant.
Work on the proposal is ongoing.

   The United States Congress passed legislation allowing the President to ban
investment by United States companies in new projects within Myanmar if certain
acts occur.  If invoked, this action could adversely affect the company's future
prospects in that country.

  Unocal is a member of two international consortia participating in the
development of Caspian Sea oil fields offshore Azerbaijan and expects to spend
$68 million on these projects in 1997.  Unocal has a 10 percent working interest
in the Azerbaijan International Operating Company which is currently developing
the Azeri, Chirang and Gunashli oil fields.  Initial production is expected by
early 1998.  In December 1996, the company signed a production-sharing agreement
with the State Oil Company of the Azerbaijan Republic to develop the Ashrafi and
Dan Ulduzu oil fields which are also in the Caspian Sea, offshore Azerbaijan.
In February 1997, the production sharing contract was ratified by Azerbaijan's
Parliament.  First production is expected in 2003. The company has a 25.5
percent working interest in the prospect.  Many challenges lie ahead as the
consortia must resolve issues related to proposed pipeline routes and the
construction  of permanent oil export pipelines and facilities.

  In May 1996, the company signed a production-sharing contract with
Petrovietnam for petroleum exploration, offshore Vietnam.  The three-year
contract involves seismic work and the drilling of exploratory wells.  The
company has a 45 percent working interest in the block B prospect.  The first
well is scheduled to begin drilling in the first quarter of 1997.

  The company leads an international consortium pursuing plans to build crude
oil and natural gas pipelines from Turkmenistan to ready markets in Pakistan.
The company signed an agreement in 1995 with the government of Turkmenistan for
rights to purchase natural gas and transport it through a proposed pipeline.
These projects fit with the company's strategy of extending its expertise to
areas with strong emerging markets, however, the company cannot move forward
with these projects until the political situation stabilizes in the region.

                                       31
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)

  In September 1996, the company joined an equity joint venture in Zhangjiagang,
China near the port city of Shanghai  to construct a liquefied petroleum gas
(LPG) terminal.  The terminal will be located on the Yangtze River and will have
an initial planned throughput capacity of 500,000 metric tons.  The joint
venture will sell the LPG in bulk utilizing both truck and barge facilities.
Terminal construction is scheduled for completion by December 1997 with LPG
available for delivery to customers in January 1998.  The company has a 30
percent interest in the joint venture.

   In late 1996, the company finalized a farm-in agreement to acquire a 50
percent working interest in a production-sharing contract covering three million
acres in Northeast Bangladesh.  A sales contract with Petrobangla, the
Bangladesh national petroleum company, was signed in November 1996 and calls for
initial delivery of 100 mmcf of natural gas per day.  Development and
delineation wells are scheduled over the next two years with initial production
set for mid-1998.  Natural gas demand in Bangladesh is expected to increase over
the next 10 to 15 years and the company views this as a potentially promising
area with a known resource linked to a ready market.

   In Indonesia, the Geothermal Operations segment expects to accelerate
development of resource production facilities at the Salak field on the island
of Java.  The company has a 50 percent interest in a joint venture that is
building and will operate three new power plants in the area.  Unocal will
supply steam for the power plants which are expected to be on-line in 1997.  The
company also plans to conduct additional exploration in the Sarulla block on the
island of Sumatra, after a discovery well indicated a highly productive
geothermal resource.  The company had previously negotiated a power sales
agreement that allows it to develop up to 1,000 megawatts of generating capacity
in the Sarulla block.  The first of the Sarulla power plants is expected to
begin operation in 1999, assuming the commerciality of the field.  The company
is also pursuing other geothermal development and power generation opportunities
throughout Indonesia.

   The Geothermal business segment's 1996 earnings were adversely affected by a
continuing dispute involving a 25-year service agreement between the company's
subsidiary Philippine Geothermal, Inc. (PGI) and the Philippine National Power
Corporation (Napocor) for PGI's continued operation of two geothermal fields in
the Northern Philippines. An provisional agreement was reached in September 1996
that obligates both parties to continue operating under the terms of the
original agreement; however, the provisional agreement calls for 60 percent of
the service fee paid to PGI to be held in escrow pending determination on
whether the service contract can be renewed for another 25 years. The
provisional agreement expires June 30, 1997. The parties are currently
negotiating a resolution to the dispute.

  In 1997, the Agricultural Products business unit expects continued high sales
volumes of ammonia and urea.  Consolidation of the company's Alaska upstream oil
and gas operations with the Kenai fertilizer manufacturing plant is expected to
provide overall cost savings to the company through operating efficiencies.  The
business unit plans to expand sales efforts in its existing markets in South
Korea, Japan, China, Vietnam and India.

   The Carbon and Minerals business unit will continue to expand specialty
graphite products and has begun production of molybdenum.  Higher molybdenum
prices provided the company with the incentive to resume operations in 1996 at
the Questa mine in New Mexico.  This mine is expected to produce about 14
million pounds of molybdenum per year when it reaches full production.
Additional capital expenditures will continue in 1997 as the mine becomes fully
operational.

   In December 1996, the company signed a definitive agreement for  the sale of
substantially all of its West Coast petroleum refining, marketing and
transportation assets to Tosco Corporation.  The sale would include Unocal's
three California refineries, various terminals, bulk plants and pipelines;
lubricant business; retail marketing business, including approximately 1,100
controlled sites and 250 branded, non-controlled sites in six western states;
commercial and industrial petroleum products business; three ocean-going
tankers; inventories of hydrocarbon products; credit card systems; and other
assets.  The sale, which is expected to close on or about March 31, 1997, is
valued at approximately $2 billion (see Note 3).  The company expects to receive
at the closing approximately $1.4 billion in cash and shares of Tosco common
stock with an initial value of approximately $400 million.  The shares will be
restricted as to disposition and voting and will be subject to the risks of
market and business conditions affecting Tosco's common stock.  However, the
company will have the right to have the shares registered for sale and is
considering various alternatives for disposing of the shares.

                                       32
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)

  The cash proceeds of the sale and the cash proceeds ultimately realized upon
the disposition of the shares of Tosco common stock are expected to be used to
reduce debt, repurchase company common stock and fund potentially higher return
capital projects.  Unocal has approximately 3,100 employees involved in its West
Coast petroleum refining, marketing and transportation operations.  While many
of those employees will be offered positions with Tosco or at other Unocal
operations, some layoffs are expected.

  Under the terms of the agreement with Tosco, the company will be responsible
for a portion of the costs, with certain exceptions, related to environmental
liabilities and in general for all costs related to litigation arising from
operation of the assets prior to the closing of the sale.  For further
information see Environmental Matters and Note 19.

  The company has signed a letter of intent with its partner to restructure the
UNO-VEN partnership. Under terms of the proposed agreement, the refining and
marketing assets of UNO-VEN, together with substantially all of its non-
environmental liabilities, would be distributed to an affiliate of the partner
and UNO-VEN would realize approximately $250 million.  When completed, the
restructuring, together with the sale of the company's West Coast petroleum
refining, marketing and transportation assets, would essentially mark the end of
the company's participation in all petroleum refining and marketing operations.


                                       33
<PAGE>

ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>

INDEX TO CONSOLIDATED FINANCIAL
 STATEMENTS AND FINANCIAL STATEMENT
 SCHEDULES

                                                             Page
                                                             -----

<S>                                                          <C>
Report on Management's Responsibilities                         35

Report of Independent Accountants                               36

Financial Statements
  Consolidated Earnings                                         37
  Consolidated Balance Sheet                                    38
  Consolidated Cash Flows                                       39
  Consolidated Stockholders' Equity                             40
  Notes to Consolidated Financial Statements                 41-66

Supplemental Information:
  Oil and Gas Financial Data                                 67-69
  Oil and Gas Reserve Data                                   69-71
  Present Value of Future Net Cash Flow
   Related to Proved Oil and Gas Reserves                    71-73
  Selected Quarterly Financial Data                             74
  Selected Financial Data                                       75

Supporting Financial Statement Schedule
 covered by the Foregoing Report of Independent
 Accountants:

  Schedule II  -  Valuation and Qualifying Accounts
    and Reserves                                                80

</TABLE>

  All other financial statement schedules have been omitted as they are not
applicable, not material or the required information is included in the
financial statements or notes thereto.

                                       34
<PAGE>

                   REPORT ON  MANAGEMENT'S RESPONSIBILITIES
                   ----------------------------------------

TO THE STOCKHOLDERS OF UNOCAL CORPORATION:

  Unocal's management is responsible for the integrity and objectivity of the
financial information contained in this Annual Report.  The financial statements
included in this report have been prepared in accordance with generally accepted
accounting principles and, where necessary, reflect the informed judgments and
estimates of management.

  The financial statements have been audited by the independent accounting firm
of Coopers & Lybrand L.L.P.  Management has made available to Coopers & Lybrand
L.L.P. all the company's financial records and related data, minutes of the
company's executive and management committee meetings and directors' meetings
and all internal audit reports.  The independent accountants conduct a review of
internal accounting controls to the extent required by generally accepted
auditing standards and perform such tests and procedures as they deem necessary
to arrive at an opinion on the fairness of the financial statements presented
herein.

  Management maintains and is responsible for systems of internal accounting
controls designed to provide reasonable assurance that the company's assets are
properly safeguarded, transactions are executed in accordance with management's
authorization and the books and records of the company accurately reflect all
transactions.  The systems of internal accounting controls are supported by
written policies and procedures and by an appropriate segregation of
responsibilities and duties.  The company maintains an extensive internal
auditing program that independently assesses the effectiveness of these internal
controls with written reports and recommendations issued to the appropriate
levels of management.  Management believes that the existing systems of internal
controls are achieving the objectives discussed herein.

  Unocal assessed its internal control systems in relation to criteria for
effective internal control over financial reporting following the Treadway
Commission's Committee of Sponsoring Organizations "Internal Control -
Integrated Framework."  Based on this assessment, Unocal believes that, as of
December 31, 1996, its systems of internal controls over financial reporting met
those criteria.

  Unocal's Accounting, Auditing and Ethics Committee, consisting solely of
directors who are not employees of Unocal, is responsible for:  reviewing the
company's financial reporting, accounting and internal control practices;
recommending the selection of independent accountants (which in turn are
approved by the Board of Directors and annually ratified by the stockholders);
monitoring compliance with applicable laws and company policies; and initiating
special investigations as deemed necessary.  The independent accountants and the
internal auditors have full and free access to the Accounting, Auditing and
Ethics Committee and meet with it, with and without the presence of management,
to discuss all appropriate matters.


<TABLE>
<S>                      <C>                  <C>                       <C>
Roger C. Beach           John F. Imle, Jr.    Neal E. Schmale           Charles S. McDowell
Chief Executive Officer  President            Chief Financial Officer   Vice President and Comptroller

</TABLE>

                               February 14, 1997

                                       35
<PAGE>

                       REPORT OF INDEPENDENT ACCOUNTANTS
                       ---------------------------------


TO THE STOCKHOLDERS OF UNOCAL CORPORATION:

  We have audited the accompanying consolidated balance sheets of Unocal
Corporation and its subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of earnings, cash flows and stockholders' equity
for each of the three years in the period ended December 31, 1996 and the
related financial statement schedule.  These financial statements are the
responsibility of Unocal Corporation's management.  Our responsibility is to
express an opinion on these financial statements based on our audits.

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

  In our opinion, the financial statements referred to above, which appear on
pages 37 through 68 of this Annual Report on Form 10-K, present fairly, in all
material respects, the consolidated financial position of Unocal Corporation and
its subsidiaries as of 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.  In addition, in our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial
statements, taken as a whole, presents fairly, in all material respects, the
information required to be included therein.

  As discussed in Note 2 to the consolidated financial statements, Unocal
Corporation and its subsidiaries changed their method of accounting for the
impairment of long-lived assets and long-lived assets to be disposed of in 1995
and for recognizing the reduction in value of its producing oil and gas
properties in 1994.




Coopers & Lybrand L.L.P.
February 14, 1997
Los Angeles, California

                                       36
<PAGE>

<TABLE>
<CAPTION>

CONSOLIDATED EARNINGS                                                                UNOCAL CORPORATION

                                                                                    Years ended December 31
                                                                       ----------------------------------------------
Dollars in millions except per share amounts                                 1996              1995              1994
----------------------------------------------------------------------------------------------------------------------
<S>                                                                    <C>               <C>               <C>
Revenues
Sales and operating revenues                                             $5,101            $4,111            $4,118
Interest, dividends and miscellaneous income                                 49                86                74
Equity in earnings of affiliated companies                                  106                77                83
Gain (loss) on sales of assets                                               72               115                (3)
---------------------------------------------------------------------------------------------------------------------
      Total revenues                                                      5,328             4,389             4,272
Costs and Other Deductions
Crude oil and product purchases                                           1,502               979             1,064
Operating expense                                                         1,386             1,302             1,366
Selling, administrative and general expense                                 151               151               194
Depreciation, depletion and amortization                                    914               911               811
Dry hole costs                                                              139                61                84
Exploration expense                                                         117               139               116
Interest expense                                                            279               291               275
Property and other operating taxes                                           72                80                91
Distribution on convertible preferred securities                             10                -                 -
---------------------------------------------------------------------------------------------------------------------
      Total costs and other deductions                                    4,570             3,914             4,001
---------------------------------------------------------------------------------------------------------------------
Earnings from continuing operations before income taxes                     758               475               271
Income taxes                                                                302               226               161
---------------------------------------------------------------------------------------------------------------------
Earnings from continuing operations before
   cumulative effect of accounting change                                   456               249               110
Discontinued Operations
   Earnings from operations (net of tax)                                     71                11                14
   Loss on disposal (net of tax)                                           (491)               -                 -
---------------------------------------------------------------------------------------------------------------------
      Earnings (loss) from discontinued operations                         (420)               11                14
Cumulative effect of accounting change                                       -                 -               (277)
---------------------------------------------------------------------------------------------------------------------
Net earnings (loss)                                                         $36              $260             ($153)
Dividends on preferred stock                                                 18                36                36
---------------------------------------------------------------------------------------------------------------------
      Net earnings (loss) applicable to common stock                        $18              $224             ($189)
                                                                        ========= ======= ========= ======= =========

Earnings (loss) per share of common stock assuming no dilution:
      Continuing operations                                               $1.76             $0.87             $0.30
      Discontinued operations                                             (1.69)             0.04              0.06
      Cumulative effect of accounting change                                 -                 -              (1.14)
                                                                        ---------------------------------------------
   Net earnings (loss) per share                                          $0.07             $0.91           $ (0.78)
                                                                        ========= ======= ========= ======= =========
</TABLE>
See Notes to Consolidated Financial Statements.

                                       37
<PAGE>

<TABLE>
<CAPTION>

CONSOLIDATED BALANCE SHEET                                                                 UNOCAL CORPORATION
                                                                                                   At December 31
Millions of dollars                                                                           1996                    1995
---------------------------------------------------------------------------------------------------------------------------
Assets
<S>                                                                                     <C>                     <C>
Current assets
   Cash and cash equivalents                                                                $217                     $94
   Accounts and notes receivable                                                           1,027                     920
   Net assets of discontinued operations                                                   1,774                      -
   Inventories                                                                               125                     360
   Deferred income taxes                                                                      57                     169
   Other current assets                                                                       28                      33
-------------------------------------------------------------------------------------------------------------------------
      Total current assets                                                                 3,228                   1,576
Investments and long-term receivables                                                      1,206                   1,101
Properties - net                                                                           4,590                   7,109
Deferred income taxes                                                                         21                      25
Other assets                                                                                  78                      80
-------------------------------------------------------------------------------------------------------------------------
      Total assets                                                                        $9,123                  $9,891
-------------------------------------------------------------------------------------------------------------------------

Liabilities and Stockholders' Equity
Current liabilities
   Accounts payable                                                                       $1,012                    $804
   Taxes payable                                                                             231                     193
   Current portion of long-term debt and capital lease obligations                           118                       8
   Interest payable                                                                           70                      92
   Other current liabilities                                                                 191                     219
--------------------------------------------------------------------------------------------------------------------------
      Total current liabilities                                                            1,622                   1,316
Long-term debt and capital lease obligations                                               2,940                   3,698
Deferred income taxes                                                                        348                     722
Accrued abandonment, restoration and environmental liabilities                               677                     607
Other deferred credits and liabilities                                                       739                     618

Company-obligated mandatorily redeemable convertible preferred
   securities of a subsidiary trust holding solely 6-1/4% convertible
   junior subordinated debentures of Unocal                                                  522                       -


Preferred stock ($0.10 par value; stated at liquidation value of $50 per share)
   Shares authorized:  100,000,000                                                             -                     513
   Shares outstanding: 10,250,000 in 1995
Common stock ($1 par value)
   Shares authorized:  750,000,000
   Shares outstanding:  250,671,266 in 1996 and 247,310,376 in 1995                          251                     247
Capital in excess of par value                                                               412                     319
Foreign currency translation adjustment                                                      (13)                    (10)
Unearned portion of restricted stock issued                                                  (14)                    (13)
Retained earnings                                                                          1,639                   1,874
--------------------------------------------------------------------------------------------------------------------------
         Total stockholders' equity                                                        2,275                   2,930
--------------------------------------------------------------------------------------------------------------------------
            Total liabilities and stockholders' equity                                    $9,123                  $9,891
--------------------------------------------------------------------------------------------------------------------------

The company follows the successful efforts method of accounting for its oil and gas activities.

See Notes to the Consolidated Financial Statements.

</TABLE>

                                       38
<PAGE>

<TABLE>
<CAPTION>

CONSOLIDATED CASH FLOWS                                                            UNOCAL CORPORATION
                                                                                    Years ended December 31
                                                                      ----------------------------------------------
Millions of dollars                                                       1996              1995              1994
--------------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>               <C>               <C>
Cash Flows from Operating Activities
Net earnings (loss)                                                     $   36            $  260              (153)
Adjustment to reconcile net earnings (loss) to
   net cash provided by operating activities
      Loss on disposal of discontinued operations (before-tax)             743                -                 -
      Cumulative effect of accounting change                                -                 -                277
      Depreciation, depletion and amortization                           1,059             1,022               947
      Dry hole costs                                                       139                61                84
      Deferred income taxes                                               (332)                9              (118)
      (Gain) loss on sales of assets (before-tax)                          (77)             (117)                2
      Other                                                                113                -                217
      Working capital and other changes related to operations
         Accounts and notes receivable                                    (130)               (5)               91
         Inventories                                                        10               (16)              (10)
         Accounts payable                                                  208               115               (49)
         Taxes payable                                                      38               (33)               18
         Other                                                            (123)              (19)               (7)
--------------------------------------------------------------------------------------------------------------------
            Net cash provided by operating activities                    1,684             1,277             1,299

Cash Flows from Investing Activities
   Capital expenditures (includes dry hole costs)                       (1,398)           (1,459)           (1,272)
   Proceeds from sales of assets                                           609               204               156
--------------------------------------------------------------------------------------------------------------------
            Net cash used in investing activities                         (789)           (1,255)           (1,116)

Cash Flows from Financing Activities
   Proceeds from issuance of common stock                                   33                55                54
   Long-term borrowings                                                    375               844               732
   Reduction of long-term debt and capital lease obligations              (943)             (734)             (788)
   Dividends paid on preferred stock                                       (27)              (36)              (36)
   Dividends paid on common stock                                         (199)             (197)             (193)
   Other                                                                   (11)               (8)               (9)
--------------------------------------------------------------------------------------------------------------------
         Net cash used in financing activities                            (772)              (76)             (240)

Increase (decrease) in cash and cash equivalents                           123               (54)              (57)
Cash and cash equivalents at beginning of year                              94               148               205
--------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                                $  217            $   94            $  148
--------------------------------------------------------------------------------------------------------------------

Supplemental disclosure of cash flow information:
   Cash paid during the period for:
      Interest (net of amount capitalized)                              $  276            $  268            $  263
      Income taxes (net of refunds)                                     $  332            $  228            $  174

See Notes to the Consolidated Financial Statements.

</TABLE>

                                       39
<PAGE>

<TABLE>
<CAPTION>

CONSOLIDATED STOCKHOLDERS' EQUITY                                                              UNOCAL CORPORATION

Dollars in millions except per share amounts                                             1996              1995              1994
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                 <C>                <C>               <C>
Preferred Stock
   Balance at beginning of year                                                        $  513            $  513            $  513
   Exchange of preferred stock for convertible preferred securities                      (468)               -                 -
   Conversion of preferred stock to common stock                                          (45)               -                 -
-----------------------------------------------------------------------------------------------------------------------------------
      Balance at end of year                                                               -                513               513
Common Stock
   Balance at beginning of year                                                           247               244               241
   Issuance of common stock                                                                 4                 3                 3
-----------------------------------------------------------------------------------------------------------------------------------
      Balance at end of year                                                              251               247               244
Capital in Excess of Par Value
   Balance at beginning of year                                                           319               237               163
   Issuance of common stock                                                                93                82                74
-----------------------------------------------------------------------------------------------------------------------------------
      Balance at end of year                                                              412               319               237
Foreign Currency Translation Adjustment
   Balance at beginning of year                                                           (10)              (13)               (5)
   Current year adjustment                                                                 (3)                3                (8)
-----------------------------------------------------------------------------------------------------------------------------------
      Balance at end of year                                                              (13)              (10)              (13)
Unearned Portion of Restricted Stock Issued
   Balance at beginning of year                                                           (13)              (13)              (13)
   Issuance of restricted stock                                                            (5)               (3)               (4)
   Current year amortization                                                                4                 3                 4
-----------------------------------------------------------------------------------------------------------------------------------
      Balance at end of year                                                              (14)              (13)              (13)
Retained Earnings
   Balance at beginning of year                                                         1,874             1,847             2,230
   Net earnings (loss) for year                                                            36               260              (153)
   Cash dividends declared
       Preferred stock ($1.75 per share in 1996, $3.50 per
         share in 1995 and in 1994)                                                       (18)              (36)              (36)
       Common stock ($.80 per share)                                                     (199)             (197)             (194)
   Exchange of 6-1/4% convertible preferred securities of
      Unocal Capital Trust for Unocal's $3.50 preferred stock                             (54)               -                 -
-----------------------------------------------------------------------------------------------------------------------------------
Balance at end of year                                                                  1,639             1,874             1,847
-----------------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity                                                             $2,275            $2,930            $2,815
-----------------------------------------------------------------------------------------------------------------------------------

See Notes to the Consolidated Financial Statements.

</TABLE>

                                       40
<PAGE>

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

  For the purpose of this report, Unocal Corporation (Unocal) and its
consolidated subsidiary, Union Oil Company of California (Union Oil) and its
consolidated subsidiaries, will be referred to as the company.

  The consolidated financial statements of the company include the accounts of
subsidiaries more than 50 percent owned.  Investments in affiliates owned 50
percent or less are accounted for by the equity method.  Under the equity
method, the investments are stated at cost plus the company's equity in
undistributed earnings after acquisition.  Income taxes estimated to be payable
when earnings are distributed are included in deferred income taxes.

USE OF ESTIMATES

  The consolidated financial statements are prepared in conformity with
generally accepted accounting principles, which require management to make
estimates and assumptions that affect the amounts of assets and liabilities and
the disclosures of contingent liabilities as of the financial statement date and
the amounts of revenues and expenses during the reporting period.  Actual
results could differ from those estimates.

INVENTORIES

  Inventories are valued at lower of cost or market.  The costs of crude oil,
refined products and agricultural products inventories are determined using the
last-in, first-out (LIFO) method.  The costs of other inventories are determined
by using various methods.  Cost elements primarily consist of raw materials and
production expenses.

IMPAIRMENT OF ASSETS

  Oil and gas producing properties are regularly assessed for possible
impairment on a field-by-field basis using the estimated undiscounted future
cash flows of each field.  Impairment loss is charged to depreciation, depletion
and amortization expense when the estimated undiscounted future cash flows are
less than the current net book values of the properties in a field.

  Impairment charges are also made for the write down of other long-lived assets
when it is determined that the carrying values of the assets may not be
recoverable.  A long-lived asset is reviewed for impairment whenever events or
changes in circumstances indicate that the carrying value of the asset may not
be recoverable.

OIL AND GAS EXPLORATION AND DEVELOPMENT COSTS

  The company follows the successful-efforts method of accounting for its oil
and gas activities.

  Acquisition costs of exploratory acreage are capitalized.  Full amortization
of such costs related to the portion of unproved properties is provided over the
shorter of the exploratory period or the lease holding period.  Costs of
successful leases are transferred to proved properties.  Exploratory drilling
costs are initially capitalized.  If exploratory wells are determined to be
commercially unsuccessful, the related costs are expensed.  Geological and
geophysical costs for exploration and leasehold rentals for unproved properties
are expensed.

  Development costs of proved properties, including unsuccessful development
wells, are capitalized.

DEPRECIATION, DEPLETION AND AMORTIZATION

  Depreciation, depletion and amortization related to proved oil and gas
properties and estimated future abandonment and removal costs for onshore and
offshore producing facilities are calculated at unit-of-production rates based
upon estimated proved reserves.  Depreciation of other properties is generally
on a straight-line method using various rates based on estimated useful lives.


                                       41
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MAINTENANCE AND REPAIRS

  Expenditures for maintenance and repairs are expensed.  In general,
improvements are charged to the respective property accounts and such accounts
are relieved of the original cost of property replaced.

RETIREMENT AND DISPOSAL OF PROPERTIES

  Upon retirement of facilities depreciated on an individual basis, remaining
book values are charged to depreciation expense.  For facilities depreciated on
a group basis, remaining book values are charged to accumulated allowances.
Gains or losses on sales of properties are included in current earnings.

INCOME TAXES

  The company uses  the liability method for reporting income taxes in which
current or deferred tax liabilities or assets are recorded in accordance with
enacted tax laws and rates.  Under this method, the amount of deferred tax
liabilities or assets at the end of each period is determined using the tax rate
expected to be in effect when taxes are actually paid or recovered.  Future tax
benefits are recognized to the extent that realization of such benefits is more
likely than not.

  Deferred income taxes are provided for the estimated income tax effect of
temporary differences between financial and tax bases in assets and liabilities.
Deferred tax assets are also provided for certain tax credit carryforwards.  A
valuation allowance to reduce deferred tax assets is established when deemed
appropriate.  See Note 10 for the principal temporary differences and unused tax
credits.

FOREIGN CURRENCY TRANSLATION

  Foreign exchange gains and losses as a result of translating a foreign
entity's financial statements from its functional currency into U.S. dollars are
included as a separate component of stockholders' equity.  The functional
currency for all foreign operations, except Canada, is the U.S. dollar.  Gains
or losses incurred on currency transactions in other than a country's functional
currency are included in net earnings.

ENVIRONMENTAL EXPENDITURES

  Environmental expenditures that create future benefits or contribute to future
revenue generation are capitalized.  Expenditures that relate to existing
conditions caused by past operations are expensed.

  Liabilities related to environmental assessment and future remediation costs
are recorded when such liabilities are probable and the amounts can be
reasonably estimated.  The company considers a site to present a probable
liability when an investigation has identified environmental remediation
requirements for which the company is responsible.  The timing of accruing for
remediation costs generally coincides with the company's completion of
investigation or feasibility work and its recommendation of a remedy or
commitment to an appropriate plan of action.

  Environmental liabilities are not discounted or reduced by possible recoveries
from third parties.  However, accrued liabilities for Superfund and similar
sites reflect anticipated allocations of liabilities among settling
participants.

  Environmental remediation expenditures required for properties held for sale
are capitalized.  A valuation allowance is established when the aggregate book
values of the properties, including capitalized remediation costs, exceed net
aggregate realizable values.

 See Notes 18 and 19.

                                       42
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FINANCIAL INSTRUMENTS

  The company has only limited involvement with derivative financial instruments
and does not use them for trading purposes.  They are used to manage well-
defined interest rate, foreign currency exchange rate and commodity price risks.
Gains and losses arising from currency swap agreements are recognized in income
and offset the foreign exchange gains and losses on the underlying transactions.
Gains and losses arising from commodity future contracts are deferred and
included in the basis of the underlying transactions.  Income or expense
associated with interest rate swap agreements is recognized on the accrual basis
over the life of the swap agreement as a component of interest income or
interest expense.

 See Note 17.

STOCK-BASED COMPENSATION

  The company accounts for its stock-based compensation plans using the
intrinsic value method prescribed in Accounting Principles Board (APB) Opinion
No. 25, "Accounting for Stock Issued to Employees".  Statement of Financial
Accounting Standards (SFAS) No. 123,  "Accounting for Stock-Based Compensation",
encourages, but does not require companies to record stock-based employee
compensation plans at fair value.  The company has elected to continue
accounting for stock-based compensation in accordance with APB No. 25, but will
comply with the required disclosures under SFAS No. 123 (see Note 22).

OTHER

  Earnings per share of common stock assuming no dilution are based on net
earnings less preferred stock dividend requirements, divided by the weighted
average shares of common stock outstanding during each period.  The computation
of fully diluted earnings per share assumes the dilutive effect of common stock
equivalents and conversion of Unocal's convertible preferred stock and the
outstanding convertible preferred securities of a subsidiary trust (see Note
20).  When the computation of fully diluted earnings per share is antidilutive
for any given period presented, the amounts reported for assuming no dilution
and assuming full dilution are the same.

  Interest is capitalized on major construction and development projects as part
of the costs of the assets.

  Certain items in prior year financial statements have been reclassified to
conform to the 1996 presentation.

NOTE 2 - ACCOUNTING CHANGES

  Effective in the fourth quarter of 1995, the company adopted SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be
Disposed Of."  The accounting standard set guidelines to be used for determining
and measuring impairment of certain assets.  As a result, the company recorded a
charge to earnings of $87 million pre-tax ($53 million after-tax tax or $0.22
per common share) in the fourth quarter of 1995. This charge was principally due
to the write down of several oil and gas producing properties where downward
revisions in reserve estimates indicated that future net cash flows would be
insufficient to fully recover the carrying value of these properties.  The
carrying values were written down to estimated future discounted cash flows or
fully written down in the case of negative future cash flows.  The charge was
recorded to depreciation, depletion and amortization expense and reflected the
reduction in value of various properties located in the United States ($44
million), the Netherlands ($37 million) and Canada ($6 million).

  Effective January 1, 1994, the company changed its accounting policy for
recognizing the reduction in value of its producing oil and gas properties and
commenced to evaluate properties for impairment on a field-by-field basis
instead of a country-by-country basis which was previously used.  The cumulative
effect of the accounting change resulted in a charge to earnings of $447 million
pre-tax ($277 million after-tax tax or $1.14 per common share) in the first
quarter of 1994.  The charge reflected the reduction in value of certain oil and
gas properties in the U.S. from which the estimated undiscounted future cash
flows were less than the current net book values of the properties.  As a result
of the property write downs, the company's depreciation and depletion expense in
1994 was reduced by approximately $61 million ($38 million after-tax).

                                       43
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 3 - DISCONTINUED OPERATIONS

  In the fourth quarter of 1996, the company entered into a definitive agreement
with Tosco Corporation for the sale of substantially all of its West Coast
petroleum refining, marketing and transportation assets, which are operated by
the company's 76 Products Company business unit.  The sale is valued at
approximately $2 billion, which includes $1.4 billion for refining, marketing
and transportation fixed assets, approximately $400 million for inventories, and
up to $250 million in possible participation payments which are contingent upon
increased gasoline margins in the next seven years.  With the exception of
inventories, the sale excludes all other working capital. Terms of the agreement
call for cash payment or cash plus up to $400 million of Tosco stock.  See
Management's Discussion and Analysis under Item 7 on pages 32 through 33 for
additional information.

  The results for the refining, marketing and transportation operations to be
sold have been classified as discontinued operations for all periods presented
in the Consolidated Earnings Statement.  The assets have been reclassified in
the Consolidated Balance Sheet as of December 31, 1996 from their historical
classifications to separately reflect them as net assets of discontinued
operations.  The Consolidated Balance Sheet for the prior period has not been
restated.  Cash flows related to discontinued operations have not been
segregated in the Consolidated Statement of Cash Flows.  Consequently, amounts
on the Consolidated Earnings Statement may not agree with certain captions on
the Consolidated Statement of Cash Flows.

  The summarized results of discontinued operations and related effect per
common share are as follows:

<TABLE>
<CAPTION>                                                                                    Years ended December 31
                                                                                ----------------------------------------------
Dollars in millions except per share amounts                                       1996              1995              1994
------------------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>               <C>               <C>
Revenues                                                                          $4,271            $4,036            $3,693
Total costs and other deductions                                                   4,156             4,048             3,670
                                                                                ----------------------------------------------
Earnings (loss) from operations before
   income taxes                                                                      115               (12)               23
Income tax (benefit)                                                                  44               (23)                9
                                                                                ----------------------------------------------
Earnings from operations                                                              71                11                14

Loss on disposal before income taxes                                                (792)                -                 -
Income tax (benefit)                                                                (301)                -                 -
                                                                                ----------------------------------------------
   Loss on disposal (a)                                                             (491)                -                 -
      Total earnings (loss)                                                       $ (420)           $   11            $   14
                                                                                ----------------------------------------------

Earnings (loss) per common share:
   Earnings from operations                                                       $ 0.28            $ 0.04            $ 0.06
   Loss on disposal                                                                (1.97)                -                 -
                                                                                ----------------------------------------------
      Total earnings (loss)                                                       $(1.69)           $ 0.04            $ 0.06
                                                                                ----------------------------------------------

(a) 1996 includes the following estimated losses during the phase-out period:
        November 17, 1996 - December 31, 1996  $30 (net of income tax benefit of $18)
        January 1, 1997 - March 31, 1997       $42 (net of income tax benefit of $25)
</TABLE>

                                       44
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Detailed below are the net assets of discontinued operations as shown on the
Consolidated Balance Sheet:

<TABLE>
<CAPTION>


Millions of Dollars
-----------------------------------------------
<S>                                      <C>
Inventories                              $  225
Properties - net                          2,162
Other assets                                133
Provision for loss on sale                 (746)
-----------------------------------------------
Net assets of discontinued operations    $1,774
-----------------------------------------------

</TABLE>

NOTE 4 - RESTRUCTURING COSTS

  During the fourth quarter of 1994, as a result of an overhead study, the
company began a two-year program to reduce its 1,540-person corporate staff by
630 positions and to eliminate another 126 positions in the operating groups.  A
pre-tax charge of $25 million was recorded in administrative and general expense
for net costs associated with the staff reductions.  This charge included $34
million of estimated benefits to be paid to former employees over a period of
time.  Partially offsetting this charge was an estimated credit of $9 million
for reduced pension obligations.  At December 31, 1996, approximately 667
employees had been terminated as a result of the program.  The program is
complete and all termination benefits have been paid.

NOTE 5 - WRITE DOWNS OF ASSETS

  During 1996, in accordance with SFAS No. 121, the company recorded pre-tax
charges to earnings for asset write downs of $52 million for certain domestic
oil and gas properties and $23 million for domestic geothermal properties.  The
charges were recorded after evaluation of recent events that indicated future
net cash flows would be insufficient to fully recover the carrying values of
these properties.  Carrying values were written down to estimated future
discounted cash flows or completely written down in the case of negative
estimated future cash flows.  The charges were recorded to depreciation,
depletion and amortization expense.

  During the fourth quarter of 1995, the company adopted SFAS No. 121 and
recorded a pre-tax charge to earnings of $87 million for the write down of
several oil and gas producing properties.  Prior to the adoption of SFAS No. 121
in the second quarter of 1995, the company recorded a pre-tax charge of $13
million to write down the carrying values of certain domestic oil and gas
properties and $5 million for miscellaneous asset write downs.

  During 1994, the company recorded a pre-tax charge of $25 million to write
down the carrying value of the Guadalupe oil field due to the shut down of the
field for environmental reasons.  The company also closed certain facilities
used in refining and marketing operations and research activities, which
resulted in write-downs of $39 million.  Due to project modifications, the
company wrote off $7 million in 1994 for costs related to the reformulated fuels
program at the company's Los Angeles Refinery.

NOTE 6 - DISPOSITIONS OF ASSETS

  Proceeds received from asset sales during 1996 were $609 million with a
recorded pre-tax gain of $77 million. The total proceeds from the sale of oil
and gas properties included $472 million from the sale of California oil and gas
properties with a pre-tax gain of $109 million.  Proceeds of $28 million from
the sale of geothermal assets were received resulting in a pre-tax loss of $92
million. The company also received $23 million from the sale of exploration
blocks in the North Sea with a recorded pre-tax gain of $18 million and $30
million from the sale of miscellaneous real estate assets with a pre-tax gain of
$17 million.

                                       45
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


  During 1995, the company received total proceeds from sales of assets of $204
million and recorded a pre-tax gain of $117 million.  Of the total proceeds,
$134 million was from the sale of oil and gas properties with a pre-tax gain of
$52 million.  In addition, the company recorded a pre-tax gain of $26 million on
proceeds of $32 million from the sale of its Process, Technology and Licensing
business.

  In 1994, asset sales generated total proceeds of $156 million with a pre-tax
loss of $2 million.  Of the total proceeds, $118 million was from the sale of
oil and gas properties.

NOTE 7 - CASH FLOW INFORMATION

  The company considers cash equivalents to be all highly liquid investments
purchased with a maturity of three months or less.  All income taxes paid are
included in determining cash flows from operating activities.  As a result,
income taxes paid on taxable income from sales of assets are not included in
cash flows from investing activities.

  The 1996 and 1995 cash flow statements excluded $19 million and $30 million,
respectively, in transactions primarily related to the purchase of Unocal common
stock by the trustee of the Unocal Savings Plan (the "Plan") from Unocal.  The
trustee used the company's matching contributions to the Plan, which were
expensed in the company's consolidated earnings statements, to purchase the
shares.  In the consolidated cash flow statements, the issuance of Unocal common
stock and the matching contribution expense were treated as non-cash
transactions since the resulting effect on cash flow was zero.

  The exchange of preferred stock to convertible preferred securities and the
conversion of preferred stock to common stock, as described in Note 20, are non-
cash transactions and therefore, are excluded from the 1996 cash flow statement.

NOTE 8 - OTHER FINANCIAL INFORMATION

 Consolidated earnings for the periods ending December 31 included the
following:

<TABLE>
<CAPTION>

Millions of Dollars                        1996                1995            1994
-----------------------------------------------------------------------------------
<S>                                  <C>                   <C>             <C>
Total interest costs                      $294                 $326            $305
Less capitalized interest                   15                   35              30
-----------------------------------------------------------------------------------
        Interest expense                  $279                 $291            $275
Maintenance and repair costs              $218                 $250            $253
-----------------------------------------------------------------------------------
</TABLE>

The consolidated balance sheet at December 31 includes the following:

<TABLE>
<CAPTION>

Millions of Dollars                                           1996            1995
----------------------------------------------------------------------------------
<S>                                                        <C>            <C>
Other deferred credits and liabilities:
   Postretirement medical benefits obligation                 $207            $214
   Reserve for litigation and other claims                     369             262
   Other employee benefits                                      85              50
   Other                                                        78              92
-----------------------------------------------------------------------------------
      Total                                                   $739            $618
-----------------------------------------------------------------------------------
Allowances for doubtful accounts and notes receivable         $ 35            $ 28
Allowances for investments and long-term receivables          $ 13            $ 15
-----------------------------------------------------------------------------------

</TABLE>

                                       46
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 9 - PROPERTY AND OTHER OPERATING TAXES

<TABLE>
<CAPTION>

Millions of Dollars                            1996   1995   1994
---------------------------------------------------- ------ ------
<S>                                           <C>    <C>    <C>
Real and personal property taxes                $30    $41    $44
Severance and other taxes on production          41     38     38
Other taxes and duties                            1      1      9
---------------------------------------------------- ------ ------
   Total                                        $72    $80    $91
---------------------------------------------------- ------ ------
</TABLE>

  In addition, social security and unemployment insurance taxes, which are
charged to earnings and included with salaries and wages, totaled $44 million in
1996, $45 million in 1995 and $44 million in 1994.

 NOTE 10 - INCOME TAXES

  Unocal files a consolidated federal income tax return that includes
essentially all U.S. subsidiaries.  The components of pre-tax earnings and the
provision for income taxes are as follows:

<TABLE>
<CAPTION>

Millions of Dollars                                                1996     1995    1994
-------------------------------------------------------------------------------------------
<S>                                                              <C>      <C>     <C>
Earnings (loss) from continuing operations before income
   taxes and cumulative effect of accounting changes
      United States                                                $195     $ 81   $(186)
      Foreign                                                      $563     $394   $ 457
-------------------------------------------------------------------------------------------
            Total                                                  $758     $475   $ 271
Income Taxes
   Current
      Federal                                                      $ 76     $  3   $  14
      State                                                        $ 30     $  4   $  16
      Foreign                                                      $277     $187   $ 245
-------------------------------------------------------------------------------------------
            Total                                                  $383     $194   $ 275
 Deferred
      Federal                                                      $(70)    $ 14   $(117)
      State                                                        $(13)    $  6   $  (7)
      Foreign                                                      $  2     $ 12   $  10
-------------------------------------------------------------------------------------------
            Total                                                  $(81)    $ 32   $(114)
-------------------------------------------------------------------------------------------
               Total income taxes                                  $302     $226   $ 161
-------------------------------------------------------------------------------------------

</TABLE>

  The following table is a reconciliation of income taxes at the federal
statutory income tax rates to income taxes as reported in the consolidated
earnings statement.

<TABLE>
<CAPTION>

Millions of Dollars                                                           1996     1995    1994
----------------------------------------------------------------------------------------------------
<S>                                                                        <C>      <C>     <C>
Federal statutory rate                                                          35%      35%     35%

Taxes on book earnings computed at statutory rate                             $265     $166    $ 95
Foreign taxes in excess of statutory rate                                       82       59      75
Dividend exclusion                                                             (15)     (15)    (13)
Statutory rate in excess of taxes on gain from sales of assets                 (24)       -       -
Other                                                                           (6)      16       4
---------------------------------------------------------------------------------------------------
            Total                                                             $302     $226    $161
---------------------------------------------------------------------------------------------------
</TABLE>

                                       47
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

  The significant components of deferred income tax assets and liabilities
included in the Consolidated Balance Sheet at December 31, 1996 and 1995 are as
follows:

<TABLE>
<CAPTION>

Millions of Dollars                                         1996        1995
------------------------------------------------------------------------------
<S>                                                     <C>       <C>
Deferred tax assets (liabilities):
   Depreciation and intangible drilling costs              $(883)    $(1,129)
   Pension assets                                           (154)       (145)
   Investments in affiliates                                 (71)        (80)
   Other deferred tax liabilities                           (213)       (216)
   Federal alternative minimum tax credits                   191         142
   Litigation/environmental costs                            161         108
   Depletion                                                 139         169
   Exploratory costs                                         155         140
   Future abandonment costs                                  141         133
   Postretirement benefit costs                               78          81
   1995 federal net operating loss carryforward                -          94
   Other deferred tax assets                                 186         175
----------------------------------------------------------------------------
      Total                                                $(270)    $  (528)
----------------------------------------------------------------------------
</TABLE>

  No deferred U.S. income tax liability has been recognized on the undistributed
earnings of foreign subsidiaries that have been retained for reinvestment.  If
distributed, no additional U.S. tax is expected due to the availability of
foreign tax credits.  Such undistributed earnings for tax purposes, excluding
previously taxed earnings, are estimated at $1 billion as of December 31, 1996.

  At year-end 1996, the company had approximately $100 million of unused foreign
tax credits with various expiration dates through the year 2002.  No deferred
tax asset for these foreign tax credits is recognized for financial statement
purposes.  The company had approximately $15 million of federal business tax
credit carryforwards that will expire between the years 2003 and 2010.

  The federal alternative minimum tax credits are available to offset future
U.S. federal income taxes on an indefinite basis.

NOTE 11 - INVENTORIES

<TABLE>
<CAPTION>

Millions of Dollars                  1996     1995
---------------------------------------------------
<S>                              <C>      <C>
Crude oil and condensate            $  5     $  6
Refined products                       7        7
Agricultural products                 41       40
Minerals                              21       30
Supplies, merchandise and other       51       50
---------------------------------------------------
      Total                         $125     $133
---------------------------------------------------
</TABLE>

  The inventory amounts above exclude $225 million and $227 million for 1996 and
1995, respectively, for discontinued operations.

  The current replacement cost of inventories exceeded the LIFO inventory value
included above by $18 million and $17 million at December 31, 1996 and 1995,
respectively.

  Petroleum refining, marketing and transportation inventories at December 31,
1996 have been included in net assets of discontinued operations.  The current
replacement cost of these inventories exceeded the LIFO inventory value by $148
million.

                                       48
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 12 - PROPERTIES AND CAPITAL LEASES

  Investments in owned and capitalized leased properties at December 31, 1996
and 1995 are set forth below.  Total accumulated depreciation, depletion and
amortization for continuing operations was $9,502 million and $10,179 million at
December 31, 1996 and 1995, respectively.

<TABLE>
<CAPTION>
                                                1996                 1995
                                         -------------------- ----------------------
Millions of Dollars                       Gross       Net      Gross       Net
------------------------------------------------------------- ----------------------
<S>                                      <C>        <C>       <C>        <C>
Owned properties (at cost)
   Petroleum operations:
      Exploration
         United States                     $    80    $   32    $   113     $   45
         Far East                               30        20        119         71
         Other Foreign                          57        19         54         19
      Production
         United States                       6,779     2,218      7,994      2,676
         Far East                            3,745     1,314      2,977        870
         Other Foreign                       1,058        78      1,376        365
------------------------------------------------------------- ----------------------
         Total                              11,749     3,681     12,633      4,046
   Geothermal Operations                       763       307        995        382
   Diversified Business Group
      Agricultural Products                    659       212        650        221
      Carbon & Minerals                        173        71        140         45
      Pipelines                                332       103        330         99
   Corporate and unallocated                   402       215        465        254
------------------------------------------------------------- ----------------------
      Total owned properties                14,078     4,589     15,213      5,047
Capitalized leased properties                   14         1         17          4
------------------------------------------------------------- ----------------------
         Total continuing operations        14,092     4,590     15,230      5,051
Discontinued operations                          -         -      3,310      2,058
------------------------------------------------------------- ----------------------
            Total                          $14,092    $4,590    $18,540     $7,109
------------------------------------------------------------- ----------------------
</TABLE>

  Net property, plant and equipment of $2,162 million ($3,520 million gross) for
discontinued operations at December 31, 1996 has been reflected in the net
assets of discontinued operations (see Note 3).

NOTE 13 - RETIREMENT PLANS

  The company and its subsidiaries have several non-contributory retirement
plans covering substantially all employees.  Plan benefits are primarily based
on years of service and employees' compensation near retirement.  All U.S. plans
are administered by corporate trustees.  There was no company contribution to
the principal U.S. plan during the years 1994 through 1996 as plan assets
substantially exceeded the pension obligations.  At year-end 1996, plan assets
principally consisted of equity securities, U.S. government and agency issues,
corporate bonds and cash.

  Employees of certain foreign subsidiaries of the company are covered by
separate plans.  Total obligations for all foreign plans are not material.

                                       49
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 Pension costs for the funded U.S. plans include the following components:

<TABLE>
<CAPTION>

Millions of Dollars                                                                    1996    1995    1994
-------------------------------------------------------------------------------------------------------------
<S>                                                                                   <C>     <C>     <C>
Service cost - benefits earned during the year                                         $  29   $  21   $  24
Interest cost on projected benefit obligation                                             53      52      49
Actual return on plan assets                                                            (143)   (225)      9
Net amortization and deferral                                                             29     129    (109)
Net (gain) loss from partial settlement of obligation and curtailment of operations       13      (7)     (4)
-------------------------------------------------------------------------------------------------------------
Net pension income                                                                     $ (19)  $ (30)  $ (31)
-------------------------------------------------------------------------------------------------------------

</TABLE>

  Net loss from partial settlement of obligation and curtailment of operations
for 1996 includes a loss of $15 million associated with discontinued operations
(see Note 3).

  The following table sets forth the plans' funded status and amounts recognized
in the Consolidated Balance Sheet at December 31, 1996 and 1995:

<TABLE>
<CAPTION>

Millions of Dollars                                          1996      1995
-------------------------------------------------------------------------------
<S>                                                        <C>      <C>
Plan assets at fair value                                   $1,116      $1,053
-------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
    Vested benefits                                            668         636
    Nonvested benefits                                          15          24
-------------------------------------------------------------------------------
Accumulated benefit obligation                                 683         660
Effect of projected future salary increases                     75          78
-------------------------------------------------------------------------------
Projected benefit obligation                                   758         738
-------------------------------------------------------------------------------
Plan assets in excess of projected benefit obligation          358         315
Unrecognized net loss                                           75         115
Unrecognized net assets                                        (40)        (63)
Unrecognized prior service cost                                 17          24
-------------------------------------------------------------------------------
   Prepaid pension cost                                     $  410      $  391
-------------------------------------------------------------------------------
</TABLE>

  The assumed rates used to measure the projected benefit obligation and the
expected earnings on plan assets were as follows:

<TABLE>
<CAPTION>
                                                  1996    1995     1994
                                                -----------------------
<S>                                             <C>    <C>     <C>
Weighted-average discount rate                   7.25%   7.25%    8.50%
Increase in future compensation levels           4.00%   4.00%    5.00%
Expected long-term return on plan assets         9.50%   9.50%    9.75%
</TABLE>

  The amount of benefits which can be covered by the funded plans described
above are limited by the Employee Retirement Income Security Act of 1974 and the
Internal Revenue Code.  Therefore, the company has a supplemental retirement
plan designed to maintain benefits for all employees at the plan formula level.
The amounts expensed for this plan were $2 million, $5 million and $5 million in
1996, 1995 and 1994, respectively.  The accumulated obligation recognized in the
Consolidated Balance Sheet at December 31, 1996 was $20 million.

  The company has established a grantor trust to provide funding for the
benefits payable under the supplemental retirement plan.  Total assets held in
the trust at December 31, 1996 and 1995 amounted to $16 million and $14 million,
respectively.

                                       50
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 14 - POSTRETIREMENT AND POSTEMPLOYMENT BENEFIT PLANS

  The company's medical plan provides health care benefits for eligible
employees and retired employees.  Employees may become eligible for
postretirement benefits if they reach the normal retirement age while working
for the company.  The plan is contributory and the benefits are subject to
deductibles and co-payments.

  The following table sets forth the postretirement benefit obligation
recognized in the Consolidated Balance Sheet at December 31, 1996 and 1995:

<TABLE>
<CAPTION>

Millions of Dollars                                        1996    1995
-----------------------------------------------------------------------
<S>                                                     <C>     <C>
Accumulated postretirement benefit obligations:
   Retirees                                               $130    $134
   Fully eligible active employees                          20      23
   Other active employees                                   50      52
-----------------------------------------------------------------------
      Total                                                200     209
Unrecognized gain and prior service cost                    24       4
-----------------------------------------------------------------------
      Accrued postretirement benefit cost                 $224    $213
-----------------------------------------------------------------------

</TABLE>

 Net periodic postretirement benefits cost is comprised of the following
components:

<TABLE>
<CAPTION>

Millions of Dollars         1996            1995            1994
-----------------------------------------------------------------
<S>                         <C>             <C>             <C>
Service cost                $ 7             $ 4             $ 6
Interest cost                15              15              15
-----------------------------------------------------------------
      Total                 $22             $19             $21
-----------------------------------------------------------------
</TABLE>

  The accumulated postretirement benefit obligation at December 31, 1996 was
determined using a discount rate of 7.25 percent.  The health care cost trend
rates used in measuring the 1996 benefit obligations were 6.0 percent for under
age 65 and 5.8 percent for age 65 and over, gradually decreasing to 5.0 percent
by the year 2001 and remaining at that level thereafter.  The rates are subject
to change in the future.  The health care cost trend rate assumption has a
significant effect on the amounts reported.  For example, an increase in the
assumed health care cost trend rate of one percentage point in each year would
increase the accumulated postretirement benefit obligation as of December 31,
1996 by $23 million and net periodic benefits cost by $3 million.

  The company also provides benefits such as workers' compensation and disabled
employees' medical care to former or inactive employees after employment but
before retirement.  The accumulated postemployment benefit obligation was $20
million as of December 31, 1996 and $16 million as of December 31, 1995.

  The reduction in projected postretirement benefit plan cost associated with
discontinued operations was $17.5 million and was reflected in loss on disposal
in the December 31, 1996 Consolidated Earnings Statement (see Note 3).

                                       51
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 15 - LONG-TERM DEBT AND CREDIT AGREEMENTS

 The following table summarizes the company's long-term debt:

<TABLE>
<CAPTION>

Millions of Dollars                                              1996              1995
---------------------------------------------------------------------------------------
<S>                                                        <C>               <C>
Bonds and debentures
   9-1/4% Debentures due 2003                                 $  250            $  250
   9-1/8% Debentures due 2006                                    200               200
   6-1/8% to 7-7/8% Industrial Development Revenue
      Bonds due 1998 to 2008                                      23                71
   Swiss Franc Bonds due 1996 (5.25%)                              -               175
   Deutsche Mark Bonds due 1998 (6.125%)                         162               175
Notes
   Commercial paper  (6.68%) (a)                                  64               650
   Medium-term notes due 1997 to 2015 (8.11%) (a)              1,067             1,075
   Bank Credit Agreement  (5.78%) (a)                            250               105
   Revolving credit facilities (5.95%) (a)                       180               130
   9-3/4% Notes due 2000                                         250               250
   8-3/4% Notes due 2001                                         200               200
   6-3/8% Notes due 2004                                         200               200
   7-1/5%  Notes due 2005                                        200               200
Other miscellaneous debt                                           9                15
---------------------------------------------------------------------------------------
      Total                                                    3,055             3,696
      Less current portion of long-term debt                     115                 4
---------------------------------------------------------------------------------------
      Total long-term debt                                    $2,940            $3,692
---------------------------------------------------------------------------------------
(a)  Weighted average interest rate at December 31, 1996

</TABLE>

  The amounts of long-term debt maturing in 1998, 1999, 2000 and 2001 are $374
million, $167 million, $759 million and $267 million, respectively.

  During 1996, the company reduced long-term debt $641 million from the year-end
1995 level, primarily with the proceeds from the sale of its California oil and
gas producing properties.

  In addition, the company's new borrowings during 1996 consisted of:  $100
million in medium-term notes with interest rates ranging from 5.94% to 6.23% and
maturity dates ranging from 2003 to 2006 and $50 million under a $250 million
revolving credit facility.  The proceeds were used principally to retire Swiss
Franc Bonds.  In December 1996, the company repurchased approximately $100
million in medium-term notes with proceeds from commercial paper.

  During 1996, the company was party to revolving credit facilities with
syndicates of major international banks, in order to provide support for its
working capital requirements for overseas operations.  The company borrowed an
additional $50 million under a $250 million revolving credit facility that was
established in 1993 for the purpose of funding its oil and gas development
program in Thailand.  This revolving credit facility terminates December 15,
2000. During 1996, the company terminated its $45 million revolving credit
facility for operations in the Netherlands and $25 million revolving credit
facility with a Canadian bank.  The entire committed amounts on these facilities
were unborrowed at the time of termination.  Borrowings under these credit
facilities bear interest at different margins above London Interbank Offered
Rates (LIBOR) and the agreements call for facility fees on either the total or
undrawn commitment.

  The Bank Credit Agreement provides a revolving credit of $1.2 billion through
June 2000 at interest rates based on LIBOR and requires a facility fee on the
total commitments.  Of the total, $250 million had been borrowed at December 31,
1996.  This agreement is available for general corporate purposes, including the
support of commercial paper. The $200 million 364-day credit facility
established in 1995, which has a March 1997 maturity

                                       52
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

date and annual renewal requirement, was undrawn at year-end 1996.  The company
has other undrawn letters of credit for approximately $128 million.  The
majority are maintained for operational needs.

  The Bank Credit Agreement and certain of the other revolving credit facilities
described above provide for the termination of the commitments and require the
prepayment of all outstanding borrowings in the event (a) any person or group
becomes the beneficial owner of more than 30 percent of the then outstanding
voting stock of Unocal, otherwise than in a transaction having the approval of
the Board of Directors of Unocal (the Board), at least a majority of which are
continuing directors (as defined therein), or (b) continuing directors shall
cease to constitute at least a majority of the Board.

NOTE 16 - LEASE RENTAL OBLIGATIONS

  Future minimum rental payments for operating leases having initial or
remaining noncancelable lease terms in excess of one year, excluding those
related to discontinued operations, are as follows:

<TABLE>
<CAPTION>

Millions of Dollars
--------------------------------------------------
<S>                                       <C>
1997                                         $ 48
1998                                           43
1999                                           32
2000                                           31
2001                                           25
Balance                                       104
--------------------------------------------------
   Total minimum lease payment               $283
--------------------------------------------------
</TABLE>

  Net operating rental expense included in consolidated earnings, excluding
those related to discontinued operations, is as follows:

<TABLE>
<CAPTION>

Millions of Dollars                                                1996            1995            1994
-------------------------------------------------------------------------------------------------------
<S>                                                            <C>             <C>             <C>
Fixed rentals                                                      $73             $79             $80
Contingent rentals (based primarily on sales and usage)             11              12              14
Sublease rental income                                              (3)             (2)             (3)
-------------------------------------------------------------------------------------------------------
   Net expense                                                     $81             $89             $91
-------------------------------------------------------------------------------------------------------
</TABLE>

NOTE 17 - FINANCIAL INSTRUMENTS

  Unocal does not hold or issue financial instruments for trading purposes.

  Notional amounts are not included in the Consolidated Balance Sheet and
generally exceed the future cash requirements relating to the instruments.

  The counterparties to the company's financial instruments are regulated
exchanges or major international financial institutions with high credit
ratings.  Even though the company may be exposed to losses in the event of non-
performance by these counterparties, it does not anticipate that such losses
will be realized.  In the opinion of management, the off-balance-sheet risk
associated with these instruments is minimal and immaterial.

 FOREIGN CURRENCY FORWARD AND SWAP CONTRACTS

  Unocal enters into various foreign currency forward and swap contracts to
manage its exposures to adverse impacts of foreign currency fluctuations under
debt and other obligations.  Foreign currency gains or losses on the outstanding
contracts essentially offset the foreign currency gains or losses of the
underlying obligations.

                                       53
<PAGE>

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

  During 1986, the company entered into two currency swap agreements to hedge
foreign currency exchange exposures related to the interest and principal
payments on the company's Swiss Franc bonds due in 1996 and Deutsche Mark bonds
due in 1998.  During 1996, the company retired at maturity the $110 million
Swiss Franc bond issue and the corresponding $55 million currency swap
agreement.  The Deutsche Mark swap has the same maturity as the related
underlying debt.  At year-end 1996 and 1995, the aggregate notional principal
amount of the Deutsche Mark swap agreement was $110 million.  At year-end 1996,
this currency swap agreement had a fair value of approximately $52 million,
based on dealer quotes, which is included in long-term receivables on the
Consolidated Balance Sheet.

  In addition, the company had two currency swap agreements outstanding on
borrowings of its Canadian subsidiary, with notional amounts totaling $250
million at year-end 1996.  The agreements, entered into by the subsidiary, have
the effect of changing the subsidiary's U.S. dollar denominated borrowings into
its functional Canadian currency.  The objective of these agreements is to limit
the subsidiary's exposure to currency exchange gains and losses.  The parent
company also has two currency swap agreements to offset the subsidiary's
currency swaps with the objective of maintaining the underlying debt in U.S.
dollars for reporting in the consolidated financial statements.  The maturities
of the agreements range from 1999 to 2000, which generally correspond to the
related debt obligations.  The net fair value of the currency swap agreements at
year-end 1996 and 1995, based on dealer quotes, was approximately zero.

  In December 1996, the company closed out its currency forward contracts which
were used to hedge a series of known obligations denominated in Pounds Sterling
and due during the period from January 1997 to July 2000.  These contracts were
closed-out at a realized gain of $3.1 million.

INTEREST RATE SWAPS

  The company enters into interest rate swap agreements to manage its debt with
the objective of minimizing the company's borrowing costs.  Net payments or
receipts under the agreements are recorded in interest expense on a current
basis.  The related amounts payable to, or receivable from, the counterparties
are included in interest payable on the Consolidated Balance Sheet.

  In 1994, the company entered into a three-year interest rate swap with a
notional amount of $25 million.  This swap was entered into to hedge $25 million
in medium-term notes.  The company pays interest at a floating rate based on
LIBOR and receives interest at a fixed rate of 6.7 percent.  At year-end 1996
and 1995, the floating interest rates were 5.7 percent and 5.8 percent,
respectively.  At year-end 1996 and 1995, the interest rate swap agreements had
aggregate fair values of approximately $0.1 million in assets and $12 million in
liabilities, respectively, based on quoted market prices of comparable
instruments.

OTHER

  The company uses commodity futures contracts with maturities of one year or
less to hedge the impact of fluctuations in prices of crude oil and natural gas.
Realized and unrealized changes in the market value of futures contracts are
deferred until the hedged transaction is recognized.  Notification to the Board
of Directors is required if the company hedges more than 15 percent of its
production of oil and gas, refined products, and of crude oil purchased for
refinery supply.

  At December 31, 1996, contracts covering 508 thousand barrels of crude oil and
5.64 billion cubic feet of natural gas with notional amounts totaling $13
million for crude oil and $15 million for natural gas were outstanding.  At
December 31, 1995, the company had outstanding contracts covering 225 thousand
barrels of crude oil and 1.02 billion cubic feet of natural gas with notional
amounts totaling $4 million for crude oil and $2 million for natural gas.  The
fair values of the contracts, based on quoted market prices, were insignificant
at year-end 1996 and 1995.

  As of December 31, 1996 and 1995, the carrying amounts of certain financial
instruments employed by the company, including cash, cash equivalents, and trade
receivables and payables are representative of fair value because of the short-
term maturity of these instruments.

                                       54
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

  The estimated fair value of the company's long-term debt was $3,184 million
and $3,983 million at year-end 1996 and 1995, respectively.  The fair values of
debt instruments were based on the discounted amount of future cash outflows
using the rates offered to the company for debt with similar remaining
maturities.

  The estimated fair value of Unocal Capital Trust's 6-1/4 percent convertible
preferred securities at year-end 1996 was $591 million.  The fair value of the
preferred securities was based on the trading price of the preferred securities
on December 31, 1996.

CONCENTRATIONS OF CREDIT RISK

  Financial instruments that potentially subject the company to concentrations
of credit risk consist primarily of temporary cash investments and trade
receivables.  The company places its temporary cash investments with high credit
quality financial institutions and, by policy, limits the amount of credit
exposure to any one financial institution.  Concentrations of credit risk with
respect to trade receivables are limited because there are a large number of
customers in the company's customer base spread across many industries and
geographic areas.  As of December 31, 1996 and 1995, the company had no
significant concentrations of credit risk.

NOTE 18 - ACCRUED ABANDONMENT, RESTORATION AND ENVIRONMENTAL LIABILITIES

  At December 31, 1996, the company had accrued $500 million for the estimated
future costs to abandon and remove wells and production facilities.  The total
costs for abandonments are predominately accrued for on a units-of-production
basis and are estimated to be approximately $675 million.  This estimate was
derived in large part from abandonment cost studies performed by an outside firm
and is used to calculate the amount to be amortized.

  At December 31, 1996, the company's reserve for environmental remediation
obligations totaled $250 million, of which $73 million was included in other
current liabilities.  The reserve includes estimated probable future costs of
$27 million for federal Superfund and comparable state-managed multiparty
disposal sites; $26 million for formerly-operated sites for which the company
has remediation obligations; $60 million for sites related to businesses or
operations that have been sold with contractual remediation or indemnification
obligations; $77 million for company-owned or controlled sites where facilities
have been closed or operations shut down; and $60 million for active sites owned
and/or controlled by the company and utilized in its present operations.

NOTE 19 - CONTINGENT LIABILITIES

  The company has certain contingent liabilities with respect to material
existing or potential claims, lawsuits and other proceedings, including those
involving environmental, tax and other matters, certain of which are discussed
more specifically below.  The company accrues liabilities when it is probable
that future costs will be incurred and such costs can be reasonably estimated.
Such accruals are based on developments to date, the company's estimates of the
outcomes of these matters and its experience in contesting, litigating and
settling other matters.  As the scope of the liabilities becomes better defined,
there will be changes in the estimates of future costs, which could have a
material effect on the company's future results of operations and financial
condition or liquidity.

ENVIRONMENTAL MATTERS

  The company is subject to loss contingencies pursuant to federal, state and
local environmental laws and regulations.  These include existing and possible
future obligations to investigate the effects of the release or disposal of
certain petroleum, chemical and mineral substances at various sites; to
remediate or restore these sites; to compensate others for damage to property
and natural resources, for remediation and restoration costs and for personal
injuries; and to pay civil penalties and, in some cases, criminal penalties and
punitive damages.  These obligations relate to sites owned by the company or
others and associated with past and present operations, including sites at which
the company has been identified as a potentially responsible party (PRP) under
the federal Superfund laws and comparable state laws.  Liabilities are accrued
when it is probable that future costs will be incurred and such costs can be
reasonably estimated.  However, in many cases, investigations are not yet at a
stage where the company is able to determine whether it is liable or, if
liability is probable, to quantify the liability or estimate a range of possible
exposure.  In such cases, the amounts of the company's liabilities are
indeterminate due to the potentially large number of claimants for any given
site or exposure, the unknown magnitude of possible

                                       55
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

contamination, the imprecise and conflicting engineering evaluations and
estimates of proper cleanup methods and costs, the unknown timing and extent of
the corrective actions that may be required, the uncertainty attendant to the
possible award of punitive damages, the recent judicial recognition of new
causes of action, the present state of the law, which often imposes joint and
several and retroactive liabilities on PRPs, and the fact that the company is
usually just one of a number of companies identified as a PRP.

  As disclosed in Note 18, at year-end 1996 the company had accrued $250 million
for estimated future environmental assessment and remediation costs at various
sites where liabilities for such costs are probable.  At those sites where
investigations or feasibility studies have advanced to the stage of analyzing
feasible alternative remedies and/or ranges of costs, the company estimates that
it could incur additional remediation costs aggregating approximately $160
million.

  Between August 22 and September 6, 1994, a chemical known as "Catacarb" was
released into the environment at the company's San Francisco Refinery near
Rodeo, California.  Persons in the surrounding area have claimed that they were
exposed to the chemical in varying degrees.  Since September 22, 1994, fifty-
three lawsuits have been filed by or on behalf of all persons, alleged to be
several thousand, claiming that they or their property were adversely affected
by the releases.  Fifty-one of the lawsuits have been consolidated in the
Superior Court for Contra Costa County.  The First Amended Model Complaint in
this consolidated action, filed February 1, 1995, on behalf of individual
plaintiffs and purported classes of plaintiffs, alleges personal injury,
emotional distress and increased risk of future illness on behalf of the named
plaintiffs and all persons present in and around or downwind from the San
Francisco refinery, and property damage and loss or diminution of property value
on behalf of all owners of real and personal property in the vicinity of the
Refinery, resulting from the release of Catacarb by the Refinery.  Certain
individual plaintiffs allege injury from alleged subsequent releases at the
Refinery of hydrogen sulfide and other chemicals.  The Model Complaint seeks
compensatory and punitive damages in unspecified amounts, equitable relief
including the creation of a fund for medical monitoring and treatment of
plaintiffs and members of the purported classes, statutory penalties and other
relief.  The company has reached agreement with plaintiffs to certify a
mandatory non-opt out punitive damages class.  Plaintiffs have withdrawn their
class claims for personal injury and property damage.  In early November 1996,
the trial court issued an order declining to certify a medical monitoring class.

TAX MATTERS

  In December 1994, the company received a Notice of Proposed Deficiency from
the Internal Revenue Service (IRS) related to the years 1985 through 1987.  In
February 1995, the company filed a protest of the proposed tax deficiency with
the Appeals section of the IRS.  Discussions with the Appeals Officer are
ongoing, but it appears that two substantial issues may proceed to litigation.
In an effort to resolve these issues without litigation, in October 1996, the
company and the IRS entered into an Agreement to Mediate.  While the parties
have selected a mediator, no date for the mediation has been set.

  The most significant issue relates to an IRS challenge of a $341 million
deduction taken by the company in its 1985 tax return for amounts paid under a
settlement agreement with Mesa Petroleum, T. Boone Pickens and Drexel Burnham
Lambert, Incorporated, and certain others which ended a hostile takeover attempt
by that group.  The IRS contends that the deduction is not allowable because the
payment was related solely to the purchase of the company's common stock.
Although the company did purchase shares under the settlement agreement, it
properly reflected the purchase in its records at the fair market value of the
shares purchased.  The deduction at issue relates to that portion of the payment
made under the settlement agreement that exceeded the value of the shares
purchased.  The company intends to vigorously dispute the IRS' assertions.  If
the IRS was ultimately to prevail, the company would owe $157 million of tax for
1985 plus tax deductible interest estimated at $307 million as of December 31,
1996.   As noted above, the company is working with the IRS to resolve this
matter without litigation.  Should that effort fail, final resolution of this
matter is likely to be several years away as the matter is not yet before a
court.

  The second issue relates to an IRS challenge of a continued deferral of
intercompany gains which arose from sales of property between subsidiaries in
1982 and 1983.  The IRS contends that the $201 million balance of deferred gain
must be recognized in the company's taxable income for 1985 when the
subsidiaries contributed the property to a wholly-owned master limited
partnership.  The company intends to vigorously dispute the IRS'

                                       56
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

assertions.  If the IRS was ultimately to prevail, the company would owe $92
million in tax for 1985, but would receive credits or refunds for offsetting
deductions in later years.  For 1986 and 1987 the credits or refunds would total
$35 million. In addition to tax, the company would owe tax deductible interest
estimated at $125 million as of December 31, 1996.  As noted above, the company
is working with the IRS to resolve this matter without litigation.  Should that
effort fail, final resolution of this matter is likely to be several years away
as the matter is not yet before a court.

  The total amount of tax and interest that the company would be required to pay
if the IRS was ultimately to prevail on both of the issues described in the two
preceding paragraphs is substantially less than the sum of the amounts.  As a
result of the interplay of these issues, application of foreign tax credits and
overpayments related to other issues, the total amount of tax and interest is
estimated at $400 million as of December 31, 1996.

  The company believes it has adequately provided in its accounts for items and
issues not yet resolved.  In the opinion of management, a successful outcome of
the litigation is reasonably likely.  However, substantial adverse decisions
could have a material effect on the company's financial condition, operating
results and liquidity in a given quarter and year when such matters are
resolved.

OTHER MATTERS

  The company also has certain other contingent liabilities with respect to
litigation, claims and contractual agreements arising in the ordinary course of
business.  Although these contingencies could result in expenses or judgments
that could be material to the company's results of operations for a given
reporting period, on the basis of management's best assessment of the ultimate
amount and timing of these events, such expenses or judgments are not expected
to have a material adverse effect on the company's consolidated financial
condition or liquidity.

NOTE 20 - TRUST CONVERTIBLE PREFERRED SECURITIES

  On September 11, 1996 Unocal exchanged 10,437,873 new 6-1/4 percent Trust
convertible preferred securities of Unocal Capital Trust, a  Delaware business
trust (the Trust), for 9,352,962 shares of Unocal's $3.50 convertible preferred
stock which were tendered in response to Unocal's exchange offer.  Unocal
acquired the preferred securities, which have an aggregate liquidation value of
$522 million, from the Trust, together with 322,821 common securities of the
Trust, which have an aggregate liquidation value of $16 million, in exchange for
$538 million principal amount of 6-1/4 percent convertible junior subordinated
debentures of Unocal. The convertible preferred securities and common securities
of the Trust represent undivided beneficial interests in the debentures, which
are the sole assets of the Trust.

  A charge to retained earnings of $54 million was recorded for the exchange to
reflect the excess of the $522 million carrying value of the convertible
preferred securities issued (which amount was based on the market value of the
shares of Unocal common stock into which the tendered shares of $3.50
convertible preferred stock could have been converted) over the $468 million
carrying value of the tendered shares.

  The convertible preferred securities have a liquidation value of $50 per
security and are convertible into shares of Unocal common stock at a conversion
price of $42.56 per share, subject to adjustment upon the occurrence of certain
events.  Distributions on the convertible preferred securities are cumulative at
an annual rate of 6-1/4 percent of their  liquidation amount and are payable
quarterly in arrears on March 1, June 1, September 1 and December 1 of each year
to the extent that the Trust receives interest payments on the debentures, which
payments are subject to deferral by Unocal under certain circumstances.

  Upon repayment of the debentures by Unocal, whether at maturity, upon
redemption or otherwise, the proceeds thereof must immediately be applied to
redeem a corresponding amount of the preferred securities and the common
securities of the Trust. The debentures mature on September 1, 2026, and may be
redeemed, in whole or in part, at the option of Unocal, at any time on or after
September 3, 2000, at a redemption price initially equal to 103.75 percent of
the principal amount redeemed, declining annually to 100 percent of the
principal amount redeemed in 2006, plus accrued and unpaid interest thereon to
the redemption date. The debentures, and hence the convertible preferred
securities,  may become redeemable at the option of Unocal upon the occurrence
of certain special events or restructuring transactions.

                                       57
<PAGE>

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

  The Trust is accounted for as a consolidated subsidiary of Unocal, with the
debentures and payments thereon by Unocal to the Trust eliminated in the
consolidated financial statements.  The payment obligations of the Trust under
the convertible preferred securities are unconditionally guaranteed on a
subordinated basis by Unocal.  Such guarantee, when taken together with Unocal's
obligations under the debentures and the indenture pursuant to which the
debentures were issued and its obligations under the amended and restated
declaration of trust governing the Trust, provides a full and unconditional
guarantee by Unocal of the Trust's obligations under the convertible preferred
securities.

  On September 11, 1996, Unocal called the 897,038 unexchanged shares of the
$3.50 convertible preferred stock for redemption.  All of these shares were
converted by the holders into 1,458,575 shares of Unocal common stock prior to
the October 11, 1996 redemption date.

NOTE 21 - CAPITAL STOCK

 COMMON STOCK

<TABLE>
<CAPTION>

------------------------------------------------------------------------------------
Authorized - 750,000,000
$1.00 Par value per share

Thousands of Shares                      1996              1995              1994
------------------------------------------------------------------------------------
<S>                                   <C>               <C>               <C>
Outstanding at beginning of year       247,310           244,199           241,324
Issuance of common stock                 3,361             3,111             2,875
------------------------------------------------------------------------------------
Outstanding at end of year             250,671           247,310           244,199
------------------------------------------------------------------------------------

</TABLE>

  At December 31, 1996, there were approximately 12.3 million shares reserved
for the conversion of preferred securities, 14.8 million shares for the
company's employee benefit plans and Directors' Restricted Stock Plan and 4.7
million shares for the company's Dividend Reinvestment and Common Stock Purchase
Plan.

 PREFERRED STOCK

  The company has authorized 100,000,000 shares of preferred stock with a par
value of $0.10 per share.  In July 1992, the company issued 10,250,000 shares of
$3.50 convertible preferred stock.  During 1996, all outstanding shares of
convertible preferred stock were exchanged for 6-1/4 percent Trust convertible
preferred securities of Unocal Capital Trust or were converted into Unocal
common stock (see Note 20).

  Prior to the exchange and conversion, the preferred stock accrued annual
dividends of $3.50 per share.  The dividends were cumulative and payable
quarterly in arrears, when and as declared by Unocal's Board of Directors.
Holders of the preferred stock had no voting rights, however, there were certain
exceptions including the right to elect two additional directors if the
equivalent of six quarterly dividends payable on the preferred stock were
missed.

 STOCKHOLDER RIGHTS PLAN

  In January 1990, the Board adopted a stockholder rights plan (Rights Plan) and
declared a dividend of one preferred stock purchase right (Right) for each share
of common stock outstanding.  The Board also authorized the issuance of one
Right for each common share issued after February 12, 1990, and prior to the
earlier of the date on which the rights become exercisable, the redemption date,
or the expiration date.

  The Board has designated 3,000,000 shares of preferred stock as Series A
Junior Participating cumulative preferred stock (Series A preferred stock) in
connection with the Rights Plan.  The Rights Plan provides that in the event any
person, or group of affiliated persons, becomes, or commences a tender offer or
exchange offer pursuant to which such person or group would become, the
beneficial owner of 15 percent or more of the outstanding common shares, each
Right (other than Rights held by the 15 percent stockholder) will be
exercisable, on and after the close of business on the tenth business day
following such event, unless the Rights are redeemed by the Board of Directors
of the company, to purchase units of Series A preferred stock (each consisting
of one one-hundredth of a share) having a market value equal to two times the
then-current exercise price (initially $75).  The Rights Plan

                                       58
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

further provides that if, on or after the occurrence of such event, the company
is merged into any other corporation or 50 percent or more of the company's
assets or earning power are sold, each Right (other than Rights held by the 15
percent stockholder) will be exercised to purchase shares of the acquiring
corporation having a market value equal to two times the exercise price.

The Rights expire on January 29, 2000, unless previously redeemed by the Board.
The Rights do not have voting or dividend rights and, until they become
exercisable, have no diluting effect on the earnings of the company. As of
December 31, 1996, none of the Series A preferred stock had been issued nor had
the Rights become exercisable.

NOTE 22 - STOCK-BASED COMPENSATION PLANS

  Under the company's Special Stock Option Plan of 1996, Long-Term Incentive
Plans of 1991 and 1985, and the Directors' Restricted Stock Plan, non-qualified
stock options, restricted stock, performance shares and other common stock-based
awards are granted to executives, directors and certain employees to provide
incentives and rewards to enhance the profitability of the company and increase
shareholder value.  The 1996, 1991 and 1985 plans authorized up to 1.1 million,
11 million and 4.5 million shares of common stock, respectively for stock
options, restricted stock and performance share awards.  The directors' plan
authorizes the issuance of up to 300,000 shares of common stock.  Stock options
granted have a maximum life of ten years and vest over a three-year period at a
rate of 50% the first year and 25% per year for the two succeeding years. The
option price will not be less than the fair market value of the company's common
stock on the date the option is granted.  Restrictions may be imposed for a
period of five years on certain shares acquired through the exercise of options
granted after 1990.

  Generally, restricted stock awards are based on the average closing price of
the company's common stock for the last 30 trading days of the year prior to the
grant date.  Restricted shares are not delivered until the end of the restricted
period which does not exceed ten years.  Performance share awards have a four-
year term and are paid out 50 percent in shares of common stock and 50 percent
in cash.  The awards are paid out based on the return of the company's common
stock relative to the average return on the common stock of a peer group of
companies.

A summary of the company's stock plans as of December 31, 1994, 1995 and 1996,
and changes during the years ending on those dates is presented below:

<TABLE>
<CAPTION>
                                                                                     Weighted        Weighted
                                                                                     Average Option  Average Grant
                                                             Number of               Exercise Price  Date Fair Value
                                                           Options/Shares            Per Share       Per Share
-------------------------------------------------------------------------------------------------------------
<S>                                                     <C>                          <C>             <C>
Options Outstanding at January 1, 1994                            3,477,880              $25         $   -
Options granted during year                                         819,628              26              26
Options exercised during year                                      (133,455)             20              -
Options canceled/forfeited during year                             (119,836)             28              -
Options expired during year                                              -               -               -
                                                        ---------------------
Options Outstanding at December 31, 1994                          4,044,217              25              -
Options Exercisable at December 31, 1994                          2,906,236              25              -
Restricted stock awarded during year                                178,418              -               26
Performance shares awarded during year                              295,692              -               26
-------------------------------------------------------------------------------------------------------------
</TABLE>

                                       59
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

<TABLE>
<CAPTION>
                                                                                               Weighted        Weighted
                                                                                               Average Option  Average Grant
                                                                         Number of             Exercise Price  Date Fair Value
                                                                       Options/Shares          Per Share       Per Share
-----------------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>                    <C>               <C>
Options Outstanding at January 1, 1995                                      4,044,217              25              -
Options granted during year                                                   856,189              28              28
Options exercised during year                                                (272,817)             21              -
Options canceled/forfeited during year                                       (145,710)             29              -
Options expired during year                                                    (8,644)             24              -
                                                                       -----------------
Options Outstanding at December 31, 1995                                    4,473,235              26              -
Options Exercisable at December 31, 1995                                    3,296,294              25              -
Restricted stock awarded during year                                          141,339              -               29
Performance shares awarded during year                                        303,449              -               29
-----------------------------------------------------------------------------------------------------------------------
Options Outstanding at January 1, 1996                                      4,473,235              26              -
Options granted during year                                                 2,107,112              33              33
Options exercised during year                                              (1,328,954)             24              -
Options canceled/forfeited during year                                        (47,060)             30              -
Options expired during year                                                        -               -               -
                                                                       -----------------
Options Outstanding at December 31, 1996                                    5,204,333              29              -
Options Exercisable at December 31, 1996                                    2,747,611              27              -
Restricted stock awarded during year                                          152,169              -               33
Performance shares awarded during year                                        306,713              -               33
-----------------------------------------------------------------------------------------------------------------------
</TABLE>

  Under the Plans of 1996, 1991 and the Directors' Plan, there were 19,901
shares, 4,195,976 shares and 225,605 shares, respectively, available at year-end
1996 for stock option awards as well as other awards.  No additional grants may
be awarded under the 1985 Plan.

  Significant option groups outstanding at December 31, 1996 and related
weighted average price and life information follows:

<TABLE>
<CAPTION>

                  Options Outstanding                                   Options Exercisable
-------------------------------------------------------------------------------------------------
                                     Weighted        Weighted                            Weighted
                   Number            Average         Average         Number              Average
Range of         Outstanding         Remaining       Exercise        Exercisable         Exercise
Exercise prices  at 12/31/96         Life (years)     Price          at 12/31/96          Price
-------------------------------------------------------------------------------------------------
<S>             <C>                  <C>             <C>             <C>                 <C>
    $21 - $24       841,674             3.9              $22            841,674              $22
    $26 - $29     1,936,419             7.3              $28          1,338,730              $28
    $30 - $33     2,426,240             9.0              $33            567,207              $31
-------------------------------------------------------------------------------------------------

</TABLE>

  The fair value of options at date of grant was estimated using the Black-
Scholes model with the following weighted average assumptions:

<TABLE>
<CAPTION>

                          1996            1995            1994
---------------------------------------------------------------
<S>                    <C>             <C>             <C>
Expected life (years)      4               4               4
Interest rate              6.1%            6.9%            6.1%
Volatility                23.8%           20.9%           23.7%
Dividend yield             2.4%            2.8%            3.0%
---------------------------------------------------------------

</TABLE>

  The company applies APB Opinion No. 25 and related interpretations in
accounting for stock-based compensation.  Stock-based compensation expense
recognized in the company's consolidated earnings statement was $36 million in
1996, $18 million in 1995 and $14 million in 1994.  Had the company recorded
compensation

                                       60
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

expense using the accounting method recommended by SFAS No. 123, net income and
earnings per share would have been reduced to the pro-forma amounts indicated
below:

<TABLE>
<CAPTION>

Millions of Dollars
Except per share amounts             1996            1995            1994
--------------------------------------------------------------------------
<S>                               <C>             <C>             <C>
Net earnings (loss)
   As reported                        $36            $260           ($153)
   Pro forma                           32             257            (156)
Net earnings (loss) per share
   As reported                      $0.07           $0.91          ($0.78)
   Pro forma                         0.06            0.90           (0.79)
--------------------------------------------------------------------------

</TABLE>

NOTE 23 - SUMMARIZED FINANCIAL DATA OF UNION OIL

  Unocal Corporation is the parent of Union Oil Company of California.
Virtually all operations are conducted by Union Oil and its subsidiaries.

  Summarized financial information for Union Oil and its consolidated
subsidiaries is presented below:

<TABLE>
<CAPTION>

                                                                      For Years Ended
Millions of Dollars                                                    1996               1995               1994
-----------------------------------------------------------------------------------------------------------------
<S>                                                              <C>                <C>                <C>
Total revenues                                                     $5,328             $4,389             $4,272
Total costs and other deductions, including income taxes            4,860              4,138              4,161
-----------------------------------------------------------------------------------------------------------------
Earnings from continuing operations before cumulative
   effect of accounting change                                     $  468             $  251             $  111
Discontinued operations
   Earnings from operations (net of taxes)                             71                 11                 14
   Loss on disposal (net of taxes)                                   (491)                -                  -
Cumulative effect of accounting change                                 -                  -                (277)
-----------------------------------------------------------------------------------------------------------------
Net earnings (loss)                                                $   48             $  262              ($152)
-----------------------------------------------------------------------------------------------------------------


                                                                                             At December 31
Millions of Dollars                                                                     1996               1995
-----------------------------------------------------------------------------------------------------------------
Current assets                                                                        $3,228             $1,576
Noncurrent assets                                                                      5,905              8,328
Current liabilities                                                                    1,622              1,309
Noncurrent liabilities                                                                 4,704              5,645
Shareholder's equity                                                                   2,807              2,950
------------------------------------------------------------------------------------------------------------------

</TABLE>

NOTE 24 - INVESTMENTS IN AFFILIATES

  Investments in affiliated companies accounted for by the equity method were
$578 million, $386 million and $369 million at December 31, 1996, 1995 and 1994,
respectively.  Dividends or cash distributions received from these affiliates
were $89 million, $88 million and $84 million for the same years, respectively.
These affiliated companies are primarily engaged in pipeline ventures, refining
and marketing operations, and the manufacture of needle coke.

  The excess of the company's investments in Colonial Pipeline Company and West
Texas Gulf Pipeline Company over its shares in the related underlying equity in
net assets is being amortized on a straight-line basis over a period of 40
years.  The remaining unamortized balance at December 31, 1996 was $103 million.

                                       61
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

  The company has a 50 percent interest in The UNO-VEN Company (UNO-VEN), a
refining and marketing partnership in the midwestern United States.  The
company's share of the underlying equity in the net assets of UNO-VEN over the
carrying value of its investment is being amortized on a straight-line basis
over a period of 25 years.  The remaining unamortized balance at December 31,
1996 was $54 million.  In 1996, the company executed a letter of intent to
restructure UNO-VEN.

  Summarized financial information for these equity investees, excluding
investees of discontinued operations, is shown below.

<TABLE>
<CAPTION>

                                    1996                 1995                 1994
                            --------------------------------------------------------------
                                        Unocal's             Unocal's             Unocal's
Millions of Dollars           Total      Share      Total    Share       Total    Share
------------------------------------------------------------------------------------------
<S>                         <C>        <C>        <C>        <C>       <C>        <C>

Revenues                      $2,786     $1,155     $2,350     $947      $2,060     $825
Costs and other
   deductions                  2,440      1,049      2,057      870       1,780      742
Net earnings                     346        106        293       77         280       83
------------------------------------------------------------------------------------------
Current assets                $  792     $  334     $  612     $244      $  419     $177
Noncurrent assets              2,546        800      1,846      568       1,861      576
Current liabilities              711        266        568      212         381      152
Noncurrent liabilities         1,228        366      1,012      273       1,038      291
Net equity                     1,399        502        878      327         861      310
------------------------------------------------------------------------------------------

</TABLE>


NOTE 25 - SALE OF ACCOUNTS RECEIVABLE

  On December 15, 1995, the company entered into an agreement to sell, on a
revolving basis, an undivided interest in a defined pool of the company's trade
receivables.  As collections reduce the amount of receivables included in the
pool, the company sells new receivables to bring the amount sold up to the $200
million maximum permitted by the agreement.  Under the terms of the agreement,
the company retains the risk of credit loss and the collection and
administrative responsibilities for the receivables sold.

  The $200 million proceeds from the sale were used to reduce borrowings and are
reflected as a reduction of accounts receivable in the Consolidated Balance
Sheet and as operating cash flows in the Consolidated Statement of Cash Flows.
The cost of the program was $12 million in 1996 and $1 million in 1995.  The
costs of the program were included in operating expense in the Consolidated
Earnings Statement.


NOTE 26 - SEGMENT AND GEOGRAPHIC DATA

  The company's continuing operations include exploration and production,
geothermal, agricultural products and carbon and minerals.  Exploration and
production involves the exploration for, and the production, sale and marketing
of crude oil and natural gas.  Geothermal involves the exploration for, and the
production and sale of, geothermal resources and the construction and eventual
operation of electrical generating plants served by the resources.  Agricultural
Products involves the manufacture, transportation and marketing of nitrogen-
based products for agricultural and industrial uses.  Carbon and Minerals
involves the production and marketing of petroleum coke, graphites, solvents and
specialty minerals.

  Unocal has domestic oil and gas operations in the Louisiana/Gulf, Alaska and
Central U.S. regions.  In April 1996, the company sold essentially all of its
California oil and gas producing properties.  Most of the company's crude oil
produced in the United States is sold to third parties.  A substantial portion
of the natural gas produced domestically is sold to third parties under
contracts having terms of less than two years.  The remainder is sold to third
parties in the spot market or is used in the company's agricultural products
operations.

                                       62
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

  Unocal has oil and gas production in six foreign countries: Thailand,
Indonesia, Canada, the Netherlands, the United Kingdom and Zaire.  The company
sells most of its foreign natural gas production to third parties under long-
term contracts. The crude oil and condensate produced overseas are primarily
sold to third parties at spot market prices.

  The Geothermal Operations segment supplies geothermal steam for power
generation, with major operations in California, the Philippines and Indonesia.
This segments' current activities include constructing power plants in Indonesia
to capitalize on market-to-resource opportunities.

  Agricultural Products manufactures and markets nitrogen-based products for
wholesale agricultural and industrial markets supplying the western United
States and the Pacific Rim.  Carbon and Minerals produces and markets petroleum
coke, graphites, solvents and specialty minerals.  Pipelines principally
includes the company's equity interests in affiliated pipeline companies.  Other
includes the company's equity interest in UNO-VEN.

  The Corporate and Unallocated category includes the New Ventures group which
pursues foreign energy business development projects.  Examples of ongoing New
Ventures project investments are common carrier pipelines, liquefied petroleum
gas plants and power generation plants. The main areas of interest for
development opportunities currently include Azerbaijan, Myanmar, Turkmenistan,
Pakistan, China, Vietnam, Latin America and Bangladesh.  Corporate also includes
all unallocated corporate items and miscellaneous operations.  In addition, this
category, particularly for prior years, includes the financial data related to
businesses that were sold or being phased-out.

<TABLE>
<CAPTION>

Millions of Dollars                                   1996              1995              1994              1993              1992
----------------------------------------------------------------------------------------------------------------------------------
<S>                                             <C>               <C>               <C>               <C>               <C>
Revenues:
   Exploration and Production
      United States                               $3,168            $2,477            $2,501            $2,703            $2,824
      Foreign                                      1,664             1,345             1,258             1,146             1,365
   Geothermal Operations                              45               133               139               142               134
   Diversified Business Group
      Agricultural Products                          530               509               378               331               324
      Carbon and Minerals                            293               271               241               220               220
      Pipelines                                      120               120                92                90                84
      Other                                           27                16                30                26                32
   Corporate and Unallocated                          66                86               138               592             1,907
   Intersegment Eliminations                        (585)             (568)             (505)             (520)             (643)
----------------------------------------------------------------------------------------------------------------------------------
      Total revenues from continuing operations    5,328             4,389             4,272             4,730             6,247
Discontinued operations (a)                        4,271             4,036             3,693             3,614             3,814
----------------------------------------------------------------------------------------------------------------------------------
      Total                                       $9,599            $8,425            $7,965            $8,344           $10,061
----------------------------------------------------------------------------------------------------------------------------------
(a)  1996 excludes $609 million for November 17, 1996 - December 31, 1996 which was included in loss on disposal
      in the Consolidated Earnings Statement.
</TABLE>

                                       63
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

<TABLE>
<CAPTION>

Millions of Dollars                                  1996            1995            1994            1993            1992
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                <C>             <C>             <C>             <C>             <C>
Earnings:
   Exploration and Production
      United States                                  $669            $386            $289            $376            $346
      Foreign                                         546             330             407             390             377
   Geothermal Operations                              (76)             47              57              51              34
   Diversified Business Group
      Agricultural Products                           152             113              43              27              24
      Carbon and Minerals                              59              72              62              45              21
      Pipelines                                        86              82              70              67              64
      Other                                            22              15              29              26              32
   Corporate and Unallocated
      Administrative and general expense             (126)           (127)           (137)            (98)           (102)
      Net interest expense                           (256)           (257)           (255)           (279)           (356)
      Environmental and litigation expense           (230)           (148)           (293)           (130)            (98)
      New Ventures                                    (36)             -               -               -               -
      Other                                           (52)            (38)             (1)             10             (37)
---------------------------------------------------------------------------------------------------------------------------
Pre-tax earnings from continuing operations before
   cumulative effect of accounting changes            758             475             271             485             305
Income taxes                                         (302)           (226)           (161)           (213)           (137)
---------------------------------------------------------------------------------------------------------------------------
         Earnings from continuing operations          456             249             110             272             168
Discontinued operations                              (420)             11              14              71              28
Cumulative effect of accounting changes                -               -             (277)           (130)             24
---------------------------------------------------------------------------------------------------------------------------
      Net earnings (loss)                             $36            $260           ($153)           $213            $220
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>


Millions of Dollars                              1996              1995              1994              1993              1992
-----------------------------------------------------------------------------------------------------------------------------
Assets:
<S>                                        <C>               <C>               <C>               <C>               <C>
   Exploration and Production
      United States (a)                      $2,731            $3,071            $3,214            $3,815            $3,774
      Foreign                                 1,791             1,648             1,509             1,528             1,563
   Geothermal Operations                        439               481               456               436               461
   Diversified Business Group
      Agricultural Products                     302               309               284               281               292
      Carbon and Minerals                       265               229               204               201               211
      Pipelines                                 314               261               262               264               270
      Other                                     196               174               158               144               132
   Corporate and Unallocated                  1,311             1,114               928             1,005             1,210
-----------------------------------------------------------------------------------------------------------------------------
      Total assets of continuing operations   7,349             7,287             7,015             7,674             7,913
   Discontinued operations (b)                1,774             2,604             2,322             2,032             1,979
-----------------------------------------------------------------------------------------------------------------------------
      Total                                  $9,123            $9,891            $9,337            $9,706            $9,892
-----------------------------------------------------------------------------------------------------------------------------

(a)  The decline in 1996 is principally due to the sale of California oil and gas producing properties.
      The decline in 1994 is principally due to the write-down of impaired producing oil and gas
         properties (See Note 2).
(b)  1996 reflects net assets of discontinued operations (see Note 3).

</TABLE>

                                       64
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

<TABLE>
<CAPTION>

Millions of Dollars                                          1996            1995            1994            1993          1992
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>             <C>             <C>             <C>             <C>
Capital expenditures:
   Exploration and Production
      United States                                         $  418          $  497          $  486          $  562          $364
      Foreign                                                  509             353             310             330           275
   Geothermal Operations                                       114              51              35              48            33
   Diversified Business Group
      Agricultural Products                                     12              55               8               8            54
      Carbon and Minerals                                       16              12               8               4             7
      Pipelines                                                 54               5               5               4             4
   Corporate and Unallocated                                    51              64              53              62            28
--------------------------------------------------------------------------------------------------------------------------------
      Total capital expenditures for continuing operations   1,174           1,037             905           1,018           765
Discontinued operations                                        224             422             367             231           194
--------------------------------------------------------------------------------------------------------------------------------
      Total                                                 $1,398          $1,459          $1,272          $1,249          $959
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>

Millions of Dollars                                    1996              1995             1994            1993            1992
------------------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>               <C>               <C>             <C>             <C>
Depreciation, depletion and amortization:
   Exploration and Production
      United States                                   $  526            $  537            $475            $507            $538
      Foreign                                            277               290             240             245             211
   Geothermal Operations                                  49                28              28              49              45
   Diversified Business Group
      Agricultural Products                               21                28              20              18              17
      Carbon and Minerals                                  7                 6               6               6              12
      Pipelines                                            7                 6               6               7               7
   Corporate and Unallocated                              27                16              36              24              39
------------------------------------------------------------------------------------------------------------------------------
      Total depreciation, depletion and amortization
         of continuing operations                        914               911             811             856             869
Discontinued operations                                  145               111             136             107              95
------------------------------------------------------------------------------------------------------------------------------
      Total                                           $1,059            $1,022            $947            $963            $964
------------------------------------------------------------------------------------------------------------------------------
</TABLE>

GEOGRAPHIC AREAS OF OPERATIONS

<TABLE>
<CAPTION>

Millions of Dollars                                    1996            1995            1994            1993            1992
------------------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>             <C>             <C>             <C>             <C>
Revenues:
United States                                         $3,260          $2,840          $2,792          $2,897          $2,883
Foreign                                                2,002           1,463           1,342           1,241           1,457
Corporate and Unallocated                                 66              86             138             592           1,907
------------------------------------------------------------------------------------------------------------------------------
      Total revenues from continuing operations        5,328           4,389           4,272           4,730           6,247
Discontinued operations (a)                            4,271           4,036           3,693           3,614           3,814
------------------------------------------------------------------------------------------------------------------------------
      Total                                           $9,599          $8,425          $7,965          $8,344         $10,061
------------------------------------------------------------------------------------------------------------------------------
(a)  1996 excludes $609 million for November 17, 1996 - December 31, 1996 which was included in loss on disposal
      in the Consolidated Earnings Statement.
</TABLE>

                                       65
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

<TABLE>
<CAPTION>

Millions of Dollars                                   1996            1995            1994            1993            1992
----------------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>             <C>             <C>             <C>             <C>
Earnings:
United States                                        $ 859           $ 651           $ 663           $ 604           $ 493
Foreign                                                563             394             457             422             425
Corporate and Unallocated                             (664)           (570)           (849)           (541)           (613)
----------------------------------------------------------------------------------------------------------------------------
   Pretax earnings from continuing operations before
     cumulative effective of accounting change         758             475             271             485             305
Income taxes                                          (302)           (226)           (161)           (213)           (137)
Discontinued operations                               (420)             11              14              71              28
Cumulative effect of accounting change                  -               -             (277)           (130)             24
--------------------------------------------------------------------------------------------------------------------------
         Net earnings (loss)                         $  36           $ 260           $(153)          $ 213           $ 220
--------------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>


Millions of Dollars                            1996              1995              1994              1993              1992
----------------------------------------------------------------------------------------------------------------------------
<S>                                         <C>               <C>               <C>               <C>               <C>
Assets:
United States                                 $3,816            $4,245            $4,343            $4,942            $4,955
Foreign                                        2,222             1,928             1,744             1,727             1,748
Corporate and Unallocated                      1,311             1,114               928             1,005             1,210
----------------------------------------------------------------------------------------------------------------------------
      Total assets for continuing operations   7,349             7,287             7,015             7,674             7,913
Discontinued operations (a)                    1,774             2,604             2,322             2,032             1,979
----------------------------------------------------------------------------------------------------------------------------
         Total                                $9,123            $9,891            $9,337            $9,706            $9,892
----------------------------------------------------------------------------------------------------------------------------
(a) 1996 reflects net assets of discontinued operations (see Note 3).

</TABLE>

                                       66
<PAGE>

SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION AND PRODUCTION ACTIVITIES

RESULTS OF OPERATIONS

  Results of operations of oil and gas exploration and production activities are
shown below.  Sales revenues are net of royalty payments, net profits interests
and marketing related purchases.  Other revenues primarily include gains or
losses on sales of oil and gas properties and miscellaneous rental income.

  Production costs include lifting costs and taxes other than income.
Exploration expenses consist of geological and geophysical costs, leasehold
rentals and dry hole costs.  Other operating expenses primarily include
administrative and general expense.  Income tax expense is based on the tax
effects arising from the operations.  Results of operations do not include
general corporate overhead and interest costs.

<TABLE>
<CAPTION>

                                           United           Far           Other
Dollars in millions                        States          East           Foreign           Total
--------------------------------------------------------------------------------------------------
<S>                                       <C>             <C>             <C>             <C>
Year 1996
Sales
   To public                              $  545            $617            $213            $1,375
   Intercompany                            1,065             326              21             1,412
Other revenues                               133               1              51               185
--------------------------------------------------------------------------------------------------
      Total                                1,743             944             285             2,972
Production costs                             300             127              81               508
Exploration expenses                          93              91              58               242
Depreciation, depletion and amortization     526             208              69               803
Other operating expenses                     155              46               3               204
--------------------------------------------------------------------------------------------------
     Net                                     669             472              74             1,215
     Income tax (benefit)                    257             233              (3)              487
--------------------------------------------------------------------------------------------------
         Results of operations            $  412            $239            $ 77            $  728
Year 1995
Sales
   To public                              $  580            $514            $176            $1,270
   Intercompany                              772             249              18             1,039
Other revenues                               164               5              29               198
--------------------------------------------------------------------------------------------------
      Total                                1,516             768             223             2,507
Production costs                             394             102              79               575
Exploration expenses                          75              64              54               193
Depreciation, depletion and amortization     537             192              98               827
Other operating expenses                     124              46              26               196
--------------------------------------------------------------------------------------------------
     Net                                     386             364             (34)              716
     Income tax (benefit)                    146             170             (21)              295
--------------------------------------------------------------------------------------------------
         Results of operations            $  240            $194            $(13)           $  421

</TABLE>

                                       67
<PAGE>

SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION AND PRODUCTION ACTIVITIES
(continued)

<TABLE>
<CAPTION>


                                         United           Far           Other
Dollars in millions                      States          East           Foreign           Total
--------------------------------------------------------------------------------------------------
<S>                                     <C>             <C>             <C>             <C>
Year 1994
Sales
   To public                            $  639            $495            $198            $1,332
   Intercompany                            749             263              14             1,026
Other revenues                              17              -               41                58
--------------------------------------------------------------------------------------------------
      Total                              1,405             758             253             2,416
Production costs                           420             108              76               604
Exploration expenses                        69              67              56               192
Depreciation, depletion and amortization   476             165              75               716
Other operating expenses                   151              39              18               208
--------------------------------------------------------------------------------------------------
     Net                                   289             379              28               696
      Income taxes                         109             194              15               318
--------------------------------------------------------------------------------------------------
         Results of operations          $  180            $185            $ 13            $  378

</TABLE>

COSTS INCURRED

  Costs incurred in oil and gas property acquisition, exploration and
development activities, either capitalized or charged to expense, are shown
below.  Data for the company's capitalized costs related to petroleum
exploration and production activities are presented in Note 12.

<TABLE>
<CAPTION>

                                           United           Far           Other
Dollars in millions                        States          East           Foreign         Total
--------------------------------------------------------------------------------------------------
<S>                                       <C>             <C>             <C>             <C>
1996
Property acquisition
   Proved                                   $  9            $  -            $  7            $ 16
   Unproved                                   15               2              14              31
Exploration                                  128             106              54             288
Development                                  322             366             100             788
--------------------------------------------------------------------------------------------------
1995
Property acquisition
   Proved                                   $  7            $  -            $  6            $ 13
   Unproved                                   13               2               5              20
Exploration                                  138             117              62             317
Development                                  383             181              91             655
--------------------------------------------------------------------------------------------------
1994
Property acquisition
   Proved                                   $  5            $  -            $  -            $  5
   Unproved                                    4               -               7              11
Exploration                                  115              94              58             267
Development                                  398             189              62             649
--------------------------------------------------------------------------------------------------

</TABLE>

                                       68
<PAGE>

SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION AND PRODUCTION ACTIVITIES
(continued)

AVERAGE SALES PRICE AND PRODUCTION COSTS PER UNIT (UNAUDITED)

The average sales price is based on sales revenues and volumes attributable to
net working interest production.  The average production costs per barrel
presented below are based on equivalent petroleum barrels, including natural gas
converted at a ratio of 6.0 mcf to one barrel of oil which represents the energy
content of the wet gas.

<TABLE>
<CAPTION>

                                                        United             Far            Other
                                                        States            East           Foreign                 Total
------------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>               <C>               <C>                   <C>
1996
Average sales price:
   Crude oil and condensate - per barrel               $19.21            $19.17            $19.20                $19.20
   Natural gas - per mcf (a)                             2.30              2.28              1.85                  2.27
   Natural gas liquids - per barrel                     15.62             13.48             14.12                 15.09
Average production costs per barrel (b)                  2.97              1.78              5.76                  2.73
------------------------------------------------------------------------------------------------------------------------
1995
Average sales price:
   Crude oil and condensate - per barrel               $15.03            $16.09            $15.69                $15.40
   Natural gas - per mcf (a)                             1.56              2.04              1.39                  1.72
   Natural gas liquids - per barrel                     11.57             12.99              9.02                 11.73
Average production costs per barrel (b)                  3.49              1.50              5.40                  2.94
------------------------------------------------------------------------------------------------------------------------
1994
Average sales price:
   Crude oil and condensate - per barrel               $13.06            $14.55            $14.36                $13.63
   Natural gas - per mcf (a)                             1.78              2.01              1.76                  1.86
   Natural gas liquids - per barrel                     11.38              8.32              8.31                 10.60
Average production costs per barrel (b)                  3.60              1.54              5.15                  3.00
------------------------------------------------------------------------------------------------------------------------

(a) Average natural gas price per mcf excluding Alaska:
                                                             1996                 $2.45
                                                             1995                 $1.57
                                                             1994                 $1.83

(b)  Includes host country shares of production in Indonesia and Zaire.
</TABLE>

OIL AND GAS RESERVE DATA (UNAUDITED)

  Estimates of physical quantities of oil and gas reserves, determined by
company engineers, for the years 1996, 1995 and 1994 are shown below.  As
defined by the Securities and Exchange Commission, proved oil and gas reserves
are the estimated quantities of crude oil, natural gas and natural gas liquids
that geological and engineering data demonstrate with reasonable certainty to be
recoverable in future years from known reservoirs under existing economic and
operating conditions.  Accordingly, these estimates do not include probable or
possible reserves.  Estimated oil and gas reserves are based on available
reservoir data and are subject to future revision. Proved reserve quantities
exclude royalties owned by others, however, foreign reserves held under certain
production-sharing agreements, principally with Indonesia, are reported on a
gross basis.  The gross basis includes the company's net working interest and
host country's interest.  These estimated quantities are subject to fluctuations
in the price of oil.  If oil prices increase, reserve quantities attributable to
recovery of operating costs decline.  This reduction would be partially offset
by an increase in the company's net equity share, however, the overall affect
would be a reduction of reserves attributable to the company.  The reserve
quantities also include barrels of oil which the company is contractually
obligated to sell at prices substantially below market.

                                       69
<PAGE>

SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION AND PRODUCTION ACTIVITIES
(continued)

  Natural gas reserves are reported on a wet-gas basis, which include natural
gas liquids reserves.  For informational purposes, natural gas liquids reserves
in the U.S. were 65, 83 and 91 million barrels at December 31, 1996, 1995 and
1994, respectively.  They are derived from the natural gas reserves by applying
a national average shrinkage factor obtained from the Department of Energy
published statistics.  Foreign natural gas liquids reserves were insignificant
for the above periods.

<TABLE>
<CAPTION>

Estimated Proved Reserves of Crude Oil and Condensate    United           Far           Other
Millions of Barrels                                      States          East           Foreign         Total
----------------------------------------------------------------------------------------------------------------
<S>                                                     <C>             <C>             <C>             <C>
Developed and Undeveloped as of December 31, 1993 (a)      483             169             112             764
   Revisions of estimates                                   (7)              6               3               2
   Improved recovery                                         2              -               -                2
   Discoveries and extensions                                9              28               7              44
   Sales                                                   (18)             -               (2)            (20)
   Production                                              (50)            (32)            (13)            (95)
----------------------------------------------------------------------------------------------------------------
As of December 31, 1994 (a)                                419             171             107             697
   Revisions of estimates                                    9               8             (11)              6
   Improved recovery                                        19              -               -               19
   Discoveries and extensions                                4              21               7              32
   Purchases                                                -               -               20              20
   Sales                                                   (18)             -               (1)            (19)
   Production                                              (46)            (31)            (11)            (88)
----------------------------------------------------------------------------------------------------------------
As of December 31, 1995 (a)                                387             169             111             667
   Revisions of estimates                                   (7)             (3)            (10)            (20)
   Improved recovery                                         1               1               2               4
   Discoveries and extensions                                6              30              16              52
   Purchases                                                -               -                2               2
   Sales                                                  (116)             -               -             (116)
   Production                                              (35)            (31)            (10)            (76)
----------------------------------------------------------------------------------------------------------------
As of December 31, 1996 (a)                                236             166             111             513
----------------------------------------------------------------------------------------------------------------
Proved Developed Reserves
   December 31, 1993                                       360              98              78             536
   December 31, 1994                                       318             103              69             490
   December 31, 1995                                       298              96              64             458
   December 31, 1996                                       184              96              51             331

(a) Includes hosts countries' shares at:
       December 31, 1993 of:                                -               54               2              56
       December 31, 1994 of:                                -               60               9              69
       December 31, 1995 of:                                -               63               8              71
       December 31, 1996 of:                                -               64               6              70
</TABLE>

                                       70
<PAGE>

SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION AND PRODUCTION ACTIVITIES
(continued)

<TABLE>
<CAPTION>

Estimated Proved Reserves of Natural Gas                United           Far           Other
Billions of Cubic Feet                                  States          East           Foreign         Total
---------------------------------------------------------------------------------------------------------------
<S>                                                    <C>             <C>             <C>             <C>
Developed and Undeveloped as of December 31, 1993 (a)   3,727           2,669             236           6,632
   Revisions of estimates                                   3              (2)            (16)            (15)
   Discoveries and extensions                             282             624              88             994
   Purchases                                              117    (b)       -               -              117
   Sales                                                 (128)   (c)       -               (3)           (131)
   Production                                            (421)           (243)            (22)           (686)
---------------------------------------------------------------------------------------------------------------
As of December 31, 1994 (a)                             3,580           3,048             283           6,911
   Revisions of estimates                                 (55)             40             (20)            (35)
   Discoveries and extensions                             209             408              -              617
   Purchases                                               -               -                7               7
   Sales                                                  (54)             -               -              (54)
   Production                                            (419)           (241)            (21)           (681)
---------------------------------------------------------------------------------------------------------------
As of December 31, 1995 (a)                             3,261           3,255             249           6,765
   Revisions of estimates                                (164)           (150)            (62)           (376)
   Discoveries and extensions                              67           1,213              17           1,297
   Purchases                                               20              -               -               20
   Sales                                                 (198)             -              (13)           (211)
   Production                                            (411)           (261)            (28)           (700)
---------------------------------------------------------------------------------------------------------------
As of December 31, 1996 (a)                             2,575           4,057             163           6,795
---------------------------------------------------------------------------------------------------------------
Proved Developed Reserves
   December 31, 1993                                    2,520           1,601             147           4,268
   December 31, 1994                                    2,437           1,768             127           4,332
   December 31, 1995                                    2,194           1,807             188           4,189
   December 31, 1996                                    1,829           1,715             148           3,692

(a) Includes host countries' shares at:
       December 31, 1993 of:                               -              369              -              369
       December 31, 1994 of:                               -              386              -              386
       December 31, 1995 of:                               -              457              -              457
       December 31, 1996 of:                               -              530              -              530
(b)  Includes 115 billion cubic feet due to property exchanges.
(c)  Includes 105 billion cubic feet due to property exchanges.

</TABLE>

PRESENT VALUE OF FUTURE NET CASH FLOW (UNAUDITED)

  The present value of future net cash flows from proved oil and gas reserves
for the years 1996, 1995 and 1994 are presented below.  Revenues are based on
estimated production of proved reserves from existing and planned facilities and
on average prices of oil and gas at year-end.  Development and production costs
related to future production are based on year-end cost levels and assume
continuation of existing economic conditions.  Income tax expense is computed by
applying the appropriate year-end statutory tax rates to pre-tax future cash
flows less recovery of the tax basis of proved properties, and reduced by
applicable tax credits.

  The company cautions readers that the data on the present value of future net
cash flow of oil and gas reserves are based on many subjective judgments and
assumptions.  Different, but equally valid, assumptions and judgments could lead
to significantly different results.  Additionally, estimates of physical
quantities of oil and gas

                                       71
<PAGE>

SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION AND PRODUCTION ACTIVITIES
(continued)

reserves, future rates of production and related prices and costs for such
production are subject to extensive revisions and a high degree of variability
as a result of economic and political changes.  Any subsequent price changes
will alter the results and the indicated present value of oil and gas reserves.
It is the opinion of the company that this data can be highly misleading and may
not be indicative of the value of underground oil and gas reserves.

<TABLE>
<CAPTION>


                                                              United             Far            Other
Millions of dollars                                           States            East           Foreign             Total
---------------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>               <C>               <C>               <C>
1996
Revenues (a)                                                $14,005           $10,695            $2,424           $27,124
Production costs                                              3,311             2,913               921             7,145
Development costs (b)                                         1,164             1,523               261             2,948
Income tax expense                                            3,258             2,432               361             6,051
---------------------------------------------------------------------------------------------------------------------------
Future net cash flow                                          6,272             3,827               881            10,980
10% annual discount                                           2,227             1,665               342             4,234
---------------------------------------------------------------------------------------------------------------------------
Present value of future net cash flows                      $ 4,045           $ 2,162            $  539           $ 6,746
---------------------------------------------------------------------------------------------------------------------------

1995
Revenues (a)                                                $12,395           $ 7,617            $1,939           $21,951
Production costs                                              4,532             1,423             1,013             6,968
Development costs (b)                                         1,696             1,025               253             2,974
Income tax expense                                            1,824             2,176               298             4,298
---------------------------------------------------------------------------------------------------------------------------
Future net cash flow                                          4,343             2,993               375             7,711
10% annual discount                                           1,496             1,129               117             2,742
---------------------------------------------------------------------------------------------------------------------------
Present value of future net cash flows                      $ 2,847           $ 1,864              $258            $4,969
---------------------------------------------------------------------------------------------------------------------------

1994
Revenues (a)                                                $11,291           $ 6,610            $1,798           $19,699
Production costs                                              4,829             1,321               890             7,040
Development costs (b)                                         1,835             1,122               217             3,174
Income tax expense                                            1,189             1,729               290             3,208
---------------------------------------------------------------------------------------------------------------------------
Future net cash flow                                          3,438             2,438               401             6,277
10% annual discount                                           1,141               858               128             2,127
---------------------------------------------------------------------------------------------------------------------------
Present value of future net cash flows                      $ 2,297           $ 1,580              $273            $4,150
---------------------------------------------------------------------------------------------------------------------------

(a)  Average prices at year end used in this calculation are as follows:
       Crude oil per barrel
                              1996                           $22.27            $22.55            $19.89
                              1995                            15.44             17.14             15.20
                              1994                            13.26             16.84             14.81
       Natural gas per mcf
                              1996                           $ 3.42            $ 2.58            $ 2.14
                              1995                             1.98              2.18              1.58
                              1994                             1.62              1.88              1.28

(b)  Includes dismantlement and abandonment costs.
</TABLE>

                                       72
<PAGE>

SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION AND PRODUCTION ACTIVITIES
(continued)

<TABLE>
<CAPTION>

Millions of dollars                                                1996              1995             1994
----------------------------------------------------------------------------------------------------------
<S>                                                          <C>               <C>               <C>
Present value at beginning of year                            $ 4,969           $ 4,150           $ 4,417
Discoveries and extensions, net of estimated future costs       1,005               743               602
Net purchases and sales of proved reserves (a)                   (128)              (51)              (22)
Revisions to prior estimates:
   Prices net of estimated changes in production costs          4,518             2,321                83
   Future development costs                                      (317)             (516)             (164)
   Quantity estimates                                            (755)              (58)              (88)
   Production schedules and other                                (511)             (548)               39
Accretion of discount                                             617               636               543
Development costs related to beginning of year reserves           663               635               646
Sales of oil and gas, net of production costs of $508 million
in 1996, $575 million in 1995 and $604 million in 1994         (2,281)           (1,734)           (1,754)
Net change in income taxes                                     (1,034)             (609)             (152)
----------------------------------------------------------------------------------------------------------
Present value at end of year                                  $ 6,746           $ 4,969           $ 4,150
----------------------------------------------------------------------------------------------------------

(a)  Purchases of reserves were valued at $64 million, $23 million and $26 million in 1996, 1995 and 1994,
     respectively.  Sales of reserves, including the sale of future production, were valued at $192 million,
     $74 million and $48 million for the same years, respectively.
</TABLE>

                                       73
<PAGE>

QUARTERLY FINANCIAL AND MARKET PRICE DATA (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                                   1996 Quarters
                                                                               -----------------------------------------------------

Dollars in millions except per share amounts                                       1st           2nd           3rd            4th
------------------------------------------------------------------------------------------------------------------------------------

<S>                                                                            <C>           <C>           <C>            <C>
Total revenues (a)                                                               $1,201        $1,405        $1,337        $ 1,385
Total costs and other deductions, including income taxes (b)                      1,070         1,217         1,203          1,382
------------------------------------------------------------------------------------------------------------------------------------

After-tax earnings from continuing operations                                       131           188           134              3
Discontinued operations
   Earnings (loss) from operations                                                   (7)           50            37             (9)
   Loss on disposal  (c)                                                             -             -             -         $  (491)
------------------------------------------------------------------------------------------------------------------------------------

      Net earnings (loss)                                                       $   124        $  238        $  171        $  (497)

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

Earnings per share of common stock assuming no dilution: (d)
------------------------------------------------------------------------------------------------------------------------------------

      Continuing operations                                                     $  0.50        $ 0.72        $ 0.54        $  0.01
      Discontinued operations                                                   $ (0.03)       $ 0.20        $ 0.15        $ (1.99)
------------------------------------------------------------------------------------------------------------------------------------

     Net earnings (loss) per share of common stock assuming no dilution         $  0.47        $ 0.92        $ 0.69        $ (1.98)
------------------------------------------------------------------------------------------------------------------------------------

Earnings per share of common stock assuming full dilution: (d)
------------------------------------------------------------------------------------------------------------------------------------

      Continuing operations                                                     $  0.46        $ 0.67        $ 0.51        $  0.01
      Discontinued operations                                                   $ (0.03)       $ 0.19        $ 0.14        $ (1.99)
------------------------------------------------------------------------------------------------------------------------------------

      Net earnings (loss) per share of common stock assuming full dilution (e)  $  0.43        $ 0.86        $ 0.65        $ (1.98)
------------------------------------------------------------------------------------------------------------------------------------

Gross margin (f)                                                                $   159        $  187        $   42        $    81
------------------------------------------------------------------------------------------------------------------------------------


(a)  Includes sales and operating revenue from continuing operations of         $ 1,143        $1,261        $1,264        $ 1,433
(b)  Includes special items of                                                  $    16        $   57        $   51        $   171
(c)  Fourth quarter loss on disposal includes a $42 million estimated loss for the phase-out period January 1, 1997 - March 31,
     1997.
(d)  Due to the conversion of Unocal's $3.50 Convertible Preferred Stock into Unocal common stock in the fourth quarter
     of 1996, the earnings per share amounts by quarter are not additive.
(e)  There was no dilutive effect in the calculation of fourth quarter earnings per share.
(f)  Gross margin equals sales and operating revenues less crude oil and product purchases, operating and selling
     expenses, depreciation, depletion and amortization, dry hole costs, exploration expense, and other operating taxes.


                                                                                                    1995 Quarters
                                                                             -------------------------------------------------------

Dollars in millions except per share amounts                                       1st            2nd             3rd        4th
------------------------------------------------------------------------------------------------------------------------------------

<S>                                                                            <C>         <C>           <C>          <C>
Total revenues (a)                                                                $ 976        $1,250        $1,002         $1,161
Total costs and other deductions, including income taxes (b)                        884         1,173           955          1,128
------------------------------------------------------------------------------------------------------------------------------------

After-tax earnings from continuing operations                                        92            77            47             33
Discontinued operations
   Earnings (loss) from operations                                                  (18)            1            12             16
   Loss on disposal                                                                  -             -             -              -
------------------------------------------------------------------------------------------------------------------------------------

      Net earnings (loss)                                                         $  74        $   78        $   59         $   49
------------------------------------------------------------------------------------------------------------------------------------

Earnings per share of common stock assuming no dilution:
------------------------------------------------------------------------------------------------------------------------------------

      Continuing operations                                                     $  0.34        $ 0.28        $ 0.15         $ 0.10
      Discontinued operations                                                   $ (0.07)       $   -         $ 0.05         $ 0.06
------------------------------------------------------------------------------------------------------------------------------------

      Net earnings (loss) per share of common stock assuming no dilution        $  0.27        $ 0.28        $ 0.20         $ 0.16
------------------------------------------------------------------------------------------------------------------------------------

Earnings per share of common stock assuming full dilution:
------------------------------------------------------------------------------------------------------------------------------------

      Continuing operations                                                     $  0.32        $ 0.26        $ 0.14         $ 0.09
      Discontinued operations                                                   $ (0.07)       $   -         $ 0.05         $ 0.06
------------------------------------------------------------------------------------------------------------------------------------

      Net earnings (loss) per share of common stock assuming full dilution      $  0.25        $ 0.26        $ 0.19         $ 0.15
------------------------------------------------------------------------------------------------------------------------------------

Gross margin (c)                                                                $    69        $   47        $   24         $  (17)
------------------------------------------------------------------------------------------------------------------------------------

(a)  Includes sales and operating revenue from continuing operations of         $   899        $1,201        $  934         $1,077
(b)  Includes special items of                                                  $    15        $   50        $    9         $  147
(c)  Gross margin equals sales and operating revenues less crude oil and product purchases, operating and selling expenses,
     depreciation, depletion and amortization, dry hole costs, exploration expense, and other operating taxes.
</TABLE>

                                       74
<PAGE>

SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>

Dollars in million except per share amounts                        1996           1995           1994           1993          1992
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                             <C>            <C>            <C>            <C>           <C>
Sales Revenue Data
   Crude oil and condensate                                       $2,495         $1,964         $1,996         $1,928       $ 2,270
   Natural gas                                                     1,482          1,031          1,109          1,104         1,033
   Agricultural products                                             514            486            373            319           292
   Geothermal                                                        131            120            135            145           197
   Natural gas liquids                                                95             97             96            101           116
   Petroleum products                                                 16             84             89            458         1,236
   Minerals                                                           97             95             79             62            80
   Consumer excise taxes                                              -              -               5             87           283
   Other                                                             161             58             95            134           427
-----------------------------------------------------------------------------------------------------------------------------------
      Total                                                        4,991          3,935          3,977          4,338         5,934
Operating revenues                                                   110            176            141            137           164
Other revenues                                                       227            278            154            255           149
-----------------------------------------------------------------------------------------------------------------------------------
      Total revenues from continuing operations                    5,328          4,389          4,272          4,730         6,247
Discontinued operations (a)                                        4,271          4,036          3,693          3,614         3,814
                                                                -------------------------------------------------------------------
Total revenues                                                    $9,599         $8,425         $7,965         $8,344       $10,061
-----------------------------------------------------------------------------------------------------------------------------------

Earnings Data
Earnings from continuing operations                               $  456         $  249         $  110         $  272        $  168
Discontinued operations                                             (420)            11             14             71            28
Cumulative effects of accounting change                               -              -            (277)          (130)           24
                                                                -------------------------------------------------------------------
Net earnings (loss)                                               $   36         $  260         $ (153)        $  213        $  220
Net earnings (loss) per common share:
      Continuing operations                                       $ 1.76         $ 0.87         $ 0.30         $ 0.98        $ 0.63
      Discontinued operations                                      (1.69)          0.04           0.06           0.29          0.12
      Cumulative effect of accounting change                          -              -           (1.14)         (0.54)         0.10
-----------------------------------------------------------------------------------------------------------------------------------
      Net earnings (loss) per share                               $ 0.07         $ 0.91         $(0.78)        $ 0.73        $ 0.85
-----------------------------------------------------------------------------------------------------------------------------------
Share Data
Cash dividends declared on preferred stock                        $   18         $   36         $   36         $   36        $   17
   Per share                                                        1.75           3.50           3.50           3.50          1.62
Cash dividends declared on common stock                              199            197            194            181           167
   Per share                                                        0.80           0.80           0.80           0.75          0.70
Number of common stockholders of record at year end               32,924         33,028         37,622         41,682        44,870
Weighted average common shares - thousands                       248,767        246,112        242,640        241,114       238,278
-----------------------------------------------------------------------------------------------------------------------------------
Balance Sheet Data
Current assets     (b)                                            $3,228         $1,576         $1,528         $1,578        $1,660
Current liabilities                                                1,622          1,316          1,257          1,196         1,436
Working capital                                                    1,606            260            271            382           224
Ratio of current assets to current liabilities                     2.0:1          1.2:1          1.2:1          1.3:1         1.2:1
Total assets                                                       9,123          9,891          9,337          9,706         9,892
Long-term debt                                                     2,940          3,692          3,452          3,455         3,530
Trust convertible preferred securities                               522             -              -              -             -
Total stockholders' equity                                         2,275          2,930          2,815          3,129         3,131
   Per common share                                                 9.14           9.87           9.54          10.90         10.93
Return on average stockholders' equity and preferred securities:
      Continuing operations                                         15.9%           8.7%          (5.6)%         4.6%          6.9%

      Including discontinued operations                              1.3%           9.1%          (5.1)%         6.8%          7.9%

-----------------------------------------------------------------------------------------------------------------------------------
General Data
Salaries, wages and employee benefits (c)                         $  806         $  797         $  811         $  744        $  817
Number of regular employees at year end                           11,658         12,509         13,127         13,613        14,687
-----------------------------------------------------------------------------------------------------------------------------------
(a)  1996 excludes $609 million for November 17, 1996 - December 31, 1996 which was included in loss on disposal
      in the Consolidated Earnings Statement.
(b)  1996 Includes net assets of discontinued operations (see Note 3).
(c)  Employee benefits are net of pension income recognized in accordance with current accounting standards for pension costs.
       For years 1996, 1995 and 1994, such benefits also include the accrued postretirement medical benefits cost.

</TABLE>

                                       75
<PAGE>

ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
       AND FINANCIAL DISCLOSURE:  None.



                                    PART III

  The information required by Items 10 through 12 (except for information
regarding the company's executive officers) is incorporated by reference to
Unocal's Proxy Statement for its 1997 Annual Meeting of Stockholders (the "1997
Proxy Statement") (File No. 1-8483), as indicated below.  The 1997 Proxy
Statement is expected be filed with the Securities and Exchange Commission on or
about April 21, 1997.

ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

  See the information regarding Unocal's directors and nominees for election as
directors to appear under the caption "Item 1. Election of Directors" in the
1997 Proxy Statement.  Also, see the list of Unocal's executive officers and
related information under the caption "Executive Officers of the Registrant" in
Part I of this report on pages 16 and 17.

ITEM 11 - EXECUTIVE COMPENSATION

  See the 1997 Proxy Statement for information regarding executive compensation
to appear under the captions "Summary Compensation Table," "Option Grants in
1996," "Aggregated Option/SAR Exercises in 1996 and December 31, 1996 Option
Values," "Long-Term Incentive Plans - Awards in 1996," "Pension Plan Benefits-
Estimated Annual Retirement Benefits," "Employment and Change of Control
Agreements" and for information regarding directors' compensation to appear
under the caption "Directors' Compensation."

  See the 1997 Proxy Statement for information to appear under the caption
"Compliance with Section 16 (a) of the Securities Exchange Act of 1934."

ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

  See the 1997 Proxy Statement for information regarding security ownership to
appear under the captions "Security Ownership of Certain Beneficial Owners" and
"Security Ownership of Management."

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:         Not required.



                                    PART IV

ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

  (a) Financial statements, financial statement schedules and exhibits filed as
part of this annual report:

      (1) Financial Statements: See the Index to Consolidated Financial
          Statements and Financial Statement Schedules under Item 8 on page 34
          of this report.

      (2) Financial Statement Schedules: See the Index to Consolidated Financial
          Statements and Financial Statement Schedules under Item 8 on page 34
          of this report.

      (3) Exhibits: The Exhibit Index on pages 81 and 82 of this report lists
          the exhibits that are filed as part of this report.

                                       76
<PAGE>

ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(continued)


 (b) Reports filed on Form 8-K:

     During the fourth quarter of 1996:

     (1) Current Report on Form 8-K dated and filed October 23, 1996, for the
         purpose of reporting, under item 5, third quarter and nine-month 1996
         earnings and related information.

     (2) Current Report on Form 8-K dated and filed November 18, 1996, for the
         purpose of reporting, under Item 5, the signing of a letter of intent
         by the company for the sale of its West Coast refining, marketing and
         transportation assets to Tosco Corporation.

     (3) Current Report on Form 8-K dated and filed December 4, 1996, for the
         purpose of reporting, under Item 5, the company's plans for growth
         through new investments, and for debt repayment and stock repurchase.

     (4) Current Report on Form 8-K dated and filed December 9, 1996, for the
         purpose of reporting, under Item 5, the company's 1997 capital spending
         plan.

     (5) Current Report on Form 8-K dated and filed December 26, 1996, for the
         purpose of reporting, under Item 5, the company's signing of a letter
         of intent to restructure the UNO-VEN Midwest refining and marketing
         partnership.

     (6) Current Report on Form 8-K dated and filed December 27, 1996, for the
         purpose of reporting, under Item 5, the beginning of the company's
         stock repurchase program.

     During the first quarter of 1997 to the date hereof:

     (1) Current Report on Form 8-K dated December 16, 1996, and filed January
         3, 1997, for the purpose of reporting, under item 5, the signing of a
         definitive agreement by the company for the sale of its West Coast
         refining, marketing and transportation assets to Tosco Corporation, and
         filing, as exhibits under Item 7, certain agreements relating to such
         sale.

     (2) Current Report on Form 8-K dated and filed January 23, 1997, for the
         purpose of reporting, under item 5, the company's fourth quarter and
         full-year 1996 earnings and related information.

     (3) Current Report on Form 8-K dated February 3, 1997, and filed February
         7, 1997, for the purpose of reporting, under item 5, the amendment of
         the company's Bylaws, and filing, as an exhibit under Item 7, a copy of
         such Bylaws, as so amended.

     (4) Current Report on Form 8-K dated and filed February 13, 1997 for the
         purpose of reporting, under item 5, the company's crude oil and natural
         gas reserve data.

                                       77
<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.


                              UNOCAL CORPORATION
                                 (Registrant)


Date:  March 27, 1997      By: /s/ NEAL E. SCHMALE
                               --------------------
                               Neal E. Schmale
                           Chief Financial Officer



  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 indicated on March 27, 1997.


SIGNATURE                                      TITLE
-----------------------  ---------------------------------------------------


                         Chairman of the Board of Directors and Chief
/s/ ROGER C. BEACH       Executive
------------------
Roger C. Beach           Officer




/s/ JOHN F. IMLE, JR.    Director and President
---------------------
John F. Imle, Jr.




/s/ NEAL E. SCHMALE      Director and Chief Financial
-------------------
Neal E. Schmale          Officer




/s/ CHARLES S. MCDOWELL  Vice President and Comptroller
-----------------------
Charles S. McDowell      (Principal Accounting Officer)

                                       78
<PAGE>

SIGNATURE                        TITLE
----------------------------------------




                                Director
-----------------------------
John W. Amerman



/s/ MACDONALD G. BECKET         Director
-----------------------------
MacDonald G. Becket



/s/ JOHN W. CREIGHTON, JR.      Director
-----------------------------
John W. Creighton, Jr.



/s/ MALCOLM R. CURRIE           Director
-----------------------------
Malcolm R. Currie



/s/ FRANK C. HERRINGER          Director
-----------------------------
Frank C. Herringer



                                Director
-----------------------------
Donald P. Jacobs



/s/ CHARLES R. WEAVER           Director
-----------------------------
Charles R. Weaver



/s/ J. STEVEN WHISLER           Director
-----------------------------
J. Steven Whisler



/s/ MARINA V.N. WHITMAN         Director
-----------------------------
Marina v.N. Whitman

                                       79
<PAGE>

               UNOCAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
                SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                             (Millions of Dollars)

<TABLE>
<CAPTION>

                                                     Additions
                                                 -------------------
                                                 Charged or Charged or
                                     Balance at  (credited) (credited) Deductions    Balance
                                     beginning   to costs & to other    from         at end
Description                          of period   expenses   accounts   reserves (a)  of period
---------------------------------------------------------------------------------------------
<S>                                  <C>         <C>        <C>        <C>           <C>
YEAR 1996
Amounts deducted from
  applicable assets:

Accounts and notes receivable             $28       $ 19       $ (1)      $(11)      $35
Investments and long-term receivables     $15       $ (3)      $  1       $  -       $13

YEAR 1995
Amounts deducted from
  applicable assets:

Accounts and notes receivable             $15       $ 22       $  -       $ (9)      $28
Investments and long-term receivables     $ 3       $  -       $ 12       $  -       $15

YEAR 1994
Amounts deducted from
  applicable assets:

Accounts and notes receivable             $16       $ 10       $  1       $(12)      $15
Investments and long-term receivables     $ 4       $ (1)      $  -       $  -       $ 3

(a) Represents receivables written off, net of recoveries, reinstatement and losses sustained.

</TABLE>

                                       80
<PAGE>

                               UNOCAL CORPORATION
                                 EXHIBIT INDEX
<TABLE>
<CAPTION>

<S>                             <C>
-------------------------------------------------------------------------------
Exhibit 2.1                     Sale and Purchase Agreement for 76 Products
                                Company, dated December 14, 1996, between Union
                                Oil Company of California and Tosco Corporation
                                (without attachments or schedules) (incorporated
                                by reference to Exhibit 2.1 to Unocal's Current
                                Report on Form 8-K dated December 16, 1996 and
                                filed January 3, 1997, File No. 1-8483).
-------------------------------------------------------------------------------
Exhibit 2.2                     Form of Stock Purchase and Shareholder
                                Agreement, to be dated as of January 15, 1997,
                                by and between Tosco Corporation and Union Oil
                                Company of California, together with form of
                                Supplement No. 1 thereto (incorporated by
                                reference to Exhibit 2.2 to Unocal's Current
                                Report on Form 8-K dated December 16, 1996 and
                                filed January 3, 1997, File No. 1-8483).
-------------------------------------------------------------------------------
Exhibit 2.3                     Form of Environmental Agreement, to be dated as
                                of closing date, by and between Tosco
                                Corporation and Union Oil Company of California
                                (without schedules) (incorporated by reference
                                to Exhibit 2.3 to Unocal's Current Report on
                                Form 8-K dated December 16, 1996, and filed
                                January 3, 1997, File No. 1-8483).
-------------------------------------------------------------------------------
Exhibit 3.1                     Certificate of Incorporation of Unocal, as
                                amended through July 23, 1992, and currently in
                                effect (incorporated by reference to Exhibit 3.1
                                to Amendment No. 2 on Form 10-K/A to Unocal's
                                Annual Report on Form 10-K for the year ended
                                December 31, 1993, File No. 1-8483).
-------------------------------------------------------------------------------
Exhibit 3.2                     Bylaws of Unocal, as amended though February 3,
                                1997, and currently in effect (incorporated by
                                reference to Exhibit 3.1 to Unocal's Current
                                Report on Form 8-K dated February 3, 1997, and
                                filed February 7, 1997, File No. 1-8483).
-------------------------------------------------------------------------------
Exhibit 4.1                     Standard Multiple-Series Indenture Provisions,
                                January 1991, dated as of January 2, 1991
                                (incorporated by reference to Exhibit 4.1 to the
                                Registration Statement on Form S-3 of Union Oil
                                Company of California and Unocal (File Nos.
                                33-38505 and 33-38505-01)).
--------------------------------------------------------------------------------
Exhibit 4.2                     Form of Indenture, dated as of January 30, 1991,
                                among Union Oil Company of California, Unocal
                                and The Bank of New York (incorporated by
                                reference to Exhibit 4.2 to the Registration
                                Statement on Form S-3 of Union Oil Company of
                                California and Unocal (File  Nos. 33-38505 and
                                33-38505-01)).
--------------------------------------------------------------------------------
Exhibit 4.3                     Form of Indenture, dated as of February 3, 1995,
                                among Union Oil Company of California, Unocal
                                and Chemical Trust Company of California
                                (incorporated by reference to Exhibit 4.6 to the
                                Registration Statement on Form S-3 of Union Oil
                                Company of California and Unocal (File Nos.
                                33-54861 and 33-54861-01)).

                                Other instruments defining the rights of holders
                                of long term debt of Unocal and its subsidiaries
                                are  not being filed since the total amount of
                                securities authorized under each of such
                                instruments does not exceed 10 percent of the
                                total assets of Unocal and its subsidiaries on a
                                consolidated basis.  Unocal agrees to furnish a
                                copy of any such instrument to the Securities
                                and Exchange Commission (Commission) upon
                                request.
-------------------------------------------------------------------------------
Exhibit 10.1                    Rights Agreement, dated as of January 29, 1990,
                                between the Unocal and The Chase Manhattan Bank,
                                as successor Rights Agent (incorporated by
                                reference to Exhibit 1 to Unocal's Current
                                Report on Form 8-K dated January 29, 1990, File
                                No. 1-8483).
--------------------------------------------------------------------------------
</TABLE>

The following Exhibits 10.2 through 10.11 are management contracts or
compensatory plans, contracts or arrangements required to be filed by Item 601
(b) (10) (iii) (A) of Regulation S-K.
<TABLE>
<CAPTION>

<S>                             <C>
-------------------------------------------------------------------------------
Exhibit 10.2                    Management Incentive Program (incorporated by
                                reference to Exhibit A to Unocal's Proxy
                                Statement dated March 18, 1991, for its 1991
                                Annual Meeting of Stockholders,
                                File No. 1-8483).
-------------------------------------------------------------------------------
Exhibit 10.3                    Unocal Revised Incentive Compensation Plan Cash
                                Deferral Program.
-------------------------------------------------------------------------------
Exhibit 10.4                    Long-Term Incentive Plan of 1985 (incorporated
                                by reference to Unocal's Proxy Statement dated
                                March 24, 1984, for its 1984 Annual Meeting of
                                Stockholders, File No. 1-8483).
-------------------------------------------------------------------------------
Exhibit 10.5                    Supplemental Retirement Plan for Key Management
                                Personnel, as amended and effective January 1,
                                1989 (incorporated by reference to Exhibit 10.3
                                to Unocal's Annual Report on Form 10-K for the
                                year ended December 31, 1990, File No. 1-8483).
-------------------------------------------------------------------------------
Exhibit 10.6                    Other Compensatory Arrangements (incorporated by
                                reference to Exhibit 10.4 to Unocal's Annual
                                Report on Form 10-K for the year ended December
                                31, 1990, File No. 1-8483).
</TABLE>

                                       81
<PAGE>

                               UNOCAL CORPORATION
                           EXHIBIT INDEX (continued)
<TABLE>
<CAPTION>

<S>                             <C>
-------------------------------------------------------------------------------
Exhibit 10.7                    Directors' Restricted Stock Plan of 1991
                                (incorporated by reference to Exhibit B to
                                Unocal's Proxy Statement dated March 18, 1991,
                                for its 1991 Annual Meeting of Stockholders,
                                File No. 1-8483).
-------------------------------------------------------------------------------
Exhibit 10.8                    Amendments to Directors Restricted Stock Plan,
                                effective February 8, 1996 (incorporated by
                                reference to Exhibit 10.7 to Unocal's Annual
                                Report on Form 10-K for the year ended December
                                31, 1995, File No. 1-8483).
-------------------------------------------------------------------------------
Exhibit 10.9                    Form of Indemnity Agreement between Unocal and
                                each of its directors (incorporated by reference
                                to Exhibit A to Unocal's Proxy Statement dated
                                March 20, 1987, for its 1987 Annual Meeting of
                                Stockholders, File No. 1-8483).
-------------------------------------------------------------------------------
Exhibit 10.10                   Employment Agreement, effective July 1, 1995,
                                between Union Oil Company of California and
                                Lawrence M. Higby (incorporated by reference to
                                Exhibit 10 to Unocal's Quarterly Report on Form
                                10-Q for the quarter ended June 30, 1995, File
                                No. 1-8483).
-------------------------------------------------------------------------------
Exhibit 10.11                   Letter dated November 5, 1996, summarizing
                                incentive compensation arrangements for Lawrence
                                M. Higby to be effective upon the sale or other
                                disposition of at least 50 percent of the 76
                                Products Company.
-------------------------------------------------------------------------------
Exhibit 11                      Statement regarding computation of earnings per
                                common share for the five years ended December
                                31, 1996.
-------------------------------------------------------------------------------
Exhibit 12.1                    Statement regarding computation of ratio of
                                earnings to fixed charges of Unocal  for the
                                five years ended December 31, 1996.
-------------------------------------------------------------------------------
Exhibit 12.2                    Statement regarding computation of ratio of
                                earnings to combined fixed charges and preferred
                                stock dividends of Unocal for the five years
                                ended December 31, 1996.
-------------------------------------------------------------------------------
Exhibit 12.3                    Statement regarding computation of ratio of
                                earnings to fixed charges of Union Oil Company
                                of California for the five years ended December
                                31, 1996.
-------------------------------------------------------------------------------
Exhibit 21                      Subsidiaries of Unocal Corporation.
-------------------------------------------------------------------------------
Exhibit 23                      Consent of Coopers & Lybrand L.L.P.
-------------------------------------------------------------------------------
Exhibit 27                      Financial data schedule for the period ended
                                December 31, 1996 (included only in the copy of
                                this report filed electronically with the
                                Commission).
-------------------------------------------------------------------------------
Exhibit 99                      Bylaws of Union Oil Company of California, as
                                amended September 30, 1996 and currently in
                                effect (incorporated by reference to Exhibit 99
                                to Unocal's Quarterly Report on Form 10-Q for
                                the quarter ended September 30, 1996, File No.
                                1-8483).
-------------------------------------------------------------------------------
</TABLE>

                                       82