<PAGE>   1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                           WASHINGTON, D.C. 20549-1004

                                    FORM 10-Q

(Mark One)

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

                  For the quarterly period ended June 30, 1999

                                       OR

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


                         Commission file number 1-13916

                       UNION PACIFIC RESOURCES GROUP INC.
             (Exact name of registrant as specified in its charter)

                 UTAH                                 13-2647483
    (State or other jurisdiction of       (I.R.S. Employer Identification No.)
    incorporation or organization)

                       777 MAIN STREET, FORT WORTH, TEXAS
                    (Address of principal executive offices)

                                      76102
                                   (Zip Code)

                                 (817) 321-6000
              (Registrant's telephone number, including area code)


         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
    ---     ---

         As of July 31, 1999, there were 251,884,057 shares of the registrant's
common stock outstanding.
<PAGE>   2
                       UNION PACIFIC RESOURCES GROUP INC.

                                      INDEX


<TABLE>
<CAPTION>

                                          PART I. FINANCIAL INFORMATION

                                                                                                        Page Number
                                                                                                        -----------
<S>                                                                                                     <C>
ITEM 1:  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

         Condensed Consolidated Statements of Income and Comprehensive Income -
         For the Three Months and Six Months Ended June 30, 1999 and 1998..........................           3

         Condensed Consolidated Statements of Financial Position -
         At June 30, 1999 and December 31, 1998....................................................       4 - 5

         Condensed Consolidated Statements of Cash Flows -
         For the Six Months Ended June 30, 1999 and 1998...........................................           6

         Notes to Condensed Consolidated Financial Statements......................................      7 - 12

         Report of Independent Public Accountants..................................................          13


ITEM 2:  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS.............................................................................     14 - 26

ITEM 3:  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK................................     27 - 29



                                             PART II.  OTHER INFORMATION


ITEM 1:  LEGAL PROCEEDINGS.........................................................................          30

ITEM 4:  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......................................          30

ITEM 6:  EXHIBITS AND REPORTS ON FORM 8-K..........................................................          31

SIGNATURE..........................................................................................          32
</TABLE>


                                      -2-
<PAGE>   3
                       UNION PACIFIC RESOURCES GROUP INC.

      CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
        For the Three Months and Six Months Ended June 30, 1999 and 1998
                (Millions of dollars, except per share amounts)
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                                Three Months Ended         Six Months Ended
                                                                                      June 30,                 June 30,
                                                                               ---------------------     ---------------------
                                                                                 1999         1998         1999         1998
                                                                               --------     --------     --------     --------
<S>                                                                            <C>          <C>          <C>          <C>
Operating revenues:
    Oil and gas operations:
       Exploration and production.........................................     $  343.2     $  437.7     $  662.2     $  801.9
       Other oil and gas revenues (Note 5)................................         12.8         27.4         76.7         31.1
                                                                               --------     --------     --------     --------
          Total oil and gas operations....................................        356.0        465.1        738.9        833.0
    Minerals..............................................................         30.7         36.6         62.9         76.7
                                                                               --------     --------     --------     --------
           Total operating revenues.......................................        386.7        501.7        801.8        909.7
                                                                               --------     --------     --------     --------

Operating expenses:
    Production............................................................         93.2        128.7        183.7        224.0
    Exploration, including exploratory dry holes..........................         53.5         94.5        105.1        150.6
    Minerals..............................................................          0.1          0.6          0.5          1.3
    Depreciation, depletion and amortization..............................        185.2        266.5        368.4        440.8
    General and administrative............................................         30.9         24.6         46.5         45.0
    Restructuring charge (Note 6).........................................           --           --         14.5           --
                                                                               --------     --------     --------     --------
              Total operating expenses....................................        362.9        514.9        718.7        861.7
                                                                               --------     --------     --------     --------

Operating income (loss)...................................................         23.8        (13.2)        83.1         48.0
Other income (expense) - net (Notes 7 and 8)..............................         21.3         14.0         32.7         15.3
Interest expense..........................................................        (50.7)       (73.0)      (115.0)      (107.0)
                                                                               --------     --------     --------     --------
Income (loss) before income taxes.........................................         (5.6)       (72.2)         0.8        (43.7)
Income tax expense (benefit) (Notes 7 and 8)..............................        (20.9)       (38.4)       (56.8)       (34.6)
                                                                               --------     --------     --------     --------
Income (loss) from continuing operations..................................         15.3        (33.8)        57.6         (9.1)

Discontinued operations: (Note 4)
    Income (loss) from discontinued operations - net of tax ..............           --         16.5        (23.8)        23.0
    Gain on sale of discontinued operations - net of tax..................           --           --        157.0           --
                                                                               --------     --------     --------     --------
    Total income from discontinued operations.............................           --         16.5        133.2         23.0
                                                                               --------     --------     --------     --------

Net income (loss).........................................................     $   15.3     $  (17.3)    $  190.8     $   13.9
                                                                               ========     ========     ========     ========

Other comprehensive income - net of tax:
    Foreign currency translation adjustments..............................          1.7        (40.6)       (33.6)       (37.0)
                                                                               --------     --------     --------     --------
Comprehensive income (loss)...............................................     $   17.0     $  (57.9)    $  157.2     $  (23.1)
                                                                               ========     ========     ========     ========

Earnings (loss) per share basic and diluted:
    Continuing operations.................................................     $   0.06     $  (0.13)    $   0.23     $  (0.03)
    Discontinued operations...............................................           --         0.06         0.54         0.09
                                                                               --------     --------     --------     --------
    Total................................................................      $   0.06     $  (0.07)    $   0.77     $   0.06
                                                                               ========     ========     ========     ========

Weighted average shares outstanding - basic..............................         249.1        247.6        248.9        247.6
Weighted average shares outstanding - diluted............................         249.4        247.6        249.0        247.6
Cash dividends per share.................................................      $   0.05     $   0.05     $   0.10     $   0.10
</TABLE>

  See the notes to the condensed consolidated financial statements (unaudited).



                                      -3-
<PAGE>   4







                       UNION PACIFIC RESOURCES GROUP INC.

             CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
                     At June 30, 1999 and December 31, 1998
                              (Millions of dollars)


<TABLE>
<CAPTION>

                                                                                  June 30,     December 31,
                                                                                    1999           1998
                                                                                -----------    ------------
                                                                                (Unaudited)
<S>                                                                              <C>            <C>
ASSETS

Current assets:
    Cash and temporary investments.........................................      $    24.9      $     8.8
    Accounts receivable - net ..............................................         313.6          261.0
    Inventories ............................................................          55.6           64.6
    Other current assets (Notes 5 and 8) ...................................         113.1          107.0
                                                                                 ---------      ---------
          Total current assets .............................................         507.2          441.4
                                                                                 ---------      ---------

Properties (successful efforts method): (Note 5)
    Cost ...................................................................      10,979.4       11,078.2
    Accumulated depreciation, depletion and amortization ...................      (5,218.0)      (4,984.9)
                                                                                 ---------      ---------
          Total properties - net ...........................................       5,761.4        6,093.3
                                                                                 ---------      ---------
Intangible and other assets ................................................         174.2          180.8
Net assets of discontinued operations (Note 4) .............................            --          926.9
                                                                                 ---------      ---------

Total assets ...............................................................     $ 6,442.8      $ 7,642.4
                                                                                 =========      =========
</TABLE>



  See the notes to the condensed consolidated financial statements (unaudited).

                                      -4-
<PAGE>   5
                       UNION PACIFIC RESOURCES GROUP INC.

             CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
                     At June 30, 1999 and December 31, 1998
                              (Millions of dollars)

<TABLE>
<CAPTION>

                                                                June 30,     December 31,
                                                                 1999            1998
                                                               ---------     -----------
                                                              (Unaudited)
<S>                                                            <C>           <C>
LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
     Accounts payable ....................................     $   207.9     $     270.5
     Advance payment (Note 9) ............................         107.2              --
     Accrued taxes payable (Note 4) ......................         236.4            64.9
     Short-term debt (Note 10) ...........................           3.0           853.8
     Other current liabilities ...........................         231.0           157.5
                                                               ---------     -----------
          Total current liabilities ......................         785.5         1,346.7
                                                               ---------     -----------

Long-term debt (Note 10) .................................       3,029.7         3,744.9
Deferred income taxes ....................................       1,227.9         1,291.6
Other long-term liabilities ..............................         526.8           531.0

Shareholders' equity:
     Common stock, no par value:
       Authorized shares--400,000,000
       Issued and outstanding--251,886,092 and 250,685,204            --              --
     Paid-in surplus .....................................       1,013.3           992.6
     Treasury stock, at cost:
       Shares--4,337,431 and 3,666,913 ...................         (92.0)          (82.5)
     Unearned employee stock ownership plan ..............         (93.2)          (95.7)
     Retained earnings ...................................         175.1             9.1
     Unearned compensation (Note 11) .....................          (7.4)           (6.0)
     Accumulated other comprehensive income:
       Deferred foreign exchange adjustment ..............        (118.0)          (84.4)
       Minimum pension contra equity .....................          (4.9)           (4.9)
                                                               ---------     -----------
          Total accumulated other comprehensive income ...        (122.9)          (89.3)
                                                               ---------     -----------
          Total shareholders' equity .....................         872.9           728.2
                                                               ---------     -----------

Total liabilities and shareholders' equity ...............     $ 6,442.8     $   7,642.4
                                                               =========     ===========
</TABLE>

  See the notes to the condensed consolidated financial statements (unaudited).

                                      -5-
<PAGE>   6
                       UNION PACIFIC RESOURCES GROUP INC.

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                 For the Six Months Ended June 30, 1999 and 1998
                              (Millions of dollars)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                    1999            1998
                                                                                 ----------      ----------
<S>                                                                              <C>             <C>
Cash flows provided by operations:
    Net income .............................................................     $    190.8      $     13.9
    Less income from discontinued operations ...............................         (133.2)          (23.0)
    Non-cash charges to income:
       Depreciation, depletion and amortization ............................          368.4           440.8
       Deferred income taxes (benefit) .....................................          (24.7)          (54.9)
       Other non-cash charges - net ........................................            8.6           136.5
    Changes in current assets and liabilities ..............................          (61.1)          227.4
                                                                                 ----------      ----------
          Cash provided by operations ......................................          348.8           740.7
                                                                                 ----------      ----------

Cash flows from investing activities:
    Capital and exploratory expenditures ...................................         (180.8)         (853.2)
    Acquisition of Norcen (Note 3) .........................................             --        (2,634.3)
    Proceeds from sales of assets  (Note 5) ................................          222.6            50.3
    Proceeds from sales of investment ......................................             --            48.4
    Proceeds from sale of discontinued operations (Note 4) .................        1,359.1              --
    Cash provided (used) by discontinued operations ........................         (204.5)          236.6
                                                                                 ----------      ----------
          Cash provided (used) by investing activities .....................        1,196.4        (3,152.2)
                                                                                 ----------      ----------

Cash flows from financing activities:
    Dividends paid .........................................................          (24.8)          (24.8)
    Proceeds from debt financing - net (Note 10) ...........................          500.0         2,488.5
    Debt repaid ............................................................       (2,069.7)             --
    Purchase of treasury stock .............................................           (9.5)          (21.6)
    Other financing - net (Note 9) .........................................           74.9             2.9
                                                                                 ----------      ----------
          Cash provided (used) by financing activities .....................       (1,529.1)        2,445.0
                                                                                 ----------      ----------

Net change in cash and temporary investments ...............................           16.1            33.5
Cash at beginning of period ................................................            8.8            67.1
                                                                                 ----------      ----------
Cash at end of period ......................................................     $     24.9      $    100.6
                                                                                 ==========      ==========
</TABLE>

  See the notes to the condensed consolidated financial statements (unaudited).

                                      -6-
<PAGE>   7
                       UNION PACIFIC RESOURCES GROUP INC.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

1.   RESPONSIBILITIES FOR FINANCIAL STATEMENTS

       The Condensed Consolidated Financial Statements of Union Pacific
     Resources Group Inc. and subsidiaries (the "Company") have been prepared by
     management, are unaudited and reflect all adjustments (including normal
     recurring adjustments) that are, in the opinion of management, necessary
     for a fair presentation of the financial position and operating results of
     the Company for the interim periods. However, these condensed statements do
     not include all of the information and footnotes required by generally
     accepted accounting principles to be included in a full set of financial
     statements. The report of Arthur Andersen LLP commenting on their review
     accompanies the Condensed Consolidated Financial Statements and is included
     in Part I, Item 1 in this report. The Condensed Consolidated Statement of
     Financial Position at December 31, 1998, is derived from audited financial
     statements. The Condensed Consolidated Financial Statements should be read
     in conjunction with the consolidated financial statements and notes thereto
     contained in the Company's Annual Report on Form 10-K for the year ended
     December 31, 1998. The results of operations and cash flows for the six
     months ended June 30, 1999, are not necessarily indicative of the results
     for the full year ending December 31, 1999.

       The preparation of financial statements in conformity with generally
     accepted accounting principles requires management to make estimates and
     assumptions that affect the reported amounts of certain assets and
     liabilities, the disclosure of contingent assets and liabilities at the
     date of the financial statements and the reported amounts of revenues and
     expenses for each reporting period. Management believes its estimates and
     assumptions are reasonable; however, such estimates and assumptions are
     also subject to a number of risks and uncertainties which may cause actual
     results to differ materially.

2.   BUSINESS SEGMENT INFORMATION

       The following table presents summarized segment information for the
     Company.

<TABLE>
<CAPTION>

                                                                               Six Months Ended June 30,
                                                                               1999                1998
                                                                             ---------          ---------
<S>                                                                          <C>                <C>
                                                                                (Millions of dollars)
     Revenues:
       Exploration and production..........................................  $   738.9          $   833.0
       Minerals............................................................       62.9               76.7
                                                                             ---------          ---------
          Total revenues...................................................  $   801.8          $   909.7
                                                                             =========          =========

     Operating income:
       Exploration and production..........................................  $    84.7          $    20.2
       Minerals............................................................       62.4               75.4
       Corporate (a).......................................................      (64.0)             (47.6)
                                                                             ---------          ---------
          Total operating income...........................................  $    83.1          $    48.0
                                                                             =========          =========
</TABLE>



                                      -7-
<PAGE>   8

<TABLE>
<CAPTION>

                                                     At June 30,  At December 31,
                                                        1999            1998
                                                     -----------  ---------------
                                                      (Millions of dollars)
<S>                                                   <C>          <C>
Fixed assets (net of DD&A):
       Exploration and production ...............     $5,658.6        $5,988.8
       Minerals .................................         10.2            10.2
       Corporate ................................         92.6            94.3
                                                      --------        --------
          Total fixed assets ....................     $5,761.4        $6,093.3
                                                      ========        ========
</TABLE>

----------
     (a) Operating income for the Corporate segment consists of general and
administrative expense.

3.   ACQUISITION OF NORCEN

       In March 1998, the Company and Union Pacific Resources Inc. ("UPRI"), an
     Alberta corporation and a wholly-owned subsidiary of the Company, acquired
     Norcen Energy Resources Limited ("Norcen") for $2.634 billion (the "Norcen
     Acquisition"). In addition, the Company assumed the long-term debt
     obligations of Norcen. The following table presents unaudited pro forma
     condensed consolidated statements of income of the Company for the six
     months ended June 30, 1998, as though the Norcen Acquisition had occurred
     on January 1, 1998. Certain adjustments were made to the financial
     information to conform to the accounting policies and financial statement
     presentation of the Company.


<TABLE>
<CAPTION>
                                          Six Months Ended
                                            June 30, 1998
                                           ----------------
                                         (Millions of dollars,
                                       except per share amounts)

<S>                                 <C>
Revenues .............................        $ 1,009.5
Costs and expenses ...................            992.7
                                              ---------
Operating income .....................             16.8
Interest expense .....................           (141.5)
Other income (expense) - net .........             15.3
                                              ---------
Loss before income taxes .............           (109.4)
Income tax (benefit) .................            (58.8)
                                              ---------
Loss from continuing operations.......        $   (50.6)
                                              =========

Loss per share - basic ...............        $   (0.20)
Loss per share - diluted .............            (0.20)
</TABLE>


       The unaudited pro forma condensed consolidated information presented
     above is not necessarily indicative of the results of operations which
     would have occurred had the Norcen Acquisition been consummated on January
     1, 1998, nor is it necessarily indicative of future results of operations.

     NORCEN SUMMARIZED FINANCIAL INFORMATION

       In 1998, as a result of the Norcen Acquisition, UPRI assumed and
     unconditionally guaranteed the public debt obligations of Norcen. The
     following table presents summarized financial information for UPRI (as
     successor to Norcen) as of and for the six months ended June 30, 1999, the
     two months ended February 28, 1998, and the four months ended June 30,
     1998. This summarized financial information is being provided pursuant to
     Section G of Topic 1 of Staff Accounting Bulletin No. 53 - "Financial
     Statement Requirements in Filings Involving the Guarantee of Securities by
     a Parent." The Company will continue to provide such



                                      -8-
<PAGE>   9

     summarized financial information for UPRI for as long as the debt
     securities remain outstanding and guaranteed by UPRI.

<TABLE>
<CAPTION>
                                                                  Six Months Ended     Two Months Ended        Four Months Ended
                                                                   June 30, 1999      February 28, 1998(a)      June 30, 1998(b)
                                                                  ----------------   ---------------------     -----------------
                                                                                     (Millions of dollars)
<S>                                                               <C>                <C>                       <C>
     Summarized Statement of Income Information:
       Operating revenues......................................   $          187.8   $               104.0     $           170.4
       Operating income (loss).................................               43.6                     4.0                 (68.0)
       Net income (loss).......................................               68.7                   (30.0)(c)             (40.8)

                                                                  At June 30, 1999   At December 31, 1998
                                                                  ----------------   ---------------------
     Summarized Statement of Financial Position Information:
       Current assets..........................................   $          111.1   $                53.7
       Non-current assets......................................            1,881.1                 1,882.3
       Current liabilities.....................................               75.4                   279.8
       Non-current liabilities and equity......................            1,916.8                 1,656.2
</TABLE>

---------------------------------
       (a) Results for UPRI as of and for the two months ended February 28,
       1998. Results have not been restated in accordance with U.S. generally
       accepted accounting principles ("GAAP") and reflect the full cost method
       for accounting for oil and gas operations.

       (b) Results for UPRI as of and for the four months ended June 30, 1998,
       include adjustments to reflect U.S. GAAP and the successful efforts
       method of accounting. Adjustments to reflect the application of the
       purchase method of accounting for the Norcen Acquisition are included
       effective March 3, 1998.

       (c) Net loss includes $40 million in costs incurred by UPRI in connection
       with the Norcen Acquisition which were not reimbursed by the Company.

4.     SALE OF GPM SEGMENT

           In November 1998, the Company entered into a Merger and Purchase
       Agreement ("Agreement") with Duke Energy Field Services, Inc. ("Duke") to
       sell its gathering, processing and marketing ("GPM") segment for $1.36
       billion in cash. On March 31, 1999, the Company closed on the sale (the
       "GPM Disposition"). The GPM Disposition consisted primarily of the
       Company's pipelines, gathering systems, natural gas processing plants and
       natural gas and natural gas liquids marketing assets and operations.
       These operations include interests in nineteen natural gas processing
       plants (together with approximately 7,200 miles of pipelines that support
       these processing plants), as well as two non-operated natural gas liquids
       fractionation plants. The Company has retained its crude oil marketing
       business. The Company recorded a $157.0 million after-tax gain on the GPM
       Disposition, including $232.2 million for accrued taxes.

           Under a process provided for in the Agreement, Duke has asserted
       claims against the Company for costs to remediate alleged environmental
       conditions. These environmental claims are in excess of a $40 million
       deductible that Duke has assumed for environmental conditions. Under the
       terms of the Agreement, the Company has the right to contest any
       environmental claims through arbitration. If it is determined that there
       are valid environmental claims in excess of the $40 million deductible,
       then the Company will be required to make a payment to Duke for such
       excess amount. The Company has analyzed Duke's environmental claims and
       has been in discussions with Duke about the results of its analysis. As a
       result of these discussions, Duke has lowered its claims. The Company
       continues to believe that there are substantial defenses to the remaining
       Duke environmental claims, and the likelihood that any payment to Duke
       will be required is remote.


                                      -9-
<PAGE>   10

           The GPM segment results of operations and cash flows have been
       excluded from continuing operations for all periods presented and have
       been reported as discontinued operations in the accompanying Condensed
       Consolidated Statements of Income and Cash Flows. The GPM net assets that
       were sold were segregated from continuing operations in the Company's
       Condensed Consolidated Statement of Financial Position at December 31,
       1998.

           Summarized information relating to results of discontinued operations
       for the three months and six months ended June 30, 1999 and 1998 are as
       follows:

<TABLE>
<CAPTION>

                                                       Three Months                 Six Months
                                                      Ended June 30,              Ended June 30,
                                                   ---------------------      ----------------------
                                                     1999         1998          1999          1998
                                                   --------     --------      --------      --------
                                                   (Millions of dollars)       (Millions of dollars)
<S>                                                <C>          <C>           <C>           <C>
  Operating revenues .........................     $     --     $  119.4      $   21.5      $  210.4
  Operating expenses .........................           --        (70.2)        (29.7)       (128.3)
  Depreciation, depletion and amortization ...           --        (17.1)        (20.4)        (33.9)
                                                                --------      --------      --------
  Operating income (loss) ....................           --         32.1         (28.6)         48.2
  Other income (expense)-- net ...............           --           --            --           0.1
  Interest expense (a) .......................           --         (5.3)         (8.0)        (10.5)
                                                                --------      --------      --------
  Income (loss) before taxes .................           --         26.8         (36.6)         37.8
  Income taxes expense (benefit) .............           --         10.3         (12.8)         14.8
                                                   --------     --------      --------      --------
  Net income (loss) from discontinued
    operations ...............................     $     --     $   16.5      $  (23.8)     $   23.0
                                                   ========     ========      ========      ========
</TABLE>
---------------


           (a)    The Company allocated interest expense to the GPM segment
                  based on the ratio of net assets of discontinued operations to
                  total Company net assets, excluding $3.6 billion of debt
                  associated with the Norcen Acquisition.

5.     PROPERTY DIVESTITURES

          During 1999, the Company completed sales of non-core South Texas
       properties for a sales price of $137.8 million, including a $30 million
       note receivable, the Canadian Caroline-Swan Hill property (the "Caroline
       property") for $108.6 million and the Deadwood property in East Texas for
       $18.0 million. The Company recorded a pretax gain of $61.1 million in
       connection with these sales.

6.     RESTRUCTURING CHARGE

          During the first quarter, the Company reorganized into five operating
       groups, announced workforce reductions for its Canadian and U.S.
       operations and established an early retirement program. As a result of
       these actions, the Company recorded a $14.5 million restructuring charge
       in the first quarter. The charge included $4.2 million for pension
       benefits and other postretirement benefits ("OPEB") in connection with
       the early retirement program and the workforce reductions. Also included
       were $7.1 million for severance costs related to a reduction in force,
       $3.0 million for specialty drilling equipment and supplies no longer
       required for cancelled drilling programs and $0.2 million for excess
       office space commitments. At June 30, 1999, the $6.4 million remaining in
       the reserve represents reserves for specialty drilling equipment and
       supplies of $2.4 million and OPEB and personnel costs of $4.0 million.

          At January 1, 1999, the balance of the reserve for costs related to
       the 1998 restructuring charge was $14.6 million. During the first six
       months of 1999, $5.3 million was paid out related to workforce reductions
       and $0.3 million was paid out related to excess office space commitments.
       At June 30, 1999, the $9.0 million remaining in the reserve represents a
       drilling rig commitment ($5.0 million) and excess office space
       commitments ($4.0 million).



                                      -10-
<PAGE>   11

7.     FOREIGN CURRENCY

          During 1999, the Company recorded a $29.5 million non-cash foreign
       currency gain included in other income (expense) - net on the Condensed
       Consolidated Statement of Income. The gain resulted from remeasurement of
       UPRI's U.S. dollar denominated monetary assets and liabilities (primarily
       debt obligations).

          Also during 1999, the Company recorded a $17.9 million non-cash
       foreign currency gain included in deferred tax benefit (expense) on the
       Condensed Consolidated Statement of Income. The gain resulted from
       remeasurement of deferred tax liabilities denominated in the local
       currencies of Guatemala and Venezuela.

8.     TAX SETTLEMENT

          In 1997, Norcen received a reassessment from Canadian tax authorities
       in the amount of $81.1 million concerning the deductibility of certain
       expenses and foreign exchange losses claimed for income tax purposes
       during the period 1989 through 1993. In spite of Norcen's disagreement
       and appeal, the reassessment was fully funded in 1997. As a result of the
       Norcen Acquisition, the Company valued this issue at $17.0 million, net
       of any valuation allowance, as part of the purchase price allocation. On
       March 8, 1999, UPRI entered into an agreement with Canadian tax
       authorities to settle these claims out of court. Under the terms of the
       settlement, the Company will receive a refund of approximately $54.6
       million dollars. The expected refund was recorded in other current assets
       in the Statement of Financial Position. In the first quarter of 1999, the
       Company recorded $7.1 million of interest to other income and a $27.9
       million deferred income tax benefit related to the settlement.

9.     ADVANCE PAYMENT

          In March 1999, the Company entered into a forward sale transaction,
       whereby it received $150.0 million in cash and is required to deliver
       approximately 401 MMcf of natural gas per day to the purchaser beginning
       in April 1999 and continuing through October 1999. The Company has
       recorded the obligation associated with this transaction as an advance
       payment. This current liability will be recognized in other oil and gas
       revenues on the Condensed Consolidated Statement of Income as the gas is
       delivered over the term of the contract. In addition, the Company has
       entered into a gas price swap to hedge exposure to price risk associated
       with this transaction (see Quantitative and Qualitative Disclosures About
       Market Risk in Part I, Item 3 of this report).

10.    DEBT

          During the second quarter of 1999, the Company issued $500 million of
       Notes and Debentures. The $200 million 7.3% Notes due May 2009 and the
       $300 million 7.95% Debentures due May 2029 were issued under the
       Company's existing $1.0 billion shelf registration statement. Proceeds
       from the issuance of the Notes and Debentures, along with proceeds from
       the GPM disposition were used to reduce short-term and long-term debt by
       $851.8 million and $715.2 million, respectively.

11.    SHAREHOLDERS' EQUITY

          In the first quarter of 1999, options covering 1,171,439 shares of
       Company common stock were granted to directors, officers and certain
       non-officer executives of the Company, each with an exercise price of



                                      -11-
<PAGE>   12

       $9.44 per share, a one-year vesting period and a ten-year term. In
       addition, 1,474,439 shares of restricted stock were awarded to officers
       and certain non-officer executives with a vesting schedule of one-third
       per year over a three-year period, subject to accelerated vesting upon
       the achievement of certain Company common stock price objectives. These
       stock price objectives were achieved in April and May 1999, resulting in
       the acceleration of vesting of all such shares of restricted stock. The
       Company recorded compensation expense of $12.7 million in the second
       quarter and $14.8 million for the year in connection with the vesting of
       the restricted stock awards.

12.    COMMITMENTS AND CONTINGENCIES

          The Company was a party to several long-term firm gas transportation
       agreements that supported the gas marketing program and GPM segment sold
       to Duke. Most of these firm transportation contracts were transferred to
       Duke as part of the GPM Disposition. As part of the GPM Disposition, the
       Company has agreed to keep Duke whole on certain contracts if the
       transportation market value falls below the contract transportation rates
       and Duke will pay the Company if the market value exceeds the contract
       transportation rates. This keep-whole commitment is in effect for the
       ten-year period commencing on March 31, 1999.

          Included in the Condensed Consolidated Statement of Financial Position
       of the Company is a reserve for the estimated fair value of the
       difference between the total rate under the firm transportation
       agreements and estimated market rates through March 2009. The reserve,
       which is included in current and other long-term liabilities, was $103.7
       million at June 30, 1999. The Company may adjust its reserve based on
       changes in current quoted future market rates or estimated long-term
       rates. Such adjustments could be significant. Management does not believe
       a meaningful, permanent change has occurred to the transportation rates
       in the market place. However, at June 30, 1999, if the Company had used
       current quoted future market rates to estimate the long-term portion of
       the reserve, the Company would have recorded an additional reserve of $56
       million for the ten year period.

          The Company is subject to federal, state, provincial and local
       environmental laws and regulations and currently is participating in the
       investigation and remediation of a number of sites. Where the remediation
       costs can reasonably be determined, and where such remediation is
       probable, the Company has recorded a liability. Management does not
       expect future environmental obligations to have a material impact on the
       results of operations, financial condition or cash flows of the Company.

          In connection with the disposition of significant plant, pipeline,
       refining and producing property assets, the Company has made certain
       representations and warranties related to the assets sold and provided
       certain indemnities with respect to liabilities associated with such
       assets. The Company has been advised of possible claims which may be
       asserted by the purchasers of certain disposed assets for alleged
       breaches of such representations and warranties and under certain
       indemnities. Certain claims related to compliance with environmental laws
       remain pending, including those discussed in Note 4. In addition, as some
       of the representations, warranties and indemnities related to some of the
       disposed assets have not expired, further claims may be made against the
       Company. While no assurance can be given as to the ultimate outcome of
       these claims, the Company does not expect these matters to have a
       material adverse effect on its results of operations, financial condition
       or cash flows.

          The Company is a defendant in a number of other lawsuits and is
       involved in governmental proceedings arising in the ordinary course of
       business in addition to those described above. The Company also has
       entered into commitments and provided guarantees for specific financial
       and contractual obligations of its subsidiaries and affiliates. The
       Company does not expect these lawsuits, commitments or guarantees to have
       a material adverse effect on its results of operations, financial
       condition or cash flows.



                                      -12-
<PAGE>   13




                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Board of Directors and Shareholders of
Union Pacific Resources Group Inc.
Fort Worth, Texas

We have reviewed the accompanying Condensed Consolidated Statement of Financial
Position of Union Pacific Resources Group Inc. (a Utah corporation) and
subsidiaries as of June 30, 1999, and the related Condensed Consolidated
Statements of Income and Comprehensive Income for the three month and six month
periods ended June 30, 1999 and 1998, and the Condensed Consolidated Statements
of Cash Flows for the periods ended June 30, 1999 and 1998. These financial
statements are the responsibility of the Company's management.

We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should
be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles.






ARTHUR ANDERSEN LLP
Fort Worth, Texas

July 27, 1999



                                      -13-
<PAGE>   14






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

                              RESULTS OF OPERATIONS

              QUARTER ENDED JUNE 30, 1999 COMPARED TO JUNE 30, 1998

SUMMARY FINANCIAL DATA

<TABLE>
<CAPTION>

                                                                               Three Months Ended June 30,
                                                                               ---------------------------
                                                                                  1999            1998
                                                                                 -------        -------
                                                                                  (Millions of dollars)
<S>                                                                              <C>            <C>
       Total operating revenues............................................      $ 386.7        $ 501.7
       Total operating expenses............................................        362.9          514.9
       Operating income (loss).............................................         23.8          (13.2)
       Income (loss) from continuing operations............................         15.3          (33.8)
       Net income (loss)...................................................         15.3          (17.3)
       Earnings (loss) from continuing operations per share - diluted......         0.06          (0.13)
       Earnings (loss) per share - diluted.................................         0.06          (0.07)
</TABLE>

     The Company recorded net income of $15.3 million in the second quarter of
1999, an increase of $32.6 million over second quarter results for 1998.
Earnings per share of $0.06 for the second quarter of 1999 increased $0.13 from
1998. Discontinued operations contributed income of $16.5 million in the second
quarter of last year.

                        RESULTS OF CONTINUING OPERATIONS

     The Company recorded income from continuing operations of $15.3 million, or
$0.06 per share, for the second quarter of 1999 compared to a loss of $33.8
million, or $0.13 per share, in the same period of 1998. The increase was due
largely to lower production and exploration expenses which contributed $76.5
million, $81.3 million of favorable depreciation, depletion and amortization
("DD&A") caused by lower per unit rates and lower sales volumes and $22.3 of
reduced interest expense. Also included in second quarter results were $31.5
million in after-tax foreign currency remeasurement gains. Lower sales volumes,
however, resulted in a $92.6 million revenue reduction and the costs related to
the vesting of the January 1999 restricted stock award resulted in a $12.7
million charge for the quarter. Included in second quarter 1998 results was a
$26.0 million gain on the sale of properties in the Denver-Julesburg Basin (the
"DJ Basin properties").

SUMMARY OF SEGMENT FINANCIAL DATA

<TABLE>
<CAPTION>

                                                                              Three Months Ended June 30,
                                                                              ---------------------------
                                                                                  1999           1998
                                                                                --------      ---------
                                                                                 (Millions of dollars)
<S>                                                                             <C>           <C>
Segment operating income (loss):
     Exploration and production......................................           $   25.6      $   (23.1)
     Minerals........................................................               30.6           36.0
     Corporate/general and administrative............................              (32.4)         (26.1)
                                                                                --------      ---------
       Total operating income (loss).................................           $   23.8      $   (13.2)
                                                                                ========      =========
</TABLE>


     Operating income increased by $37.0 million to $23.8 million for the
quarter. Exploration and production operating income improved $48.7 million to
$25.6 million despite of a 21 percent drop in sales volumes. These


                                      -14-
<PAGE>   15

results reflect lower operating expenses associated with lower sales volumes and
cost savings initiatives implemented in 1998, and reduced overhead due to the
recent restructuring of the Company. Lower per unit DD&A rates, primarily
related to the 1998 year-end asset impairment write-down, contributed $25.4
million for the quarter while lower sales volumes reduced DD&A by $55.9 million.
Lower sales volumes caused a drop of $92.6 million in revenues, while slightly
lower product prices resulted in a $1.9 million reduction in revenues. Second
quarter 1998 results included the $26.0 million gain on the sale of the DJ Basin
properties while 1999 results include a $6.4 million gain on the settlement in
1995 of Columbia Gas Transmission Company's bankruptcy.

     Minerals operating income decreased $5.4 million, to $30.6 million, due to
lower equity income from Black Butte Coal Company ("Black Butte") reflecting
lower volumes under an amended coal supply contract and the absence of a $2.0
million gain on a 1998 property sale. The decrease was partially offset by
favorable results at the Company's soda ash joint venture, reflecting $2.2
million of prior period adjustments included in 1998 results.

     General and administrative ("G&A") costs increased $6.3 million to $32.4
million, principally due to $9.7 million of expense related to the vesting costs
of the January 1999 restricted stock awards, offset by cost savings related to
the reductions in force that occurred in late 1998 and early 1999.

EXPLORATION AND PRODUCTION OPERATIONS

<TABLE>
<CAPTION>

                                                                              Three Months Ended June 30,
                                                                              ---------------------------
                                                                                  1999          1998
                                                                               ---------      ---------
                                                                                 (Millions of dollars)

<S>                                                                            <C>            <C>
      Exploration and production revenues..................................    $   343.2      $   437.7
      Other oil and gas revenues ..........................................         12.8           27.4
                                                                               ---------      ---------
         Total operating revenues..........................................        356.0          465.1
                                                                               ---------      ---------
      Operating expenses:
         Production........................................................         93.2          128.7
         Exploration.......................................................         53.5           94.5
         Depreciation, depletion and amortization..........................        183.7          265.0
                                                                                --------      ---------
         Total operating expenses..........................................        330.4          488.2
                                                                                --------      ---------
      Operating income (loss)..............................................     $   25.6      $   (23.1)
                                                                                ========      =========
</TABLE>

OPERATING REVENUES

     Exploration and production revenues for the second quarter of 1999
decreased by $94.5 million (22%) to $343.2 million, largely due to the $92.6
million reduction associated with lower sales volumes (discussed below). Product
prices were slightly lower in 1999, reducing revenues by $1.9 million. Other
revenues were down $14.6 million due to the $26.0 million gain in 1998 on the
sale of the DJ Basin properties, partially offset by the $6.4 million gain in
1999 associated with the settlement in 1995 of Columbia Gas Transmission
Company's bankruptcy.


                                      -15-
<PAGE>   16


<TABLE>
<CAPTION>
                                                                                Three Months Ended June 30,
                                                                     -------------------------------------------------
                                                                      1999           1998          1999          1998
                                                                     ------        -------       -------       -------
                                                                       (without hedging)             (with hedging)
<S>                                                                  <C>           <C>           <C>           <C>
      Average price realizations - exploration and production:
         Natural gas (per Mcf)..............................         $ 1.78        $  1.84       $  1.58       $  1.80
         Natural gas liquids (per Bbl)......................           9.28           7.66          9.28          7.66
         Crude oil (per Bbl)................................          13.37          10.11         12.03         10.27
         Average (per Mcfe).................................           1.90           1.74          1.71          1.72
</TABLE>

<TABLE>
<CAPTION>

                                                                             Three Months Ended June 30,
                                                                             ---------------------------
                                                                                1999             1998
                                                                               -------          -------
<S>                                                                            <C>              <C>
      Production volumes - exploration and production:
         Natural gas (MMcfd)...............................................    1,311.6          1,586.7
         Natural gas liquids (MBbld).......................................       28.4             38.1
         Crude oil (MBbld).................................................      119.6            162.3
         Total (MMcfed)....................................................    2,199.6          2,788.8
</TABLE>

     Exploration and production sales volumes of 2,199.6 MMcfed decreased 589.2
MMcfed (21%) from 1998 results primarily due to property sales and the effects
of production declines related to reduced capital spending levels. Total Latin
American sales volumes realized the smallest decrease in sales volumes, down
23.5 MMcfed (8%) to 285.5 MMcfed. Production declines caused by the reduction in
capital spending and the effects of property sales contributed to production
declines in US Onshore (264.6 MMcfed), Canada (214.1 MMcfed) and US Offshore
(87.6 MMcfed).

     The Company announced the results of three significant wells that came
on-line during the second quarter of 1999. The Rock Island 4-H in the Rockies
had initial gross production of 14 MMcfed. The Company has substantial
undeveloped acreage in the area. Two wells in Central Texas, the Dierking 1-H
and the Theldick 1-H, had realized combined initial production sales volumes of
73 MMcfed. The Company's net production for the three wells was 56 MMcfed.

     Natural gas sales volumes decreased 275.1 MMcfd (17%) to 1,311.6 MMcfd,
principally reflecting the sale of the Matagorda Island 623 and surrounding
blocks (the "Matagorda property") in the third quarter of 1998, Canadian
properties in late 1998 and Canadian and South Texas properties in early 1999,
as well as production declines for existing properties.

     Natural gas liquids sales volumes decreased 9.7 MBbld (25%) to 28.4 MBbld.
The decline is largely related to the sale of the offshore Matagorda property
and the Canadian Caroline property during the past year and production declines
caused by reduced capital spending.

     Crude oil sales volumes of 119.6 MBbld decreased 42.7 MBbld (26%),
reflecting production declines in Canada and US Onshore, property sales and
lower sales volumes in Guatemala due to higher water content.

OPERATING EXPENSES

     Production expenses decreased $35.5 million (28%) to $93.2 million.
Production costs on a per unit basis were $0.47 per Mcfe, down from $0.51 per
Mcfe last year. Total lease operating expenses fell $32.1 million to $58.6
million primarily due to cost reduction efforts that were initiated in late 1998
and costs incurred in 1998 related to properties sold. Lease operating expenses
on a per unit basis dropped from $0.36 per Mcfe in 1998 to $0.29 per Mcfe.
Production and property taxes were down $1.7 million from 1998 due to lower
sales volumes. Production overhead costs declined $0.6 million from 1998 largely
due to reduced personnel costs related to the reductions in force. Partially
offsetting the reductions in production overhead was the inclusion of $3.0
million



                                      -16-
<PAGE>   17

in costs related to the vesting of the January 1999 restricted stock awards.

     Exploration expenses decreased $41.0 million from the second quarter of
last year, primarily the result of the reduced capital spending program
initiated in mid-1998. Dry hole expense was down $15.0 million and included
$10.7 million for Venezuela Delta Centro. Additionally, surrendered lease was
$14.9 million lower than the second quarter of last year and geologic and
geophysical expenses were down $9.7 million. Also contributing to the variance
was reduced exploration overhead, down $1.0 million, due to reduced computer and
personnel costs related to staff reductions.

     DD&A expenses decreased by $81.3 million. Lower sales volumes resulted in a
reduction of $55.9 million while lower per unit rates contributed another $25.4
million. DD&A per unit was $0.92 per Mcfe in 1999, down from $1.04 per Mcfe last
year, largely the result of the asset impairment write-down recorded in December
1998. Included in 1998 results was a $4.0 million write-off related to two
offshore fields.

MINERALS OPERATIONS

OPERATING INCOME

<TABLE>
<CAPTION>

                                                                           Three Months Ended June 30,
                                                                           ---------------------------
                                                                                1999         1998
                                                                              --------     --------
                                                                              (Millions of dollars)
<S>                                                                           <C>          <C>
           Coal ........................................................      $   23.0     $   27.5
           Soda ash ....................................................           7.5          6.6
           Other .......................................................           0.1          1.9
                                                                              --------     --------
                  Total operating income................................      $   30.6     $   36.0
                                                                              ========     ========
</TABLE>

     Minerals operating income decreased $5.4 million to $30.6 million, largely
due to lower Black Butte equity income reflecting lower sales volumes under an
amended coal supply contract ($4.5 million) and lower product prices for soda
ash royalty volumes ($0.5 million) related to short-term over capacity. Also
included in 1998 results was the $2.0 million gain on the sale of industrial
minerals properties. Results at the Company's soda ash joint venture were
favorable $1.4 million largely due to $2.2 million of prior period adjustments
included in 1998 that were partially offset by lower sales volumes and prices in
1999.

GENERAL AND ADMINISTRATIVE AND OTHER

     G&A expenses increased $6.3 million, to $32.4 million, principally due to
the $9.7 million of expense related to the vesting costs of the January 1999
restricted stock awards. Providing some offset was the cost savings realized in
the second quarter of 1999 related to the late 1998 and early 1999 reductions in
force. G&A expenses per unit, excluding the restricted stock expense, increased
by $0.01 per Mcfe to $0.11 per Mcfe for the quarter.

     Other income/expense of $21.3 million was $7.3 million higher than last
year primarily due to the $20.5 million gain on the remeasurement of U.S. dollar
denominated liabilities in Canada. Included in 1998 results was an $11.0 million
gain on foreign exchange contracts entered into in connection with the Norcen
Acquisition and gains of $2.3 million related to the close of Norcen interest
rate swaps and crude oil positions.

     Interest expense for the quarter decreased $22.3 million from last year to
$50.7 million. The decrease principally reflects the reduction in borrowings
associated with the deleveraging program designed to reduce the Company's debt.

     The income tax benefit of $20.9 million declined $17.5 million from the
second quarter of 1998. The



                                      -17-
<PAGE>   18

majority of the variance results from improvements in pre-tax results due to
higher operating income. Results for 1999 also include a favorable $11.0 million
foreign currency remeasurement of deferred tax liabilities in Guatemala and
Venezuela. Section 29 tax credits were $3.4 million for the quarter, down from
$4.1 million in 1998.

                              RESULTS OF OPERATIONS

            SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO JUNE 30, 1998

SUMMARY FINANCIAL DATA

<TABLE>
<CAPTION>
                                                                                Six Months Ended June 30,
                                                                                -------------------------
                                                                                   1999          1998
                                                                                 -------        -------
                                                                                  (Millions of dollars)
<S>                                                                              <C>            <C>
       Total operating revenues............................................      $ 801.8        $ 909.7
       Total operating expenses............................................        718.7          861.7
       Operating income....................................................         83.1           48.0
       Income (loss) from continuing operations............................         57.6           (9.1)
       Net income .........................................................        190.8           13.9
       Earnings (loss) from continuing operations per share - diluted......         0.23          (0.03)
       Earnings per share - diluted........................................         0.77           0.06
</TABLE>


     The Company recorded net income of $190.8 million for year-to-date 1999, an
increase of $176.9 million over 1998 results. Earnings per share of $0.77 for
the six months ended June 1999 increased $0.71 from results in 1998. The
increase was largely due to the $157.0 million after-tax gain on the sale of the
GPM business segment to Duke Energy and improved results from continuing
operations.


                        RESULTS OF CONTINUING OPERATIONS

     The Company recorded income from continuing operations of $57.6 million for
year-to-date 1999 compared to a loss of $9.1 million in the same period of 1998.
Earnings per share of $0.23 increased $0.26 per share. The increase was largely
due to the $72.4 million reduction in DD&A expenses, $37.7 million of higher
gains from property sales, a $85.8 million reduction in production and
exploration expenses, $47.4 million in foreign currency after-tax gains and a
$32.9 million after-tax gain related to the Canadian tax settlement. These items
were partially offset by the $139.7 million reduction in exploration and
production revenues, the $14.8 million charge due to the vesting costs of the
January 1999 restricted stock awards and a $14.5 million restructuring charge
taken in the first quarter.


SUMMARY OF SEGMENT FINANCIAL DATA

<TABLE>
<CAPTION>

                                                                         Six Months Ended June 30,
                                                                         -------------------------
                                                                            1999           1998
                                                                          --------       --------
                                                                           (Millions of dollars)
<S>                                                                       <C>            <C>
Segment operating income:
     Exploration and production......................................     $   84.7       $   20.2
     Minerals........................................................         62.4           75.4
     Corporate/general and administrative............................        (49.5)         (47.6)
     Restructuring charge............................................        (14.5)            --
                                                                          --------       --------
        Total operating income.......................................     $   83.1       $   48.0
                                                                          ========       ========
</TABLE>


                                      -18-
<PAGE>   19



     Operating income increased by $35.1 million to $83.1 million for the
period. Exploration and production operating income increased by $64.5 million
to $84.7 million despite of a nine percent drop in sales volumes. These results
reflect a reduction of $72.8 million in DD&A expenses due to both lower sales
volumes ($38.6 million) and reduced per unit rates ($34.2 million) resulting
from a 1998 asset impairment write-down. Gains on property sales were $37.7
million higher in the first half of 1999, as the $61.1 million gain on the sale
of the Caroline property was countered by the $26.0 million gain in 1998 on the
sale of the DJ Basin properties. Operating expenses decreased by $85.8 million
associated with lower sales volumes and cost savings initiatives, while overhead
costs declined due to the recent restructuring of the Company. Offsetting these
improvements was a $139.7 million decline in revenues due to lower sales volumes
($70.8 million) and lower product prices ($68.9 million).

     Minerals operating income decreased $13.0 million to $62.4 million,
primarily relating to $7.2 million of lower Black Butte equity income resulting
from lower sales volumes under an amended coal supply contract. Also
contributing to the decline were lower coal and soda ash royalties and the
absence of a 1998 gain on a property sale.

     G&A costs increased $1.9 million, reflecting $11.2 million of expense
related to the vesting of the January 1999 restricted stock awards, offset by
cost savings related to the reductions in force that occurred in late 1998 and
early 1999.

EXPLORATION AND PRODUCTION OPERATIONS

<TABLE>
<CAPTION>

                                                                               Six Months Ended June 30,
                                                                               -------------------------
                                                                                  1999            1998
                                                                                --------        -------
                                                                                 (Millions of dollars)
<S>                                                                             <C>             <C>
      Exploration and production revenues..................................     $  662.2        $ 801.9
      Other oil and gas revenues ..........................................         76.7           31.1
                                                                                --------        -------
         Total operating revenues..........................................        738.9          833.0
                                                                                --------        -------
      Operating expenses:
         Production........................................................        183.7          224.0
         Exploration.......................................................        105.1          150.6
         Depreciation, depletion and amortization..........................        365.4          438.2
                                                                                --------        -------
         Total operating expenses..........................................        654.2          812.8
                                                                                --------        -------
      Operating income.....................................................     $   84.7        $  20.2
                                                                                ========        =======
</TABLE>

OPERATING REVENUES

     Exploration and production revenues decreased by $139.7 million (17%) to
$662.2 million for the first half of 1999, due to a $70.8 million reduction
associated with lower sales volumes and a $68.9 million decline associated with
lower product prices. Other revenues improved $45.6 million due to $37.7 million
of higher gains on property sales and the $6.4 million gain associated with the
settlement in 1995 of the Columbia Gas Transmission Company's bankruptcy.


                                      -19-
<PAGE>   20

<TABLE>
<CAPTION>

                                                                                 Six  Months Ended June 30,
                                                                   --------------------------------------------------
                                                                     1999          1998           1999          1998
                                                                   -------        -------       -------       -------
                                                                     (without hedging)              (with hedging)
<S>                                                                <C>            <C>           <C>           <C>

      Average price realizations - exploration and production:
         Natural gas (per Mcf)..............................       $  1.65        $  1.85       $  1.60       $  1.87
         Natural gas liquids (per Bbl)......................          8.45           8.45          8.45          8.45
         Crude oil (per Bbl)................................         11.46          10.92         10.76         11.04
         Average (per Mcfe).................................          1.71           1.80          1.65          1.82
</TABLE>

<TABLE>
<CAPTION>

                                                                               Six Months Ended June 30,
                                                                               -------------------------
                                                                                 1999            1998
                                                                               -------          -------
<S>                                                                            <C>              <C>
      Production volumes - exploration and production:
         Natural gas (MMcfd)...............................................    1,319.3          1,432.9
         Natural gas liquids (MBbld).......................................       26.5             35.5
         Crude oil (MBbld).................................................      122.9            130.6
         Total (MMcfed)....................................................    2,215.6          2,429.8
</TABLE>

     Exploration and production sales volumes of 2,215.6 MMcfed decreased 214.2
MMcfed (9%) from 1998 results primarily due to the effect of property sales and
production declines related to reduced capital spending levels. The overall
decline occurred despite the inclusion of six months of sales volumes for Norcen
Acquisition properties in 1999 compared to four months of sales volumes in 1998.

     Latin America sales volumes improved 73.5 MMcfed over the first half of
1998, as the inclusion of two additional months of sales volumes in 1999 more
than offset the impact of higher water content in Guatemala. Canadian sales
volumes were up 1.4 MMcfed and U.S. Offshore sales volumes declined 52 MMcfed,
as the impact of property sales and production declines offset the additional
two months of production for Norcen Acquisition properties. U.S. Onshore sales
volumes were down 237.1 MMcfed, reflecting the decline in capital spending and
effects of property sales.

     Natural gas sales volumes decreased 113.6 MMcfd to 1,319.3 MMcfd,
principally reflecting the sale of the offshore Matagorda property in the third
quarter of 1998 and other property sales, and production declines for existing
properties, offset by the exclusion of two months of sales volumes from Norcen
properties in 1998.

     Natural gas liquids sales volumes decreased 9.0 MBbld to 26.5 MBbld. The
decline is largely related to the sale of the offshore Matagorda property and
the Canadian Caroline property during the last year, production declines and
ethane and propane rejection in the U.S. Onshore in the first quarter of 1999.

     Crude oil sales volumes declined 7.7 MBbld to 122.9 MBbld for the first
half of 1999. The decrease reflects production declines in Canada and US Onshore
and property sales, offset by two additional months of Norcen property sales
volumes in 1999. US Onshore and Canada decreased 16.7 MBbld and 2.3 MBbld,
respectively, while Latin America sales volumes improved 12.1 MBbld.

OPERATING EXPENSES

     Production expenses of $183.7 million for the first half were down $40.3
million from 1998. Production costs per unit improved over 10 percent from $0.51
per Mcfe last year to $0.46 for 1999. Total lease operating expenses declined
$29.3 million primarily due to property sales and cost reduction efforts that
were initiated in late 1998. Lease operating expenses on a per unit basis
dropped from $0.34 per Mcfe in 1998 to $0.30 per Mcfe in 1999. Production and
property taxes declined $6.7 million from last year, reflecting volume
reductions offset



                                      -20-
<PAGE>   21

by higher governmental participation in Guatemala. Production overhead costs
were down $4.0 million from 1998, including $3.6 million of costs related to the
January 1999 restricted stock awards.

     Exploration expenses of $105.1 million were down $45.5 million from the
first half of 1998, primarily reflecting the reduced capital spending program.
Dry hole expense decreased by $24.0 million, geological and geophysical costs
were $14.3 million lower and surrendered lease costs dropped $5.4 million.
Exploration overhead costs declined $2.6 million from lower personnel and
computer costs caused by recent staff reductions.

     DD&A costs declined $72.8 million from last year to $365.4 million for the
first half of 1999. Lower production sales volumes caused a $38.6 million
reduction, while lower rates, down from $1.00 per Mcfe last year to $0.91 per
Mcfe in 1999, produced a $34.2 million decline. The lower per unit rates in 1999
are largely the result of an asset impairment write-down recorded by the Company
in December 1998.

MINERALS OPERATIONS

OPERATING INCOME

<TABLE>
<CAPTION>

                                                                            Six Months Ended June 30,
                                                                            -------------------------
                                                                                1999         1998
                                                                              --------     --------
                                                                              (Millions of dollars)
<S>                                                                           <C>          <C>
        Coal      .......................................................     $   47.9     $   57.4
        Soda ash  .......................................................         13.8         16.4
        Other     .......................................................          0.7          1.6
                                                                              --------     --------
        Total         ...................................................     $   62.4     $   75.4
                                                                              ========     ========
</TABLE>

     Operating income for Minerals was $62.4 million for the first half of 1999,
down $13.0 million from last year. Equity income from the Black Butte joint
venture declined $7.2 million, reflecting lower sales volumes under an amended
coal supply contract. Coal royalty income decreased by $2.4 million from lower
sales volumes as mining operations focused on federal sections, and soda ash
royalties decreased $1.9 million from lower prices. Operating income at the
Company's soda ash joint venture was down $0.7 from 1998, with lower sales
volumes and prices, which offset the absence of $2.2 million of prior period
adjustments recorded in 1998. Results from 1998 also include a $2.0 million gain
on the sale of industrial minerals properties.

GENERAL AND ADMINISTRATIVE AND OTHER

     General and administrative expenses of $49.5 million were $1.9 million
higher than the first six months of 1998. Included in 1999 costs were $11.2
million expense relating to the January 1999 restricted stock awards. Offsetting
this cost were the benefits in several cost categories reflecting savings from
the late 1998 and early 1999 reductions in force, early retirement programs and
sale of the GPM business. The resulting restructuring of the Company produced
savings across nearly all overhead cost categories, most significantly salaries,
wages and benefits ($2.9 million), computer costs ($2.3 million) and
professional and temporary services ($1.4 million). A restructuring charge
relating to the Company's reorganization effort of $14.5 million was recorded in
the first quarter of 1999.

     Other income increased $17.4 million over 1998 to $32.7 million for the
first six months of 1999. Foreign currency gains of $29.5 million relating to
the remeasurement of U.S. dollar denominated debt in Canada caused the majority
of the improvement, offsetting the inclusion in 1998 results of an $11.0 million
gain on foreign exchange contracts entered into in connection with the Norcen
Acquisition and $2.3 million of gains on the closing of Norcen interest rate
swaps and crude oil positions.



                                      -21-
<PAGE>   22

     Interest expense was $115.0 million for the first half, up $8.0 million
over 1998. The increase was primarily the result of six months of debt from the
Norcen Acquisition in 1999 compared to only four months last year after the
March 3, 1998, acquisition. This was partly offset by the use of proceeds from
the sale of the gathering, processing and marketing ("GPM") business to pay down
debt at the end of March 1999, and the other actions taken to reduce debt since
mid 1998 in connection with the Company's deleveraging program.

     Income taxes were a benefit of $56.8 million in 1999 compared to a benefit
of $34.6 million in 1998. Included in 1999 taxes is a $27.9 million benefit
related to the Canadian tax settlement and $17.9 million of benefits from the
foreign currency remeasurement of deferred tax liabilities in Guatemala and
Venezuela. The remaining reduction of income tax benefit reflects the
improvement in taxable income compared to last year. Section 29 credits of $6.8
million were recorded in 1999 compared to $8.2 million last year.

                         LIQUIDITY AND CAPITAL RESOURCES

     The Company's primary sources of cash during the first six months of 1999
were the proceeds from sales of the GPM segment and other properties, proceeds
from issuance of debt and cash provided by operations. Cash outflows for the
first six months of 1999 included repayment of commercial paper, capital
investment and exploratory expenditures and cash used by discontinued
operations.

     Cash from operations was $348.8 million for the first six months of 1999, a
$391.9 million decrease from the prior year period. The $61.1 million decrease
in working capital for the 1999 period was the result of an increase in accounts
receivable primarily due to higher prices for oil and gas in June 1999 as
compared to December 1998 and decreases in accounts payable due in part to lower
capital expenditure levels and cost reduction efforts. During the prior year
period, working capital increased $227.4 million, excluding working capital
acquired in the Norcen Acquisition, primarily as a result of decreases in
accounts receivable. The decrease in accounts receivable was primarily the
result of decreases in oil and gas prices for June 1998 as compared to December
1997. Non-cash adjustments in the 1998 period were the result of working capital
and other miscellaneous assets and liabilities acquired in the Norcen
Acquisition.

     Cash provided from investing activities was $1.2 billion for the first six
months of 1999, compared to a use of $3.2 billion in the first six months of
1998. The Company received $1.36 billion on the 1999 sale of discontinued
operations while using $2.6 billion in 1998 for the Norcen Acquisition.
Discontinued operations also required a use of cash of $204.5 million in 1999
compared to $236.6 million provided from discontinued operations last year. In
addition, 1998 included $98.7 million in proceeds from the sale of assets and
the sale of the remaining investment in Superior Propane, while 1999 proceeds
from asset sales were $222.6 million, due to the sale of the Canadian Caroline,
the South Texas and the East Texas Deadwood properties.

<TABLE>
<CAPTION>

                                                                                Six Months Ended June 30,
                                                                                -------------------------
                                                                                    1999         1998
                                                                                 ---------    ---------
                                                                                  (Millions of dollars)
<S>                                                                              <C>          <C>
      Capital and exploratory expenditures:
         Exploration and production........................................      $   178.7    $   828.1
         Minerals and other................................................            2.1         25.1
                                                                                 ---------    ---------
              Subtotal ....................................................          180.8        853.2
         Norcen purchase price.............................................             --      2,634.3
                                                                                 ---------    ---------
              Total capital and exploratory expenditures...................      $   180.8    $ 3,487.5
                                                                                 =========    =========
</TABLE>

     Exploration and production capital spending, excluding the Norcen
Acquisition, was down $649.4 million




                                      -22-
<PAGE>   23
to $178.7 million, principally reflecting the effort to control capital
spending in light of depressed product prices. The major categories of capital
spending included development drilling ($98.8 million), other development
capital ($37.1 million) and exploratory drilling ($17.0 million). Exploration
and development drilling by area included $64.2 million in the U.S. Onshore,
$14.3 million in the U.S. Offshore, $23.3 million in Canada and $12.4 million in
Venezuela.

     Property purchases of $10.6 million in 1999 primarily reflected the $9.1
million purchase of partners' interest in West Texas properties. Minerals and
other capital was down $23.0 million to $2.1 million. Other spending in 1998
included costs related to the Fort Worth office relocation.

     Cash flows from financing activities were a $1.5 billion use of cash for
1999 as the Company repaid $2.1 billion in debt, partially offset by the
issuance of new debt. In 1998, cash provided from financing activities of $2.4
billion in 1998 as the Company financed its acquisition of Norcen through
proceeds from debt issuance and commercial paper. In April 1999, the Company
issued $200 million 7.3% Notes due April 15, 2009, and $300 million 7.95%
Debentures due April 15, 2029. Proceeds from the issuance were used to reduce
commercial paper borrowings.

     Also in April 1999, the Company's senior unsecured credit ratings were
downgraded by Standard & Poor's to BBB-, and by Moody's to Baa3, and its
commercial paper ratings were downgraded by Standard & Poor's to A3 and by
Moody's to P3.

     As of June 30, 1999, and December 31, 1998, the total capitalization of the
Company was as follows:

<TABLE>
<CAPTION>

                                                                                   June               December
                                                                                  30, 1999            31, 1998
                                                                                 ---------           ---------
                                                                                     (Millions of dollars)
<S>                                                                              <C>                 <C>
Long-term and short-term debt:
      Commercial paper and other - net.....................................      $   273.5           $ 2,351.9
      Notes and debentures.................................................        2,725.0             2,225.0
      Capital lease obligations............................................           17.2                17.4
      (Discount) premium on notes and debentures - net.....................           17.0                 4.4
                                                                                 ---------           ---------
         Total debt........................................................        3,032.7             4,598.7

Shareholders' equity.......................................................          872.9               728.2
                                                                                 ---------           ---------
      Total capitalization.................................................      $ 3,905.6           $ 5,326.9
                                                                                 =========           =========

      Debt to total capitalization.........................................           77.7%               86.3%
</TABLE>

     The Company anticipates total capital spending of approximately $500
million for 1999, with focus on development projects that generate more
immediate cash flow. The Company expects to drill three more Frontier horizontal
wells in the Rockies area and continue its drilling program in the Deep Giddings
field of the Austin Chalk and the Hatton field project in Canada. The Company
also plans several exploratory wells in South Louisiana, a deepwater Gomez well
in the Gulf of Mexico and two exploratory wells and two horizontal development
wells in Guatemala. The Company may reduce its capital exposure in the Gomez
project by selling or transferring a portion of its working interest. Excluding
property sales, production sales volumes are expected to decline slightly in
1999 from 1998 levels, as a result of lower capital. The Company expects sales
volumes to be approximately 2,200 MMcfed for 1999.



                                      -23-
<PAGE>   24

     Crude oil and natural gas prices have risen sharply since the beginning of
1999 and the outlook for the remainder of the year is favorable for both
products. The Company expects to continue to experience commodity price
fluctuations and manages a portion of its price risk with hedging activities;
however, lower prices could affect expected future net income, cash flows and
capital spending. See Item 3, Quantitative and Qualitative Disclosures About
Market Risk for information regarding the Company's hedging positions at June
30, 1999.

YEAR 2000 ISSUE

     The Company has established a formal Year 2000 Readiness Program to address
the Company's issues relating to the Year 2000. Program activities are directed
by a Program Management Office staffed with a Year 2000 Program Manager, several
senior Information Technology ("IT") and engineering project managers and
representatives from key internal functions including exploration and
production, operations, purchasing, finance and legal. The Program Management
Office operates under the oversight of a Year 2000 Executive Steering Committee
and the Audit Committee of the Board of Directors. The Company has engaged CSC
Consulting ("CSC") during the inventory and assessment phases of the program and
continues to make use of CSC services for program management recommendations and
reviews. The Company has also engaged the law firm of Morgan, Lewis & Bockius
LLP for legal advice on Year 2000 related issues.

     The general phases for the Company's Year 2000 Readiness Program are (i)
inventory of Year 2000 items; (ii) assessment of business criticality and
compliance status of inventory items; (iii) remediation and verification
planning for items determined to be material to the Company; (iv) remediation
(including repairing, retiring, replacing or preparing work-arounds) of material
items that are determined not to be Year 2000 compliant; (v) verification that
material items are Year 2000 compliant; and (vi) deployment of corrected items
into the ongoing business environment.

     The Company's Year 2000 Readiness Program is organized around the following
major areas:

     o    IT infrastructure

     o    Information systems

     o    Process control and embedded technology

     o    Third party suppliers, partners, customers and governmental entities

     In the areas of IT infrastructure, information systems, and process control
and embedded technology, the Company has completed remediation, verification and
deployment phases of its readiness program for critical systems. The Company has
also implemented "Year 2000 clean management" procedures to ensure that Year
2000 readiness is maintained and that any changes to these technology
environments are carefully managed for Year 2000 readiness.

     In the third-party suppliers, partners, customers and governmental entities
program area, the Company is continuing the process of monitoring and assessing
the readiness of third parties. Approximately 400 third-party entities have been
contacted in writing concerning their Year 2000 plans and readiness. The Company
has also begun the process of monitoring SEC mandated disclosures of third
parties. Remaining work includes follow-up evaluations of the readiness of
"mission critical" third-party dependencies. Emphasis in this area has focused
on business contingency planing, in recognition of the uncertainties inherent
in evaluating third-party readiness.

     In the fourth quarter of 1998, the Company began a formal process for
business contingency planning that spans all of the above readiness program
areas. This process includes, for each business area, (i) identifying critical
dependencies, (ii) assessing exposures, (iii) identifying controllable vs.
non-controllable factors and (iv) developing proactive prevention plans and
reactive response plans. The Company essentially completed its initial



                                      -24-
<PAGE>   25

Year 2000 business contingency plans as of July 1999. Periodic updates of these
contingency plans are scheduled for September and November 1999 to incorporate
the change in status information available from third parties.

     The total cost of the Company's Year 2000 Readiness Program is not expected
to be material to the Company's financial position. Not including the Year 2000
related costs embedded in the cost of replacing its information systems between
1993 and 1997, the Company anticipates spending a total of between $2.0 million
and $2.5 million during 1998 and 1999 for Year 2000 related modifications and
testing. This estimate is $0.5 million lower than the previous estimate due to
the lower than anticipated incidence of Year 2000 issues in the process control
and embedded technology area. This estimate does not include the Company's
potential share of Year 2000 costs that may be incurred by partnerships and
joint ventures in which the Company participates but is not the operator.

     Due to the general uncertainty inherent in the Year 2000 problem, resulting
in large part from the uncertainty of the Year 2000 readiness of third-party
suppliers, partners and customers, the Company is unable to determine at this
time whether the consequences of Year 2000 failures will have a material impact
on the Company's results of operations, liquidity or financial condition. The
Company's Year 2000 Readiness Program is expected to significantly reduce the
Company's level of uncertainty about Year 2000 issues. The Company believes
that, with the completion of the Year 2000 Readiness Program, the possibility of
significant interruptions of normal operations should be reduced.

     The Company believes that the "most reasonably likely worst case" scenarios
are as follows: (i) unanticipated Year 2000 induced failures in information
systems could cause a reliance on manual contingency procedures and
significantly reduce efficiencies in the performance of certain normal business
activities; (ii) unanticipated failures in embedded technology or process
control systems due to Year 2000 causes could result in temporarily suspending
operations at certain operating facilities with consequent loss of revenue; and
(iii) slowdowns or disruptions in the third party supply chain due to Year 2000
causes could result in operational delays and reduced efficiencies in the
performance of certain normal business activities.

                           FORWARD LOOKING INFORMATION

     Certain information included in this report, and other materials filed or
to be filed by the Company with the Securities and Exchange Commission (as well
as information included in oral statements or other written statements made or
to be made by the Company) contain projections and forward looking statements
within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended, and Section 27A of the Securities Act of 1933, as amended. Such forward
looking statements may be or may concern, among other things, capital
expenditures, drilling activity, acquisitions and dispositions, development
activities, cost savings efforts, production activities and sales volumes,
hydrocarbon reserves, hydrocarbon prices, hedging activities and the results
thereof, liquidity, debt repayment, regulatory matters and competition. Such
forward looking statements generally are accompanied by words such as
"estimate," "expect," "predict," "anticipate," "goal," "should," "assume,"
"believe" or other words that convey the uncertainty of future events or
outcomes.

     Such forward looking information is based upon management's current plans,
expectations, estimates and assumptions and is subject to a number of risks and
uncertainties that could significantly affect current plans, anticipated
actions, the timing of such actions and the Company's financial condition and
results of operations. As a consequence, actual results may differ materially
from expectations, estimates or assumptions expressed in or implied by any
forward looking statements made by or on behalf of the Company. The risks and
uncertainties include generally the volatility of oil, gas and hydrocarbon-based
financial derivative prices; basis risk and counterparty credit risk in
executing hydrocarbon price risk management activities; economic, political,


                                      -25-
<PAGE>   26

judicial and regulatory developments; competition in the oil and gas industry as
well as competition from other sources of energy; the economics of producing
certain reserves; demand for and supply of oil and gas; the ability to find or
acquire and develop reserves of natural gas and crude oil; and the actions of
customers and competitors. Additionally, unpredictable or unknown factors not
discussed herein could have material adverse effects on actual results related
to matters which are the subject of forward looking information.

     With respect to expected capital expenditures and drilling activity,
additional factors such as oil and gas prices, the extent of the Company's
success in acquiring oil and gas properties and in identifying prospects for
drilling, the availability of acquisition opportunities which meet the Company's
objectives as well as competition for such opportunities, exploration and
operating risks, the success of management's cost reduction efforts, the ability
to find working interest partners to share certain capital risks and the
availability of technology may affect the amount and timing of such capital
expenditures and drilling activity. With respect to changes in production and
sales volumes and estimated reserve quantities, factors such as the extent of
the Company's success in finding, developing and producing reserves, the timing
of capital spending, uncertainties inherent in estimating reserve quantities and
the availability of technology may affect such production sales volumes and
reserve estimates.

     With respect to liquidity, factors such as the state of domestic capital
markets, credit availability from banks or other lenders and the Company's
results of operations may affect management's plans or ability to incur
additional indebtedness. With respect to cash flow and the ability to reduce
debt, factors such as changes in oil and gas prices, the Company's success in
acquiring properties or divesting producing properties or other assets,
environmental matters and other contingencies, hedging activities, and the
Company's credit rating and debt levels may affect the Company's ability to
generate expected cash flows. With respect to contingencies, factors such as
changes in environmental and other governmental regulation, and uncertainties
with respect to legal matters may affect the Company's expectations regarding
the potential impact of contingencies on the operating results or financial
condition of the Company. Certain factors, such as changes in oil and gas prices
and underlying demand and the extent of the Company's success in exploiting its
current reserves and acquiring or finding additional reserves may have pervasive
effects on many aspects of the Company's business in addition to those outlined
above.




                                      -26-
<PAGE>   27




ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    As a result of the sale of the GPM segment, the Company has reduced its risk
exposure in several areas. The Company now has lower plant volumes subject to
price risk, lower risk relating to marketing activities for third party sales
volumes and lower variable rate debt resulting from debt repayments using sales
proceeds. However, credit risk exposure related to Duke has increased as a
result of certain agreements made in connection with the GPM sale.

COMMODITY PRICE RISK -- NON-TRADING ACTIVITIES

    The following table summarizes the Company's open positions at June 30,
1999, which hedge the Company's future oil and gas production:

<TABLE>
<CAPTION>

                                                                  WEIGHTED AVG.                   UNRECOGNIZED
                                    CONTRACT                       PRICE PER      FAIR VALUE      GAIN/(LOSS)
 PRODUCT           TYPE           TIME PERIOD         VOLUME       MCF OR BBL     (MILLIONS)      (MILLIONS)
---------     --------------     --------------     ----------    -------------   ----------      ------------
<S>           <C>                <C>                <C>           <C>             <C>             <C>
  Gas         Puts Purchased     Aug - Oct 1999       430MMcfd     $     1.90     $      0.3      $     (5.6)
  Gas         Calls Sold         Aug 1999              1.0Bcfd     $     2.54            1.5             1.6
  Gas         Net Calls Sold     Sept 1999            950MMcfd     $     2.54            2.8             0.1
  Gas         Net Calls Sold     Oct 1999             400MMcfd     $     2.50            1.9            (0.8)
  Gas         Swaps              Aug 1999             768MMcfd           Var.          ( 2.3)           (2.3)
  Gas         Swaps              Sep 1999             738MMcfd           Var.          ( 2.1)           (2.1)
  Gas         Swaps              Oct 1999             568MMcfd           Var.          ( 2.0)           (2.0)
  Gas         Futures            Aug 1999             278MMcfd     $     1.93          ( 4.0)           (4.0)
  Gas         Futures            Sep 1999              87MMcfd     $     1.95          ( 1.2)           (1.2)
  Gas         Futures            Nov - Dec 1999       149MMcfd     $     2.59          ( 0.5)           (0.5)
  Gas         Futures            Jan - Jul 2000       148MMcfd     $     2.43          ( 0.8)           (0.8)
  Gas         Fixed Price        Jul - Dec 1999        20MMcfd     $     2.12            0.1             0.1
  Gas         Fixed Price        Jan - Oct 2000        10MMcfd     $     2.80            2.4             2.4
  Gas         Fixed Price        Jan - Dec 2000        10MMcfd     $     1.54           (1.9)           (1.9)
  Gas         Fixed Price        Jan - Oct 2001        10MMcfd     $     1.54          ( 1.5)           (1.5)
  Oil         Swaps              Jul 1999              76MBbld     $    14.68          (10.8)          (10.8)
  Oil         Swaps              Aug - Dec 1999        70MBbld     $    14.51          (46.8)          (46.8)
  Oil         Swaps              Jan - Dec 2000         2MBbld     $    13.37          ( 0.4)           (0.4)
  Oil         Swaps              Jan - Dec 2000         2MBbld     $    13.37          ( 0.5)           (0.5)
  Oil         Fixed Price        Jul - Aug 1999         2MBbld     $    13.44          ( 0.2)           (0.2)
  Oil         Fixed Price        Jul - Dec 1999         2MBbld     $    15.35            0.2             0.2
  Oil         Fixed Price        Jan - Feb 2000         2MBbld     $    15.35            0.1             0.1
  Oil         Fixed Price        Jul - Dec 1999         2MBbld     $    12.69          ( 0.7)           (0.7)
  Oil         Fixed Price        Jul - Oct 2000         2MBbld     $    12.69          ( 0.5)           (0.5)
  Oil         Fixed Price        Jul - Dec 1999         8MBbld     $    15.23            0.5             0.5
  Oil         Fixed Price        Jan - Apr 2000         8MBbld     $    15.23            0.6             0.6
  Oil         Fixed Price        Jul - Dec 1999         2MBbld     $    15.47            0.1             0.1
                                                                                  ----------      ----------
                                                                  Totals:         $    (65.7)     $(    76.9)
                                                                                  ==========      ==========
</TABLE>




                                      -27-
<PAGE>   28



         The following table summarizes the Company's closed positions at June
30, 1999, relating to the Company's gas production:

<TABLE>
<CAPTION>
                                                 UNRECOGNIZED
                                                 GAIN/(LOSS)
  PRODUCT      TYPE     TIME PERIOD               (MILLIONS)
  -------    -------    -----------              ------------
<S>          <C>        <C>                      <C>
    Gas      Various      Jul 1999               $       (6.7)
    Gas      Futures      Aug 1999               $       (1.8)
    Gas      Futures     Sept 1999               $       (0.2)
    Gas      Futures      Oct 1999               $       (0.3)
                                                 ------------
                                      Totals:    $       (9.0)
                                                 ============
</TABLE>

         The following table summarizes the Company's open positions at June 30,
1999, relating to the Company's oil storage:

<TABLE>
<CAPTION>

                                                           FAIR      UNRECOGNIZED
                                              AVERAGE     VALUE      GAIN/(LOSS)
  PRODUCT    TYPE   TIME PERIOD   VOLUME        PRICE   (MILLIONS)    (MILLIONS)
  -------   -----   -----------   -------     -------   ----------   ------------
<S>         <C>     <C>           <C>         <C>         <C>        <C>
    Oil     Swaps      Jul 1999   5.8 MBbld   $ 13.87     $ (1.0)    $       (1.0)
    Oil     Swaps      Aug 1999   7.9 MBbld   $ 16.00     $ (0.8)    $       (0.8)
                                                          ------     ------------
                                             Totals:      $ (1.8)    $       (1.8)
                                                          ======     ============
</TABLE>

    At June 30, 1999, the Company had margin deposits of $45.6 million.

    The Company enters into financial contracts in conjunction with its alliance
with South Jersey Resources Group, in which it has a 50% ownership interest.
This alliance provides gas storage and customer service programs. The following
table summarizes the alliance's open positions at June 30, 1999:

<TABLE>
<CAPTION>

                                                                      WEIGHTED AVG.                   UNRECOGNIZED
                                       CONTRACT                          PRICE        FAIR VALUE      GAIN/(LOSS)
   PRODUCT           TYPE             TIME PERIOD        VOLUME         PER MCF       (MILLIONS)      (MILLIONS)
   -------     -------------      ---------------        ------       ------------    ----------      ------------
<S>            <C>                <C>                    <C>          <C>             <C>             <C>
     Gas       Futures/Swaps      Aug - Dec 1999         5.7Bcf          $2.65           $1.0             $1.0
               Purchased
     Gas       Futures/Swaps      Jan - Dec 2000         6.0Bcf          $2.89           $1.1             $1.1
               Purchased
     Gas       Futures/Swaps      Jan - Apr 2001         0.2Bcf          $2.40           $0.0             $0.0
               Purchased
     Gas       Futures/Swaps      Aug - Dec 1999         2.1Bcf          $2.55          $(0.5)           $(0.5)
               Sold
     Gas       Futures/Swaps      Jan - Dec 2000         2.8Bcf          $2.64          $(0.7)           $(0.7)
               Sold
                                                                                        -----            -----
                                                                        Totals:         $ 0.9            $ 0.9
                                                                                        =====            =====
</TABLE>


     The Company was a party to several long-term firm gas transportation
agreements that supported the gas marketing program and GPM segment sold to
Duke. Most of these firm transportation contracts were transferred to Duke as
part of the GPM Disposition. As part of the GPM Disposition, the Company has
agreed to keep Duke whole on certain contracts if the transportation market
value falls below the contract transportation rates and Duke will pay the
Company if the market value exceeds the contract transportation rates. This
keep-whole commitment is in effect for the ten-year period subsequent to March
31, 1999. The fair value of these contracts at June 30, 1999, was a loss of
$103.7 million, which is included in other current liabilities and other
liabilities on the Condensed Consolidated Statement of Financial Position. The
Company may adjust its reserve based on changes in current quoted future market
rates or estimated long-term rates. Such adjustments could be significant.
Management does not believe




                                      -28-
<PAGE>   29

a meaningful, permanent change has occurred to transportation rates in the
market place. However, at June 30, 1999, if the Company had used current quoted
future market rates to estimate the long-term portion of the reserve, the
Company would have recorded an additional reserve of $56 million for the ten
year period.

FOREIGN CURRENCY RISK

    The Company periodically enters into foreign currency contracts to hedge
specific currency exposures from commercial transactions. The following table
summarizes the Company's open foreign currency positions at June 30, 1999:

<TABLE>
<CAPTION>

                   NOTIONAL AMOUNT                              FAIR VALUE
       YEAR         (US$ MILLIONS)        FORWARD RATE        (US$ MILLIONS)
       ----        ---------------        ------------        --------------
<S>                <C>                    <C>                 <C>
       1999......     $  72.0               C$1.3535            $  (5.8)
       2000......         8.0               C$1.3750               (0.5)
       2004......        70.0               C$1.3630               (5.2)
                      -------                                   -------
                      $ 150.0                                   $ (11.5)
                      =======                                   =======
</TABLE>

    As a result of the Norcen Acquisition, the Company acquired foreign currency
forward exchange contracts with maturities through October 2004, and recorded a
$15.5 million deferred liability representing the fair value of these contracts.
This liability will be amortized over the terms of the applicable contracts. The
unrecognized loss on foreign currency contracts at June 30, 1999, excluding the
$4.1 million remaining unamortized deferred liability, was $7.4 million.

CREDIT RISK

    In conjunction with the GPM Disposition, on March 31, 1999, the Company
entered into a swap transaction with Duke which in effect transferred all
financial positions held by the GPM business to Duke. As a result, the Company
has eliminated all price/rate risk relating to these positions, and is only
subject to credit risk for amounts due from Duke or other counterparties under
the terms of the swap transactions with Duke or the underlying swap
transactions. At June 30, 1999, the Company's credit risk related to these
positions was immaterial.

    To eliminate price risk associated with the forward sale transaction entered
into by the Company in March 1999, the Company has an outstanding swap
transaction of .4Bcf from July through October 1999. At June 30, 1999, the
unrealized gain relating to this financial transaction is $27.6 million.

    At June 30, 1999, the Company's largest credit risk associated with any
single counterparty, represented by the net fair value of open contracts, was
$27.0 million.

    In connection with the sale of the GPM segment, the Company entered into a
long-term sales agreement with Duke, which obligates the Company to sell most of
its domestic natural gas and NGLs to Duke for a five-year period beginning on
the date of the GPM Disposition. Prices received will be tied to the current
market price for each product. As a result, a significant portion of the
Company's credit risk will be with a single customer. Duke is currently
considered a good credit risk; however, periodic credit evaluations will
continue. Further, due to certain agreements with Duke, letter of credit and/or
other assurances can be demanded under certain circumstances.


                                      -29-
<PAGE>   30



PART II.  OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

GENERAL

     The Company is a defendant in a number of lawsuits and is involved in
governmental proceedings arising in the ordinary course of business, including,
but not limited to, royalty claims, contract claims, personal injury claims and
environmental claims. While management of the Company cannot predict the outcome
of such litigation and other proceedings, management does not expect these
matters to have a materially adverse effect on the consolidated results of
operations, financial condition or cash flows of the Company. Refer to the
Company's Annual Report on Form 10-K for additional information regarding such
proceedings.

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

     On May 18, 1999, the Annual Meeting of the Shareholders of the Company was
held in Fort Worth, Texas for the purpose of electing a Board of Directors and
voting on the proposals described below. There was no solicitation in opposition
to management's nominees for director as listed in the proxy statement.

     Each of the directors nominated by the Board (which number constitutes the
entire Board of the Company) and listed in the proxy statement was elected with
the votes as follows:

<TABLE>
<CAPTION>

                   NOMINEES             SHARES FOR    SHARES WITHHELD
         ---------------------------   -----------    ---------------
<S>                                    <C>            <C>
         H. Jesse Arnelle              218,585,305       7,435,025
         Lynne V. Cheney               218,922,250       7,095,080
         Preston M. Geren III          219,273,140       6,744,190
         Lawrence M. Jones             219,252,055       6,765,275
         Drew Lewis                    218,613,219       7,404,111
         Claudine B. Malone            218,905,086       7,112,244
         Jack L.  Messman              218,819,115       7,198,215
         John W. Poduska, Sr., Ph.D.   219,279,933       6,737,397
         Michael E. Rossi              218,931,464       7,085,866
         Samuel K. Skinner             218,937,288       7,080,042
         James R. Thompson             218,560,933       7,456,397
</TABLE>

     Amendments to the Company's 1995 Stock Option and Retention Stock Plan, as
amended and restated effective June 1, 1997, were approved with the following
vote: 204,689,849 shares for; 16,566,131 shares against; 4,760,329 shares
abstaining; and 1,020 broker nonvotes. The amendments (1) increase the aggregate
number of shares available for grants of stock options and stock appreciation
rights and awards of retention stock under the plan from 16,000,000 to
23,000,000 shares, and (2) increase the maximum percentage of available shares
that can be granted or awarded to an individual participant from 10% of the
shares available under such plan to 25% of such shares.

     An amendment to the Company's 1995 Directors Stock Option Plan, as amended
and restated effective July 14, 1998, to increase the number of shares that may
be issued under the plan from 1,000,000 to 1,500,000 shares, was approved with
the following vote: 197,836,604 shares for; 23,288,324 shares against; 4,891,380
shares abstaining; and 1,021 broker nonvotes.


                                      -30-
<PAGE>   31

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)      EXHIBITS

10.1     1995 Stock Option and Retention Stock Plan of Union Pacific Resources
           Group Inc. as amended and restated, effective July 15, 1999.

10.2     Second Amendment, effective May 18, 1999, to 1995 Directors Stock
           Incentive Plan of Union Pacific Resources Group Inc. as amended and
           restated, effective July 14, 1998.

11       Computation of earnings per share.

12       Computation of ratio of earnings to fixed charges.

15       Awareness letter of Arthur Andersen LLP dated August 11, 1999.

27       Financial data schedule.

(b)      REPORTS ON FORM 8-K

         On August 3, 1999, the Company filed a Current Report on Form 8-K
         containing (i) the Press Release issued by the Registrant on July 15,
         1999, announcing the retirement of the Registrant's Chairman and Chief
         Executive Officer, Jack L. Messman. Mr. Messman will be succeeded by
         George Lindahl III who the Board of Directors elected unanimously as
         Chairman of the Board, President and Chief Executive Officer and (ii) a
         press release announcing the Company's financial results for the second
         quarter of 1999, including operating revenues, net income and certain
         other financial information.


                                      -31-
<PAGE>   32


SIGNATURE


Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



Dated: August 11, 1999


                                      UNION PACIFIC RESOURCES GROUP INC.
                                      (Registrant)


                                      /s/ Morris B. Smith
                                      ------------------------------------------
                                      Morris B. Smith,
                                      Vice President and Chief Financial Officer
                                      (Chief Financial Officer and
                                         Duly Authorized Officer)



                                      -32-
<PAGE>   33
                       UNION PACIFIC RESOURCES GROUP INC.

                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit No.                        Description
-----------                        -----------
<S>           <C>
10.1          1995 Stock Option and Retention Stock Plan of Union Pacific
                 Resources Group Inc. as amended and restated, effective
                 July 15, 1999.

10.2          Second Amendment, effective May 18, 1999, to 1995 Directors
                  Stock Incentive Plan of Union Pacific Resources Group Inc. as
                  amended and restated, effective July 14, 1998.

11            Computation of earnings per share.

12            Computation of ratio of earnings to fixed charges.

15            Awareness letter of Arthur Andersen LLP dated August 11, 1999.

27            Financial data schedule.
</TABLE>