<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 September 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 October 31, 1999, there were 252,050,121 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>                                                                                            <C>
ITEM 1:  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

         Condensed Consolidated Statements of Income and Comprehensive Income -
         For the Three Months and Nine Months Ended September 30, 1999 and 1998....................         2

         Condensed Consolidated Statements of Financial Position -
         At September 30, 1999 and December 31, 1998...............................................       3 - 4

         Condensed Consolidated Statements of Cash Flows -
         For the Nine Months Ended September 30, 1999 and 1998.....................................         5

         Notes to Condensed Consolidated Financial Statements......................................      6 - 13

         Report of Independent Public Accountants..................................................        14


ITEM 2:  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
          OF OPERATIONS............................................................................      15 - 28

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.................................      29 - 32



                                             PART II.  OTHER INFORMATION


ITEM 1:  LEGAL PROCEEDINGS.........................................................................        32

ITEM 6:  EXHIBITS AND REPORTS ON FORM 8-K..........................................................      32 - 33

SIGNATURE..........................................................................................        34
</TABLE>


                                      -2-

<PAGE>   3

                       UNION PACIFIC RESOURCES GROUP INC.

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

<TABLE>
<CAPTION>
                                                                                     Three Months Ended        Nine Months Ended
                                                                                        September 30,             September 30,
                                                                                   ----------------------    ----------------------
                                                                                     1999         1998          1999         1998
                                                                                   ---------    ---------    ---------    ---------
<S>                                                                                <C>          <C>          <C>          <C>
Operating revenues:
    Oil and gas operations:
       Exploration and production ..............................................   $   403.0    $   388.7    $ 1,065.2    $ 1,190.3
       Other oil and gas revenues (Note 5) .....................................        27.3        130.9        104.0        162.3
                                                                                   ---------    ---------    ---------    ---------
          Total oil and gas operations .........................................       430.3        519.6      1,169.2      1,352.6
    Minerals ...................................................................        32.8         38.8         95.7        115.5
                                                                                   ---------    ---------    ---------    ---------
          Total operating revenues .............................................       463.1        558.4      1,264.9      1,468.1
                                                                                   ---------    ---------    ---------    ---------

Operating expenses:
    Production .................................................................       105.1        113.2        288.8        337.2
    Exploration, including exploratory dry holes ...............................        47.3         79.0        152.4        229.6
    Minerals ...................................................................         0.5          0.5          1.0          1.8
    Depreciation, depletion and amortization ...................................       253.0        261.5        621.4        702.3
    General and administrative .................................................        18.6         23.0         65.1         68.0
    Restructuring charge (Note 6) ..............................................          --           --         14.5           --
                                                                                   ---------    ---------    ---------    ---------
          Total operating expenses .............................................       424.5        477.2      1,143.2      1,338.9
                                                                                   ---------    ---------    ---------    ---------

Operating income ...............................................................        38.6         81.2        121.7        129.2
Other income (expense) - net (Notes 7 and 8) ...................................         8.7        (48.2)        41.4        (32.9)
Interest expense ...............................................................       (52.6)       (72.5)      (167.6)      (179.5)
                                                                                   ---------    ---------    ---------    ---------
Income (loss) before income taxes ..............................................        (5.3)       (39.5)        (4.5)       (83.2)
Income tax expense (benefit) (Notes 7 and 8) ...................................       (26.0)       (26.4)       (82.8)       (61.0)
                                                                                   ---------    ---------    ---------    ---------
Income (loss) from continuing operations .......................................        20.7        (13.1)        78.3        (22.2)

Discontinued operations (Note 4)
    Income (loss) from discontinued operations - net of tax ....................          --         (4.2)       (23.8)        18.8
    Gain on sale of discontinued operations - net of tax .......................          --           --        157.0           --
                                                                                   ---------    ---------    ---------    ---------
    Total income (loss) from discontinued operations ...........................          --         (4.2)       133.2         18.8
                                                                                   ---------    ---------    ---------    ---------

Net income (loss) ..............................................................   $    20.7    $   (17.3)   $   211.5    $    (3.4)
                                                                                   =========    =========    =========    =========

Other comprehensive income - net of tax:
    Unrealized loss on deferred compensation liability .........................        (3.0)          --         (3.0)          --
    Foreign currency translation adjustments ...................................         2.3        (16.9)       (31.3)       (53.9)
                                                                                   ---------    ---------    ---------    ---------
Comprehensive income (loss) ....................................................   $    20.0    $   (34.2)   $   177.2    $   (57.3)
                                                                                   =========    =========    =========    =========

Earnings (loss) per share basic and diluted:
    Continuing operations ......................................................   $    0.08    $   (0.06)   $    0.31    $   (0.09)
    Discontinued operations ....................................................          --        (0.01)        0.54         0.08
                                                                                   ---------    ---------    ---------    ---------
    Total ......................................................................   $    0.08    $   (0.07)   $    0.85    $   (0.01)
                                                                                   =========    =========    =========    =========

Weighted average shares outstanding - basic ....................................       249.0        247.8        248.9        247.7
Weighted average shares outstanding - diluted ..................................       249.6        247.8        249.2        247.7
Cash dividends per share .......................................................   $    0.05    $    0.05    $    0.15    $    0.15
</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 September 30, 1999 and December 31, 1998
                              (Millions of dollars)


<TABLE>
<CAPTION>
                                                             September 30,  December 31,
                                                                 1999          1998
                                                              ------------  ----------
                                                              (Unaudited)
<S>                                                           <C>           <C>
ASSETS

Current assets:
    Cash and temporary investments .........................   $   137.3    $     8.8
    Accounts receivable - net ..............................       317.0        261.0
    Inventories ............................................        53.0         64.6
    Other current assets ...................................        57.7        107.0
                                                               ---------    ---------
          Total current assets .............................       565.0        441.4
                                                               ---------    ---------

Properties (successful efforts method): (Note 5)
    Cost ...................................................    10,999.8     11,078.2
    Accumulated depreciation, depletion and amortization ...    (5,384.0)    (4,984.9)
                                                               ---------    ---------
          Total properties - net ...........................     5,615.8      6,093.3
                                                               ---------    ---------

Intangible and other assets ................................       177.1        180.8
Net assets of discontinued operations (Note 4) .............          --        926.9
                                                               ---------    ---------

Total assets ...............................................   $ 6,357.9    $ 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 September 30, 1999 and December 31, 1998
                              (Millions of dollars)


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

Current liabilities:
     Accounts payable ...........................................   $  223.5      $  270.5
     Advance payment (Note 9) ...................................       43.1            --
     Accrued taxes payable (Note 4) .............................      247.5          64.9
     Short-term debt (Note 10) ..................................        3.0         853.8
     Other current liabilities (Note 12) ........................      215.6         157.5
                                                                    --------      --------
          Total current liabilities .............................      732.7       1,346.7
                                                                    --------      --------

Long-term debt (Note 10) ........................................    2,966.1       3,744.9
Deferred income taxes ...........................................    1,250.2       1,291.6
Other long-term liabilities (Note 12) ...........................      528.6         531.0

Shareholders' equity:
     Common stock, no par value:
       Authorized shares--400,000,000
       Issued and outstanding--251,700,683 and 250,685,204 ......         --            --
     Paid-in surplus ............................................    1,000.3         992.6
     Treasury stock, at cost:
         Shares--4,429,857 and 3,666,913 ........................      (93.6)        (82.5)
     Unearned employee stock ownership plan .....................      (82.1)        (95.7)
     Retained earnings ..........................................      183.5           9.1
     Unearned compensation (Note 11) ............................       (4.2)         (6.0)
     Accumulated other comprehensive income:
         Deferred foreign exchange adjustment ...................     (115.7)        (84.4)
         Unrealized gain (loss) on deferred compensation ........       (3.0)           --
         Minimum pension contra equity ..........................       (4.9)         (4.9)
                                                                    --------      --------
          Total accumulated other comprehensive income ..........     (123.6)        (89.3)
                                                                    --------      --------
          Total shareholders' equity ............................      880.3         728.2
                                                                    --------      --------

Total liabilities and shareholders' equity ......................   $6,357.9      $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 Nine Months Ended September 30, 1999 and 1998
                              (Millions of dollars)
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                                      1999        1998
                                                                    --------    --------
<S>                                                                 <C>         <C>
Cash flows from operations:
    Net income (loss) ...........................................   $  211.5    $   (3.4)
    Less income from discontinued operations ....................     (133.2)      (18.8)
    Non-cash charges to income:
       Depreciation, depletion and amortization .................      621.4       702.3
       Deferred income taxes (benefit) ..........................      (53.0)     (168.5)
       Other non-cash charges - net .............................       20.2       295.4
    Changes in current assets and liabilities ...................       30.3       211.2
                                                                    --------    --------
          Cash provided by operations ...........................      697.2     1,018.2
                                                                    --------    --------

Cash flows from investing activities:
    Capital and exploratory expenditures ........................     (291.6)   (1,118.0)
    Acquisition of Norcen (Note 3) ..............................         --    (2,634.3)
    Proceeds from sales of assets  (Note 5) .....................      244.5       262.1
    Proceeds from sales of investment ...........................         --        48.4
    Proceeds from sale of discontinued operations (Note 4) ......    1,359.1          --
    Cash provided (used) by discontinued operations .............     (202.4)      176.7
                                                                    --------    --------
          Cash provided (used) by investing activities ..........    1,109.6    (3,265.1)
                                                                    --------    --------

Cash flows from financing activities:
    Dividends paid ..............................................      (37.3)      (37.2)
    Proceeds from debt financing - net (Note 10) ................      500.0     2,323.2
    Debt repaid .................................................   (2,122.5)         --
    Purchase of treasury stock ..................................      (11.1)      (22.1)
    Other financing - net (Note 9) ..............................       (7.4)      (45.2)
                                                                    --------    --------
          Cash provided (used) by financing activities ..........   (1,678.3)    2,218.7
                                                                    --------    --------

Net change in cash and temporary investments ....................      128.5       (28.2)
Cash at beginning of period .....................................        8.8        67.1
                                                                    --------    --------
Cash at end of period ...........................................   $  137.3    $   38.9
                                                                    ========    ========
</TABLE>


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


                                      -6-
<PAGE>   7
              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 nine
     months ended September 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>
                                        Nine Months Ended September 30,
                                        -------------------------------
                                               1999        1998
                                             --------    --------
                                             (Millions of dollars)
<S>                                          <C>         <C>
Revenues:
  Exploration and production ......          $1,169.2    $1,352.6
  Minerals ........................              95.7       115.5
                                             --------    --------
     Total revenues ...............          $1,264.9    $1,468.1
                                             ========    ========

Operating income:
  Exploration and production ......          $  111.2    $   87.7
  Minerals ........................              94.7       113.7
  Corporate (a) ...................             (84.2)      (72.2)
                                             --------    --------
     Total operating income .......          $  121.7    $  129.2
                                             ========    ========
</TABLE>


<TABLE>
<CAPTION>
                                              At September 30,       At December 31,
                                                    1999                 1998
                                              ---------------        --------------
                                                       (Millions of dollars)
<S>                                           <C>                   <C>
Fixed assets (net of DD&A):
       Exploration and production ......          $5,515.1             $5,988.8
       Minerals ........................              10.2                 10.2
       Corporate .......................              90.5                 94.3
                                                  --------             --------
          Total fixed assets ...........          $5,615.8             $6,093.3
                                                  ========             ========
</TABLE>

----------

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


                                      -7-
<PAGE>   8

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, UPRI 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 nine months ended
     September 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>
                                                       Nine Months Ended
                                                       September 30, 1998
                                                       ------------------
                                                      (Millions of dollars,
                                                    except per share amounts)
<S>                                                 <C>
         Revenues ...............................           $ 1,567.9
         Costs and expenses .....................             1,469.9
                                                            ---------
         Operating income .......................                98.0
         Interest expense .......................              (214.0)
         Other income (expense) - net ...........               (32.9)
                                                            ---------
         Loss before income taxes ...............              (148.9)
         Income tax expense (benefit) ...........               (85.2)
                                                            ---------
         Loss from continuing operations ........           $   (63.7)
                                                            =========

         Loss per share - basic .................           $   (0.26)
         Loss per share - diluted ...............               (0.26)
</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 the
     Company 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 nine months ended September 30,
     1999, the two months ended February 28, 1998, and the seven months ended
     September 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
     summarized financial information for UPRI for as long as the debt
     securities remain outstanding.


                                      -8-
<PAGE>   9

<TABLE>
<CAPTION>
                                                     Nine Months Ended          Two Months Ended        Seven Months Ended
                                                    September 30, 1999         February 28, 1998(a)    September 30, 1998(b)
                                                    ------------------         --------------------    ---------------------
                                                                               (Millions of dollars)
Summarized Statement of Income Information:
<S>                                                 <C>                        <C>                     <C>
  Operating revenues .............................        $263.9                        $104.0                 $268.9
  Operating income (loss) ........................          49.6                           4.0                 (104.1)
  Net income (loss) ..............................          62.3                         (30.0)(c)             (106.4)
</TABLE>


<TABLE>
<CAPTION>
                                                                At September 30, 1999       At December 31, 1998
                                                                ---------------------       --------------------
                                                                                (Millions of dollars)
<S>                                                             <C>                         <C>
Summarized Statement of Financial Position Information:
  Current assets ...........................................          $   77.7                     $   53.7
  Non-current assets .......................................           2,023.6                      1,882.3
  Current liabilities ......................................              78.8                        279.8
  Non-current liabilities and equity .......................           2,022.5                      1,656.2
</TABLE>

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

       (a) Results for Norcen 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
       of accounting for oil and gas operations.

       (b) Results for UPRI as of and for the seven months ended September 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 payable.

           Under a process provided for in the Agreement, Duke asserted claims
       against the Company for costs to remediate alleged environmental
       conditions. The asserted environmental claims exceeded a $40 million
       deductible that Duke had assumed for environmental conditions. Under the
       terms of the Agreement, the Company had the right to contest any
       environmental claims through arbitration. If it had been determined that
       there were valid environmental claims in excess of the $40 million
       deductible, the Company would have been required to make a payment to
       Duke for such excess amount. The Company analyzed Duke's environmental
       claims and entered into discussions with Duke about the results of that
       analysis. As a result of these discussions, Duke and the Company have
       agreed that Duke's environmental claims do not exceed $40 million. The
       Company has no further liability with respect to environmental claims
       asserted by Duke under the Agreement.

           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 segment net
       assets that were


                                      -9-
<PAGE>   10

       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 nine months ended September 30, 1999 and 1998
       are as follows:

<TABLE>
<CAPTION>
                                                                   Three Months Ended      Nine Months Ended
                                                                       September 30,          September 30,
                                                                    ------------------      ------------------
                                                                     1999       1998        1999        1998
                                                                    -------     ------      ------      ------
                                                                   (Millions of dollars)   (Millions of dollars)
<S>                                                                  <C>        <C>         <C>         <C>
              Operating revenues ...............................     $   --     $ 83.6      $ 21.5      $294.0
              Operating expenses ...............................         --      (65.2)      (29.7)     (193.5)
              Depreciation, depletion and amortization .........         --      (18.9)      (20.4)      (52.8)
                                                                     ------     ------      ------      ------
              Operating income (loss) ..........................         --       (0.5)      (28.6)       47.7
              Other income (expense) - net .....................         --         --          --         0.1
              Interest expense (a) .............................         --       (5.3)       (8.0)      (15.8)
                                                                     ------     ------      ------      ------
              Income (loss) before taxes .......................         --       (5.8)      (36.6)       32.0
              Income tax expense (benefit)......................         --       (1.6)      (12.8)       13.2
                                                                     ------     ------      ------      ------
              Net income (loss) from discontinued operations ...     $   --     $ (4.2)     $(23.8)     $ 18.8
                                                                     ======     ======      ======      ======
</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.     PROPERTIES

          During 1999, the Company completed sales of non-core south Texas
       properties for a sales price of $137.8 million, including a remaining
       $20.6 million note receivable, the Canadian Caroline-Swan Hill property
       (the "Caroline property") for $108.6 million, the Deadwood property in
       East Texas for $18.0 million and properties in the Rockies for $10.3
       million. The Company recorded a pretax gain of $87.2 million in
       connection with these sales.

          Based upon the Company's analysis of expected future net cash flows
       from its crude oil and natural gas properties, certain US Onshore
       properties in south Louisiana and south Texas were deemed to be impaired
       due to downward revisions in reserve estimates. During the third quarter
       of 1999, the Company adjusted the net book value of such properties to
       their fair value, with a charge to depreciation, depletion and
       amortization of $61.1 million and a $4.5 million charge to exploration
       expense -- surrendered lease.

6.     RESTRUCTURING CHARGE

          During the first quarter of 1999, 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 September 30, 1999, payments have totaled
       $7.8 million. The $6.7 million remaining, represents reserves for
       specialty drilling equipment and supplies of $2.5 million and OPEB and
       personnel costs of $4.2 million.



                                      -10-
<PAGE>   11
          At January 1, 1999, the balance of the reserve for costs related to
       the restructuring charge recorded in the fourth quarter 1998 was $14.6
       million. During the first nine months of 1999, $5.3 million was paid out
       related to workforce reductions and $0.7 million was paid out related to
       excess office space commitments. At September 30, 1999, the $8.6 million
       remaining, represents reserves for a drilling rig commitment of $5.0
       million and excess office space commitments of $3.6 million.

7.     FOREIGN CURRENCY

          During 1999, the Company recorded $30.0 million non-cash foreign
       currency gains included in other income (expense) - net on the Condensed
       Consolidated Statement of Income. The gains resulted from remeasurement
       of UPRI's U.S. dollar denominated monetary assets and liabilities
       (primarily debt obligations).

          Also during 1999, the Company recorded $25.5 million non-cash foreign
       currency gains included in deferred tax (benefit) expense on the
       Condensed Consolidated Statement of Income. The gains resulted from
       remeasurement of deferred tax liabilities denominated in the local
       currencies of Guatemala and Venezuela.

8.     TAX SETTLEMENTS

          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 claim 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 was to receive a refund of approximately $54.6
       million dollars. In the first quarter of 1999, the Company recorded $7.1
       million of interest to other income (expense) -- net and a $27.9 million
       deferred income tax benefit related to the settlement. The Company has
       received a partial payment from the Canadian tax authorities related to
       the refund. The remaining $16.3 million refund, which is expected to be
       collected prior to December 31, 1999, is recorded in accounts receivable
       in the Condensed Consolidated Statement of Financial Position.

          On September 1, 1999, the Company and its former parent, Union Pacific
       Corporation ("UPC"), settled certain outstanding issues pertaining to the
       allocation of all federal and state tax liabilities, including interest,
       for the tax years 1968 through 1982. This settlement was made pursuant to
       the Tax Allocation Agreement entered into as of October 6, 1995, between
       the Company and UPC. This settlement resulted in the receipt by the
       Company from UPC on September 3, 1999 of $29 million (including $20.5
       million of interest income recorded in other income) in full and final
       settlement of all amounts owed to or by UPR with respect to tax years
       1968 through 1982. The tax settlement with UPC enabled the Company to
       reevaluate its deferred tax reserves, and as a result, the Company
       recorded $11.9 million of deferred tax benefits related to the tax years
       covered by the settlement. The Company and UPC also agreed to suspend
       settlement rights under the Tax Allocation Agreement with respect to
       post-1982 tax years until July 1, 2001.


                                      -11-
<PAGE>   12

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 natural
       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
       $850.8 million and $778.8 million, respectively.

11.    SHAREHOLDERS' EQUITY

          In the first quarter of 1999, options for 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 $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 $14.8 million in connection with
       the vesting of these 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 within the 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, while 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 other current liabilities and other long-term
       liabilities, was $37.0 million and $69.2 million at September 30, 1999,
       respectively. 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 September 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
       $60.4 million for the keep-whole commitment period.


                                      -12-
<PAGE>   13

          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. 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.

13.    RECENT ACCOUNTING PRONOUNCEMENTS

          In June 1999, the Financial Accounting Standards Board ("FASB") issued
       Statement of Financial Accounting Standards ("SFAS") No. 137, Accounting
       for Derivative Instruments and Hedging Activities - Deferral of the
       Effective Date of FASB Statement No. 133. SFAS No. 137 defers the
       effective date of SFAS No. 133 to fiscal years beginning after June 15,
       2000. The Company plans to adopt SFAS No. 133 during the first quarter of
       2001.


                                      -13-
<PAGE>   14


                    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 September 30, 1999, and the related Condensed Consolidated
Statements of Income and Comprehensive Income for the three month and nine month
periods ended September 30, 1999 and 1998, and the Condensed Consolidated
Statements of Cash Flows for the nine month periods ended September 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 of 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

October 25, 1999


                                      -14-
<PAGE>   15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

                              RESULTS OF OPERATIONS

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

SUMMARY FINANCIAL DATA

<TABLE>
<CAPTION>
                                                                               Three Months Ended September 30,
                                                                               --------------------------------
                                                                                   1999                1998
                                                                               -------------        -----------
                                                                                     (Millions of dollars)
<S>                                                                            <C>                  <C>
       Total operating revenues............................................       $ 463.1             $ 558.4
       Total operating expenses............................................         424.5               477.2
       Operating income....................................................          38.6                81.2
       Income (loss) from continuing operations............................          20.7               (13.1)
       Net income (loss)...................................................          20.7               (17.3)
       Earnings (loss) from continuing operations per share - diluted......          0.08               (0.06)
       Earnings (loss) per share - diluted.................................          0.08               (0.07)
</TABLE>

     The Company recorded net income of $20.7 million in the third quarter of
1999, an increase of $38.0 million over third quarter results for 1998. Earnings
per share of $0.08 for the third quarter of 1999 increased $0.15 from last year.
Discontinued operations recorded a loss of $4.2 million in the third quarter of
1998.

                        RESULTS OF CONTINUING OPERATIONS

     The Company recorded income from continuing operations of $20.7 million for
the third quarter of 1999 compared to a loss of $13.1 million in the same period
of 1998. Earnings per share of $0.08 increased $0.14 per share. The increase was
largely due to lower operating expenses and depreciation, depletion and
amortization ("DD&A") expenses by $52.7 million, an $84.0 million favorable
variance related to higher product prices, a $25.2 million after-tax tax
settlement with Union Pacific Corporation ("UPC") and reduced interest expenses
by $19.9 million. Lower sales volumes, however, resulted in a $69.7 million
revenue reduction and the impairment of certain US Onshore properties resulted
in a $65.6 million loss. Included in third quarter 1998 results was a $128.5
million gain on the sale of the Matagorda Island Block 623 Field and surrounding
blocks (the "Matagorda property") compared to gains related to property sales of
$26.1 million in 1999. The Company also recorded a $29.1 million after-tax
foreign currency loss in 1998 compared to an $8.2 million gain this year.

SUMMARY OF SEGMENT FINANCIAL DATA

<TABLE>
<CAPTION>
                                                                                 Three Months Ended September 30,
                                                                                 --------------------------------
                                                                                     1999               1998
                                                                                 -------------       ------------
                                                                                       (Millions of dollars)
<S>                                                                              <C>                 <C>
     Segment operating income:
           Exploration and production......................................       $   26.4             $   67.4
           Minerals........................................................           32.3                 38.3
           Corporate/general and administrative............................          (20.1)               (24.5)
                                                                                  --------             --------
              Total........................................................       $   38.6             $   81.2
                                                                                  ========             ========
</TABLE>


     Operating income decreased by $42.6 million to $38.6 million for the
quarter. Exploration and production operating income decreased by $41.0 million
to $26.4 million despite a 27 percent increase in product prices and


                                      -15-
<PAGE>   16
a $39.8 million reduction in production and exploration expenses associated with
lower sales volumes and a cost savings initiative implemented last year. These
results, however, reflect a revenue reduction of $69.7 million due to lower
sales volumes and a $65.6 million impairment charge related to certain
properties in US Onshore. Gains on property sales declined $102.4 million from
last year.

     Minerals operating income decreased $6.0 million, to $32.3 million, largely
due to lower contract sales at Black Butte Coal Company ("Black Butte").

     General and administrative ("G&A") costs decreased $4.4 million,
principally due to the reversal of a $3.5 million expense accrual to reflect the
forfeiture of restricted stock awards by former employees and cost reduction
programs.

EXPLORATION AND PRODUCTION OPERATIONS

<TABLE>
<CAPTION>
                                                                     Three Months Ended September 30,
                                                                     --------------------------------
                                                                        1999                  1998
                                                                     -----------           ----------
                                                                           (Millions of dollars)
<S>                                                                     <C>                   <C>
          Exploration and production revenues .....................     $403.0                $388.7
          Other oil and gas revenues ..............................       27.3                 130.9
                                                                        ------                ------
             Total operating revenues ................................   430.3                 519.6
                                                                        ------                ------
          Operating expenses:
             Production ...........................................      105.1                 113.2
             Exploration ..........................................       47.3                  79.0
             Depreciation, depletion and amortization .............      251.5                 260.0
                                                                        ------                ------
             Total operating expenses .............................      403.9                 452.2
                                                                        ------                ------
          Operating income ........................................     $ 26.4                $ 67.4
                                                                        ======                ======
</TABLE>

OPERATING REVENUES

     Exploration and production revenues for the third quarter of 1999 increased
by $14.3 million (4%) to $403.0 million due to the $84.0 million increase
associated with higher product prices, net of $79.9 million for hedging losses
on crude oil and natural gas. Lower sales volumes for the third quarter of 1999
reduced revenues by $69.7 million.

     Other oil and gas revenues were down $103.6 million, primarily due to the
inclusion of the $128.5 million gain on the sale of the Matagorda property in
1998 results. Results in 1999 include gains of $26.1 million on property sales
in US Onshore.


<TABLE>
<CAPTION>
                                                                             Three Months Ended September 30,
                                                                          ---------------------------------------
                                                                           1999       1998       1999       1998
                                                                          ------     ------     ------     ------
                                                                          (without hedging)      (with hedging)
<S>                                                                       <C>        <C>        <C>        <C>
          Average price realizations - exploration and production:
            Natural gas (per Mcf) ...................................     $ 2.21     $ 1.62     $ 1.94     $ 1.62
            Natural gas liquids (per Bbl) ...........................      12.37       7.33      12.37       7.33
            Crude oil (per Bbl) .....................................      18.04      10.38      13.40      10.28
            Average (per Mcfe) ......................................       2.40       1.63       2.05       1.62
</TABLE>


<TABLE>
<CAPTION>
                                                                    Three Months Ended September 30,
                                                                    --------------------------------
                                                                       1999                  1998
                                                                    -----------           ----------
<S>                                                                 <C>                   <C>
         Production volumes - exploration and production:
            Natural gas (MMcfd) ................................       1,270.0               1,491.6
            Natural gas liquids (MBbld) ........................          30.7                  33.2
            Crude oil (MBbld) ..................................         114.3                 152.8
            Total (MMcfed) .....................................       2,139.9               2,607.7
</TABLE>


                                      -16-
<PAGE>   17
     Exploration and production sales volumes of 2,139.9 MMcfed decreased 467.8
MMcfed (18%) from 1998 results primarily due to production declines related to
reduced capital spending levels during late 1998 and early 1999, as well as
property sales. Property sales resulted in an approximate 120 MMcfed unfavorable
variance.

     US Onshore realized a 249.5 MMcfed decline, with gains in the Rockies and
Plains/Kansas providing growth that was more than offset by all other areas. The
Rockies realized volume increases related to production from new drilling, while
the Plains/Kansas realized volume increases related to the startup of the helium
plant in the area. The decreases in other onshore areas were related to the
reduction in capital spending and over 60 MMcfed from property sales. Canadian
sales volumes were down 130.0 MMcfed (22%) to 468.4 MMcfed also due to
production declines and property sales (approximately 28 MMcfed). Latin America
realized a drop in sales volumes of 33.5 MMcfed (11%) to 273.3 MMcfed. Sales
volumes decreased in US Offshore by 54.8 MMcfed largely due to property sales
(approximately 29 MMcfed), primarily the sale of the Matagorda property, and
production declines.

     Natural gas sales volumes decreased 221.6 MMcfd (15%) to 1,270.0 MMcfd,
principally reflecting the sale of the Matagorda property in the third quarter
of 1998, Canadian properties in late 1998, south Texas properties in early 1999
and the Deadwood property in east Texas in the second quarter of 1999. Also
contributing to the sales volumes decrease were production declines for existing
properties related to reduced capital spending levels.

     Natural gas liquid sales volumes decreased 2.5 MBbld (8%) to 30.7 MBbld.
The decline was largely related to the sale of the Canadian Caroline property
and the Matagorda property, partially offset by ethane recovery in 1999 in
contrast to ethane rejection in 1998.

     Crude oil sales volumes of 114.3 MBbld decreased 38.5 MBbld (25%) from
results for last year. The decrease reflects production declines due to lower
capital spending. Property sales in US Onshore and Canada also contributed to
the sales volume decline.

OPERATING EXPENSES

     Production expenses decreased $8.1 million (7%) to $105.1 million.
Production costs on a per unit basis were $0.53 per Mcfe, up from $0.47 per Mcfe
last year. Approximately $0.07 of the per Mcfe increase was due to higher
production and property taxes. Lease operating expenses fell $21.1 million to
$59.8 million, primarily due to property sales and cost reduction efforts that
were initiated in late 1998. Domestically, these cost reduction efforts have
reduced workover expenses, maintenance and repair costs, salt water disposal
costs and personnel expenses, contributing to the reduction in overall costs of
$13.4 million. Canadian and Latin American lease operating costs were down $5.0
million and $2.7 million, respectively. Lease operating expenses on a per unit
basis dropped from $0.34 per Mcfe in 1998 to $0.30 per Mcfe.

     Production and property taxes increased $11.0 million from 1998 due to
higher product prices in the US Onshore operations and increased Guatemalan
government participation in crude oil revenues related to higher product prices.
Production overhead costs increased $2.3 million from 1998 largely due to
increased legal expenses that offset lower personnel costs related to the
reductions in force.


                                      -17-
<PAGE>   18


     Exploration expenses decreased $31.7 million from the third quarter of last
year. The decrease was primarily the result of the reduced capital spending
program initiated in mid-1998. Dry hole expense was down $16.9 million, geologic
and geophysical expenses dropped $10.7 million and delay rentals fell $2.3
million. Surrendered lease expense was essentially flat despite a $4.5 million
charge for an impairment. Also contributing to the variance was reduced
exploration overhead, down $1.4 million, largely due to lower personnel and
computer costs.

     DD&A expenses decreased by $8.5 million. Included in 1999 results was $61.1
million related to the impairment of certain US Onshore properties. Excluding
the impairment, lower sales volumes resulted in a reduction of $46.6 million,
while lower per unit rates reduced DD&A by another $22.9 million. Also excluding
the impairments, the 1999 per unit rates of $0.97 per Mcfe, compared to $1.08
per Mcfe last year. Overall 1999 per unit rates were lower primarily due to a
lower depreciable asset base resulting from an asset impairment charge taken in
December 1998.

MINERALS OPERATIONS

OPERATING INCOME

<TABLE>
<CAPTION>
                                        Three Months Ended September 30,
                                        --------------------------------
                                           1999                   1998
                                        ---------               --------
                                               (Millions of dollars)
<S>                                     <C>                     <C>
               Coal .................     $23.0                   $28.8
               Soda ash .............       8.4                     9.7
               Other ................       0.9                    (0.2)
                                          -----                   -----
                   Total ............     $32.3                   $38.3
                                          =====                   =====
</TABLE>

     Minerals operating income decreased $6.0 million to $32.3 million, largely
due to lower contract sales at Black Butte.

GENERAL AND ADMINISTRATIVE AND OTHER

     G&A expenses were favorable compared to third quarter 1998 by $4.4 million,
primarily reflecting a $3.5 million expense reversal related to the forfeiture
of restricted stock awards by former employees and cost reduction programs. G&A
costs were down $1.5 million in Canada and declined $0.5 million in Latin
America. G&A expenses on a per unit basis were flat at $0.10 per Mcfe.

     Other income of $8.7 million was $56.9 million higher than last year.
Improving Canadian foreign currency exchange rates caused a $43.8 million gain
over 1998 results on the remeasurement of U.S. dollar denominated monetary
assets and liabilities in Canada. In addition, the Company's tax settlement with
UPC included $20.5 million of interest income. Partly offsetting these benefits
was a $13.0 million charge related to the revaluation of the firm transportation
keep-whole obligation to Duke associated with the sale of the gathering,
processing and marketing segment ("GPM Disposition").

     Interest expense for the quarter declined $19.9 million from 1998 to $52.6
million. The decrease principally reflects the debt reduction resulting from the
GPM Disposition and the property divestiture program.


                                      -18-
<PAGE>   19
     The income tax benefit from continuing operations decreased $0.4 million
from the 1998 tax benefit of $26.4 million to $26.0 million for 1999. The 1999
tax settlement with UPC enabled the Company to reevaluate its deferred tax
reserves, and as a result, the Company recorded $11.9 million of deferred tax
benefits related to the tax years covered by the settlement. In addition, 1999
taxes included $7.7 million of foreign currency gains related to the
remeasurement of deferred tax liabilities in Guatemala and Venezuela. Higher
pre-tax income in 1999 caused an offsetting increase in tax expenses of $19.6
million. Section 29 credits were $3.4 million in 1999, compared to $4.1 million
last year.


                              RESULTS OF OPERATIONS

       NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO SEPTEMBER 30, 1998

SUMMARY FINANCIAL DATA

<TABLE>
<CAPTION>
                                                                                Nine Months Ended September 30,
                                                                                -------------------------------
                                                                                    1999               1998
                                                                                -------------        ----------
                                                                                       (Millions of dollars)
<S>                                                                             <C>                  <C>
       Total operating revenues ...........................................       $ 1,264.9           $ 1,468.1
       Total operating expenses ...........................................         1,143.2             1,338.9
       Operating income ...................................................           121.7               129.2
       Income (loss) from continuing operations ...........................            78.3               (22.2)
       Net income (loss) ..................................................           211.5                (3.4)
       Earnings (loss) from continuing operations per share - diluted .....            0.31               (0.09)
       Earnings (loss) per share - diluted ................................            0.85               (0.01)
</TABLE>

     The Company recorded net income of $211.5 million for year-to-date 1999, an
increase of $214.9 million over 1998 results. Earnings per share of $0.85 for
the nine months ended September 1999 increased $0.86 from last year. The
increase was largely due to the $157.0 million after-tax gain on the sale of the
GPM segment to Duke Energy and improved results from continuing operations.

                        RESULTS OF CONTINUING OPERATIONS

     The Company recorded income from continuing operations of $78.3 million for
year-to-date 1999 compared to a loss of $22.2 million in the same period of
1998. Earnings per share of $0.31 increased $0.40 per share. The increase was
largely due to a $125.6 million reduction in production and exploration
expenses, an $80.9 million reduction in DD&A expenses, a $25.2 million after-tax
gain related to the UPC tax settlement and a $32.9 million after-tax gain
related to the Canadian tax settlement. These items were partially offset by the
$125.1 million reduction in exploration and production revenues, largely due to
lower sales volumes. Other items that resulted in lower income include a
reduction of $67.3 million related to gains from property sales, a $65.6 million
impairment of certain properties in US Onshore, the $14.8 million charge
due to the costs associated with the vesting of the January 1999 restricted
stock awards and a $14.5 million restructuring charge taken in the first
quarter of 1999.

                                      -19-
<PAGE>   20

SUMMARY OF SEGMENT FINANCIAL DATA

<TABLE>
<CAPTION>
                                                           Nine Months Ended September 30,
                                                           -------------------------------
                                                             1999                  1998
                                                           ---------             ---------
                                                                 (Millions of dollars)
Segment operating income:
<S>                                                        <C>                    <C>
           Exploration and production .................     $111.2                 $ 87.7
           Minerals ...................................       94.7                  113.7
           Corporate/general and administrative .......      (69.7)                 (72.2)
           Restructuring charge .......................      (14.5)                    --
                                                            ------                 ------
              Total ...................................     $121.7                 $129.2
                                                            ======                 ======
</TABLE>

     Operating income decreased by $7.5 million to $121.7 million for the first
nine months of 1999. Exploration and production operating income increased by
$23.5 million to $111.2 million despite a twelve percent drop in sales volumes.
Production and exploration expenses decreased by $125.6 million, associated with
lower sales volumes, cost savings initiatives and the restructuring of the
Company in the first quarter of 1999. Exploration and production DD&A expenses
declined $142.4 million, excluding the $61.1 million charge related to the
impairment, due to both lower sales volumes ($84.0 million) and reduced per unit
rates ($58.4 million). Price improvements added $18.2 million to revenues. Lower
sales volumes resulted in a revenue reduction of $143.3 million, while gains on
property sales were down $67.3 million, largely due to the inclusion of the
Matagorda property sale in 1998 results. Property sales in 1999 include the sale
of the Caroline property in Canada and certain US Onshore properties.

     Minerals operating income decreased by $19.0 million to $94.7 million,
primarily related to $12.1 million of lower Black Butte equity income. Also
contributing to the decline were lower soda ash and coal royalties and the
absence of a 1998 gain on a property sale.

     G&A costs decreased by $2.5 million, reflecting cost savings related to the
reductions in force that occurred in late 1998 and early 1999, offset by $11.2
million of expense related to the vesting of the January 1999 restricted stock
awards.

EXPLORATION AND PRODUCTION OPERATIONS

<TABLE>
<CAPTION>
                                                       Nine Months Ended September 30,
                                                       -------------------------------
                                                         1999                   1998
                                                       --------               --------
                                                            (Millions of dollars)
<S>                                                    <C>                    <C>
Exploration and production revenues ..............     $1,065.2               $1,190.3
Other oil and gas revenues .......................        104.0                  162.3
                                                       --------               --------
   Total operating revenues ......................      1,169.2                1,352.6
                                                       --------               --------
Operating expenses:
   Production ....................................        288.8                  337.2
   Exploration ...................................        152.4                  229.6
   Depreciation, depletion and amortization ......        616.8                  698.1
                                                       --------               --------
   Total operating expenses ......................      1,058.0                1,264.9
                                                       --------               --------
Operating income .................................     $  111.2               $   87.7
                                                       ========               ========
</TABLE>

OPERATING REVENUES

     Exploration and production revenues decreased by $125.1 million (11%) to
$1,065.2 million for the first nine months of 1999, due to a $143.3 million
reduction associated with lower sales volumes. The decrease was slightly offset
by an $18.2 million increase associated with higher product prices, net of
$108.3 million for losses on hedging positions for 1999 in both crude oil and
natural gas products. Other revenues realized a decrease of


                                      -20-
<PAGE>   21

$58.3 million, largely due to inclusion of the $128.5 million Matagorda property
gain on sale in 1998 results which more than offsets gains from 1999 property
sales.


<TABLE>
<CAPTION>
                                                                    Nine Months Ended September 30,
                                                                 ---------------------------------------
                                                                  1999       1998       1999       1998
                                                                 ------     ------     ------     ------
                                                                 (without hedging)       (with hedging)
<S>                                                              <C>        <C>        <C>        <C>
Average price realizations - exploration and production:
   Natural gas (per Mcf) ...................................     $ 1.84     $ 1.77     $ 1.71     $ 1.79
   Natural gas liquids (per Bbl) ...........................       9.90       8.09       9.90       8.09
   Crude oil (per Bbl) .....................................      13.58      10.72      11.60      10.76
   Average (per Mcfe) ......................................       1.94       1.74       1.78       1.75
</TABLE>


<TABLE>
<CAPTION>
                                                                              Nine Months Ended September 30,
                                                                              -------------------------------
                                                                                  1999                1998
                                                                              -----------          ----------
<S>                                                                           <C>                  <C>
      Production volumes - exploration and production:
         Natural gas (MMcfd)...............................................       1,302.7          1,452.7
         Natural gas liquids (MBbld).......................................          27.9             34.7
         Crude oil (MBbld).................................................         120.0            138.1
         Total (MMcfed)....................................................       2,190.1          2,489.7
</TABLE>

     Exploration and production sales volumes of 2,190.1 MMcfed decreased 299.6
MMcfed (12%) from 1998 results, primarily due to the effect of property sales
(approximately 178 MMcfed) and production declines related to reduced capital
spending levels. Results for 1999 include nine months of sales volumes for
Norcen Acquisition properties in 1999 compared to seven months in 1998.

     Latin American sales volumes improved 37.4 MMcfed over the first nine
months of 1998. The inclusion of two additional months of sales volumes in
1999 more than offset the decline resulting from lower capital spending in
Guatemala and Venezuela. Canadian sales volumes were down 42.9 MMcfed primarily
related to the impact of property sales (approximately 71 MMcfed) that were
partially offset by an additional two months of production. US Offshore
production was down 52.9 MMcfed as the impact of property sales (approximately
46 MMcfed) and production declines offset the additional two months of
production from Norcen Acquisition properties. US Onshore sales volumes were
down 241.3 MMcfed, reflecting the decline in capital spending and effects of
property sales. The portion of the US Onshore sales volume reduction
attributable to property sales was approximately 61 MMcfed.

     Natural gas sales volumes decreased 150.0 MMcfd to 1,302.7 MMcfd,
principally reflecting the sale of the Matagorda property in the third quarter
of 1998 and other property sales, and production declines for existing
properties, offset by the inclusion of two additional months of sales volumes
from Norcen properties in 1999.

     Natural gas liquid sales volumes decreased 6.8 MBbld to 27.9 MBbld. The
decline was largely related to the sale of the Matagorda property and the
Canadian Caroline property during the last year and production declines,
partially offset by improved natural gas liquids sales volumes due to ethane
recovery in US Onshore for most of 1999.

     Crude oil sales volumes declined 18.1 MBbld to 120.0 MBbld for the first
nine months of 1999. The decrease reflects production declines in Canada and US
Onshore as well as property sales, offset by two additional months of Norcen
property sales volumes in 1999. Latin America sales volumes improved 6.1 MBbld
largely due to the inclusion of two additional months of Norcen production in
1999 versus 1998.


                                      -21-
<PAGE>   22

OPERATING EXPENSES

     Production expenses of $288.8 million for the first nine months of 1999
were down $48.4 million from 1998. Production costs per unit improved from $0.50
per Mcfe last year to $0.48 for 1999. Total lease operating expenses declined
$50.4 million primarily due to property sales and cost reduction efforts that
were initiated in late 1998. The reduction was significant considering that 1999
results include nine months of expenses related to Norcen Acquisition properties
versus seven months in 1998. Lease operating expenses on a per unit basis
dropped from $0.34 per Mcfe in 1998 to $0.30 per Mcfe. Production and property
taxes increased $4.4 million from last year, reflecting increased product prices
for US Onshore operations and higher Guatemalan governmental participation due
to higher crude oil revenues, also related to higher prices. Production overhead
costs were down $1.8 million from 1998, including $3.6 million of costs related
to the January 1999 restricted stock awards. The majority of the overhead
savings in 1999 were the result of lower personnel and related costs in
connection with the recent reductions in force.

     Exploration expenses of $152.4 million were down $77.2 million from the
first nine months of 1998, primarily reflecting the reduced capital spending
program. Dry hole expense decreased by $40.9 million, geological and geophysical
costs were $24.9 million lower and surrendered lease costs dropped $5.8 million,
net of a $4.5 million charge for impairment of a south Louisiana property.
Exploration overhead costs declined $4.0 million from lower personnel and
computer costs caused by recent staff reductions.

     DD&A expenses declined $81.3 million from last year to $616.8 million for
the first nine months of 1999. Included in the 1999 results is $61.1 million
related to the impairment of certain US Onshore properties. Excluding the
impairment, lower production volumes caused an $84.0 million reduction, while
lower rates produced a $58.4 million decline. Per unit rates were down from
$1.03 per Mcfe last year to $0.93 per Mcfe in 1999 largely as a result of the
asset impairment write-down recorded by the Company in December 1998.

MINERALS OPERATIONS

OPERATING INCOME

<TABLE>
<CAPTION>
                              Nine Months Ended September 30,
                              -------------------------------
                                1999                  1998
                              ---------             ---------
                                   (Millions of dollars)
<S>                           <C>                   <C>
Coal ....................      $ 70.8                 $ 86.2
Soda ash ................        22.3                   26.1
Other ...................         1.6                    1.4
                               ------                 ------
    Total ...............      $ 94.7                 $113.7
                               ======                 ======
</TABLE>

     Operating income for Minerals was $94.7 million for the first nine months
of 1999, down $19.0 million from last year. Equity income from the Black Butte
joint venture declined $12.1 million, reflecting lower sales volumes. Coal
royalty income decreased by $3.2 million from lower sales volumes as mining
operations focused on federal sections, and soda ash royalties decreased $3.2
million. Results from 1998 include a $2.0 million gain on the sale of industrial
minerals properties.


                                      -22-
<PAGE>   23
GENERAL AND ADMINISTRATIVE AND OTHER

     General and administrative expenses of $69.7 million were down $2.5 million
from the first nine months of 1998. Included in 1999 costs were $11.2 million of
expenses related to the January 1999 restricted stock awards. Offsetting these
expenses were reductions in several cost categories reflecting savings from the
late 1998 and early 1999 reductions in force, early retirement programs and the
GPM Disposition. A restructuring charge of $14.5 million related to the
Company's reorganization effort was recorded in the first quarter of 1999.

     Other income increased $74.3 million over 1998 to $41.4 million for the
first nine months of 1999. Foreign currency gains of $30.0 million related to
the remeasurement of U.S. dollar denominated monetary assets and liabilities in
Canada caused the majority of the improvement compared to the inclusion in 1998
results of a $43.4 million charge for the same issue. Included in 1999 results
was $27.6 million of interest income from the Canadian ($7.1 million) and UPC
($20.5 million) tax settlements that offset 1998 interest income of $8.2 million
from excess cash reserves. There also was a charge of $13.0 million related to
the revaluation of the firm transportation keep-whole agreement in 1999 results.

     Interest expense was $167.6 million for the first nine months of 1999, down
$11.9 million from 1998. The decrease was primarily due to the retirement of
debt with the proceeds from the GPM Disposition and other property sales. This
reduction partially offset the effect of nine months of debt from the Norcen
Acquisition in 1999 compared to only seven months during 1998.

     Income taxes were a benefit of $82.8 million in 1999 compared to a benefit
of $61.0 million in 1998. Included in 1999 results were a $27.9 million benefit
related to the Canadian tax settlement and a $11.9 million benefit related to
the UPC tax settlement. Other benefits in 1999 included $25.5 million from the
foreign currency remeasurement of deferred tax liabilities in Guatemala and
Venezuela. These income tax benefits were offset by improvement in taxable
income compared to last year. Section 29 credits of $10.2 million were recorded
in 1999 compared to $12.3 million last year.

                         LIQUIDITY AND CAPITAL RESOURCES

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

     Cash from operations was $697.2 million for the first nine months of 1999,
a $321.0 million decrease from the prior year period. The $180.9 million
decrease in the changes in current assets and liabilities and the $275.2 million
decrease in other non-cash charges were primarily the result of working capital
and other miscellaneous assets and liabilities acquired in the Norcen
Acquisition.


                                      -23-
<PAGE>   24

     Cash provided from investing activities was $1.1 billion for the first nine
months of 1999, compared to a use of $3.3 billion in the first nine months of
1998. The Company received $1.36 billion on the 1999 GPM Disposition, while
using $2.6 billion in 1998 for the Norcen Acquisition. Discontinued operations
also required a use of cash of $202.4 million in 1999 compared to $176.7 million
provided from discontinued operations last year.

<TABLE>
<CAPTION>
                                                              Nine Months Ended September 30,
                                                              -------------------------------
CAPITAL AND EXPLORATORY EXPENDITURES                             1999                1998
                                                              -----------         -----------
                                                                   (Millions of dollars)
<S>                                                           <C>                <C>
Exploration and production
      Exploration ................................               $   58.9           $  260.9
      Production .................................                  217.2              706.4
      Property purchases .........................                   13.8              112.6
                                                                 --------           --------
     Total exploration and production ............                  289.9            1,079.9

Minerals, G&A and other ..........................                    1.7               38.1
                                                                 --------           --------
     Sub-total continuing operations .............                  291.6            1,118.0
Norcen purchase price ............................                     --            2,634.3
                                                                 --------           --------
     Continuing operations .......................               $  291.6           $3,752.3
                                                                 ========           ========

Discontinued operations - GPM ....................               $   32.9           $   75.4
</TABLE>

     Exploration and production capital spending was down $790.0 million to
$289.9 million, principally reflecting the effort to control capital spending in
light of depressed product prices earlier in 1999 and to achieve debt reduction
goals. The major categories of capital spending included development drilling
($162.7 million), other development capital ($54.5 million) and exploratory
drilling ($22.6 million). Exploration and development drilling by area included
$102.7 million in the US Onshore, $23.7 million in the US Offshore, $44.4
million in Canada and $14.5 million in Latin America, including $11.5 million in
Venezuela.

     Property purchases of $13.8 million in 1999 primarily reflected the
purchase of a partner's interest in west Texas properties. Minerals, G&A and
other capital was down $36.4 million to $1.7 million. Spending in 1998 included
costs related to the Fort Worth office relocation.

     Cash flows from financing activities were a $1.7 billion use of cash for
1999 as the Company repaid $2.1 billion in debt, partially offset by the
issuance of new debt. Cash provided from financing activities was $2.2 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. Its commercial
paper ratings were downgraded by Standard & Poor's to A3 and by Moody's to P3.
Fitch IBCA has continued to rate the Company's senior unsecured credit with a
BBB+ rating.

     The Company did not renew its $750 million 364 Day Competitive
Advance/Revolving Credit Agreement after its expiration in October 1999. The
Company's $750 million Five-Year Competitive Advance/Revolving Credit Agreement,
entered into in October 1998, will remain in place.


                                      -24-
<PAGE>   25

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


<TABLE>
<CAPTION>
                                                               September 30,  December 31,
                                                                   1999          1998
                                                               ------------   -----------
                                                                  (Millions of dollars)
<S>                                                            <C>            <C>
Long-term and short-term debt:
      Commercial paper and other, net ......................     $  209.3      $2,351.9
      Notes and debentures .................................      2,725.0       2,225.0
      Capital lease obligations ............................         16.7          17.4
      (Discount) premium on notes and debentures - net .....         18.1           4.4
                                                                 --------      --------
         Total debt ........................................      2,969.1       4,598.7

Shareholders' equity .......................................        880.3         728.2
                                                                 --------      --------
      Total capitalization .................................     $3,849.4      $5,326.9
                                                                 ========      ========

Debt to total capitalization ...............................         77.1%         86.3%
</TABLE>

     The Company anticipates total capital spending of approximately $450
million for 1999 and approximately $700 million for 2000, with focus on
development projects that generate more immediate cash flow. At the end of the
third quarter, the Company had commenced drilling three more Frontier horizontal
wells in the Rockies area to delineate its earlier success. It also is
continuing its low risk drilling program in the Deep Giddings field of the
Austin Chalk. In US Offshore, the Company is negotiating with a party to reduce
its capital exposure in the Gomez project by selling or transferring a portion
of its working interest. The next Gomez well is planned to commence in the first
half of 2000. In the fourth quarter, the Company plans several exploratory wells
in south Louisiana, two exploratory wells and two horizontal development wells
in Guatemala and an exploratory well in northeast British Columbia, Canada. Also
in Canada, the Company has begun a 30 well heavy oil program for the fourth
quarter 1999, which extends to approximately 100 wells in 2000.

     The Company plans to fund its operations and capital program primarily with
cash generated from operations. While no significant oil and gas property sales
are currently planned for the remainder of 1999, the potential exists for
additional gains to be recognized related to properties sold earlier in 1999.

     Excluding property sales, production sales volumes are expected to decline
in 1999 from 1998 levels, as a result of lower capital spending. The Company
expects sales volumes to be approximately 2,160 MMcfed for 1999. With increased
drilling activity in the second half of 1999 and higher capital spending for
2000, the Company expects to stabilize the production decline. The Company's
ability to replace reserves in 1999 has been impacted by the postponement of
the Gomez well until 2000, together with the production declines related to
reduced capital spending. Therefore, the Company does not currently anticipate
that it will fully replace reserves in 1999.

     Crude oil and natural gas prices have risen sharply since the beginning of
1999 and the outlook for the remainder of the year and into next 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 September 30, 1999.


                                      -25-
<PAGE>   26

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 Securities and Exchange Commission
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 planning 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 Year 2000
business contingency plans as of July 1999, and completed a scheduled review and
update of these plans in September 1999. To incorporate future changes in status
information available from third parties, an additional update of these
contingency plans is scheduled for November, 1999.

     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


                                      -26-
<PAGE>   27

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 believes that its Year 2000 Readiness Program has
significantly reduced the possibility of significant interruptions of normal
operations.

     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," "could",
"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 crude oil, natural gas and
hydrocarbon-based financial derivative prices; basis risk and counterparty
credit risk in executing hydrocarbon price risk management activities; economic,
political, 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 crude oil and natural 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.


                                      -27-
<PAGE>   28

     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.


                                      -28-
<PAGE>   29
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    As a result of the GPM Disposition, 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 Disposition.

COMMODITY PRICE RISK -- NON-TRADING ACTIVITIES

    The Company uses derivative financial instruments for non-trading purposes
in the normal course of business to manage and reduce risks associated with
price volatility, contractual commitments and other market variables. The
Company's hedging approach is designed to respond to changing market conditions
where practicable, while at the same time evaluating the need to protect against
significant commodity price reductions. The volume of production hedged and the
mix of derivative instruments employed are regularly evaluated and adjusted in
response to changing market conditions and Company objectives.

    Utilization of the Company's hedging program may result in crude oil and
natural gas prices varying from market prices. Due to these pricing differences,
revenues were lower by $108.3 million, in the first nine months of 1999.

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

<TABLE>
<CAPTION>
                                                                        WEIGHTED AVG.                UNRECOGNIZED
                                      CONTRACT                          PRICE PER MCF    FAIR VALUE   GAIN/(LOSS)
  PRODUCT            TYPE           TIME PERIOD            VOLUME          OR BBL        (MILLIONS)   (MILLIONS)
  -------            ----           -----------            ------          ------        ----------   ----------
<S>           <C>                 <C>                   <C>             <C>              <C>          <C>
    Gas       Puts Purchased      Nov - Dec 1999          150MMcfd          $2.38         $  0.5        $ 0.5
    Gas       Calls Sold          Nov - Dec 1999          150MMcfd          $3.04           (1.5)        (1.5)
    Gas       Puts Purchased      Jan - Jul 2000          150MMcfd          $2.31            4.3          4.3
    Gas       Calls Sold          Jan - Jul 2000          150MMcfd          $2.85           (7.0)        (7.0)
    Gas       Puts Purchased      Aug - Sep 2000          250MMcfd          $2.25            1.7          1.7
    Gas       Calls Sold          Aug - Sep 2000          250MMcfd          $2.66           (3.2)        (3.2)
    Gas       Swaps               Nov - Dec 1999          100MMcfd           Var.           (0.3)        (0.3)
    Gas       Swaps               Jan - Mar 2000          100MMcfd           Var.           (0.3)        (0.3)
    Gas       Futures             Nov - Dec 1999          200MMcfd          $2.64           (2.5)        (2.5)
    Gas       Futures             Nov - Dec 1999            5MMcfd          $2.28           (0.2)        (0.2)
    Gas       Futures             Jan - Jul 2000          200MMcfd          $2.46           (8.0)        (8.0)
    Gas       Fixed Price         Oct - Dec 1999           20MMcfd          $2.12           (0.6)        (0.6)
    Gas       Fixed Price         Jan - Oct 2000           10MMcfd          $2.80            1.7          1.7
    Gas       Fixed Price         Jan - Dec 2000           10MMcfd          $1.54           (2.7)        (2.7)
    Gas       Fixed Price         Jan - Oct 2001           10MMcfd          $1.54           (2.0)        (2.0)
    Gas       Physical Call       Apr - Oct 2000           14MMcfd          $2.17           (0.1)         0.3

    Oil       Puts Purchased      Jan - Dec 2000         29.5MBbld         $17.00            7.5          7.5
    Oil       Calls Sold          Jan - Dec 2000         29.5MBbld         $21.46          (19.3)       (19.3)
    Oil       Swaps               Oct - Dec 1999           70MBbld         $14.51          (60.7)       (60.7)
    Oil       Swaps               Jan - Aug 2000            8MBbld         $18.96           (4.4)        (4.4)
    Oil       Swaps               Sep - Dec 2000            4MBbld         $18.81           (0.3)        (0.3)
    Oil       Swaps               Oct - Dec 1999            2MBbld         $16.08           (0.2)        (0.2)
    Oil       Swaps               Jan - Dec 2000            2MBbld         $16.08           (0.4)        (0.4)
    Oil       Fixed Price         Oct - Dec 1999            2MBbld         $18.38            0.1          0.1
    Oil       Fixed Price         Jan - Feb 2000            2MBbld         $18.38            0.0          0.0
    Oil       Fixed Price         Oct - Dec 1999            2MBbld         $15.64           (0.1)        (0.1)
    Oil       Fixed Price         Jan - Oct 2000            2MBbld         $15.64           (0.5)        (0.5)
    Oil       Fixed Price         Oct - Dec 1999            8MBbld         $18.28            0.1          0.1
    Oil       Fixed Price         Jan - Apr 2000            8MBbld         $18.28            0.3          0.3
    Oil       Fixed Price         Oct - Dec 1999            2MBbld         $18.83            0.0          0.0

                                                                                          ------       ------
                                                                        Totals:           $(98.1)      $(97.7)
                                                                                          ======       ======
</TABLE>


                                      -29-
<PAGE>   30

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

<TABLE>
<CAPTION>
                                                                   UNRECOGNIZED
                                                                   GAIN/(LOSS)
  PRODUCT            TYPE            TIME PERIOD                    (MILLIONS)
  -------            ----            -----------                    ----------
<S>             <C>                  <C>                           <C>
    Gas            Options             Oct 1999                      $ (2.0)
    Gas         Futures/Swaps          Oct 1999                        (4.0)
                                                                     ------
                                                        Totals:      $ (6.0)
                                                                     ======
</TABLE>

    At September 30, 1999, the Company had margin deposits of $56.1 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 September 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      Nov - Dec 1999        4.0Bcf           $3.16           $ 0.4          $ 0.4
               Purchased
     Gas       Futures/Swaps      Jan - Dec 2000        8.8Bcf           $3.00             1.6            1.6
               Purchased
     Gas       Futures/Swaps      Jan - Apr 2001        0.2Bcf           $3.17             0.1            0.1
               Purchased
     Gas       Futures/Swaps      Nov - Dec 1999        2.1Bcf           $3.28             0.2            0.2
               Sold
     Gas       Futures/Swaps      Jan - Dec 2000        5.8Bcf           $2.87            (1.2)          (1.2)
               Sold
                                                                                         -----          -----
                                                                         Totals:         $ 1.1          $ 1.1
                                                                                         =====          =====
</TABLE>

     The Company was a party to several long-term firm gas transportation
agreements that supported the gas marketing program within the 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 if the transportation market value falls below the
contract transportation rates, while 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. The fair value
of these contracts at September 30, 1999, was a loss of $106.2 million, which
is included in other current liabilities and other long-term 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 a meaningful, permanent change has occurred to transportation rates in
the market place. However, at September 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 $60.4 million
for the keep-whole commitment period.


                                      -30-
<PAGE>   31
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 September 30, 1999:

<TABLE>
<CAPTION>
                  NOTIONAL AMOUNT                           FAIR VALUE
      YEAR        (US$ MILLIONS)        FORWARD RATE     (US$ MILLIONS)
      ----        --------------        ------------     --------------
<S>               <C>                   <C>              <C>
1999 .........     $    36.0               C$1.3535         $    (2.9)
2000 .........           8.0               C$1.3750              (0.5)
2004 .........          70.0               C$1.3630              (5.1)
                   ---------                                ---------
                   $   114.0                                $    (8.5)
                   =========                                =========
</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 September 30, 1999, excluding
the $2.7 million remaining unamortized deferred liability, was $5.8 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 segment to Duke. As a result, the Company
has eliminated all price/rate risk related 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 September 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 entered into a swap transaction
that was in a closed position at September 30, 1999. At September 30, 1999, the
unrealized gain relating to this financial transaction was $21.7 million.

    At September 30, 1999, the Company's largest credit risk associated with any
single counterparty, represented by the net fair value of open contracts, was
$7.0 million.

    In connection with the GPM Disposition, the Company entered into a long-term
sales agreement with Duke, which obligates the Company to sell most of its
domestic natural gas and natural gas liquids 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.


                                      -31-
<PAGE>   32

PART II.  OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

MINERAL RESERVATION LITIGATION

      In August 1994, the surface owners (McCormick, et al.) of portions of five
sections of Colorado land that are subject to mineral reservations made by the
Company's predecessor in title brought suit against the Company in State
District Court, Weld County, Colorado, to quiet title to minerals, including
crude oil (in some of the lands) and natural gas. On June 23, 1997, the State
District Court granted the Company's motion for summary judgment, holding as a
matter of law that the mineral reservations at issue were unambiguous and
included all valuable nonsurface substances, including oil and gas. The Colorado
Court of Appeals affirmed the decision of the State District Court in granting
the Company's motion for summary judgment on December 10, 1998 and then denied
the surface owners' motion for rehearing. The surface owners then filed a
Petition for Writ with the Colorado Supreme Court, which was granted in
September, 1999. Oral arguments are expected to be heard during the first
half of 2000.

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 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)      EXHIBITS

<TABLE>
<S>      <C>
10.1     Form of Agreement relating to Change in Control by and between Union
         Pacific Resources Group Inc. and George Lindahl III, dated October 21,
         1999,           superceding and replacing the agreement dated
         February 4, 1997.

10.2     Settlement and Release Agreement by and between Union Pacific Resources
         Group Inc. and V. Richard Eales, effective September 1, 1999.

11       Computation of earnings per share.

12       Computation of ratio of earnings to fixed charges.

15       Awareness letter of Arthur Andersen LLP dated November 12, 1999.

27       Financial data schedule.
</TABLE>


                                      -32-

<PAGE>   33

(b)      REPORTS ON FORM 8-K

                  On August 3, 1999, the Company filed a Current Report on Form
         8-K under Item 5, containing (i) a 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 and
         announcing that Mr. Messman was 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 issued
         by the Registrant on July 27, 1999, announcing the Company's financial
         results for the second quarter of 1999, including operating revenues,
         net income and certain other financial information.


                                      -33-
<PAGE>   34

                                   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: November 12, 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)



                                      -34-
<PAGE>   35

                                  EXHIBIT INDEX


<TABLE>
<CAPTION>
Exhibit No.         Description
-----------         -----------
<S>                 <C>
10.1                Form of Agreement relating to Change in Control by and between Union
                    Pacific Resources Group Inc. and George Lindahl III, dated October 21,
                    1999, superceding and replacing the agreement dated February 4, 1997.

10.2                Settlement and Release Agreement by and between Union Pacific Resources
                    Group Inc. and V. Richard Eales, effective September 1, 1999.

11                  Computation of earnings per share.

12                  Computation of ratio of earnings to fixed charges.

15                  Awareness letter of Arthur Andersen LLP dated November 12, 1999.

27                  Financial data schedule.
</TABLE>