<PAGE>

================================================================================


                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION

                            Washington, D.C. 20549

                          __________________________

                                   FORM 10-Q
                          __________________________



[X]   Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
      Exchange Act of 1934
               For the quarterly period ended September 30, 2000

                                       or

[_]   Transition Report Pursuant to Section 13 or 15(d) of the Securities
      Exchange Act of 1934
                 For the transition period from _____ to _____


                        Commission File Number: 001-15899

                             PURE RESOURCES, INC.
            (Exact name of Registrant as specified in its charter)

            Delaware                                                74-2952918
   (State or other jurisdiction                                 (I.R.S. Employer
     of incorporation or                                     Identification No.)
           organization)



         500 West Illinois
           Midland, Texas                                            79701
 (Address of principal executive offices)                         (Zip Code)


                                (915) 498-8600
             (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 November 3, 2000, 50,034,884 shares of common stock, par value $.01
per share of Pure Resources, Inc. were outstanding.

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<PAGE>

                               TABLE OF CONTENTS
                               -----------------

<TABLE>
<S>                                                                                                  <C>
Forward Looking Information and Risk Factors.......................................................   1

                                                  PART I -- FINANCIAL INFORMATION

Item 1.   Financial Statements
          --------------------

          Consolidated Balance Sheets as of September 30, 2000 (Unaudited) and
              December 31, 1999....................................................................   3
          Unaudited Consolidated Statements of Operations for the Three and Nine Months Ended
              September 30, 2000 and 1999..........................................................   5
          Unaudited Consolidated Statements of Cash Flows for the Three and Nine Months Ended
              September 30, 2000 and 1999..........................................................   6
          Notes to Consolidated Financial Statements...............................................   7

Item 2.   Management's Discussion and Analysis of Financial Condition and Results of Operations....  17
          -------------------------------------------------------------------------------------

Item 3.   Quantitative and Qualitative Disclosures About Market Risk...............................  27
          ----------------------------------------------------------

                                                   PART II -- OTHER INFORMATION

Item 1.   Legal Proceedings........................................................................  29
          -----------------

Item 2.   Changes in Securities and Use of Proceeds................................................  29
          -----------------------------------------

Item 4.   Submission of Matters to a Vote of Security Holders......................................  29
          ---------------------------------------------------

Item 6.   Exhibits and Reports on Form 8-K.........................................................  30
          --------------------------------

          Signatures...............................................................................  31
</TABLE>
<PAGE>

                             PURE RESOURCES, INC.

  (formerly "Union Oil Company of California's Permian Basin business unit")

                 FORWARD LOOKING INFORMATION AND RISK FACTORS

         Pure Resources, Inc. ("Pure") or its representatives may make forward
looking statements, oral or written, including statements in this report's
Management's Discussion and Analysis of Financial Condition and Results of
Operations, press releases and filings with the Securities and Exchange
Commission, regarding estimated future net revenues from oil and natural gas
reserves and the present value thereof, planned capital expenditures (including
the amount and nature thereof), increases in oil and gas production, the number
of exploratory and development wells Pure anticipates drilling through 2000,
potential reserves and Pure's financial position, business strategy and other
plans and objectives for future operations. Although Pure believes that the
expectations reflected in these forward looking statements are reasonable, there
can be no assurance that the actual results or developments anticipated by Pure
will be realized or, even if substantially realized, that they will have the
expected effects on its business or operations. Among the factors that could
cause actual results to differ materially from Pure's expectations are general
economic conditions, inherent uncertainties in interpreting engineering data,
operating hazards, delays or cancellations of drilling operations for a variety
of reasons, competition, fluctuations in oil and gas prices, government
regulations and other factors set forth in Pure's Registration Statement filed
on Form S-4 dated April 18, 2000. All subsequent oral and written forward
looking statements attributable to Pure or persons acting on its behalf are
expressly qualified in their entirety by these factors. Pure assumes no
obligation to update any of these statements.

                                       1
<PAGE>

Item 1.        Financial Statements

         Pure Resources, Inc. ("Pure"), a Delaware corporation, was, until May
25, 2000, a wholly-owned subsidiary of Union Oil Company of California ("Union
Oil"). Pure was formed in December 1999 in connection with the Agreement and
Plan of Merger (the "Merger Agreement") dated December 13, 1999, as amended, by
and among Union Oil, Pure, TRH, Inc. and Titan Exploration, Inc. ("Titan").

         On May 25, 2000, pursuant to the Merger Agreement, Union Oil
contributed its Permian Basin business unit to a subsidiary of Pure in exchange
for 32,708,067 shares of Pure common stock and the assumption by Pure of the
associated liabilities of the Permian Basin business unit. These transactions
are referred to as the "Contribution." Simultaneously with the Contribution, a
subsidiary of Pure was merged with and into Titan. (See Note 2 for additional
information related to the Merger Agreement and the merger.) The amounts and
results of operations of Pure included in these financial statements reflect the
historical amounts and results of operations of the Permian Basin business unit
operations of Union Oil. The effect of the merger is reflected in the results of
operations and cash flows since May 31, 2000. The acquisition of Titan, by Pure,
was accounted for on the purchase method.

                                       2
<PAGE>

                        Pure Resources, Inc.
(formerly "Union Oil Company of California's Permian Basin business unit")
                     Consolidated Balance Sheets
                        (dollars in thousands)

<TABLE>
<CAPTION>

                  ASSETS

                                                                              September 30,          December 31,
                                                                                 2000                   1999
                                                                             --------------          -----------
                                                                              (Unaudited)
<S>                                                                          <C>                     <C>
Current assets:
   Cash and cash equivalents                                                  $     2,885              $       -
   Accounts receivable:
     Oil and gas                                                                   47,550                      -
     Other                                                                          3,417                      -
   Prepaid expenses and other current assets                                        1,405                      -
                                                                             ------------             ----------
        Total current assets                                                       55,257                      -
                                                                             ------------             ----------
Property, plant and equipment, at cost:
   Oil and gas properties, using the successful efforts method of accounting:
     Proved properties                                                          1,110,784                825,144
     Unproved properties                                                           19,938                  3,367
   Accumulated depletion, depreciation and amortization                          (564,168)              (536,982)
                                                                             ------------             ----------
                                                                                  566,554                291,529
                                                                             ------------             ----------
Other property and equipment, net                                                   6,101                    281

Deferred compensation (Note 5)                                                     45,753                      -

Receivables for under-delivered gas                                                 9,212                  2,880

Other assets, net                                                                     584                      -
                                                                             ------------             ----------
                                                                              $   683,461              $ 294,690
                                                                             ============             ==========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       3
<PAGE>

                        Pure Resources, Inc.
(formerly "Union Oil Company of California's Permian Basin business unit")
                     Consolidated Balance Sheets
                        (dollars in thousands)

          LIABILITIES AND STOCKHOLDERS' EQUITY AND OWNER'S NET INVESTMENT

<TABLE>
<CAPTION>
                                                                                 September 30,      December 31,
                                                                                    2000               1999
                                                                                ---------------     ------------
                                                                                 (Unaudited)
    <S>                                                                         <C>                  <C>
          Current liabilities:
            Accounts payable and accrued liabilities:
              Trade                                                                $     17,837       $        -
              Deferred commodity hedges (Note 10)                                        11,456                -
              Other (Note 8)                                                             27,956                -
                                                                                   ------------       ----------
                    Total current liabilities                                            57,249                -
                                                                                   ------------       ----------
          Long-term debt                                                                 83,000                -

          Liabilities for over-delivered gas                                             16,143            6,742

          Accrued abandonment, restoration and environmental liabilities                 13,722           11,613

          Deferred income taxes                                                          55,484           73,711

          Common stock subject to repurchase (Note 5)                                   111,034                -


          Stockholders' equity and owner's net investment:
            Preferred stock, $.01 par value, 10,000,000 shares authorized; none
              issued and outstanding                                                          -                -
            Common stock, $.01 par value, 200,000,000 shares authorized;
              50,033,594 shares issued and outstanding at September 30, 2000                500                -
            Additional paid-in capital                                                  324,108                -
            Notes receivable - affiliates                                                (6,844)               -
            Deferred compensation (Note 7)                                               (2,464)               -
            Retained earnings                                                            31,529
            Owner's net investment                                                            -          202,624
                                                                                   ------------       ----------
                    Total stockholders' equity and owner's net investment               346,829          202,624
                                                                                   ------------       ----------
            Commitments and contingencies (Note 5)
                                                                                   $    683,461       $  294,690
                                                                                   ============       ==========
</TABLE>

         See accompanying notes to consolidated financial statements.

                                       4
<PAGE>

                       Pure Resources, Inc.
(formerly "Union Oil Company of California's Permian Basin business unit")
            Unaudited Consolidated Statements of Operations
                 (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                   Three months ended           Nine months ended
                                                                      September 30,                September 30,
                                                                  --------------------         ---------------------
                                                                   2000           1999          2000            1999
                                                                  ------         ------        ------          ------
<S>                                                             <C>             <C>           <C>             <C>
Revenues:
   Oil sales                                                     $   48,071      $  18,244     $  104,817      $   43,439
   Gas sales                                                         41,968         16,873         83,343          37,112
   Gas processing                                                        27            246            207             735
                                                                -----------     ----------    -----------     -----------
     Total revenues                                                  90,066         35,363        188,367          81,286
                                                                -----------     ----------    -----------     -----------

Expenses:
   Oil and gas production                                            14,665         11,275         32,136          26,100
   Production and other taxes                                         6,179          2,341         14,381           6,271
   General and administrative                                         4,055          2,250          7,177           5,816
   Amortization of deferred compensation                              5,121              -          6,148               -
   Exploration and abandonment (Note 9)                               6,570          1,057          9,648           3,417
   Depletion, depreciation and amortization                          13,691          8,253         31,041          25,095
                                                                -----------     ----------    -----------     -----------
     Total expenses                                                  50,281         25,176        100,531          66,699
                                                                -----------     ----------    -----------     -----------
     Operating income                                                39,785         10,187         87,836          14,587
                                                                -----------     ----------    -----------     -----------
Other income (expense):
   Interest income                                                      169              -            201               -
   Interest expense                                                  (1,975)             -         (2,636)              -
   Gain (loss) on sale of assets                                         53             (1)         1,303             (64)
   Other                                                             (1,126)             -         (2,572)              -
                                                                -----------     ----------    -----------     -----------
     Income before income taxes                                      36,906         10,186         84,132          14,523

Income tax expense                                                  (12,920)        (3,342)       (29,450)         (4,765)
                                                                -----------     ----------    -----------     -----------
     Net income                                                  $   23,986      $   6,844     $   54,682      $    9,758
                                                                ===========     ==========    ===========     ===========
     Net income per share                                        $     0.48      $    0.21     $     1.35      $     0.30
                                                                ===========     ==========    ===========     ===========
     Net income per share - assuming dilution                    $     0.47      $    0.21     $     1.34      $     0.30
                                                                ===========     ==========    ===========     ===========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       5
<PAGE>

                             Pure Resources, Inc.
(formerly "Union Oil Company of California's Permian Basin business unit")
          Unaudited Consolidated Statements of Cash Flows
                        (in thousands)

<TABLE>
<CAPTION>
                                                                  Three months ended          Nine months ended
                                                                     September 30,               September 30,
                                                                ----------------------       ------------------------
                                                                  2000          1999            2000          1999
                                                                ---------     --------       ----------     ---------
<S>                                                             <C>           <C>            <C>            <C>
Cash flows from operating activities:
   Net income                                                   $  23,986     $  6,844       $   54,682     $   9,758
   Adjustment to reconcile net income to net cash
   provided by operating activities:
        Depletion, depreciation and amortization                   13,691        8,253           31,041        25,095
        Amortization of deferred compensation                       5,121            -            6,148             -
        Amortization deferred commodity hedges                     (5,831)           -           (7,822)            -
        Exploration and abandonments                                4,617           82            6,705           316
        Loss (gain) on sale of assets                                 (53)           1           (1,303)           64
        Deferred income taxes                                       5,533          798            8,840         1,138
        Other items                                                  (138)           -             (138)            -
   Changes in assets and liabilities, excluding acquisition:
        Accounts receivable                                       (11,662)           -          (38,410)            -
        Prepaid expenses and other current assets                     (35)           -              (97)            -
        Receivables for under-delivered gas                        (4,554)         (21)          (6,251)          513
        Other assets                                                 (584)           -             (584)            -
        Accounts payable and accrued liabilities                    2,083            -           21,561             -
        Income taxes payable                                        3,887            -            6,887             -
        Liabilities for over-delivered gas                          5,638         (158)           7,235          (661)
        Other non-current liabilities                                   -           81              (50)         (155)
                                                                ---------     --------       ----------     ---------
          Total adjustments                                        17,713        9,036           33,762        26,310
                                                                ---------     --------       ----------
          Net cash provided by operating activities                41,699       15,880           88,444        36,068
                                                                ---------     --------       ----------     ---------
Cash flows from investing activities:
   Acquisitions, net of cash acquired                                   -            -             (659)            -
   Investment in oil and gas properties                           (27,113)      (5,876)         (62,996)      (11,070)
   Additions to other property and equipment                       (1,222)           -           (1,323)            -
   Proceeds from sale of assets                                        95           46            1,345           227
   Notes receivable - affiliates                                       31            -            2,846             -
                                                                ---------     --------       ----------     ---------
          Net cash used in investing activities                   (28,209)      (5,830)         (60,787)      (10,843)
                                                                ---------    ---------       ----------     ---------
Cash flows from financing activities:
   Proceeds from (payments of) revolving debt, net                (13,000)           -          (23,863)            -
   Exercise of stock options                                          105            -              407             -
   Cash contribution from stockholder                                   -            -           14,528             -
   Net settlements with owner                                           -      (10,050)         (15,844)      (25,225)
                                                                ---------     --------       ----------     ---------
          Net cash used in financing activities                   (12,895)     (10,050)         (24,772)      (25,225)
                                                                ---------     --------       ----------     ---------
          Net increase in cash and cash equivalents                   595            -            2,885             -

Cash and cash equivalents, beginning of period                      2,290            -                -             -
                                                                ---------     --------       ----------     ---------
Cash and cash equivalents, end of period                        $   2,885     $      -       $    2,885     $       -
                                                                =========     ========       ==========     =========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       6
<PAGE>

                             PURE RESOURCES, INC.
  (formerly "Union Oil Company of California's Permian Basin business unit")
                  Notes to Consolidated Financial Statements
                          September 30, 2000 and 1999
                                  (Unaudited)

(1)    Organization, Nature of Operations and Basis of Presentation

         Organization

         Pure Resources, Inc. ("Pure"), a Delaware corporation, was, until May
25, 2000, a wholly-owned subsidiary of Union Oil Company of California ("Union
Oil"). Pure was formed in December 1999 in connection with the Agreement and
Plan of Merger (the "Merger Agreement") dated December 13, 1999, as amended, by
and among Union Oil, Pure, TRH, Inc. and Titan Exploration, Inc. ("Titan").

         The combination of Pure and the Permian Basin business unit is treated
as a combination of entities under common control, since Union Oil owned 100% of
the Permian Basin business unit prior to the Contribution (defined below) and
also owned 100% of the capital stock of Pure immediately subsequent to the
Contribution (without giving effect to the merger). Consequently, the
accompanying financial statements have given effect to the Contribution as if it
were a pooling of interests.

         On May 25, 2000, pursuant to the Merger Agreement, Union Oil
contributed its Permian Basin business unit to a subsidiary of Pure in exchange
for 32,708,067 shares of Pure common stock and the assumption by Pure of the
associated liabilities of the Permian Basin business unit. These transactions
are referred to as the "Contribution." Simultaneously with the Contribution, a
subsidiary of Pure was merged with and into Titan. (See Note 2 for additional
information related to the Merger Agreement and the merger.) The amounts and
results of operations of Pure included in these financial statements reflect the
historical amounts and results of operations of the Permian Basin business unit
operations of Union Oil. The effect of the merger is reflected in the results of
operations and cash flows since May 31, 2000. The acquisition of Titan, by Pure,
was accounted for on the purchase method.

         Nature of Operations

         As a result of the Contribution and the merger discussed in Note 2,
Pure is an independent energy company. Pure, formerly the Permian Basin business
unit, has historically been engaged in the exploration, development and
production of oil and natural gas in the Permian Basin of the western portion of
the state of Texas and San Juan Basin areas of New Mexico and Colorado. As a
result of the merger with Titan, Pure now engages in activities in the
additional areas of the Permian Basin of southeastern New Mexico, Brenham Dome
area of south central Texas and the Central Gulf Coast region of Texas.

         Basis of Presentation

         The accompanying consolidated financial statements, prior to the
merger, are presented as a carve-out from the financial statements of Union Oil
and reflect the activity related to its Permian Basin business unit during the
periods presented. The functions listed below were managed centrally and support
several business units. The costs were allocated based on each business unit's
share of total revenues, prior to December 31, 1999, and were considered
reasonable by Union Oil's management. Effective January 1, 2000, Union Oil
established procedures by which to accumulate actual costs associated only with
the Permian Basin business unit. After December 31, 1999, results of operations
for Pure include only actual costs that are attributable to Pure. Support costs
decreased in the first and second quarter of 2000, as compared to past quarters,
as a result of a reduction of support being provided from Union Oil's Sugar
Land, Texas and Lafayette, Louisiana offices due to the then pending merger of
the Permian Basin business unit with Titan.

         Other

         In the opinion of management, the unaudited consolidated financial
statements of Pure as of September 30, 2000 and for the three and nine months
ended September 30, 2000 and 1999 include all adjustments and accruals,

                                       7
<PAGE>

consisting only of normal recurring accrual adjustments, which are necessary for
a fair presentation of the results for the interim period. These interim results
are not necessarily indicative of results for a full year.

         Certain information and footnote disclosures normally included in
consolidated financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted in this Form 10-Q pursuant
to the rules and regulations of the Securities and Exchange Commission. These
consolidated financial statements should be read in conjunction with the audited
financial statements and notes thereto included in Pure's Registration Statement
on Form S-4, filed on April 18, 2000.

         Preparation of the accompanying consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

         Reclassifications

         Certain reclassifications have been made to the 1999 and first quarter
of 2000 amounts to conform to the September 30, 2000 presentations.

(2)      The Merger and Contribution

         On December 13, 1999, Pure, Union Oil, TRH, Inc. and Titan entered into
the Merger Agreement. The Merger Agreement provided that a subsidiary of Pure
would merge into Titan and Titan would become a wholly-owned subsidiary of Pure.
On May 24, 2000, the Titan stockholders approved the merger and on May 25, 2000
Union Oil and Titan closed the merger. Pure began trading on the New York Stock
Exchange under the symbol "PRS" on May 26, 2000.

         Simultaneously with the merger, the Contribution occurred and Union Oil
received 32,708,067 shares of Pure common stock. Immediately following the
Contribution and the merger, Union Oil owned approximately 65.4% of outstanding
Pure common stock. Titan stockholders acquired the remaining 34.6% of Pure's
outstanding common stock by exchanging each share of Titan common stock owned
for .4302314 ("Exchange Ratio") of a share of Pure common stock.

         At the effective time of the merger, each outstanding option to
purchase Titan common stock under Titan's stock option plans (each a "Titan
Common Stock Option") was assumed by Pure (each an "Assumed Option") and became
an option to purchase that number of shares of Pure common stock equal (subject
to rounding) to the number of shares of Titan common stock that was subject to
such option immediately prior to the merger, multiplied by the Exchange Ratio.
The exercise price of each Assumed Option is equal to the quotient determined by
dividing the exercise price per share of the Titan common stock at which the
Titan Common Stock Option was exercisable immediately prior to the effective
time of the merger by the Exchange Ratio, rounded to the nearest whole cent.

         The acquisition was made by the issuance of approximately 17.3 million
shares of Pure's common stock to the stockholders of Titan. The results of
operations of Titan have been included with Pure's since May 31, 2000.

         The acquisition, accounted for on the purchase method, resulted in the
following noncash investing activities, in thousands:

          Recorded amount of assets acquired                      $ 275,614
          Deferred income tax asset                                  27,031
          Liabilities assumed                                      (150,560)
          Common stock issued and stock options assumed            (151,426)
                                                                  ---------
          Cash costs, net of cash acquired                        $     659
                                                                  =========

                                       8
<PAGE>

       The liabilities assumed primarily include amounts recorded for
preacquisition contingencies, debt of Titan of $106.9 million, and a
commodity hedge obligation of $19.3 million.

       Pro Forma Results of Operations (Unaudited)

       The following table reflects the pro forma results of operations for the
nine months ended September 30, 2000 and 1999 as though the Titan merger and the
Contribution had occurred as of January 1, 1999.The pro forma amounts are not
necessarily indicative of the results that may be reported in the future (in
thousands, except per share data).

<TABLE>
<CAPTION>
                                                                          Nine months ended September 30,
                                                                         --------------------------------
                                                                               2000            1999
                                                                         --------------    --------------
                  <S>                                                    <C>               <C>
                  Revenues                                                 $ 226,547           $  134,732
                  Net income (loss)                                        $  59,925           $   (7,569)
                  Net income (loss) per common share                       $    1.20           $    (0.15)
                  Net income (loss) per common share - assuming dilution   $    1.18           $    (0.15)
</TABLE>

(3)      Debt

         Debt consists of the following (in thousands):

<TABLE>
<CAPTION>
                                                                        September 30,        December 31,
                                                                             2000               1999
                                                                        -------------        ------------
                  <S>                                                   <C>                  <C>
                  Revolver                                                $   83,000            $       -
                  364 Revolver                                                     -                    -
                  Short-term Revolver                                              -                    -
                                                                        ------------         ------------
                                                                          $   83,000            $       -
                                                                        ============         ============
</TABLE>

Line of Credit

     In September 2000, Pure entered into two unsecured credit agreements (the
"Credit Agreements") with The Chase Manhattan Bank (the "Bank"). The Credit
Agreements are comprised of (a) a $250 million revolving credit facility
("Revolver"), with current commitments of $210 million and (b) a $250 million
364-day revolving credit facility ("364 Revolver"), with current commitments of
$210 million. All amounts outstanding on the Revolver are due and payable in
full on September 29, 2005. All amounts outstanding on the 364 Revolver on
September 28, 2001 are converted to a term loan whose outstanding amounts are
due and payable in full on September 20, 2002. A portion of the Revolver is
available for the issuance of up to $50 million of letters of credit. At
September 30, 2000, there was outstanding principal of $83 million under the
Revolver and no outstanding amounts under the 364 Revolver.

     At Pure's option, borrowings under the Credit Agreements bear interest at
either (a) the "Alternative Base Rate" (i.e. the higher of the Bank's prime
rate, or the federal funds rate plus .50% per annum), or (b) the Eurodollar rate
plus a margin ranging from .80% to .95% per annum for the Revolver and .85% to
1.00% per annum for the 364 Revolver. These margins increase as Pure's debt
coverage ratio increases. Participation fees on letters of credit are due
quarterly and range from .925% to 1.075% per annum of the outstanding amount of
letters of credit. Facility fees are due quarterly on the total of the
outstanding commitments under the Credit Agreements and range from .15% to .25%
per annum on the Revolver and .20% to .30% per annum for the 364 Revolver.

     The Credit Agreement contains various restrictive covenants and
compliance requirements, which include (a) limiting the incurrence of additional
indebtedness, (b) restrictions as to merger, sale or transfer of assets and

                                       9
<PAGE>

transactions with affiliates without the lenders' consent, (c) limitation on
dividends and distributions, (d) other financial covenants and (e) limitation on
hedging arrangements.

       Short-term Revolver

       In October 2000, Pure entered into an unsecured short-term credit
facility (the "Short-term Revolver") for purposes of its daily cash management
activity, with the Bank which establishes a revolving credit facility, up to a
maximum of $10 million. Individual borrowings may be made for up to a three week
period. The Short-term Revolver has no maturity date and is cancelable at
anytime by the Bank. The interest rate of each loan under the Short-term
Revolver is determined by agreement between Pure and the Bank. The rate shall
not exceed the maximum interest rate permitted under applicable law. Interest
rates generally are at the Bank's cost of funds plus 1% per annum. At September
30, 2000, there was no outstanding principal balance under the Short-term
Revolver.

(4)    Accrued Abandonment, Restoration and Environmental Liabilities

       At September 30, 2000 and December 31, 1999, Pure had accrued $12.6
million and $11.3 million, respectively, for the estimated future costs to
abandon and remove wells and production facilities. The amounts were charged to
depreciation, depletion and amortization expense. The total amount chargeable to
operations for abandonment (to be predominantly accrued on a unit-of- production
basis) is estimated to be approximately $29.5 million at September 30, 2000 and
December 31, 1999. This estimate is based on abandonment cost studies performed
by an independent third party.

       Pure's reserve for environmental remediation obligations totaled $1.1
million and $342,000 as of September 30, 2000 and December 31, 1999,
respectively.

(5)    Commitments and Contingencies

       General

       Pure is subject to contingent liabilities with respect to existing or
potential claims, lawsuits and other proceedings, including those involving
environmental, tax and other matters, certain of which are discussed more
specifically below. Pure accrues liabilities when it is probable that future
costs will be incurred and such costs can be reasonably estimated. Such accruals
are based on developments to date and Pure's estimates of the outcomes of these
matters and its experience in contesting, litigating and settling other matters.
As the scope of the liabilities becomes better defined, there will be changes in
the estimates of future costs, which management, currently, believes will not
have a material effect on Pure's results of operations and financial condition
or liquidity.

       Environmental matters

       Pure is subject to loss contingencies pursuant to federal, state and
local environmental laws and regulations. These include existing and possible
future obligations to investigate the effects of the release or disposal of
certain petroleum and chemical substances at various sites; to remediate or
restore these sites; to compensate others for damage to property and natural
resources, for remediation and restoration costs and for personal injuries; and
to pay civil penalties and, in some cases, criminal penalties and punitive
damages. These obligations relate to sites owned by Pure or others and are
associated with past and present operations.

       Liabilities are accrued when it is probable that future costs will be
incurred and such costs can be reasonably estimated. However, in many cases,
investigations are not yet at a stage where Pure is able to determine whether it
is liable or, even if liability is determined to be probable, to quantify the
liability or estimate a range of possible exposure. In such cases, the amounts
of Pure's liabilities are indeterminate due to the potentially large number of
claimants for any given site or exposure, the unknown magnitude of possible
contamination, the imprecise and conflicting engineering evaluations and
estimates of proper clean-up methods and costs, the unknown timing and extent of
the corrective actions that may be required, the uncertainty attendant to the
possible award of punitive damages, the recent judicial recognition of new
causes of action, or other reasons.

                                       10
<PAGE>

       As discussed in Note 4, Pure had accrued $1.1 million and $342,000 at
September 30, 2000 and December 31, 1999, respectively, for estimated future
environmental assessment and remediation costs at various sites where
liabilities for such costs are probable.

       Pure Resources Employment and Severance Agreements

       Under circumstances specified in the employment and/or severance
agreements entered into between Pure and its officers, each covered officer may
have the right to require Pure to purchase shares currently held or subsequently
obtained by the exercise of any option held by the officer at a calculated "net
asset value" per share (as defined in each officer's employment/severance
agreement). The circumstances under which certain officers may exercise this
right include the termination of the officer's employment for any reason after
three years following the merger, the termination of the officer without cause,
a change in control of either Pure or Unocal Corporation ("Unocal") and other
events specified in the agreements. The net asset value per share is calculated
by reference to each common share's pro rata amount of the present value of
proved reserves discounted at 10%, as defined, times 110%, less funded debt, as
defined. The amount reflected in the consolidated balance sheet at September 30,
2000, as common stock subject to repurchase is the estimated net asset value, as
defined, for each applicable officer's shares, owned prior to December 1, 1999,
and unexercised option shares less the amount of proceeds that would be received
upon exercise of the related options. Deferred compensation related to such
shares and options is calculated as the difference between the estimated net
asset value of the relevant number of Pure shares and the market value of Pure
shares held by each covered officer in the case of shares held or the exercise
price of shares subject to option. This arrangement is being treated as a
variable plan under Accounting Principles Board Opinion No. 25 "Accounting for
Stock Based Compensation." Consequently, the total compensation for both shares
held and shares subject to option will be measured at the end of each quarter as
the calculated amount of net asset value and the market price of Pure shares
change. The total amount determined will be amortized as compensation expense
over a three-year period with any changes after three years being expensed in
the period of determination. On an annualized basis, at September 30, 2000, Pure
would incur a non-cash expense of approximately $17.2 million per year to
amortize the deferred compensation recorded as a result of these arrangements.

       Each employment and/or severance agreement will also obligate Pure to
make a severance payment ranging from one to three times the officer's salary,
including an average bonus, upon the occurrence of specified events such as
termination without cause or upon change in control. The aggregate severance
amounts potentially payable under these agreements total $4.4 million based on
the current salaries of the affected officers.

       Non-Dilution Agreement

       Pure and Union Oil entered into a non-dilution agreement that provides
Union Oil with the right to maintain its percentage ownership of Pure. If Pure
issues capital stock, other than common stock issued under board-approved
incentive plans, for cash or credit, Union Oil will have the right to purchase
or subscribe for the number or amount of such capital stock equal to its
ownership percentage of Pure, up to 65.4%, at the same price at which the
capital stock is being issued. Pure must provide Union Oil with notice of an
issuance subject to this preemptive right at least 10 days prior to the issuance
and, if Union Oil elects to exercise the right, it must do so in such a way as
not to delay pricing and closing of the issuance. The preemptive right given by
Pure will terminate if unexercised within 10 days after receipt of the notice of
the issuance of the capital stock.

       If Pure issues any capital stock in exchange for property other than cash
or credit, Union Oil will have the right to purchase from Pure the additional
number of shares of capital stock necessary to enable Union Oil to maintain its
ownership percentage in Pure, up to 65.4%. Pure must give Union Oil written
notice of the issuance not later than 20 days prior to such issuance, and Union
Oil will have 30 days from the date of the issuance to elect to exercise its
rights by giving written notice to Pure. The cash price per share to be paid by
Union Oil for the additional shares of capital stock will be the market trading
price per share of Pure's common stock at the time of the issuance or in the
case of other capital stock, as determined in good faith by the Pure board of
directors.

                                       11
<PAGE>

       Letters of Credit

       At September 30, 2000, Pure had outstanding letters of credit of
$144,000, which were issued through the Revolver.

         Other matters

         Pure also has certain other contingent liabilities with respect to
litigation, claims and contractual agreements arising in the ordinary course of
business. On the basis of management's best assessment of the ultimate amount
and timing of these events, such expenses, or judgments, are not expected to
have a material adverse effect on Pure's financial condition or liquidity.

(6)      Earnings per Common Share

       The following table sets forth the computation of basic and diluted
earnings per common share (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                                       Three months ended        Nine months ended
                                                                          September 30,             September 30,
                                                                      ---------------------    ----------------------
                                                                        2000        1999          2000        1999
                                                                      ---------   ---------    ---------   ----------
<S>                                                                   <C>         <C>          <C>         <C>
Numerator:

   Net income and numerator for basic and diluted net income
   per common share - income to available common
   stockholders                                                       $  23,986   $   6,844    $  54,682   $    9,758
                                                                      ---------   ---------    ---------   ----------
Denominator:
   Denominator for basic net income per common share -
   weighted  average common shares (a)                                   50,028      32,709       40,417       32,709

   Effect of dilutive securities - employee stock option not
   subject to "put" right                                                   209           -           77            -


   Dilutive effect of officers' stock options subject to the "put"
   right under employment/severance agreements (Note 5)                     270           -          125            -


   Dilutive effect of officers' individual common stock held
   subject to the "put" right under employment/severance
   agreements (Note 5)                                                      576           -          313            -
                                                                      ---------   ---------    ---------   ----------
   Denominator for diluted net income per common share -
   adjusted weighted average common shares an assumed
   conversions                                                           51,083      32,709       40,932       32,709
                                                                      =========   =========    =========   ==========
   Basic net income per common share                                   $   0.48   $    0.21    $    1.35   $     0.30
                                                                      =========   =========    =========   ==========
   Diluted net income per common share                                $    0.47   $    0.21    $    1.34   $     0.30
                                                                      =========   =========    =========   ==========
</TABLE>

____________

(a)  Assumes that the common stock Union Oil received for its contribution of
     the Permian Basin business unit was issued and outstanding since January 1,
     1999.

     Employee stock options to purchase 5,022,928 shares of common stock were
outstanding at September 30, 2000 but only 4,764,660 and 4,754,660 were included
in the computation of diluted net income per common share for the

                                       12
<PAGE>

three and nine months ended September 30, 2000 were anti-dilutive due to (a) the
option price being greater than the average market price of the common stock of
Pure, since May 26, 2000 or (b) the assumed proceeds under the treasury stock
method derived more shares being repurchased than the related options. There
were no potentially dilutive securities in 1999.

(7)      Incentive Plans

         Pure 1999 Incentive Plan

         In connection with the merger agreement, Pure's board of directors
adopted, and Union Oil as sole stockholder of Pure approved, the Pure 1999
Incentive Plan. The plan provides that Pure may grant awards of Pure common
stock under the Pure 1999 Incentive Plan. The awards under the Pure 1999
Incentive Plan include (a) stock options that do not qualify as incentive stock
options under Section 422 of the Internal Revenue Code, (b) stock appreciation
rights, or "SARs", (c) cash awards, (d) stock awards and (e) performance awards.
These awards, other than cash awards, may be settled in shares of restricted or
unrestricted common stock of Pure.

         The number of shares of Pure common stock that may be subject to
outstanding awards under the Pure 1999 Incentive Plan at any one time is equal
to twelve percent of the total number of outstanding shares of Pure common stock
plus outstanding common stock equivalents, as defined in the 1999 Pure Incentive
Plan, minus the total number of shares of Pure common stock subject to
outstanding awards under any other stock-based plan for employees or directors
of Pure. The number of shares authorized under the Pure 1999 Incentive Plan and
the number of shares subject to an award under the Pure 1999 Incentive Plan will
be adjusted for stock splits, stock dividends, recapitalizations, mergers, and
other changes affecting the capital stock of Pure.

         The board of directors of Pure or any committee designated by it will
administer the Pure 1999 Incentive Plan. Currently, Pure's Compensation
Committee administers the plan and has broad discretion to administer the Pure
1999 Incentive Plan, interpret its provisions and adopt policies for
implementing the Pure 1999 Incentive Plan.

         The following table calculates the number of shares or options
available to grant under Pure's 1999 Incentive Plan as of September 30, 2000:

<TABLE>
               <S>                                                    <C>
               Common stock outstanding                               50,033,594
               Options awarded under the Pure 1999 Incentive Plan      4,838,060
               Assumed options from Titan                                458,011
               Options exercised                                         (33,466)
               Options cancelled/forfeited                              (239,677)
                                                                    ------------
               Common stock equivalents                               55,056,522
                                                                    ============

Maximum shares/options allowed under the Pure 1999 Incentive Plan      6,606,783

Less: Outstanding awards under the Pure 1999 Incentive Plan           (4,610,060)
      Outstanding options under the Titan 1996 Incentive Plan           (332,194)
      Outstanding options under the Titan 1999 Incentive Plan            (62,887)
      Outstanding options under the OEDC Stock Awards Plan               (17,787)
                                                                    ------------
Shares/options available for future grant                              1,583,855
                                                                    ============
</TABLE>

                                       13
<PAGE>

     In connection with the merger agreement, the board of directors of Pure
granted stock options to purchase Pure common stock to the officers of Pure,
under the Pure 1999 Incentive Plan. The options granted, on December 13, 1999,
are described in the following table:

      Number of        Exercise
      Options           Price         Vesting Period          Expiration Date
     ------------     ---------   ------------------------  -------------------
       1,500,000       $  9.30       Ratably over 3 years    December 13, 2009
       1,010,000       $  9.30       Ratably over 4 years    December 13, 2009
         600,000       $ 17.08       Ratably over 3 years    December 13, 2009
         390,000       $ 17.08       Ratably over 4 years    December 13, 2009
     -----------
       3,500,000
     ===========

     As of September 30, 2000, Pure granted 1,338,060 additional options to non-
officers. Certain grants were done at an exercise price below Pure's stock price
on the date of grant; consequently, Pure recorded deferred compensation of $3.0
million. The deferred compensation will be amortized over the vesting period,
generally four years.

     Assumed Titan Stock Options

     Pure, as part of the merger, assumed each outstanding and unexercised
option to purchase a share of Titan stock issued under various Titan related
employee benefit plans. As a result of the merger all the outstanding Titan
options fully vested. Each Titan option converted into an option to purchase
 .4302314 shares of Pure common stock at an exercise price equal to the exercise
price of the Titan options divided by .4302314. At May 26, 2000, Pure assumed
Titan options, on a post-merger converted basis, to purchase 458,011 shares of
Pure common stock.

(8)  Other Current Liabilities

     The other current liabilities consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                            September 30,      December 31,
                                                               2000                1999
                                                          ---------------     --------------
                                                            (Unaudited)
       <S>                                                <C>                 <C>
       Accrued oil and gas production expenses             $   20,635           $          -
       Income taxes payable                                     6,887                      -
       Accrued interest payable                                   150                      -
       Other                                                      284                      -
                                                         ------------         --------------
                                                           $   27,956           $          -
                                                         ============         ==============
</TABLE>

                                       14
<PAGE>

(9)    Exploration and Abandonment

       Exploration and abandonment expense consists of the following (in
       thousands):

<TABLE>
<CAPTION>
                                                  Three months ended           Nine months ended
                                                     September 30,                September 30,
                                                -----------------------     ------------------------
                                                  2000          1999           2000          1999
                                                ---------     ---------     ---------     ----------
         <S>                                    <C>           <C>           <C>           <C>
         Geological and geophysical staff        $  1,201        $  439       $ 2,061        $ 1,383
         Uneconomical exploratory projects          3,261             -         4,650              -
         Impaired unproved properties                 643           194         1,333            570
         Plugging and abandonment costs               477             -           556              -
         Seismic costs                                714            12           723            594
         Other                                        274           412           326            870
                                                ---------     ---------     ---------     ----------
                                                 $  6,570      $  1,057       $ 9,648        $ 3,417
                                                =========     =========     =========     ==========
</TABLE>

(10)   Derivative Financial Instruments

       Pure may utilize various option and swap contracts and other financial
instruments to economically hedge the effect of price changes on future oil and
gas production and changes in interest rates related to Pure's debt obligations.
The counterparties to Pure's financial instruments may include regulated
exchanges, international and domestic financial institutions and other
industrial companies. All of the counterparties to Pure's financial instruments
must pass certain credit requirements deemed sufficient by management before
trading financial instruments with Pure. These counterparties may expose Pure to
losses in the event of non-performance. In the opinion of management, the off-
balance-sheet risk associated with these instruments is immaterial.

       The following table sets forth the future volumes by year and the range
of prices to be received based upon the fixed price of the individual option and
swap contracts and other financial instruments outstanding at September 30,
2000, all of which were assumed as a result of the Titan merger:

<TABLE>
<CAPTION>
                                                                      2000                 2001
                                                                 --------------       --------------
          <S>                                                    <C>                  <C>
          Gas related derivatives:
             Collar options:
               Volume (MMBtu)                                       2,760,000             4,065,000
               Index price per MMBtu (floor-ceiling prices)       $ 2.60 - $3.32        $ 2.60 - $3.32

             Basis differential swaps:
               Volume (MMBtu)                                       2,760,000             4,065,000
               Index Price per MMBtu                              $ .095 - $.120        $ .095 - $.120

          Oil related derivatives:
             Collar options:
               Volume (Bbls)                                          230,000               452,500
               Index price per Bbl (floor-ceiling prices)         $16.50 - $20.48       $16.50 - $20.48
</TABLE>


         The index price for the natural gas collars settles based on NYMEX
Henry Hub, while the oil collar settles based on the prices for West Texas
Intermediate on NYMEX. The basis differential swaps lock in the basis
differential between NYMEX Henry Hub and the El Paso/Permian delivery point or
the Waha West Texas delivery point.

                                       15
<PAGE>

       As a result of the Titan merger, Pure marked to market as of the merger
date all the outstanding financial derivatives held by Titan which resulted in a
liability of approximately $19.3 million (see Note 2). The deferred commodity
hedges amount will be amortized as a non-cash benefit to oil and gas revenues
over the remaining term of the hedges as the related production takes place.

(11)   Related Party Transactions

       In September 2000, Pure entered into a Joint Development Agreement
("JDA") to explore a designated prospect area with a group of industry partners,
one of which is an officer and director of Pure. The properties associated with
the JDA represent assets owned by the industry partners and the officer prior to
his employment with Pure and its predecessor entities. The officer has a 10%
interest in the JDA.The terms of the JDA are comparable to those in the industry
and would be reached in an arms-length transaction with a third party.There was
no cash initially paid to the industry partners as Pure is carrying the industry
partners in the drilling of the first four wells in the JDA, subject to various
other provisions of the JDA.

                                       16
<PAGE>

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations

Union Oil Merger

       On December 13, 1999, Titan and Union Oil entered into an agreement to
merge Titan and the Permian Basin business unit of Union Oil into a new company.
The resulting company is Pure Resources, Inc., a publicly-traded company.
Titan's assets historically included oil and gas exploration and production
assets in the Permian Basin of West Texas and southeastern New Mexico, Brenham
Dome area of south central Texas and the Central Gulf Coast region of Texas.

       On May 24, 2000, the Titan stockholders approved the merger and on May
25, 2000 Union Oil and Titan closed the merger. Pure began trading on the New
York Stock Exchange under the symbol "PRS" on May 26, 2000.

       Pure has approximately 50 million shares of common stock outstanding
after completion of the merger. Union Oil holds approximately 65.4% (32.7
million shares) of Pure. The remaining 34.6% (17.3 million shares) ownership is
held by the previous stockholders of Titan common stock who exchanged each share
of Titan common stock for .4302314 of a share of Pure common stock.

General

       Pure is an independent energy company engaged in the exploitation,
development, exploration and acquisition of oil and gas properties. Pure's
strategy is to grow reserves, production and net income per share by:

 .    identifying acquisition opportunities that provide significant development
     and exploratory drilling potential,

 .    exploiting and developing its reserve base,

 .    pursuing exploration opportunities for oil and gas reserves,

 .    capitalizing on advanced technology to identify, explore and exploit
     projects, and

 .    emphasizing a low overhead and operating cost structure.

       Pure uses the successful efforts method of accounting for its oil and gas
producing activities. Costs to acquire mineral interests in oil and gas
properties, to drill and equip exploratory wells that result in proved reserves,
and to drill and equip development wells are capitalized. Costs to drill
exploratory wells that do not result in proved reserves and geological and
geophysical costs are expensed. Costs of significant nonproducing properties,
wells in the process of being drilled and significant development projects are
excluded from depletion until such time as the related project is developed and
proved reserves are established or impairment is determined.

Impact of Commodity Prices

       A return of low prices for crude oil, natural gas or other commodities
sold by Pure could have a material adverse effect on Pure's results of
operations and cash flows, on the quantities of crude oil and natural gas that
can be economically produced from its fields, and on the quantities and economic
values of its proved reserves and potential resources.Such adverse pricing
scenarios could result in write-downs of the carrying values of Pure's
properties and materially adversely affect Pure's financial condition, as well
as its results of operations and cash flows.

                                       17
<PAGE>

Impact on Pure of Ancillary Agreements and Severance Arrangements

     Stockholders Voting Agreement

     Pure, Union Oil and Jack D. Hightower (Chairman of the Board, Chief
Executive Officer and President of Pure) have entered into a stockholders voting
agreement in which Union Oil and Mr. Hightower have agreed to vote their shares
of Pure capital stock to cause two persons designated by Mr. Hightower, up to
five persons designated by Union Oil, and one person agreed upon by Union Oil
and Mr. Hightower to be elected to Pure's board of directors. Under the
agreement, Hightower will vote to elect to the Pure board (a) five designees of
Union Oil, if Union Oil owns greater than 50% of Pure's common stock; (b) four
designees of Union Oil, if Union Oil owns greater than 35% but not more than 50%
of Pure's common stock; or (c) two designees of Union Oil, if Union Oil owns
greater than 10% but not more than 35%.

     Union Oil will have the right to approve the nomination of the directors
designated by Mr. Hightower, other than Mr. Hightower himself, which approval
may not be unreasonably withheld. No more than two of the persons designated by
Union Oil under the agreement may be affiliates of Union Oil. In the event that
Union Oil is entitled to designate three or more persons under the agreement,
one of the Union Oil affiliates designated must be approved by Mr. Hightower,
and any non-Union Oil affiliate designated must be approved by Mr. Hightower. In
each case Mr. Hightower's approval may not be unreasonably withheld. Pursuant to
the Merger Agreement, the board initially consists of eight directors.

     The stockholders voting agreement will terminate if Union Oil and its
affiliates beneficially own less than 10% of the outstanding common stock of
Pure or Mr. Hightower ceases to be the Chief Executive Officer of Pure.

     Other Matters

     Under the business opportunities agreement between Pure and Union Oil, Pure
has agreed to limit its business activities. The agreement's restrictions may
limit Pure's ability to diversify its operating base following the merger.
Because of Pure's geographic concentration, any regional events that increase
costs, reduce availability of equipment or supplies, reduce demand or limit
production may impact Pure more than if its operations were more geographically
diversified.

     Mr. Hightower's employment agreement and new Pure officer severance
agreements will entitle covered Pure officers to require Pure to purchase his or
her Pure common stock at a price that may be in excess of market value in the
event of a change of control of Pure or Unocal and in some circumstances
following termination of employment. On September 30, 2000, when the trading
price of Pure common stock was $21.19 per share, the "per share net asset value"
of Pure, calculated in accordance with the agreements was estimated at
approximately $24.03. At September 30, 2000, Pure would incur a non-cash expense
of approximately $17.2 million per year for three years to amortize the deferred
compensation recorded as a result of these arrangements. The amortization
amounts will change quarterly based on relative changes in the net asset value
and market value of the Pure shares.

Basis of Presentation

     The accompanying consolidated financial statements, prior to the merger,
are presented as a carve-out from the financial statements of Union Oil and
reflect the activity related to its Permian Basin business unit during the
periods presented. The functions listed below were managed centrally and support
several business units. The costs were allocated based on each business unit's
share of total revenues, prior to December 31, 1999, and were considered
reasonable by Union Oil's management. Effective January 1, 2000, Union Oil
established procedures by which to accumulate actual costs associated with
Permian Basin business unit. After December 31, 1999, results of operations for
Pure include only actual costs that are attributable to Pure. Support costs
decreased in the first and second quarters of 2000, as compared to past
quarters, as a result of a reduction of support being provided from Union Oil's
Sugar Land, Texas and Lafayette, Louisiana offices due to the then pending
merger of the Permian Basin business unit with Titan.

                                       18
<PAGE>

         General and Administrative Costs

       General and administrative costs include charges related to activities
such as accounting, legal, human resources, marketing, planning and public
relations. General and administrative costs allocated from Union Oil to the
Permian Basin business unit were $2.0 million and $5.6 million for the three and
nine months ended September 30, 1999, respectively. General and administrative
costs charged to the Permian Basin business unit were $1.4 million for the nine
months ended September 30, 2000. There were no allocated general and
administrative costs charged to the Permian Basin business unit by Union Oil for
the three months ended September 30, 2000.

         Indirect Production Costs

       Indirect production costs include charges for procurement and logistics,
reservoir engineering, production engineering, workover, drilling, loss control,
and health, environment and safety. Indirect production costs allocated from
Union Oil to the Permian Basin business unit were $1.3 and $2.8 million for the
three and nine months ended September 30, 1999, respectively. Indirect
production costs charged to the Permian Basin business unit were $900,000 for
the nine months ended September 30, 2000. There were no allocated indirect
production costs charged to the Permian Basin business unit by Union Oil for the
three months ended September 30, 2000.

         Indirect Exploration Costs

       Indirect exploration costs include charges for the chief geologist's
department, the chief geophysicist's department, and the land department.
Exploration costs allocated from Union Oil were $400,000 and $1.4 million for
the three and nine months ended September 30, 1999, respectively. Indirect
exploration costs charged to the Permian Basin business unit were $200,000 for
the nine months ended September 30, 2000. There were no allocated indirect
exploration costs charged to the Permian Basin business unit by Union Oil for
the three months ended September 30, 2000.

Operating Data

<TABLE>
<CAPTION>
                                                                 Three months ended            Nine months ended
                                                                    September 30,                 September 30,
                                                               -----------------------      ------------------------
                                                                 2000           1999           2000          1999
                                                               -----------  ----------      -----------   ----------
<S>                                                            <C>          <C>             <C>           <C>
Production:
   Oil and condensate (MBbls)...............................      1,643            909          3,683          2,734
   Natural gas (MMcf).......................................     11,733          7,176         27,412         21,897
   Total (MBOE).............................................      3,599          2,105          8,251          6,384

Average daily production:
   Oil and condensate (Bbls)................................     17,862          9,882         13,440         10,015
   Natural gas (Mcf)........................................    127,532         78,004        100,045         80,210
   Total (BOE)..............................................     39,117         22,882         30,114         23,383

Average sales price per unit (excluding effects of hedging):
   Oil and condensate (per Bbl).............................   $  30.14       $  20.07       $  28.95       $  15.89
   Natural gas (per Mcf)....................................   $   3.57       $   2.35       $   3.04       $   1.69
   Total (per BOE)..........................................   $  25.41       $  16.68       $  23.01       $  12.62

Average sales price per unit (including effects of hedging):
   Oil and condensate (per Bbl).............................   $  29.25       $  20.07       $  28.46       $  15.89
   Natural gas (per Mcf)....................................   $   3.58       $   2.35       $   3.04       $   1.69
   Total (per BOE)..........................................   $  25.02       $  16.68       $  22.80       $  12.62

Expenses per BOE:
   Production costs, excluding production and other taxes...   $   4.08       $   5.36       $   3.89       $   4.09
   Production and other taxes...............................   $   1.72       $   1.11       $   1.74       $   0.98
   General and administrative...............................   $   1.13       $   1.07       $   0.87       $   0.91
   Depletion, depreciation and amortization.................   $   3.80       $   3.92       $   3.76       $   3.93
</TABLE>

                                       19
<PAGE>

Results of Operations

       Pure completed the Titan merger in May 2000. The results of operations
and cash flows for Pure include the Titan results of operations and cash flows
from June 2000 forward.

       Three Months Ended September 30, 2000 as compared to Three Months Ended
       September 30, 1999

         Pure's revenues from the sale of oil and natural gas were $48.1 million
and $42.0 million for the three months ended September 30, 2000 and $18.2
million and $16.9 million for the three months ended September 30, 1999,
respectively. Compared with 1999, Pure's average oil sales prices increased by
$9.19 per Bbl, or 46%, while average gas sales prices increased by $1.23 per
Mcf, or 52%. The increase in production of 1,494,000 BOE in 2000 is primarily
the result of the Titan merger, offset by normal production declines. The Titan
properties contributed approximately 1,519,000 BOE of production in the third
quarter of 2000.

         Pure's oil and gas production expenses excluding production and other
taxes were $14.7 million ($4.08 per BOE) and $11.3 million ($5.36 per BOE) for
the three months ended September 30, 2000 and 1999, respectively. Production
expenses increased $3.4 million which is primarily the result of (a) production
costs from the Titan properties of $6.1 million, (b) a decrease of $546,000 in
special well repair expenditures between periods, (c) costs related to the
assimilation of the Titan properties without the effects of any economies of
scale, and (d) decrease of $1.3 million between periods in Union Oil's indirect
costs. As of the date of the Titan merger, Pure no longer incur s Union Oil's
indirect costs. As a result of the merger and new management of all of Pure
properties, there have been certain fundamental changes in how the assets are
managed. Certain costs that a major oil company, such as Union Oil, treated as
production expenses may be more readily seen as general and administrative
expenses by an independent oil company, such as Pure. Accordingly, certain costs
will be reflected in general and administrative expenses.

         Production and other taxes were $6.2 million ($1.72 per BOE) and $2.3
million ($1.11 per BOE) for the three months ended September 30, 2000 and 1999,
respectively. The increase in production and other taxes is primarily
attributable to increase in oil and gas revenues associated with increased
commodity prices and the revenues from the assets in the Titan merger.

         General and administrative expenses were $4.1 million ($1.13 per BOE)
and $2.2 million ($1.07 per BOE) for the three months ended September 30, 2000
and 1999, respectively. General and administrative expenses increased as a
result of (a) the Titan merger, (b) subsequent to merger, the classification of
certain costs as general and administrative versus production expense, and (c)
offset by a $2.0 million decrease in Union Oil's indirect costs between periods.
As of the date of the Titan merger, Pure no longer incurs Union Oil's indirect
costs.

         Depletion, depreciation, and amortization expense (DD&A) was $13.7
million ($3.80 per BOE) and $8.3 million ($3.92 per BOE) for the three months
ended September 30, 2000 and 1999, respectively. DD&A increased in absolute
amounts due primarily to the inclusion of the Titan properties for the three
months ended September 30, 2000.

         Pure's exploration and abandonment expense was $6.6 million and $1.1
million for the three months ended September 30, 2000 and 1999, respectively.
Increase in exploration expenses is primarily related to (a) increase in
geological and geophysical staff and related costs as a result of the Titan
merger, (b) dry hole costs increased $3.1 million between the periods due to
increased drilling activity in 2000 and (c) offset by a $400,000 decrease in
Union Oil's indirect costs between periods.

         In 2000, Pure has interest expense due to assuming the debt of Titan in
the merger.

         Other expense primarily relates to transitional type costs associated
with the merger, the Union Oil contribution of properties into Pure and certain
transaction costs of Union Oil directly related to the merger.

         Income tax expense was $12.9 million and $3.3 million for the three
months ended September 30, 2000 and 1999, respectively. Income tax expense
increased due to increased earnings between periods.

                                       20
<PAGE>

         Nine Months Ended September 30, 2000 as compared to Nine Months Ended
         September 30, 1999

         Pure's revenues from the sale of oil and natural gas were $104.8
million and $83.3 million for the nine months ended September 30, 2000 and $43.4
million and $37.1 million for the nine months ended September 30, 1999,
respectively. Compared with 1999, Pure's average oil sales prices increased by
$12.57 per Bbl, or 79%, while average gas sales prices increased by $1.35 per
Mcf, or 79%. The increase in production of 1,868,000 BOE in 2000 is primarily
the result of the Titan merger, offset by normal production declines. The Titan
properties contributed approximately 1,964,000 BOE of production in 2000.

         Pure's oil and gas production expenses excluding production and other
taxes were $32.1 million ($3.89 per BOE) and $26.1 million ($4.09 per BOE) for
the nine months ended September 30, 2000 and 1999, respectively. Production
expenses increased $6.0 million which is the result of (a) production costs from
the Titan properties of $7.6 million, (b) an increase of $2.5 million in special
well repair expenditures between periods, (c) costs related to the assimilation
of the Titan properties without the effects of any economies of scale, and (d)
decrease of $1.9 million between periods in Union Oil's indirect costs. As of
the date of the Titan merger, Pure no longer incur s Union Oil's indirect
costs. As a result of the merger and new management of all of Pure properties,
there have been certain fundamental changes in how the assets are managed.
Certain costs that a major oil company, such as Union Oil, treated as production
expenses may be more readily seen as general and administrative expenses by an
independent oil company, such as Pure. Accordingly, certain costs will be
reflected in general and administrative expenses.

         Production and other taxes were $14.4 million ($1.74 per BOE) and $6.3
million ($.98 per BOE) for the nine months ended September 30, 2000 and 1999,
respectively. The increase in production and other taxes is primarily
attributable to increase in oil and gas revenues associated with increased
commodity prices and the revenues from the assets in the Titan merger.

         General and administrative expenses were $7.2 million ($.87 per BOE)
and $5.8 million ($.91 per BOE) for the nine months ended September 30, 2000 and
1999, respectively. General and administrative expenses increased as a result of
(a) the Titan merger, (b) subsequent to merger, the classification of certain
costs as general and administrative versus production expense, and (c) offset by
a $4.1 million decrease in Union Oil's indirect costs between periods. As of the
date of the Titan merger, Pure no longer incur s Union Oil's indirect costs.

         Depletion, depreciation, and amortization expense (DD&A) was $31.0
million ($3.76 per BOE) and $25.1 million ($3.93 per BOE) for the nine months
ended September 30, 2000 and 1999, respectively. DD&A increased in absolute
amounts due primarily to the inclusion of the Titan properties since May 31,
2000.

         Pure's exploration and abandonment expense was $9.6 million and $3.4
million for the nine months ended September 30, 2000 and 1999, respectively.
Increase in exploration expenses is primarily related to (a) increase in
geological and geophysical staff and related costs as a result of the Titan
merger, (b) dry hole costs increased $4.6 million between the periods due to
increased drilling activity in 2000 and (c) offset by a $1.1 million decrease in
Union Oil's indirect costs between periods.

         In 2000, Pure has interest expense due to assuming the debt of Titan in
the merger.

         Other expense primarily relates to transitional type costs associated
with the merger, the Union Oil contribution of properties into Pure and certain
costs of Union Oil directly related to the merger.

         Income tax expense was $29.4 million and $4.8 million for the nine
months ended September 30, 2000 and 1999, respectively. Income tax expense
increased due to increased earnings between periods.

                                       21
<PAGE>

Liquidity and Capital Resources

         Pure's primary sources of capital subsequent to the merger are its
cash flow from operations and bank financing. Pure requires capital primarily
for its exploration, development and acquisition of oil and gas properties,
repayment of indebtedness and general working capital needs.

         Pure's primary source of capital resources prior to the merger was its
cash flow from operations. Pure's other source of capital resources prior to the
merger, if needed, was infusion of funds from Union Oil. All financing
activities for Pure prior to the closing of the merger were performed at the
corporate level for Union Oil and its business units, and Union Oil has
historically provided cash management services through a centralized treasury
system. Pure has historically maintained no cash balances and no interest has
been charged or received on the cash balances transferred or received from Union
Oil. Pure's net cash settlements with Union Oil were included in the owner's net
investment on the balance sheets and were shown as settlements with owner in the
financing activities on the consolidated statements of cash flows. The net
settlements with Union Oil were $15.8 million and $25.2 million for the nine
months ended September 30, 2000 and 1999, respectively. Subsequent to the
merger, Union Oil has not provided any additional cash management services to
Pure.

         Net Cash Provided by Operating Activities

         Cash flow from operating activities for Pure was $41.7 million and
$88.4 million for the three and nine months ended September 30, 2000 compared to
$15.9 million and $36.1 million for the three and nine months ended September
30, 1999. The increase in net cash provided by operating activities was
primarily due to increased commodity prices and the Titan merger.

Capital Expenditures

         Capital expenditures were $28.3 million and $64.3 million for the three
and nine months ended September 30, 2000 as compared to $5.9 million and $11.1
million for the three and nine months ended September 30, 1999, respectively.
Capital expenditures increased significantly in the second and third quarters of
2000 due mainly to an increase in developmental and exploratory expenditures.
The increased expenditures included the purchase of additional interests in the
San Juan Basin, North Riley, Reinecke, and Gomez fields for $5.5 million, $3.5
million, $2.3 million and $1.0 million, respectively. Development drilling was
significantly reduced in the first and second quarters of 1999 primarily due to
decreased commodity prices.

         Pure and Titan each estimated $50 million of capital expenditures for
2000 for a combined total of approximately $100 million. The primary sources of
funding will be Pure's cash flow from operations and funding from credit
facilities.

         Costs Incurred

         Pure requires capital primarily for the acquisition, exploration and
development of oil and gas properties as well as for general working capital
needs. The following table sets forth costs incurred by Pure in its acquisition,
exploration and development activities.

                                    Three months ended       Nine months ended
                                       September 30,            September 30,
                                  ----------------------   ---------------------
                                   2000            1999      2000          1999
                                  ---------  -----------   ----------  ---------
                                              (in thousands of dollars)
         Property acquisition:
            Proved (a)             $    885      $   455   $ 245,278    $   494
            Unproved (a)              3,702            4      16,489         84
         Exploration                 11,008        1,833      17,926      3,950
         Development                 12,951        4,447      28,171      9,389
                                  ---------    ---------  ----------   --------
            Total costs incurred   $ 28,545      $ 6,739   $ 307,864    $13,917
                                  =========    =========  ==========   ========

                                       22
<PAGE>

________________

(a)    Includes $229.0 million and $12.8 million of proved and unproved
properties, respectively, related to the Titan merger.

Capital Resources

       Pure's primary capital resources are net cash provided by operating
activities and the availability under the Credit Agreement, of which
approximately $337 million was available at September 30, 2000.

       Credit Agreement

       In September 2000, Pure entered into two unsecured credit agreements (the
"Credit Agreements") with The Chase Manhattan Bank (the "Bank"). The Credit
Agreements are comprised of (a) a $250 million revolving credit facility
("Revolver"), with current commitments of $210 million and (b) a $250 million
364-day revolving credit facility ("364 Revolver"), with current commitments of
$210 million. All amounts outstanding on the Revolver are due and payable in
full on September 29, 2005. All amounts outstanding on the 364 Revolver on
September 28, 2001 are converted to a term loan whose outstanding amounts are
due and payable in full on September 20, 2002. A portion of the Revolver is
available for the issuance of up to $50 million of letters of credit, of which
$144,000 was outstanding at September 30, 2000. At September 30, 2000, there was
outstanding principal of $83 million under the Revolver and no outstanding
amounts under the 364 Revolver.

       At Pure's option, borrowings under the Credit Agreements bear interest
at either (a) the "Alternative Base Rate" (i.e. the higher of the Bank's prime
rate, or the federal funds rate plus .50% per annum), or (b) the Eurodollar rate
plus a margin ranging from .80% to .95% per annum for the Revolver and .85% to
1.00% per annum for the 364 Revolver. These margins increase as Pure's debt
coverage ratio increases. Participation fees on letters of credit are due
quarterly and range from .925% to 1.075% per annum of the outstanding amount of
letters of credit. Facility fees are due quarterly on the total of the
outstanding commitments under the Credit Agreements and range from .15% to .25%
per annum on the Revolver and .20% to .30% per annum for the 364 Revolver.

       The Credit Agreement contains various restrictive covenants and
compliance requirements, which include (a) limiting the incurrence of additional
indebtedness, (b) restrictions as to merger, sale or transfer of assets and
transactions with affiliates without the lenders' consent, (c) limitation on
dividends and distributions, (d) other financial covenants and (e) limitation on
hedging arrangements.

       Liquidity and Working Capital

       At September 30, 2000, Pure had $2.9 million of cash and cash
equivalents. Pure's ratio of current assets to current liabilities was .97 at
September 30, 2000. The working capital deficits are due partially to Pure's
maintaining low cash levels for cash management purposes. Pure, at September 30,
2000, had availability under its Credit Agreement to fund any working capital
deficit. As previously discussed, Pure had no working capital at December 31,
1999.

       Short-term Revolver

       In October 2000, Pure entered into an unsecured short-term credit
facility (the "Short-term Revolver") for purposes of its daily cash management
activity, with the Bank which establishes a revolving credit facility, up to a
maximum of $10 million. Individual borrowings may be made for up to a three week
period. The Short-term Revolver has no maturity date and is cancelable at
anytime by the Bank. The interest rate of each loan under the Short-term
Revolver is determined by agreement between Pure and the Bank. The rate shall
not exceed the maximum interest rate permitted under applicable law. Interest
rates generally are at the Bank's cost of funds plus 1% per annum. At September
30, 2000, there was no outstanding principal balance under the Short-term
Revolver.

                                       23
<PAGE>

Other Matters

       Stock Options and Compensation Expense

       In connection with the merger, the Contribution and subsequent issuances,
Pure issued options to officers and non-officers to purchase 4,838,060 shares of
Pure common stock. Certain options awarded the officers and non-officers had an
exercise price that was below the Pure stock price on the date of grant.
Accordingly, Pure recorded deferred compensation of $3.0 million related to non-
officer options and will expense the amount over a four-year period. For the
three and nine months ended September 30, 2000 Pure expensed approximately
$166,000 and $429,000, respectively, related to these options. The options
related to officers are subject to the "put" discussed in the following
paragraph.

       As discussed in Note 5 of the Notes to Consolidated Financial Statements
officers of Pure may have the right to require Pure to purchase shares owned as
of December 1, 1999 or subsequently obtained by the exercise of any option held
by the officer at a calculated "net asset value" per share (as defined in each
officer's employment/severance agreement). The circumstances under which certain
officers may exercise this right include the termination of the officer's
employment for any reason after three years following the merger, the
termination of the officer without cause, a change in control of either Pure or
Unocal Corporation ("Unocal") and other events specified in the agreements. The
net asset value per share is calculated by reference to each common share's pro
rata amount of the present value of proved reserves discounted at 10%, as
defined, times 110%, less funded debt, as defined. The amount reflected in the
consolidated balance sheet at September 30, 2000, as common stock subject to
repurchase is the estimated net asset value, as defined, for each applicable
officer's shares, owned prior to December 1, 1999, and unexercised option shares
less the amount of proceeds that would be received upon exercise of the related
options. Deferred compensation related to such shares and options is calculated
as the difference between the estimated net asset value of the relevant number
of Pure shares and the market value of Pure shares held by each covered officer
in the case of shares held or the exercise price of shares subject to option.
This arrangement is being treated as a variable plan under Accounting Principles
Board Opinion No. 25 "Accounting for Stock Based Compensation." Consequently,
the total compensation for both shares held and shares subject to option will be
measured at the end of each quarter as the calculated amount of net asset value
and the market price of Pure shares change. The total amount determined will be
amortized as compensation expense over a three-year period with any changes
after three years being expensed in the period of determination. At September
30, 2000, Pure would incur a non-cash expense of approximately $17.2 million per
year to amortize the deferred compensation recorded as a result of these
arrangements.

       Disclosure about Market Risk

       Pure historically has held no derivative instruments related to interest
rate exposure risks as Union Oil has historically retained all the debt and
related interest charges. Union Oil (not Pure) had mitigated its exposure to
fluctuations in crude oil and natural gas prices for the Permian Basin business
unit.

       Hedging Activities

       Pure may use swap agreements and other financial instruments in an
attempt to reduce the risk of fluctuating oil and gas prices and interest rates.
Settlement of gains or losses on the hedging transactions are generally based on
the difference between the contract price and a formula using NYMEX or other
major indices related prices and is reported as a component of oil and gas
revenues as the associated production occurs. At September 30, 2000 Pure had, as
a result of the Titan merger, hedging transactions with respect to approximately
2,760,000 and 4,065,000 MMBtu of its future 2000 and 2001, respectively,
estimated natural gas production and 230,000 and 452,500 barrels of its future
2000 and 2001, respectively, estimated crude oil production. For additional
information, see Note 10 of Notes to Consolidated Financial Statements. Pure has
no interest rate financial derivatives at September 30, 2000.

       Environmental and Other Laws and Regulations

       Pure's business is subject to certain federal, state and local laws and
regulations relating to the exploration for the development, production and
transportation of oil and gas, as well as environmental and safety matters. Many
of these laws and regulations have become more stringent in recent years, often
imposing greater liability on a larger number of potentially responsible
parties. Although Pure believes it is in substantial compliance with all
applicable laws

                                       24
<PAGE>

and regulations, the requirements imposed by such laws and regulations are
frequently changed and subject to interpretation, and Pure is unable to predict
the ultimate cost of compliance with these requirements or their effect on its
operations. Pure has no material commitments for capital expenditures to comply
with existing environmental requirements.

         Nevertheless, changes in existing environmental laws or in
interpretations thereof could have a significant adverse impact on the operating
costs of Pure, as well as the oil and gas industry in general.

       Recently Issued Accounting Pronouncements

       In September 1998, the FASB issued SFAS No. 133 "Accounting for
Derivative Instruments and Hedging Activities, " which establishes standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. It establishes
conditions under which a derivative may be designated as a hedge, and
establishes standards for reporting changes in the fair value of a derivative.
SFAS No. 133 is required to be implemented for the first quarter of the fiscal
year ended 2001. Early adoption is permitted.

       Pure will adopt SFAS No. 133 effective January 1, 2001 and expects that
its current commodity derivative contracts, with the exception of the natural
gas basis differential contracts, will qualify for cash flow hedge accounting
treatment under SFAS No. 133, whereby changes in fair value will be recognized
in other comprehensive income (a component of stockholders' equity) until
settled, when the resulting gains and losses will be recorded in earnings. Any
hedge ineffectiveness will be charged currently to earnings. However, it is
believed that any ineffectiveness will be immaterial. The effect on Pure's
earnings and other comprehensive income as the result of the adoption of SFAS
No. 133 will vary from period to period and will be dependent upon prevailing
commodity prices. SFAS No. 133 is not expected to have a material impact on
Pure's financial statements as a result of other contractual arrangements that
Pure is subject to.

Pure Unaudited Pro Forma Data

       The following reflects unaudited pro forma data related to the
Contribution and merger discussed in Notes 1 and 2 of the Notes to Consolidated
Financial Statements and the sale of certain operating assets by Titan. The
unaudited pro forma combined data assumes the Contribution, the merger and the
sale of certain operating assets by Titan in 1999 had taken place as of January
1, 1999 with respect to the unaudited pro forma combined statements of
operations and related operational data. The pro forma amounts are not
necessarily indicative of the results that may be reported in the future
(dollars in thousands, except per unit amounts):

Statement of Operations Data

<TABLE>
<CAPTION>
                                                          Three months ended September 30,    Nine months ended September 30,
                                                          --------------------------------    --------------------------------
                                                                2000             1999               2000             1999
                                                          -------------     -------------     -------------      -------------
       <S>                                                <C>               <C>               <C>                <C>
       Total revenues                                     $     90,066      $     56,589      $    226,547       $    131,626
       Oil and gas production costs                            (14,665)          (15,684)          (40,296)           (38,733)
       Production and other taxes                               (6,179)           (3,997)          (17,297)           (10,440)
       General and administrative expenses                      (4,055)           (4,088)          (11,847)           (10,955)
       Amortization of deferred compensation                    (8,457)           (8,459)          (13,601)           (13,601)
       Exploration and abandonment costs                        (6,570)           (3,535)          (13,005)           (11,241)
       Depreciation, depletion and amortization                (13,691)          (12,784)          (38,633)           (37,818)
       Other expenses, net                                      (1,772)               64            (4,920)            (3,014)
       Income tax expense                                      (12,137)           (2,837)          (30,433)            (2,039)
                                                          ------------      ------------      ------------       ------------
               Net income                                 $     22,540      $      5,269      $     56,515       $      3,785
                                                          ============      ============      ============       ============
        EBITDAX (a)                                       $     65,317      $     33,531      $    156,886       $     72,016
                                                          ============      ============      ============       ============
</TABLE>

                                       25
<PAGE>

     These pro forma amounts differ from those disclosed in Note 2 of the Notes
to the Consolidated Financial Statements, primarily due to the following
additional pro forma adjustments (a) sale by Titan of certain operating assets
in 1999,(b) elimination of merger costs incurred by Pure in 2000 and (c)
recording effects of amortizing deferred compensation for the periods presented.

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

(a)  EBITDAX as used herein is calculated by adding interest expense, income
     taxes, depletion, depreciation and amortization, impairment of long-lived
     assets, restructuring costs, amortization of deferred compensation,
     exploration and abandonment costs, and other noncash charges to net income
     (loss). EBITDAX is included herein because management believes that some
     investors find it to be a useful analytical tool. Other companies may
     calculate EBITDAX differently, and we cannot assure you that such figures
     are comparable with similarly-titled figures for such other companies.

Operational Data

<TABLE>
<CAPTION>
                                                                   Three months ended September 30,  Nine months ended September 30,
                                                                   --------------------------------  -------------------------------
                                                                        2000               1999          2000             1999
                                                                   --------------      ------------  -----------     ---------------
   <S>                                                                   <C>           <C>              <C>          <C>
   Production:
     Oil and condensate (MBbls)..................................           1,643         1,452            4,613        4,360
     Natural gas (MMcf)..........................................          11,733        13,135           36,070       35,588
     Total (MBOE)................................................           3,599         3,641           10,625       10,291

   Average sales price per unit (including effects of hedging):
     Oil and condensate (per Bbl)................................        $  29.25      $  19.58         $  26.81     $  15.56
     Natural gas (per Mcf).......................................        $   3.58      $   2.12         $   2.85     $   1.77
     Total (per BOE).............................................        $  25.02      $  15.47         $  21.30     $  12.72
</TABLE>

                                       26
<PAGE>

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Quantitative Disclosures

         The following quantitative and qualitative information is provided
about financial instruments to which Pure is a party as of September 30, 2000,
and from which Pure may incur future earnings gains or losses from changes in
market interest rates and commodity prices.

         Commodity Price Sensitivity:

       The following table provides information about Pure's derivative
financial instruments that are sensitive to changes in natural gas and crude oil
commodity prices. See Note 10 of Notes to Consolidated Financial Statements
included in "Item 1. Financial Statements" for specific information regarding
the terms of Pure's commodity derivative financial instruments that are
sensitive to natural gas and crude oil commodity prices.

<TABLE>
<CAPTION>
                                                      2000                2001                Total            Fair Value
                                                  ------------        -----------          ------------      -------------
<S>                                               <C>                 <C>                  <C>               <C>
Natural Gas Hedge Derivatives (a):

Collar option contracts:
Notional volumes (MMBtu)                             2,760,000          4,065,000             6,825,000      ($11,623,471)
Weighted average short call strike
price per MMBtu (b)                               $      2.650         $    2.633          $      2.640
Weighted average long put strike
price per MMBtu (b)                               $      3.200         $    3.160          $      3.176

Basis differential contracts (c):
Notional Volumes (MMBtu)                             2,760,000          4,065,000             6,825,000      $     44,481
Weighted average MMBtu strike
price                                             $      0.108         $    0.112          $      0.110

Crude Oil Hedge Derivatives (a):

Collar option contracts:
Notional Volume (Bbls)                                 230,000            452,500               682,500      $ (6,202,212)
Weighted average short call strike
price per Bbl (b)                                 $     16.500         $   16.500         $      16.500
Weighted average long put strike
price per Bbl (b)                                 $     20.480         $   20.480         $      20.480
</TABLE>

___________________

(a)   See Note 10 of Notes to Consolidated Financial Statements included in
      "Item 1. Financial Statements" for additional information related to
      hedging activities.
(b)   The strike prices are based on the prices traded on the NYMEX.
(c)   The basis differential relates to the spread between the NYMEX price and
      an El Paso/Permian price or Waha West Texas price.

                                       27
<PAGE>

       Interest Rate Sensitivity:

         The following table provides information about Pure's financial
instruments that are sensitive to interest rates. The debt obligations are
presented in the table at their contractual maturity dates together with the
weighted average interest rates expected to be paid on the debt. The weighted
average interest rates for the variable debt represents the weighted average
interest paid and/or accrued in September 2000. See Note 3 of Notes to
Consolidated Financial Statements included in "Item 1.Financial Statements" for
specific information regarding the terms of Pure's debt obligations that are
sensitive to interest rates.

<TABLE>
<CAPTION>
                                                    2000                 2005                   Total          Fair Value
                                                 ----------            ----------             ----------       ----------
                                                                (in thousands, except interest rates)
    <S>                                          <C>                   <C>                    <C>              <C>
    Debt (a):

    Variable rate debt:

    Revolver (b)                                 $        -            $   83,000             $   83,000       $   83,000
       Average interest rate                              - %                7.98%

    364 Revolver (b)                             $        -            $        -             $        -       $        -
       Average interest rate                              - %                   - %

    Short-term Revolver (b)                      $        -            $        -             $        -       $        -
       Average interest rate                              - %                   - %
</TABLE>

_______________

(a)  See Note 3 of Notes to Consolidated Financial Statements included in "Item
     1. Financial Statements" for additional information related to debt.
(b)  Lender is The Chase Manhattan Bank and all borrowings are unsecured.


Qualitative Disclosures

       Pure, from time to time, may enter into interest rate and commodity price
derivative contracts as economic hedges against interest rate and commodity
price risk. See Note 10 of Notes to Consolidated Financial Statements included
in "Item 1. Financial Statements" for discussions relative to Pure's objectives
and general strategies associated with its hedging instruments. Pure is a
borrower under variable rate debt instruments that give rise to interest rate
risk. See Note 3 of Notes to Consolidated Financial Statements included in "Item
1. Financial Statements" for specific information regarding the terms of Pure's
debt obligations. Pure's policy and strategy, as of September 30, 2000 is to
only enter into interest rate and commodity price derivative instruments that
provide an economic hedge of interest rate or commodity price risks.

       Pure historically has held no derivative instruments related to interest
rate exposure risks as Union Oil has historically retained all the debt and
related interest charges.

       Pure is a producer of various hydrocarbon commodities such as crude oil
and condensate, natural gas and associated petroleum- based products and is
subject to the associated price risks. Union Oil (not Pure) has historically
mitigated its exposure to fluctuations in crude oil and natural gas prices
through Unocal Energy Trading. Unocal Energy Trading uses hydrocarbon derivative
financial instruments, such as futures contracts, swaps, and options with
maturities of 24 months or less to mitigate overall exposure to price changes.
Historically, hedging and trading gains and losses incurred by Union Oil were
not allocated to Pure and were not reflected in the Permian Basin business
unit's presented results. Therefore, historically, Pure's associated price risks
were not mitigated.

       As of September 30, 2000, Pure's primary risk exposures associated with
financial instruments to which it is a party include crude oil and natural gas
price volatility and interest rate volatility. Pure's primary risk exposures
associated with financial instruments have not changed significantly since
December 31, 1999.

                                       28
<PAGE>

PART II - OTHER INFORMATION

Item 1.  Legal Proceedings

         None.

Item 2   Changes in Securities and Use of Proceeds

         None.

Item 4.  Submission of Matters to a Vote of Security Holders

         None.

                                       29
<PAGE>

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits:

10.1    Amended and Restated Stockholders Voting Agreement dated April 10, 2000
        by and among Pure Resources, Inc. (formerly named Titan Resources
        Holdings, Inc.), Union Oil Company of California and Jack D. Hightower
        (filed as Exhibit 10.20 to Titan Exploration, Inc.'s Annual Report on
        Form 10-K, as amended, as filed on April 12, 2000, and incorporated
        herein by reference).

10.2    Pure Resources, Inc. Equity Plan for Outside Directors (filed as Exhibit
        10.9 to the Registrant's Form S-4 (No. 333-34970) and incorporated
        herein by reference).

10.3    Amendment to Titan 401(k) Plan, renaming it the Pure Resources 401(k)
        Plan and otherwise amending the plan (filed as Exhibit 4.1.1 to the
        Registrant's Form S-8 (No. 333-37868) and incorporated herein by
        reference).

10.4    Registration Rights Agreement by and between Jack D. Hightower and Pure
        Resources, Inc. dated as of May 25, 2000 (filed as Exhibit 4.1 to Jack
        D. Hightower's Schedule 13D filed June 5, 2000 and relating to
        securities of Pure Resources, Inc.).

10.5    Confidentiality and Non-Compete Agreement dated August 8, 2000 between
        Pure Resources I, Inc. and Gary M. Dupriest.

10.6    Form of Officer Severance and Put Right Agreement dated August 1, 2000,
        August 31, 2000 or September 14, 2000 between Pure Resources, Inc. and
        certain executive officers.

10.7    Officer Severance and Put Right Agreement dated August 1, 2000 between
        Pure Resources, Inc. and George G. Staley.

10.8    Letter agreement, dated July 20, 2000, between Jack D. Hightower and
        Pure Resources, Inc. regarding amendment to Jack D. Hightower's
        Employment Agreement which was effective May 25, 2000.

10.9    Amendment to Employment Agreement, dated August 8, 2000, between Pure
        Resources, Inc. and Jack D. Hightower.

10.10   Indemnity Agreement, dated August 9, 2000, between Pure Resources, Inc.
        and its officers and directors.

10.11   Joint Development Agreement, effective date: March 10, 2000, by and
        between Pure Resources, L.P. and Chaparral Royalty Company, DDDF
        Company, Inc., J. Don Looney, and George G. Staley.

10.12   Master Promissory Noted, dated October 18, 2000, between Pure Resources,
        Inc. and The Chase Manhattan Bank.

10.13   Credit Agreement, dated September 29, 2000, among Pure Resources, Inc.,
        the Lenders party thereto, The Chase Manhattan Bank, as Administrative
        Agent, First Union National Bank, as Syndication Agent, and Credit
        Lyonnais New York Branch, as Documentation Agent.

10.14   Credit Agreement, dated September 29, 2000, among Pure Resources, Inc.,
        the Lenders party thereto, The Chase Manhattan Bank, as Administrative
        Agent, First Union National Bank, as Syndication Agent, and BNP Paribas,
        as Documentation Agent.

27      Financial Data Schedule.

(b) Reports Submitted on Form 8-K:

        None.

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<PAGE>

                                   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.

                                      PURE RESOURCES, INC.




                                      By: /s/ Jack Hightower
                                          -------------------------------------
                                          Jack Hightower
                                          President and Chief Executive Officer

                                      By: /s/ William K. White
                                          -------------------------------------
                                          William K. White
                                          Vice President and Chief Financial
                                          Officer

Date: November 14, 2000

                                       31