UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1999

[ ] 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 1-8483

UNOCAL CORPORATION
(Exact name of registrant as specified in its charter)

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

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

(310) 726-7600
(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

Number of shares of Common Stock, $1 par value, outstanding as of April 30,
1999: 242,168,308

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED EARNINGS UNOCAL CORPORATION
(UNAUDITED)
For the Three Months
Ended March 31
------------------------
Millions of dollars except per share amounts 1999 1998
- --------------------------------------------------------------------------------------------
Revenues
................................................................
Sales and operating revenues ....................................... $ 1,189 $ 1,171
Interest, dividends and miscellaneous income ....................... 28 11
Equity in earnings of affiliated companies ......................... 27 25
Gain/(loss) on sales of assets ..................................... (13) --
- --------------------------------------------------------------------------------------------
Total revenues ............................................... 1,231 1,207
Costs and other deductions
Crude oil, natural gas and product purchases ....................... 616 416
Operating expense .................................................. 235 324
Selling, administrative and general expense ........................ 32 24
Depreciation, depletion and amortization ........................... 200 181
Dry hole costs ..................................................... 27 50
Exploration expense ................................................ 38 47
Interest expense ................................................... 45 41
Property and other operating taxes ................................. 13 16
Distributions on convertible preferred
securities of subsidiary trust .................................. 8 8
Minority interest .................................................. -- 3
- --------------------------------------------------------------------------------------------
Total costs and other deductions ............................. 1,214 1,110
- --------------------------------------------------------------------------------------------
Earnings (loss) from operations before income taxes ................ 17 97
Income taxes ....................................................... 10 79
- -------------------------------------------------------------------------------------------
Net earnings (loss) applicable to common stock ............... $ 7 $ 18
- --------------------------------------------------------------------------------------------
Basic earnings (loss) per share of common stock (a)................. $ 0.03 $ 0.07
Diluted earnings (loss) per share of common stock (b) .............. $ 0.03 $ 0.07
Cash dividends declared per share of common stock .................. $ 0.20 $ 0.20
- --------------------------------------------------------------------------------------------
(a) Basic weighted average shares outstanding (in thousands) ..... 241,426 241,430
(b) Diluted weighted average shares outstanding (in thousands) .... 242,153 242,861

See notes to the consolidated financial statements

CONSOLIDATED BALANCE SHEET UNOCAL CORPORATION

March 31 December 31
------------------------
Millions of dollars 1999(a) 1998
- --------------------------------------------------------------------------------------------
Assets
Current assets

Cash and cash equivalents ....................................... $ 182 $ 238
Accounts and notes receivable ................................... 739 807
Inventories ..................................................... 195 179
Deferred income taxes ........................................... 119 142
Other current assets ............................................ 24 22
- --------------------------------------------------------------------------------------------
Total current assets........................................... 1,259 1,388
Investments and long-term receivables .............................. 1,177 1,143
Properties (b) ..................................................... 5,172 5,276
Deferred income taxes .............................................. 68 23
Other assets ....................................................... 133 122
- --------------------------------------------------------------------------------------------
Total assets .................................................. $ 7,809 $ 7,952
- --------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable ................................................ $ 586 $ 709
Taxes payable ................................................... 217 260
Interest payable ................................................ 39 52
Current portion of environmental liabilities .................... 155 142
Other current liabilities ....................................... 178 213
- --------------------------------------------------------------------------------------------
Total current liabilities ..................................... 1,175 1,376
Long-term debt ..................................................... 2,568 2,558
Deferred income taxes .............................................. 122 132
Accrued abandonment, restoration and environmental liabilities ..... 597 622
Other deferred credits and liabilities ............................. 630 514
Minority interest .................................................. 26 26

Company-obligated mandatorily redeemable convertible preferred
securities of a subsidiary trust holding solely parent debentures .. 522 522

Common stock ($1 par value) ........................................ 252 252
Capital in excess of par value ..................................... 469 460
Unearned portion of restricted stock issued ........................ (25) (24)
Retained earnings .................................................. 1,918 1,959
Accumulated other comprehensive income (loss) ...................... (34) (34)
Treasury stock - at cost (c) ...................................... (411) (411)
- --------------------------------------------------------------------------------------------
Total stockholders' equity ................................... 2,169 2,202
- --------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity ................ $ 7,809 $ 7,952
- --------------------------------------------------------------------------------------------
(a) Unaudited
(b) Net of accumulated depreciation ............................... $ 10,161 $ 10,193
(c) Number of shares (in thousands) ............................... 10,623 10,623

See notes to the consolidated financial statements

CONSOLIDATED CASH FLOWS UNOCAL CORPORATION
(UNAUDITED)

For the Three Months
Ended March 31
------------------------
Millions of dollars 1999 1998
- --------------------------------------------------------------------------------------------

Cash Flows from Operating Activities

Net earnings (loss) ................................................ $ 7 $ 18
Adjustments to reconcile net earnings to
net cash provided by operating activities
Depreciation, depletion and amortization ..................... 200 181
Dry hole costs ............................................... 27 50
Deferred income taxes ........................................ (32) 13
(Gain) loss on sales of assets (before-tax) .................. 13 --
Other ........................................................ (13) 20
Working capital and other changes related to operations
Accounts and notes receivable ............................. 56 69
Inventories ............................................... (17) 7
Accounts payable .......................................... (115) (131)
Taxes payable ............................................. (43) (14)
Other ..................................................... 16 (119)
- --------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities .... 99 94

Cash Flows from Investing Activities
Capital expenditures (includes dry hole costs) .................. (225) (326)
Proceeds from sales of assets ................................... 106 4
- --------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities .... (119) (322)

Cash Flows from Financing Activities
Long-term borrowings ............................................ 435 395
Reduction of long-term debt ..................................... (425) (133)
Dividends paid on common stock .................................. (48) (48)
Repurchases of common stock ..................................... -- (48)
Other ........................................................... 2 (1)
- --------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities ....... (36) 165

Increase (Decrease) in cash and cash equivalents ................... (56) (63)
Cash and cash equivalents at beginning of year ..................... 238 338
- --------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period ......................... $ 182 $ 275
- --------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest (net of amount capitalized) ......................... $ 65 $ 60
Income taxes (net of refunds) ................................ $ 87 $ 92

See notes to the consolidated financial statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(1) The consolidated financial statements included herein are unaudited and, in
the opinion of management, include all adjustments necessary for a fair
presentation of financial position and results of operations. All
adjustments are of a normal recurring nature. Such financial statements are
presented in accordance with the Securities and Exchange Commission's
(Commission) disclosure requirements for Form 10-Q.

These interim consolidated financial statements should be read in
conjunction with the Consolidated financial statements and the Notes
thereto filed with the Commission in Unocal Corporation's 1998 Form 10-K.

Results for the three months ended March 31, 1999, are not necessarily
indicative of future financial results.

Certain items in the prior year financial statements have been reclassified
to conform to the 1999 presentation.

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

(3) Other Financial Information

Sales and operating revenues are derived principally from the sale of crude
oil, natural gas, natural gas liquids, geothermal steam, nitrogen-based
agricultural products and specialty minerals produced by the company.
During the first quarter of 1999 and 1998, approximately 45 percent and 31
percent, respectively, of total sales and operating revenues were
attributed to the resale of purchased crude oil, natural gas and natural
gas liquids produced by others, that the company purchased in connection
with its trading and marketing activities. Related purchase costs are
classified as expense in the crude oil, natural gas and product purchases
category on the consolidated earnings statement.

Capitalized interest totaled $5 million and $8 million for the first
quarters of 1999 and 1998, respectively.

(4) Income Taxes

Income taxes on earnings from operations for the first quarter of 1999 were
$10 million compared with $79 million for the comparable period in 1998.
The effective income tax rate for the first quarter of 1999 decreased to 59
percent from 81 percent in the first quarter of 1998. The tax rate for the
first quarter of 1999 is higher than normal due to a loss from domestic
operations. The tax rate for the comparable period in 1998 was adversely
impacted by tax adjustments related to the appreciation of the Thai baht
totaling $21 million for deferred taxes and $11 million for current taxes.

(5) Comprehensive Income

The company's comprehensive earnings were as follows:

For the Three Months
Ended March 31
------------------------
Millions of dollars 1999 1998
- --------------------------------------------------------------------------------------------

Net earnings (loss) ................................................ $ 7 $ 18
Change in foreign currency translation adjustments (net of tax) .... -- 1
- --------------------------------------------------------------------------------------------
Comprehensive earnings (loss) ................................ $ 7 $ 19
- --------------------------------------------------------------------------------------------
4

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

(6) Earnings Per Share

The following are reconciliations of the numerators and denominators of the
basic and diluted earnings per share (EPS) computations for earnings from
operations for the first quarters ended March 31, 1999 and 1998:

Earnings Shares Per Share
Millions except per share amounts (Numerator) (Denominator) Amount
- ---------------------------------------------------------------------------------------------------------------

Three Months ended March 31, 1999

Earnings from operations .............................................. $ 7 241
Basic EPS .......................................................... $ 0.03
=========
Effect of Dilutive Securities
Options/common stock equivalents ................................... 1
------------------
Diluted EPS ........................................................ 7 242 $ 0.03
=========
Distributions on subsidiary trust preferred securities (after-tax).. 6 12
------------------
Antidilutive ....................................................... $13 254 $ 0.05

Three Months ended March 31, 1998
Earnings from operations .............................................. $18 241
Basic EPS .......................................................... $ 0.07
=========
Effect of Dilutive Securities
Options/common stock equivalents ................................... 1
------------------
Diluted EPS ........................................................ 18 242 $ 0.07
=========
Distributions on subsidiary trust preferred securities (after-tax).. 6 12
------------------
Antidilutive ....................................................... $24 254 $ 0.09

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

Not included in the computation of diluted EPS were options outstanding at
March 31, 1999 to purchase approximately 8.5 million shares of common
stock. These options were not included in the computation as the exercise
prices were greater than the year-to-date average market price of $31.11
for the common shares. The exercise prices of these options range from
$32.16 to $51.01 per share and they expire in 2006 through 2009.

(7) Long Term Debt and Credit Agreements

On February 18, 1999, the company issued $350 million of 30 year, 7 1/2
percent debentures under its $1.439 billion universal shelf registration
statement. After issuance of the debentures, the total amount available for
future issuance of medium term notes, other debt and/or equity securities
under the company's universal shelf registration statement was
approximately $1.089 billion.

The company also increased its commercial paper borrowings by $93 million
from year-end 1998 to an outstanding balance of $153 million at March 31,
1999. Proceeds from the debt issuance referred to above and commercial
paper borrowings were used to retire $74 million of maturing medium-term
notes and to reduce the amount outstanding under the company's $1 billion
bank credit agreement from $550 million to $200 million. The company also
terminated its $250 million revolving credit agreement in February 1999.
There were no amounts outstanding under the revolving credit agreement
during 1999.
5

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

(8) Financial Instruments

The fair values of the company's financial instruments at March 31, 1999
are described below:

In February 1999, the company paid $53 million to its counterparty to close
out its three remaining Canadian foreign exchange contracts. Proceeds of
$82 million Canadian were received from the counterparty and used by the
company's Canadian subsidiary to make a scheduled income tax payment to
Canada's taxing authority. No gain or loss was recognized as changes in the
exchange contracts offset changes in the company's consolidated Canadian
dollar denominated tax obligation.

At March 31, 1999, the company had forward exchange contracts outstanding
designed to hedge the company's exposure for estimated income tax payments
and other foreign currency denominated obligations and receivables expected
to be settled in 1999. Ten of the contracts require the company to purchase
3,946 million Thai baht in exchange for $101 million. Eight of the
contracts require the company to sell 3,010 million Thai baht in exchange
for $80 million. The fair value of the purchase contracts at March 31, 1999
was approximately $105 million. The fair value of the sale contracts at
March 31, 1999 approximated the notional amount. Fair values were
determined by comparing the contract rates to the forward rates in effect
at March 31, 1999.

At March 31, 1999, the company had $84 million of futures contracts
outstanding to purchase 6,025 thousand barrels of crude oil. Approximately
70 percent of the crude oil futures contracts were associated with the
company's non-trading activities. The contracts primarily offset the fixed
price risk associated with the company's delivery obligations under a
pre-paid forward crude oil sale entered into in December 1998. The fair
value of the company's crude oil futures contracts based on quoted market
prices at March 31, 1999 was approximately $100 million. The company's
natural gas futures contracts outstanding at March 31, 1999 were
immaterial.

At March 31, 1999, the company had various hydrocarbon commodity option
contracts (options) outstanding with several counterparties designed to
hedge the prices to be received for the sale of its future crude oil and
natural gas production, principally in 1999. These options are generally
accounted for as hedges with gains and losses deferred and recognized as
additional oil and gas revenues upon the sale of the underlying production.
At March 31, 1999, the company had approximately $9 million of options
outstanding. The fair value of the options was approximately $(18) million.
Fair value was determined based on dealer quotes where available, or on
financial modeling using underlying commodity prices. Options associated
with the company's trading activities at March 31, 1999 were immaterial.

The company recorded approximately $4 million in pre-tax trading gains
during the first three months of 1999. At March 31, 1999, the company had
pre-tax deferred losses of approximately $20 million related to its
non-trading hydrocarbon derivative instrument activities. This amount
principally consists of options, as noted above.

The estimated fair value of the company's long-term debt was $2,612
million. The fair values of debt instruments were based on the discounted
amount of future cash outflows using the rates offered to the company for
debt with similar remaining maturities.

The estimated fair value of the mandatorily redeemable convertible
preferred securities of the company's subsidiary trust was $565 million.
The fair value of the preferred securities was based on the trading prices
of the preferred securities on March 31, 1999.
6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

(9) Accrued Abandonment, Restoration and Environmental Liabilities

At March 31, 1999, the company had accrued $459 million for the estimated
future costs to abandon and remove wells and production facilities. The
total costs for abandonments are predominantly accrued for on a
unit-of-production basis and are estimated to be approximately $655
million. This estimate was derived in large part from abandonment cost
studies performed by outside firms and is used to calculate the amount to
be amortized. The company's reserve for environmental remediation
obligations at March 31, 1999 totaled $293 million, of which $155 million
was included in current liabilities.

(10) Contingent Liabilities

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

Environmental matters - The company is subject to loss contingencies
pursuant to federal, state and local environmental laws and regulations.
These include existing and possible future obligations to investigate the
effects of the release or disposal of certain petroleum, chemical and
mineral substances at various sites; to remediate or restore these sites;
to compensate others for damage to property and natural resources, for
remediation and restoration costs and for personal injuries; and to pay
civil penalties and, in some cases, criminal penalties and punitive
damages. These obligations relate to sites owned by the company or others
and are associated with past and present operations, including sites at
which the company has been identified as a potentially responsible party
(PRP) under the federal Superfund laws and comparable state laws.

Liabilities are accrued when it is probable that future costs will be
incurred and such costs can be reasonably estimated. However, in many
cases, investigations are not yet at a stage where the company is able to
determine whether it is liable or, 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 the company's liabilities are
indeterminate due to the potentially large number of claimants for any
given site or exposure, the unknown magnitude of possible 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, the present state of the law, which often imposes joint
and several and retroactive liabilities on PRPs, the fact that the company
is usually just one of a number of companies identified as a PRP, or other
reasons.

As disclosed in note 9, at March 31, 1999, the company had accrued $293
million for estimated future environmental assessment and remediation costs
at various sites where liabilities for such costs are probable. At those
sites where investigations or feasibility studies have advanced to the
stage of analyzing feasible alternative remedies and/or ranges of costs,
the company estimates that it could incur possible additional remediation
costs aggregating approximately $195 million.
7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

Tax matters - The company believes it has adequately provided in its
accounts for tax items and issues not yet resolved.

Other matters - In February 1996, Bridas Corporation filed a petition
against the company and others in the District Court of Fort Bend County,
Texas, alleging that the defendants conspired to and did tortiously
interfere with Bridas' rights under agreements with the government of
Turkmenistan to develop the Yashlar Field and to transport gas from that
field to Pakistan. The petition also alleged that the defendants interfered
with Bridas' exclusive right to lay a gas pipeline in Afghanistan. Bridas
sought actual damages, as well as punitive damages, plus interest. Bridas'
expert witnesses stated in pre-trial discovery that Bridas' total actual
damages for loss of future profits were approximately $1.7 billion. In the
alternative, Bridas was expected to seek an award of approximately $430
million with respect to its total expenditures in Turkmenistan. In October
1998, the court granted the defendants' motion for summary judgement and
dismissed the action. In March 1999, Bridas filed a notice of appeal of the
dismissal.

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

(11) Unocal guarantees certain indebtedness of Union Oil. Summarized below is
financial information for Union Oil and its consolidated subsidiaries:

Summarized Financial Data of Union Oil

For the Three Months
Ended March 31
-------------------
Millions of dollars 1999 1998
- ---------------------------------------------------------------------------------------

Total revenues ..................................................... $1,231 $1,207
Total costs and other deductions
(including income taxes) ........................................ 1,218 1,184
- ---------------------------------------------------------------------------------------
Earnings from operations ........................................... 13 23
- ---------------------------------------------------------------------------------------
Net earnings ....................................................... $ 13 $ 23
- ---------------------------------------------------------------------------------------
At March 31 At December 31 (a)
------------------ -------------------
Millions of dollars 1999 1998
------------------ -------------------
Current assets ................................ $1,259 $1,388
Noncurrent assets ............................... 6,570 6,583
Current liabilities ............................. 1,209 1,406
Noncurrent liabilities ...........................3,943 3,852
Shareholder's equity .............................2,677 2,713
- ---------------------------------------------------------------------------------------
(a) Audited

(12) Disposition of Assets

On January 26, 1999, Unocal entered into an agreement with Calpine
Corporation for the sale of the company`s interests in a geothermal steam
production operation, The Geysers, in Northern California. On March 23,
1999, the sale closed and the company received proceeds of $101 million.
The company recorded an after-tax loss of approximately $10 million on the
sale. The proceeds will be used to partially fund the company's exploration
and production capital projects.
8

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

(13) Restructuring Costs

The company adopted a restructuring plan during the fourth quarter of 1998
that resulted in the accrual of a $27 million pre-tax restructuring charge.
This amount included the costs of terminating approximately 475 employees.
The charge was included in selling, administrative and general expense on
the consolidated earnings statement. The plan involves the suspension of
mining and manufacturing operations at the Mountain Pass, California
lanthanide facility, a change in mining operations at the Questa, New
Mexico molybdenum facility, the withdrawal from non-strategic activities in
Central Asia and a reduction in activities of various business units.

Approximately 240 of the affected employees are from the company's mining
operations, 95 are from various exploration and production business units
and 140 are support personnel at various locations. The restructuring
charge included approximately $23 million for termination costs to be paid
to the employees over time, about $2 million in benefit plan curtailment
costs and about $2 million related to outplacement and other costs.

At April 14, 1999, 358 employees had been terminated or had received
termination notices as the result of the plan with additional terminations
scheduled during the remainder of 1999. The amount of unpaid benefits
remaining on the consolidated balance sheet at March 31, 1999 was $21
million. No adjustments to the restructuring accrual have been made to
date.

(14) Segment Information

The company's reportable segments are as follows:

Exploration and Production, Global Trade, Geothermal & Power Operations and
Diversified Businesses. Unallocated corporate and administrative general
expenses and other miscellaneous operations are included under the
Corporate and Unallocated heading. Effective January 1, 1999, the Pipelines
business unit was transferred from the Diversified Business segment to the
Global Trade segment. For an expanded description on the activities
conducted by the company's business segments, see pages 74 and 75 of the
company's 1998 Form 10-K.

--------------------------------------------------------------------------------
Segment Information Exploration & Production Geothermal
For the Three Months United States International Global Trade & Power
ended March 31, 1999 Spirit Far Operations
Millions of dollars Energy 76 Alaska East Other Global Trade Pipelines
--------------------------------------------------------------------------------
.........................................

External sales & operating revenues ......... $ 35 $ 23 $ 155 $ 44 $ 768 $ 10 $ 45
Other revenue (loss) ........................ 2 -- 1 5 -- 15 (12)
Inter-segment revenues ...................... 184 17 42 -- 1 2 --
- -----------------------------------------------------------------------------------------------------------------------------
Total Revenues ............................. 221 40 198 49 769 27 33

Net earnings (loss) ......................... 2 1 48 (15) 2 17 1
- -----------------------------------------------------------------------------------------------------------------------------

Assets (at March 31, 1999) .................. 2,024 315 1,929 683 322 253 495
- -----------------------------------------------------------------------------------------------------------------------------

- -----------------------------------------------------------------------------------------------------------------------------
Diversified Corporate & Unallocated Totals
Business

Ag Carbon & Admn & Net Int Env & New
Products Minerals General Exp Litigation Ventures Other (a)
- -----------------------------------------------------------------------------------------------------------------------------

External sales & operating revenues.......... $ 63 $ 43 $ -- $ -- $ -- $ -- $ 3 $ 1,189
Other revenue (loss) ........................ -- 9 -- 6 -- -- 16 42
Inter-segment revenues ...................... -- -- -- -- -- -- (246) --
- -----------------------------------------------------------------------------------------------------------------------------
Total Revenues ............................. 63 52 -- 6 -- -- (227) 1,231

Net earnings (loss) ......................... 3 9 (21) (31) (5) (1) (3) 7
- -----------------------------------------------------------------------------------------------------------------------------
Assets (at March 31, 1999) .................. 334 378 -- -- -- -- 1,076 7,809
- -----------------------------------------------------------------------------------------------------------------------------
(a) Includes eliminations and consolidation adjustments

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED)

--------------------------------------------------------------------------------
Segment Information Exploration & Production Geothermal
For the Three Months United States International Global Trade & Power
ended March 31, 1998 Spirit Far Operations
Millions of dollars Energy 76 Alaska East Other Global Trade Pipelines
--------------------------------------------------------------------------------
.........................................

External sales & operating revenues ......... $ 24 $ 32 $ 162 $ 46 $ 685 $ 10 $ 41
Other revenue (loss) ........................ - -- (11) 5 -- 14 1
Inter-segment revenues ...................... 232 19 70 5 -- 2 --
- -----------------------------------------------------------------------------------------------------------------------------
Total Revenues ............................. 256 51 221 56 685 26 42

Net earnings (loss) ......................... 9 12 21 ( 8) 6 15 14
- -----------------------------------------------------------------------------------------------------------------------------

Assets (at March 31, 1998) .................. 1,896 370 1,613 726 261 263 556
- -----------------------------------------------------------------------------------------------------------------------------

- -----------------------------------------------------------------------------------------------------------------------------
Diversified Corporate & Unallocated Totals
Business

External sales & operating revenues.......... $ 95 $ 62 $ -- $ -- $ -- $ -- $ 14 $ 1,171
Other revenue (loss) ........................ -- 9 -- 8 -- -- 10 36
Inter-segment revenues ...................... -- -- -- -- -- -- (328) --
- -----------------------------------------------------------------------------------------------------------------------------
Total Revenues ............................. 95 71 -- 8 -- -- (304) 1,207

Net earnings (loss) ......................... 9 13 (18) (26) (33) (7) 11 18
- -----------------------------------------------------------------------------------------------------------------------------
Assets (at March 31, 1998) .................. 346 385 -- -- -- -- 1,162 7,578
- -----------------------------------------------------------------------------------------------------------------------------
(a) Includes eliminations and consolidation adjustments

(15) Subsequent Events

In April 1999, the company contributed fixed-price overriding royalty
interests from its working interest shares in certain oil and gas producing
properties in the Gulf of Mexico to Spirit Energy 76 Development, L.P.
(Spirit LP), a limited partnership formed under the laws of Delaware. The
fixed-price overrides are subject to economic limitations of production
from the affected fields. In exchange for its overriding royalty
contributions, valued at $304 million, the company received an initial
general partnership interest of approximately 55 percent in Spirit LP.
Concord Investors LLC (Concord) contributed $250 million in cash to the
partnership in exchange for an initial partnership interest of
approximately 45 percent. Concord is entitled to receive a priority
allocation of profits and cash distributions in an amount equal to a spread
above a floating rate of return on its capital contribution, cumulative and
compounded quarterly to the extent not distributed. The partnership has a
maximum term of twenty years, but may terminate after six years subject to
certain conditions.

On April 15, 1999, the company's Unocal Canada Resources subsidiary (UCR)
signed a definitive agreement to invest up to C$265 million (US$175
million) to acquire up to 46 percent of Calgary-based Northrock Resources
Ltd. (Northrock). Under the agreement, UCR proposes to make a partial
tender offer to Northrock's shareholders which, if successful would result
in UCR acquiring approximately 10 million shares of Northrock common stock
at C$14 per share, representing approximately 32 percent of all outstanding
shares. UCR would then acquire approximately 7.6 million additional shares
of Northrock common stock for C$16 per share under a private placement,
increasing UCR's interest in Northrock to as much as 46 percent. UCR's
obligations under the agreement are subject to regulatory approvals and
certain other conditions. If the tender offer for the acquisition of
Northrock's common shares is successful, the company expects the
transaction to be completed by mid-year.
10

OPERATING HIGHLIGHTS UNOCAL CORPORATION
(UNAUDITED)

For the Three Months
Ended March 31
---------------------
1999 1998
- -----------------------------------------------------------------------------------------
NET DAILY PRODUCTION
Crude oil and condensate (thousand barrels daily)
United States
...........................................................
Spirit Energy 76 ..................................... 39 44
Alaska ............................................... 27 30
---------------------
Total United States ................................ 66 74
International (a)
Far East ............................................. 70 89
Other ................................................ 31 31
---------------------
Total International ................................ 101 120
Worldwide ............................................... 167 194
---------------------

Natural gas (million cubic feet daily)
United States
Spirit Energy 76 ..................................... 775 788
Alaska ............................................... 153 138
---------------------
Total United States ................................ 928 926
International (a)
Far East ............................................. 848 861
Other ................................................ 39 52
---------------------
Total International ................................ 887 913
Worldwide ............................................... 1,815 1,839
---------------------

Natural gas liquids (thousand barrels daily) ............... 18 18
Geothermal (million kilowatt-hours daily) .................. 22 21

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

(a) Includes host countries' shares of:
Crude oil and condensate ................................ 12 19
Natural gas ............................................. 73 50

OPERATING HIGHLIGHTS (CONTINUED) UNOCAL CORPORATION
(UNAUDITED)

For the Three Months
Ended March 31
---------------------
1999 1998
- -----------------------------------------------------------------------------------------
AVERAGE SALES PRICES (a)
Crude oil and condensate (per barrel)
United States
..........................................................
Spirit Energy 76 .................................... $ 11.85 $ 13.94
Alaska .............................................. 7.86 10.84
Total United States ............................... 10.12 12.66
International
Far East ............................................ $ 10.65 $ 13.97
Other ............................................... 10.22 12.30
Total International ............................... 10.51 13.50
Worldwide .............................................. $ 10.34 $ 13.15
- -----------------------------------------------------------------------------------------
Natural gas (per thousand cubic feet)
United States
Spirit Energy 76 .................................... $ 1.92 $ 2.14
Alaska .............................................. 1.20 1.47
Total United States ............................... 1.80 2.03
International
Far East ............................................ $ 1.88 $ 2.03
Other ............................................... 1.76 2.09
Total International ............................... 1.87 2.04
Worldwide .............................................. $ 1.83 $ 2.04
- -----------------------------------------------------------------------------------------
AGRICULTURAL PRODUCTS PRODUCTION VOLUMES
(thousand tons)
Ammonia ................................................... 381 374
Urea ...................................................... 244 260

AGRICULTURAL PRODUCTS SALES VOLUMES (thousand tons)
Ammonia ................................................... 137 220
Urea ...................................................... 264 326

(a) Excludes Global Trade margins

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

The following discussion and analysis of the consolidated financial condition
and results of operations of Unocal should be read in conjunction with
Management's Discussion and Analysis in Item 7 of the company's 1998 Annual
Report on Form 10-K. Unless otherwise specified, the following discussion
pertains to the company's continuing operations.

CONSOLIDATED RESULTS

For the Three Months
Ended March 31
--------------------
Millions of dollars 1999 1998
- -----------------------------------------------------------------------------------------------------------------

After-tax earnings (loss) from operations ....................................................... $ 7 $ 18
Less: special items (net of tax)
Environmental and litigation provisions ..................................................... (3) (33)
Asset sales (a) ............................................................................. (10) --
Deferred tax adjustments .................................................................... -- (21)
- -----------------------------------------------------------------------------------------------------------------
Total special items ......................................................................... (13) (54)
- -----------------------------------------------------------------------------------------------------------------
Adjusted after-tax earnings (loss) from operations ............................................. $ 20 $ 72
- -----------------------------------------------------------------------------------------------------------------
(a) Represents the sale of The Geysers, a geothermal production operation in
Northern California

Adjusted after-tax earnings from operations decreased $52 million from the same
period last year. Lower worldwide commodity prices for crude oil, natural gas
and agricultural products were the primary contributors to the depressed
earnings. Compared to 1998, average worldwide sales prices for crude oil and
natural gas declined 21 percent and 10 percent, respectively. These negative
factors were partially offset by lower dry hole and exploration expense
resulting primarily from lower domestic exploration activity.

EXPLORATION AND PRODUCTION

The company's primary activities are oil and gas exploration, development, and
production.

United States - Included in the United States category are Spirit Energy 76 and
Alaska oil and gas operations. The Spirit Energy 76 business unit is responsible
for oil and gas operations in the Lower 48 United States with emphasis on the
shelf and deepwater areas in the Gulf of Mexico and the Permian Basin in West
Texas. A substantial portion of crude oil and natural gas produced in the United
States is sold to the company's Global Trade segment. The remainder is sold to
third parties, or in the case of Alaska natural gas production used in the
company's agricultural products operations.

Spirit Energy 76 ............................................................................. $ 2 $ 9
Alaska ....................................................................................... 1 12
- -----------------------------------------------------------------------------------------------------------------
Total ........................................................................................ 3 21
Less: special items (net of tax) ................................................................ -- --
- -----------------------------------------------------------------------------------------------------------------
Adjusted after-tax earnings (loss) .............................................................. $ 3 $21
- -----------------------------------------------------------------------------------------------------------------

Adjusted after-tax earnings decreased $18 million compared to the same period in
the prior year primarily due to lower average United States crude oil and
natural gas sales prices. Crude oil prices fell 20 percent, or $2.54 per barrel,
while natural gas prices fell 11 percent, or $0.23 per thousand cubic feet.
Depreciation, depletion and amortization expense increased in the first quarter
of 1999 primarily due to production from higher rate fields and increased
exploratory land amortization. These negative factors were partially offset by
lower dry hole costs.
13

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

International - Includes the company's international exploration and production
activities and the business development activities performed by the company's
New Ventures group. The company is currently engaged in oil and gas
production activities in nine foreign countries: Thailand, Indonesia,
Canada, The Netherlands, Azerbaijan, Yemen, Myanmar, the Democratic Republic
of Congo and Bangladesh.

Far East ................................................................................... $ 48 $ 21
Other ...................................................................................... (15) (8)
- -----------------------------------------------------------------------------------------------------------------
Total ...................................................................................... 33 13
Less: special items (net of tax)
Deferred tax adjustment (Far East) ......................................................... -- (21)
- -----------------------------------------------------------------------------------------------------------------
Adjusted after-tax earnings (loss) .............................................................. $ 33 $ 34
- -----------------------------------------------------------------------------------------------------------------

During the first quarter of 1999, international adjusted after-tax earnings
decreased slightly compared with the same period in the prior year. Crude oil
prices fell 22 percent, or $2.99 per barrel, while natural gas prices fell 8
percent, or $0.17 per thousand cubic feet. Crude oil production volumes
decreased by 16 percent primarily in Indonesia and Canada. The decrease in
Canadian crude oil production reflects the disposition of the company's Alberta,
Canada, exploration and production assets in the Tarragon transaction in the
third quarter of 1998. These negative factors were largely offset by lower
exploration expense, decreased foreign exchange losses and decreased foreign
taxes.

GLOBAL TRADE

The Global Trade segment conducts most of the company's worldwide crude oil,
condensate and natural gas trading and marketing activities and is responsible
for the company's commodity-specific risk management activities. Global Trade
also purchases crude oil, condensate and natural gas from certain of the
company's royalty owners, joint venture partners and other unaffiliated oil and
gas producers for resale. Global Trade also manages the company's Pipelines
business unit which holds the company's equity interests in affiliated pipeline
companies.

Global Trade ................................................................................. $ 2 $ 6
Pipelines .................................................................................... 17 15
- -----------------------------------------------------------------------------------------------------------------
Total ......................................................................................... 19 21
Less: special items (net of tax) ................................................................ -- --
- -----------------------------------------------------------------------------------------------------------------
Adjusted after-tax earnings (loss) .............................................................. $19 $21
- -----------------------------------------------------------------------------------------------------------------

Global Trade's combined adjusted after-tax earnings during the first quarter of
1999 decreased $2 million from the same period last year. The decrease was
primarily due to lower margins on domestic crude oil trading. This earnings
decrease was partially offset by higher Pipeline affiliate earnings due to
increased volumes.
14

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

GEOTHERMAL AND POWER OPERATIONS

The Geothermal and Power Operations segment supplies geothermal steam for power
generation, with operations in the Philippines and Indonesia. The segment's
current activities also include operating power plants in Indonesia and an
interest in the construction of a gas-fired power plant in Thailand.

After-tax earnings (loss) ....................................................................... $ 1 $ 14
Less: special items (net of tax)
Asset sales (a) ............................................................................. (10) --
- -----------------------------------------------------------------------------------------------------------------
Adjusted after-tax earnings ..................................................................... $ 11 $ 14
- -----------------------------------------------------------------------------------------------------------------
(a) Represents the sale of The Geysers, a geothermal production operation in
Northern California

Adjusted after-tax earnings for the first quarter of 1999 decreased by $3
million compared to the same period a year ago due to accounts receivable
provisions in Indonesia which were partially offset by lower dry hole expense
and decreased foreign exchange losses.

DIVERSIFIED BUSINESS GROUP

The Agricultural Products business unit manufactures, transports and markets
nitrogen-based products for agricultural and industrial uses. The Carbon and
Minerals business unit manufactures and markets petroleum coke, graphites and
specialty minerals.

Agricultural Products ........................................................................ $ 3 $ 9
Carbon and Minerals .......................................................................... 9 13
- -----------------------------------------------------------------------------------------------------------------
Total ........................................................................................ 12 22
Less: special items (net of tax)
Environmental and litigation provisions (Carbon and Minerals) ................................ -- (1)
- -----------------------------------------------------------------------------------------------------------------
Adjusted after-tax earnings (loss) .............................................................. $ 12 $ 23
- -----------------------------------------------------------------------------------------------------------------

During the first quarter 1999, adjusted after-tax earnings decreased by $11
million from the same period last year. Agricultural Products commodity prices
were 21 percent lower than the same period last year and sales volumes were
lower due to severe icing conditions in Alaska's Cook Inlet, preventing ships
from loading product. Carbon and Minerals lower earnings were primarily due to
decreased sales prices and lower volumes of the Needle Coker Company.
15

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

CORPORATE AND UNALLOCATED

Corporate and Unallocated includes all unallocated corporate administrative and
general items, miscellaneous operations including real estate, and
non-exploration and production activities of the New Ventures group, such as the
new project development of common carrier pipelines, liquefied petroleum gas
plants and electrical power generating plants. Net interest expense represents
interest expense, net of interest income and capitalized interest.

Administrative and general expense ........................................................... $(21) $(18)
Net interest expense ......................................................................... (31) (26)
Environmental and litigation expense ......................................................... (5) (33)
New Ventures (non-exploration and production) ................................................ (1) (7)
Other ........................................................................................ (3) 11
- -----------------------------------------------------------------------------------------------------------------
Total ........................................................................................ (61) (73)
Less: special items (net of tax)
Environmental and litigation provisions ..................................................... (3) (32)
- -----------------------------------------------------------------------------------------------------------------
Adjusted after-tax earnings (loss) .............................................................. $(58) $ (41)
- -----------------------------------------------------------------------------------------------------------------

The adjusted after-tax loss increased by $17 million as compared to the same
period last year. The negative earnings factors include higher interest expense
due to lower capitalized interest and increased debt levels, lower pension
income and higher employee benefit related accruals. Those factors were
partially offset by lower New Ventures non-exploration and production
expenditures in the first quarter of 1999.

FINANCIAL CONDITION AND CAPITAL EXPENDITURES

For the first three months of 1999, net cash flow provided by operating
activities was $99 million compared with $94 million for the same period a year
ago. The increase reflects the receipt of $120 million from the Public Energy
Authority of Kentucky Trust (PEAK) for a natural gas forward sale. The PEAK
transaction receipt was substantially offset by the effects of lower worldwide
commodity prices, increased foreign income tax payments and a decrease in
liabilities related to 1999 crude oil and natural gas deliveries that pertain to
the 1998 and 1999 commodity forward sales.

Proceeds from asset sales for the first three months of 1999 were $106 million
consisting primarily of The Geysers sale for $101 million completed in March
1999.

Capital expenditures for the first quarter of 1999 totaled $225 million compared
to $326 million in the same period a year ago. The decrease was primarily due to
lower drilling activities and lease acquisitions in the Gulf of Mexico and
internationally. Total capital expenditures are expected to be approximately $1
billion for 1999. The company will continue to focus on high-potential deepwater
exploration programs in Indonesia and the Gulf of Mexico. The company may adjust
its capital spending estimate later depending on the timing of acquisitions and
changes in commodity prices.

The company's long-term debt was $2,568 million at March 31, 1999, an increase
of $10 million from the year-end 1998 level of $2,558 million. The debt-to-total
capitalization ratio increased to 49 percent from 48 percent at year-end 1998.
16

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

ENVIRONMENTAL MATTERS

At March 31, 1999, the company's reserves for environmental remediation
obligations totaled $293 million, of which $155 million was included in current
liabilities. During the first quarter of 1999, cash payments of $19 million were
applied against the reserve. The company also estimates that it possibly could
incur additional remediation costs aggregating approximately $195 million as
discussed in note 10 to the consolidated financial statements. The company's
total environmental reserve amount is grouped into the following five
categories:

Reseve Summary
March 31,
Millions of dollars 1999
- --------------------------------------------------------------------------------

Superfund and similar sites ..................................... $ 13
Former company-operated sites ................................... 15
Company facilities sold with retained liabilities ............... 60
Inactive or closed company facilities ........................... 157
Active company facilities ....................................... 48
- --------------------------------------------------------------------------------
Total reserves ................................................ $293
- --------------------------------------------------------------------------------

OUTLOOK

Certain of the statements in this discussion, as well as other forward-looking
statements within this document, contain estimates and projections of amounts of
or increases in future revenues, earnings, cash flows, capital expenditures,
assets, liabilities and other financial items and of future levels of or
increases in reserves, production, sales including related costs and prices, and
other statistical items; plans and objectives of management regarding the
company's future operations, products and services; and certain assumptions
underlying such estimates, projection plans and objectives. While these
forward-looking statements are made in good faith, future operating, market,
competitive, legal, economic, political, environmental, and other conditions and
events could cause actual results to differ materially from those in the
foward-looking statements. See pages 40 and 41 of Management's Discussion and
Analysis in Item 7 of the company's 1998 Annual Report on Form 10-K for a
discussion of certain of such conditions and events.

Even though energy commodity prices increased late in the first quarter of 1999
as compared to recent prior periods, the company expects prices to remain
volatile for the remainder of 1999.

The economic situation in Asia, where much of the company's international
activity is centered, remained largely unchanged from year-end 1998. The company
believes that the governments in the region are committed to undertaking the
reforms and restructuring necessary to enable their nations to recover from the
current downturn.

Following the discoveries on the Mad Dog prospect on Green Canyon 826 and the
Mirage prospect on Mississippi Canyon 941, in April 1999, the company commenced
drilling the first of four deepwater wells in the Gulf of Mexico expected to be
drilled over the next several months.

Pending transactions for Spirit Energy 76 include the sale of substantially all
of its oil and gas assets in Michigan to Quicksilver Resources, Inc. for $27
million in cash plus approximately $3 million of common stock of Quicksilver and
the trade of most of its Rocky Mountain oil and gas assets for 5.8 million
shares of common stock of Tom Brown, Inc. and $5 million in cash. Both
transactions are expected to close in the second quarter of 1999.
17

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

In Myanmar, the company's subsidiaries and partners are awaiting completion of
the Ratchaburi power plant in Thailand for commercial production from the Yadana
field to begin. The gas sales agreement with the Petroleum Authority of Thailand
(PTT) includes a "Take or Pay" provision, which requires PTT to purchase a
contract quantity of natural gas. Due to the delay in the completion of the
plant, PTT could not meet their contract minimum obligation for 1998. Therefore,
PTT was billed for the 1998 "Take or Pay" obligation with the company's share of
the billing being approximately $13 million. Payment, which was due on March 1,
1999, is currently outstanding. The project participants are in discussions with
PTT to resolve the "Take or Pay" issue.

As of March 31, 1999, the company's geothermal operations in Indonesia had a
gross receivable balance of approximately $123 million, most of which was for
steam sales from the Salak field. Approximately $46 million is due by June 7,
1999, of which $31 million represents a shortfall in payments for March 1998
through December 1998 steam deliveries to the Gunung Salak electric generating
Units 1, 2 and 3. Partial payments have been received on a timely basis.
Agreements allow for payments over the next several years. Provisions covering a
portion of these receivables were recorded in 1998 and 1999. The company is
vigorously pursuing collection of the outstanding receivables.

In Azerbaijan, the company has an approximately 26 percent interest in the North
Absheron Operating Company (NAOC) which was exploring for oil on blocks in the
Caspian Sea. Because of unsuccessful drilling results, the NAOC has decided to
cease operations and has closed its office in Baku.

The company adopted a restructuring plan during the fourth quarter of 1998 that
resulted in the accrual of a $17 million after-tax charge. The amount included
the costs of terminating approximately 475 employees. The company expects
execution of the plan to reduce future annualized salaries and benefits by an
estimated $21 million after-tax and there have been no changes to that
expectation to date. The company is currently evaluating additional initiatives
to improve the efficiency and alignment of support services and reduce costs,
which could result in another restructuring plan in 1999.

YEAR 2000

The company is actively addressing the Year 2000 (Y2K) issue. Many existing
computer programs were designed and developed to use only two digits to identify
a year in the date field. If not addressed, these programs could result in
system failures with possible material adverse effects on the company's
operations at the beginning of the year 2000.

The company's Y2K efforts can be divided into three general categories:
information technology (IT) systems and applications, non-IT embedded systems in
process controls, and its relationships with critical business partners. The
company has appointed a program manager and has assembled various teams of
professionals, principally at the business unit level, which have developed
plans to implement these efforts. The plans establish a methodology and schedule
to identify, assess, correct and test the company's IT systems, applications,
non-IT embedded systems (such as microcontrollers and other devices used for
process control), system interfaces with vendors, suppliers, customers and other
outside parties, as well as to assess the Y2K readiness of such third parties.
The company has contracted with systems consulting firms to assist with the
assessment, correction and testing of the company's internal systems and their
interfaces with third parties. To ensure independent review and validation of
the implementation of the company's Y2K plans, internal auditors, assisted by
contract auditors, are auditing the Y2K projects of key business units within
the company and reporting their findings to senior management.

A company-wide initial awareness campaign was completed in June 1998. The
identification, assessment, and corrections-planning phases of the internal
systems portion of the project have been completed. The company is in the
process of preparing business contingency and recovery plans for its "mission
critical" systems, applications and processes and remediating and renovating its
systems. These systems, applications and processes, if not operable, could
materially adversely impact cash flow, operations, safety or the environment.
18

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

The company's Y2K project work includes the writing and updating of existing
contingency plans to address material Y2K issues. The company has existing
processes for managing emergency situations and intends to have its Crisis
Management Center operating at the time of the century rollover to assist with
implementing any contingency plans if required.

The company has completed the inventory and assessment of its IT and embedded
systems and detailed planning to correct or work around the anticipated problems
in these systems. The repair and testing of its IT and embedded systems was
approximately 70 percent complete as of March 31, 1999.

The following schedule sets forth the company's estimated timetable for
achieving Y2K readiness of its IT and embedded systems:

Project Target Completion Dates
- -------- -----------------------
Phases
Worldwide inventory of systems Completed
Worldwide assessment Completed
Initial plan for corrections/work arounds Completed
Remediation/renovation Second quarter 1999
Contingency planning Third quarter 1999
Validation/testing Third quarter 1999
Implementation Third quarter 1999
Continuous system review Ongoing-through first quarter 2000

The company has identified approximately 400 "critical business partners" and
contacted 87 percent of these companies regarding their Y2K readiness. As of
March 31, 1999, the company had received responses from about 240 of the
critical business partners. Work in this area will continue and contingency
plans will incorporate the possibility of performance failures by multiple
critical business partners.

The company estimates the total expenditures on its Y2K project will be
approximately $30 million. These expenditures are recorded at the business unit
and corporate levels and are funded from cash provided by operating activities.
Expenditures as of March 31, 1999, were approximately $16 million. Most of the
remaining expenditures are expected to be incurred in the remainder of 1999.

The company is not aware of any IT projects that have been delayed due to the
Y2K project.

The Y2K problem is real and there is a risk of Y2K related failures. These
failures could result in an interruption in, or a failure of, certain business
activities or functions. Such failures could materially and adversely affect the
company's results of operations, liquidity or financial condition. Due to the
uncertainty surrounding the Y2K problem, including the uncertainty of the Y2K
readiness of the company's customers, suppliers, and partners, the company is
unable at this time to determine the true impact of the Y2K problem to Unocal.
The principal areas of risk are thought to be oil and gas production control
systems, other embedded operations control systems and third party Y2K
readiness. The company's Y2K project is expected to reduce this uncertainty. The
company believes that with the completion of the project as planned, the
possibility of significant interruptions of normal operations should be reduced.
There can be no assurance, however, that there will not be a delay in, or
increased costs associated with the implementation of such changes or that such
changes will prove 100 percent effective in resolving all Y2K related issues.
Furthermore, there can be no assurance that critical business partners will not
experience failures, irrespective of the Y2K readiness representations they may
have made. A likely worst case scenario is that despite the company's efforts,
there could be failures of control systems, which might cause some processes to
be shut down. Such failures could have a material adverse impact on the
company's operations. The company is particularly concerned about the status of
key critical business partners' Y2K readiness in Indonesia, Thailand, and the
Gulf of Mexico. Their failure due to a Year 2000 problem could prevent Unocal
from delivering product and cause a material adverse impact to the company's
cash flows.
19

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk generally represents the risk that losses may occur in the values of
financial instruments as a result of movements in interest rates, foreign
currency exchange rates and commodity prices. As part of its overall risk
management strategies, the company uses derivative financial instruments to
manage and reduce risks associated with these factors. The company also pursues
outright pricing positions in certain hydrocarbon derivative financial
instruments, such as futures contracts.

Interest Rate Risk - From time to time the company temporarily invests its
excess cash in interest-bearing securities issued by high-quality issuers.
Company policies limit the amount of investment to any one financial
institution. Due to the short time the investments are outstanding and their
general liquidity, these instruments are classified as cash equivalents in the
consolidated balance sheet and do not represent a material interest rate risk to
the company. The company's primary market risk exposure for changes in interest
rates relates to the company's long-term debt obligations. The company manages
its exposure to changing interest rates principally through the use of a
combination of fixed and floating rate debt. Interest rate sensitive derivative
financial instruments, such as swaps, options, floors, caps, and collars may
also be used depending upon market conditions.

The company evaluated the potential effect that near term changes in interest
rates would have had on the fair value of its interest rate risk sensitive
financial instruments at March 31, 1999. Assuming a ten percent decrease in the
company's weighted average borrowing costs at March 31, 1999, the potential
increase in the fair value of the company's debt obligations and associated
derivative instruments would have been approximately $102 million.

Foreign Exchange Rate Risk - The company conducts business in various parts of
the world and in various foreign currencies. To limit the company's foreign
currency exchange rate risk related to operating income, foreign sales
agreements generally contain price provisions designed to insulate the company's
sales revenues against adverse foreign exchange rates. In most countries, energy
products are valued and sold in U.S. dollars and foreign currency operating cost
exposures have not been significant. In other countries, the company is paid for
product deliveries in local currencies but at prices indexed to the U.S. dollar.
These funds, less amounts retained for operating costs, are converted to U.S.
dollars as soon as practicable. The company's Canadian subsidiary is paid in
Canadian dollars for its crude oil and natural gas sales. Excess Canadian funds
generally have been invested in other Unocal foreign operations.

From time to time the company may purchase foreign currency options or enter
into foreign currency exchange contracts to limit the exposure related to its
foreign currency obligations. At March 31, 1999, the company had several foreign
currency forward exchange contracts outstanding to hedge scheduled tax payments,
other commitments and receivables to be settled in Thai baht during 1999. At
March 31, 1999, the company evaluated the effect that near term changes in
foreign exchange rates would have had on the fair value of the company's foreign
currency position related to its outstanding foreign currency forward exchange
contracts. Assuming an adverse change of ten percent in foreign exchange rates
at March 31, 1999, the potential decrease in fair value of the company's foreign
currency forward exchanges contracts would have been approximately $2 million.

Commodity Price Risk - The company is a producer, purchaser, marketer and trader
of certain hydrocarbon commodities such as crude oil and condensate, natural gas
and petroleum-based products and is subject to the associated price risks. The
company generally uses hydrocarbon derivative financial instruments, such as
futures contracts, swaps and options with maturities of 24 months or less, to
mitigate its exposure to fluctuations in hydrocarbon commodity prices. Certain
of these instruments are used to hedge contractual delivery commitments and
future crude oil and natural gas production against price exposure. In certain
cases, the company enters into longer-term derivative instruments, such as swap
contracts, to hedge its exposure to long-term fixed price commitments. The
company also takes pricing positions in hydrocarbon derivative financial
instruments (primarily futures and options contracts).

The company uses a variance-covariance value at risk model to assess the market
risk of its hydrocarbon-price-sensitive derivative instruments. Value at risk
represents the potential loss in fair value the company would experience on its
hydrocarbon price sensitive derivative instruments, using calculated
volatilities and correlations over a specified time period with a given
confidence level. The company's model is based upon historical data and uses a
three-day time interval with a 95 percent confidence level. The model includes
offsetting physical positions for hydrocarbon price sensitive derivative
instruments related to the company's contracted crude oil and natural gas
forward sales. Based upon the company's model, the value at risk related to
hydrocarbon-price-sensitive derivative financial instruments held for purposes
other than trading was approximately $9 million at March 31, 1999. The value at
risk related to hydrocarbon-price-sensitive derivative financial instruments
held for trading purposes was approximately $3 million at March 31, 1999.
20

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

There is incorporated by reference the information with respect to certain legal
proceedings previously reported in Item 3 of Unocal's Annual Report on Form 10-K
for the year ended December 31, 1998 (1998 Form 10-K), the information regarding
environmental remediation reserves in note 9 to the consolidated financial
statements in Item 1 of Part I hereof, the discussion of such reserves in the
Environmental Matters section of Management's Discussion and Analysis in Item 2
of Part I, and the information regarding certain legal proceedings and other
contingent liabilities in note 10 to the consolidated financial statements.
Information with respect to certain recent developments and additional legal
proceedings is set forth below:

General

1. In the lawsuit captioned Talbert Fuel Systems Patents Company v. Unocal
Corp., et al., described in Paragraph 1 of Item 3 of the 1998 Form
10-K, in April 1999, the court granted the company's motion for summary
judgment as to the remaining infringement claim.

2. In the lawsuit captioned The McMahon Foundation, et al. v. Amerada Hess
Corporation, et al., described in Paragraph 2 of Item 3 of the 1998
Form 10-K, in April 1999, the settlement agreement was given final
approval by the court. Less than 2.5 percent of the class members who
received royalty and working interest payments from the company
exercised opt-out rights.

3. In the lawsuit captioned United States, ex rel. Jack Grynberg v.
Unocal, described in Paragraph 5 of Item 3 of the 1998 Form 10-K, in
April 1999, the U.S. Department of Justice notified the court that it
has elected not to intervene in this action.

4. In connection with the notices of Preliminary Determination of
Underpaid Royalties received from the U.S. Department of the Interior
Minerals Management Service (MMS), described in Paragraph 6 of Item 3
of the 1998 Form 10-K, the company has entered into negotiations with
the MMS to settle the claims.

5. In the lawsuit captioned People of the State of California v. Molycorp,
Inc., described in Paragraph 8 of Item 3 of the 1998 Form 10-K, in
January 1999, the District Attorney filed an amended complaint adding
alleged violations of the California Business & Professions Code, Water
Code and Fish & Game Code.

Additional Environmental Matter Involving Possible Civil Penalties

6. In recent years the District Attorney of Yolo County, California, has
expressed concern with releases of chemicals from the company's West
Sacramento agricultural products plant. In March 1999, the District
Attorney sent the company a pre-filing letter allowing for discussion
regarding three past releases of which the company had notified the
appropriate environmental agencies. In the aggregate, civil penalties
concerning these matters could exceed $100,000.
21

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits: The Exhibit Index on page 24 of this report lists the
exhibits that are filed as part of this report.

(b) Reports on Form 8-K:

Filed during the first quarter of 1999:

1. Current Report on Form 8-K dated January 26, 1999, and filed
January 27, 1999, for the purpose of reporting, under Item
5, the company's sale of its Northern California Geothermal
assets to Calpine Corporation.

2. Current Report on Form 8-K dated January 27, 1999, and filed
January 29, 1999, for the purpose of reporting, under Item
5, the company's fourth quarter and full year 1998 earnings
and related information.

3. Current Report on Form 8-K dated February 8, 1999, and filed
February 10, 1999, for the purpose of reporting, under Item
5, the company's crude oil and natural gas reserve data.

4. Current Report on Form 8-K dated and filed March 3, 1999,
for the purpose of reporting, under Item 5, certain key
executive appointments.

Filed during the second quarter of 1999 to the date hereof:

1. Current Report on Form 8-K dated April 12, 1999, and filed
April 14, 1999, for the purpose of reporting, under Item 5,
the company's deepwater discoveries in the Gulf of Mexico.

2. Current Report on Form 8-K dated April 15, 1999, and filed
April 16, 1999, for the purpose of reporting, under Item 5,
the company's Unocal Canada Resources subsidiary's
definitive agreement to acquire an interest in Calgary-based
Northrock Resources Ltd.

3. Current Report on Form 8-K dated April 28, 1999, and filed
April 30,1999, for the purpose of reporting, under Item 5,
the company's first quarter 1999 earnings and related
information.

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.

UNOCAL CORPORATION
(Registrant)

Dated: May 13, 1999 By:/s/ JOE D. CECIL
-------------------------------
Joe D. Cecil
Vice President and Comptroller
(Duly Authorized Officer
Principal Accounting Officer)

EXHIBIT INDEX

10. Termination Agreement and General Release, dated March 31, 1999, between
John W. Schanck and Union Oil Company of California (Union Oil).

12.1 Statement regarding computation of ratio of earnings to fixed charges of
Unocal for the three months ended March 31,1999 and 1998.

12.2 Statement regarding computation of ratio of earnings to fixed charges of
Union Oil for the three months ended March 31, 1999 and 1998.

27. Financial data schedule for the period ended March 31, 1999 (included
only in the copy of this report filed electronically with the Commission)

99.1 Related and Amended Articles of Incorporation of Union Oil, as amended
through April 1, 1999, and currently in effect.

99.2 Bylaws of Union Oil, as amended through April 1, 1999, and currently in
effect.