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JOINT VENTURE AGREEMENT
 HAGERMAN GAS GATHERING SYSTEM
 A Joint Venture Formed By
 FEAGAN GATHERING COMPANY
 PARALLEL PETROLEUM CORPORATION
  CAPSTONE OIL & GAS COMPANY, L.P.




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INDEX
 Article 1
    
    Formation of Joint Venture1.1
    
    Formation of Joint Venture
    
    
    1Article 2
    
    Definitions2.1
    
    Definitions
    
    
    12.2
    
    Terms Generally
    
    
    3Article 3
    
    The Joint Venture3.1
    
    Name, Assumed Name Certificates
    
    
    43.2
    
    Joint Venture Office and Principal Place of Business
    
    
    43.3
    
    Purpose
    
    
    43.4
    
    Other Activities
    
    
    4Article 4
    
    Ownership and Availability of the System4.1
    
    Ownership of Joint Venture Facilities
    
    
    54.2
    
    Availability of the System
    
    
    5Article 5
    
    Representations and Warranties5.1
    
    Representations, Warranties and Covenants of Parties
    
    
    5Article 6
    
    Capital Contributions and Ownership6.1
    
    Initial Capital Contribution and Ownership
    
    
    66.2
    
    Additional Capital Contributions
    
    
    76.3
    
    Payment of Capital Contributions
    
    
    76.4
    
    Carried Capital Contribution
    
    
    86.5
    
    Option to Purchase Additional Interest
    
    
    86.6
    
    Voluntary Contributions
    
    
    8Article 7
    
    Allocations and Capital Accounts7.1
    
    Allocations; Capital Accounts
    
    
    9
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Article 8
    
    Distributions and Reimbursements8.1
    
    Distributions
    
    
    118.2
    
    Reimbursement of Expenses
    
    
    12Article 9
    
    Accounting; Books and Records; Taxes9.1
    
    Fiscal Year
    
    
    129.2
    
    Location of Records
    
    
    129.3
    
    Books of Account
    
    
    129.4
    
    Financial Statements
    
    
    129.5
    
    Taxation and Reports
    
    
    139.6
    
    Governmental Reports and Compliance with Laws
    
    
    139.7
    
    Inspection of Facilities and Records
    
    
    149.8
    
    Deposit of Funds
    
    
    149.9
    
    Tax Matters Partner
    
    
    14Article 10
    
    Management; Operator and Conduct of Operations10.1
    
    Management of the Joint Venture
    
    
    1510.2
    
    Operator
    
    
    1510.3
    
    Composition of Management Committee
    
    
    1510.4
    
    Authority of the Management Committee
    
    
    1510.5
    
    Approval Requirements; Limitation on Voting Rights
    
    
    1710.6
    
    Meetings
    
    
    1710.7
    
    Appointment of Operator; Construction and Operation of the System
    
    
    1710.8
    
    Conduct of Operations
    
    
    1710.9
    
    Expenses
    
    
    1810.10
    
    Personnel
    
    
    1810.11
    
    Discharge of Expenses
    
    
    1810.12
    
    Ad Valorem Taxes
    
    
    1810.13
    
    Rights of Way
    
    
    1810.14
    
    Removal and Replacement of Operator
    
    
    19Article 11
    
    Liability and Indemnification of Joint Venturers; Insurance11.1
    
    Limitation of Liability of Joint Venturers
    
    
    1911.2
    
    Insurance
    
    
    2011.3
    
    Claims
    
    
    2011.4
    
    Contractors and Subcontractors
    
    
    21
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Article 12
    
    Assignments12.1
    
    Limitation of Rights to Transfer Joint Venturers' Interests
    
    
    2112.2
    
    Permitted Transfers by Joint Venturers
    
    
    2212.3
    
    Effect of Permitted Transfers
    
    
    2212.4
    
    Effects of Prohibited Transfers
    
    
    22Article 13
    
    Term; Termination and Winding Up13.1
    
    Term
    
    
    2313.2
    
    Voluntary Withdrawal of a Joint Venturer
    
    
    2313.3
    
    Automatic Termination
    
    
    2313.4
    
    Removal for Default
    
    
    2513.5
    
    Remedies of Non-Withdrawing Party
    
    
    2613.6
    
    Buy-Sell Procedures
    
    
    2613.7
    
    Appraisal Procedure
    
    
    2813.8
    
    Termination and Winding Up
    
    
    2913.9
    
    Effect of Termination or Withdrawal
    
    
    31Article 14
    
    Salvage14.1
    
    Abandonment
    
    
    31Article 15
    
    Confidentiality15.1
    
    Confidentiality
    
    
    32Article 16
    
    Miscellaneous16.1
    
    Notice
    
    
    3216.2
    
    Further Assurance
    
    
    3316.3
    
    Amendment
    
    
    3316.4
    
    Waiver
    
    
    3316.5
    
    Exhibits
    
    
    3316.6
    
    Applicable Laws
    
    
    3416.7
    
    Counterparts
    
    
    3416.8
    
    Headings
    
    
    3416.9
    
    Section Numbers
    
    
    3416.10
    
    Entirety
    
    
    3416.11
    
    Severability
    
    
    3416.12
    
    Binding Effect; Joinder of Additional Parties
    
    
    34
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Article 17
    
    Arbitration17.1
    
    General
    
    
    3417.2
    
    Procedures
    
    
    3517.3
    
    Specific Enforcement
    
    
    36Exhibit A
    
    Construction and Operating AgreementExhibit B
    
    Project AreaExhibit C
    
    Gas Gathering AgreementExhibit D
    
    Insurance
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Formation of Joint Venture
 
 Definitions




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Capital Contribution
 Code
 Construction and Operating Agreement
 Cost of a Joint Venture Expansion
 Cost of the System
 Gas
 Joint Venture
 Joint Venture Expansion
 Joint Venture Nonrecourse Liabilities
 Joint Venturer(s)
 Joint Venture Percentage Interest
 2




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Joint Venturer Nonrecourse Debt
 Joint Venturer Nonrecourse Deductions
 Management Committee
 Minimum Gain
 Operator
 Person
 Project Area
 System
 Treasury Regulations
 Terms Generally
 3




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Name; Assumed Name Certificates
 Joint Venture Office and Principal Place of Business
 Purpose
 Other Activities
 4




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Ownership of Joint Venture Facilities
 Availability of the System
 
 Representations, Warranties and Covenants of Parties
 5




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Initial Capital Contribution and Ownership
 6




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Feagan
    
    
    10.00
    %Parallel
    
    
    76.50
    %Capstone
    
    
    13.50
    %
 Additional Capital Contributions
 Payment of Capital Contributions
   (i)
    
    the amount of the Capital Contribution requested from each
Joint Venturer, which amount shall equal such Joint Venturers Percentage of
the total Capital Contributions then requested of the Joint Venturers;(ii)
    
    the purposes for which the Capital Contributions are to be
applied; and(iii)
    
    the date on which the Capital Contributions shall be made
(which shall not be less than thirty (30) days following the date the request
is made) and the method of payment, such date and method to be identical for
all of the Joint Venturers.
 7




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Carried Capital Contribution
 Option to Purchase Additional Interest
 Voluntary Contributions
 8




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Allocations; Capital Accounts
     9




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10




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Distributions
 11




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Reimbursement of Expense
 
 Fiscal Year
 Location of Records
 Books of Account
 Financial Statements
 12




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Taxation and Reports
   Governmental Reports and Compliance with Laws
   13




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Inspection of Facilities and Records
 Deposit of Funds
 Tax Matters Partner
 14




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Management of the Joint Venture
 Operator
 Composition of Management Committee
 Authority of the Management Committee
  15




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16




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Approval Requirements; Limitation on Voting Rights
 Meetings
 Appointment of Operator; Construction and Operation of the System
 Conduct of Operations
 17




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Expenses
    Personnel
 Discharge of Expenses
 Ad Valorem Taxes
 Rights of Way
 18




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Removal and Replacement of Operator
 
 Limitation of Liability of Joint Venturers
 19




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Insurance
   Claims
  20




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Contractors and Subcontractors
 
 Limitation of Right to Transfer Joint Venturers Interests
 21




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Permitted Transfers by Joint Venturers
   Effect of Permitted Transfers
 Effects of Prohibited Transfers
 22




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Term
 Voluntary Withdrawal of a Joint Venturer
 Automatic Termination
 (a)
    
    If any of the following shall occur:
 (1)
    
    the Joint Venturers agree unanimously in writing to terminate
and wind up the Joint Venture; or(2)
    
    an event which makes it unlawful for the business of the Joint
Venture to be carried on; or(3)
    
    the sale or abandonment of all or substantially all of the
Joint Ventures business and assets; or(4)
    
    the tenth anniversary of the date of this Agreement;
  (b)
    
    If any of the following events of withdrawal shall occur:
 (1)
    
    the voluntary withdrawal of a Joint Venturer in accordance with
Section 13.2; or(2)
    
    the commencement by any Joint Venturer of a voluntary case
under the federal bankruptcy laws, as now constituted or hereafter amended, or
any other applicable federal or state bankruptcy, insolvency or other similar
law, or the consent by any Joint Venturer to, or acquiescence in, the
appointment of or taking possession by a
 23




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receiver, liquidator, assignee, trustee, custodian, sequestrator (or other
similar official) of said Joint Venturer or for all or any substantial part
of its property or its interest in the Joint Venture (the term
acquiescence being deemed to include, but not limited to, the failure to
file a petition or motion to vacate or discharge any order, judgment or
decree providing for such appointment within ten (10) days after the
appointment); or(3)
    
    the entry of a decree or order for relief by a court having
jurisdiction in the premises in respect of any Joint Venturer in an involuntary
case under the federal bankruptcy laws, as now or hereafter constituted, or any
other applicable federal or state bankruptcy, insolvency, or other similar law,
or appointing a receiver, liquidator, assignee, custodian trustee, sequestrator
(or similar official) of the Joint Venturer or for any substantial part of its
property or its interest in the Joint Venture, or ordering the winding up or
liquidation of the affairs of said Joint Venturer, and said Joint Venturer
shall acquiesce in the entry of such decree or order (the term acquiesce
being deemed to include, but not limited to, the failure to file a petition or
motion to vacate such order or decree within ten (10) days of the entry
thereof) or any such order or decree shall continue unstayed and unvacated for
a period of sixty (60) consecutive days from the date of entry thereof; or(4)
    
    the failure or inability of any Joint Venturer generally to pay
its debts as such debts become due; or(5)
    
    any Joint Venturer shall give notice to any governmental body
of insolvency or pending insolvency, or suspension or pending suspension of
operations; or(6)
    
    any Joint Venturer shall make an assignment for the benefit of
creditors or take any other similar action for the protection or benefit of
creditors; or
 24




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(7)
    
    any Joint Venturer shall sell or otherwise dispose of all or
substantially all of its assets (other than by reason of a transaction
described in Section 12.2(a)); or(8)
    
    any Joint Venturer shall take any action in furtherance or
confirmation of the events mentioned in (2) through (7) above; or(9)
    
    the death of any Joint Venturer; or(10)
    
    the removal of a Joint Venturer from the Joint Venture in
accordance with Section 13.4,
  (i)
    
    the Joint Venturer as to whom an event described above has
occurred (the Withdrawing Party) shall immediately cease to be a Joint
Venturer; and(ii)
    
    the Joint Venture and its business shall be wound up and
terminated, unless the remaining Joint Venturers (the Non-Withdrawing
Parties) shall elect unanimously in writing to continue the business of the
Joint Venture.
 Removal for Default
   25




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Remedies of Non-Withdrawing Party
   Buy-Sell Procedures
  (1)
    
    to purchase the interest of the Withdrawing Party in the Joint
Venture for cash at a price equal to the 100% price stated in the Offer
multiplied by the Withdrawing Partys Joint Venture Percentage Interest (in the
event that more than one Non-Withdrawing Party elects to purchase the interest
of a Withdrawing Party hereunder, then each Non-Withdrawing Party so electing
shall purchase a fraction of the Withdrawing Partys Joint Venture ownership
interest equal to that Non-Withdrawing Partys interest in the Joint Venture
divided by the interest of all Non-Withdrawing Parties in the Joint Venture
electing to purchase the interest of the Withdrawing Party); or
 26




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(2)
    
    to sell to the Withdrawing Party the interest of the
Non-Withdrawing Party in the Joint Venture for cash at a price equal to the
100% price stated in the Offer multiplied by the Non-Withdrawing Partys Joint
Venture Percentage Interest.
    27




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Appraisal Procedure
    28




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Termination and Winding Up
  (i)
    
    debts of the Joint Venture, other than to the Joint Venturers,
shall be paid (or adequate provision shall be made for the payment thereof);
then
 (ii)
    
    debts owed by the Joint Venture to the Joint Venturers shall be
paid; then
 29




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(iii)
    
    all remaining assets of the Joint Venture shall be distributed to the
Joint Venturers as follows:
 (1)
    
    all cash on hand representing unexpended
Capital Contributions by any Joint Venturer shall be returned to the
contributor, then(2)
    
    the Liquidating Trustee may sell any or all
Joint Venture property and any resulting gain or loss from each sale
shall be computed and allocated to the capital accounts of the Joint
Venturers as provided in Section 7.1;(3)
    
    with respect to all Joint Venture property that
has not been sold, the fair market value of that property shall be
determined and the capital accounts of the Joint Venturers shall be
adjusted to reflect the manner in which the unrealized income, gain,
loss, and deduction inherent in property that has not been reflected in
the capital accounts previously would be allocated among the Joint
Venturers under Section 7.1 if there were a taxable disposition of that
property for the fair market value of that property on the date of
distribution; and(4)
    
    Joint Venture property shall be distributed
among the Joint Venturers in the amounts specified in Section 8.1.
  30




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Effect of Termination or Withdrawal
 
 Abandonment
 31




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Confidentiality
 
 Notice
    32




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Further Assurance
 Amendment
 Waiver
 Exhibits
 33




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Applicable Laws
 Counterparts
 Headings.
 Entirety
 Severability
 Binding Effect; Joinder of Additional Parties
 Third Party Beneficiaries
 
 General
 Procedures
 34




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35




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Specific Enforcement
  36




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FEAGAN GATHERING COMPANYBy:
    /s/ Mike FeaganMike Feagan, PresidentPARALLEL PETROLEUM CORPORATIONBy:
    /s/ John S. RutherfordJohn S. Rutherford, Vice President ofLand and AdministrationCAPSTONE OIL & GAS COMPANY, L.P.
By:  Capstone Investments, Inc., its
          general partnerBy:
    /s/ Dale DouglasDale Douglas, President 37




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Joint Venture Agreement
  Joint Venture Operator
  Joint Venturers Joint Venturer




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Definitions
 Defined Terms
    Agreement
 Joint Venture Agreement
 Operator
 Designation of Operator
 Duties of Operator
 Reports
 2




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Limitations
 Conduct of Operations
 Standard of Care
 Turnover of Property
 Scope of Operators Responsibility
 3




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Work Inspection
 Right to Inspect
 Personnel
 Supervision and Compensation of Personnel
 Method of Payment
 Direct Payment by Joint Venture and Reimbursement of Operators Costs
 4




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Expenditure Approvals
 Audit
 Indemnity, Administration of Claims and Insurance
 Indemnity
  5




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Administration
 Insurance
 Taxes
 Taxes
 6




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Term, Termination by Default and Preservation of Rights
 Term
 Removal of Operator Notice of Default
 Withdrawal of Operator
 7




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Resignation of Operator
 Preservation of Rights
 Laws and Regulations
 Compliance with Laws
  8




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Patents
 Limitation on License and Royalty Fees
 Safety
 Standards
 Subcontracts
 Required Approvals
 Force Majeure
 Force Majeure
 9




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Miscellaneous
 Applicable Laws
 Further Assurances
 Waiver
 10




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Assignment
 Notices
  
  
  
 Amendment
 Conflict provided, however
 11




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Headings
 Counterparts
 Limitation of Liability
 Entire Agreement; No Third Party Beneficiaries
 Fair Construction
 Severability
 12




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THE JOINT VENTUREHAGERMAN GAS GATHERING SYSTEM
By Each of Its Joint Venturers Named Below
PARALLEL PETROLEUM CORPORATIONBy:
    /s/ John S. RutherfordJohn S. Rutherford, Vice President ofLand and AdministrationCAPSTONE OIL & GAS COMPANY, L.P.
By:  Capstone Investments, Inc., its
          general partnerBy:
    /s/ Dale DouglasDale Douglas, PresidentFEAGAN GATHERING COMPANYBy:
    /s/ Mike FeaganMike Feagan, PresidentTHE
OPERATORFEAGAN GATHERING COMPANYBy:
    /s/ Joe FeaganJoe Feagan, Vice President 13




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Accounting Procedures
 Section 1 Billing and Payment Procedures th
 Section 2 Adjustments
 Section 3 Reimbursable Costs
 Operators Direct General and Administrative Costs.
 Monthly Management Fee in Lieu of Operators Indirect General and Administrative
Costs.




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Third Party Expenses of Employees
 Materials and Supplies
 Fabrication and Inspection Costs
 Construction Contractors
 Routine Expenses




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Joint Venture Agreement




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Joint Venture Agreement




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TABLE OF CONTENTS
 ARTICLE
    
    
    
    PAGEI
    
    Definitions
    
    
    2II
    
    Scope of Agreement
    
    
    4III
    
    Quantity
    
    
    5IV
    
    Agreement Implementation
    
    
    7V
    
    Points of Delivery and Redelivery
    
    
    9VI
    
    Pressure
    
    
    10VII
    
    Gathering, Compression and
Transportation Fees
    
    
    12VIII
    
    Quality  Treating and Dehydration Fee
    
    
    13IX
    
    Measurement
    
    
    15X
    
    Term
    
    
    19XI
    
    Taxes
    
    
    19XII
    
    Pipeline Operation
    
    
    20XIII
    
    Billing and Payments
    
    
    20XIV
    
    Right-of-Way
    
    
    22XV
    
    Warranty of Title
    
    
    22XVI
    
    Regulation
    
    
    23XVII
    
    Force Majeure
    
    
    24XVIII
    
    Notices and Payments
    
    
    25XIX
    
    Relationship of the Parties
    
    
    26XX
    
    Insurance During Transportation
    
    
    27XXI
    
    Governmental Authority
    
    
    27XXII
    
    Priority and Termination of Joint Venture
    
    
    28XXIII
    
    General
    
    
    28Exhibit A




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Agreement Producer Gatherer parties party




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2




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3




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System wells to Transwestern
 4




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Exhibit A Contract Area Exhibit A
   5




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6




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7




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Point(s) of
Delivery Delivery Point(s)
 Point(s) of Redelivery Redelivery Point(s)
  8




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9




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10




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ARTICLE VII
      11




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14




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15




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16




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17




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18




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19




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granting party
     20




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FERC
 21




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22




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23




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24




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25




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HAGERMAN GAS GATHERING SYSTEMBy:
    Feagan Gathering Company, OperatorBy:
    /s/ Joe FeaganJoe Feagan,  Vice PresidentPARALLEL PETROLEUM CORPORATIONBy:
    /s/ John S. RutherfordJohn S. Rutherford, Vice Presidentof Land and AdministrationCAPSTONE OIL AND GAS COMPANY, L.P.By:
    Capstone Investments, Inc., its general partnerBy:
    /s/ Dale DouglasDale Douglas, President 27




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EXHIBIT A




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Joint Venture Agreement
   1.
    
    At all times during the conduct of operations hereunder, Operator shall maintain in force, in
accordance with the terms of the Hagerman Gas Gathering System Joint VentureAgreement (the Agreement), the following minimum limits of insurance at the expense of and
for the benefit of the Joint Venture:
 (a)
    
    Workers Compensation Insurance in accordance with the laws of the state(s) in
which operations are covered under the Agreement; and(b)
    
    Employers Liability Insurance with a minimum limit of $1,000,000.
 2.
    
    In addition to the above, the Operator shall provide and maintain in force the following
minimum limits of insurance, at the expense of and for the benefit of the Joint Venture,
covering operations on lands subject to the Agreement:
 (a)
    
    Commercial General Liability Insurance with a combined single limit of
$1,000,000 per occurrence; and(b)
    
    Automobile Liability Insurance covering owned, non-owned and hired automobiles
with a combined single limit of $1,000,000 per accident.
 3.
    
    Any party may at its own expense acquire such other insurance as it deems proper to protect
itself against any claims, losses, damages or destruction arising out of operations under the
Agreement.
 4.
    
    Operator shall require all contractors and subcontractors working on or performing services
under the Agreement to comply with applicable Workers Compensation and Employers Liability
laws, both state and federal, and to carry Commercial General Liability and such other
insurance as Operator deems necessary.
 5.
    
    Operator may include Workers Compensation and Employers Liability Insurance risks under its
qualified self-insurance program, provided Operator complies with all applicable laws. In such
event, Operator shall charge the Joint Venture with an amount




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that shall not exceed the amount of the premium that would be charged at the manual rate
effective for insurance coverage as if Operator were a purchaser of such coverage from an
insurance company or companies.
 6.
    
    In connection with all losses, Operator shall (i) furnish copies of accident reports on a
prompt basis; (ii) give written notification of the service of all summons and legal
processes; (iii) provide information as to the status of any claim or suit of any payment made
in connection therewith; and (iv) furnish any other available information required for the
purpose of fixing or adjusting premiums or to support any claims.
 7.
    
    Operator and each Joint Venturer agree to mutually waive subrogation in favor of each other
on all insurance carried by each party and/or obtain such waiver from the insurance carrier if
so required by the insurance contract. If such waiver is not obtained, the party failing to do
so shall indemnify the other party for any claim by an insurance carrier arising out of
subrogation.
 2