---

`First Permian, LLC (100%)
                                 Hedge Contracts

     Type            Volume/Month             Term              Price              Commodity
---------------   -------------------   ------------------   ------------         -------------

     Swap           91,000 barrels      1/1/01 - 6/30/01       $ 17.70            WTI/NYMEX


    Collar          40,000 barrels      7/01 - 12/02             $ 19.00 floor    WTI/NYMEX
                                                                 $ 24.80 ceiling

    Collar          40,000 barrels      7/01 - 12/02             $ 18.00 floor    WTI/NYMEX
                                                                 $ 28.75 ceiling

    Spread          40,000 barrels      12/01 - 02/02             $ 2.30          WTI/WTS`

`2001 Drilling Activity
-----------------------------------------------------------------------------------------------------
                                                                                        Waiting on
    Target                                     Number of                               Completion at
  Formation         Depth Range (feet)       Wells Drilled   Productive        Dry     March 6, 2002
-------------- --------------------------- ---------------- ------------   ---------- ---------------

Yegua                6,300 -       13,000                6            3            3               0
Frio                 6,400 -        8,400               23           14            9               0
Wilcox              13,200 -       17,500                3            1 (1)        1               1
Other               10,000 -       11,500                1                                         1
                                             -------------- ------------   ---------- ---------------
                                                        33           18           13               2
                                             ============= ============   ========== ===============

---------------------------
(1)  one well was drilled to the Wilcox formation, but was completed in the Yegua formation.`

`Year Ended December 31,
                                       --------------------------------------------------------------------
                                            2001        2000(1)       1999(1)         1998         1997
                                       ------------- ------------- ------------- ------------- ------------
                                                                     (in thousands)

Transfers from (to) undeveloped                 $ -       $ 2,128      $ (2,128)          $ -          $ -
leases held for sale(1)
Proved property acquisition  costs               27            23            42            89          918
Unproved property acquisition costs           3,420         3,372         1,979         6,034        7,710
Exploration costs                             6,820         2,163         1,856         8,556        9,604
Development costs                             1,203         1,087           639         3,873        4,877
                                       ------------- ------------- ------------- ------------- ------------
                                           $ 11,470       $ 8,773       $ 2,388      $ 18,552     $ 23,109
                                       ============= ============= ============= ============= ============

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

(1)  Reflects costs associated with assets being held for sale in 1999 and
     transferred back to oil and gas property in 2000. Actual capital
     expenditures during 2000 and 1999, excluding transfers, were approximately
     $6.6 million and $4.5 million, respectively.`

`First Permian, LLC
                                 Core Properties


                       Net                          Percentage
                    Developed                    Working Interest/
Property               Acres      Operator       Net Revenue Interest   Formation/Depth
------------------ ------------ --------------  ---------------------- ---------------------

Westbrook SE          3,605     First Permian        87.9/72.7%        Clearfork/3200'
N. Robertson          2,695     First Permian        42.5/35.0%        Clearfork/5900-7200'
East Penwell          2,314     First Permian        62.1/54.1%        San Andres/3800'
Whiteface             3,578     First Permian        100.0/85.0%       San Andres/5000'`

`Average Price Received for the
                                                 Year Ended December 31,
                                     --------------------------------------------
                                         2001           2000            1999
                                     -------------   ------------   -------------
Oil (Bbl)                                 $ 24.80        $ 28.88         $ 17.32
Natural gas (Mcf)                          $ 4.41         $ 4.38          $ 2.27`

`Exploratory Wells(1)                                 Development Wells(2)
                        -------------------------------------------------   -----------------------------------------------
 Year Ended
December 31,                   Productive                Dry                      Productive                Dry
---------------------   ---------------------   ----------------------      --------------------    -----------------------
                          Gross        Net        Gross        Net           Gross        Net        Gross         Net
                        ----------   --------   ----------   ---------      ---------   --------    ---------   -----------

2001                         18.0       4.10         13.0        3.41              -          -            -             -
2000                         20.0       3.40          7.0        1.22            3.0       0.56          2.0          0.45
1999                         11.0       2.50          5.0        1.70            2.0       0.80            -             -

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

(1)  An exploratory well is a well drilled to find and produce oil or gas in an
     unproved area, to find a new reservoir in a field previously found to be
     productive of oil or gas in another reservoir, or to extend a known
     reservoir.

(2)  A development well is a well drilled within the proved area of an oil or
     gas reservoir to the depth of a stratigraphic horizon known to be
     productive.`

`Year Ended December 31,
                                                        --------------------------------------------------
                                                              2001              2000             1999
                                                        ---------------   ---------------   --------------
Net Production:
     Oil (Bbls)                                                138,243           165,137          163,696
     Gas (Mcf)                                               3,266,350         2,821,815        2,708,516
     EBO(1)                                                    682,635           635,440          615,115
Average Sales Price:
     Oil (per Bbl)                                             $ 24.80           $ 28.88          $ 17.32
     Gas (per Mcf)                                              $ 4.41            $ 4.38           $ 2.27
     EBO                                                       $ 26.13           $ 26.96          $ 14.59
Average Production
     (Lifting) Cost per EBO                                     $ 5.74            $ 4.88           $ 3.83
Operating Margin
     per EBO(2)                                                $ 20.39           $ 22.08          $ 10.76
Depletion per EBO                                               $ 9.13            $ 8.18           $ 8.30


(1)  An EBO means one barrel of oil equivalent using the ratio of six Mcf of gas
     to one barrel of oil.

(2)  Operating margin is determined by deducting the average production cost per
     EBO from the average sales price per EBO.`

`2001         2000         1999
                                            ------------- ------------ ------------

Allegro Investments, Inc.                            38%          22%          27%

Brayton Operating Corp.                                -            -          26%

Cox & Perkins Exploration, Inc.                   6%           6%          14%

Pure Resources, Inc.                                 23%          16%            -

Sue Ann Production                                   25%            -            -`

`Producing Wells                               Acreage
                    ---------------------------------------------- ---------------------------------------------
                             Oil                    Gas                Developed                 Undeveloped
                    --------------------- ------------------------ ----------------------- ---------------------
                       Gross     Net(1)       Gross       Net(1)      Gross       Net(2)      Gross       Net
                    ---------- ---------- ------------ ----------- -----------  ---------- ---------- ----------

Texas                      96      67.68          113       38.29      50,147      31,284     76,511     14,659
New Mexico                  -          -            -           -           -           -     11,357        340
                    ---------- ---------- ------------ ----------- -----------  ---------- ---------- ----------
      Total                96      67.68          113       38.29      50,147      31,284     87,868     14,999
                    ========== ========== ============ =========== ===========  ========== ========== ==========


--------------------
(1)  Net wells are computed by multiplying the number of gross wells by our
     working interest in the gross wells.

(2)  Net acres are computed by multiplying the number of gross acres by our
     working interest in the gross acres.`

`Proved                   Proved               Total
                                                         Developed               Undeveloped
                                                    --------------------   ---------------------   ----------------
Oil (Bbls)                                                      489,547                 426,456            916,003

Gas (Mcf)                                                     9,574,292               4,372,931         13,947,223

Future Net Revenues (before income taxes)                  $ 18,831,883             $ 6,589,555       $ 25,421,438

Present Value of Future Net Revenues                       $ 14,302,304             $ 2,772,198       $ 17,074,502
   (before income taxes)`

`Proved               Proved              Total
                                                         Developed           Undeveloped
                                                    --------------------  -------------------  ----------------

Oil (Bbls)                                                  8,265,775             5,363,428         13,629,203

Gas (Mcf)                                                   1,585,981               701,309          2,287,290

Future Net Revenues (before income taxes)                $ 89,819,410          $ 39,981,323       $129,800,733

Present Value of Future Net Revenues                     $ 36,287,438          $ 10,176,507       $ 46,463,945
   (before income taxes)`

`Price Per Share
                                   ------------------------------
                                       High              Low
                                   ------------     -------------

1999
  First quarter                         $1.87            $1.00
  Second quarter                        $2.34            $1.25
  Third quarter                         $3.00            $1.75
  Fourth quarter                        $2.53            $1.37

2000
  First quarter                         $4.19            $1.59
  Second quarter                        $3.00            $1.75
  Third quarter                         $4.69            $2.56
  Fourth quarter                        $4.69            $3.00

2001
  First quarter                         $4.93            $3.50
  Second quarter                        $5.57            $4.20
  Third quarter                         $4.18            $2.95
  Fourth quarter                        $4.20            $2.77`

`Year Ended December 31
                                                ----------------------------------------------------------------------------------
                                                     2001(1)           2000          1999(2)          1998(3)           1997
                                                ---------------- --------------- --------------- ---------------- ----------------

Operating revenues                                 $ 17,840,024    $ 17,134,502   $  8,974,041    $   9,001,582     $ 12,614,242

Operating expenses                                 $ 28,405,212    $ 9,530,266    $ 10,173,995    $  24,056,923     $  7,968,146

Net income (loss)                                  $(10,565,188)   $ 5,977,328    $ (2,450,457)   $ (12,995,910)    $  2,743,930

Cumulative preferred stock
     dividend                                      $   (609,063)   $  (609,063)   $   (609,063)   $    (276,712)    $         -

Net income (loss) available to
     common stockholders                           $ (5,316,638)   $ 5,368,265    $ (3,059,520)   $ (13,272,622)    $  2,743,930

Net income (loss) per common
     share

     Basic                                         $      (0.26)   $      0.26    $      (0.16)   $       (0.73)    $       0.15

     Diluted                                       $      (0.26)   $      0.25    $      (0.16)   $       (0.73)    $       0.15

Cash dividend - common stock                                  -              -               -                -                -

Weighted average common stock
     and common stock equivalents
     outstanding

     Basic                                           20,457,697      20,331,858     18,549,214       18,300,998       17,862,792

     Diluted                                         20,457,697      23,465,492     18,549,214       18,300,998       18,640,990

Present value of proved oil and
     gas reserves discounted at 10%
     (before estimated federal income taxes)       $ 17,074,502    $ 90,950,591   $ 25,498,996    $  26,822,980     $ 46,419,580

Working capital                                    $   (586,841)   $  2,760,837   $    (71,647)   $     128,813     $ (2,162,139)

Total assets                                       $ 41,759,903    $ 46,456,437   $ 43,264,070    $  46,564,782     $ 49,855,532

Total liabilities                                  $ 15,446,370    $ 15,288,069   $ 17,463,967    $  20,839,642     $ 20,736,779

Long-term debt, less current maturities            $  9,600,000    $ 11,624,000   $ 12,300,000    $  18,035,889     $ 12,182,610

Total stockholders' equity                         $ 26,313,533    $ 31,168,368   $ 25,800,103    $  25,725,140     $ 29,118,753


------------------------
(1)  Results include noncash charges of $2,177,128 in the fiscal quarter ended
     September 30, 2001 and $14,642,685 in the fourth quarter ended December 31,
     2001, in each case related to the impairment of oil and gas properties
     incurred in 2001and primarily a result of a decrease in year-end reserves
     and lower oil and gas prices.

(2)  Results include a noncash charge of $1,705,000 related to the impairment of
     oil and gas properties incurred in the fourth quarter of 1999, primarily a
     result of a decrease in year-end reserves.

(3)  Results include a noncash charge of $14,757,028 related to the impairment
     of oil and gas properties incurred in the fourth quarter of 1998, primarily
     a result of low oil and gas prices at year-end.`

`Year Ended December 31
                                                        -------------------------------------------------------
                                                            2001(1)             2000              1999(2)
                                                        ----------------- ------------------  -----------------

   Production and Prices
     Oil (Bbls)                                                  138,243            165,137            163,696
     Natural Gas (Mcf)                                         3,266,350          2,821,815          2,708,516
     EBO (Bbls)                                                  682,635            635,440            615,115
     Oil Price (per Bbl)                                         $ 24.80            $ 28.88            $ 17.32
     Gas Price (per Mcf)                                          $ 4.41             $ 4.38             $ 2.27
     Ratio of oil to gas price                                    5.62/1             6.59/1             7.63/1
     Increase (decrease) in production
     volumes over prior years                                         7%                 3%               (16%)

   Results in Operations per EBO:
     Oil and gas revenues                                        $ 26.13            $ 26.96            $ 14.59
     Costs and expenses:
     Production costs                                               5.74               4.88               3.83
     General and administrative                                     1.97               1.88               1.31
     Provision for losses on trade receivable                          -                  -               0.14
     Depreciation, depletion and amortization                       9.26               8.25               8.49
     Impairment of oil and gas properties                          24.64                  -               2.77
                                                        ----------------- ------------------  -----------------
           Total costs and expenses                              $ 41.61            $ 15.01            $ 16.54
                                                        ----------------- ------------------  -----------------

   Operating income (loss)                                      (15.48)             11.95              (1.95)
   Equity interest in earnings (loss)
     of First Permian, L.L.C.                                     1.23              (0.79)              0.32
   Interest expense, net                                         (0.97)             (1.76)             (2.39)
   Other income (expense), net                                   (0.64)              0.19               0.03
                                                        ----------------- ------------------  -----------------
           Pretax income (loss) per EBO                       $ (15.86)            $ 9.59            $ (3.99)
                                                        ================= ==================  =================

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

(1)  Results include noncash charges of $2,177,128 and $14,642,685 during the
     third and fourth quarters, respectively related to the impairment of oil
     and gas properties incurred in 2001, primarily a result of a decrease in
     year-end reserves and lower oil and gas prices.

(2)  Results include a noncash charge of $1,705,000 related to the impairment of
     oil and gas properties incurred in the fourth quarter of 1999, primarily a
     result of a decrease in year-end reserves.`

`Twelve Months Ended December 31,
                                                                      ---------------------------------------------------
                                                                          2001               2000             1999
                                                                      ----------------    -------------    --------------

Oil and gas revenues                                                       100.0%              100.0%           100.0%
Cost and expenses:
       Production costs                                                     21.9                18.1             26.2
       General and administrative                                            7.5                 6.9              8.9
       Provision for losses on trade receivables                             -                   -                1.0
       Depreciation, depletion and amortization                             35.4                30.6             58.2
       Impairment of oil and gas properties                                 94.3                 -               19.0
                                                                      ----------------    -------------    --------------
            Total costs and expenses                                       159.1                55.6            113.3
                                                                      ----------------    -------------    --------------
Operating income (loss)                                                    (59.1)               44.4            (13.3)
                                                                      ----------------    -------------    --------------
Interest expense, net                                                       (3.7)               (6.5)           (16.4)
Other income (loss), net                                                    (2.4)                0.7              0.2
                                                                      ----------------    -------------    --------------
                                                                            (6.1)               (5.8)           (16.2)
Equity in earnings (loss) of First Permian, LLC                              4.7                (2.9)             2.2
                                                                      ----------------    -------------    --------------
                                                                            (1.4)               (8.7)           (14.0)
                                                                      ----------------    -------------    --------------
         Pretax income (loss)                                              (60.5)               35.7            (27.3)

Income Tax expense (benefit)                                                34.3                (0.8)             -
                                                                      ----------------    -------------    --------------

         Net income (loss)                                                 (26.2)%              34.9%           (27.3)%
                                                                      ================    =============    ==============

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

(1)  Results include noncash charges of $2,177,128 in the fiscal quarter ended
     September 30, 2001 and $14,642,685 in the fourth quarter ended December 31,
     2001, in each case related to the impairment of oil and gas properties
     incurred in 2001and primarily a result of a decrease in year-end reserves
     and lower oil and gas prices.

(2)  Results include a noncash charge of $1,705,000 related to the impairment of
     oil and gas properties incurred in the fourth quarter of 1999, primarily a
     result of a decrease in year-end reserves.`

`Obligation Due in Period
                                       ----------------------------------------------------------
     Contractual Cash Obligations           2002           2003           2004         2005         Total
-------------------------------------- --------------------------------------------------------------------
                                                                          (000s)

Revolving Credit Facility (secured)          $ 2,400        $ 3,600       $ 3,600      $ 2,400    $ 12,000
Office Lease                                 $    54        $    54       $    22                 $    130`

`2002           2003           2004         2005         Total    Fair Value
                                       ---------------------------------------------------------------------------------
                                                               (000s, except interest rates)

Variable rate debt:
Revolving Facility (secured)                 $ 2,400        $ 3,600       $ 3,600      $ 2,400    $ 12,000     $ 12,000
Average interest rate                          5.00%          5.00%         5.00%        5.00%`

`Average
                                                                  Cost of
                         Mcf Per                                 Floor per
       Period              Day        Total Mcf    Commodity        Mcf
--------------------- -------------  ----------- -------------- ------------

April 2002                  7,000       210,000  natural gas       $ 0.2893

May 2002                    7,000       210,000  natural gas       $ 0.2657

June 2002                   7,000       210,000  natural gas       $ 0.2486

July 2002                   7,000       210,000  natural gas       $ 0.2414

August 2002                 7,000       210,000  natural gas       $ 0.2479

September 2002              7,000       210,000  natural gas       $ 0.2679

October 2002                7,000       210,000  natural gas       $ 0.2751`

`Name                       Age              Director                   Position with Company
                                                         Since
------------------------------     ------------     -------------    --------------------------------------------------

Thomas R. Cambridge                    66              1985          Chairman of the Board of Directors
                                                                     and Chief Executive Officer
Larry C. Oldham                        48              1979          Director, President and Treasurer
Dewayne E. Chitwood(2)                 64              2001          Director
Martin B. Oring(1)(2)                  56              2001          Director
Charles R. Pannill(1)(2)               75              1982          Director
Jeffrey G. Shrader(1)(2)               51              2001          Director
Eric A. Bayley                         53                -           Vice President of Engineering and Production
John S. Rutherford                     41                -           Vice President of Land and Administration

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

(1)    Member of the Audit Committee
(2)    Member of the Compensation Committee`

`Summary Compensation Table
                                                                                        Long-Term Compensation
                                                                                    --------------------------------
                                                 Annual Compensation                  Awards                Payouts
                                      -------------------------------------------   ---------------------- ---------
                                                                       Other        Restricted Securities                 All
                                                                      Annual          Stock    Underlying    LTIP        Other
           Name and                        Salary        Bonus     Compensation      Awards     Options/   Payouts   Compensation
      Principal Position         Year       ($)           ($)           ($)            ($)       SAR(#)      ($)          ($)
------------------------------- ------- ----------- ------------ --------------   ---------- ----------- --------- --------------

T. R. Cambridge                  2001    $  91,362     $ 26,000       $    900            0     100,000         0              0
Chief Executive Officer          2000    $  77,755     $  2,000       $    900            0           0         0              0
and Chairman of the Board        1999    $  77,755     $  1,000       $    900            0      50,000         0              0

L. C. Oldham                     2001    $ 170,392     $ 26,000       $ 17,922 (1)        0     200,000         0       $ 14,470 (2)
President                        2000    $ 161,000     $  2,000       $ 10,067            0           0         0       $ 12,230
and Director                     1999    $ 125,000     $  1,000       $ 20,221            0     100,000         0        $ 5,771

E. A. Bayley                     2001    $  96,155     $ 13,000       $ 15,705 (3)        0      50,000         0        $ 6,489 (4)
Vice President of Engineering

J. S. Rutherford                 2001    $ 103,411     $ 13,000       $ 15,028 (5)        0      50,000         0        $ 6,925 (6)
Vice President of Land/Admin.

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

(1)  These amounts include insurance premiums for nondiscriminatory group life,
     medical, disability and dental insurance as follows: $16,366 for 2001;
     $7,058 for 2000; and $18,534 for 1999.

(2)  For 2001, such amount includes $11,724 contributed by Parallel to Mr.
     Oldham's individual retirement account maintained under the 408(k)
     simplified employee pension plan/individual retirement account and the
     reimbursement to Mr. Oldham of $2,988 for income tax preparation and
     planning. For 2000, such amount includes $9,750 contributed by Parallel to
     Mr. Oldham's retirement account and the reimbursement to Mr. Oldham of
     $2,480 for income tax preparation and planning. The amount shown for 1999
     includes Parallel's contribution of $3,750 to Mr. Oldham's retirement
     account and reimbursement of $2,021 for income tax preparation.

(3)  This amount includes insurance premiums in the amount of $14,808 for
     nondiscriminatory group life, medical, disability and dental insurance.

(4)  This amount represents Parallel's contribution to Mr. Bayley's individual
     retirement account maintained under the 408(k) simplified employee pension
     plan/individual retirement account.

(5)  This amount includes insurance premiums in the amount of $13,155 for
     nondiscriminatory group life, medical, disability and dental insurance.

(6)  This amount represents Parallel's contribution to Mr. Rutherford's
     individual retirement account maintained under the 408(k) simplified
     employee pension plan/individual retirement account.`

`Option/Sar Grants in Last Fiscal Year
                                           Individual Grants
                         --------------------------------------------------------------       Potential Realizable
                                                                                                 Value at Assumed
                            Number of         Percent of                                     Annual Rates of Stock
                           Securities        Total Options                                    Price Appreciation for
                            Underlying        Granted to     Exercise of                         Option Term (2)
                            Options          Employees in     Base Price    Expiration    ---------------------------------
Name                      Granted (#)        Fiscal Year (1)    ($/Sh)         Date           5%($)           10%($)
                         ---------------    ---------------- ------------- ------------  -------------- ------------------

T. R. Cambridge                 100,000 (3)           25.0%        $ 4.97    6/20/2011       $ 313,110          $ 790,230

L. C. Oldham                    200,000 (4)           50.0%        $ 4.97    6/20/2011       $ 626,220        $ 1,580,460

E. A. Bayley                     50,000 (5)           12.5%        $ 4.97    6/20/2011       $ 156,555          $ 395,115

J. S. Rutherford                 50,000 (5)           12.5%        $ 4.97    6/20/2011       $ 156,555          $ 395,115

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

(1)  Percentages are calculated excluding from the denominator the stock options
     granted to Mr. Cambridge since he is not an employee.

(2)  These amounts are calculated based on the indicated annual rates of
     appreciation and annual compounding from the date of grant to the end of
     the option term. Actual gains, if any, on stock option exercises are
     dependent on the future performance of the common stock and overall stock
     market conditions. There is no assurance that the amounts reflected in this
     table will be achieved.

(3)  A nonqualified stock option to purchase 100,000 shares of common stock was
     granted to Mr. Cambridge on June 20, 2001 under Parallel's 2001 Nonemployee
     Directors' Stock Option Plan. The option is exercisable in two equal annual
     installments on December 21, 2001 and June 21, 2002.

(4)  On June 20, 2001 an incentive stock option to purchase 200,000 shares of
     common stock was granted to Mr. Oldham under Parallel's 1998 Stock Option
     Plan. The option is exercisable in ten equal annual installments,
     commencing January 1, 2002.

(5)  On June 20, 2001, nonstatutory stock options to purchase 50,000 shares of
     common stock were granted to Mr. Bayley and Mr. Rutherford. The options
     were granted under Parallel's Employee Stock Option Plan and are
     exercisable in two equal installments on June 20, 2002 and June 20, 2003.`

`Aggregated Option/SAR Exercises in
                                             Last Fiscal Year and Fiscal Year - End Option/SAR Values
                                                                                                           Value of
                                                          Number of Securities Underlying                Unexercised
                             Shares          Value         Unexercised Options at Fiscal            in-the-Money Options
                           Acquired on      Realized      Year-End(2)                             at Fiscal Year-End ($)(2)
                                                        ------------------------------------  ----------------------------------
          Name              Exercise         ($)(1)       Exercisable       Unexercisable      Exercisable      Unexercisable
------------------------- --------------  ------------- ----------------- ------------------  --------------   -----------------

T. R. Cambridge                       -      $      -            350,000             50,000       $  68,000 (3)            $ -  (3)

L. C. Oldham                    247,000      $ 670,340           400,000            200,000       $ 136,700 (4)            $ -  (4)

E. A. Bayley                          -       $      -           205,000             50,000       $  54,680 (5)            $ -  (5)

J. S. Rutherford                 11,250       $ 25,875           108,750             50,000       $  54,680 (6)            $ -  (6)

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

(1)  The value realized is equal to the fair market value of a share of common
     stock on the date of exercise, less the exercise price of the stock options
     exercised.

(2)  The value of in-the-money options is equal to the fair market value of a
     share of common stock at fiscal year-end ($3.18 per share), based on the
     last sale price of Parallel's common stock, less the exercise price.

(3)  At December 31, 2001, the exercise prices of exercisable options to
     purchase a total of 300,000 shares of common stock held by Mr. Cambridge
     exceeded $3.18, the fair market value of our common stock on that date. In
     addition, an unexercisable stock option to purchase 50,000 shares of common
     stock was held be Mr. Cambridge at fiscal year-end, which also had an
     exercise price great than $3.18.

(4)  At December 31, 2001, the exercise prices of exercisable options to
     purchase a total of 300,000 shares of common stock held by Mr. Oldham
     exceeded the fair market value of our common stock on December 31, 2001,
     and the exercise price of unexercisable options to purchase 200,000 shares
     exceeded the fair market value of our common stock at the same date.

(5)  At December 31, 2001, the exercise prices of exercisable options to
     purchase a total of 165,000 shares of common stock held by Mr. Bayley
     exceeded $3.18, the fair market value of our common stock on that date. In
     addition, an unexercisable stock option to purchase 50,000 shares of common
     stock was held by Mr. Bayley at fiscal year-end, which also had an exercise
     price greater than $3.18.

(6)  At December 31, 2001, the exercise prices of exercisable options to
     purchase a total of 68,750 shares of common stock held by Mr. Rutherford
     exceeded $3.18, the fair market value of our common stock on that date. In
     addition, an unexercisable stock option to purchase 50,000 shares of common
     stock was held by Mr. Rutherford at fiscal year-end, which also had an
     exercise price greater than $3.18.`

`Equity Compensation Plan Information

   -------------------------------------------------------------------------------------------------------------------------
                                 (a)                            (b)                          (c)
   -------------------------------------------------------------------------------------------------------------------------

                                                                                             Number of securities
                                                                                             remaining available for future
                                 Number of securities to be      Weighted-average exercise   issuance under equity
                                 issued upon exercise of         price of outstanding        compensation plans
                                 outstanding options, warrants   options, warrants and       (excluding securities
   Plan category                 and rights                      rights                      reflected in column (a))
  --------------------------------------------------------------------------------------------------------------------------

   Equity compensation plans
   approved by security holders                  1,803,750                   $3.87                    567,500
   -------------------------------------------------------------------------------------------------------------------------

   Equity compensation plans
   not approved by security
   holders                                         575,000                   $3.80                          0
   -------------------------------------------------------------------------------------------------------------------------


   Total                                         2,378,750                   $3.86                    567,500
   -------------------------------------------------------------------------------------------------------------------------

(1)  These shares include employee stock options to purchase an aggregate of
     200,000 shares of common stock. The options were granted under Parallel's
     Employee Stock Option Plan which is discussed on page 52. Also, included
     are 275,000 shares of common stock underlying a stock purchase warrant we
     issued to an investment banking firm in November, 2001.`

`Name and Address                                Amount and Nature                 Percent
                                of                                              of                           of
                         Beneficial Owner                            Beneficial Ownership (1)             Class (2)
                         ----------------                            ------------------------             ----------

       Thomas R. Cambridge
       2201 Civic Circle, Suite 216
       Amarillo, Texas 79109                                              1,107,045 (3)                          5.27%

       Dewayne E. Chitwood
       400 Pine St., Suite 700
       Abilene, Texas 79601                                              1,618,557  (4)                          7.59%

       Larry C. Oldham
       One Marienfeld Place, Suite 465
       Midland, Texas 79701                                                 957,090 (5)                          4.54%

       Martin B. Oring
       706 Cinnamon Lane
       Franklin Lakes, New Jersey 07417                                      61,500 (6)                              *

       Charles R. Pannill
       3416 Acorn Run
       Fort Worth, Texas 76019                                              135,995 (7)                              *

       Jeffrey G. Shrader
       801 S. Filmore, Suite 600
       Amarillo, Texas 79105                                                 42,500 (8)                              *

       Eric A. Bayley
       One Marienfeld Place, Suite 465
       Midland, Texas 79701                                                 223,490 (9)                          1.07%

       John S. Rutherford
       One Marienfeld Place, Suite 465
       Midland, Texas 79701                                                 111,300 (10)                             *

       Wes-Tex Drilling Company, L.P.
       519 First National Bank Building West
       Abilene, Texas 79601                                               1,246,773 (11)                         5.94%

       Julia Jones Matthews
       400 Pine, Suite 900
       Abilene, Texas 79601                                               1,942,856 (12)                         8.91%


                                       55



       Dodge Jones Foundation
       400 Pine, Suite 900
       Abilene, Texas 79601                                               1,371,428 (13)                         6.34%

       All Executive Officers and Directors
       as a Group (8 persons)                                             4,257,477 (14)                        18.85%`

`PARALLEL PETROLEUM CORPORATION

                                 Balance Sheets

                           December 31, 2001 and 2000

                             Assets                                                   2001              2000
                                                                                      ----              ----

Current assets:
     Cash and cash equivalents                                                     $ 3,351,044       $  2,000,826
     Accounts receivable:
         Oil and gas                                                                 1,420,859          4,057,527
         Others, net of allowance for doubtful accounts of $0 in
              2001 and $51,136 in 2000                                                 263,819            319,818
         Affiliate                                                                      16,687             19,569
                                                                                   -----------       ------------
                                                                                     1,701,365          4,396,914
     Other assets                                                                      207,120             27,166
                                                                                   -----------       ------------

              Total current assets                                                   5,259,529          6,424,906
                                                                                   -----------       ------------
Property and equipment, at cost:
     Oil and gas properties, full cost method (Note 11)                             85,132,345         72,316,384
     Other                                                                             552,219            372,765
                                                                                   -----------       ------------
                                                                                    85,684,564         72,689,149
     Less accumulated depreciation and depletion                                   (55,854,378)       (32,742,060)
                                                                                   -----------       ------------

              Net property and equipment                                            29,830,186         39,947,089
                                                                                   -----------       ------------
Net deferred tax asset (Note 5)                                                      6,137,670                 --
Investment in First Permian, LLC (Note 15)                                             473,764                 --
Other assets, net of accumulated amortization of $131,139 in 2001
     and $114,791 in 2000                                                               58,754             84,442
                                                                                   -----------       ------------
                                                                                  $ 41,759,903       $ 46,456,437
                                                                                   ===========       ============

              Liabilities and Stockholders' Equity
Current liabilities:
     Current maturities of long-term debt (Note 3)                               $   2,400,000      $     803,531
     Investment liability in First Permian (Note 15)                                        --            366,765
     Accounts payable and accrued liabilities                                        3,446,370          2,443,773
     Income taxes payable (Note 5)                                                          --             50,000
                                                                                   -----------       ------------
              Total current liabilities                                              5,846,370          3,664,069
                                                                                   -----------       ------------
Long-term debt, excluding current maturities (Note 3)                                9,600,000         11,624,000

Stockholders' equity:
     Series A preferred stock - par value of $.10 per share (aggregate
         liquidation preference of $26) authorized 50,000 shares                            --                 --
     Preferred stock - $.60 cumulative convertible preferred stock - par
         value of $.10 per share, (aggregate liquidation preference of
         $10) authorized 10,000,000 shares, issued and outstanding                      97,450             97,450
         974,500 in 2001 and 2000
     Common stock - par value of $.01 per share, authorized 60,000,000
         shares, issued and outstanding 20,663,861 in 2001 and 20,331,858              205,288            203,319
         in 2000
     Additional paid-in surplus                                                     34,088,849         34,238,078
     Accumulated deficit                                                            (8,078,054)        (3,370,479)
                                                                                   -----------       ------------
              Total stockholders' equity                                            26,313,533         31,168,368
                                                                                   -----------       ------------

     Commitments and contingencies (Note 16)
                                                                                  $ 41,759,903       $ 46,456,437
                                                                                   ===========       ============

See accompanying notes to financial statements.`

`PARALLEL PETROLEUM CORPORATION

                                           Statements of Income (Loss)

                                   Years ended December 31, 2001, 2000 and 1999

                                                                  2001               2000               1999
                                                                  ----               ----               ----
Oil and gas revenues                                         $ 17,840,024        $ 17,134,502       $  8,974,041
                                                               ----------          ----------          ---------
Costs and expenses:
     Lease operating expense                                    3,920,840           3,099,534          2,353,732
     General and administrative                                 1,346,454           1,191,527            805,934
     Provision for losses on trade receivables                         --                  --             85,829
     Depreciation and depletion                                 6,318,105           5,239,205          5,223,500
     Impairment of oil and gas properties (Note 12)            16,819,813                  --          1,705,000
                                                               ----------          ----------          ---------
              Total costs and expenses                         28,405,212           9,530,266         10,173,995
                                                               ----------          ----------          ---------
              Operating income (loss)                         (10,565,188)          7,604,236         (1,199,954)
                                                               ----------          ----------          ---------
Other income (expense), net:
     Equity in income (loss) of First Permian, LLC
        (Note 15)                                                 840,529            (500,576)           197,811
     Interest income                                              142,948             220,280             65,333
     Other income                                                  93,922             130,368             26,847
     Interest expense                                            (802,017)         (1,340,360)        (1,534,540)
     Other expense                                               (529,317)             (6,620)            (5,954)
                                                               ----------          ----------          ---------
              Total other expense, net                           (253,935)         (1,496,908)        (1,250,503)
                                                               ----------          ----------          ---------
Income (loss) before income taxes                             (10,819,123)          6,107,328         (2,450,457)

Income tax (expense) benefit                                    6,111,548            (130,000)                 --
                                                               ----------          ----------          ---------
              Net income (loss)                              $ (4,707,575)       $  5,977,328       $ (2,450,457)

Cumulative preferred stock dividend                          $   (609,063)       $   (609,063)      $   (609,063)
                                                               ----------          ----------          ---------
              Net income (loss) available to common
                 stockholders                                $ (5,316,638)       $  5,368,265       $ (3,059,520)
                                                               ==========          ==========          =========
Net income (loss) per common share:
    Basic                                                          $ (.26)          $     .26           $  (.16)
                                                               ==========          ==========          =========

    Diluted                                                        $ (.26)          $     .25           $  (.16)
                                                               ==========          ==========          =========

See accompanying notes to financial statements.`

`PARALLEL PETROLEUM CORPORATION

                                        Statements of Stockholders' Equity

                                   Years ended December 31, 2001, 2000 and 1999


                                Common stock             Preferred stock
                           ------------------------    ----------------------     Additional                       Total
                            Number of                  Number of                    paid-in      Accumulated   stockholders'
                              Shares       Amount        Shares        Amount       surplus        Deficit        equity
                              ------       ------        ------        ------       -------        -------        ------

Balance,
    January 1, 1999           18,306,858   $ 183,069      974,500      $ 97,450  $ 32,341,971  $ (6,897,350)   $ 25,725,140

    Issuance of stock,         2,000,000      20,000           --            --     3,097,295            --       3,117,295
         net

    Options exercised,
      including income
      tax benefit                 25,000         250           --            --        16,938            --          17,188

    Net loss                          --          --           --            --           --     (2,450,457)     (2,450,457)

    Dividends ($.60 per
       share)                         --          --          --             --      (609,063)           --        (609,063)
                              ----------     -------      -------       -------     ---------     ----------     ----------
Balance,
    December 31, 1999         20,331,858     203,319      974,500      $ 97,450    34,847,141     (9,347,807)    25,800,103

    Net income                        --          --           --            --            --      5,977,328      5,977,328

    Dividends ($.60 per
       share)                         --          --           --            --      (609,063)           --        (609,063)
                              ----------     -------      -------       -------     ---------      ---------     ----------


Balance,
    December 31, 2000         20,331,858     203,319      974,500        97,450    34,238,078     (3,370,479)    31,168,368
                              ----------     -------      -------       -------    ----------      ---------     ----------

    Options issued                    --          --           --            --        99,000            --          99,000

    Options exercised,
       including income
       tax benefit               332,003       1,969           --            --       360,834            --         362,803

    Net loss                          --          --           --            --            --    (4,707,575)     (4,707,575)

    Dividends ($.60 per
       share)                         --          --           --            --      (609,063)           --        (609,063)
                              ----------     -------      -------       -------    ----------      ---------     ----------

Balance,
    December 31, 2001         20,663,861   $ 205,288      974,500      $ 97,450   $34,088,849   $ (8,078,054)  $ 26,313,533
                              ==========     =======      =======       =======    ==========      =========     ==========


See accompanying notes to financial statements.`

`Statements of Cash Flows

                                   Years ended December 31, 2001, 2000 and 1999

                                                                       2001               2000               1999
                                                                       ----               ----               ----

Cash flows from operating activities:
     Net income (loss)                                          $   (4,707,575)      $  5,977,328       $ (2,450,457)
     Adjustments to reconcile net income (loss) to net cash
         provided by operating activities:
              Depreciation and depletion                             6,318,105          5,239,205          5,223,500
              Equity loss (income) of First Permian, LLC              (840,529)           500,576           (197,811)
              Deferred income taxes                                 (6,111,548)                                   --
              Loss on disposal of equipment                             (8,908)             1,000                 --
              Impairment of oil and gas properties                  16,819,813                 --          1,705,000
              Provision for losses on trade receivables                     --                 --             85,829
              Stock-based financial advisory services                   99,000                 --                 --
     Other, net                                                         25,688            (37,651)            11,728
     Changes in assets and liabilities:
         Decrease (increase) in accounts receivable                  2,695,549         (2,748,422)           (42,078)
         Decrease (increase) in prepaid expenses                      (179,954)            12,511             21,827
         Increase (decrease) in accounts payable and accrued
              liabilities                                             (702,325)         1,773,692           (927,304)
                                                                  ------------       ------------       ------------
                  Net cash provided by
                      operating activities                          13,407,316         10,718,239          3,430,234
                                                                  ------------       ------------       ------------
Cash flows from investing activities:
     Additions to oil and gas property                             (13,125,716)        (8,847,482)        (4,896,081)
     Proceeds from disposition of oil and gas property               1,964,677          3,017,618          1,111,525
     Additions to other property and equipment                        (211,146)           (84,045)                --
     Proceeds from disposition of other property and equipment          15,000                 --                 --
     Distribution received from investment in First Permian,                --             67,500                 --
         LLC
     Investment in First Permian, LLC                                       --                 --             (3,500)
                                                                  ------------       ------------       ------------
                  Net cash used in
                      investing activities                         (11,357,185)        (5,846,409)        (3,788,056)
                                                                  ------------       ------------       ------------
Cash flows from financing activities:
     Borrowings from bank line of credit                             2,000,000         12,427,531            780,000
     Payments on bank line of credit                                (2,427,531)       (15,965,889)        (2,850,000)
     Proceeds from exercise of options and warrants                    336,681                 --             17,188
     Stock offering costs                                                   --                 --            (82,705)
     Proceeds from common stock issuance                                    --                 --          3,200,000
     Payments of preferred stock dividend                             (609,063)          (609,063)          (609,063)
                                                                  ------------       ------------       ------------
                  Net cash provided by (used in)
                      financing activities                            (699,913)        (4,147,421)           455,420
                                                                  ------------       ------------       ------------
                  Net increase in cash
                      and cash equivalents                           1,350,218            724,409             97,598

Beginning cash and cash equivalents                                  2,000,826          1,276,417          1,178,819
                                                                  ------------       ------------       ------------
Ending cash and cash equivalents                                  $  3,351,044        $ 2,000,826        $ 1,276,417
                                                                  ============       ============       ============

See accompanying notes to financial statements.`

`2001               2000
                                                                                   ----               ----

          Revolving Facility note payable to bank, at bank's base lending rate
               (4.75% at December 31, 2001 and 9.5% at December 31, 2000)       $ 12,000,000       $ 12,427,531

          Less:  current maturities                                                2,400,000            803,531
                                                                                 -----------        -----------
                                                                                $  9,600,000       $ 11,624,000
                                                                                 ===========        ===========`

`2002                                                  $ 2,400,000
             2003                                                    3,600,000
             2004                                                    3,600,000
             2005                                                    2,400,000
                                                                   -----------
                                                                  $ 12,000,000
                                                                   ===========`

`2001                 2000                 1999
                                                             ----                 ----                 ----

         Net income (loss)                                $ (4,496,924)     $ 5,832,237             $ (3,107,170)
         Basic net income (loss) per share                      $ (.27)           $ .29                   $ (.17)
         Diluted net income (loss) per share                    $ (.27)           $ .25                   $ (.17)`

`2001                 1999
                                                           ----                 ----

         Risk-free interest rate                              4.49                 5.98
         Expected life                                     8 years              8 years
         Expected volatility                                   .56                  .74`

`For the year ended          For the year ended          For the year ended
                                 December 31, 2001           December 31, 2000           December 31, 1999
                                 ------------------          ------------------          -------------------
                                             Weighted                    Weighted                    Weighted
                                Number       Average        Number       Average        Number       Average
                              of Shares       Price       of Shares       Price       of Shares       Price
                              ---------      --------     ---------      --------     ---------      ---------

Stock options:
   Outstanding at
    beginning of year          1,951,750      $  3.13      1,951,750      $  3.13      1,541,750     $   3.46
      Options granted            700,000         4.87             --          --         435,000         1.29
      Options exercised         (325,500)       (1.03)            --          --         (25,000)        (.69)

      Options expired           (222,500)        3.80             --          --            --            --
                               ---------      -------      ---------     --------      ---------     --------
   Outstanding at end of       2,103,750      $  3.74      1,951,750     $   3.13      1,951,750     $   3.13
    year                       =========      =======      =========     ========      =========     ========

   Exercisable at end of       1,451,250      $  3.54      1,689,250     $   3.26      1,200,500     $   3.35
    year                       =========      =======      =========     ========      =========     ========

Weighted average fair value
   of options granted
   during the year              $   1.84                     $    --                      $ 1.40
                               =========                   =========                   =========`

`Options Oustanding                         Options Exercisable
                     ----------------------------------------------------    ----------------------------------
                          Number        Weighted Average      Weighted            Number            Weighted
     Range of         Outstanding at       Remaining           Average        Exercisable at        Average
  Exercise Prices    December 31, 2001  Contractual Life   Exercise Price    December 31, 2001   Exercise Price
  ---------------    -----------------  ----------------   --------------    -----------------   --------------

  $ 1.81 - $ 3.94          660,000          5 years            $ 2.72              660,000           $ 2.72
  $ 4.09 - $5.50         1,443,750          7 years            $ 4.31              791,250           $ 4.23
                         ---------                                               ---------
                         2,103,750                                               1,451,250
                         =========                                               =========`

`Year ended
                                                                             December 31,
                                                              -------------------------------------------------
                                                                 2001              2000             1999
                                                                 ----              ----             ----

         Income tax expense (benefit) at statutory rate
                                                              $ (3,678,502)      $ 2,076,492       $  (833,156)
         Change in valuation allowance for deferred tax
              assets                                            (2,062,954)       (2,185,526)        1,718,284
         Adjustment to deferred tax liability for changes
              in estimates                                              --           669,533          (649,920)
         Statutory depletion                                      (389,235)         (445,941)         (237,047)
         Nondeductible expenses and other                           19,143            15,442             1,839
                                                               -----------        ----------        ----------
                       Income tax expense (benefit)           $ (6,111,548)      $   130,000       $        --
                                                               ===========        ==========        ==========`

`2001                2000
                                                                                   ----                ----
                                       Noncurrent
                                       ----------

         Deferred tax assets:
              Net operating loss carryforwards                                   $ 6,370,720        $ 4,840,778
              Statutory depletion carryforwards                                    2,025,166          1,635,931
              Alternative minimum tax credit carryforward                            118,074            125,523
              Suspended loss carryforward in First Permian, LLC                    2,893,244            124,700
              Allowance for accounts receivable                                           --             17,386
              Charitable contribution carryforward                                     7,713                 --
                                                                                 -----------        -----------
                       Total deferred tax assets                                  11,414,917          6,744,318

                       Less valuation allowance                                           --         (2,062,954)
                                                                                 -----------        -----------
                       Total deferred tax assets                                  11,414,917          4,681,364
                                                                                 -----------        -----------

         Deferred tax liabilities:
              Equity investment in First Permian, LLC                              3,054,324                 --
              Property and equipment, principally due to differences in
                  basis, expensing of intangible drilling costs for tax
                  purposes and depletion                                           2,222,923          4,681,364
                                                                                 -----------        -----------
                       Total deferred tax liabilities                              5,277,247          4,681,364
                                                                                 -----------        -----------
                       Net noncurrent deferred income tax asset
                                                                                 $ 6,137,670        $       --
                                                                                 ===========        ===========`

`Alternative
                                                                               minimum tax
                                                            Net operating     net operating
                                                                 loss              loss
                                                                 ----              ----

              2009                                            $    194,000
              2018                                               8,658,000      $  6,635,000
              2019                                               5,250,000         5,022,000
              2021                                               4,635,000                --
                                                               -----------       -----------
                                                              $ 18,737,000      $ 11,657,000
                                                               ===========      ============`

`2001              2000             1999
                                                                 ----              ----             ----

              Purchaser A                                        25%                --                --
              Purchaser B                                         6%                 6%               14%
              Purchaser C                                        38%                22%               27%
              Purchaser D                                         --                --                26%
              Purchaser E                                        23%                16%               --`

`2001                2000
                                                                            ----                ----

         Proved properties                                               $ 76,248,443       $ 57,915,944
         Unproved properties, not subject to
             depletion                                                      8,883,902         14,400,440
                                                                          -----------        -----------
                                                                           85,132,345         72,316,384
         Accumulated depletion                                            (55,552,876)       (32,495,930)
                                                                          -----------        -----------
                                                                         $ 29,579,469       $ 39,820,454
                                                                          ===========        ===========`

`2001               2000                 1999
                                                                  ----               ----                 ----
         Transfers (to)/from assets held for sale          $         --         $ 2,127,734         $ (2,127,734)
         Proved property acquisition costs                       26,970              23,291               41,768
         Unproved property acquisition costs                  3,420,455           3,371,898            1,978,964
         Exploration                                          6,820,480           2,163,124            1,855,948
         Development                                          1,202,889           1,087,424              638,845
                                                            -----------          ----------          -----------
                                                           $ 11,470,794         $ 8,773,471         $  2,387,791
                                                            ===========          ==========          ===========`

`2001               2000               1999
                                                                     ----               ----               ----

         Basic EPS Computation:
          Numerator -
             Net income (loss)                                   $ (4,707,575)       $  5,977,328       $ (2,450,457)
             Preferred stock dividend                                (609,063)           (609,063)          (609,063)
                                                                  -----------         -----------        -----------
             Net income (loss) available to common
                stockholders                                     $ (5,316,638)       $  5,368,265       $ (3,059,520)
                                                                  ===========         ===========        ===========
          Denominator -
             Weighted average common shares outstanding            20,457,697          20,331,858         18,549,214
                                                                  ===========         ===========        ===========
          Basic net earnings (loss) per share                        $   (.26)            $   .26            $  (.16)
                                                                  ===========         ===========        ===========
         Diluted EPS Computation:
          Numerator -
             Net income (loss)                                  $  (4,707,575)        $ 5,977,328       $ (2,450,457)
             Preferred stock dividend                                (609,063)                 --           (609,063)
                                                                  -----------         -----------        -----------
             Net income (loss) available to common
                stockholders                                    $  (5,316,638)        $ 5,977,328       $ (3,059,520)
                                                                  ===========         ===========        ===========
          Denominator -
             Weighted average common shares for basic
                earnings (loss) per share                          20,457,697          20,331,858         18,549,214

          Effect of dilutive securities:
             Employee stock options                                        --             348,787                 --
             Warrants                                                      --                 603                 --
             Preferred stock                                               --           2,784,244                 --
                                                                  -----------         -----------        -----------
             Weighted average common shares for diluted
                earnings (loss) per share assuming
                conversions                                        20,457,697          23,465,492         18,549,214
                                                                  ===========         ===========        ===========

          Diluted net earnings (loss) per share                      $   (.26)            $   .25            $  (.16)
                                                                  ===========         ===========        ===========`

`Assets                                          2001                  2000
                            ------                                          ----                  ----

              Current assets:
                 Cash and cash equivalents                              $  1,385,640        $    3,836,840
                 Accounts receivable                                       4,159,239             6,337,595
                 Prepaids                                                     99,106                61,218
                                                                         -----------         -------------
                      Total current assets                                 5,643,985            10,235,653
                                                                         -----------         -------------
              Property and equipment, at cost:
                 Oil and gas properties, full cost method                108,256,338            87,527,750
                 Other property                                            1,479,885             1,086,427
                                                                         -----------         -------------
                                                                         109,736,223            88,614,177
                 Less accumulated depletion and depreciation             (14,459,797)           (8,251,530)
                                                                         -----------         -------------
                      Net property and equipment                          95,276,426            80,362,647

              Other non-current assets, net of accumulated
                 amortization of $1,951,000 in 2001 and
                 $946,000 in 2000                                            594,704             1,664,528
                                                                         -----------         -------------
                                                                        $101,515,115        $   92,262,828
                                                                         ===========         =============
                Liabilities and Members' Equity
              Current liabilities:
                 Accounts payable and accrued liabilities-trade         $  6,342,325        $    7,042,264
                 Liability for derivative instruments                        773,780                58,450
                                                                         -----------         -------------
                      Total current liabilities                            7,116,075             7,100,714
                                                                         -----------         -------------
              Long-term debt, net of current maturities                   73,000,000            67,400,000

              Redeemable preferred units                                  15,549,085            14,224,946
              Members' equity                                              5,849,955             3,537,168
                                                                         -----------         -------------
                                                                        $101,515,115        $   92,262,828
                                                                         ===========         =============
              Revenues                                                  $ 31,094,044        $   24,713,111
              Cost and expenses                                           19,642,279            16,870,023
                                                                         -----------         -------------
                      Operating income                                    11,451,765             7,843,088

              Other expense, net                                          (6,855,768)           (7,220,136)
                                                                         -----------         -------------
              Net income before extraordinary item                      $  4,595,997        $      622,952

              Extraordinary loss from debt restructure                            --              (960,825)
                                                                         -----------         -------------
              Net income (loss)                                         $  4,595,997        $     (337,873)

              Redeemable preferred unit dividends                         (1,324,199)             (724,946)
                                                                         -----------         -------------
              Net income (loss) available to common members             $  3,271,798        $   (1,062,819)
                                                                         ===========         =============`

`Changes in Reserve Balances

                                                            Total Proved               Proved Developed
                                                      --------------------            ------------------
                                                      BBL              MCF            BBL            MCF
                                                      ---              ---            ---            ---

          Reserves as of December 31, 1999           10,226            8,190          5,949          7,764
              Purchase of reserves in place           1,266              246          1,266            246
              Sales of reserves in place                 (3)          (2,014)            (3)        (2,014)
              Revisions of previous estimates         3,639           (4,253)           680         (4,395)
              Production                               (386)            (350)          (386)          (350)
                                                     ------           ------         ------         ------

          Reserves as of December 31, 2000           14,742            1,819          7,506          1,251
              Purchase of reserves in place              --               --             --             --
              Sales of reserves in place                 --               --             --             --
              Revisions of previous estimates          (654)             636          1,219            502
              Production                               (458)            (168)          (458)          (168)
                                                     ------           ------         ------         ------

          Reserves as of December 31, 2001           13,630            2,287          8,267          1,585
                                                     ======           ======         ======         ======`

`December 31,
                                                                            --------------------------
                                                                               2001              2000
                                                                               ----              ----

         Future cash flows                                                  $ 238,050        $  374,869
         Future costs:
              Production                                                      (84,644)         (126,082)
              Development                                                     (23,605)          (28,728)
                                                                             --------         ---------
         Future net cash flows                                                129,801           220,059
         10% annual discount for estimated timing of cash flows               (83,336)         (128,010)
                                                                             --------         ---------
         Standardized measure of discounted net cash flows                  $  46,465        $   92,049
                                                                             ========         =========`

`2001            2000
                                                                              ----            ----

         Increase (decrease):
              Sales of minerals in place                                  $        --        $ (1,380)
              Accretion of discount                                             9,204           7,367
              Net change in sales prices net of production costs               (5,635)         24,997
              Purchase of minerals in place                                        --           9,755
              Changes in estimated future development costs                     1,834          (6,514)
              Revisions of quantity estimates                                 (44,573)        (11,603)
              Sales, net of production costs                                   (6,414)         (4,242)
                                                                              -------         -------
                   Net increase (decrease)                                    (45,585)         18,380
         Standardized measure of discounted net cash flows:
                  Beginning of year                                            92,049          73,669
                                                                              -------         -------
                  End of year                                                $ 46,465        $ 92,049
                                                                              =======         =======`

`Total Proved               Proved Developed
                                                      --------------------           -------------------
                                                      BBL              MCF            BBL            MCF
                                                      ---              ---            ---            ---

         Reserves as of December 31, 1999             1,008           17,284            589         12,685
              Sales of reserves in place                 --             (383)            --           (383)
              Extensions and discoveries                 37            1,143             37          1,143
              Revisions of previous estimates            94              464            111            953
              Production                               (165)          (2,822)          (165)        (2,822)
                                                      -----           ------           ----         ------
         Reserves as of December 31, 2000               974           15,686            572         11,576
              Sales of reserves in place                 (1)              --             (1)            --
              Extensions and discoveries                 78            1,737             78          1,737
              Revisions of previous estimates             4             (210)           (20)          (473)
              Production                               (139)          (3,266)          (139)        (3,266)
                                                      -----           ------           ----         ------
         Reserves as of December 31, 2001               916           13,947            490          9,574
                                                      =====           ======           ====         ======`

`Standardized Measure of Discounted Future Net Cash Flows
                                     Relating to Proved Oil and Gas Reserves
                                                  (In Thousands)

                                                                             December 31,
                                                             ---------------------------------------------
                                                               2001              2000             1999
                                                               ----              ----             ----

         Future cash flows                                   $  47,648        $ 184,045          $ 62,967
         Future costs:
              Production                                       (17,353)         (35,550)          (18,632)
              Development                                       (4,874)          (4,228)           (4,797)
                                                             ---------        ---------          --------
         Future net cash flows before income taxes              25,421          144,267            39,538
         Future income taxes                                       (34)         (24,321)               --
                                                             ---------        ---------          --------
         Future net cash flows                                  25,387          119,946            39,538
         10% annual discount for estimated timing of
              cash flows                                        (8,312)         (38,658)          (14,039)
                                                             ---------        ---------          --------
         Standardized measure of discounted net cash         $  17,075        $  81,288          $ 25,499
              flows                                          =========        =========          ========`

`Changes in Standardized Measure of
                              Discounted Future Net Cash Flows From Proved Reserves
                                                  (In Thousands)

                                                                            Years ended December 31,
                                                                 -----------------------------------------
                                                                    2001            2000           1999
                                                                    ----            ----           ----

         Increase (decrease):
              Sales of minerals in place                         $     (4)      $    (136)       $   (238)
              Extensions and discoveries and improved
                  recovery, net of future production and            3,831           8,398           3,067
                  development costs
              Accretion of discount                                 9,095           2,550           2,682
              Net change in sales prices net of production        (68,367)         66,306          11,882
                  costs
              Changes in estimated future development costs             5             204             789
              Revisions of quantity estimates                        (172)          4,496         (13,371)
              Net change in income taxes                            9,662          (9,662)             --
              Sales, net of production costs                      (13,919)        (14,035)         (6,620)
              Changes of production rates (timing) and other       (4,344)         (2,332)            485
                                                                   ------          ------          ------
                   Net increase (decrease)                        (64,213)         55,789          (1,324)

         Standardized measure of discounted future net cash flows:
                  Beginning of year                                81,288          25,499          26,823
                                                                   ------          ------          ------
                  End of year                                    $ 17,075        $ 81,288        $ 25,499
                                                                  =======          ======          ======`

`Quarter
                                                      ----------------------------------------------------
                                                      First          Second          Third          Fourth
                                                      -----          ------          -----          ------
                                                             (in thousands, except per share data)

           2001:
               Oil and gas revenues               $      7,288    $      4,791    $      3,811   $      1,949
               Total costs and expenses                  3,095           2,969           4,925         17,416
               Net income                                4,636           1,215            (491)       (10,067)
               Net income per common share        $       .219     $      .052     $      .030   $       (.50)
               Net income  per  common  share -
                  assuming dilution               $       .196     $      .051     $      .030   $       (.50)



          2001 results  include  noncash  charges of $2,177,128 and  $14,642,685 during  the third and  fourth  quarters,
          respectively  related to the impairment of oil and gas properties. (See Note 12)



           2000:
               Oil and gas revenues               $      2,775    $      3,197    $      4,163   $      7,000
               Total costs and expenses                  1,875           2,098           2,220          3,337
               Net income                                  194             695           1,699          3,389
               Net income per common share        $       .001    $       .027    $       .076   $        .16
               Net income  per  common  share -
                  assuming dilution               $       .001    $       .027    $       .072   $        .14


           1999:
               Oil and gas revenues               $      1,963    $      1,992    $      2,291   $      2,728
               Total costs and expenses                  1,621           1,729           2,239          4,585
               Net income (loss)                           (10)            (94)           (150)        (2,196)
               Net  income  (loss)  per  common
                  share                           $      (.010)   $      (.013)   $      (.016)  $       (.18)
               Net  income  (loss)  per  common
                  share - assuming dilution       $      (.010)   $      (.013)   $      (.016)  $       (.16)`