EXPLORATION AGREEMENT
                             Formosa Grande Project
                       Jackson and Calhoun Counties, Texas

     This Exploration  Agreement (the  "Agreement") is entered into as of August
1,  1997,  by and  between  Parallel  Petroleum  Corporation  ("Parallel"),  TAC
Resources, Inc. ("TAC"), Allegro Investments,  Inc. ("Allegro"), Beta Oil & Gas,
Inc.  ("Beta"),  Pease Oil and Gas  Company  ("Pease"),  Four-Way  Texas  L.L.C.
("Four-Way"),  Meyer Financial  Services,  Inc.  ("Meyer") and Wes-Tex  Drilling
Corp. ("Wes-Tex") all hereinafter collectively referred to as (the "Parties").

         WITNESSETH:

         WHEREAS,  Parallel has acquired,  for itself and for the benefit of TAC
and Allegro,  seismic and lease options,  oil and gas leases and seismic permits
covering an area of  approximately  90,000 acres  located in Jackson and Calhoun
Counties, Texas, as depicted on the plat attached hereto as Exhibit "A".

         WHEREAS,  Beta, Pease,  Four-Way,  Meyer and Wes-Tex propose to acquire
undivided  interests  in and to the rights  granted by such  agreements,  and to
participate in conducting a 3-D seismic program upon the lands covered thereby.

         NOW, THEREFORE, in consideration of the premises, the mutual agreements
and  obligations  set forth  herein,  and the  mutual  benefits  to be  received
hereunder, the Parties agree as follows:


                             ARTICLE 1. DEFINITIONS

         For the purpose of this  Agreement,  the following terms shall have the
meanings designated below:

         1.1 Area of Mutual Interest "AMI" means the lands outlined on the plat
 attached hereto as Exhibit "A".

         1.2  "AMI  Interests"  means  any  interest  in the  oil,  gas or other
minerals in and under the AMI, including  leasehold  interests under oil and gas
leases,  oil and gas  lease  options,  interests  of the  farmee  under  farmout
agreement,  and other such  interests or rights  similar or  dissimilar to those
mentioned,  including,  but not limited to, seismic  permits.  AMI Interest does
not, however, include nonpossessory interests in the oil, gas and other minerals
in and under the AMI, such as royalty  interests,  overriding royalty interests,
net profits interests,  or other such interests whether similar or dissimilar to
those mentioned.

         1.3 "Existing AMI Interests"  means the Seismic and Lease Options,  Oil
and Gas Leases and Seismic  Permits  which have been  acquired by Parallel as of
December 1, 1997.

         1.4 "Subsequently Acquired AMI Interests" means all AMI Interests 
acquired after December 1, 1997.

         1.5  "Contract  Lands"  means  lands  located  within the AMI which are
covered by AMI Interests.

         1.6  "Initial  Interest"  means a Party's  ownership  in  Existing  AMI
Interests,  and the  amount  of  interest  a party is  entitled  to  acquire  in
Subsequently Acquired AMI Interests, subject to the provisions hereof.

         1.7  "Jointly  Owned AMI  Interest"  means an AMI Interest in which the
Parties own an interest pursuant to the terms of this Agreement.

         1.8 "Lease Burden" means any royalty,  overriding royalty interest, net
profits interest,  production payment,  carried interest,  reversionary  working
interest or other charges upon a leasehold interest or the production therefrom.


<PAGE>





         1.9 "Losses" means any and all losses,  liabilities,  claims,  demands,
penalties, fines, settlements, damages, actions, or suits of whatsoever kind and
nature (but expressly excluding consequential  damages),  whether or not subject
to litigation, including without limitation (I) claims or penalties arising from
products  liability,   negligence,  statutory  liability  or  violation  of  any
applicable  law or in tort (strict,  absolute or otherwise)  and (ii) loss of or
damage to any property,  and all reasonable  out-of-pocket costs,  disbursements
and expenses (including,  without limitation, legal, accounting,  consulting and
investigation expenses and litigation costs) imposed on, incurred by or asserted
against an indemnified Party in connection therewith.

         1.10 "Operator" shall mean Parallel Petroleum Corporation.

         1.11 "Party" or "Parties" means Parallel,  TAC,  Allegro,  Beta, Pease,
Four-Way,  Meyer,  Wes-Tex and any other  person or entity,  singularly  or as a
group,  which  hereafter  becomes a party hereto or is otherwise  subject to the
terms hereof.

         1.12  "Pre-Existing  Data" means such data which  includes,  but is not
limited to: seismic records and related  seismic data,  electronic and mud logs,
cores  and core  analyses,  field  studies  (less  and  except  any  proprietary
methodology  or process used by any Party in such  studies),  production  tests,
engineering,  geological,  geophysical,  paleontological data, interpretive data
and maps prepared by any Party in existence as of the date of this Agreement.

         1.13  "Proportionate  Share"  except as otherwise  provided for herein,
shall be calculated by dividing a Party's  Initial  Interest by the aggregate of
the  Initial  Interests  of all  Parties  who are to  share  an  interest  or an
obligation pursuant to the terms hereof.

         1.14  "Prospect"  means an area within the AMI which is designated as a
Prospect  pursuant to Article  6.3 hereof and within  which there is expected to
occur, based on information  developed as a result of 3-D Seismic Operations,  a
commercial   accumulation  of  oil  and/or  gas  in  a  specific  structural  or
stratigraphic trap.

         1.15  "Subsequently  Created  Burden"  means a lease  burden  which  is
created  by a party  subsequent  to its  acquisition  of the  interest  which is
subject to the burden.

         1.16 "Costs Prior to Leasehold Acquisition" means all costs of any type
whatsoever  which pertain to this  project,  covering  lands  located  within or
outside the AMI, including, but not limited to costs of seismic permits, seismic
and lease options,  oil and gas leases, and renewals and/or extensions  thereof,
land brokerage,  legal costs, surface damages,  surveying,  seismic acquisition,
processing  and  interpretation,  etc.,  which are  incurred  prior to Leasehold
Acquisition conducted under the provisions of Article 4 hereof.

         1.17 Other terms are defined elsewhere in this Agreement.


             ARTICLE 2. INTERESTS AND SHARE OF COSTS OF THE PARTIES

         2.1 Area of Mutual  Interest.  The Parties hereby  establish an Area of
Mutual Interest "AMI", same to be comprised of the area outlined on the attached
Exhibit "A", and which shall cover AMI Interests located therein. This AMI shall
continue for a term of seven (7) years,  or the  expiration  of the last Jointly
Owned AMI Interest, whichever is earlier.

         2.2  "Interests  and Share of Costs of the Parties" The Parties  hereby
agree to own,  as their  Initial  Interest,  and agree to bear the costs set out
below, as follows:




<PAGE>

<TABLE>

<CAPTION>

Party             Initial Interest     Share of Costs            Share of Costs
                                       Prior to Leasehold        for Leasehold
                                       Acquisition               Acquisition and
                                                           Subsequent Operations


<S>               <C>                  <C>                       <C>     
Parallel          .5312500             .5000000                  .5312500

TAC               .0625000               -0-                     .0625000

Allegro           .0312500               -0-                     .0312500

Beta              .2000000             .2666666                  .2000000

Pease             .1250000             .1666667                  .1250000

Four-Way          .0200000             .0266667                  .0200000

Meyer             .0100000             .0133                     .0100000

Wes-Tex           .0200000             .0266667                  .0200000
</TABLE>


Parallel,  TAC and Allegro  have  acquired  and  presently  own the Existing AMI
Interests. Beta, Pease, Four- Way, Meyer and Wes-Tex agree that their respective
costs in the  Existing AMI  Interests  shall be based on $100.00 per net mineral
acre on seismic and lease options, and cost plus 33.33333% on oil and gas leases
and seismic  permits.  The Existing AMI  Interests  are  presently  comprised of
approximately  73,102.116 net mineral acres covered by seismic and lease option,
522.896 net mineral  acres covered by seismic  permit where cost was  $5,228.96,
and  146.890  net  mineral  acres  covered  by oil and gas lease  where cost was
$7,344.50.  Based on the  foregoing,  the  current  total cost of  Existing  AMI
Interests is Seven  million  three  hundred  twenty-two  thousand  seven hundred
eighty-five and 06/100 Dollars ($7,322,785.06). Beta, Pease, Four-Way, Meyer and
Wes-Tex  agree  to pay  Parallel  their  Proportionate  Share of such  cost,  as
referenced  above,  in  the  Existing  AMI  Interests  upon  execution  of  this
Agreement.  Beta, Pease, Four-Way,  Meyer and Wes-Tex hereby agree that Parallel
shall have the  exclusive  right to acquire AMI  Interests  through  December 1,
1997,  and that same shall be treated in all respects as Existing AMI Interests.
Beta, Pease,  Four-Way,  Meyer and Wes-Tex agree that they shall be obligated to
accept  such  interests  in the  same  percentages  and pay  Parallel  for  such
interests at the same terms stated herein.  Payment for such interests  shall be
due  within  fifteen  (15) days after  receipt  of written  notice as set out in
Article 2.4.  Interests  available  to Parallel  which costs exceed those stated
above shall be offered to the other  Parties as per the  procedure  set forth in
Article 2.4 below.

         2.3 Recording.  Parallel agrees to file for record in the office of the
Jackson County Clerk,  all Memorandums of Seismic and Lease Options covering the
Existing AMI Interests  within  fifteen (15) days of the date this  Agreement is
executed by all Parties.

         2.4  Subsequently  Acquired  AMI  Interests.   Any  Party  acquiring  a
Subsequently  Acquired AMI Interest,  directly or  indirectly,  shall notify the
other  Parties  hereto.  Such notice  shall set forth (i) a  description  of the
interest acquired,  (ii) the total cost of the interest,  including all land and
legal costs  associated with the acquisition  thereof,  (iii) the  Proportionate
Share of the notified Party and its cost therein,  and (iv) any other  pertinent
terms  of  such  acquisition,  including,  but not  limited  to,  copies  of the
instruments of conveyance, copies of leases, assignments, subleases, farmout and
other  contracts  affecting the AMI Interests,  copies of paid drafts or checks,
itemized invoices of actual costs incurred by the acquiring Party. Parties shall
have  fifteen  (15) days  from the  receipt  of this  notice  to  acquire  their
Proportionate  Share  of the  Subsequently  Acquired  AMI  Interest.  A  Party's
election to acquire shall be given in writing and accompanied by Party's payment
of its total cost for such interest.  If a Party's  election and payment are not
received within such fifteen (15) day period, it shall be conclusively  presumed
that such  Party has  elected  not to  acquire  its  Proportionate  Share of the
Subsequently Acquired AMI Interest


<PAGE>



and has forfeited its right thereto. A Party's failure to exercise its option as
to any  particular  notice shall not constitute a waiver or release of its right
to acquire any interest described in any subsequent notice delivered hereunder.

         2.5 Existing Burdens. Each Party's interest under this agreement in the
AMI Interests, and oil and gas leases which may be acquired thereunder, shall be
subject to and burdened by its  proportionate  share of all  existing  operating
agreements,  existing  and  pending  pooling  and  spacing  orders and all Lease
Burdens  other than  Subsequently  Created  Burdens.  Parallel,  TAC and Allegro
represent that they have not burdened the Existing AMI Interests  acquired or to
be acquired with any liens or Subsequently Created Burdens. Each Party agrees to
perform  its  Proportionate  Share of the  obligations  under the AMI  Interests
acquired pursuant to this Agreement and the other obligations  described in this
Article,  but  only  to  the  extent  that  such  obligations  arise  after  the
acquisition of such AMI Interests by such Party.

         2.6 Expiring  Options.  If any lease options covered hereby will expire
prior to  completion of the Seismic  Operations  contemplated  herein,  Operator
shall use its best efforts to renew  and/or  extend such option for a sufficient
period of time to  complete  the  proposed  3-D Seismic  Operations  thereon and
exercise the lease option  thereunder.  Payment for extensions  and/or  renewals
shall be due within fifteen (15) days after receipt of an invoice therefore.

         2.7  Assignments.  Upon receipt of payment for AMI Interests,  Parallel
shall assign to the Parties hereto their Initial Interest in such AMI Interests.
Such assignment shall be recordable in form, shall be subject to this agreement,
shall provide for warranty by,  through and under  Parallel,  but not otherwise,
and shall be subject to the terms and provisions of the AMI Interests  assigned.
Notwithstanding  such assignments,  the Parties hereby grant Operator full right
and  authority  to  conduct  Leasehold  Acquisition  on their  behalf  under the
provisions of Article 4 hereof.

         2.8  AMI  Interests  Located  In and  Out of  Existing  AMI.  If an AMI
Interest is found to cover lands  located  both within and outside the  existing
AMI,  the entirety of such AMI  Interest  shall be offered to the other  Parties
under the acquisition, notice and election provisions of Article 2.4, and if the
other Parties elect to participate in the acquisition  thereof,  the description
of the lands  comprising  the AMI shall be deemed to be  amended  to extend  and
cover all of the lands  covered by such  interest.  The option of the Parties to
participate  in the  acquisition  of such  interests  shall  be  limited  to the
entirety of the interest acquired.

         2.9  Option  to  Cash  Call:  Notwithstanding  the  provisions  for the
payments  required in Articles 2.2, 2.4, 2.6 and 4, Operator  shall the right to
require  the other  Parties to pay their  Proportionate  Share of the  estimated
costs as provided in such Articles in advance.  Such  advanced  payment shall be
paid within fifteen (15) days of receipt of an invoice therefor.
ARTICLE 3. SEISMIC OPERATIONS


         3.1 Existing  Seismic,  Geologic and Other Subsurface  Data.  Except as
prohibited by law or by agreements with third parties,  upon request, each Party
owning  existing  seismic data  pertaining to lands located within the AMI shall
furnish copies of all such data to the other Parties, together with any geologic
or other subsurface data that could be useful in the interpretation thereof. The
Party receiving such data shall bear the expense of copying it. The Party owning
any seismic or other data which may not be copied,  due to legal prohibitions or
by agreements with third parties,  shall, upon request, make such data available
to the Party requesting such data during normal business hours.

         3.2 Ownership of Pre-Existing Data.  Ownership of the Pre-Existing Data
and all  reprocessed  PreExisting  Data shall at all times remain  vested in the
Party who  contributes  the  Pre-Existing  Data for use by the Parties,  and the
Parties agree to acknowledge such ownership,  including, but not limited to, the
filing


<PAGE>



with any appropriate governmental authority of such acknowledgment.  The Parties
expressly  reserve the right to sell,  license,  or trade the Pre-Existing  Data
which it  contributes  hereunder,  to the extent that it has such right to sell,
license or trade the Pre-Existing Data, through its own efforts,  or through the
efforts of others duly authorized by such Party and the benefits and advantages,
including monetary consideration,  which such Party receives as a result of such
activities shall be the sole property of such Party.

         3.3   Management  of  the  3-D  Seismic   Operations.   Operator  shall
exclusively manage and conduct the 3-D Seismic Operations contemplated hereunder
and all  operations  incident  thereto,  including,  but  not  limited  to,  the
acquisition  of all  geoscientific  data,  the  performance  of all 3-D  seismic
surveys and other  geoscientific  work  incident  thereto,  and,  subject to the
Operating Agreements, the drilling of all wells on the Prospects. Operator shall
perform all such work through employees, representatives, and contractors of its
selection,  and  Operator  shall and does  hereby  agree to  utilize  reasonable
prudence and economic  judgment in contracting  with third party  contractors or
subcontractors. As manager of 3-D Seismic Operations, Operator shall devote such
of its time,  attention  and efforts to the conduct  thereof as it shall in good
faith determine reasonably  necessary,  but shall otherwise be free to engage in
and pursue all other current and future business projects, programs,  prospects,
opportunities,  investments and activities  without obligation of any kind to or
right of  participation  therein by the other Parties hereto.  In performing its
duties under this Agreement,  Operator shall serve as an independent  contractor
and not as an agent or  employee of the other  Parties  hereto.  Operator  shall
utilize reasonable  prudence and economic judgment in incurring costs, and shall
further  conduct the 3-D Seismic  Operations and perform all of its duties under
this  Agreement as a reasonable,  prudent  operator,  in a good and  workmanlike
manner with due  diligence and  dispatch,  in accordance  with good oilfield and
exploratory   practice,   and  in  compliance   with  all  applicable  laws  and
regulations,  BUT SHALL HAVE NO  LIABILITY  TO THE OTHER  PARTIES  HERETO OR ANY
OTHER OWNER OF RIGHTS OR INTERESTS UNDER THIS AGREEMENT FOR ANY LOSSES SUSTAINED
OR LIABILITIES INCURRED IN CONNECTION WITH THE 3-D SEISMIC OPERATIONS AND/OR THE
CONDUCT OF ANY ACTIVITIES  UNDER OR  CONTEMPLATED  BY THIS  AGREEMENT,  SAVE AND
EXCEPT AS MAY BE  OCCASIONED BY THE GROSS  NEGLIGENCE  OR WILLFUL  MISCONDUCT OF
OPERATOR. EACH OF THE OTHER PARTIES HERETO ACKNOWLEDGES THAT (A) IT HAS READ AND
AGREED TO THE FOREGOING  EXCULPATION  OF OPERATOR AS A NEGOTIATED  AND BARGAINED
FOR ASPECT OF THIS TRANSACTION, (B) THIS EXCULPATION PROVISION IS CONSPICUOUS.

         3.4 Ongoing and Future Seismic Operations. The Parties agree to conduct
such operations on all or  substantially  all of the Contract Lands. The Parties
may, subject to their unanimous written consent, agree to reduce or increase the
acreage on which such  operations  will be conducted  when  technical,  legal or
operational   considerations   indicate  that  such  reduction  or  increase  is
warranted.  In any event,  the Parties  agree to pay Operator  their  respective
shares of the total costs of the 3-D Seismic  Operations  conducted  on all land
covered by AMI  Interests  as set forth in Article 2.2  hereof.  Payment for 3-D
Seismic  Operations  shall be due within fifteen (15) days after receipt of each
invoice  therefore.  Operator shall furnish the other Parties hereto with copies
of all applicable contracts and other information  pertaining to all 3-D Seismic
Operations conducted hereunder.  The Parties shall own their Proportionate Share
of the  geophysical  data  obtained  by  and  resulting  from  the  3-D  Seismic
Operations  conducted on the Contract Lands,  including,  but not limited to all
tapes, seismic sections and any and all other data generated by such 3-D Seismic
Operations.  Each Party shall have access to such data and shall receive  copies
thereof.  The Parties agree to work together in a spirit of  cooperation  and in
good faith in planning and causing the 3-D Seismic Operations to be conducted as
contemplated  herein as well as in sharing the data collected  therefrom and the
interpretations thereof. Such interpretations,  by any Party, shall in no way be
deemed a  representation  to any  other  Party  that  such  interpretations  are
accurate or correct.  Such  interpretations  shall be given merely as a means of
sharing such Party's analysis and ideas regarding such data.

         3.5  Confidentiality  of Seismic Data.  Except as provided below,  each
Party  agrees  to keep  all  seismic  data  obtained  pursuant  to  Article  3.3
confidential  for a period of seven (7) years  from the date  hereof.  After the
expiration of five (5) years from the date hereof any Party may sell the data it
acquired  pursuant to Article  3.3.  Each Party  owning an interest in such data
shall receive its Proportionate Share of the proceeds of any such sale. Any data
acquired  from  another  Party  pursuant  to Article  3.1 shall  forever be kept
confidential by the Parties;  provided,  however,  that the Party who originally
contributed such data may share, sell or otherwise may share, sell or otherwise
<PAGE>



dispose of such data that does not  pertain to a Prospect to a third party after
the expiration of one (1) year from the date hereof, and the other Parties shall
have no interest in the proceeds from such sale.  Notwithstanding the foregoing,
a Party may disclose  seismic data to (A) a  prospective  purchaser or farmee of
such Party's  interest,  provided (i) such disclosure is limited to the Prospect
under  consideration  for sale or farmout,  (ii) the  prospective  purchaser  or
farmee must review such data in the  affected  Party's  offices and may not copy
such data  until  such time as it has  acquired  or  earned an  interest  in the
Contract Lands,  and (iii) such  prospective  purchaser or farmee must execute a
confidentiality  agreement to prevent further disclosure and unauthorized use of
such data; or (B) a third party who is entitled thereto pursuant to the terms of
a lease, lease option or seismic permit. Any Party may disclose such data to its
agents,  staff,  representatives  and  consultants  in the normal conduct of its
business.

         3.6 Review of Seismic  Data.  The Parties  agree to  cooperate  in good
faith in reviewing  the seismic  data  acquired  hereunder.  Such data should be
reviewed by the Parties as soon as  practicable  after the data is  available so
that the Parties can make decisions regarding the exercise of lease options.


ARTICLE 4. LEASEHOLD ACQUISITION

         As soon as is practicable after the 3-D seismic data has been processed
and interpreted,  Operator shall, in its sole discretion,  acquire leases within
the AMI, and the Parties agree to pay their Proportionate Share of cost therein,
including all land and legal costs associated with the acquisition thereof. Upon
receipt of payment, which shall be due within fifteen (15) days after receipt of
each invoice  therefore,  Operator shall promptly execute and deliver recordable
assignments to the Parties  reflecting their respective  interests in the leases
acquired.

ARTICLE 5. FORFEITURE

         Payments due hereunder  for Existing AMI  Interests  under Article 2.2,
renewals and/or extensions  acquired under Article 2.6, Seismic Operations under
Article 3.4, and Lease Acquisition  under Article 4 shall be mandatory.  A Party
failing to timely make any such  payment  shall be in breach of this  Agreement;
and,  in the event such  payment is not  received  by  Operator,  or other Party
entitled thereto, within sixty (60) days after written demand therefore has been
received,  such Party shall,  without the  necessity of any further  proceeding,
forfeit all of its right,  title and interest  under this Agreement to Operator.
Any Party so forfeiting its interest hereunder,  hereby appoints Operator as its
Agent and  Attorney-in-Fact  for the sole and limited  purpose of  executing  an
instrument of conveyance vesting title to the forfeited interest in Operator and
filing same in the appropriate public records.


ARTICLE 6. SALE, FARMOUT OR OTHER DISPOSITION OF AMI INTERESTS TO A THIRD PARTY

         Any Party may sell, assign,  farmout or otherwise dispose of all or any
portion  of  its  interest  acquired  pursuant  to or in  connection  with  this
Agreement without consent of any other Party. Operator shall be furnished with a
copy of the assignment or other instrument disposing of such interest within ten
(10) days from the date thereof.


ARTICLE 7. SUBSEQUENT OPERATIONS

         7.1 Operator.  Operator shall have the right,  subject to the terms and
provisions  of the  attached  Operating  Agreement,  to be the  Operator for all
operations  conducted  within the AMI,  and the Parties  hereby agree to execute
separate Operating Agreements designating Operator, as Operator, as required.


<PAGE>



         7.2 Operating  Agreement.  Except as provided  herein,  all  operations
conducted  within the AMI shall be conducted in accordance  with the terms of an
Operating Agreement  substantially in the form attached hereto as Exhibit "B". A
separate Operating Agreement shall be executed for each Prospect, with the first
well drilled in such Prospect to be designated as the "Initial Well".  The share
of costs  which  each  Party  must bear and the  interest  of each  Party in the
production from each well drilled under the Prospect Operating Agreement will be
determined  on a  well-by-well  basis in  accordance  with the  terms  hereof as
modified  by the terms of the  Operating  Agreement.  In the  event of  conflict
between the terms and  provisions  hereof and those  contained in the  Operating
Agreement, the terms and provisions hereof shall prevail.

         7.3 Designation of Prospects. As soon as practicable after the data has
been  processed and  interpreted,  Operator shall furnish the other Parties with
maps which reflect  designated  Prospects,  together  with a description  of the
seismic data, prospective feature and any interpretative data or other maps upon
which such Prospect is based.

         7.4  Non-Consent  Election on Initial  Well.  If a Party  elects not to
participate in the drilling of the Initial Well in a Prospect,  such Party shall
relinquish  all of its rights and  interests  in that  Prospect  to the  Parties
participating  in the  drilling  of such  well  which  elect  to  acquire  their
Proportionate Share of the relinquished  interest. A condition precedent to such
relinquishment shall be the reimbursement of the relinquishing Party's leasehold
cost in the relinquished interest by the Parties electing to participate in such
interest,  which cost shall be  specifically  limited to that  incurred  by such
Party  under  Article 4 hereof.  A Party so  relinquishing  its  interest  shall
promptly  execute a recordable  assignment of its  relinquished  interest to the
Parties  entitled  thereto,  which  interest  shall be free of any  Subsequently
Created  Burdens.  Upon receipt of such  assignment  the Parties  receiving  the
relinquished  interest shall reimburse the relinquishing  Party their respective
Proportionate  Share  of the  relinquishing  Party's  cost  in the  interest  so
assigned.

         7.5  Limitation  on Number of Wells  Drilling.  Not more than three (3)
wells shall be drilling on the Contract Lands at any time unless it is necessary
to commence a well in order to perpetuate a lease or otherwise satisfy the terms
of a continuous drilling obligation.



ARTICLE 8. MISCELLANEOUS

         8.1 Legal  Relationship.  This agreement is not intended to create, and
shall not be construed to create,  a partnership or other  relationship  whereby
one  party  is  liable  for the  actions  or debts of  another  party;  it being
understood and agreed that the rights and liabilities of all parties are several
and not joint or collective.

         8.2 Entire Agreement.  This agreement  constitutes the entire agreement
among the parties hereto with respect to the subject matter hereof,  superseding
any and all prior  agreements,  understandings,  discussions,  negotiations  and
commitments of any kind.

         8.3  Amendment.  The  provisions  of  this  agreement  may be  amended,
supplemented, or waived only if in writing signed by all parties hereto.

         8.4  Construction.  The parties to this agreement all  acknowledge  and
agree that this agreement was drafted  jointly by them, and that in the event of
any ambiguity,  this agreement shall not be construed against any of them on the
basis of the fact or presumption  that one party had a greater or lesser hand in
the drafting of the agreement than another party,  but rather the terms shall be
given a reasonable interpretation.

         8.5 Governing Law. Except to the extent  preempted by federal law, this
agreement is to be construed and  interpreted  in accordance  with, and governed
by, the laws of the State of Texas.



<PAGE>



         8.6  Binding  Agreement.  This  agreement  shall  bind and inure to the
benefit of the parties  hereto and their  respective  heirs,  successors,  legal
representatives and assigns.

         8.7  Section  and  Subsection  Headings.   The  article,   section  and
subsection  headings  contained  in  this  agreement  are  for  the  purpose  of
convenience  only and are not intended to define or limit the contents hereof or
otherwise be considered in construing and enforcing this agreement.

         8.8 Waivers.  Any failure by any party hereto to comply with any of its
obligations, agreements or conditions herein contained may be waived in writing,
but not in any other  manner,  by the party to whom such  compliance is owed. No
waiver of, or consent to a change in, any provision of this  agreement  shall be
deemed to be, or shall  constitute,  a waiver of or  consent  to a change in the
provisions  hereof (whether or not similar),  nor shall such waiver constitute a
continuing waiver unless expressly provided.

         8.9 Further Assurances. The parties hereto agree to deliver or cause to
be  delivered to each other at all such times as shall be  reasonably  required,
all such additional instruments, agreements, and other documents, and to perform
all such  actions,  as any of them may  reasonably  request  for the  purpose of
performing  any  provision of this  agreement  or  evidencing  the  transactions
contemplated by this agreement.

         8.10  Severability.  If any term or provision of this  agreement or any
application of this agreement is held invalid or unenforceable, the remainder of
this  agreement and any other  application  of the terms and  provisions of this
agreement  shall  not be  affected  by that  holding,  but  shall be  valid  and
enforceable.

         8.11  Exhibits.  All  exhibits  attached  hereto or referred to in this
agreement are incorporated herein and made a part of this agreement.

         8.12 Term. The term of this agreement shall be seven (7) years from the
date hereof or until the last  expiration of the last Jointly Owned AMI Interest
acquired   hereunder,   whichever  is  earlier,   with  the   exception  of  the
confidentiality  requirements of Article 3.5 which shall survive and extend past
that period.

         8.13 Notices. All notices, consents and other communications under this
Agreement  shall be in  writing  and shall be deemed to have been duly given (a)
when  delivered by hand,  (b) when sent by facsimile  (with receipt  confirmed),
provided  that a copy is  promptly  mailed  thereafter  by first  class  postage
prepaid  registered  or  certified  mail,  return  receipt  requested,  (c) when
received by the  addressee,  if sent by Express  Mail,  Federal  Express,  other
express  delivery  service  (receipt  requested)  or by such other  means as the
Parties named below may agree from time to time or (d) five (5) days after being
mailed in the USA, by first class postage prepaid  registered or certified mail,
return receipt requested; in each case to the appropriate address and telecopier
number set forth below (or to such other address or telecopier number as a Party
may designate as to itself by notice to the other Parties).

         Parallel Petroleum Corporation
         110 N. Marienfield, Suite 465
         Midland, TX 79701
         Attn: Larry Oldham
         Telephone Number: (915)684-3727
         Telecopier Number: (915)684-3905

         TAC Resources, Inc.
         P. O. Box 206
         Victoria, TX 77902
         Attn: Bill Bishop
         Telephone Number: (512)573-4969
         Telecopier Number: (512)573-9840

         Allegro Investments, Inc.
         1908 N. Laurent, Suite 370
         Victoria, TX 77901


<PAGE>



         Attn: Chris Thompson
         Telephone Number: (512)573-5619
         Telecopier Number: (512)576-9643

         Beta Oil & Gas, Inc.
         901 Dove Street, Suite 230
         Newport Beach, CA 92660
         Attn: Steve Antry
         Telephone Number: (714)752-5212
         Telecopier Number: (714)752-5757

         Pease Oil and Gas Company
         751 Horizon Court, Suite 203
         P. O. Box 60219
         Grand Junction, CO 81506-8758
         Attn: Willard Pease, Jr.
         Telephone Number: (970)245-5917
         Telecopier Number: (970)243-8840

         Four-Way Texas L.L.C.
         c/o Kissing Bridge Company
         11296 State Road
         Glenwood, NY 14069
         Attn: Bob James
         Telephone Number: (716)592-4963
         Telecopier Number: (716)592-4228

         Meyer Financial Services, Inc.
         1005 Liberty Building
         Buffalo, NY 14202
         Attn: Paul Meyer
         Telephone Number: (716)842-2215
         Telecopier Number: (716)842-2220

         Wes-Tex Drilling Corp.
         P. O. Box 3739
         Abilene, TX 79604
         Attn: Myrle Greathouse
         Telephone Number: (915)677-9121
         Telecopier Number: (915)677-5140

Each Party  shall  have the right upon  giving  thirty  (30) days prior  written
notice to the other  Parties,  in the  manner  herein  provided,  to change  its
address and telecopier number for the purpose of notice.

         8.14 Transfers Subject to this Agreement. Any sale, agreement, transfer
or other disposition of an interest in the Contract Lands, however accomplished,
either voluntarily or involuntarily, by operations of law or otherwise, shall be
subject  to the  terms of this  Agreement.  Any  instruments  which  convey  any
interest in the Contract Lands shall be made expressly subject to the Agreement.

         8.15   Counterparts.   This  agreement  may  be  executed  in  multiple
counterparts, all of which when taken together shall constitute one and the same
agreement.

         8.16  Public  Announcements.  Each Party  hereto  agrees  that prior to
making any public  announcement  or statement  with  respect to the  transaction
contemplated  in  this  Agreement,  the  Party  desiring  to  make  such  public
announcement  or  statement  shall  consult  with the other  Parties  hereto and
exercise  their  best  efforts  to (i)  agree  upon the  text of a joint  public
announcement or statement to be made by the Parties, (ii)obtain approval of the


<PAGE>



other Parties hereto to the extent of a public  announcement  or statement to be
made  solely  by one of the  Parties,  as the  case  may be.  Approval  shall be
requested  pursuant  to  Article  8.13  hereof,  and any  such  announcement  or
statement  shall be deemed  approved  if no reply to the  contrary  is  received
within  twenty-four  (24) hours  (Saturdays,  Sundays and federal legal holidays
excluded) after receipt of such request by the other Parties.  Nothing contained
in this paragraph  shall be construed to require any Party to obtain approval of
the other Parties hereto to disclose information with respect to the transaction
contemplated by this Agreement to any  governmental  body to the extent required
by applicable law or by any applicable rules.

         8.17  Expenses.  Except as  specified  herein  and as the  Parties  may
otherwise  agree,  each  Party  shall be  solely  responsible  for all  expenses
incurred by it in connection with any and all transactions that are contemplated
by this Agreement.

         8.18 Force Majeure.  Should any Party be prevented,  wholly or in part,
from complying with any express or implied  obligation of this Agreement  (other
than the  obligation to make money  payments),  from  conducting  any operations
provided  for under this  Agreement,  including by way of  illustration  but not
limitation,  the conducting of the 3-D Seismic  Operations by reason of scarcity
of or inability to obtain or to use labor, water,  equipment or materials in the
open market or  transportation  thereof  from any cause  (other than  financial)
beyond the control of such Party, or operation of "Force  Majeure,  any State or
Federal law or any order, ruling or regulation of governmental  authority,  then
while so prevented,  such Party's  obligation  to comply with such  provision or
obligation shall be suspended,  and such Party shall not be liable in damages or
otherwise to the other  Parties for failure to comply  therewith,  provided that
the Party claiming  suspension shall give written notice and full particulars of
the reason of such  inability to perform its  obligations  to the other  Parties
within thirty (30) days after the occurrence of the cause relied on by the Party
claiming suspension.

         8.19  Arbitration.  The Parties agree that any and all disputes arising
under or relating to this Agreement shall be referred to arbitration pursuant to
the commercial  rules of arbitration  of the American  Arbitration  Association.
Venue for such arbitration shall be Houston, Texas USA.


IN WITNESS WHEREOF, this agreement is executed on the date first above written.



                                            Parallel Petroleum Corporation


                                             By:_______________________________
                                                 Larry C. Oldham, President


                                            TAC Resources, Inc.



                                            By:_______________________________
                                                  Bill Bishop, President


                                            Allegro Investments, Inc.


                                            By:________________________________
                                                 John R. Thompson, President


<PAGE>


                                            Beta Oil & Gas, Inc.


                                            By:________________________________
                                                Steve Antry, President



                                            Pease Oil and Gas Company



                                            By:________________________________
                                                  Willard Pease, Jr., President



                                            Four-Way Texas, L.L.C.



                                            By:________________________________
                                                  Robert M. James, President



                                            Meyer Financial Services, Inc.



                                            By:________________________________
                                                  Paul Meyer, President



                                             Wes-Tex Drilling Corp.



                                            By:________________________________
                                        Myrle Greathouse, Chairman of the Board