<PAGE>
                                       1


                       SECURITIES AND EXCHANGE COMMISSION


                             WASHINGTON, D. C. 20549

                                    FORM 10-Q

                          ----------------------------
(Mark One)

/X/  Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934

                For the quarterly period ended March 31, 2000 or

/ /  Transition  report  pursuant  to Section  13 or 15(d) of the  Securities
     Exchange Act of 1934
     For the Transition period from to

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

                         COMMISSION FILE NUMBER 0-13305

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

                         PARALLEL PETROLEUM CORPORATION

             (Exact name of registrant as specified in its charter)


           DELAWARE                                    75-1971716
(State of other jurisdiction of               (I.R.S. Employer Identification
incorporation or organization)                           Number)

  One Marienfeld Place, Suite 465,
       Midland, Texas                                     79701
(Address of principal executive offices)               (Zip Code)


                                 (915) 684-3727
              (Registrant's telephone number, including area code)

                                 NOT APPLICABLE
              (Former name, former address and former fiscal year,
                          if changed since last report)

     Indicate  by check mark  whether the  Registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.

                            Yes 'X'            No

     At May 10, 2000, there were 20,331,858  shares of the  Registrant's  Common
Stock, $0.01 par value, outstanding.

================================================================================
<PAGE>
                                       2


                                      INDEX

                         PART I. - FINANCIAL INFORMATION

                                                                Page No.

ITEM 1. FINANCIAL STATEMENTS

     Reference  is made to the  succeeding  pages  for the
     following financial statements:

     - Balance Sheets as of December 31, 1999 and
       March 31, 2000  (unaudited)                                 3

     - Unaudited Statements of Operations for the three
       months ended March 31, 1999 and 2000                        5

     - Unaudited Statements of Cash Flows for the three
       months ended March 31, 1999 and 2000                        6

     - Notes to Financial Statements                               7

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
        CONDITION AND RESULTS OF OPERATIONS                       10

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
        MARKET RISK                                               15

                          PART II. - OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                          15


<PAGE>
                                       3

                         PARALLEL PETROLEUM CORPORATION

                                 BALANCE SHEETS

<TABLE>

                                                       December 31,      March 31, 2000
ASSETS                                                    1999*           (Unaudited)
-------------                                          ------------     ---------------
<S>                                                    <C>              <C>

Current assets:
   Cash and cash equivalents                            $ 1,276,417      $ 1,345,562
   Accounts receivable:
      Oil and gas                                         1,312,923        1,527,801
      Others, net of allowance for doubtful accounts
         of $157,187 in 1999 and 2000                       314,911          142,597
      Affiliate                                              20,658            4,669
                                                       ------------     ------------
                                                          1,648,492        1,675,067
Other assets                                                 39,677           20,178
Assets held for sale                                      2,127,734        2,127,734
                                                       ------------     ------------
Total current assets                                      5,092,320        5,168,541
                                                       ------------     ------------
Property and equipment, at cost:
   Oil and gas properties, full cost method              65,136,783       66,134,302
   Other                                                    289,720          307,516
                                                       ------------     ------------
                                                         65,426,503       66,441,818
Less accumulated depreciation and depletion              27,502,855       28,566,324
                                                       ------------     ------------
Net property and equipment                               37,923,648       37,875,494
                                                       ------------     ------------
Investment in First Permian, LLC (Notes 1 and 5)            201,311               --
Other assets, net of accumulated amortization of
      $141,428 in 1999 and $147,627 in 2000                  46,791           59,354
                                                       ------------     ------------
                                                       $ 43,264,070     $ 43,103,389
                                                       ============     ============

</TABLE>

<PAGE>
                                       4


                         PARALLEL PETROLEUM CORPORATION

                                 BALANCE SHEETS
                                  (Continued)

<TABLE>

                                                       December 31,      March 31, 2000
LIABILITIES AND STOCKHOLDERS' EQUITY                      1999*           (Unaudited)
------------------------------------                  ------------     ------------------
<S>                                                   <C>              <C>

Current liabilities:
   Current maturities of long-term debt                $  3,665,889     $  3,665,889
   Investment liability in
      First Permian (Notes 1 and 5)                             --           252,700
   Accounts payable and accrued liabilities:
      Trade                                              1,471,013         1,788,142
      Affiliate                                              2,702             2,954
      Preferred stock dividend                              24,363           170,538
                                                      ------------      ------------
                                                         1,498,078         1,961,634
                                                      ------------      ------------
Total current liabilities                                5,163,967         5,880,223
                                                      ------------      ------------
Long-term debt, excluding current maturities (Note 2)   12,300,000        11,400,000

Stockholders' equity:
 Preferred stock - 6% convertible preferred stock -
    par value $.10 per share(aggregate liquidation
    preference of $10) authorized 10,000,000 shares,
    issued and outstanding 974,500 in 1999 and 2000         97,450            97,450
 Common stock - par value $.01 per share, authorized
    60,000,000 shares, issued and outstanding
    20,331,858 in 1999 and 2000                            203,319           203,319
 Additional paid-in surplus                             34,847,141        34,676,603
 Retained deficit                                       (9,347,807)       (9,154,206)
                                                      ------------      ------------
Total stockholders' equity                              25,800,103        25,823,166

Contingencies
                                                      ------------      ------------
                                                      $ 43,264,070      $ 43,103,389
                                                      ============      ============
</TABLE>

*The balance  sheet as of December  31, 1999 has been  derived  from  Parallel's
audited  financial  statements.  The accompanying  notes are an integral part of
these financial statements.

<PAGE>
                                       5

                         PARALLEL PETROLEUM CORPORATION

                            STATEMENTS OF OPERATIONS

                                   (Unaudited)

<TABLE>
                                                 Three Months Ended March 31,
                                                 ----------------------------
                                                     1999             2000
                                                  ----------       ----------
<S>                                                <C>             <C>
Oil and gas revenues                              $1,963,089       $2,774,591

Cost and expenses:
   Lease operating expense                           513,822          613,815
   General and administrative                        203,237          197,800
   Depreciation, depletion and amortization          903,836        1,063,469
                                                  ----------       ----------
                                                   1,620,895        1,875,084
                                                  ----------       ----------
Operating income                                     342,194          899,507
                                                  ----------       ----------
Other income (expense), net:
   Equity in loss of First Permian, LLC                   --         (386,511)
   Interest income                                    13,276           18,755
   Other income                                        6,623            6,461
   Interest expense                                 (371,071)        (342,905)
   Other expense                                      (1,305)          (1,706)
                                                  ----------       ----------
      Total other expense, net                      (352,477)        (705,906)
                                                  ----------       ----------
Income (loss) before income taxes                    (10,283)         193,601

Income taxes                                              --               --
                                                  ----------       ----------
Net income (loss)                                 $  (10,283)      $  193,601
                                                  ==========       ==========
Cumulative preferred stock dividend               $  170,538       $  170,538
                                                  ==========       ==========
Net income (loss) available
   to common stockholders                         $ (180,821)      $   23,063
                                                  ==========       ==========
Net income (loss) per common share
   Basic                                          $    (.010)      $    .0011
                                                  ==========       ==========
   Diluted                                        $    (.010)      $    .0011
                                                  ==========       ==========
Weighted average common shares outstanding
   Basic                                          18,328,525       20,331,858
                                                  ==========       ==========
   Diluted                                        18,328,525       20,657,727
                                                  ==========       ==========

</TABLE>

The accompanying notes are an integral part of these financial statements.
<PAGE>
                                       6


                         PARALLEL PETROLEUM CORPORATION

                            STATEMENTS OF CASH FLOWS

                                   (Unaudited)

<TABLE>

                                                                Three Months Ended March 31,
                                                               -----------------------------
                                                                   1999            2000
                                                               -----------       -----------
<S>                                                            <C>               <C>

Cash flows from operating activities:
   Net income (loss)                                           $  (10,283)       $  193,601
   Adjustments to reconcile net income (loss) to net cash
     provided by operating activities:
      Depreciation and depletion                                  903,836         1,063,469
      Equity in loss from investments                                  --           386,511
   Other, net                                                     (14,520)          (12,563)
      Changes in assets and liabilities:
      Decrease (increase) in accounts receivables                 134,905           (26,575)
      Decrease in prepaid expenses and other                       48,845            19,499
      (Decrease) increase in accounts payable and accrued
         liabilities                                             (734,259)          293,018
                                                              -----------       -----------
Net cash provided by operating activities                         328,524         1,916,960
                                                              -----------       -----------
Cash flows from investing activities:
   Additions to property and equipment                         (1,119,604)       (1,048,855)
   Proceeds from disposition of property and equipment            255,240            33,540
   Distribution from First Permian, LLC                                --            67,500
                                                              -----------       -----------
      Net cash used in investing activities                      (864,364)         (947,815)
                                                              -----------       -----------
Cash flows from financing activities:
   Borrowings from bank line of credit                            780,000                --
   Payments on bank line of credit                                     --          (900,000)
   Proceeds from exercise of options and warrants                  17,188                --
                                                              -----------       -----------
      Net cash provided by (used in) financing activities         797,188          (900,000)
                                                              -----------       -----------
      Net increase in cash and cash equivalents                   261,348            69,145

Beginning cash and cash equivalents                             1,178,819         1,276,417
                                                              -----------       -----------
Ending cash and cash equivalents                              $ 1,440,167       $ 1,345,562
                                                              ===========       ===========
Non-cash financing activities:
   Accrued preferred stock dividend                           $  170,538        $   170,538
                                                              ==========        ===========
</TABLE>


The accompanying notes are an integral part of these financials.

<PAGE>
                                       7


                         PARALLEL PETROLEUM CORPORATION
                          NOTES TO FINANCIAL STATEMENTS


NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

     The financial  information included herein,  except the balance sheet as of
December  31,  1999,  is  unaudited.  However,  such  information  includes  all
adjustments (consisting solely of normal recurring  adjustments),  which are, we
think of management, necessary for a fair statement of the results of operations
for the interim  periods.  The results of operations  for the interim period are
not necessarily indicative of the results to be expected for an entire year.

     Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting  principles
have been  condensed  or omitted in this Form 10-Q  Report  pursuant  to certain
rules and regulations of the Securities and Exchange Commission. These financial
statements  should be read with the financial  statements  and notes included in
Parallel's 1998 Annual Report and 1999 Form 10-K.

     At March 31, 2000, we had a 35% interest in First  Permian,  LLC, a limited
liability  company.  We account for our investment in First Permian on an equity
basis.  Accordingly,  our investment in First Permian is recorded at cost and is
increased or decreased by our  proportionate  share of First Permian's income or
loss. Our 35% interest is reported as an investment on the balance sheet and our
share of income  or loss is  recognized  on the  income  statement  as equity in
earnings (loss) of First Permian.

NOTE 2. LONG TERM DEBT

     Our long term debt at March 31, 2000 consisted of the following:

     Revolving  credit  facility note payable to bank at the
        bank's base lending rate plus .25% (9% at March 31, 2000)    $15,065,889

     Scheduled maturities of Parallel's debt at March 31, 2000
       are as follows:

                 March 31, 2001                                      $ 3,665,889
                 July 1, 2001                                         11,400,000
                                                                     -----------
                                                                     $15,065,889
                                                                     ===========

     Revolving  Credit  Facility.  At March 31, 2000,  Parallel was a party to a
loan  agreement  with Bank One,  Texas,  N.A. On  December  27,  1999,  our loan
agreement  with the bank was restated in its entirety.  The loan  agreement,  as
restated,  currently provides for a revolving credit facility under which we may
borrow up to the lesser of (a)  $30,000,000  or (b) the  borrowing  base then in
effect.  When we entered into the restated loan  agreement,  we were required to
make monthly principal  payments in the amount of $300,000.  After giving effect
to these principal payments,  the total outstanding principal amount of our bank
borrowings  was  $15,965,889  at December 31, 1999.  The initial  borrowing base
under the restated loan agreement was established at $15,965,889.  The borrowing
base  automatically  reduces by  $300,000  each  month,  which means that we are
required to make a principal  payment in the same amount by which the  borrowing
base is reduced.  Beginning January 1, 2000, the borrowing base will continue to
reduce  automatically  at the rate of $300,000 per month. The borrowing base and
the borrowing base reduction  amount are required to be redetermined by the bank
on February 1, 2000 and on May 1 and November 1 of each year,  beginning  May 1,
2000. Our borrowing base is currently under review.

     At March 31, 2000, we had borrowed all the funds currently  available under
the Revolving  Facility.  All indebtedness  under the revolving facility matures
July 1,  2001.  The  loan is  secured  by  substantially  all of our oil and gas
properties.  Commitment  fees of .25% per annum on the  difference  between  the
commitment and the average daily amount outstanding are due quarterly.
<PAGE>
                                       8


     The unpaid  principal  balance of the revolving  facility bears interest at
our  election at a rate equal to (i) the bank's base  lending  rate plus .25% or
(ii) the  bank's  Eurodollar  rate  plus a margin  of 3.0%.  Interest  under the
Revolving  Facility is due and payable monthly.  At March 31, 2000, the interest
rate was the bank's base rate plus .25% or 9%.

     The loan agreement  contains various  restrictive  covenants and compliance
requirements,  which include (1) maintenance of certain  financial  ratios,  (2)
limiting the incurrence of additional  indebtedness,  (3) prohibiting payment of
dividends  on common  stock,  and (4)  prohibiting  the payment of  dividends on
preferred  stock  when an event  of  default  under  the  loan  agreement  is in
existence.

NOTE 3. PREFERRED STOCK

     We have outstanding 974,500 shares of 6% Convertible Preferred Stock, $0.10
par value per share.  Cumulative annual dividends of $0.60 per share are payable
semi-annually  on June 15 and December 15 of each year.  Each share of Preferred
Stock may be  converted,  at the option of the  holder,  into  2.8571  shares of
common  stock at an  initial  conversion  price of $3.50 per  share,  subject to
adjustment in certain events.  The preferred stock has a liquidation  preference
of $10 per share and has no voting  rights,  except as  required  by law. We may
redeem the preferred stock, in whole or part, for $10 per share plus accrued and
unpaid dividends.

NOTE 4. FULL COST CEILING TEST

     We use the  full  cost  method  to  account  for our oil and gas  producing
activities.  Under the full cost method of accounting, the net book value of oil
and gas  properties,  less  related  deferred  income  taxes,  may not  exceed a
calculated  "ceiling."  The  ceiling  limitation  is  the  discounted  estimated
after-tax future net revenues from proved oil and gas properties. In calculating
future net  revenues,  current  prices  and costs are  generally  held  constant
indefinitely.  The net book  value,  less  related  deferred  income  taxes,  is
compared to the ceiling on a quarterly and annual  basis.  Any excess of the net
book value,  less related deferred income taxes, is generally  written off as an
expense. Under rules and regulations of the SEC, the excess above the ceiling is
not  written off if,  subsequent  to the end of the quarter or year but prior to
the release of the financial results, prices increased sufficiently such that an
excess  above the ceiling  would not have existed if the  increased  prices were
used in the calculations.

     During  the fourth  quarter of 1999,  we  recognized  a noncash  impairment
charge  of  $1,705,000  related  to  our  oil  and  gas  reserves  and  unproved
properties. The impairment of oil and gas assets was primarily the result of the
effect a decrease in year-end proved  reserves.  At March 31, 2000, our net book
value  of oil and gas,  less  related  deferred  income  taxes,  was  below  the
calculated  ceiling.  As a result, we were not required to record a reduction of
our oil and gas properties under the full cost method of accounting.

NOTE 5. LIABILITY IN FIRST PERMIAN, LLC

     At March 31, 2000, our net investment in First Permian, LLC was a liability
as a result  of  recording  our 35% share of the loss of First  Permian  for the
quarter.  We have  recorded a liability  to the extent  that we have  guaranteed
$10,000,000 of the debt of First Permian, LLC.

NOTE 6. NET INCOME PER COMMON SHARE

     In 1997,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting  Standards No. 128,  "Earnings per Share" ("FAS 128"). FAS
128 replaced the  calculation  of primary and fully  diluted  earnings per share
with basic and diluted  earnings per share.  Unlike primary  earnings per share,
basic earnings per share excludes any dilutive effects of options,  warrants and
convertible  securities and is computed by dividing  income  available to common
stockholders by the weighted average number of common shares outstanding for the
period.  Diluted  earnings  per share is computed  similarly  to the  previously
reported fully diluted earnings per share and reflects the assumed conversion of
all potentially dilutive securities.

<PAGE>
                                       9


<TABLE>

                                                              Three Months Ended March 31,
                                                              ----------------------------
                                                                  1999              2000
                                                                  ----              ----
<S>                                                               <C>                 <C>
Basic EPS Computation:
     Numerator -
          Net income (loss)                                    $  (10,283)       $  193,601
          Preferred stock dividend                               (170,538)         (170,538)
                                                               ----------        ----------
          Net income (loss) available to common stockholders   $ (180,821)       $   23,063
                                                               ==========        ==========
     Denominator -
     Weighted average common shares outstanding                 18,328,525       20,331,858
                                                               ===========       ==========
Basic earnings (loss) per share                                $    (0.010)      $   0.0011
                                                               ===========       ==========

                                                              Three Months Ended March 31,
                                                              ----------------------------
                                                                  1999              2000
                                                                  ----              ----
Diluted EPS Computation:
     Numerator -
          Net income (loss)                                    $  (10,283)       $  193,601
          Preferred stock dividends                              (170,538)         (170,538)
                                                               ----------        ----------
          Net income (loss) available to common stockholders   $ (180,821)       $   23,063
                                                               ==========        ==========
     Denominator -
     Weighted average common shares outstanding                18,328,525        20,331,858

     Employee                                                                       325,869
                                                               ----------        ----------
                                                               18,328,525        20,657,727
                                                               ==========        ==========
Diluted earnings (loss) per share                              $   (0.010)       $   0.0011
                                                               ==========        ==========
</TABLE>


     Convertible   preferred  stock   equivalents  of  974,500  shares  for  the
three-month  periods  ended  March  31,  2000 and  March  31,  1999  that  could
potentially dilute basic earnings per share in the future,  were not included in
the computation of diluted earnings per share for the periods  presented because
to do so would have been antidilutive.

NOTE 7: RECENTLY ANNOUNCED ACCOUNTING PRONOUNCEMENTS

     In June 1998,  the FASB  issued  SFAS No. 133  "Accounting  for  Derivative
Instruments and Hedging  Activities" which establishes  standards for derivative
instruments,   including  certain  derivative   instruments  embedded  in  other
contracts, and for hedging activities.  It requires that an entity recognize all
derivatives  as either  assets or  liabilities  in the  statement  of  financial
position and measure those instruments at fair value. It establishes  conditions
under which a derivative may be designated as a hedge, and establishes standards
for  reporting  changes  in the fair  value  of a  derivative.  SFAS No.  133 is
required to be implemented  for the first quarter of the fiscal year ended 2000.
Early  adoption is permitted.  Recently,  the FASB  deferred the  implementation
requirements  of SFAS No. 133 for one year. We have not evaluated the effects of
implementing SFAS No. 133.

<PAGE>
                                       10


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

     In addition to  historical  information  contained  herein,  this Form 10-Q
Report  contains  forward-looking   statements  subject  to  various  risks  and
uncertainties  that could  cause our actual  results to differ  materially  from
those  in the  forward-looking  statements.  Forward-looking  statements  can be
identified  by the use of  forward-looking  terminology  such as "may,"  "will,"
"expect,"  "intend,"  "anticipate,"  "estimate,"  "continue,"  "present  value,"
"future,"  "reserves" or other  variations  thereof or  comparable  terminology.
Factors,  that could cause or contribute to such differences could include,  but
are  not  limited  to,  those  relating  to  our  growth  strategy,  outstanding
indebtedness,  changes in  interest  rates,  dependence  on weather  conditions,
seasonality,  expansion and other activities of competitors,  changes in federal
or state environmental laws and the administration of such laws, and the general
condition  of the  economy  and its effect on the  securities  market.  While we
believe our  forward-looking  statements are based upon reasonable  assumptions,
there are  factors  that are  difficult  to predict and that are  influenced  by
economic  and other  conditions  beyond our control.  Investors  are directed to
consider  such risks and other  uncertainties  discussed in  documents  filed by
Parallel with the SEC.

     The following  discussion and analysis  should be read in conjunction  with
our Financial Statements and the related notes.

OVERVIEW

     Our business strategy is to increase oil and gas reserves, production, cash
     flow and earnings through:

     .    using 3-D  seismic  and other  advanced  technologies  to conduct  our
          exploratory  activities;
     .    investing in high-potential exploration prospects;
     .    acquiring producing properties we believe can add incremental value;
     .    exploiting  our existing  producing  properties;
     .    emphasizing cost controls; and
     .    positioning for opportunity.

     As part of this business strategy,  we have discovered oil and gas reserves
using 3-D seismic technology in the Horseshoe Atoll Reef Trend of west Texas and
the Yegua/Frio Gas Trend onshore the Gulf Coast of Texas. Additionally,  we have
acquired oil and gas  producing  properties  in the Permian Basin of west Texas.
Capital utilized to acquire such reserves has been provided primarily by secured
bank financing, sales of our equity securities and cash flow from operations.

     Investment in First  Permian.  During 1999, we joined with three  privately
held oil and gas companies to acquire oil and gas  properties  from Fina Oil and
Chemical  Company.  The acquisition was effected  through the formation of First
Permian, which entered into a cash merger with a wholly owned subsidiary of Fina
Oil and Chemical Company.  The primary assets of the acquired subsidiary are oil
and gas  reserves  and  associated  assets in  producing  fields  located in the
Permian Basin of west Texas.  After giving effect to purchase price adjustments,
First Permian paid to Fina Oil and Chemical Company cash in the aggregate amount
of approximately $92.0 million.

     First  Permian  is owned by  Parallel,  Baytech,  Inc.,  Tejon  Exploration
Company and Mansefeldt Investment Corporation and affiliates. Baytech, Tejon and
Mansefeldt are privately  held oil and gas  companies.  Parallel and Baytech are
the managers of First  Permian and each owns a 35%  membership  interest.  Tejon
Exploration and Mansefeldt  Investment and affiliates each own a 15% interest in
First  Permian.  We account for our interest in First  Permian  using the equity
method of  accounting  whereby our  investment is increased our decreased by our
proportionate share of First Permian's net income or loss.

     The purchase was financed,  in part,  with the proceeds of a $110.0 million
revolving  credit facility  provided by Bank One, Texas,  N.A. to First Permian.
The principal amount of the initial loan was $74.0 million.  In addition,  First
Permian  also  borrowed  $8.0 million  from Tejon  Exploration  Company and $8.0
million from Mansefeldt Investment Corporation to help finance the purchase.

     Operating  Performance.  Our operating performance is influenced by several
factors, the most significant of which are the prices we receive for our oil and
gas  production  volumes.  The world price for oil has overall  influence on the

<PAGE>
                                       11


prices we receive for our oil  production.  The prices  received  for  different
grades of oil are based  upon the world  price for oil,  which is then  adjusted
based  upon the  particular  grade.  Typically,  light oil is sold at a premium,
while heavy grades of crude are discounted.  Gas prices we receive are primarily
influenced  by seasonal  demand,  weather,  hurricane  conditions in the Gulf of
Mexico,  availability of pipeline  transportation  to end users and proximity of
our  wells to major  transportation  pipeline  infrastructure  and,  to a lesser
extent,   world  oil  prices.   Additional  factors  influencing  our  operating
performance  include production  expenses,  overhead  requirements,  and cost of
capital.

     Our oil and gas exploration, development and acquisition activities require
substantial and continuing capital  expenditures.  Historically,  the sources of
financing to fund our capital expenditures have included:

     .    cash flow from operations,
     .    sales of our equity securities, and
     .    bank borrowings.

     For the three  months  ended March 31,  2000,  the  average  sales price we
received for our crude oil production  averaged  $26.70 per barrel compared with
$12.18 per barrel at March 31, 1999 and $17.32 per barrel at December  31, 1999.
The  average  sales  price for natural gas during this same period was $3.02 per
mcf compared  with $2.03 per mcf at March 31, 1999 and $2.04 per mcf at December
31, 1999.

     Primarily because of sustained low oil and gas prices, which have adversely
affected the value of our proved oil and gas reserves,  our available  borrowing
capacity  under our revolving  credit  facility was reduced from  $18,815,889 to
$15,965,889  at December  31,  1999.  This means we have  borrowed all the funds
currently  available under our revolving credit  agreement.  We have reduced our
drilling  activities  during  this  period of reduced  cash flow and  restricted
capital availability.

     Our oil and gas producing  activities are accounted for using the full cost
method of  accounting.  Under this method,  we capitalize  all costs incurred in
connection  with the  acquisition of oil and gas properties and the  exploration
for and development of oil and gas reserves. See Note 4 to Financial Statements.
These  costs  include  lease  acquisition  costs,   geological  and  geophysical
expenditures,  costs of drilling both productive and  non-productive  wells, and
overhead  expenses  directly  related to land  acquisition  and  exploration and
development activities.  Proceeds from the disposition of oil and gas properties
are  accounted  for as a reduction in  capitalized  costs,  with no gain or loss
recognized  unless such disposition  involves a material change in reserves,  in
which case the gain or loss is recognized.

     Depletion of the  capitalized  costs of oil and gas  properties,  including
estimated   future   development   costs,   is  provided  using  the  equivalent
unit-of-production  method  based upon  estimates of proved oil and gas reserves
and production, which are converted to a common unit of measure based upon their
relative energy content.  Unproved oil and gas properties are not amortized, but
are individually  assessed for impairment.  The cost of any impaired property is
transferred to the balance of oil and gas properties being depleted.

     Our production and results of operations  vary from quarter to quarter.  We
do not expect our 2000 production volumes to increase  significantly compared to
our production volumes in the prior year as a result of our drilling activities.

RESULTS OF OPERATIONS

     Our  business  activities  are  characterized  by frequent,  and  sometimes
significant, changes in our:

     .    sources of production;
     .    product mix (oil vs. gas volumes); and
     .    the prices we receive for our oil and gas production.


     Year-to-year or other periodic comparisons of the results of our operations
can be difficult and may not accurately  describe our  condition.  The following
table  compares the results of operations on the basis of equivalent  barrels of
oil ("EBO") for the period indicated.  An EBO means one barrel of oil equivalent
using the ratio of six Mcf of gas to one barrel of oil.

<PAGE>
                                       12

<TABLE>


                                                           Three Months Ended                      Three Months Ended
                                                -------------------------------------------   ---------------------------
                                                 9-30-99          12-31-99         3-31-00      3-31-99          3-31-00
                                                ---------        ----------       ---------    ---------        ---------
<S>                                             <C>               <C>             <C>          <C>               <C>

Production and prices:
   Oil (Bbls)                                      31,991            41,177          39,283       44,619           39,283
   Natural gas (Mcf)                              645,301           615,766         570,504      697,593          570,504
   Equivalent barrels of oil (EBO)                139,542           143,805         134,367      160,884          134,367

   Oil price (per Bbl)                            $ 21.89           $ 23.96         $ 26.70      $ 12.18          $ 26.70
   Gas price (per Mcf)                            $  2.47           $  2.82         $  3.02      $  2.03          $  3.02
   Price per EBO                                  $ 16.42           $ 18.97         $ 20.65      $ 12.20          $ 20.65

Results of operations per EBO:
Oil and gas revenues                              $ 16.42           $ 18.97         $ 20.65      $ 12.20          $ 20.65
Costs and expenses:
   Lease operating expense                           4.29              4.80            4.57         3.19             4.57
   Provision for losses on trade receivables         0.00              0.60            0.00         0.00             0.00
   General and administrative                        1.57              1.13            1.47         1.26             1.47
   Depreciation and depletion                       10.19             13.49            7.91         5.62             7.91
   Impairment of oil and gas properties              0.00             11.86            0.00         0.00             0.00
                                                  -------           -------         -------      -------          -------
             Total costs and expense                16.05             31.88           13.95        10.07            13.95
                                                  -------           -------         -------      -------          -------
Operating income                                     0.37            (12.91)           6.70         2.13             6.70
                                                  -------           -------         -------      -------          -------
Equity in earnings (loss) of First Permian, LLC      1.30              0.12           (2.88)        0.00            (2.88)
Interest expense, net                               (2.78)            (2.50)          (2.41)       (2.22)           (2.41)
Other income, net                                    0.03              0.03            0.04         0.03             0.04
                                                  -------           -------         -------      -------          -------
                                                    (1.45)            (2.35)          (5.25)       (2.19)           (5.25)
                                                  -------           -------         -------      -------          -------
          Net income (loss)                       $ (1.08)          $(15.26)        $  1.45      $ (0.06)         $  1.45
                                                  =======           =======         =======      =======          -------
Net operating cash flow before
  working capital adjustments                     $ 9.11            $ 10.08         $ 12.24      $  5.56          $ 12.24
                                                  =======           =======         =======      =======          -------

</TABLE>

     The following table sets forth for the periods  indicated the percentage of
total  revenues  represented  by  each  item  reflected  on  our  statements  of
operations.

<TABLE>
                                                          Three Months Ended                      Three Months Ended
                                                -------------------------------------------   ---------------------------
                                                 9-30-99          12-31-99         3-31-00      3-31-99          3-31-00
                                                ---------        ----------       ---------    ---------        ---------
<S>                                             <C>               <C>             <C>          <C>               <C>


Oil and gas revenues                              100.0%             100.0%          100.0%       100.0%          100.0%
Costs and expenses:
   Lease operating expense                         26.1               25.3            22.1         26.1            22.1
   Provision for losses on trade receivables        0.0                3.2             0.0          0.0             0.0
   General and administrative                       9.5                6.0             7.1         10.3             7.1
   Depreciation and depletion                      62.0               71.1            38.3         46.0            38.3
   Impairment of oil and gas properties             0.0               62.5             0.0          0.0             0.0
                                                  -----              -----           -----        -----           -----

          Total costs and expenses                 97.6              168.1            67.5         82.4            67.5
                                                  -----              -----           -----        -----           -----
Operating income                                    2.4              (68.1)           32.5         17.6            32.5
                                                  -----              -----           -----        -----           -----

Equity in earnings (loss) of First Permian, LLC     7.9                0.6           (13.9)         0.0           (13.9)
Interest expense, net                             (16.9)             (13.2)          (11.7)       (18.2)          (11.7)
Other income, net                                   0.2                0.2             0.2          0.2             0.2
                                                  -----              -----           -----        -----           -----
                                                   (8.8)             (12.4)          (25.4)       (18.0)          (25.4)
                                                  -----              -----           -----        -----           -----
         Net income (loss)                         (6.4)             (80.5)            7.1         (0.4)            7.1
                                                  =====              =====           =====        =====           =====
</TABLE>


RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 2000:

     Oil and Gas Revenues.  Oil and gas revenues increased $811,502,  or 41%, to
$2,774,591  for the three months ended March 31, 2000,  from  $1,963,089 for the
same period of 1999.  The increase was primarily the result of a 69% increase in
the average sales price per EBO. We received  $20.65 per EBO in the three months
ended March 31, 2000  compared  with $12.20 per EBO for the same period of 1999.
Higher prices were partially offset by a 16% decrease in oil and gas production.

<PAGE>
                                       13



     Production Costs.  Production costs increased $99,993,  or 19%, to $613,815
during the first  three  months of 2000,  compared  with  $513,882  for the same
period of 1999.  Average  production  costs per EBO increased 43%, to $4.57, for
the first  three  months in 2000  compared to $3.19 for the same period in 1999,
primarily a result of increased  production taxes associated with higher oil and
gas revenues and a 16% decrease in oil and gas production.

     General and Administrative  Expenses.  General and administrative  expenses
decreased by $5,437 or 3% to $197,800  for the first three months of 2000,  from
$203,237  for the same  period of 1999.  The  decrease  was  primarily  due to a
decrease  in legal  and  public  reporting  costs.  General  and  administrative
expenses  were $1.47 per EBO in the first three months of 2000 compared to $1.26
per EBO in the first three  months of 1999.  The increase per EBO is a result of
lower  production  volumes in the first  quarter of 2000 when  compared with the
same  period of the prior year.  Future  general  and  administrative  costs are
expected to remain  fairly  stable with no  material  increases  expected in any
particular category.

     Depreciation,  Depletion and Amortization Expense. Depreciation,  depletion
and amortization  expense ("DD&A") increased by $159,633,  or 18%, to $1,063,469
for the first three months of 2000 compared with $903,836 for the same period of
1999. As a percentage of revenues,  the DD&A rate decreased by 17% when compared
with the prior year first quarter,  a result of an increase in the average sales
price per EBO we  received in the first  quarter of 2000.  The DD&A rate per EBO
increased to $7.91 for the first quarter of 2000 compared with $5.62 per EBO for
the first quarter of 1999. The increase in the DD&A rate per EBO is attributable
to lower  production  volumes in the  current  quarter,  a decrease  in year-end
proved reserves and a noncash  impairment  charge incurred in the fourth quarter
of 1999 that reduced our full cost pool.

     Historically,  we have reviewed our estimates of proven reserve  quantities
on an annual basis. However, due to the recent volatility of oil and gas prices,
we conduct  internal reviews of our estimated proven reserves on a more frequent
basis and make necessary  adjustments to our DD&A rate  accordingly.  We believe
periodic reviews and adjustments,  if necessary,  will result in a more accurate
reflection  of its DD&A rate  during  the year and  minimize  possible  year-end
adjustments.

     Net  Interest  Expense.  Interest  expense  decreased  $33,645,  or 9%,  to
$324,150 for the three months ended March 31, 2000  compared  with  $357,795 for
the same period of 1999; due principally to decreased bank borrowings.

     Net Income and Operating  Cash Flow. We reported net income of $193,601 for
the three months ended March 31, 2000  compared to a net loss of $10,283 for the
three months ended March 31, 1999.  Operating cash flow increased  $750,028,  or
84%,  to  $1,643,581  for the three  months  ended  March 31,  2000  compared to
$893,553 for the three  months ended March 31, 1999.  The increase in net income
and operating cash flow resulted from a 41% increase in oil and gas revenues,  a
69%  increase in the  average  sales price per EBO and a 9% decrease in interest
expense.  These  factors were  partially  offset by a 19% increase in production
costs,  an 18%  increase in DD&A  expenses,  and a 16%  decrease  in  production
volumes.  In addition,  we recorded a loss of $386,511  associated  with our 35%
interest  in First  Permian.  This is a non  cash  charge  and  does not  affect
operating cash flows.

LIQUIDITY AND CAPITAL RESOURCES

     Our capital  resources consist primarily of cash flows from our oil and gas
properties and bank borrowings supported by our oil and gas reserves.  Our level
of earnings and cash flows depends on many  factors,  including the price of oil
and natural gas.

     Working  capital  decreased  $640,035  as of March  31,  2000  compared  to
December 31, 1999.  Current  liabilities  exceeded current assets by $458,982 at
March 31, 2000 compared with $71,647 at December 31, 1999.  Current  liabilities
increased  primarily  due to an  increase  in  accounts  payable and a liability
associated with recording our 35% share of the loss of First Permian.

     We incurred  property  costs of  $1,015,315,  primarily for our oil and gas
property  acquisition,  development,  and  enhancement  activities for the three
months ended March 31, 2000.  Such costs were financed by the utilization of the
cash provided by operations and proceeds from the sale of certain properties.

<PAGE>
                                       14


     Based on our  projected  oil and gas  revenues  and  related  expenses,  we
believe  that our  internally  generated  cash flow will be  sufficient  to fund
normal  operations,  interest expense and principal  reduction  payments on bank
debt  and  preferred  stock  dividends.   We  continually  review  and  consider
alternative methods of financing.

TRENDS AND PRICES

     Changes in oil and gas prices significantly affect our revenues, cash flows
and borrowing capacity. Markets for oil and gas have historically been, and will
continue to be, volatile. Prices for oil and gas typically fluctuate in response
to relatively minor changes in supply and demand, market uncertainty,  seasonal,
political  and other  factors  beyond our control.  We are unable to  accurately
predict  domestic  or  worldwide  political  events or the effects of other such
factors on the prices we receive for our oil and gas. Historically,  we have not
entered into transactions to hedge against changes in oil and gas prices, but we
may elect to enter into hedging  transactions  in the future to protect  against
fluctuations in oil and gas prices.

     Because of the prolonged deterioration in oil and gas prices experienced in
1998 and the first half of 1999, the capital  normally  available to us from our
cash flows and bank borrowings has been significantly  reduced. In January 1998,
we were  receiving  approximately  $17.00 per barrel of oil and $2.70 per Mcf of
gas for the oil and gas it produced.  Since then, oil prices have been as low as
$10.00 per barrel,  the lowest  level we have seen since  Parallel was formed in
1979. At January 1, 1999, we received approximately $10.50 per barrel of oil and
$2.00 per Mcf of gas.  In April  1999,  oil prices  increased  to  approximately
$16.00 per barrel of oil, while gas prices have remained at approximately  $2.00
per Mcf.  There can be no assurance  that oil and gas prices will not decline in
the future.

     Our capital  expenditure  budget for 2000 is highly dependent on future oil
and gas prices and will be consistent with internally generated cash flows.

     During  1999,  the  average  sales  price  we  received  for  our  oil  was
approximately  $17.32 per barrel while the average  sales prices we received for
natural gas was  approximately  $2.27 per thousand cubic feet ("Mcf").  At March
31, 2000, the average price we received for our oil production was approximately
$26.70  per Bbl,  while the  average  price  received  at that same date for our
natural gas production was approximately $3.02 per Mcf.

YEAR 2000 ISSUES

     We have not incurred any computer  failures or problems related to the Year
2000  issue.  However,  we have no  assurance  that  our  business  partners  or
governmental  agencies or other key third  parties have not  incurred  Year 2000
issues that may  ultimately  affect us. We are continuing to monitor our systems
to identify and rectify any Year 2000 issues that may occur in the future.

FORWARD-LOOKING STATEMENTS

     In addition to  historical  information  contained  herein,  this Form 10-Q
Report  contains  forward-looking   statements  subject  to  various  risks  and
uncertainties that could cause the Company's actual results to differ materially
from those in the forward-looking statements.  Forward-looking statements can be
identified  by the use of  forward-looking  terminology  such as "may,"  "will,"
"expect,"  "intend,"  "anticipate,"  "estimate,"  "continue,"  "present  value,"
"future,"  "reserves" or other  variations  thereof or  comparable  terminology.
Factors,  that could cause or contribute to such differences could include,  but
are not limited to, those relating to the Company's growth strategy, outstanding
indebtedness,  changes in  interest  rates,  dependence  on weather  conditions,
seasonality,  expansion and other activities of competitors,  changes in federal
or state environmental laws and the administration of such laws, and the general
condition  of the economy  and its effect on the  securities  market.  While the
Company  believes  its  forward-looking  statements  are based  upon  reasonable
assumptions,  there are  factors  that are  difficult  to  predict  and that are
influenced  by  economic  and other  conditions  beyond the  Company's  control.
Investors are directed to consider such risks and other uncertainties  discussed
in documents filed by the Company with the Securities and Exchange Commission.

<PAGE>
                                       15


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     We do not trade in derivative financial  instruments and do not have firmly
committed sales transactions.  We have not entered into hedging arrangements and
do not have any delivery commitments. While hedging arrangements reduce exposure
to losses as a result of unfavorable price changes,  they also limit our ability
to benefit from favorable market price changes.

     Our major market risk exposure is in the pricing  applicable to our oil and
natural gas production.  Realized  pricing is primarily driven by the prevailing
domestic  price for crude oil and spot prices  applicable to the region in which
we produce natural gas. Historically, prices received for oil and gas production
have  been  volatile  and  unpredictable.  Pricing  volatility  is  expected  to
continue. Oil prices ranged from a monthly low of $24.90 per barrel to a monthly
high of $28.90 per barrel during first  quarter 2000.  The natural gas prices we
received during first quarter 2000 ranged from a monthly low of $1.75 per Mcf to
a monthly high of $3.80 per Mcf. A significant  decline in the prices of oil and
natural gas could have a material adverse effect on our financial  condition and
results of operations.

     Our only  financial  instrument  sensitive to changes in interest  rates is
bank debt. Our annual  interest costs in 2000 will fluctuate based on short-term
interest  rates.  As the interest rate is variable and reflects  current  market
conditions,  the carrying  value  approximates  the fair value.  The table below
shows  principal  cash flows and  related  weighted  average  interest  rates by
expected  maturity dates.  Weighted average interest rates were determined using
weighted average interest paid and accrued in December 1999.

<TABLE>

                                               March    July
                                               2001     2001    Total  Fair Value
                                               -----    ----    -----  ----------
                                               (in 000's, except interest rates)
<S>                                            <C>      <C>      <C>    <C>
Variable rate debt:
     Revolving Facility (secured)              $3,666  $11,400  $15,066  $15,066
         Average interest rate                   9.0%     9.0%     9.0%
</TABLE>


                          PART II - OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

        (a)  Exhibits

          3.1  Certificate  of  Incorporation  of Registrant.  (Incorporated  by
               reference to Exhibit 3.1 to Form 10-K of the  Registrant  for the
               fiscal year ended December 31, 1998)

          3.2  Bylaws of Registrant (Incorporated by reference to Exhibit 3.2 to
               Form 10-K of the  Registrant  for the fiscal year ended  December
               31, 1995)

          4.1  Certificate  of  Designations,  Preferences  and Rights of Serial
               Preferred Stock - 6% Convertible Preferred Stock (Incorporated by
               reference to Exhibit 4.1 to Form 10-Q of the  Registrant  for the
               fiscal quarter ended September 30, 1998)

          10.1 Restated Loan  Agreement,  dated  December 27, 1999,  between the
               Registrant and Bank One, Texas,  N.A.  (Incorporated by reference
               to  Exhibit  10.8 to Form 10-K of the  Registrant  for the fiscal
               year ended December 31, 1999)

          *27. Financial Data Schedule



        (b)  Reports on Form 8-K

             No reports were filed on Form 8-K during the quarter  ended March
             31, 2000.

-----------------------
* Filed herewith.

<PAGE>
                                       16



                                   SIGNATURES


     Pursuant to the  requirements  of the  Securities and Exchange Act of 1934,
the  registrant  has duly  caused  this report to be signed on its behalf by the
undersigned, thereunto duly authorized.



                                              PARALLEL PETROLEUM CORPORATION

                                              BY: /s/ THOMAS R. CAMBRIDGE
Date: May 10, 2000                            ----------------------------------
                                              Thomas R. Cambridge
                                              Chairman of the Board of Directors
                                              and Chief Executive Officer

Date: May 10, 2000                            BY: /s/ LARRY C. OLDHAM
                                              ----------------------------------
                                              Larry C. Oldham,
                                              President and Principal
                                              Financial Officer