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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q/A
 (Amendment No. 2 to Form 10-Q filed May 10, 2005)
 (Mark One)
 þ
    
    Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended March 31, 2005 or
 o
    
    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
  DELAWARE
    
    75-1971716(State of other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer Identification No.)1004 N. Big Spring, Suite 400,
Midland, Texas
    
    79701(Address of principal executive offices)
    
    (Zip Code)
  (Registrants telephone number, including area code)
  (Former name, former address and former fiscal year,
   þ o
  o þ o
 o þ




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Accounting for Derivative Instruments and Hedging Activities ITEM 1. Notes to Consolidated Financial Statements ITEM 2. MANAGEMENTS DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ITEM 4. CONTROLS AND PROCEDURES.
  (i)




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(ii)




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Page No.ITEM 1.
    
    FINANCIAL STATEMENTSReference is made to the succeeding pages for the following
consolidated financial statements:
    
    Consolidated Balance Sheets as of March 31, 2005 (unaudited) and December 31, 2004
    
    
    1
    
    Unaudited Consolidated Statements of Operations for the three months ended March 31, 2005 and 2004
    
    
    2
    
    Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 2005 and 2004
    
    
    3
    
    Unaudited Consolidated Statements of Comprehensive Income (Loss) for the three months and ended March 31, 2005 and 2004
    
    
    4
    
    Notes to Consolidated Financial Statements
    
    
    5ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    18ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    36ITEM 4.
    
    CONTROLS AND PROCEDURES
    
    
    39PART II.  OTHER INFORMATIONITEM 1.
    
    LEGAL PROCEEDINGS
    
    
    40ITEM 6.
    
    EXHIBITS
    
    
    40SIGNATURESCertification of Principal Executive Officer Pursuant to Section 302Certification of Principal Financial Officer Pursuant to Section 302Certification of Chief Executive Officer Pursuant to Section 906Certification of Chief Financial Officer Pursuant to Section 906
 (iii)




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PARALLEL PETROLEUM CORPORATION
 
 Consolidated Balance Sheets
 (dollars in thousands)
 March 31,
    
    
    December 31,2005
    
    
    2004(unaudited)(restated)
    
    
    (restated)AssetsCurrent assets:Cash and cash equivalents
    
    $
    3,152
    
    
    $
    4,781Accounts receivable:Oil and gas
    
    
    6,747
    
    
    
    6,642Other, net of allowance for doubtful account of $9
    
    
    790
    
    
    
    389Affiliates
    
    
    5
    
    
    
    77,542
    
    
    
    7,038Other current assets
    
    
    264
    
    
    
    179Deferred tax asset
    
    
    4,941
    
    
    
    2,531Total current assets
    
    
    15,899
    
    
    
    14,529Property and equipment, at cost:Oil and gas properties, full cost method (including $11,047 and $9,526 not
subject to depletion)
    
    
    235,256
    
    
    
    229,245Other
    
    
    2,445
    
    
    
    2,062237,701
    
    
    
    231,307Less accumulated depreciation, depletion and amortization
    
    
    (81,064
    )
    
    
    (78,782
    )Net property and equipment
    
    
    156,637
    
    
    
    152,525Restricted cash
    
    
    
    
    
    
    2,287Investment in Westfork Pipeline Company LP
    
    
    761
    
    
    
    595Other assets, net of accumulated amortization of $662 and $581
    
    
    829
    
    
    
    735$
    174,126
    
    
    $
    170,671Liabilities and Stockholders EquityCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    5,988
    
    
    $
    5,568Asset retirement obligations
    
    
    135
    
    
    
    150Derivative obligations
    
    
    15,987
    
    
    
    7,965Total current liabilities
    
    
    22,110
    
    
    
    13,683Revolving credit facility
    
    
    50,000
    
    
    
    79,000Asset retirement obligations
    
    
    1,977
    
    
    
    1,982Derivative obligations
    
    
    24,249
    
    
    
    9,525Deferred tax liability
    
    
    1,764
    
    
    
    6,487Total long-term liabilities
    
    
    77,990
    
    
    
    96,994Commitments and contingenciesStockholders equity:Series A preferred stock  par value $0.10 per share, authorized 50,000 shares
    
    
    
    
    
    
    Preferred stock  6% convertible preferred stock  par value of $0.10 per share
(liquidation preference of $10 per share), authorized 10,000,000 shares,
issued and outstanding 950,000
    
    
    95
    
    
    
    95Common stock  par value $0.01 per share, authorized 60,000,000 shares,
issued and outstanding 31,189,292 and 25,439,292
    
    
    312
    
    
    
    254Additional paid-in capital
    
    
    76,306
    
    
    
    48,328Retained earnings
    
    
    7,912
    
    
    
    18,759Accumulated other comprehensive loss
    
    
    (10,599
    )
    
    
    (7,442
    )Total stockholders equity
    
    
    74,026
    
    
    
    59,994$
    174,126
    
    
    $
    170,671
  (1)




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PARALLEL PETROLEUM CORPORATION
 
 Consolidated Statements of Operations
 For three months ended March 31, 2005 and 2004
 (unaudited)
 (dollars in thousands, except per share data)
 2005
    
    
    2004(restated)Oil and natural gas revenues:Oil and natural gas sales
    
    $
    12,969
    
    
    $
    9,106Loss on hedging and derivatives
    
    
    (2,555
    )
    
    
    (1,105
    )Total revenues
    
    
    10,414
    
    
    
    8,001Cost and expenses:Lease operating expense
    
    
    2,558
    
    
    
    1,529Production taxes
    
    
    580
    
    
    
    478General and administrative
    
    
    1,628
    
    
    
    1,222Depreciation, depletion and amortization
    
    
    2,282
    
    
    
    2,077Total costs and expenses
    
    
    7,048
    
    
    
    5,306Operating income
    
    
    3,366
    
    
    
    2,695Other income (expense), net:Change in fair market value of derivative instruments
    
    
    (17,633
    )
    
    
    Loss on ineffective portion of hedges
    
    
    (710
    )
    
    
    (10
    )Interest and other income
    
    
    19
    
    
    
    140Interest expense
    
    
    (1,173
    )
    
    
    (468
    )Other expense
    
    
    (1
    )
    
    
    (26
    )Equity in loss of W estfork Pipeline Company LP
    
    
    (79
    )
    
    
    Total other expense, net
    
    
    (19,577
    )
    
    
    (364
    )Income (loss) before income taxes
    
    
    (16,211
    )
    
    
    2,331Income tax benefit (expense), deferred
    
    
    5,507
    
    
    
    (849
    )Net income (loss)
    
    
    (10,704
    )
    
    
    1,482Cumulative preferred stock dividend
    
    
    (143
    )
    
    
    (143
    )Net income (loss) available to common stockholders
    
    $
    (10,847
    )
    
    $
    1,339Net income (loss) per common share:Basic
    
    $
    (0.38
    )
    
    $
    0.05Diluted
    
    $
    (0.38
    )
    
    $
    0.05Weighted average common share outstanding:Basic
    
    
    28,698
    
    
    
    25,223Diluted
    
    
    28,698
    
    
    
    28,267
  (2)




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PARALLEL PETROLEUM CORPORATION
 
 Consolidated Statements of Cash Flows
 Three Months Ended March 31, 2005 and 2004
 (unaudited)
 (dollars in thousands)
 2005
    
    
    2004(restated)Cash flows from operating activities:Net income (loss)
    
    $
    (10,704
    )
    
    $
    1,482Adjustments to reconcile net income (loss) to net cash
provided by operating activities:Depreciation, depletion and amortization
    
    
    2,282
    
    
    
    2,077Accretion of asset retirement obligation
    
    
    26
    
    
    
    33Deferred income tax
    
    
    (5,507
    )
    
    
    849Change in fair value of derivative instruments
    
    
    17,633
    
    
    
    Loss on ineffective portion of hedges
    
    
    710
    
    
    
    10Stock option expense
    
    
    42
    
    
    
    41Equity loss in Westfork Pipeline Company LP
    
    
    79
    
    
    
    Changes in assets and liabilities:Other assets, net
    
    
    48
    
    
    
    (67
    )Increase in accounts receivable
    
    
    (504
    )
    
    
    (144
    )Decrease (increase) in other current assets
    
    
    75
    
    
    
    (11
    )Increase (decrease) in accounts payable and accrued liabilities
    
    
    277
    
    
    
    (298
    )Net cash provided by operating activities
    
    
    4,457
    
    
    
    3,972Cash flows from investing activities:Additions to oil and gas property
    
    
    (8,596
    )
    
    
    (7,626
    )Use of restricted cash for acquisition of oil and gas properties
    
    
    2,287
    
    
    
    Proceeds from disposition of oil and gas properties
    
    
    2,539
    
    
    
    25Additions to other property and equipment
    
    
    (383
    )
    
    
    (360
    )Settlements on derivatives
    
    
    (682
    )
    
    
    Investment in Westfork Pipeline Company LP
    
    
    (245
    )
    
    
    Net cash used in investing activities
    
    
    (5,080
    )
    
    
    (7,961
    )Cash flows from financing activities:Net borrowing (payments) on revolving line of credit
    
    
    (29,000
    )
    
    
    (9,750
    )Proceeds (net) from common stock issued
    
    
    27,994
    
    
    
    Deferred stock offering costs
    
    
    
    
    
    
    (7
    )Net cash used in financing activities
    
    
    (1,006
    )
    
    
    (9,757
    )Net decrease in cash and cash equivalents
    
    
    (1,629
    )
    
    
    (13,746
    )Cash and cash equivalents at beginning of period
    
    
    4,781
    
    
    
    17,378Cash and cash equivalents at end of period
    
    $
    3,152
    
    
    $
    3,632Non-cash financing and investing activities:Oil and gas properties asset retirement obligation
    
    $
    (46
    )
    
    $
    130Accrued preferred stock dividend
    
    $
    143
    
    
    $
    143
  (3)




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PARALLEL PETROLEUM CORPORATION
 
 Consolidated Statements of Comprehensive Income (Loss)
 Three Months Ended March 31, 2005 and 2004
 (unaudited)
 (dollars in thousands)
 2005
    
    
    2004(restated)Net income (loss)
    
    $
    (10,704
    )
    
    $
    1,482Other comprehensive loss:Unrealized losses on derivatives
    
    
    (7,413
    )
    
    
    (4,353
    )Reclassification adjustments for losses
on derivatives included in net income (loss)
    
    
    2,630
    
    
    
    1,219Change in fair value of derivatives
    
    
    (4,783
    )
    
    
    (3,134
    )Income tax benefit
    
    
    1,626
    
    
    
    1,072Total other comprehensive loss
    
    
    (3,157
    )
    
    
    (2,062
    )Total comprehensive loss
    
    $
    (13,861
    )
    
    $
    (580
    )
  (4)




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PARALLEL PETROLEUM CORPORATION
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1. DESCRIPTION OF BUSINESS  NATURE OF OPERATIONS AND BASIS OF PRESENTATION
      NOTE
2. STOCKHOLDERS EQUITY
 Options
 Accounting for Stock-Based Compensation  Transition and Disclosure,
 (5)




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Three Months EndedMarch 31,2005
    
    
    2004(dollars in thousands exceptper share data)(restated)Net income (loss), as reported
    
    $
    (10,704
    )
    
    $
    1,482Add:Expense recorded in 2005 and 2004
    
    
    42
    
    
    
    42Deduct:Total stock-based employee compensation expense
determined under fair value based method for all awards,
net of related tax effects
    
    
    (48
    )
    
    
    (48
    )Pro forma net income (loss)
    
    $
    (10,710
    )
    
    $
    1,476Earnings (loss) per share:Basic  as reported
    
    $
    (0.38
    )
    
    $
    0.05Basic  pro forma
    
    $
    (0.38
    )
    
    $
    0.05Diluted  as reported
    
    $
    (0.38
    )
    
    $
    0.05Diluted  pro forma
    
    $
    (0.38
    )
    
    $
    0.05
 Sale of Equity Securities
  (6)




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NOTE 3. REVOLVING CREDIT FACILITY
        (7)




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
    
    at the end of each quarter, a current ratio (as defined in the credit agreement) of
at least 1.1 to 1.0;
    
    for each period (as calculated in the Credit Agreement) ending on December 31, March
31, June 30 and September 30, a funded debt ratio (as defined in the Credit
Agreement) of not more than 3.70, 3.60 and 3.50, respectively, for December 31, 2005,
2006 and 2007; and
    
    at all times, adjusted consolidated net worth (as defined in the Credit Agreement)
of at least (a) $50.0 million, plus (b) seventy-five percent (75%) of the net proceeds
from any equity securities issued by Parallel, plus (c) fifty percent (50%) of
consolidated net income for each fiscal quarter, if positive, and zero percent (0%) if
negative.
    (8)




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
    
    interpretation and processing of 3-D seismic survey data;
    
    lease acquisitions and drilling activities;
    
    acquisitions of producing properties or companies owning producing properties; and,
    
    general corporate purposes.
 NOTE 4. ACQUISITIONS
    Three Months EndedMarch 31,Pro Forma2005
    
    2004(in thousands, except per share data)(restated)Oil and gas revenue, net of hedge losses
    
    $
    10,414
    
    
    $
    9,963Operating income
    
    $
    3,366
    
    
    $
    3,157Net income (loss) available to common stockholders
    
    $
    (10,847
    )
    
    $
    1,351Net income
(loss) per common share:Basic
    
    $
    (0.38
    )
    
    $
    0.05Diluted
    
    $
    (0.38
    )
    
    $
    0.05
 (9)




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NOTE 5. PREFERRED STOCK
   NOTE 6. FULL COST CEILING TEST
    (10)




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NOTE 7. DERIVATIVE INSTRUMENTS
 General
      Interest Rate Sensitivity
  (11)




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Notional
    
    
    
    
    
    
    FairPeriod of Time
    
    Amounts
    
    
    Fixed Interest Rates

    
    Market Value($ in millions)
    
    
    
    
    
    
    ($ in thousands)April 1, 2005 thru December 31, 2005(1)
    
    $
    20
    
    
    
    4.05
    %
    
    $
    (57
    )April 1, 2005 thru December 31, 2005
    
    $
    30
    
    
    
    2.89
    %
    
    
    171January 1, 2006 thru December 31, 2006(1)
    
    $
    10
    
    
    
    4.05
    %
    
    
    14January 1, 2006 thru December 31, 2006
    
    $
    40
    
    
    
    3.76
    %
    
    
    170January 1, 2007 thru December 31, 2007
    
    $
    50
    
    
    
    4.30
    %
    
    
    63January 1, 2008 thru December 31, 2008
    
    $
    50
    
    
    
    4.74
    %
    
    
    (59
    )Total Fair Market Value
    
    
    
    
    
    
    
    
    
    $
    302
 
 (1)
    
    Designated as cash flow hedge. Commodity Price Sensitivity
  Put Options.
 Collars.
 (12)




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HoustonNyMex
    
    
    
    
    
    
    Ship ChannelBarrels
    
    
    Oil Prices
    
    
    MMBtu of
    
    
    Gas Prices
    
    
    FairPeriod of Time
    
    of Oil
    
    
    Floor
    
    
    Cap
    
    
    Natural Gas
    
    
    Floor
    
    
    Cap
    
    
    Market Value($ in thousands)April 1, 2005 thru October 31, 2005
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    428,000
    
    
    $
    5.00
    
    
    $
    7.26
    
    
    $
    (158
    )April 1, 2005 thru December 31, 2005
    
    
    55,000
    
    
    $
    36.00
    
    
    $
    49.60
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    (383
    )January 1, 2006 thru December 31, 2006
    
    
    70,800
    
    
    $
    35.00
    
    
    $
    44.00
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    (742
    )Total Fair Market Value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (1,283
    )
 Commodity Swaps.
  Nymex Oil
    
    
    FairPeriod of Time
    
    Barrels of Oil
    
    
    Swap Price
    
    
    Market Value($ in thousands)April 1, 2005 thru December 31, 2005(1)
    
    
    275,000
    
    
    $
    23.33
    
    
    $
    (9,058
    )April 1, 2005 thru December 31, 2005
    
    
    192,500
    
    
    $
    39.96
    
    
    
    (3,176
    )January 1, 2006 thru December 20, 2006(1)
    
    
    265,500
    
    
    $
    23.04
    
    
    
    (8,157
    )January 1, 2006 thru December 20, 2006
    
    
    182,500
    
    
    $
    36.36
    
    
    
    (3,255
    )January 1, 2007 thru December 31, 2007
    
    
    474,500
    
    
    $
    34.36
    
    
    
    (8,161
    )January 1, 2008 thru December 31, 2008
    
    
    439,200
    
    
    $
    33.37
    
    
    
    (7,146
    )Total fair market value
    
    
    
    
    
    
    
    
    
    $
    (38,953
    )
 
 (1)
    
    Designated as cash flow hedge. (13)




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NOTE 8. NET INCOME (LOSS) PER COMMON SHARE
   Three Months EndedMarch 31,2005
    
    
    2004(in thousands except per share data)(restated)Basic EPS Computation:Numerator-Income (loss)
    
    $
    (10,704
    )
    
    $
    1,482Preferred stock dividend
    
    
    (143
    )
    
    
    (143
    )Income (loss) available to common stockholders
    
    $
    (10,847
    )
    
    $
    1,339Denominator-Weighted average common shares outstanding
    
    
    28,698
    
    
    
    25,223Basic EPS:Income (loss) per share
    
    $
    (0.38
    )
    
    $
    0.05Diluted EPS Computation:Numerator-Income (loss)
    
    $
    (10,704
    )
    
    $
    1,482Preferred stock dividend
    
    
    (143
    )
    
    
    Income (loss) available to common stockholders
    
    $
    (10,847
    )
    
    $
    1,482Denominator -Weighted average common shares outstanding
    
    
    28,698
    
    
    
    25,223Employee stock options
    
    
    
    
    
    
    258Warrants
    
    
    
    
    
    
    52Preferred stock
    
    
    
    
    
    
    2,734Weighted average common shares for diluted earnings
per share assuming conversion
    
    
    28,698
    
    
    
    28,267Diluted EPS:Income (loss) per share
    
    $
    (0.38
    )
    
    $
    0.05
  (14)




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NOTE 9. ASSET RETIREMENT OBLIGATIONS
   Three Months Ended March 31,2005
    
    
    2004(dollars in thousands)Beginning asset retirement obligation
    
    $
    2,132
    
    
    $
    1,701Additions related to new properties
    
    
    17
    
    
    
    172Deletions related to property disposals
    
    
    (63
    )
    
    
    (42
    )Accretion expense
    
    
    26
    
    
    
    33Ending asset retirement obligation
    
    $
    2,112
    
    
    $
    1,864
 NOTE 10. RECENTLY ANNOUNCED ACCOUNTING PRONOUNCEMENTS
 Statement of
Financial Accounting Standards No. 123 (revised 2004) Share-Based Payment
 NOTE 11. COMMITMENTS AND CONTINGENCIES
   (15)




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NOTE 12. RESTATEMENT
   Effects of the Restatement
  As of March 31, 2005
    
    As of December 31, 2004As previously
    
    
    
    
    
    As previouslyreported
    
    As restated
    
    reported
    
    As restated(in thousands)(unaudited)Condensed Consolidated Balance Sheet data:Other current assets
    
    $
    104
    
    
    $
    264
    
    
    $
    179
    
    
    $
    179Total current assets
    
    
    15,739
    
    
    
    15,899
    
    
    
    14,529
    
    
    
    14,529Other assets, net of accumulated
amortization of $662
and $581
    
    
    687
    
    
    
    829
    
    
    
    735
    
    
    
    735Total assets
    
    
    173,824
    
    
    
    174,126
    
    
    
    170,671
    
    
    
    170,671Derivative obligation  current
    
    
    15,827
    
    
    
    15,987
    
    
    
    7,965
    
    
    
    7,965Total current liabilities
    
    
    21,950
    
    
    
    22,110
    
    
    
    13,683
    
    
    
    13,683Derivative obligation  long term
    
    
    24,107
    
    
    
    24,249
    
    
    
    9,525
    
    
    
    9,525Total long-term
liabilities
    
    
    77,848
    
    
    
    77,990
    
    
    
    96,994
    
    
    
    96,994Retained earnings
    
    
    21,523
    
    
    
    7,912
    
    
    
    22,073
    
    
    
    18,759Accumulated other comprehensive loss
    
    
    (24,067
    )
    
    
    (10,599
    )
    
    
    (10,756
    )
    
    
    (7,442
    )Total liabilities and stockholders equity
    
    
    173,824
    
    
    
    174,126
    
    
    
    170,671
    
    
    
    170,671
 (16)




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##### Table of Contents



Three Months EndedMarch 31, 2005As previouslyreported
    
    
    As restated(in thousands)(unaudited)Consolidated Statement of Operations data:Loss on hedging and derivatives
    
    $
    (3,212
    )
    
    $
    (2,555
    )Total revenues
    
    
    9,757
    
    
    
    10,414Operating income
    
    
    2,649
    
    
    
    3,366Change in fair market value of derivatives
    
    
    
    
    
    
    (17,633
    )Loss on ineffective portion of hedges
    
    
    (2,276
    )
    
    
    (710
    )Interest expense
    
    
    (1,138
    )
    
    
    (1,173
    )Total other expense, net
    
    
    (3,475
    )
    
    
    (19,577
    )Net loss before income taxes
    
    
    (826
    )
    
    
    (16,211
    )Income tax benefit, deferred
    
    
    276
    
    
    
    5,507Net loss
    
    
    (550
    )
    
    
    (10,704
    )Net loss available to common stockholders
    
    
    (693
    )
    
    
    (10,847
    )Net loss per common share:Basic
    
    $
    (0.02
    )
    
    $
    (0.38
    )Diluted
    
    $
    (0.02
    )
    
    $
    (0.38
    )
  Three Months EndedMarch 31, 2005As previouslyreported
    
    As restated(in thousands)(unaudited)Condensed Consolidated Statement of Cash Flows data:Net loss
    
    $
    (550
    )
    
    $
    (10,704
    )Deferred income tax
    
    
    (276
    )
    
    
    (5,507
    )Change in fair value of derivative instruments
    
    
    
    
    
    
    17,633Loss on ineffective portion of hedges
    
    
    2,276
    
    
    
    710Other assets, net
    
    
    48
    
    
    
    48Decrease in other current assets
    
    
    75
    
    
    
    75Net cash provided by operating activities
    
    
    3,775
    
    
    
    4,457Settlements on derivatives
    
    
    
    
    
    
    (682
    )Net cash used in investing activities
    
    
    (4,398
    )
    
    
    (5,080
    )
 (17)




---



##### Table of Contents



Three Months EndedMarch 31, 2005As previouslyreported
    
    
    As restated(in thousands)(unaudited)Net loss
    
    $
    (550
    )
    
    $
    (10,704
    )Other comprehensive loss:Unrealized losses on derivatives
    
    
    (23,480
    )
    
    
    (7,413
    )Reclassification adjustments for losses
on derivatives included in net loss
    
    
    3,312
    
    
    
    2,630Change in fair value of derivatives
    
    
    (20,168
    )
    
    
    (4,783
    )Income tax benefit
    
    
    6,857
    
    
    
    1,626Total other comprehensive loss
    
    
    (13,311
    )
    
    
    (3,157
    )Total comprehensive loss
    
    $
    (13,861
    )
    
    $
    (13,861
    )
  
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
  OVERVIEW
 Strategy
  (18)




---



##### Table of Contents




    
    focuses on projects having less geological risk;
    
    emphasizes exploitation and enhancement activities;
    
    focuses on acquiring producing properties; and
    
    expands the scope of operations by diversifying our exploratory and development
efforts, both in and outside of our current areas of operation.
   
    
    the prices we receive for the oil and natural gas we produce;
    
    the results of reprocessing and reinterpreting our 3-D seismic data;
    
    the results of our drilling activities;
    
    the costs of obtaining high quality field services;
    
    our ability to find and consummate acquisition opportunities; and
    
    our ability to negotiate and enter into work to earn arrangements, joint venture or
other similar agreements on terms acceptable to us.
  (19)




---



##### Table of Contents



Operating Performance
  
    
    seasonal demand;
    
    weather;
    
    hurricane conditions in the Gulf of Mexico;
    
    availability of pipeline transportation to end users;
    
    proximity of our wells to major transportation pipeline infrastructures; and
    
    to a lesser extent, world oil prices.
  
    
    production expenses;
    
    overhead requirements; and
    
    costs of capital.
  
    
    cash flow from operations;
    
    sales of our equity securities;
    
    bank borrowings; and
    
    industry joint ventures.
  (20)




---



##### Table of Contents



Results of Operations
  
    
    reserve base;
    
    sources of production;
    
    product mix (gas versus oil volumes); and
    
    the prices we receive for our oil and gas production.
 (21)




---



##### Table of Contents



Three Months Ended3/31/2005
    
    
    12/31/2004
    
    
    3/31/2004(in thousands, except per unit data)Production Volumes:Oil (Bbls)
    
    
    207
    
    
    
    234
    
    
    
    161Natural gas (Mcf)
    
    
    602
    
    
    
    695
    
    
    
    732BOE(1)
    
    
    307
    
    
    
    349
    
    
    
    283BOE per day
    
    
    3.4
    
    
    
    3.8
    
    
    
    3.1Sales Prices:Oil (per Bbl)(2)
    
    $
    45.29
    
    
    $
    44.07
    
    
    $
    32.93Natural gas (per Mcf)(2)
    
    $
    6.00
    
    
    $
    6.99
    
    
    $
    5.21BOE price(2)
    
    $
    42.25
    
    
    $
    43.36
    
    
    $
    32.21BOE price(3)
    
    $
    33.93
    
    
    $
    34.90
    
    
    $
    28.30Operating Revenues:Oil
    
    $
    9,359
    
    
    $
    10,271
    
    
    $
    5,290Oil hedge
    
    
    (2,354
    )
    
    
    (2,654
    )
    
    
    (1,124
    )Natural gas
    
    
    3,610
    
    
    
    4,853
    
    
    
    3,816Natural gas hedge
    
    
    (201
    )
    
    
    (296
    )
    
    
    19$
    10,414
    
    
    $
    12,174
    
    
    $
    8,001Operating Expenses:Lease operating expense
    
    $
    2,558
    
    
    $
    1,936
    
    
    $
    1,529Production taxes
    
    
    580
    
    
    
    701
    
    
    
    478General and administrative:General and administrative
    
    
    969
    
    
    
    743
    
    
    
    734Public reporting
    
    
    659
    
    
    
    754
    
    
    
    488Depreciation, depletion and amortization
    
    
    2,282
    
    
    
    2,682
    
    
    
    2,077$
    7,048
    
    
    $
    6,816
    
    
    $
    5,306Operating income
    
    $
    3,366
    
    
    $
    5,358
    
    
    $
    2,695
 
 (1)
    
    A BOE means one barrel of oil equivalent using the ratio of six Mcf of gas
to one barrel of oil.(2)
    
    Excludes hedge transactions.(3)
    
    Includes hedge transactions. (22)




---



##### Table of Contents



RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2005 (AS RESTATED) AND 2004:
  Oil and Gas Revenues
 Revenues(1)
    
    
    Production2005
    
    
    2004
    
    
    2005
    
    
    2004Oil (Bbls)
    
    
    67
    %
    
    
    52
    %
    
    
    67
    %
    
    
    57
    %Natural gas (Mcf)
    
    
    33
    %
    
    
    48
    %
    
    
    33
    %
    
    
    43
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 
 (1)
    
    Includes hedge transactions  Three Months Ended March 31,
    
    
    Increase
    
    
    % Increase2005
    
    
    2004
    
    
    (Decrease)
    
    
    (Decrease)(in thousands except per unit data)Production VolumesOil (Bbls)
    
    
    207
    
    
    
    161
    
    
    
    46
    
    
    
    29
    %Natural gas (Mcf)
    
    
    602
    
    
    
    732
    
    
    
    (130
    )
    
    
    (18
    )%BOE
    
    
    307
    
    
    
    283
    
    
    
    24
    
    
    
    8
    %Sales PriceOil (per Bbl)(1)
    
    $
    45.29
    
    
    $
    32.93
    
    
    $
    12.36
    
    
    
    38
    %Natural gas (per Mcf)(1)
    
    $
    6.00
    
    
    $
    5.21
    
    
    $
    0.79
    
    
    
    15
    %BOE price(1)
    
    $
    42.25
    
    
    $
    32.21
    
    
    $
    10.04
    
    
    
    31
    %BOE price(2)
    
    $
    33.93
    
    
    $
    28.30
    
    
    $
    5.63
    
    
    
    20
    %Operating RevenuesOil
    
    $
    9,359
    
    
    $
    5,290
    
    
    
    4,069
    
    
    
    77
    %Oil hedges
    
    $
    (2,354
    )
    
    $
    (1,124
    )
    
    
    1,230
    
    
    
    109
    %Natural gas
    
    $
    3,610
    
    
    $
    3,816
    
    
    
    (206
    )
    
    
    (5
    )%Natural gas hedges
    
    $
    (201
    )
    
    $
    19
    
    
    
    (220
    )
    
    
    (1158
    )%Total
    
    $
    10,414
    
    
    $
    8,001
    
    
    $
    2,413
    
    
    
    30
    %
 
 (1)
    
    Excludes hedge
transactions.(2)
    
    Includes
hedge transactions. (23)




---



##### Table of Contents



Cost and Expenses
 Three months ended March 31,
    
    
    Increase
    
    
    % Increase2005
    
    
    2004
    
    
    (Decrease)
    
    
    (Decrease)(dollars in thousands)Lease operating expense
    
    $
    2,558
    
    
    $
    1,529
    
    
    $
    1,029
    
    
    
    67
    %Production taxes
    
    
    580
    
    
    
    478
    
    
    
    102
    
    
    
    21
    %General and administrative:General and administrative
    
    
    969
    
    
    
    734
    
    
    
    235
    
    
    
    32
    %Public reporting
    
    
    659
    
    
    
    488
    
    
    
    171
    
    
    
    35
    %Total general and administrative
    
    
    1,628
    
    
    
    1,222
    
    
    
    406
    
    
    
    33
    %Depreciation, depletion and amortization
    
    
    2,282
    
    
    
    2,077
    
    
    
    205
    
    
    
    10
    %Total
    
    $
    7,048
    
    
    $
    5,306
    
    
    $
    1,742
    
    
    
    33
    %
  (24)




---



##### Table of Contents



Other income (expense)
 Three months ended March 31,
    
    
    Increase
    
    
    % Increase2005
    
    
    2004
    
    
    (Decrease)
    
    
    (Decrease)(dollars in thousands)Change in fair market value of derivatives
    
    $
    (17,633
    )
    
    $
    
    
    
    $
    (17,633
    )
    
    
    Loss on ineffective portion of hedges
    
    
    (710
    )
    
    
    (10
    )
    
    $
    700
    
    
    
    7,000
    %Interest and other income
    
    
    19
    
    
    
    140
    
    
    
    (121
    )
    
    
    (86
    )%Interest expense
    
    
    (1,173
    )
    
    
    (468
    )
    
    
    705
    
    
    
    151
    %Other expense
    
    
    (1
    )
    
    
    (26
    )
    
    
    (25
    )
    
    
    (96
    )%Equity loss in Westfork Pipeline Company LP
    
    
    (79
    )
    
    
    
    
    
    
    (79
    )
    
    
    Total
    
    $
    (19,577
    )
    
    $
    (364
    )
    
    $
    (19,213
    )
  (25)




---



##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
      (26)




---



##### Table of Contents



Bank Borrowings
      (27)




---



##### Table of Contents




    
    at the end of each quarter, a current ratio (as defined in the credit agreement) of
at least 1.1 to 1.0;
    
    for each period (as calculated in the Credit Agreement) ending on December 31, March
31, June 30 and September 30, a funded debt ratio (as defined in the Credit
Agreement) of not more than 3.70, 3.60 and 3.50, respectively, for December 31, 2005,
2006 and 2007; and
    
    at all times, adjusted consolidated net worth (as defined in the Credit Agreement)
of at least (a) $50.0 million, plus (b) seventy-five percent (75%) of the net proceeds
from any equity securities issued by Parallel, plus (c) fifty percent (50%) of
consolidated net income for each fiscal quarter, if positive, and zero percent (0%) if
negative.
  (28)




---



##### Table of Contents




    
    interpretation and processing of 3-D seismic survey data;
    
    lease acquisitions and drilling activities;
    
    acquisitions of producing properties or companies owning producing properties; and,
    
    general corporate purposes.
 Preferred Stock
  
    
    requires us to pay dividends of $.60 per annum, semi-annually on June 15 and
December 15 of each year;
    
    is convertible into common stock at any time, at the option of the holder, into
2.8751 shares of common stock at an initial conversion price of $3.50 per shares,
subject to adjustment in certain events;
    
    is redeemable at our option, in whole or in part, for $10 per share, plus accrued
dividends;
    
    has no voting rights, except as required by applicable law, and except that as long
as any shares of preferred stock remain outstanding, the holders of a majority of the
outstanding shares of the preferred stock may vote on any proposal to change any
provision of the preferred stock which materially and adversely affects the rights,
preferences or privileges of the preferred stock;
    
    is senior to the common stock with respect to dividends and on liquidation,
dissolution or winding up of Parallel; and
    
    has a liquidation value of $10 per share, plus accrued and unpaid dividends.
  (29)




---



##### Table of Contents



Sale of Equity Securities
  Commodity Price Risk Management Transactions and Effects of Derivative Instruments
    (30)




---



##### Table of Contents



Contractual Obligations, Commitments and Off-Balance Sheet Arrangements
   Obligation Due in PeriodPeriods ended December 31,

    
    
    AfterContractual Cash Obligations
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    5 years
    
    
    Total(in thousands)Revolving Credit Facility (secured)
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    50,000
    
    
    $
    
    
    
    $
    
    
    
    $
    50,000Office Lease (Dinero Plaza)
    
    
    118
    
    
    
    105
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    223Andrews and Snyder Field Offices
    
    
    17
    
    
    
    23
    
    
    
    23
    
    
    
    14
    
    
    
    14
    
    
    
    
    (1)
    
    
    91Preferred Stock Dividend
    
    
    427
    
    
    
    570
    
    
    
    570
    
    
    
    570
    
    
    
    570
    
    
    
    
    (2)
    
    
    2,707Asset retirement obligations(3)
    
    
    135
    
    
    
    30
    
    
    
    206
    
    
    
    30
    
    
    
    136
    
    
    
    1,575
    
    
    
    2,112Derivative Obligations
    
    
    12,776
    
    
    
    12,154
    
    
    
    8,161
    
    
    
    7,145
    
    
    
    
    
    
    
    
    
    
    
    40,236Total
    
    $
    13,473
    
    
    $
    12,882
    
    
    $
    8,960
    
    
    $
    57,759
    
    
    $
    720
    
    
    $
    1,575
    
    
    $
    95,369
 
 (1)
    
    The Snyder field office lease remains in effect until the termination of our trade
agreement with a third party working interest owner in the Diamond M  project. The Andrews field
office lease expires in December 2007. The lease cost for these two office facilities are billed to
nonaffiliated third party working interest owners under our joint operating agreements with these
third parties.(2)
    
    Payments of preferred dividends so long as preferred stock remains outstanding and not
converted. In connection with the redemption of our preferred stock, if none of the holders elect
to convert to common stock, we would have an obligation of $9.5 million.(3)
    
    Assets retirement obligations of oil and natural gas assets, excluding salvage value and
accretion. (31)




---



##### Table of Contents



Outlook
  
    
    internally generated cash from operations;
    
    proceeds from bank borrowings; and
    
    proceeds from sales of equity securities.
  
    
    our proved reserves;
    
    the volumes of oil and natural gas we produce from existing wells;
    
    the prices at which we sell oil and gas; and
    
    our ability to acquire, locate and produce new reserves.
  
    
    increased bank borrowings;
    
    sales of Parallels securities;
    
    sales of non-core properties; or
    
    other forms of financing.
  Inflation
  (32)




---



##### Table of Contents



Critical Accounting Policies
  Share-Based Payment
 Restatement
 Accounting for Derivative Instruments and Hedging Activities ITEM 1. Notes to Consolidated Financial Statements ITEM 2. MANAGEMENTS DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 (33)




---



##### Table of Contents



ITEM 4. CONTROLS AND
PROCEDURES.
 TRENDS AND PRICES
    FORWARD-LOOKING STATEMENTS
 Cautionary Statement Regarding Forward-Looking Statements
  
    
    our future financial and operating performance and results;
    
    our business strategy;
    
    market prices;
    
    sources of funds necessary to conduct operations and complete acquisitions;
    
    development costs;
    
    number and location of planned wells;
    
    our future commodity price risk management activities; and
    
    our plans and forecasts.
 (34)




---



##### Table of Contents




    
    fluctuations in prices of oil and natural gas;
    
    demand for oil and natural gas;
    
    losses due to potential or future litigation;
    
    future capital requirements and availability of financing;
    
    geological concentration of our reserves;
    
    risks associated with drilling and operating wells;
    
    competition;
    
    general economic conditions;
    
    governmental regulations;
    
    receipt of amounts owed to us by purchasers of our production and counterparties to
our hedging contracts;
    
    hedging decisions, including whether or not to hedge;
    
    events similar to 911;
    
    actions of third party co-owners of interests in properties in which we also own an
interest; and
    
    fluctuations in interest rates and availability of capital.
  (35)




---



##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Interest Rate Sensitivity as of March 31, 2005
  2005
    
    2006
    
    2007
    
    2008
    
    Total(in thousands, except interest rates)Variable rate debt
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    50,000
    
    
    $
    50,000Revolving Facility (secured)
Average interest rate
    
    
    5.12
    %
    
    
    5.12
    %
    
    
    5.12
    %
    
    
    5.12
    %
    
    
    
   (36)




---



##### Table of Contents



Notional
    
    
    
    
    
    FairPeriod of Time
    
    Amounts
    
    Fixed Interest Rates
    
    Market Value($ in millions)
    
    
    
    
    
    ($ in thousands)April 1, 2005 thru December 31, 2005(1)
    
    $
    20
    
    
    
    4.05
    %
    
    $
    (57
    )April 1, 2005 thru December 31, 2005
    
    $
    30
    
    
    
    2.89
    %
    
    
    171January 1, 2006 thru December 31, 2006(1)
    
    $
    10
    
    
    
    4.05
    %
    
    
    14January 1, 2006 thru December 31, 2006
    
    $
    40
    
    
    
    3.76
    %
    
    
    170January 1, 2007 thru December 31, 2007
    
    $
    50
    
    
    
    4.30
    %
    
    
    63January 1, 2008 thru December 31, 2008
    
    $
    50
    
    
    
    4.74
    %
    
    
    (59
    )Total Fair Market Value
    
    
    
    
    
    
    
    
    

$
302
 
 (1)
    
    Designated as cash flow hedge. Commodity Price Sensitivity as of March 31, 2005
  (37)




---



##### Table of Contents



Collars.
  HoustonNyMex
    
    
    
    
    
    
    Ship ChannelBarrels
    
    
    Oil Prices
    
    
    MMBtu of
    
    
    Gas Prices
    
    
    FairPeriod of Time
    
    of Oil
    
    
    Floor
    
    
    Cap
    
    
    Natural Gas
    
    
    Floor
    
    
    Cap
    
    
    Market Value($ in thousands)April 1, 2005 thru October 31, 2005
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    428,000
    
    
    $
    5.00
    
    
    $
    7.26
    
    
    $
    (158
    )April 1, 2005 thru December 31, 2005
    
    
    55,000
    
    
    $
    36.00
    
    
    $
    49.60
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    (383
    )January 1, 2006 thru December 31, 2006
    
    
    70,800
    
    
    $
    35.00
    
    
    $
    44.00
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    (742
    )Total Fair Market Value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (1,283
    )
 Commodity Swaps.
  (38)




---



##### Table of Contents



Nymex Oil
    
    
    FairPeriod of Time
    
    Barrels of Oil
    
    
    Swap Price
    
    
    Market Value($ in thousands)April 1, 2005 thru December 31, 2005(1)
    
    
    275,000
    
    
    $
    23.33
    
    
    $
    (9,058
    )April 1, 2005 thru December 31, 2005
    
    
    192,500
    
    
    $
    39.96
    
    
    
    (3,176
    )January 1, 2006 thru December 20, 2006(1)
    
    
    265,500
    
    
    $
    23.04
    
    
    
    (8,157
    )January 1, 2006 thru December 20, 2006
    
    
    182,500
    
    
    $
    36.36
    
    
    
    (3,255
    )January 1, 2007 thru December 31, 2007
    
    
    474,500
    
    
    $
    34.36
    
    
    
    (8,161
    )January 1, 2008 thru December 31, 2008
    
    
    439,200
    
    
    $
    33.37
    
    
    
    (7,146
    )Total fair market value
    
    
    
    
    
    
    
    
    
    $
    (38,953
    )
 
 (1)
    
    Designated as cash flow hedge. 
 ITEM 4. CONTROLS AND PROCEDURES
  Accounting for Derivative Instruments and Hedging Activities
 (39)




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##### Table of Contents



PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 6. EXHIBITS
  No.
    
    Description of Exhibit3.1
    
    Certificate of Incorporation of Registrant (Incorporated by reference to Exhibit 3.1
to Form 10-Q of the Registrant for the fiscal quarter ended June 30, 2004)3.2
    
    Bylaws of Registrant (Incorporated by reference to Exhibit 3 of the Registrants Form
8-K, dated October 9, 2000, as filed with the Securities and Exchange Commission on
October 10, 2000)
 (40)




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##### Table of Contents



No.
    
    Description of Exhibit3.3
    
    Certificate of Formation of Parallel, L.L.C. (Incorporated by reference to Exhibit
No. 3.3 of the Registrants Registration Statement on Form S-3, No. 333-119725 filed on
October 13, 2004)

3.4
    
    Limited Liability Company Agreement of Parallel, L.L.C. (Incorporated by reference to
Exhibit No. 3.4 of the Registrants Statement on Form S-3, No. 333-119725 filed on October
13, 2004)3.5
    
    Certificate of Limited Partnership of Parallel, L.P. (Incorporated by reference to
Exhibit No. 3.5 of the Registrants Registration Statement on Form S-3, No. 333-119725
filed on October 13, 2004)3.6
    
    Agreement of Limited Partnership of Parallel, L.P. (Incorporated by reference to
Exhibit No. 3.6 of the Registrants Registration Statement on Form S-3, No. 333-119725
filed on October 13, 2004)4.1
    
    Certificate of Designations, Preferences and Rights of Serial Preferred Stock  6%
Convertible Preferred Stock (Incorporated by reference to Exhibit 4.1 of Form 10-Q of the
Registrant for the fiscal quarter ended June 30, 2004)4.2
    
    Certificate of Designation, Preferences and Rights of Series A Preferred Stock
(Incorporated by reference to Exhibit 4.2 of Form 10-K of the Registrant for the fiscal
year ended December 31, 2000)4.3
    
    Rights Agreement, dated as of October 5, 2000, between the Registrant and
Computershare Trust Company, Inc., as Rights Agent (Incorporated by reference to Exhibit
4.3 of Form 10-K of the Registrant for the fiscal year ended December 31, 2000)4.4
    
    Form of Indenture relating to senior debt securities of the Registrant (Incorporated
by reference to Exhibit No. 4.4 of the Registrants Statement on Form S-3, No. 333-119725
filed on October 13, 2004)4.5
    
    Form of Indenture relating to subordinated debt securities of the Registrant
(Incorporated by reference to Exhibit No. 4.5 of the Registrants Registration Statement
on Form S-3, No. 333-119725 filed on October 13, 2004)4.6
    
    Form of common stock certificate of the Registrant (Incorporated by reference to
Exhibit No. 4.6 of the Registrants Registration Statement on Form S-3, No. 333-119725
filed on October 13, 2004)
 (41)




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##### Table of Contents



No.
    
    Description of Exhibit4.7
    
    Warrant Purchase Agreement, dated November 20, 2001, between the Registrant and
Stonington Corporation (Incorporated by reference to Exhibit 4.7 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2004)4.8
    
    Warrant Purchase Agreement, dated December 23, 2003, between the Registrant and
Stonington Corporation (Incorporated by reference to Exhibit 4.8 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2004)Executive Compensation Plans and Arrangements (Exhibit No.s 10.1 through 10.8):10.1
    
    1992 Stock Option Plan (Incorporated by reference to Exhibit 10.1 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2004)10.2
    
    Merrill Lynch, Pierce, Fenner & Smith Incorporated Prototype Simplified Employee Pension
Plan (Incorporated by reference to Exhibit 10.6 of the Registrants Form 10-K for the fiscal
year ended December 31, 1995)10.3
    
    Non-Employee Directors Stock Option Plan (Incorporated by reference to Exhibit 10.6 of
the Registrants Form 10-K Report for the fiscal year ended December 31, 1997)10.4
    
    1998 Stock Option Plan (Incorporated by reference to Exhibit 10.7 of Form 10-K of the
Registrant for the fiscal year ended December 31, 1998)10.5
    
    Form of Incentive Award Agreements, dated December 12, 2001, between the Registrant and
Thomas R. Cambridge, Larry C. Oldham, Eric A. Bayley and John S. Rutherford granting 2,394
Unit Equivalent Rights to Mr. Cambridge; 9,564 Unit Equivalent Rights to Mr. Oldham; 2,869
Unit Equivalent Rights to Mr. Bayley; and 7,173 Unit Equivalent Rights to Mr. Rutherford
(Incorporated by reference to Exhibit 10.8 of Form 10-K of the Registrant for the fiscal
year ended December 31, 2001)10.6
    
    2001 Non-Employee Directors Stock Option Plan (Incorporated by reference to Exhibit 10.7
of the Registrants Form 10-Q Report for the first fiscal quarter ended March 31, 2004)10.7
    
    2004 Non-Employee Director Stock Grant Plan (Incorporated by reference to Exhibit 10.1 of
the Registrants Form 8-K Report dated September 22, 2004)10.8
    
    Incentive and Retention Plan (Incorporated by reference to Exhibit 10.1 of the
Registrants Form 8-K Report dated September 23, 2004 and filed with the Securities and
Exchange Commission on September 29, 2004)
 (42)




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##### Table of Contents



No.
    
    Description of Exhibit10.9
    
    Certificate of Formation of First Permian, L.L.C. (Incorporated by reference to Exhibit
10.1 of the Registrants Form 8-K Report dated June 30, 1999)10.10
    
    Limited Liability Company Agreement of First Permian, L.L.C. (Incorporated by reference to
Exhibit 10.2 of the Registrants Form 8-K Report dated June 30, 1999)10.11
    
    Amended and Restated Limited Liability Company Agreement of First Permian, L.L.C. dated as
of May 31, 2000 (Incorporated by reference to Exhibit 10.16 of Form 10-K of the Registrant
for the fiscal year ended December 31, 2000)10.12
    
    Credit Agreement, dated June 30, 1999, by and among First Permian, L.L.C., Parallel
Petroleum Corporation, Baytech, Inc., and Bank One, Texas, N.A. (Incorporated by reference to
Exhibit 10.6 of the Registrants Form 8-K Report dated June 30, 1999)10.13
    
    Limited Guaranty, dated June 30, 1999, by and among First Permian, L.L.C., Parallel
Petroleum Corporation and Bank One, Texas, N.A. (Incorporated by reference to Exhibit 10.7 of
the Registrants Form 8-K Report dated June 30, 1999)10.14
    
    Second Restated Credit Agreement, dated October 25, 2000, among First Permian, L.L.C.,
Bank One, Texas, N.A., and Bank One Capital Markets, Inc. (Incorporated by reference to
Exhibit 10.22 of Form 10-K of the Registrant for the fiscal year ended December 31, 2000)10.15
    
    Loan Agreement, dated as of January 25, 2002, between the Registrant and First American
Bank, SSB (Incorporated by reference to Exhibit 10.25 of Form 10-K of the Registrant for the
fiscal year ended December 31, 2001)10.16
    
    Purchase and Sale Agreement, dated as of November 27, 2002, among JMC Exploration, Inc.,
Arkoma Star L.L.C., Parallel, L.P. and Texland Petroleum, Inc. (Incorporated by reference to
Exhibit 10.1 of Form 8-K of the Registrant, dated December 20, 2002)10.17
    
    First Amended and Restated Credit Agreement, dated December 20, 2002, by and among
Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First American Bank, SSB,
Western National Bank and BNP Paribas (Incorporated by reference to Exhibit 10.2 of Form 8-K
of the Registrant, dated December 20, 2002)10.18
    
    Guaranty dated December 20, 2002, between Parallel, L.L.C. and First American Bank, SSB,
as Agent (Incorporated by reference to Exhibit 10.3 of Form 8-K of the Registrant, dated
December 20, 2002)10.19
    
    First Amendment to First Amended and Restated Credit Agreement, dated as of September 12,
2003, by and among Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First
American Bank, SSB, Western National Bank, and BNP
 (43)




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No.
    
    Description of ExhibitParibas (Incorporated by reference to
Exhibit 10.29 of Form 10-Q of the Registrant for the quarter ended September 30, 2003)10.20
    
    Second Amended and Restated Credit Agreement, dated September 27, 2004, by and among
Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First American
Bank, SSB, BNP Paribas, Citibank, F.S.B. and Western National Bank (Incorporated by
reference to Exhibit 10.1 of the Registrants Form 8-K Report dated September 27, 2004
and filed with the Securities and Exchange Commission on October 1, 2004)10.21
    
    Agreement of Limited Partnership of West Fork Pipeline Company LP (Incorporated by
reference to Exhibit 10.21 of Form 10-K of the Registrant for the fiscal year ended December
31, 2004)10.22
    
    First Amendment to Second Amended and Restated Credit Agreement, dated as of December 27,
2004, by and among Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First
American Bank, SSB, BNP Paribas, Citibank, F.S.B. and Western National Bank (Incorporated by
reference to Exhibit 10.1 of the Registrants Form 8-K Report dated December 30, 2004 and
filed with the Securities and Exchange Commission on December 30, 2004)10.23
    
    Second Amendment to Second Amended and Restated Credit Agreements dated as of April 1,
2005, by and among Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First
American Bank, SSB, BNP Paribas, Citibank, F.S.B. and Western National Bank (Incorporated by
reference to Exhibit 10.1 of the Registrants Form 8-K Report dated April 4, 2005 and filed
with the Securities and Exchange Commission on April 8, 2005)14
    
    Code of Ethics (Incorporated by reference to Exhibit No. 14 of the Registrants Form
10-K Report for the fiscal year ended December 31, 2003 and filed with the Securities and
Exchange Commission on March 22, 2004)21
    
    Subsidiaries (Incorporated by reference to Exhibit No. 21 of the Registrants Form
10-K Report for the fiscal year ended December 31, 2003 and filed with the Securities and
Exchange Commission on March 22, 2004)*31.1
    
    Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 302 of the Sarbanes  Oxley Act of 2002*31.2
    
    Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 302 of the Sarbanes  Oxley Act of 2002*32.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes  Oxley Act of 2002.
 (44)




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##### Table of Contents



No.
    
    Description of Exhibit*32.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes  Oxley Act of 2002.
 
 *
    
    Filed herewith. (45)




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##### Table of Contents



PARALLEL PETROLEUM CORPORATIONDate:
May 9, 2006

    BY: /s/ Larry C. OldhamLarry C. OldhamPresident and Chief Executive OfficerDate:
May 9, 2006

    BY: /s/ Steven D. FosterSteven D. Foster,Chief Financial Officer




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##### Table of Contents



No.
    
    Description of Exhibit3.1
    
    Certificate of Incorporation of Registrant (Incorporated by reference to Exhibit 3.1
to Form 10-Q of the Registrant for the fiscal quarter ended June 30, 2004)

3.2
    
    Bylaws of Registrant (Incorporated by reference to Exhibit 3 of the Registrants Form
8-K, dated October 9, 2000, as filed with the Securities and Exchange Commission on
October 10, 2000)3.3
    
    Certificate of Formation of Parallel, L.L.C. (Incorporated by reference to Exhibit
No. 3.3 of the Registrants Registration Statement on Form S-3, No. 333-119725 filed on
October 13, 2004)3.4
    
    Limited Liability Company Agreement of Parallel, L.L.C. (Incorporated by reference to
Exhibit No. 3.4 of the Registrants Statement on Form S-3, No. 333-119725 filed on October
13, 2004)3.5
    
    Certificate of Limited Partnership of Parallel, L.P. (Incorporated by reference to
Exhibit No. 3.5 of the Registrants Registration Statement on Form S-3, No. 333-119725
filed on October 13, 2004)3.6
    
    Agreement of Limited Partnership of Parallel, L.P. (Incorporated by reference to
Exhibit No. 3.6 of the Registrants Registration Statement on Form S-3, No. 333-119725
filed on October 13, 2004)4.1
    
    Certificate of Designations, Preferences and Rights of Serial Preferred Stock  6%
Convertible Preferred Stock (Incorporated by reference to Exhibit 4.1 of Form 10-Q of the
Registrant for the fiscal quarter ended June 30, 2004)4.2
    
    Certificate of Designation, Preferences and Rights of Series A Preferred Stock
(Incorporated by reference to Exhibit 4.2 of Form 10-K of the Registrant for the fiscal
year ended December 31, 2000)4.3
    
    Rights Agreement, dated as of October 5, 2000, between the Registrant and
Computershare Trust Company, Inc., as Rights Agent (Incorporated by reference to Exhibit
4.3 of Form 10-K of the Registrant for the fiscal year ended December 31, 2000)4.4
    
    Form of Indenture relating to senior debt securities of the Registrant (Incorporated
by reference to Exhibit No. 4.4 of the Registrants Statement on Form S-3, No. 333-119725
filed on October 13, 2004)




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##### Table of Contents



No.
    
    Description of Exhibit4.5
    
    Form of Indenture relating to subordinated debt securities of the Registrant
(Incorporated by reference to Exhibit No. 4.5 of the Registrants Registration Statement
on Form S-3, No. 333-119725 filed on October 13, 2004)4.6
    
    Form of common stock certificate of the Registrant (Incorporated by reference to
Exhibit No. 4.6 of the Registrants Registration Statement on Form S-3, No. 333-119725
filed on October 13, 2004)4.7
    
    Warrant Purchase Agreement, dated November 20, 2001, between the Registrant and
Stonington Corporation (Incorporated by reference to Exhibit 4.7 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2004)4.8
    
    Warrant Purchase Agreement, dated December 23, 2003, between the Registrant and
Stonington Corporation (Incorporated by reference to Exhibit 4.8 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2004)Executive Compensation Plans and Arrangements (Exhibit No.s 10.1 through 10.8):10.1
    
    1992 Stock Option Plan (Incorporated by reference to Exhibit 10.1 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2004)10.2
    
    Merrill Lynch, Pierce, Fenner & Smith Incorporated Prototype Simplified Employee Pension
Plan (Incorporated by reference to Exhibit 10.6 of the Registrants Form 10-K for the fiscal
year ended December 31, 1995)10.3
    
    Non-Employee Directors Stock Option Plan (Incorporated by reference to Exhibit 10.6 of
the Registrants Form 10-K Report for the fiscal year ended December 31, 1997)10.4
    
    1998 Stock Option Plan (Incorporated by reference to Exhibit 10.7 of Form 10-K of the
Registrant for the fiscal year ended December 31, 1998)10.5
    
    Form of Incentive Award Agreements, dated December 12, 2001, between the Registrant and
Thomas R. Cambridge, Larry C. Oldham, Eric A. Bayley and John S. Rutherford granting 2,394
Unit Equivalent Rights to Mr. Cambridge; 9,564 Unit Equivalent Rights to Mr. Oldham; 2,869
Unit Equivalent Rights to Mr. Bayley; and 7,173 Unit Equivalent Rights to Mr. Rutherford
(Incorporated by reference to Exhibit 10.8 of Form 10-K of the Registrant for the fiscal
year ended December 31, 2001)10.6
    
    2001 Non-Employee Directors Stock Option Plan (Incorporated by reference to Exhibit 10.7
of the Registrants Form 10-Q Report for the first fiscal quarter ended March 31, 2004)




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##### Table of Contents



No.
    
    Description of Exhibit10.7
    
    2004 Non-Employee Director Stock Grant Plan (Incorporated by reference to Exhibit 10.1 of
the Registrants Form 8-K Report dated September 22, 2004)10.8
    
    Incentive and Retention Plan (Incorporated by reference to Exhibit 10.1 of the
Registrants Form 8-K Report dated September 23, 2004 and filed with the Securities and
Exchange Commission on September 29, 2004)10.9
    
    Certificate of Formation of First Permian, L.L.C. (Incorporated by reference to Exhibit
10.1 of the Registrants Form 8-K Report dated June 30, 1999)10.10
    
    Limited Liability Company Agreement of First Permian, L.L.C. (Incorporated by reference to
Exhibit 10.2 of the Registrants Form 8-K Report dated June 30, 1999)10.11
    
    Amended and Restated Limited Liability Company Agreement of First Permian, L.L.C. dated as
of May 31, 2000 (Incorporated by reference to Exhibit 10.16 of Form 10-K of the Registrant
for the fiscal year ended December 31, 2000)10.12
    
    Credit Agreement, dated June 30, 1999, by and among First Permian, L.L.C., Parallel
Petroleum Corporation, Baytech, Inc., and Bank One, Texas, N.A. (Incorporated by reference to
Exhibit 10.6 of the Registrants Form 8-K Report dated June 30, 1999)10.13
    
    Limited Guaranty, dated June 30, 1999, by and among First Permian, L.L.C., Parallel
Petroleum Corporation and Bank One, Texas, N.A. (Incorporated by reference to Exhibit 10.7 of
the Registrants Form 8-K Report dated June 30, 1999)10.14
    
    Second Restated Credit Agreement, dated October 25, 2000, among First Permian, L.L.C.,
Bank One, Texas, N.A., and Bank One Capital Markets, Inc. (Incorporated by reference to
Exhibit 10.22 of Form 10-K of the Registrant for the fiscal year ended December 31, 2000)10.15
    
    Loan Agreement, dated as of January 25, 2002, between the Registrant and First American
Bank, SSB (Incorporated by reference to Exhibit 10.25 of Form 10-K of the Registrant for the
fiscal year ended December 31, 2001)10.16
    
    Purchase and Sale Agreement, dated as of November 27, 2002, among JMC Exploration, Inc.,
Arkoma Star L.L.C., Parallel, L.P. and Texland Petroleum, Inc. (Incorporated by reference to
Exhibit 10.1 of Form 8-K of the Registrant, dated December 20, 2002)10.17
    
    First Amended and Restated Credit Agreement, dated December 20, 2002, by and among
Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First American Bank, SSB,
Western National Bank and BNP Paribas (Incorporated by reference to Exhibit 10.2 of Form 8-K
of the Registrant, dated December 20, 2002)




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##### Table of Contents



No.
    
    Description of Exhibit10.18
    
    Guaranty dated December 20, 2002, between Parallel, L.L.C. and First American Bank, SSB,
as Agent (Incorporated by reference to Exhibit 10.3 of Form 8-K of the Registrant, dated
December 20, 2002)10.19
    
    First Amendment to First Amended and Restated Credit Agreement, dated as of September 12,
2003, by and among Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First
American Bank, SSB, Western National Bank, and BNP Paribas (Incorporated by reference to
Exhibit 10.29 of Form 10-Q of the Registrant for the quarter ended September 30, 2003)10.20
    
    Second Amended and Restated Credit Agreement, dated September 27, 2004, by and among
Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First American Bank, SSB,
BNP Paribas, Citibank, F.S.B. and Western National Bank (Incorporated by reference to Exhibit
10.1 of the Registrants Form 8-K Report dated September 27, 2004 and filed with the
Securities and Exchange Commission on October 1, 2004)10.21
    
    Agreement of Limited Partnership of West Fork Pipeline Company LP (Incorporated by
reference to Exhibit 10.21 of Form 10-K of the Registrant for the fiscal year ended December
31, 2004)10.22
    
    First Amendment to Second Amended and Restated Credit Agreement, dated as of December 27,
2004, by and among Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First
American Bank, SSB, BNP Paribas, Citibank, F.S.B. and Western National Bank (Incorporated by
reference to Exhibit 10.1 of the Registrants Form 8-K Report dated December 30, 2004 and
filed with the Securities and Exchange Commission on December 30, 2004)10.23
    
    Second Amendment to Second Amended and Restated Credit Agreements dated as of April 1,
2005, by and among Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First
American Bank, SSB, BNP Paribas, Citibank, F.S.B. and Western National Bank (Incorporated by
reference to Exhibit 10.1 of the Registrants Form 8-K Report dated April 4, 2005 and filed
with the Securities and Exchange Commission on April 8, 2005)14
    
    Code of Ethics (Incorporated by reference to Exhibit No. 14 of the Registrants Form
10-K Report for the fiscal year ended December 31, 2003 and filed with the Securities and
Exchange Commission on March 22, 2004)21
    
    Subsidiaries (Incorporated by reference to Exhibit No. 21 of the Registrants Form
10-K Report for the fiscal year ended December 31, 2003 and filed with the Securities and
Exchange Commission on March 22, 2004)*31.1
    
    Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 302 of the Sarbanes  Oxley Act of 2002




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##### Table of Contents



No.
    
    Description of Exhibit*31.2
    
    Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 302 of the Sarbanes  Oxley Act of 2002*32.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes  Oxley Act of 2002.*32.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes  Oxley Act of 2002.
 
 *
    
    Filed herewith.