<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 September 30, 1999 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  November  1, 1999,  there were  18,331,858  shares of the  Registrant's
Common Stock, $0.01 par value, outstanding.


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



                               INDEX



                   PART I. - FINANCIAL INFORMATION
                                                                    Page No.
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

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

     - Consolidated Balance Sheet as of December 31, 1998 and
       September 30, 1999 (unaudited)                                  3

    -  Unaudited Consolidated Statements of Operations
       for the three months ended September 30, 1998 and 1999
       and nine months ended  September 30, 1998 and 1999              5

    -  Unaudited Consolidated Statements of Cash Flows for
       the nine months ended September 30, 1998 and 1999               6

    - Notes to Consolidated Financial Statements                       7

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
        AND RESULTS OF OPERATIONS                                     12

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK    21



                    PART II. - OTHER INFORMATION


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                              22



<PAGE>
                                       3

                   PARALLEL PETROLEUM CORPORATION

                      CONSOLIDATED BALANCE SHEETS

<TABLE>


                                                December 31, September 30, 1999
ASSETS                                               1998*       (Unaudited)
-------------                                   ------------  -----------------
<S>                                              <C>              <C>

Current assets:
 Cash and cash equivalents                          $ 1,178,819  $ 1,175,419
 Accounts receivable:
   Oil and gas                                        1,432,659    2,002,115
   Others, net of allowance for doubtful accounts
      of $71,358 in 1998 and 1999                       247,740      587,989
   Affiliate                                             11,844          608
                                                   ------------ ------------
                                                      1,692,243    2,590,712
 Other assets                                            61,504       22,248
 Assets held for sale (Note 2)                                     3,825,000
                                                   ------------ ------------
   Total current assets                               2,932,566    7,613,379
                                                   ------------ ------------
Property and equipment, at cost:
 Oil and gas properties, full cost method            65,565,466   84,281,470
 Other                                                  287,586      316,821
                                                   ------------ ------------
                                                     65,853,052   84,598,291
 Less accumulated depreciation and depletion         22,279,355   25,208,704
                                                   ------------ ------------
   Net property and equipment                        43,573,697   59,389,587
                                                   ------------ ------------
Other assets, net of accumulated amortization of
   $86,917 in 1998 and $117,623 in 1999                  58,519      345,356
                                                   ------------ ------------
                                                   $ 46,564,782 $ 67,348,322
                                                   ============ ============
</TABLE>

<PAGE>
                                       4


                   PARALLEL PETROLEUM CORPORATION

                      CONSOLIDATED BALANCE SHEETS
                              (Continued)


<TABLE>

                                                December 31,  September 30, 1999
LIABILITIES AND STOCKHOLDERS' EQUITY                1998*        (Unaudited)
------------------------------------            ----------    ------------------
<S>                                             <C>            <C>

Current liabilities:
 Accounts payable and accrued liabilities:
   Current portion of affiliate's long-term
     debt (Note 5)                                 $         --    $ 675,000
    Subordinated notes payable (Note 6)                      --    3,600,000
   Trade                                              2,803,539    2,359,833
   Affiliate                                                214        1,242
   Preferred stock dividend                                  --      170,537
                                                   ------------ ------------
   Total current liabilities                          2,803,753    6,806,612
                                                   ------------ ------------
  Long-term debt:
   Bank credit facility (Note 5)                     18,035,889   18,815,889
   Proportionate share of affiliate's long-
     term debt, net of current portion(Note 5)               --   15,975,000
                                                   ------------ ------------
   Total long-term debt                              18,035,889   34,790,889

 Deferred income taxes                                       --           --

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 1998 and 1999       97,450       97,450
 Common stock - par value $.01 per share, authorized
   60,000,000 shares, issued and outstanding
   18,306,858 in 1998 and 18,331,858 in 1999            183,069      183,319
  Additional paid-in surplus                         32,341,971   31,896,022
 Retained deficit                                    (6,897,350)  (6,425,970)

                                                   ------------ ------------
   Total stockholders' equity                        25,725,140   25,750,821

Contingencies
                                                   ------------ ------------
                                                   $ 46,564,782 $ 67,348,322
                                                   ============ ============

</TABLE>


*The balance  sheet as of December  31, 1998 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

                 CONSOLIDATED STATEMENTS OF OPERATIONS

                               (Unaudited)

<TABLE>

                                         Three Months Ended    Nine months Ended
                                            September 30,         September 30,
                                         ---------------------- ----------------------
                                             1998        1999      1998        1999
                                       ----------   ---------   ----------  ----------
<S>                                    <C>          <C>         <C>         <C>



Oil and gas revenues                  $2,540,809    $3,792,755  $7,106,512  $7,747,572
                                      ----------    ----------  ----------  ----------
Cost and expenses:
  Lease operating expense                622,205     1,065,158   1,792,895   2,130,123
  General and administrative             227,865       301,761     647,371     725,908
  Depreciation, depletion
     and amortization                  1,114,438     1,067,700   3,108,721   2,928,494
                                      ----------    ----------  ----------  ----------
                                       1,964,508     2,434,619   5,548,987   5,784,525
                                      ----------    ----------  ----------  ----------
          Operating income               576,301     1,358,136   1,557,525   1,963,047
                                      ----------    ----------  ----------  ----------
Other income (expense), net:
   Interest income                           403        10,761         873      37,732
   Other income                            8,226       116,621      59,337     129,850
   Interest expense                     (396,682)     (883,321) (1,042,777) (1,630,449)
   Other expense                          (2,687)      (26,290)    (11,264)    (28,800)
                                      ----------    ----------  ----------  ----------
          Total other expense, net      (390,740)     (782,229)   (993,831) (1,491,667)
                                      ----------    ----------  ----------  ----------
Income before income taxes               185,561       575,907     563,694     471,380

Income tax expense   deferred             61,269            --     185,964          --
                                      ----------    ----------  ----------  ----------
Net income                            $  124,292    $  575,907  $  377,730  $  471,380
                                      ==========    ==========  ==========  ==========
Cumulative preferred stock dividend   $   90,000    $  146,175  $  173,000  $  462,887
                                      ==========    ==========  ==========  ==========
    Net income available
      to common stockholders          $   34,292    $  429,732  $  204,730  $    8,493
                                      ==========    ==========  ==========  ==========
Net income per common share
    Basic                             $     .002    $     .023  $     .011  $    .0005
                                      ==========    ==========  ==========  ==========
    Diluted                           $     .002    $     .023  $     .011  $    .0005
                                      ==========    ==========  ==========  ==========
Weighted average common shares
    Outstanding - basic               18,381,967    18,331,858  18,207,852  18,329,759
                                      ==========    ==========  ==========  ==========
    Outstanding - diluted             18,756,045    18,505,647  18,751,500  18,468,642
                                      ==========    ==========  ==========  ==========
</TABLE>

The accompanying notes are an integral part of these financial statements.

<PAGE>
                                       6


                    PARALLEL PETROLEUM CORPORATION

                 CONSOLIDATED STATEMENTS OF CASH FLOWS

                              (Unaudited)

                    Nine months Ended September 30,



<TABLE>

                                                        1998        1999
                                                    ----------   ----------
<S>                                                 <C>          <C>

Cash flows from operating activities:

   Net income                                        $ 377,730       $ 471,380
   Adjustments to reconcile net income to net cash
     Provided by (used in) operating activities:
        Depreciation, depletion and amortization     3,108,721       2,928,494
        Incomes taxes                                  185,964              --
   Other, net                                           (4,531)       (286,837)

   Changes in assets and liabilities:
     Decrease (increase) in trade receivables           16,622        (898,469)
     (Increase) decrease in prepaid expenses and other (61,201)         39,256
     Increase (decrease) in accounts payable and accrued
        liabilities                                    612,545        (272,141)
     Increase in current portion of affiliate
        long-term debt                                      --         675,000
     Increase in subordinated notes payable                 --       3,600,000
                                                   -----------     -----------
     Net cash provided by operating activities       4,235,850       6,256,683
                                                   -----------     -----------
Cash flows from investing activities:

     Additions to property and equipment           (17,353,375)    (23,004,615)
     Proceeds from disposition of property
        and equipment                                  883,144         435,231
                                                   -----------     -----------
     Net cash used in investing activities         (16,470,231)    (22,569,384)
                                                   -----------     -----------
Cash flows from financing activities:

     Proceeds from the issuance of long-term debt   14,307,390      16,755,000
     Payment of long-term debt                      (8,584,000)             --
     Proceeds from exercise of options and warrants     70,625          17,188
     Stock offering costs                              (80,851)             --
     Proceeds from common stock issuance                    --              --
     Proceeds from preferred stock issuance          6,000,000              --
     Payment of preferred stock dividend               (68,000)       (462,887)
                                                   -----------     -----------
     Net cash provided by financing activities      11,645,164      16,309,301
                                                   -----------     -----------
     Net increase (decrease) in cash
        and cash equivalents                          (589,217)         (3,400)
Beginning cash and cash equivalents                    597,149       1,178,819
                                                   -----------     -----------
Ending cash and cash equivalents                   $     7,932     $ 1,175,419
                                                   ===========     ===========
Non-cash financing activities:
   Accrued preferred stock dividend                $        --     $   170,537
                                                   ===========     ===========

</TABLE>

The accompanying notes are an integral part of these financials.

<PAGE>
                                       7


                    PARALLEL PETROLEUM CORPORATION
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Basis of Presentation

     Parallel's  proportionate  share of the assets,  liabilities,  revenues and
expenses  of an  affiliated  limited  liability  company  are  included  in  the
accompanying  consolidated financial statements. On June 25, 1999, we acquired a
22.5%  interest in First Permian,  LLC, a Delaware  limited  liability  company.
Subsequently,  on June 30,  1999,  First  Permian  merged  with a  wholly  owned
subsidiary  of Fina Oil and  Chemical  Company.  The  assets  acquired  by First
Permian in the merger consisted primarily of producing oil and gas properties in
the Permian  Basin of west  Texas.  The  transaction  was  accounted  for by the
purchase  method of  accounting  for  business  combinations.  Accordingly,  the
accompanying  consolidated  financial  statements  before  July  1,  1999 do not
include any  revenues or expenses  associated  with our 22.5%  interest in First
Permian. See Note 3 to Consolidated Financial Statements.

     The  financial  information  included  herein,  with the  exception  of the
balance sheet as of December 31, 1998, is unaudited.  However,  such information
includes all adjustments  (consisting  solely of normal  recurring  adjustments)
which are, in the opinion 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
consolidated  financial  statements  should  be read  in  conjunction  with  the
financial  statements  and notes  included in Parallel's  1998 Annual Report and
1998 Form 10-K.

NOTE 2. ASSETS HELD FOR SALE

     In the normal course of business,  we review opportunities for the possible
sale of certain non-core oil and gas properties. If the bids or offers submitted
are acceptable and consistent with our growth strategy, we may elect to sell the
property to raise additional capital.  Likewise, we review opportunities for the
possible  acquisition  of  oil  and  gas  reserves.  When  possible  acquisition
opportunities  are consistent  with our growth  strategy,  we may submit bids or
offers in amounts  and with terms  consistent  with our  growth  strategy.  Such
acquisitions would require additional financing.

     Because of the protracted  period of low prices and the resultant  negative
effect on cash flows and our line of credit,  a part of our longer term business
strategy is to sell certain non-core assets, which may include producing oil and
gas  properties,  undeveloped  leasehold  acreage  and  other  assets,  to raise
additional capital and reduce debt. Accordingly, we have classified the basis in
these assets as assets held for sale within the balance sheet.

NOTE 3. RECENT EVENTS

     On November  12, 1999,  we  terminated  the  offering  period for a private
placement  of  2,000,000  shares  of common  stock.  Stock  Purchase  Agreements
covering a total of 2,000,000 shares were received from 22 accredited  investors
and eight unaccredited investors.  The offering price of the stock was $1.60 per
share. After deducting estimated expenses in the amount of $27,000 payable by us
and sales commissions in the amount of $26,000 payable to Netherland Securities,
Inc. and $4,000 payable to Everen  Securities,  Inc., net proceeds are estimated
to be  $3,143,000,  of which  approximately  $1,500,000  million will be used to
reduce  bank  debt  and the  remaining  amount  will  be  used  to fund  capital
expenditures and for general corporate purposes.  Upon issuance of the 2,000,000
shares  of  common  stock,  we will  have  20,338,858  shares  of  common  stock
outstanding.  The private  placement was made in reliance on the exemptions from
registration under the Securities Act of 1933 pursuant to Section 4 (2) and Rule
506 of Regulation D under the Securities Act.

     On June 30, 1999, First Permian,  LLC and a wholly owned subsidiary of Fina
Oil and  Chemical  Company  consummated  a cash  merger.  First  Permian was the

<PAGE>
                                       8



surviving  entity.  The transaction was accounted for as a purchase.  The assets
acquired consisted  primarily of producing oil and gas properties located in the
Permian Basin of west Texas.  After giving effect to purchase price adjustments,
First Permian paid to Fina 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. Baytech, Tejon and Mansefeldt are
privately held oil and gas  companies.  Parallel and Baytech are the managers of
First Permian and each owns a 22.5% membership  interest.  Tejon Exploration and
Mansefeldt  Investment  each own a 27.5% interest in First  Permian.  If certain
conditions are met regarding the prepayment of $16.0 million aggregate principal
amount of  subordinated  unsecured  notes made by First  Permian  and payable to
Tejon and  Mansefeldt,  the  proceeds  of which  were used to help  finance  the
acquisition,  Parallel's interest in First Permian could increase to 37.5% for a
nominal fee per membership unit.

     The  purchase was  financed,  in part,  with the proceeds of the  revolving
credit facility provided by Bank One, Texas, N.A. to First Permian.  On June 30,
1999, Parallel and Baytech entered into a credit agreement with Bank One, Texas,
N.A.  providing for a $110.0 million  revolving credit  facility.  The principal
amount  of the  initial  loan  from  Bank  One  was  $74.0  million.  Parallel's
obligation is limited to a guaranty of $10.0 million of the bank borrowings. See
Note 5 to Consolidated Financial Statements for further discussion of the credit
facility.

     Additional  financing for the cash merger was obtained through subordinated
debt  borrowings,  which  included an $8.0 million  loan from Tejon  Exploration
Company and an  additional  $8.0 million loan from  Mansefeldt  Investment.  The
terms of the  subordinated  debt and the effect on Parallel's  balance sheet are
discussed in Note 6 to Consolidated Financial Statements.

NOTE 4. ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

     Although  Parallel  has not  entered  into any  derivative  instruments  or
hedging  arrangements,  First Permian uses swap  agreements and other  financial
instruments in an attempt to reduce the risk of  fluctuating  oil and gas prices
and interest  rates.  Effective  July 1, 1999, a portion of the future crude oil
production  associated  with our  proportionate  interest  in First  Permian was
hedged  against price risks through the use of swap  contracts.  Settlements  on
price swap contracts are realized  monthly,  generally based upon the difference
between the contract price and the average  closing NYMEX price and are reported
as a component of oil and gas revenues  and  operating  cash flows in the period
realized.

     Effective  August  6,  1999,  approximately  54%  of  the  long  term  debt
associated with our proportionate  share in First Permian was hedged against the
impact of interest  rate changes  through an interest rate swap  agreement.  The
principal amount of the swap agreement is $40 million,  or $9 million net to our
interest.  The agreement  terminates on July 1, 2002. The terms of the agreement
provide for quarterly  payments  either to or from First Permian,  determined by
whether the  quarterly  London  Interbank  Offered Rate (LIBOR) in effect at the
beginning of each  quarterly  calculation  period is greater or less than 6.52%.
The calculation periods begin on the first day of each January,  April, July and
October of each year during the term of the agreement,  commencing on October 1,
1999. If, on the date of the beginning of the  calculation  period,  the monthly
LIBOR exceeds 6.52%,  Bank One, Texas,  N.A. (the Lendor) will owe First Permian
the quarterly  amount of the excess rate applied to $40 million.  Alternatively,
if the monthly  LIBOR rate on the  applicable  monthly  date is less than 6.52%,
First  Permian will owe the Lender.  The swap  agreement  is accounted  for as a
hedge,  with the amount which is either due to or from First Permian recorded as
a reduction or increase in interest expense.

NOTE 5. LONG TERM DEBT

     Our long term debt at September 30, 1999 consisted of the following:

     Revolving  credit  facility note payable to bank at the bank's
       base lending rate plus .25% (8.5% at September 30, 1999)      $18,815,889

     Affiliate debt: Parallel's proportionate share (22.5%) of
       the First Permian, LLC revolving credit facility note
       payable to bank at bank's base lending rate
       plus 1.5% (9.75% at September 30, 1999)                        16,650,000
                                                                     -----------
                                                                     $35,465,889
       Less: Parallel's proportionate share of current
         maturities of affiliate debt                                    675,000
                                                                     -----------
       Total long term debt                                          $34,790,889
                                                                     ===========

<PAGE>
                                       9


       Scheduled maturities of Parallel's debt and our proportionate share of
         affiliate's debt at September 30, 1999 are as follows:

             2000                                         $     675,000
             2001                                            19,490,889
             2002                                            15,300,000
                                                          -------------
                                                          $  35,465,889
                                                          =============

     Revolving Credit Facility. At September 30, 1999, Parallel was a party to a
loan agreement with Bank One, Texas,  N.A. which provides for a revolving credit
facility (the "Revolving  Facility")  under which we may borrow up to the lesser
of  $30,000,000 or the  "borrowing  base" then in effect.  The borrowing base in
effect at September 30, 1999 was $18,815,889.  The borrowing base was subject to
reduction by a monthly  commitment  reduction of  $380,000.  However,  effective
March 23, 1999, the monthly commitment reduction was suspended by the bank until
May 1, 1999 at which time the borrowing  base and monthly  commitment  reduction
were  scheduled  for   redetermination.   The  loan  agreement  provides  for  a
redetermination of the borrowing base and monthly commitment reduction every six
months on April 1 and  October 1 of each year or at such other times as the bank
elects.  As of the date of this Form 10-Q Report,  we had not received  from the
bank the redetermined  borrowing base or monthly  reduction amount. At September
30, 1999, 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.

     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 2.5%.  Interest  under the
Revolving  Facility is due and payable  monthly.  At  September  30,  1999,  the
interest rate was the bank's base rate plus .25% or 8.5%.

     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.

     Long Term Debt of Affiliate. On June 30, 1999, Parallel,  Baytech and First
Permian  entered into a credit  agreement,  dated as of June 30, 1999, with Bank
One, Texas,  N.A. that established a $110.0 million revolving credit facility to
finance,  in part,  the merger of a subsidiary of Fina Oil and Chemical  Company
with and into First Permian.  The principal amount of the initial loan from Bank
One was $74.0  million.  Under  terms of the credit  agreement,  as  restated on
August 16, 1999, the principal  amount  outstanding  under the revolving  credit
facility bears interest,  at First Permian's  election,  at Bank One's base rate
plus 1.50% or the Eurodollar  rate plus 3.25% until such time that  subordinated
debt in the principal  amount of $16.0 million has been paid in full. When these
subordinated  unsecured loans have been paid in full, amounts  outstanding under
the revolving  credit facility will bear interest at Bank One's base rate plus a
margin  ranging  from .25% to .75%,  depending  upon the  principal  amount then
outstanding,  or the Eurodollar  rate plus a margin ranging from 2.00% to 2.50%,
depending upon the principal amount then outstanding.

     The credit  facility  provides for  revolving  loans subject to a borrowing
base and a monthly  commitment  reduction.  The initial  borrowing base is $74.0
million and the initial monthly  commitment  reduction  amount is $250,000.  The
monthly commitment  reduction  commenced on October 1, 1999 and continues with a
like reduction on the first day of each following  month. The borrowing base and
the  monthly  commitment  reduction  amount may be  redetermined  by the bank on
January 1 and July 1 of each year or at other times  requested by First Permian.
All outstanding principal under the revolving credit facility is due and payable
on July 1, 2002.  Interest is payable on the last day of each month. The loan is
secured  by  substantially  all of the  oil  and gas  properties  First  Permian
acquired  from  Fina  Oil  and  Chemical  Company.  Parallel  and  Baytech  each
guaranteed $10.0 million of the loans from Bank One. Our proportionate  share of
First Permian's long term debt is $16,650,000.
OTE 6. AFFILIATE SUBORDINATED UNSECURED LOANS
<PAGE>
                                       10


NOTE 6. AFFILIATE SUBORDINATED UNSECURED LOANS

     In addition to the $74.0 million loan from Bank One, First Permian borrowed
$8.0 million  from Tejon  Exploration  Company and $8.0 million from  Mansefeldt
Investment Corporation to help finance the acquisition of oil and gas properties
from Fina Oil and Chemical Company.  Under terms of an Intercreditor  Agreement,
dated June 30, 1999,  the loans made by Tejon and  Mansefeldt  are unsecured and
subordinate in all respects to the senior loans made by Bank One.

     Each  subordinated  loan  requires a principal  payment of $2.5  million on
December 31, 1999 and $5.5 million on September 30, 2000.  Principal payments on
the subordinated loans can only be made with proceeds from the issuance of First
Permian's  equity  securities;  advances under First Permian's  revolving credit
facility (if the borrowing  base is greater than $74.0  million);  proceeds from
the sale of First  Permian's  assets with the prior consent of Bank One; and any
other source of payment with Bank One's prior consent.  Our proportionate  share
of the  subordinated  debt is $3.6 million and is reflected in our September 30,
1999 consolidated balance sheet as subordinated notes payable.

NOTE 7. 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 8. 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 1998,  we  recognized  a non-cash  impairment
charge of $15.0 million, or $12.0 million net of tax, related to our oil and gas
reserves  and  unproved  properties.  The  impairment  of oil and gas assets was
primarily  the result of the effect of  significantly  lower oil and natural gas
prices on both proved and unproved  oil and gas  properties.  At  September  30,
1999, 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 9. 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>
                                       11

<TABLE>

                                                      Three Months Ended         Nine Months Ended
                                                         September 30,              September 30,
                                                     1998       1999           1998             1999
                                                  ---------- ----------      ----------       ----------
<S>                                               <C>        <C>             <C>              <C>

Basic EPS Computation:
     Numerator
     Net income                                   $  124,292  $  575,907     $  377,730        $  471,380
     Preferred stock dividends                       (90,000)   (146,175)      (173,000)         (462,887)
                                                  ----------  ----------     ----------        ----------
     Net income available to common Stockholders      34,292     429,732        204,730             8,493
                                                  ==========  ==========     ==========        ==========
   Denominator -
     Weighted average common shares outstanding   18,381,967  18,331,858     18,207,852        18,329,759
                                                  ----------  ----------     ----------        ----------
Basic EPS                                         $    0.002  $     .023     $ 0.011           $    .0005
                                                  ==========  ==========     ==========        ==========
</TABLE>

<TABLE>

                                                      Three Months Ended         Nine Months Ended
                                                         September 30,              September 30,
                                                     1998       1999           1998             1999
                                                  ---------- ----------      ----------       -----------
<S>                                               <C>        <C>              <C>             <C>
Diluted EPS Computation:
     Numerator
     Net income                                   $ 124,292   $  575,907     $  377,730        $  471,380
     Preferred stock dividends                      (90,000)    (146,175)      (173,000)         (462,887)
                                                 ----------   ----------     ----------        ----------
     Net income available to common stockholders     34,292      429,732        204,730             8,493
                                                 ==========   ==========     ==========        ==========
   Denominator -
     Weighted average common shares outstanding  18,381,967   18,331,858     18,207,852        18,329,759
                Employee                            370,530      173,789        537,307           138,883
                Warrants                              3,548           --          6,341                --
                                                 ----------   ----------     ----------        ----------
                                                 18,756,045   18,505,647     18,751,500        18,468,642
                                                 ==========   ==========     ==========        ==========
Diluted EPS                                      $    0.002   $     .023     $    0.011        $    .0005
                                                 ==========   ==========     ==========        ==========

</TABLE>

     Convertible  preferred  stock  equivalents of 974,500 shares for the three-
and nine-month  periods ended September 30, 1999, that could potentially  dilute
basic earnings per share in the future,  was not included in the  computation of
diluted earnings per share for the periods presented because to do so would have
been antidilutive.

NOTE 10:  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>
                                       12


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.

     Property  Acquisitions.  Our most recent property  acquisition  occurred on
June 30, 1999. As described in Note 3 to Consolidated  Financial Statements,  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.  Our pro
rata share of the book value of the assets acquired  through the cash merger was
approximately $20.0 million

     First  Permian  is owned by  Parallel,  Baytech,  Inc.,  Tejon  Exploration
Company and Mansefeldt Investment Corporation. Baytech, Tejon and Mansefeldt are
privately held oil and gas  companies.  Parallel and Baytech are the managers of
First Permian and each owns a 22.5% membership  interest.  Tejon Exploration and
Mansefeldt  Investment  each own a 27.5% interest in First  Permian.  If certain
conditions are met regarding the prepayment of $16.0 million aggregate principal
amount of  subordinated  unsecured  notes made by First  Permian  and payable to
Tejon and  Mansefeldt,  the  proceeds  of which  were used to help  finance  the
acquisition,  Parallel's interest in First Permian could increase to 37.5% for a
nominal fee per membership unit.

     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.  The terms of First
Permian's  revolving  credit  facility are  discussed in Note 5 to  Consolidated
Financial Statements. In addition, First Permian also borrowed $8.0 million from

<PAGE>
                                       13



Tejon   Exploration   Company  and  $8.0  million  from  Mansefeldt   Investment
Corporation  to  help  finance  the  purchase.  The  terms  of  First  Permian's
subordinated  unsecured loans are discussed in Note 6 to Consolidated  Financial
Statements.

     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
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.

     Because of the  sustained  deterioration  in prices we received for the oil
and gas we  produced in 1998 and the first part of 1999,  the  capital  normally
available to us from our cash flow 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 we  produced.  Since then,  oil
prices  have been as low as $10.00 per  barrel.  At  January  1,  1999,  we were
receiving approximately $10.50 per barrel of oil and $2.00 per Mcf of gas.

     For the nine months ended  September  30, 1999,  the average sales price we
received for our crude oil production  averaged  $15.13 per barrel compared with
$13.25 per barrel at  September  30, 1998 and $12.49 per barrel at December  31,
1998.  The average sales price for natural gas during this same period was $2.08
per mcf compared  with $2.20 per mcf at September  30, 1998 and $2.04 per mcf at
December 31, 1998.

     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  $21,000,000 to
$18,815,889. 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.  If the
prices we receive for oil and gas  production  continue  to improve,  increasing
cash flow,  or if we are  successful  in raising  additional  capital,  drilling
activity may be accelerated.

     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 8 to  Consolidated
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
expect our 1999  production  volumes to increase  significantly  compared to our
production  volumes in the prior year as a result of our 22.5% interest in First
Permian.  Because  we  consolidate  our  proportionate  share of the  production
volumes from our membership  interest in First Permian,  we anticipate that this
will have a material positive effect on our production volumes for the remainder
of 1999. RESULTS OF OPERATIONS
<PAGE>
                                       14


     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.

<TABLE>


                                           THREE MONTHS ENDED                THREE MONTHS ENDED
                                     --------------------------------       ----------------------
                                      3-31-99     6-30-99    9-30-99         9-30-98      9-30-99
                                     ---------   ---------  ---------       ---------    ---------

<S>                                  <C>         <C>        <C>             <C>          <C>>

Production and prices:
  Oil (Bbls)                          44,619        45,908     113,946           48,321    113,946
  Natural gas (Mcf)                  697,593       749,856     791,732          869,215    791,732
  Equivalent barrels of oil(EBO)     160,884       170,884     245,902          193,190    245,902

  Oil price (per Bbl)                 $12.18        $13.17      $17.07           $12.15     $17.07
  Gas price (per Mcf)                 $ 2.03         $1.85       $2.33            $2.25      $2.33
  Price per EBO                       $12.20        $11.66      $15.42           $13.15     $15.42

Results of operations per EBO

Oil and gas revenues                 $ 12.20       $ 11.66     $ 15.42          $ 13.15    $ 15.42
Costs and expenses:
  Lease operating expense               3.19          3.23        4.33             3.22       4.33
  General and administrative            1.26          1.29        1.23             1.18       1.23
  Depreciation and depletion            5.62          5.60        4.34             5.77       4.34
                                     -------       -------     -------          -------    -------
     Total costs and expenses          10.07         10.12        9.90            10.17       9.90
                                     -------       -------     -------          -------    -------
Operating income                        2.13          1.54        5.52             2.98       5.52
                                     -------       -------     -------          -------    -------

Interest expense, net                  (2.22)        (2.12)      (3.55)           (2.05)     (3.55)
        Other income, net                .03           .03         .37              .03        .37
                                     -------       -------     -------          -------    -------

Pretax income (loss)                    (.06)         (.55)       2.34              .96       2.34
Income tax benefit                       .00           .00         .00              .32        .00
                                     -------       -------     -------          -------    -------
Net income (loss)                    $  (.06)      $  (.55)    $  2.34          $   .64    $  2.34
                                     -------       -------     -------          -------    -------
Income before working
  capital adjustments                $  5.56       $  5.05     $  6.68          $  6.73    $  6.68
                                     =======       =======     =======          =======    =======

</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.


<PAGE>
                                       15


<TABLE>

                                               NINE MONTHS ENDING
                                          ---------------------------
                                          9-30-97   9-30-98   9-30-99
                                          -------   -------   -------

<S>                                       <C>       <C>       <C>
Production and prices:
   Oil (Bbls)                             133,924   136,180   204,473
   Natural gas (Mcf)                    2,632,460 2,407,751 2,239,181
   Equivalent barrels of oil (EBO)        572,667   537,472   577,670

   Oil price (per Bbl)                     $20.45    $13.25    $15.13
   Gas price (per Mcf)                     $ 2.60    $ 2.20     $2.08
   Price per EBO                           $16.72    $13.22    $13.41

Results of operations per EBO
Oil and gas revenues                       $16.72    $13.22    $13.41

Costs and expenses:
   Lease operating expense                   3.93      3.34      3.69
   General and administrative                 .74      1.20      1.25
   Depreciation and depletion                4.55      5.78      5.07
                                          -------    ------    ------
Total costs and expenses                     9.22     10.32     10.01
                                          -------    ------    ------
Operating income                             7.50      2.90      3.40
                                          -------    ------    ------
Interest expense, net                       (1.03)    (1.94)    (2.76)
Other expense                                 .03       .09       .17
                                           ------    ------    ------
Pretax income                                6.50      1.05       .81
Income tax expense   deferred                2.15       .35       .00
                                           ------    ------    ------
     Net income                              4.35       .70       .81
                                           ======    ======    ======
Net cash flow before working
capital adjustments                        $11.05    $ 6.83    $ 5.88
                                           ======    ======    ======
</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              NINE MONTHS ENDED
                               ----------------------------------    ------------------------
                                3-31-99     6-30-99      9-30-99      9-30-98         9-30-99
                               --------    --------     ---------    ---------        --------
<S>                            <C>         <C>          <C>          <C>              <C>

Oil and gas revenues             100.0%      100.0%         100.0%      100.0%         100.0%
Costs and expenses:
  Production costs                26.1        27.7           28.1        25.3           27.5
  General and administrative      10.3        11.1            8.0         9.1            9.3
  Depreciation, depletion and
     amortization                 46.0        48.0           28.1        43.7           37.8
                                ------      ------          ------     ------         ------
      Total costs and expenses    82.4        86.8           64.2        78.1           74.6
                                ------      ------          ------     ------         ------
Operating income                  17.6        13.2            35.8       21.9           25.4
                                ------      ------          ------     ------         ------
Interest expense, net            (18.2)      (18.2)          (23.0)     (14.7)         (20.6)
Other income, net                   .2          .2             2.4         .7            1.3
                                ------      ------          ------     ------         ------
Pretax income (loss)               (.4)       (4.8)           15.2        7.9            6.1
Income tax (expense) benefit        .0          .0              .0        2.6             .0
                                ------      ------          ------     ------         ------
Net income (loss)                  (.4)%      (4.8)%          15.2%       5.3%           6.1%
                                ======      ======          ======     ======         ======
</TABLE>


<PAGE>
                                       16



RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER  30, 1998 AND 1999:

     The results of operations for the  three-month  period ended  September 30,
1999  include  three  months  of  operations  of First  Permian.  We own a 22.5%
interest  in  First  Permian.  The  current  year  third  quarter  reflects  the
consolidation of our  proportionate  share of the results of operations of First
Permian.  The  corresponding  period  in 1998 did not  include  any  results  of
operations of First  Permian.  Unless  otherwise  stated,  the increases for the
three-month  period ended September 30, 1999 are substantially the result of our
interest in First Permian.

     Oil and Gas Revenues. Oil and gas revenues increased $1,251,947, or 49%, to
$3,792,756 for the three months ended  September 30, 1999,  from  $2,540,809 for
the same period of 1998. The increase in revenues is primarily attributable to a
26% increase in production volumes. Contributing to the increase in revenues was
a 19% increase in the average sales price per EBO. We received $15.42 per EBO in
the three months ended  September  30, 1999 compared with $13.15 per EBO for the
same  period  of  1998.  Approximately  60%  of the  increase  in  revenues  was
attributable to an increase in oil production  volumes and  approximately 40% of
the increase was attributable to higher oil and gas prices.

     The oil and gas prices we report are based on the market price received for
the commodity adjusted by the results of hedging activities.  From time to time,
through  our  interest  in First  Permian,  we enter into  commodity  derivative
contracts to reduce the effects of price  volatility.  Approximately  72% of our
oil volumes for the three months ended  September  30, 1999 were hedged at a net
price of $15.19 per  barrel and 28% of our oil  volumes  were  unhedged  with an
effective price of $21.89 per barrel. The effect of hedging activities decreased
the average  price we received for oil  production  by  approximately  $1.67 per
barrel, or approximately $90,000.

     Production  Costs.   Production  costs  increased  $442,954,   or  71%,  to
$1,065,159  during the third three months of 1999 compared with $622,205 for the
same period of 1998.  Average  production costs per EBO increased 34%, to $4.33,
for the third three  months in 1999  compared  with $3.22 for the same period in
1998.

     General and Administrative  Expenses.  General and administrative  expenses
increased  by $73,896 or 32%,  to $301,761  for the third three  months of 1999,
from $227,865 for the same period of 1998. General and  administrative  expenses
were $1.23 per EBO in the third three months of 1999 compared with $1.18 per EBO
in the third three months of 1998.

     Depreciation,  Depletion and Amortization Expense. Depreciation,  depletion
and amortization expense ("DD&A") decreased by $46,738, or 4%, to $1,067,700 for
the third three months of 1999 compared with  $1,114,438  for the same period of
1998. As a percentage of revenues,  the DD&A rate decreased by 24% when compared
with the prior  year three  months,  a result of a  non-cash  impairment  charge
incurred in the fourth  quarter of 1998 that  reduced our full cost pool and the
addition of our  proportionate  share of the  production  and  reserves of First
Permian at June 30, 1999. The DD&A rate per EBO decreased to $4.34 for the three
months ended  September 30, 1999 compared with $5.77 per EBO for the third three
months of 1998.

     Historically,  we have reviewed our estimates of proven reserve  quantities
on an annual  basis.  However,  due to the  current  uncertainty  of oil and gas
prices,  we conduct  internal reviews of our estimated proven reserves on a more
frequent basis and make necessary  adjustment 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. Net interest expense increased $476,281,  or 120%, to
$872,560 for the three months ended  September 30, 1999,  compared with $396,279
for the same period of 1998, due principally to borrowings against our revolving
line of credit during 1998 and the consolidation of our  proportionate  share of
the net interest expense of First Permian in 1999.

     Net Income and Operating Cash Flow. Net income increased $451,615, or 363%,
to $575,907  for the three  months  ended  September  30,  1999,  compared  with
$124,292 for the three  months ended  September  30, 1998.  Operating  cash flow
increased  $343,608,  or 26%, to $1,643,607 for the three months ended September
30, 1999 compared with $1,299,999 for the three months ended September 30, 1998.

<PAGE>
                                       17


RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999:

     The results of operations  for the  nine-month  period ended  September 30,
1999  include  three  months  of  operations  of First  Permian.  We own a 22.5%
interest  in  First  Permian.   The  current   nine-month  period  reflects  the
consolidation of our  proportionate  share of the results of operations of First
Permian  for the three  months  ended  September  30,  1999.  The  corresponding
nine-month  period in 1998 does not include any results of  operations  of First
Permian.  Unless otherwise stated, the increases for the nine-month period ended
September 30, 1999 are substantially the result of this acquisition.

     Oil and Gas Revenues.  Oil and gas revenues increased  $641,060,  or 9%, to
$7,747,572 for the nine months ended September 30, 1999, from $7,106,512 for the
same period of 1998.  The revenues  increase is primarily  attributable  to a 7%
increase in  production  volumes and a 2% increase in the average sales price we
received per EBO. We received  $13.41 per EBO in the nine months ended September
30, 1999 compared with $13.22 per EBO for the same period of 1998.

     The oil and gas prices we report are based on the market price received for
the commodity adjusted by the results of hedging activities.  From time to time,
through  our  interest  in First  Permian,  we enter into  commodity  derivative
contracts to reduce the effects of price  volatility.  Approximately  40% of our
oil volumes for the nine months  ended  September  30, 1999 were hedged at a net
price of $15.19 per  barrel and 60% of our oil  volumes  were  unhedged  with an
effective price of $15.09 per barrel. The effect of hedging activities increased
the average  price we received for oil  production  by  approximately  $0.10 per
barrel, or approximately $20,000.

     Production  Costs.   Production  costs  increased  $337,227,   or  19%,  to
$2,130,122  during the first nine months of 1999,  compared with  $1,792,895 for
the same period of 1998.  Average  production  costs per EBO  increased  10%, to
$3.69 for the first nine months in 1999  compared with $3.34 for the same period
in 1998.

     General and Administrative  Expenses.  General and administrative  expenses
increased  by $78,537,  or 12%,  to $725,908  for the first nine months of 1999,
from $647,371 for the same period of 1998. General and  administrative  expenses
were $1.25 per EBO in the first nine months of 1999  compared with $1.20 per EBO
in the first nine months of 1998.

     Depreciation,  Depletion and Amortization Expense. Depreciation,  depletion
and amortization  expense ("DD&A")  decreased by $180,227,  or 6%, to $2,928,494
for the first nine months of 1999 compared with  $3,108,721  for the same period
of 1998.  As a  percentage  of  revenues,  the DD&A rate  decreased  by 13% when
compared  with the prior year nine  months,  a result of a  non-cash  impairment
charge  incurred in the fourth  quarter of 1998 that  reduced our full cost pool
and the addition of our  proportionate  share of the  production and reserves of
First Permian at June 30, 1999. The DD&A rate per EBO decreased to $5.07 for the
nine months ended  September  30, 1999 compared with $5.78 per EBO for the first
nine months of 1998.

     Historically,  we have reviewed our estimates of proven reserve  quantities
on an annual  basis.  However,  due to the  current  uncertainty  of oil and gas
prices,  we conduct  internal reviews of our estimated proven reserves on a more
frequent basis and make necessary  adjustment 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.  Net interest expense  increased  $550,813 or 53%, to
$1,592,717 for the nine months ended September 30, 1999 compared with $1,041,904
for the same period of 1998, due principally to borrowings against our revolving
line of credit during 1998 and the consolidation of our  proportionate  share of
the net interest expense of First Permian in 1999.

     Net Income and Operating Cash Flow. Net income increased $93,650 or 25%, to
$471,380 for the nine months ended  September  30, 1999,  compared with $377,730
for the nine months ended  September  30, 1998.  Operating  cash flow  decreased
$272,541,  or 7%, to  $3,399,874  for the nine months ended  September  30, 1999
compared  with  $3,672,415  for the nine months ended  September  30, 1998.  The
increase in net income resulted from a 9% increase in oil and gas revenues, a 2%
increase  in the  average  price we  received  per EBO and a 6% decrease in DD&A
expense.  These increases were offset by a 56% increase in interest  expense,  a
19%  increase  in lease  operating  expenses  and a 12%  increase in general and
administrative  expenses.  Operating  cash flow decreased  primarily  because of
lower DD&A expenses and the absence of deferred income taxes.

<PAGE>
                                       18


LIQUIDITY AND CAPITAL RESOURCES

     Our cash flow is highly  dependent on oil and gas prices.  Decreases in the
market  price of oil and gas in the prior 12 months have  reduced  cash flow and
also  resulted  in the  reduction  of our  borrowing  base under our bank credit
facility.  These factors have  decreased  the funds  available to us for capital
expenditures.

     As described in Note 3 to Consolidated Financial Statements,  we acquired a
22.5% membership interest in First Permian, LLC. On June 30, 1999, First Permian
acquired by cash  merger a  subsidiary  of Fina Oil and  Chemical  Company.  The
primary assets of the acquired  subsidiary consist of oil and gas properties and
related assets in the Permian Basin of west Texas. We have elected to report our
interest  in  this  entity  using  the  proportional   consolidated   method  of
accounting.  As a result, our working capital increased as of September 30, 1999
compared with December 31, 1998. Current assets exceeded current  liabilities by
$806,767 at September  30, 1999  compared  with  working  capital of $128,813 at
December 31, 1998.

     Current assets increased primarily because we classified  $3,825,000 of the
book  value of our oil and gas  assets  as assets  held for sale.  A part of our
longer term  business  strategy is to sell certain  non-core  assets,  which may
include  producing oil and gas  properties,  undeveloped  leasehold  acreage and
other assets, to raise additional capital and reduce debt.  Current  liabilities
increased  primarily because of the consolidation of our proportionate  share of
the  liabilities of First Permian,  which reflects the current  portion of First
Permian's  long  term  debt  of  $675,000  and  subordinated  notes  payable  of
$3,600,000.

     In the normal course of business,  we review opportunities for the possible
sale of certain non-core oil and gas properties. If the bids or offers submitted
are acceptable and consistent with our growth strategy, we may elect to sell the
property to raise additional capital.  Likewise, we review opportunities for the
possible  acquisition  of  oil  and  gas  reserves.  When  possible  acquisition
opportunities  are consistent  with our growth  strategy,  we may submit bids or
offers in amounts  and with terms  consistent  with our  growth  strategy.  Such
acquisitions would require additional financing.

     We incurred net  property  costs of  $22,569,384  for the nine months ended
September  30,  1999.  Of this  amount,  $19,933,537  was  associated  with  our
proportionate interest in First Permian.  Funding of such amount was provided by
borrowings discussed in Notes 5 and 6 to Consolidated Financial Statements.  The
remaining   amount,   $2,635,847,   was  expended  on  Parallel's   3-D  seismic
interpretation,  leasehold costs and drilling and completion  activities.  These
activities  were  financed  by the  utilization  of our cash  flow  provided  by
operations,  sales of  equity  securities,  proceeds  from  the sale of  certain
properties and cash provided by credit lines.

     At the  present  time,  our cash flow from  operations  is adequate to meet
normal  operating  expenses,  the interest expense under our credit facility and
preferred  stock  dividends.   However,  during  a  period  of  sustained  price
downturns,  we reduced exploration activities to match internally generated cash
flows.  Therefore,  without  additional  capital  or an  increase  in our credit
facility  borrowing  base, our capital  expenditure  budget for the remainder of
1999 remains  highly  dependent  on future oil and gas prices.  If the prices we
receive for oil and gas production continue to improve, increasing cash flow, or
if we are successful in obtaining  additional capital,  drilling activity may be
accelerated.

TRENDS AND PRICES

     During 1998, we  experienced  a  significant  erosion in prices for oil and
natural gas. Industry conditions deteriorated  significantly during 1998 and the
first three months of 1999 as a result. While prices recovered  significantly in
the third  quarter of 1999,  prices for the first nine months of 1999, on an EBO
basis,  were only slightly  improved versus the comparable period in 1998. There
is substantial  uncertainty regarding future oil and gas prices and there can be
no assurances that oil and gas prices will not decline in the future.

     Our revenues,  cash flows and borrowing capacity are affected by changes in
oil and gas prices. The 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,  and
seasonal,  political  and other  factors  beyond our  control.  We are unable to
accurately predict domestic or worldwide political events or the effects of such
other factors on the prices we receive for oil and gas.

     Historically,  we have not  entered  into  transactions  to  hedge  against
changes in oil and gas prices. However, effective July 1, 1999, a portion of the
future crude oil production  associated  with our  membership  interest in First

<PAGE>
                                       19



Permian was hedged  against price risks through the use of swap  contracts.  The
gains and losses on these  instruments  will be included as an adjustment to oil
and gas revenues.  See "Item 3 Quantitative  and Qualitative  Disclosures  about
Market Risk" for a description of our hedging activities.

OTHER MATTERS

     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.

INFORMATION SYSTEMS FOR THE YEAR 2000

     We place a high  priority  on  resolving  the  computer  or  embedded  chip
problems related to the Year 2000 that might cause operational disruptions.  Our
Year 2000 project  addresses  the  inability of computer  software;  hardware or
equipment  with  embedded  microprocessors  that are time  sensitive  to process
correctly  dates data  beginning on January 1, 2000.  This problem  results from
computer  programs  using two digits  rather  than four to define an  applicable
year.

     In planning and developing the project,  we considered both our information
technology,  or IT, systems and non-IT  systems.  IT systems  generally  include
computer equipment and software. Alarm systems, fax machines, monitors for field
operations  and  other  miscellaneous   systems,   which  may  contain  embedded
technology,  are  considered  non-IT  systems.  These  types of systems are more
difficult to assess and repair than IT systems.

     The scope of the project includes:

     . conducting an inventory of software, hardware and embedded  systems
       equipment;
     . assessing the potential  for failure and the  associated  risk;
     . prioritizing the need for remediation, repairing or replacing significant
       non-compliant items;  and
     . testing any modifications to ensure Year 2000 compliance.

     Additionally,  the project assesses the risks associated with the Year 2000
compliance of material business partners.

     The  assessment  phase of our Year 2000  project  is at  varying  stages of
completion  as it pertains to IT and non-IT  systems and  applications.  We have
begun a comprehensive  analysis of the operational problems and costs that would
be  reasonably  likely to result  from the failure by us and  significant  third
parties to complete  efforts  necessary  to achieve  Year 2000  compliance  on a
timely basis.

     We believe our most significant risks will be in two areas:

     . measuring the quantities of oil and natural gas produced; and
     . receiving timely payment from the purchasers of its gas and oil.

     We  also  depend  upon  third  parties  for  most  of  our  non-information
technology systems such as:

     . telephones;
     . facsimile machines;
     . air conditioning;
     . heating;
     . elevators in the office building; and
     . other equipment which may have embedded technology such as
       microprocessors.

<PAGE>
                                       20


     Many systems  owned or  controlled  by third  parties that we are dependent
upon, including non-information  technology systems, may or may not be Year 2000
compliant.  Written inquiries have been sent to these third parties, but most of
this  technology  is outside of our  control  and it is  difficult  to assess or
remedy any  non-compliance  that could  adversely  affect our ability to conduct
business.

     In December  1998,  letters  were mailed to  significant  vendors,  service
providers and business partners to determine the extent to which interfaces with
such  entities are  vulnerable  to Year 2000 issues and whether the products and
services  purchased  from or provided by such entities are Year 2000  compliant.
Written assurances have been obtained from our bank lender, our major purchasers
of production,  with the exception of one, and our accounting  software provider
indicating  that they anticipate they are or will be Y2K compliant by the end of
the year.  Efforts  are  being  made to locate  the Y2K  coordinator  of the one
purchaser to determine their Y2K  compliance.  We are mindful that our own level
of  readiness  is  partially  dependent  on the ability of these and other third
parties to be fully compliant.  The failure of third parties to be Y2K compliant
creates  likelihood  that we will also  experience Y2K  interruptions  through a
"ripple effect" stemming from external forces.  However, we currently believe we
have resolved any significant Year 2000 issues.

     The remedial phase of the project is substantially  complete.  The remedial
phase  includes the upgrade  and/or  replacement  of software  applications  and
hardware  systems.  Most  of the  software  providers  for  Parallel's  personal
computers  have  confirmed  their  readiness  for the Year 2000 or have provided
updates to correct most identified Year 2000 problems. Testing of our local area
network and a check for embedded systems have been completed.  Minor corrections
to the local computers have been identified and corrected.

     It is impossible  to accurately  predict all potential Y2K problems and the
magnitude of any adverse effects on Parallel. Because of these uncertainties, we
have developed a contingency plan to minimize potential business  interruptions.
In preparing contingency plans, we have assumed that many third parties will not
be Y2K compliant.  Our remediation efforts are expected to reduce  significantly
our level of  uncertainty  about Year 2000  compliance  and the  possibility  of
interruptions of normal business  operations.  After completion of the Year 2000
review and testing, which is currently expected to be completed by September 30,
1999,  we will further  develop a  contingency  plan as  required.  This plan is
expected to be completed by September 30, 1999.

     The following  table  summarizes the current  overall status of our project
and lists anticipated completion dates for each phase of the project.

<TABLE>


                                     Phase
--------------------------------------------------------------------------------
     Component           Inventory           Assessment          Remediation
--------------------------------------------------------------------------------
<S>                     <C>                  <C>                 <C>
Business Partners      January 31, 1999  August 31, 1999         Completed
Software               April 30, 1999    May 31, 1999            Completed
Hardware               April 30, 1999    September 15,1999       November 30, 1999
Embedded Systems       April 30, 1999    May 31, 1999            Completed
</TABLE>



     To date,  only  minor  costs  have  been  incurred  for  project  planning.
Substantially all of the personnel  working on the project to identify,  assess,
remediate  and test Year 2000 issues are existing  employees.  Therefore,  labor
costs incurred in connection with the project are expected to be minimal.  Based
on current information,  we do not anticipate that the costs associated with any
necessary in-house modifications will be material to its operations or financial
condition.  The total cost of the project is  expected to range from  $10,000 to
$20,000.

     The  failure to correct a material  Year 2000  problem  could  result in an
interruption  in,  or a  failure  of,  certain  normal  business  activities  or
operations that could  materially and adversely  affect  Parallel's  operations,
liquidity and financial condition.  Because of the uncertainty  surrounding Year
2000 issues,  primarily those associated with third party suppliers and material
business  partners,  we are unable to  determine  at this time whether Year 2000
failures will have a material impact on our operations.  However, the project is
expected  to reduce  the risk of Year 2000  issues  significantly,  particularly
regarding the  compliance and readiness of our material  vendors,  suppliers and
business  partners.  We believe that the timely  completion of this project will
reduce  the  possibility  of  significant   interruptions   of  normal  business
operations.

<PAGE>
                                       21
     This is a flexible plan that will change to address  additional  Y2K issues
as new problems are identified. As a result, any time and cost estimates and the
assessment of risks associated with Y2K issues are subject to revision as needed
to meet our goal to be Y2K compliant.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     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.  Although  Parallel has not entered into
hedging  arrangements,  First Permian uses swap  agreements and other  financial
instruments in an attempt to reduce the risk of  fluctuating  oil and gas prices
and interest rates.

     Commodity  Price Risk.  Effective  July 1, 1999,  approximately  82% of the
future crude oil production associated with our proportionate  interest in First
Permian  was hedged  against  price  risks  through  the use of swap  contracts.
Settlements on price swap contracts are realized  monthly,  generally based upon
the difference  between the contract  price and the average  closing NYMEX price
and are reported as a component of oil and gas revenues and operating cash flows
in the period realized.

     While  the use of these  price  risk  management  arrangements  limits  the
downside risk of adverse price movements, it may also limit future revenues from
favorable price movements. These hedging activities will be conducted with major
financial or commodities  trading  institutions that management  believes entail
acceptable levels of market and credit risks.

     The following table sets forth our  proportionate  share of First Permian's
outstanding  oil hedge  contracts,  which were  effective  at July 1,  1999.  At
September 30, 1999, Parallel did not have any hedging contracts in place.

<TABLE>


Type              Volume/Month            Term         Price          Commodity
----              ------------            ----         -----           ---------
<S>               <C>                     <C>          <C>             <C>

Swap              22,500 barrels   7/1/99 - 12/31/99     $19.02        WTI NYMEX
Swap              21,600 barrels   1/1/00 - 12/31/00     $18.07        WTI NYMEX
Swap              20,475 barrels   1/1/01 -  6/30/01     $17.70        WTI NYMEX
Commodity Swap    11,250 barrels   8/1/99 - 12/31/99      $1.28        Differential between
                                                                       Platts WTI/Platts WTS
Commodity Swap    11,250 barrels   8/1/99   12/31/99      $1.24        Differential between
                                                                       Platts WTI /Platts WTS
</TABLE>


     Interest  Rate Risk.  Parallel's  only  financial  instrument  sensitive to
changes in interest rates is bank debt.  Our annual  interest costs in 1999 will
fluctuate  based on  short-term  interest  rates.  Since  the  interest  rate is
variable and reflects current market conditions, the carrying value approximates
the fair  value.  The  following  table shows  principal  cash flows and related
weighted average interest rates by expected maturity dates.

<TABLE>



Instrument                         1999   2000   2001   2002   Total      Fair Value
------------------------------------------------------------------------------------
                                    (in 000's, except interest rates)

<S>                               <C>    <C>    <C>    <C>    <C>         <C>

Variable rate debt
  Revolving Facility (secured)    $.2    $.7    $19.5  $15.1   $35.5      $35.5
        Average interest rate    9.75%  9.75%    8.55%  9.75%

</TABLE>


     Effective  August 6, 1999,  approximately  54% of the long debt  associated
with our  proportionate  share in First Permian was hedged against the impact of
interest  rate changes  through an interest rate swap  agreement.  The principal
amount of the swap agreement is $40 million,  or $9 million net to our interest.
The agreement terminates on July 1, 2002. The terms of the agreement provide for
quarterly  payments  either to or from First Permian,  determined by whether the
quarterly  London  Interbank  Offered Rate (LIBOR) in effect at the beginning of
each quarterly calculation period is greater or less than 6.52%. The calculation
periods begin on the first day of each January,  April, July and October of each

<PAGE>
                                       22

year during the term of the agreement, commencing on October 1, 1999. If, on the
date of the  beginning of the  calculation  period,  the monthly  LIBOR  exceeds
6.52%,  Bank One, Texas,  N.A. (the Lendor) will owe First Permian the quarterly
amount of the excess rate applied to $40 million.  Alternatively, if the monthly
LIBOR rate on the applicable monthly date is less than 6.52%, First Permian will
owe the Lender.

     The swap  agreement is accounted  for as a hedge,  with the amount which is
either due to or from First  Permian  recorded  as a  reduction  or  increase in
interest expense.  Since the quarterly  calculation period began in October,  we
recognized  no increase or  reduction  to interest  expense in the three  months
ended September 30, 1999.


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

         (a) Exhibits

          2.1  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)


          2.2  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)

          3.1  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)

          9.1  Certificate  of  Formation  of  First  Permian,   L.L.C.,   dated
               September 24, 1999  (Incorporated by reference to Exhibit 10.1 to
               Form 8-K of the Registrant dated July 14, 1999 and filed with the
               Securities and Exchange Commission on July 15, 1999)

          9.2  Limited  Liability  Company  Agreement of First Permian,  L.L.C.,
               dated  September 25, 1999  (Incorporated  by reference to Exhibit
               10.2 to Form 8-K of the Registrant  dated July 14, 1999 and filed
               with the Securities and Exchange Commission on July 15, 1999)

          9.3  Merger  Agreement,  dated  September  25, 1999  (Incorporated  by
               reference  to Exhibit  10.3 to Form 8-K of the  Registrant  dated
               July  14,  1999  and  filed  with  the  Securities  and  Exchange
               Commission on July 15, 1999)

          9.4  Agreement and Plan of merger,  dated September 30, 1999, of First
               Permian,  L.L.C.  and Nash Oil Company,  L.L.C.  (Incorporated by
               reference  to Exhibit  10.4 to Form 8-K of the  Registrant  dated
               July  14,  1999  and  filed  with  the  Securities  and  Exchange
               Commission on July 15, 1999)

          9.1  Certificate  of  Merger  of  First  Permian  L.L.C.  and Nash Oil
               Company,  dated September 30, 1999  (Incorporated by reference to
               Exhibit  10.5 to Form 8-K of the  Registrant  dated July 14, 1999
               and filed with the Securities and Exchange Commission on July 15,
               1999)

          10.6 Credit Agreement,  dated September 30, 1999, among First Permian,
               L.L.C.,  as Borrower,  and  Parallel  Petroleum  Corporation  and
               Baytech,  Inc. as Guarantors  and Bank One,  Texas,  N.A. and the
               Institutions  named Herein as Banks and Bank One, Texas, N.A., as
               Agent  (Incorporated  by reference to Exhibit 10.6 to Form 8-K of
               the Registrant  dated July 14, 1999 and filed with the Securities
               and Exchange Commission on July 15, 1999)

          9.7  Limited  Guaranty,  dated  September 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 to Form 8-K
               of the  Registrant  dated  July  14,  1999  and  filed  with  the
               Securities and Exchange Commission on July 15, 1999)

          10.8 Intercreditor  Agreement,  dated as of September 30, 1999,  among
               First Permian,  L.L.C.,  Bank One, Texas, N.A., Tejon Exploration
               Company and Mansefeldt Investment  Corporation.  (Incorporated by
               reference  to Exhibit  10.8 to Form 8-K of the  Registrant  dated
               July  14,  1999  and  filed  with  the  Securities  and  Exchange
               Commission on July 15, 1999)

<PAGE>
                                       23


          9.9  Subordinated  Promissory  Note,  dated September 30, 1999,  among
               First Permian, L.L.C. and Tejon Exploration Company (Incorporated
               by reference to Exhibit 10.9 to Form 8-K of the Registrant  dated
               July  14,  1999  and  filed  with  the  Securities  and  Exchange
               Commission on July 15, 1999)

          9.10 Subordinated  Promissory  Note,  dated September 30, 1999,  among
               First  Permian,   L.L.C.   and  Mansefeldt   Investment   Company
               (Incorporated  by reference  to Exhibit  10.10 to Form 8-K of the
               Registrant  dated July 14, 1999 and filed with the Securities and
               Exchange Commission on July 15, 1999)

          *27  Financial Data Schedule

          (b)  Reports on Form 8-K

               On  September  14, 1999,  we filed a report on Form 8-K/A,  dated
               September  13,  1999,  to amend the Form 8-K Report filed on July
               15, 1999 that reported First Permian's acquisition of oil and gas
               properties  from Fina Oil and  Chemical  Company.  The Form 8-K/A
               Report included the following financial statements:

               .    Statements of Revenues and Direct Operating Expenses for the
                    Years  Ended  December  31,  1997  and  1998 and for the Six
                    Months Ended June 30, 1998 and 1999.

               .    Unaudited Pro Forma Combined Statement of Operations for the
                    Year Ended  December 31, 1998.

               .    Unaudited Pro Forma Combined Statement of Operations for the
                    Six Months  Ended June 30, 1999.

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

<PAGE>
                                       24









                                SIGNATURES



     Pursuant to the  requirements  of the Securities  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:   November 15, 1999      ---------------------------------
                               Thomas R. Cambridge
                               Chairman of the Board of Directors
                               and Chief Executive Officer



Date:   November 15, 1999      BY:  /s/ LARRY C. OLDHAM
                              ----------------------------------
                              Larry C. Oldham,
                              President ( Principal Financial Officer)