##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D. C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2009 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Transition period from  to
 Commission File Number 000-13305
 PARALLEL PETROLEUM CORPORATION
  Delaware
    
    75-1971716(State of other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 1004 N. Big Spring, Suite 400, 
Midland, Texas
    
    79701(Address of Principal Executive Offices)
    
    (Zip Code)
 
  
   þ o
  o o
  Large accelerated filer þAccelerated filer oNon-accelerated filer o(Do not check if a smaller reporting company)Smaller reporting company o o þ
 
  ̈  ̈




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##### 



Page No.PART I. FINANCIAL INFORMATIONITEM 1.
    
    FINANCIAL STATEMENTSReference is made to the succeeding pages for the following financial statements: Unaudited Balance Sheets at June 30, 2009 and December 31, 2008
    
    
    1 Unaudited Statements of Operations for the three months and six months
ended June 30, 2009 and 2008
    
    
    3 Unaudited Statements of Stockholders Equity as of December 31, 2008
and for the six months ended June 30, 2009
    
    
    4 Unaudited Statements of Cash Flows for the six months ended June 30, 2009 and 2008
    
    
    5 Notes to Financial Statements
    
    
    7ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
    
    
    24ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    48ITEM 4.
    
    CONTROLS AND PROCEDURES
    
    
    51PART II  OTHER INFORMATIONITEM 1.
    
    LEGAL PROCEEDINGS
    
    
    52ITEM 1A.
    
    RISK FACTORS
    
    
    53ITEM 2.
    
    UNREGISTERED SALES OR EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    59ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    60ITEM 5.
    
    OTHER INFORMATION
    
    
    60ITEM 6.
    
    EXHIBITS
    
    
    60SIGNATURESEX-31.1EX-31.2EX-32.1EX-32.2
  (i)




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##### Table of Contents



PART
1  FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 
 PARALLEL PETROLEUM CORPORATION
Balance Sheets  (unaudited)
($ in thousands)
 Assets
 June 30,
    
    
    December 31,2009
    
    
    2008Current assets:Cash and cash equivalents
    
    $
    28,774
    
    
    $
    36,303Short-term investments
    
    
    5,000
    
    
    
    5,002Accounts receivable:Oil and natural gas sales
    
    
    10,084
    
    
    
    13,399Joint interest owners and other, net of allowance for doubtful account of $50
    
    
    1,596
    
    
    
    2,805Affiliates and joint ventures
    
    
    6
    
    
    
    1211,686
    
    
    
    16,216Other current assets
    
    
    702
    
    
    
    430Derivatives
    
    
    8,825
    
    
    
    22,665Total current assets
    
    
    54,987
    
    
    
    80,616Property and equipment, at cost:Oil and natural gas properties, full cost method (including $136,046 and $137,202 not
subject to depletion)
    
    
    888,676
    
    
    
    878,722Other
    
    
    3,314
    
    
    
    3,172891,990
    
    
    
    881,894Less accumulated depreciation, depletion and amortization
    
    
    (533,171
    )
    
    
    (490,566
    )Net property and equipment
    
    
    358,819
    
    
    
    391,328Restricted cash
    
    
    82
    
    
    
    81Investment in pipeline venture
    
    
    349
    
    
    
    337Other assets, net of accumulated amortization of $1,754 and $1,443
    
    
    3,312
    
    
    
    3,566Deferred tax asset
    
    
    71,336
    
    
    
    60,567Derivatives
    
    
    8,616
    
    
    
    14,081$
    497,501
    
    
    $
    550,576
  (1)




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##### Table of Contents



PARALLEL PETROLEUM CORPORATION
Balance Sheets (continued)  (unaudited)
($ in thousands)
 Liabilities and Stockholders Equity
 June 30,
    
    
    December 31,2009
    
    
    2008Current
liabilities :Accounts payable trade
    
    $
    2,103
    
    
    $
    13,522Accrued liabilities
    
    
    14,423
    
    
    
    21,780Accrued interest on senior notes
    
    
    6,406
    
    
    
    6,407Asset retirement obligations
    
    
    158
    
    
    
    158Derivative obligations
    
    
    4,737
    
    
    
    3,004Put premium obligations
    
    
    1,036
    
    
    
    628Deferred tax liability
    
    
    1,058
    
    
    
    6,597Total current liabilities
    
    
    29,921
    
    
    
    52,096Long-term liabilities:Revolving credit facility
    
    
    225,000
    
    
    
    225,000Senior notes (principal amount $150,000)
    
    
    146,166
    
    
    
    145,890Asset retirement obligations
    
    
    9,846
    
    
    
    11,221Derivative obligations
    
    
    5,041
    
    
    
    5,136Put premium obligations
    
    
    3,031
    
    
    
    3,655Termination obligation
    
    
    385
    
    
    
    532Total long-term liabilities
    
    
    389,469
    
    
    
    391,434Commitments and contingenciesStockholders equity:Series A preferred stock  par value $0.10 per share, authorized 50,000 shares
    
    
    
    
    
    
    Common stock  par value $0.01 per share, authorized 60,000,000 shares,
issued and outstanding 41,597,161 for 2009 and 2008
    
    
    415
    
    
    
    415Additional paid-in capital
    
    
    201,198
    
    
    
    200,132Retained deficit
    
    
    (123,502
    )
    
    
    (93,501
    )Total
stockholders equity
    
    
    78,111
    
    
    
    107,046$
    497,501
    
    
    $
    550,576
  (2)




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##### Table of Contents



PARALLEL PETROLEUM CORPORATION
Statements of Operations  (unaudited)
(in thousands, except per share data)
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Oil and natural gas revenues:Oil and natural gas sales
    
    $
    19,861
    
    
    $
    56,075
    
    
    $
    38,090
    
    
    $
    100,016Costs and expenses:Lease operating expense
    
    
    5,541
    
    
    
    7,254
    
    
    
    13,627
    
    
    
    14,233Production taxes
    
    
    761
    
    
    
    2,996
    
    
    
    1,334
    
    
    
    5,285General and administrative
    
    
    3,281
    
    
    
    3,265
    
    
    
    6,714
    
    
    
    5,833Depreciation, depletion and amortization
    
    
    5,398
    
    
    
    10,483
    
    
    
    12,179
    
    
    
    19,835Impairment of oil and natural gas properties
    
    
    
    
    
    
    
    
    
    
    30,426
    
    
    
    Total costs and expenses
    
    
    14,981
    
    
    
    23,998
    
    
    
    64,280
    
    
    
    45,186Operating income (loss)
    
    
    4,880
    
    
    
    32,077
    
    
    
    (26,190
    )
    
    
    54,830Other income (expense), net:Loss on derivatives not classified as hedges
    
    
    (13,286
    )
    
    
    (71,609
    )
    
    
    (7,521
    )
    
    
    (93,495
    )Interest and other income
    
    
    30
    
    
    
    32
    
    
    
    99
    
    
    
    65Interest expense, net of capitalized interest
    
    
    (6,360
    )
    
    
    (5,368
    )
    
    
    (12,690
    )
    
    
    (10,886
    )Other expense
    
    
    (5
    )
    
    
    (1
    )
    
    
    (5
    )
    
    
    (1
    )Equity in gain of pipelines and gathering system
ventures
    
    
    
    
    
    
    165
    
    
    
    1
    
    
    
    382Total other income (expense), net
    
    
    (19,621
    )
    
    
    (76,781
    )
    
    
    (20,116
    )
    
    
    (103,935
    )Loss before income taxes
    
    
    (14,741
    )
    
    
    (44,704
    )
    
    
    (46,306
    )
    
    
    (49,105
    )Income tax benefit
    
    
    5,101
    
    
    
    15,499
    
    
    
    16,305
    
    
    
    17,160Net loss
    
    $
    (9,640
    )
    
    $
    (29,205
    )
    
    $
    (30,001
    )
    
    $
    (31,945
    )Net loss per common share:Basic
    
    $
    (0.23
    )
    
    $
    (0.70
    )
    
    $
    (0.72
    )
    
    $
    (0.77
    )Diluted
    
    $
    (0.23
    )
    
    $
    (0.70
    )
    
    $
    (0.72
    )
    
    $
    (0.77
    )Weighted average common shares outstanding:Basic
    
    
    41,597
    
    
    
    41,446
    
    
    
    41,597
    
    
    
    41,359Diluted
    
    
    41,597
    
    
    
    41,446
    
    
    
    41,597
    
    
    
    41,359
  (3)




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PARALLEL PETROLEUM CORPORATION
Statements of Stockholders Equity
As of December 31, 2008 and for the six months ended June 30, 2009  (unaudited)
(in thousands)
 Common stock
    
    
    Additional
    
    
    
    
    
    
    TotalNumber of
    
    
    
    
    
    
    paid-in
    
    
    Retained
    
    
    stockholdersshares
    
    
    Amount
    
    
    capital
    
    
    deficit
    
    
    equityBalance, December 31, 2008
    
    
    41,597
    
    
    $
    415
    
    
    $
    200,132
    
    
    $
    (93,501
    )
    
    $
    107,046Restricted stock expense
    
    
    
    
    
    
    
    
    
    
    45
    
    
    
    
    
    
    
    45Stock option expense
    
    
    
    
    
    
    
    
    
    
    1,021
    
    
    
    
    
    
    
    1,021Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30,001
    )
    
    
    (30,001
    )Balance, June 30, 2009
    
    
    41,597
    
    
    $
    415
    
    
    $
    201,198
    
    
    $
    (123,502
    )
    
    $
    78,111
  (4)




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##### Table of Contents



PARALLEL PETROLEUM CORPORATION
Statements of Cash Flows
Six Months Ended June 30, 2009 and 2008  (unaudited)
($ in thousands)
 2009
    
    
    2008Cash flows from operating activities:Net loss
    
    $
    (30,001
    )
    
    $
    (31,945
    )Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:Depreciation, depletion and amortization
    
    
    12,179
    
    
    
    19,835Gain on sale of automobiles
    
    
    
    
    
    
    (4
    )Impairment of oil and natural gas properties
    
    
    30,426
    
    
    
    Accretion of asset retirement obligation
    
    
    425
    
    
    
    187Accretion of senior notes discount
    
    
    276
    
    
    
    247Deferred income tax benefit
    
    
    (16,305
    )
    
    
    (17,160
    )Loss on derivatives not classified as hedges
    
    
    7,521
    
    
    
    93,495Amortization of deferred financing cost
    
    
    312
    
    
    
    374Accretion of interest on put obligations
    
    
    105
    
    
    
    6Common stock issued to directors
    
    
    
    
    
    
    160Restricted stock expense
    
    
    45
    
    
    
    57Stock option expense
    
    
    1,021
    
    
    
    227Equity in gain of pipelines and gathering system ventures
    
    
    (1
    )
    
    
    (382
    )Changes in assets and liabilities:Other assets, net
    
    
    632
    
    
    
    (854
    )Restricted cash
    
    
    (1
    )
    
    
    (2
    )Accounts receivable
    
    
    4,530
    
    
    
    (8,316
    )Other current assets
    
    
    (272
    )
    
    
    (99
    )Accounts payable and accrued liabilities
    
    
    (11,380
    )
    
    
    14,069Net cash (used in) provided by operating activities
    
    
    (488
    )
    
    
    69,895Cash flows from investing activities:Additions to oil and natural gas properties
    
    
    (19,301
    )
    
    
    (123,727
    )Additions to other property and equipment
    
    
    (142
    )
    
    
    (273
    )Settlements on derivative instruments
    
    
    10,785
    
    
    
    (22,839
    )Short-term investments
    
    
    (5,000
    )
    
    
    Maturity of
short-term investments
    
    
    5,002
    
    
    
    Net investment in pipelines and gathering system ventures
    
    
    (11
    )
    
    
    (15
    )Net cash used in investing activities
    
    
    (8,667
    )
    
    
    (146,854
    )Cash flows from financing activities:Borrowings from bank line of credit
    
    
    
    
    
    
    77,000Deferred financing cost
    
    
    (690
    )
    
    
    (270
    )Proceeds from exercise of stock options
    
    
    
    
    
    
    1,323Settlements on derivative instruments with financing elements
    
    
    2,316
    
    
    
    Net cash provided by financing activities
    
    
    1,626
    
    
    
    78,053Net (decrease) increase in cash and cash equivalents
    
    
    (7,529
    )
    
    
    1,094Cash and cash equivalents at beginning of period
    
    
    36,303
    
    
    
    7,816Cash and cash equivalents at end of period
    
    $
    28,774
    
    
    $
    8,910
  (5)




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##### Table of Contents



Parallel
Petroleum Corporation 
Statements of Cash Flows (continued)
Six Months Ended June 30, 2009 and 2008  (unaudited)
($ in thousands)
 2009
 

2008Non-cash financing and investing activities:Deferred purchase of derivative puts
    
    $
    
    
    
    $
    3,325Oil and natural gas properties asset retirement obligations
    
    $
    (1,800
    )
    
    $
    482Additions to oil and natural gas properties accrued
    
    $
    (7,400
    )
    
    $
    1,000Termination obligation capitalized to oil and natural gas properties
    
    $
    (147
    )
    
    $
    Property transfer:Transfer to oil and natural gas properties
    
    $
    
    
    
    $
    8,707Transfer from equity investment
    
    $
    
    
    
    $
    (8,707
    )Other transactions:Interest paid
    
    $
    13,040
    
    
    $
    9,901Taxes paid
    
    $
    75
    
    
    $
    
  (6)




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##### Table of Contents



NOTES TO FINANCIAL STATEMENTS
 NOTE 1.
    
    DESCRIPTION OF BUSINESS  NATURE OF OPERATIONS AND BASIS OF PRESENTATION
   
    
    Permian Basin of west Texas and New Mexico; and
    
    Fort Worth Basin of north Texas.
    NOTE 2.
    
    STOCKHOLDERS EQUITY
 Share-Based Payment
  Options
  (7)




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##### Table of Contents



FutureCompensationExpense($ in thousands)Third quarter 2009
    
    $
    352Fourth quarter 2009
    
    
    3452010
    
    
    9992011
    
    
    4862012
    
    
    1592013
    
    
    14Total
    
    $
    2,355
   2009
    
    2008
    
    2005
    
    2001Expected volatility
    
    
    63.94
    %
    
    
    46.50
    %
    
    
    54.20
    %
    
    
    57.95
    %Expected dividends
    
    
    0.00
    
    
    
    0.00
    
    
    
    0.00
    
    
    
    0.00Expected term (in years)
    
    
    6.25
    
    
    
    6.25
    
    
    
    6.5
    
    
    
    7.5Risk-free rate
    
    
    3.19
    %
    
    
    3.81%-3.86
    %
    
    
    4.20
    %
    
    
    5.05
    %
  WeightedAverageNumber of Shares of
    
    
    Weighted
    
    
    RemainingCommon Stock
    
    
    Average Exercise
    
    
    Contractual
    
    
    AggregateUnderlying Options
    
    
    Price
    
    
    Term
    
    
    Intrinsic Value(in thousands)
    
    
    
    
    
    
    (years)
    
    
    ($ in thousands)Outstanding December 31, 2008
    
    
    739
    
    
    $
    14.41Granted
    
    
    464
    
    
    $
    2.00Exercised
    
    
    
    
    
    $
    Surrendered
    
    
    
    
    
    $
    Outstanding June 30, 2009
    
    
    1,203
    
    
    $
    9.62
    
    
    
    9.0
    
    
    $
    Exercisable at June 30, 2009
    
    
    398
    
    
    $
    10.66
    
    
    
    7.3
    
    
    $
    
 (8)




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##### Table of Contents



($ in thousands)Average weighted grant date fair value of options issued and unvested, June 30, 2009
    
    $
    3,879Average weighted grant date fair value of options issued and outstanding, June 30, 2009
    
    $
    6,191
 Restricted Stock
   NOTE 3.
    
    CREDIT ARRANGEMENTS
  Revolving Credit Facility
     (9)




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##### Table of Contents



(10)




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##### Table of Contents



Senior Notes
 1 4
   Interest Incurred
  NOTE 4.
    
    OIL AND NATURAL GAS PROPERTIES
  
    
    all wells drilled from November 1, 2008 through December 31, 2009, and all wells
drilled during each succeeding calendar year through 2016 will be treated as a separate
project or payout period, creating eight separate projects or payout periods;
    
    at the time Chesapeake commences the drilling of a well during one of the payout
periods, we will assign to Chesapeake 100% of our leasehold interest within the subject
unit or lease, reserving and retaining a 50% reversionary interest that will vest after
Chesapeake recovers 150% of its costs for a particular payout period. Until 150% payout
has been reached,
Chesapeake will fund 100% of our costs for drilling, completing and operating wells
during the payout period;
 (11)




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##### Table of Contents




    
    on each project, Chesapeake is entitled to receive all revenues from our
reversionary interest
until Chesapeake receives revenues totaling 150% of the drilling,
completion and operating costs Chesapeake incurs in funding our reversionary interest;
    
    upon reaching the 150% payout level for a given project, 50% of the interest
assigned to Chesapeake will revert back to us;
    
    after 150% project payout, we will pay all costs and receive all revenues
attributable to our 50% reversionary interest in each project;
    
    for wells drilled after January 1, 2017, we will pay all costs and receive all
revenues attributable to our 50% reversionary interest; and
    
    we retained all of our interest in wells commenced prior to November 1, 2008, except
for 3 wells commenced in late October 2008. We also retained all of our interest in
approximately 90 gross (22.4 net) producing wells and 31 gross (9.49 net) wells in
progress.
      (12)




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##### Table of Contents



June 30,
    
    
    December 31,2009
    
    
    2008($ in thousands)Proved properties
    
    $
    752,630
    
    
    $
    741,520Unproved properties, not subject to depletion
    
    
    136,046
    
    
    
    137,202888,676
    
    
    
    878,722Accumulated depletion (1)
    
    
    (530,596
    )
    
    
    (488,168
    )$
    358,080
    
    
    $
    390,554
 
 (1)
    
    Includes $30.4 million and $300.5 million impairment of oil and natural gas
properties for the periods ending June 30, 2009 and December 31, 2008, respectively. NOTE 5.
    
    OTHER ASSETS
  June 30,
    
    
    December 31,2009
    
    
    2008($ in thousands)Revolving credit facility deferred financing costs, net
    
    $
    1,813
    
    
    $
    1,306Senior notes deferred financing costs, net
    
    
    1,304
    
    
    
    1,432Other
    
    
    195
    
    
    
    828$
    3,312
    
    
    $
    3,566
 NOTE 6.
    
    OTHER ACCRUED LIABILITIES
  June 30,
    
    
    December 31,2009
    
    
    2008($ in thousands)Revenue payable to joint interest and royalty owners
    
    $
    6,675
    
    
    $
    8,004Accrued capital expenditures
    
    
    1,566
    
    
    
    9,275Accrued lease operating expense
    
    
    1,856
    
    
    
    2,223Accrued ad valorem taxes
    
    
    2,038
    
    
    
    150Other
    
    
    2,288
    
    
    
    2,128$
    14,423
    
    
    $
    21,780
 (13)




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##### Table of Contents



NOTE 7.
    
    ASSET RETIREMENT OBLIGATIONS
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008($ in thousands)
    
    
    ($ in thousands)Beginning asset retirement obligation
    
    $
    11,429
    
    
    $
    5,802
    
    
    $
    11,379
    
    
    $
    4,937Additions related to new properties
    
    
    6
    
    
    
    554
    
    
    
    121
    
    
    
    706Revisions in estimated cash flows
    
    
    (1,643
    )
    
    
    (851
    )
    
    
    (1,715
    )
    
    
    (209
    )Deletions related to property disposals
    
    
    (3
    )
    
    
    (3
    )
    
    
    (206
    )
    
    
    (15
    )Accretion expense
    
    
    215
    
    
    
    104
    
    
    
    425
    
    
    
    187Ending asset retirement obligation
    
    $
    10,004
    
    
    $
    5,606
    
    
    $
    10,004
    
    
    $
    5,606
  NOTE 8.
    
    DERIVATIVE INSTRUMENTS
 General
     (14)




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##### Table of Contents



Adoption of SFAS No. 161
 Disclosures about Derivative Instruments and Hedging Activities  an
amendment of FASB Statement No. 133
  
 As ofJune 30, 2009
    
    
    December 31, 2008($ in thousands)Derivative AssetGas swaps
    
    $
    210
    
    
    $
    Gas collars
    
    
    5,418
    
    
    
    6,611Oil collars
    
    
    1,660
    
    
    
    13,480Oil puts
    
    
    10,153
    
    
    
    16,655Derviative ObligationInterest rate swaps
    
    
    (6,616
    )
    
    
    (8,051
    )Gas collars
    
    
    (1,475
    )
    
    
    Oil collars
    
    
    (1,687
    )
    
    
    (89
    )Net derivative asset
    
    $
    7,663
    
    
    $
    28,606
 (1)
 For the three months ended
    
    
    For the six months endedJune 30, 2009
    
    
    June 30, 2008
    
    
    June 30, 2009
    
    
    June 30, 2008($ in thousands)
    
    
    ($ in thousands)Interest rate swaps
    
    $
    457
    
    
    $
    1,407
    
    
    $
    (23
    )
    
    $
    (695
    )Gas collars
    
    
    (1,040
    )
    
    
    (9,147
    )
    
    
    3,482
    
    
    
    (13,712
    )Gas swaps
    
    
    175
    
    
    
    
    
    
    
    537
    
    
    
    Oil swaps
    
    
    
    
    
    
    (11,847
    )
    
    
    
    
    
    
    (14,886
    )Oil collars
    
    
    (8,983
    )
    
    
    (51,597
    )
    
    
    (7,652
    )
    
    
    (63,777
    )Oil puts
    
    
    (3,895
    )
    
    
    (425
    )
    
    
    (3,865
    )
    
    
    (425
    )Total loss on derivatives
    
    $
    (13,286
    )
    
    $
    (71,609
    )
    
    $
    (7,521
    )
    
    $
    (93,495
    )
 
 (1)
    
    All changes in the mark-to-market valuation of our derivatives are recorded on the
Statement of Operations under the line item Loss on derivatives not classified as hedges. (15)




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Adoption of SFAS No. 157
 Fair Value Measurements
 Level 1:
    
    Unadjusted quoted prices in active markets that are accessible
at the measurement date for identical, unrestricted assets or liabilities.
We consider active markets as those in which transactions for the assets or
liabilities occur in sufficient frequency and volume to provide pricing
information on an ongoing basis.Level 2:
    
    Quoted prices in markets that are not active, or inputs which
are observable, either directly or indirectly, for substantially the full
term of the asset or liability. This category includes those derivative
instruments that are valued using observable market data. Substantially all
of these inputs are observable in the marketplace throughout the full term
of the derivative instrument, can be derived from observable data, or
supported by observable levels at which transactions are executed in the
marketplace. Instruments in this category include non-exchange traded
derivatives such as over-the-counter commodity price swaps and interest rate
swaps.Level 3:
    
    Measured based on prices or valuation models that require inputs
that are both significant to the fair value measurement and less observable
from objective sources (i.e., supported by little or no market activity). Our
valuation models are primarily industry-standard models that consider various
inputs including: (a) quoted forward prices for commodities, (b) time value,
(c) volatility factors and (d) current market and contractual prices for the
underlying instruments, as well as other relevant economic measures. Level 3
instruments primarily include derivative instruments, such as commodity price
collars and puts. These instruments are considered Level 3 because we do not
have sufficient corroborating market evidence for volatility to support
classifying these assets and liabilities as Level 2.
  (16)




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##### Table of Contents



Quoted Prices inActive Marketsfor Identical
    
    
    Other Observable
    
    
    Unobservable
    
    
    Fair Value atAssets (Level 1)
    
    
    Inputs (Level 2)
    
    
    Inputs (Level 3)
    
    
    June 30, 2009Interest swaps
    
    $
    
    
    
    $
    (6,616
    )
    
    $
    
    
    
    $
    (6,616
    )Gas swaps
    
    $
    
    
    
    $
    210
    
    
    $
    
    
    
    $
    210Oil puts
    
    $
    
    
    
    $
    
    
    
    $
    10,153
    
    
    $
    10,153Oil & gas collars
    
    $
    
    
    
    $
    
    
    
    $
    3,916
    
    
    $
    3,916$
    
    
    
    $
    (6,406
    )
    
    $
    14,069
    
    
    $
    7,663
   Three Months Ended
    
    
    Six Months EndedJune 30, 2009
    
    
    June 30, 2009Derivative
    
    
    Derivative
    
    
    Derivative
    
    
    DerivativeCollars
    
    
    Puts
    
    
    Collars
    
    
    PutsBeginning balance
    
    $
    18,887
    
    
    $
    15,160
    
    
    $
    20,002
    
    
    $
    16,656Total losses
    
    
    (10,024
    )
    
    
    (3,904
    )
    
    
    (4,170
    )
    
    
    (3,867
    )Settlements(1)
    
    
    (4,947
    )
    
    
    (1,103
    )
    
    
    (11,916
    )
    
    
    (2,636
    )Purchases
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Transfers in and/or out of level 3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at end of period
    
    $
    3,916
    
    
    $
    10,153
    
    
    $
    3,916
    
    
    $
    10,153Change in unrealized losses included in earnings relating
to derivatives still held as of June 30, 2009(2)
    
    $
    (14,971
    )
    
    $
    (5,007
    )
    
    $
    (16,086
    )
    
    
    (6,503
    )
 
 (1)
    
    Put premiums were netted from the settlement receipts of $161,000 for the three months ended June 30, 2009 and
$320,000 for the six months ended June 30, 2009.(2)
    
    Losses (realized and unrealized) are included in earnings and are reported in Loss on derivatives not classified as
hedges in the Statement of Operations.  (17)




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##### Table of Contents



Interest Rate Sensitivity
   Notional
    
    
    Weighted Average
    
    
    EstimatedPeriod of Time
    
    Amounts
    
    
    Fixed Interest Rates
    
    

Fair
Market Value($ in millions)
    
    
    
    
    
    
    ($ in thousands)July 1, 2009 through December 31, 2009
    
    $
    100
    
    
    
    4.22
    %
    
    $
    (1,798
    )January 1, 2010 through October 31, 2010
    
    $
    100
    
    
    
    4.71
    %
    
    
    (2,777
    )November 1, 2010 through December 31, 2010
    
    $
    50
    
    
    
    4.26
    %
    
    
    (237
    )January 1, 2011 through December 31, 2011
    
    $
    100
    
    
    
    4.67
    %
    
    
    (1,804
    )Total Fair Market Value
    
    
    
    
    
    
    
    
    
    $
    (6,616
    )
 Commodity Price Sensitivity
  Put Options.
  (18)




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##### Table of Contents



EstimatedBarrels of
    
    
    
    
    
    
    Fair MarketPeriod of Time
    
    Oil
    
    
    Floor
    
    
    Value($ in thousands)July 1, 2009 through December 31, 2009
    
    
    55,200
    
    
    $
    100.00
    
    
    $
    1,575January 1, 2010 through December 31, 2010
    
    
    280,100
    
    
    $
    84.36
    
    
    
    4,709January 1, 2011 through December 31, 2011
    
    
    146,000
    
    
    $
    100.00
    
    
    
    3,869Total Fair Market Value
    
    
    
    
    
    
    
    
    
    $
    10,153
 Collars.
    EstimatedBarrels of
    
    NYMEX Oil Prices
    
    Fair MarketPeriod of Time
    
    Oil
    
    Floor
    
    Ceiling
    
    Value($ in thousands)July 1, 2009 through December 31, 2009
    
    
    386,400
    
    
    $
    65.71
    
    
    $
    82.93
    
    
    $
    417January 1, 2010 through October 31, 2010
    
    
    486,400
    
    
    $
    63.44
    
    
    $
    78.26
    
    
    
    (1,503
    )January 1, 2011 through December 31, 2011
    
    
    255,500
    
    
    $
    70.00
    
    
    $
    94.50
    
    
    
    424January 1, 2012 through December 31, 2012
    
    
    366,000
    
    
    $
    70.00
    
    
    $
    101.50
    
    
    
    634MMBtu of
    
    
    WAHA Gas PricesNatural Gas
    
    
    Floor
    
    
    CeilingJuly 1, 2009 through December 31, 2009
    
    
    2,116,000
    
    
    $
    6.30
    
    
    $
    8.66
    
    
    
    5,246January 1, 2010 through December 31, 2010
    
    
    4,380,000
    
    
    $
    4.74
    
    
    $
    5.86
    
    
    
    (1,302
    )Total Fair Market Value
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    3,916
 Commodity Swaps.
 (19)




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##### Table of Contents



EstimatedMMBtu of
    
    WAHA
    
    Fair MarketPeriod of Time
    

Natural
Gas
    
    Swap Price
    
    Value($ in thousands)July 1, 2009 through September 30, 2009
    
    
    460,000
    
    
    $
    3.91
    
    
    $
    210
 NOTE 9. NET LOSS PER COMMON SHARE
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(in thousands, except per share data)Basic EPS Computation:Numerator-Net loss
    
    $
    (9,640
    )
    
    $
    (29,205
    )
    
    $
    (30,001
    )
    
    $
    (31,945
    )Denominator-Weighted average common shares outstanding
    
    
    41,597
    
    
    
    41,446
    
    
    
    41,597
    
    
    
    41,359Basic EPS:Net loss per share
    
    $
    (0.23
    )
    
    $
    (0.70
    )
    
    $
    (0.72
    )
    
    $
    (0.77
    )Diluted EPS Computation:Numerator-Net loss
    
    $
    (9,640
    )
    
    $
    (29,205
    )
    
    $
    (30,001
    )
    
    $
    (31,945
    )Denominator-Weighted average common shares outstanding
    
    
    41,597
    
    
    
    41,446
    
    
    
    41,597
    
    
    
    41,359Employee stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted average common shares for diluted
earnings per share assuming conversion
    
    
    41,597
    
    
    
    41,446
    
    
    
    41,597
    
    
    
    41,359Diluted EPS:Net loss per share
    
    $
    (0.23
    )
    
    $
    (0.70
    )
    
    $
    (0.72
    )
    
    $
    (0.77
    )
  (20)




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##### Table of Contents



NOTE 10. RECENTLY ANNOUNCED ACCOUNTING PRONOUNCEMENTS
 Business Combinations,
 Effective Date of FASB Statement
No. 157
 Disclosures about Derivative Instruments and
Hedging Activities, an amendment of FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities,
 The Hierarchy of Generally Accepted Accounting
Principles, The Meaning
of Present Fairly in Conformity With General Accepted Accounting Principles
 Modernization
of Oil and Gas Reporting. a
 (21)




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##### Table of Contents



b c
  Disclosures about Fair Value of Financial Instruments, Interim Financial Reporting, Determining Fair Value
When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly, Recognition and
Presentation of Other-Than-Temporary Impairments
 Accounting for Assets
Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies Business
Combinations
 , Subsequent Events 
 The FASB Accounting Standards Codification
 (22)




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##### Table of Contents



TM and the Hierarchy of Generally Accepted Accounting Principles a replacement of FASB
Statement No. 162 ) FASB Accounting Standards Codification
 NOTE 11. COMMITMENTS AND CONTINGENCIES
  th
  (23)




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
  OVERVIEW
 Strategy
 2009 Priorities.
 
    
    maximize liquidity and financial flexibility;
    
    generate operating cash flow in excess of our capital investment budget (CAPEX);
    
    invest $29.1 million in CAPEX spending; and
    
    focus on operated properties.
  (24)




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##### Table of Contents



Conduct Exploitation Activities on Our Existing Assets.
 Use of Horizontal Drilling and Fracture Stimulation Activities in Gas Resource Plays.
 Use of Advanced Technologies and Production Techniques.
 Acquire Long-Lived Properties with Enhancement Opportunities.
 Conduct Exploratory Activities.
  (25)




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##### Table of Contents




    
    the prices we receive for the oil and natural gas we produce;
    
    sources and availability of funds to conduct operations and complete acquisitions;
    
    the results of reprocessing and reinterpreting our 3-D seismic data;
    
    the results of our drilling activities;
    
    the costs of obtaining high quality field services;
    
    our ability to find and consummate acquisition opportunities; and
    
    our ability to negotiate and enter into work to earn arrangements, joint ventures
or other similar arrangements on terms acceptable to us.
  Operating Performance
  
    
    seasonal demand;
    
    weather;
    
    hurricane conditions in the Gulf of Mexico;
    
    availability of pipeline transportation to end users;
    
    proximity of our wells to major transportation pipeline infrastructures; and
    
    to a lesser extent, world oil prices.
  
    
    production expenses;
    
    overhead requirements;
    
    costs of capital; and
    
    effects of derivative contracts.
  (26)




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##### Table of Contents




    
    cash flow from operations;
    
    sales of our equity and debt securities;
    
    bank borrowings; and
    
    industry joint ventures.
     (27)




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##### Table of Contents



Results of Operations
  
    
    reserve base;
    
    sources of production;
    
    product mix (gas versus oil volumes); and
    
    the prices we receive for our oil and natural gas production.
   Three Months Ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(in thousands, except per unit data)Production Volumes:Oil (Bbls)
    
    
    248
    
    
    
    237
    
    
    
    500
    
    
    
    484Natural gas (Mcf)
    
    
    2,196
    
    
    
    2,790
    
    
    
    4,725
    
    
    
    5,452BOE(1)
    
    
    614
    
    
    
    702
    
    
    
    1,288
    
    
    
    1,393BOE per day
    
    
    6.7
    
    
    
    7.7
    
    
    
    7.1
    
    
    
    7.7Sales Prices:Oil (per Bbl)
    
    $
    55.57
    
    
    $
    119.42
    
    
    $
    45.79
    
    
    $
    106.32Natural gas (per Mcf)
    
    $
    2.78
    
    
    $
    9.95
    
    
    $
    3.21
    
    
    $
    8.90BOE price
    
    $
    32.37
    
    
    $
    79.86
    
    
    $
    29.58
    
    
    $
    71.80Operating Revenues:Oil
    
    $
    13,758
    
    
    $
    28,322
    
    
    $
    22,905
    
    
    $
    51,491Natural gas
    
    
    6,103
    
    
    
    27,753
    
    
    
    15,185
    
    
    
    48,525$
    19,861
    
    
    $
    56,075
    
    
    $
    38,090
    
    
    $
    100,016Operating Expenses:Lease operating expense
    
    $
    5,541
    
    
    $
    7,254
    
    
    $
    13,627
    
    
    $
    14,233Production taxes
    
    
    761
    
    
    
    2,996
    
    
    
    1,334
    
    
    
    5,285General and administrative
    
    
    3,281
    
    
    
    3,265
    
    
    
    6,714
    
    
    
    5,833Depreciation, depletion and amortization
    
    
    5,398
    
    
    
    10,483
    
    
    
    12,179
    
    
    
    19,835Impairment of oil and natural gas properties
    
    
    
    
    
    
    
    
    
    
    30,426
    
    
    
    $
    14,981
    
    
    $
    23,998
    
    
    $
    64,280
    
    
    $
    45,186Operating income (loss)
    
    $
    4,880
    
    
    $
    32,077
    
    
    $
    (26,190
    )
    
    $
    54,830
 
 (1)
    
    A BOE means one barrel of oil equivalent using the ratio of six Mcf of gas to one barrel of oil. (28)




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##### Table of Contents



RESULTS OF OPERATIONS
 For the Three Months Ended June 30, 2009 and 2008:
  Oil
and Gas Revenues
 Revenues
    
    ProductionFor the Three Months Ended June 30,
    
    For the Three Months Ended June 30,2009
    
    2008
    
    2009
    
    2008Oil (Bbls)
    
    
    69
    %
    
    
    51
    %
    
    
    40
    %
    
    
    34
    %Natural gas (Mcf)
    
    
    31
    %
    
    
    49
    %
    
    
    60
    %
    
    
    66
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
  Three Months Ended June 30,
    
    
    
    
    
    
    Percentage2009
    
    
    2008
    
    
    Change
    
    
    Change(in thousands except per unit data)Production Volumes:Oil (Bbls)
    
    
    248
    
    
    
    237
    
    
    
    11
    
    
    
    5
    %Natural gas (Mcf)
    
    
    2,196
    
    
    
    2,790
    
    
    
    (594
    )
    
    
    (21
    )%BOE (1)
    
    
    614
    
    
    
    702
    
    
    
    (88
    )
    
    
    (13
    )%BOE/Day
    
    
    6.7
    
    
    
    7.7
    
    
    
    (1.0
    )
    
    
    (13
    )%Sales Price:Oil (per Bbl)
    
    $
    55.57
    
    
    $
    119.42
    
    
    $
    (63.85
    )
    
    
    (53
    )%Natural gas (per Mcf)
    
    $
    2.78
    
    
    $
    9.95
    
    
    $
    (7.17
    )
    
    
    (72
    )%BOE price
    
    $
    32.37
    
    
    $
    79.86
    
    
    $
    (47.49
    )
    
    
    (59
    )%Operating Revenues:Oil
    
    $
    13,758
    
    
    $
    28,322
    
    
    $
    (14,564
    )
    
    
    (51
    )%Natural gas
    
    
    6,103
    
    
    
    27,753
    
    
    
    (21,650
    )
    
    
    (78
    )%Total
    
    $
    19,861
    
    
    $
    56,075
    
    
    $
    (36,214
    )
    
    
    (65
    )%
 
 (1)
    
    A BOE means one barrel of oil equivalent using the ratio of six Mcf of gas to one barrel of oil. Oil revenues
  Natural gas revenues
  (29)




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##### Table of Contents



Cost
and Expenses
 Three months ended June 30,
    
    
    
    
    
    
    Percentage2009
    
    
    2008
    
    
    Change
    
    
    Change($ in thousands)Lease operating expense
    
    $
    5,541
    
    
    $
    7,254
    
    
    $
    (1,713
    )
    
    
    (24
    )%Production taxes
    
    
    761
    
    
    
    2,996
    
    
    
    (2,235
    )
    
    
    (75
    )%General and administrative
    
    
    3,281
    
    
    
    3,265
    
    
    
    16
    
    
    
    0
    %Depreciation, depletion and amortization
    
    
    5,398
    
    
    
    10,483
    
    
    
    (5,085
    )
    
    
    (49
    )%Total
    
    $
    14,981
    
    
    $
    23,998
    
    
    $
    (9,017
    )
    
    
    (38
    )%
 Lease operating expense
  Production taxes
  General and administrative
  (30)




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##### Table of Contents



Depreciation, depletion and amortization
  Other
income (expense)
 Three months ended June 30,
    
    
    
    
    
    
    Percentage2009
    
    
    2008
    
    
    Change
    
    
    Change($ in thousands)Loss on derivatives not classified as hedges
    
    $
    (13,286
    )
    
    $
    (71,609
    )
    
    $
    58,323
    
    
    
    81
    %Interest and other income
    
    
    30
    
    
    
    32
    
    
    
    (2
    )
    
    
    (6
    )%Interest expense, net of capitalized interest
    
    
    (6,360
    )
    
    
    (5,368
    )
    
    
    (992
    )
    
    
    (18
    )%Other expense
    
    
    (5
    )
    
    
    (1
    )
    
    
    (4
    )
    
    
    (400
    )%Equity in gain of pipeline venture and gathering system ventures
    
    
    
    
    
    
    165
    
    
    
    (165
    )
    
    
    (100
    )%Total
    
    $
    (19,621
    )
    
    $
    (76,781
    )
    
    $
    57,160
    
    
    
    (74
    )%
 Loss on derivatives not classified as hedges
  Interest expense
  Equity in gain of pipelines and gathering system ventures
  (31)




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##### Table of Contents



Income taxes, deferred
  Basic and diluted net loss
  RESULTS OF OPERATIONS
 For the Six Months Ended June 30, 2009 and 2008:
  Oil
and Gas Revenues
 Revenues
    
    ProductionFor the Six Months Ended June 30,
    
    For the Six Months Ended June 30,2009
    
    2008
    
    2009
    
    2008Oil (Bbls)
    
    
    60
    %
    
    
    51
    %
    
    
    39
    %
    
    
    35
    %Natural gas (Mcf)
    
    
    40
    %
    
    
    49
    %
    
    
    61
    %
    
    
    65
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
  Six Months Ended June 30,
    
    
    
    
    
    
    Percentage2009
    
    
    2008
    
    
    Change
    
    
    Change(in thousands except per unit data)Production Volumes:Oil (Bbls)
    
    
    500
    
    
    
    484
    
    
    
    16
    
    
    
    3
    %Natural gas (Mcf)
    
    
    4,725
    
    
    
    5,452
    
    
    
    (727
    )
    
    
    (13
    )%BOE (1)
    
    
    1,288
    
    
    
    1,393
    
    
    
    (105
    )
    
    
    (8
    )%BOE/Day
    
    
    7.1
    
    
    
    7.7
    
    
    
    (0.6
    )
    
    
    (8
    )%Sales Price:Oil (per Bbl)
    
    $
    45.79
    
    
    $
    106.32
    
    
    $
    (60.53
    )
    
    
    (57
    )%Natural gas (per Mcf)
    
    $
    3.21
    
    
    $
    8.90
    
    
    $
    (5.69
    )
    
    
    (64
    )%BOE price
    
    $
    29.58
    
    
    $
    71.80
    
    
    $
    (42.22
    )
    
    
    (59
    )%Operating Revenues:Oil
    
    $
    22,905
    
    
    $
    51,491
    
    
    $
    (28,586
    )
    
    
    (56
    )%Natural gas
    
    
    15,185
    
    
    
    48,525
    
    
    
    (33,340
    )
    
    
    (69
    )%Total
    
    $
    38,090
    
    
    $
    100,016
    
    
    $
    (61,926
    )
    
    
    (62
    )%
 
 (1)
    
    A BOE means one barrel of oil equivalent using the ratio of six Mcf of gas to one barrel of oil. (32)




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##### Table of Contents



Oil revenues
  Natural gas revenues
  Cost and Expenses
 Six months ended June 30,
    
    
    
    
    
    
    Percentage2009
    
    
    2008
    
    
    Change
    
    
    Change($ in thousands)Lease operating expense
    
    $
    13,627
    
    
    $
    14,233
    
    
    $
    (606
    )
    
    
    (4
    )%Production taxes
    
    
    1,334
    
    
    
    5,285
    
    
    
    (3,951
    )
    
    
    (75
    )%General and administrative
    
    
    6,714
    
    
    
    5,833
    
    
    
    881
    
    
    
    15
    %Depreciation, depletion and amortization
    
    
    12,179
    
    
    
    19,835
    
    
    
    (7,656
    )
    
    
    (39
    )%Impairment of oil and natural gas properties
    
    
    30,426
    
    
    
    
    
    
    
    30,426
    
    
    
    N/ATotal
    
    $
    64,280
    
    
    $
    45,186
    
    
    $
    19,094
    
    
    
    42
    %
 Lease operating expense
  Production taxes
  (33)




---



##### Table of Contents



General and administrative
  Depreciation, depletion and amortization
  Impairment of oil and natural gas properties
  Other
income (expense)
 Six months ended June 30,
    
    
    
    
    
    
    Percentage2009
    
    
    2008
    
    
    Change
    
    
    Change($ in thousands)Loss on derivatives not classified as hedges
    
    $
    (7,521
    )
    
    $
    (93,495
    )
    
    $
    85,974
    
    
    
    92
    %Interest and other income
    
    
    99
    
    
    
    65
    
    
    
    34
    
    
    
    52
    %Interest expense, net of capitalized interest
    
    
    (12,690
    )
    
    
    (10,886
    )
    
    
    (1,804
    )
    
    
    (17
    )%Other expense
    
    
    (5
    )
    
    
    (1
    )
    
    
    (4
    )
    
    
    (400
    )%Equity in gain of pipeline venture and gathering system ventures
    
    
    1
    
    
    
    382
    
    
    
    (381
    )
    
    
    (100
    )%Total
    
    $
    (20,116
    )
    
    $
    (103,935
    )
    
    $
    83,819
    
    
    
    (81
    )%
 Loss on derivatives not classified as hedges
  (34)




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##### Table of Contents



Interest expense
  Equity in gain of pipelines and gathering system ventures
  Income taxes, deferred
  Basic and diluted net loss
  LIQUIDITY AND CAPITAL RESOURCES
   (35)




---



##### Table of Contents



(36)




---



##### Table of Contents



Bank Borrowings  Revolving Credit Facility
        (37)




---



##### Table of Contents



Senior Notes
 1 4
 (38)




---



##### Table of Contents



Debt Ratings
  Interest Incurred
  Commodity Price Risk Management Transactions and Effects of Derivative Instruments
    Disclosures about Derivative Instruments and Hedging Activities  an
amendment of FASB Statement No. 133
 (39)




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##### Table of Contents



Fair Value Measurement,
   Contractual Obligations, Commitments and Off-Balance Sheet Arrangements
   (40)




---



##### Table of Contents



Trends and Outlook
      ,
 
    
    internally generated cash from operations;
    
    proceeds from bank borrowings;
    
    proceeds from sales of equity and debt securities; and
 (41)




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##### Table of Contents




    
    proceeds from sales of non-core assets.
  
    
    our proved reserves;
    
    the volumes of oil and natural gas we produce from existing wells;
    
    the prices at which we sell oil and natural gas;
    
    our ability to acquire, locate and produce new reserves;
    
    events occurring within the global capital markets; and
    
    results from re-determinations of the borrowing base.
  
    
    increased bank borrowings;
    
    additional sales of our debt or equity securities;
    
    sales of non-core properties;
    
    other forms of financing; or
    
    a combination of the above.
  Oil and Natural Gas Price Trends
    Production Trends
  (42)




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##### Table of Contents



Lease Operating Expense Trends
  Interest Expense Trends
  Income Taxes
 Accounting for Income Taxes,
 Recent Accounting Pronouncements
 Business Combinations,
 (43)




---



##### Table of Contents



Effective Date of FASB Statement
No. 157
 Disclosures about Derivative Instruments and
Hedging Activities, an amendment of FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities,
 The Hierarchy of Generally Accepted Accounting
Principles, The Meaning
of Present Fairly in Conformity With General Accepted Accounting Principles
 Modernization
of Oil and Gas Reporting. a b c
  (44)




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##### Table of Contents



Disclosures about Fair Value of Financial Instruments, Interim Financial Reporting, Determining Fair Value
When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly, Recognition and
Presentation of Other-Than-Temporary Impairments
 Accounting for Assets
Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies Business
Combinations
 Subsequent Events
 The FASB Accounting Standards Codification TM and
the Hierarchy of Generally Accepted Accounting Principles a replacement of FASB Statement No. 162 ) FASB Accounting Standards Codification
 (45)




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##### Table of Contents



Critical Accounting Policies
  FORWARD-LOOKING STATEMENTS
 Cautionary Statement Regarding Forward-Looking Statements
  
    
    our future financial and operating performance and results;
    
    our drilling plans and ability to secure drilling rigs to effectuate our plans;
    
    production volumes;
    
    our business strategy;
    
    market prices;
    
    sources of funds necessary to conduct operations and complete acquisitions;
    
    development costs;
    
    number and location of planned wells;
    
    our future commodity price risk management activities;
    
    our plans and forecasts; and
    
    any other statements that are not historical facts.
   (46)




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##### Table of Contents




    
    difficult and adverse conditions in the global and domestic capital and credit
markets;
    
    continued volatility and further deterioration of the capital and credit markets;
    
    uncertainty about the effectiveness of the U.S. governments plan to purchase large
amounts of illiquid, mortgage-backed and other securities from financial institutions;
    
    the impairment of financial institutions;
    
    exposure to financial and capital market risk;
    
    changes in general economic conditions, including the performance of financial
markets and interest rates, which may affect our ability to raise capital and generate
operating cash flow;
    
    unanticipated changes in industry trends;
    
    fluctuations in prices of oil and natural gas;
    
    dependent on key personnel;
    
    reliance on technological development and technology development programs;
    
    demand for oil and natural gas;
    
    losses due to future litigation;
    
    future capital requirements and availability of financing;
    
    geological concentration of our reserves;
    
    risks associated with drilling and operating wells;
    
    competition;
    
    general economic conditions;
    
    governmental regulations and liability for environmental matters;
    
    receipt of amounts owed to us by purchasers of our production and counterparties to
our derivative contracts;
    
    hedging decisions, including whether or not to hedge;
    
    terrorist attacks or war;
    
    actions of third party co-owners of interests in properties in which we also own an
interest; and
    
    fluctuations in interest rates and availability of capital.
   (47)




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Interest Rate Sensitivity as of June 30, 2009
  2013 and2009
    
    2010
    
    2011
    
    2012
    
    after
    
    Total($ in thousands, except interest rates)Revolving Credit Facility (secured)
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    225,000
    
    
    $
    225,000Interest rate
    
    
    4.75
    %
    
    
    4.75
    %
    
    
    4.75
    %
    
    
    4.75
    %
    
    
    4.75
    %Senior notes
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    150,000
    
    
    $
    150,000Interest rate
    
    
    10.25
    %
    
    
    10.25
    %
    
    
    10.25
    %
    
    
    10.25
    %
    
    
    10.25
    %
    (48)




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##### Table of Contents



Notional
    
    
    Weighted Average
    
    
    EstimatedPeriod of Time
    
    Amounts
    
    
    Fixed Interest Rates
    
    

Fair
Market Value($ in millions)
    
    
    
    
    
    
    ($ in thousands)July 1, 2009 through December 31, 2009
    
    $
    100
    
    
    
    4.22
    %
    
    $
    (1,798
    )January 1, 2010 through October 31, 2010
    
    $
    100
    
    
    
    4.71
    %
    
    
    (2,777
    )November 1, 2010 through December 31, 2010
    
    $
    50
    
    
    
    4.26
    %
    
    
    (237
    )January 1, 2011 through December 31, 2011
    
    $
    100
    
    
    
    4.67
    %
    
    
    (1,804
    )Total Fair Market Value
    
    
    
    
    
    
    
    
    
    $
    (6,616
    )
 Commodity Price Sensitivity
     (49)




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##### Table of Contents



Put Options.
    EstimatedBarrels of
    
    
    
    
    
    
    Fair MarketPeriod of Time
    
    Oil
    
    
    Floor
    
    
    Value($ in thousands)July 1, 2009 through December 31, 2009
    
    
    55,200
    
    
    $
    100.00
    
    
    $
    1,575January 1, 2010 through December 31, 2010
    
    
    280,100
    
    
    $
    84.36
    
    
    
    4,709January 1, 2011 through December 31, 2011
    
    
    146,000
    
    
    $
    100.00
    
    
    
    3,869Total Fair Market Value
    
    
    
    
    
    
    
    
    
    $
    10,153
 Collars.
 (50)




---



##### Table of Contents



EstimatedBarrels of
    
    NYMEX Oil Prices
    
    Fair MarketPeriod of Time
    
    Oil
    
    Floor
    
    Ceiling
    
    Value($ in thousands)July 1, 2009 through December 31, 2009
    
    
    386,400
    
    
    $
    65.71
    
    
    $
    82.93
    
    
    $
    417January 1, 2010 through October 31, 2010
    
    
    486,400
    
    
    $
    63.44
    
    
    $
    78.26
    
    
    
    (1,503
    )January 1, 2011 through December 31, 2011
    
    
    255,500
    
    
    $
    70.00
    
    
    $
    94.50
    
    
    
    424January 1, 2012 through December 31, 2012
    
    
    366,000
    
    
    $
    70.00
    
    
    $
    101.50
    
    
    
    634M M Btu of

    
    WAHA Gas PricesNatural Gas

    
    Floor
    
    
    CeilingJuly 1, 2009 through December 31, 2009
    
    
    2,116,000
    
    
    $
    6.30
    
    
    $
    8.66
    
    
    
    5,246January 1, 2010 through December 31, 2010
    
    
    4,380,000
    
    
    $
    4.74
    
    
    $
    5.86
    
    
    
    (1,302
    )Total Fair Market Value
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    3,916
 Commodity Swaps.
 EstimatedM M Btu of
    
    
    WAHA
    
    
    Fair MarketPeriod of Time
    

Natural
Gas
    
    
    Swap Price
    
    
    Value($ in thousands)July 1, 2009 through September 30, 2009
    
    
    460,000
    
    
    $
    3.91
    
    
    $
    210
 
 ITEM 4. CONTROLS AND PROCEDURES
  (51)




---



##### Table of Contents



PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  th
   (52)




---



##### Table of Contents



ITEM 1A. RISK FACTORS
  The adoption of climate change legislation by Congress could result in increased operating
costs and reduced demand for the oil and natural gas we produce.
   (53)




---



##### Table of Contents



The adoption of derivatives legislation by Congress could have an adverse impact on our
ability to hedge risks associated with our business.
  Federal and state legislation and regulatory initiatives relating to hydraulic fracturing
could result in increased costs and additional operating restrictions or delays.
  Certain federal income tax deductions currently available with respect to oil and gas drilling
and development may be eliminated as a result of future legislation.
  (54)




---



##### Table of Contents



We must replace oil and natural gas reserves that we produce. Failure to replace reserves may
negatively affect our business.
   Reserves at Year-EndYear
    
    Oil (Bbls)
    
    Gas (Mcf)
    
    BOE(in thousands)2000
    
    
    974
    
    
    
    15,686
    
    
    
    3,5882001
    
    
    916
    
    
    
    13,947
    
    
    
    3,2412002
    
    
    10,271
    
    
    
    15,633
    
    
    
    12,8772003
    
    
    12,084
    
    
    
    16,271
    
    
    
    14,7962004
    
    
    18,916
    
    
    
    16,825
    
    
    
    21,7202005
    
    
    21,192
    
    
    
    25,237
    
    
    
    25,3982006
    
    
    28,721
    
    
    
    58,896
    
    
    
    38,5372007
    
    
    28,434
    
    
    
    57,234
    
    
    
    37,9732008
    
    
    21,206
    
    
    
    71,833
    
    
    
    33,178
  
    
    additions from exploratory drilling;
    
    revisions of existing reserves due to factors such as changes in commodity
price, estimated future drilling costs in the case of proved undeveloped
reserves, changes in estimated future production costs, and revisions based on
changes in expectation of well performance;
    
    purchases of minerals in place; and
    
    sales of minerals in place.
  (55)




---



##### Table of Contents



General economic conditions could adversely impact our results of operations.
     Adverse capital and credit market conditions may significantly affect our ability to meet
liquidity needs, access to capital and cost of capital.
   (56)




---



##### Table of Contents



Difficult conditions in the global capital markets and the economy generally may materially
adversely affect our business and results of operations and we do not expect these conditions to
improve in the near future.
    (57)




---



##### Table of Contents



There can be no assurance that actions of the U.S. Government, Federal Reserve and other
governmental and regulatory bodies for the purpose of stabilizing the financial markets will
achieve the intended effect.
  The impairment of financial institutions could adversely affect us.
  If the counterparties to the derivative instruments we use to hedge our business risks default
or fail to perform, we may be exposed to risks we had sought to mitigate, which could materially
adversely affect our financial condition and results of operations.
  The fluctuation and volatility of oil and natural gas prices may adversely affect our
business, the value of our mineral properties, our revenues and profitability.
  (58)




---



##### Table of Contents



Our oil and gas operations are subject to various Federal, state and local regulations that
materially affect our operations.
  
 ITEM 2. UNREGISTERED SALES OR EQUITY SECURITIES AND USE OF PROCEEDS
   (59)




---



##### Table of Contents



ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  NAME
    
    VOTES CAST FOR
    
    VOTES WITHHELDEdward A. Nash
    
    
    36,991,404
    
    
    
    1,475,821Larry C. Oldham
    
    
    37,105,343
    
    
    
    1,361,882Martin B. Oring
    
    
    36,962,631
    
    
    
    1,504,594Ray M. Poage
    
    
    36,991,872
    
    
    
    1,475,353Jeffrey G. Shrader
    
    
    37,040,465
    
    
    
    1,426,760
  VOTES FOR
    
    VOTES AGAINST
    
    ABSTENTIONS37,341,220
    
    
    963,292
    
    
    
    162,713
 
 ITEM 5. OTHER INFORMATION.
  
 ITEM 6. EXHIBITS
 (a)
    
    ExhibitsThe following exhibits are filed herewith or incorporated by reference, as indicated:
 No.
    
    Description of Exhibit3.1
    
    Certificate of Incorporation of Registrant (Incorporated by reference to Exhibit 3.1 to Form
10-Q of the Registrant for the fiscal quarter ended June 30, 2004)3.2
    
    Bylaws of Registrant (Incorporated by reference to Exhibit 10.1 of the Registrants Current
Report on Form 8-K filed on November 30, 2007)3.3
    
    Certificate of Formation of Parallel, L.L.C. (Incorporated by reference to Exhibit No. 3.3 of
the Registrants Registration Statement on Form S-3, No. 333-119725 filed on October 13, 2004)
 (60)




---



##### Table of Contents



No.
    
    Description of Exhibit3.4
    
    Limited Liability Company Agreement of Parallel, L.L.C. (Incorporated by reference to Exhibit
No. 3.4 of the Registrants Statement on Form S-3, No. 333-119725 filed on October 13, 2004)3.5
    
    Certificate of Limited Partnership of Parallel, L.P. (Incorporated by reference to Exhibit
No. 3.5 of the Registrants Registration Statement on Form S-3, No. 333-119725 filed on
October 13, 2004)3.6
    
    Agreement of Limited Partnership of Parallel, L.P. (Incorporated by reference to Exhibit No.
3.6 of the Registrants Registration Statement on Form S-3, No. 333-119725 filed on October
13, 2004)4.1
    
    Certificate of Designations, Preferences and Rights of Serial Preferred Stock  6%
Convertible Preferred Stock (Incorporated by reference to Exhibit 4.1 of Form 10-Q of the
Registrant for the fiscal quarter ended June 30, 2004)4.2
    
    Certificate of Designations, Preferences and Rights of Series A Preferred Stock (Incorporated
by reference to Exhibit 4.2 of Form 10-K of the Registrant for the fiscal year ended December
31, 2000)4.3
    
    Rights Agreement, dated as of October 5, 2000, between the Registrant and Computershare Trust
Company, Inc., as Rights Agent (Incorporated by reference to Exhibit 1 of Form 8-A of the
Registrant filed with the Securities and Exchange Commission on October 10, 2000)4.4
    
    Form of common stock certificate of the Registrant (Incorporated by reference to Exhibit No.
4.6 of the Registrants Registration Statement on Form S-3, No. 333-119725 filed on October
13, 2004)4.5
    
    Warrant Purchase Agreement, dated November 20, 2001, between the Registrant and Stonington
Corporation (Incorporated by reference to Exhibit 4.7 of Form 10-K of the Registrant for the
fiscal year ended December 31, 2004)4.6
    
    Warrant Purchase Agreement, dated December 23, 2003, between the Registrant and Stonington
Corporation (Incorporated by reference to Exhibit 4.8 of Form 10-K of the Registrant for the
fiscal year ended December 31, 2004)4.7
    
    Purchase Warrant Agreement, dated as of October 1, 1980, between the Registrant and American
Stock Transfer, Inc. (Incorporated by reference to Exhibit 4.7 of Form 10-K of the Registrant
for the fiscal year ended December 31, 2006)4.8
    
    First Amendment to Warrant Agreement, dated as of February 22, 2007, among the Registrant,
Computershare Shareholder Services, Inc. and Computershare Trust Company, N.A. (Incorporated
by reference to Exhibit 4.8 of Form 10-K of the Registrant for the fiscal year ended December
31, 2006)4.9
    
    Form of Rule 144A 101/4% Senior Note due 2014 (Incorporated by reference to Exhibit 4.2 to the
Registrants Current Report on Form 8-K filed on August 1, 2007)4.10
    
    Form of IAI 101/4% Senior Note due 2014 (Incorporated by reference to Exhibit 4.3 to the
Registrants Current Report on Form 8-K filed on August 1, 2007)4.11
    
    Form of Regulation S 101/4% Senior Note due 2014 (Incorporated by reference to Exhibit 4.4 to
the Registrants Current Report on Form 8-K filed on August 1, 2007)
 (61)




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##### Table of Contents



No.
    
    Description of Exhibit4.12
    
    Indenture, dated as of July 31, 2007, among the Registrant as Issuer and Wells Fargo Bank,
National Association as Trustee (Incorporated by reference to Exhibit 4.1 to the Registrants
Current Report on Form 8-K filed on August 1, 2007)4.13
    
    Registration Rights Agreement, dated as of July 31, 2007, by and among the Registrant,
Jefferies & Company, Inc., Merrill Lynch, Pierce, Fenner and Smith Incorporated and BNP
Paribas Securities Corp. (Incorporated by reference to Exhibit 10.2 to the Registrants
Current Report on Form 8-K filed on August 1, 2007)4.14
    
    Purchase Agreement, dated as of July 26, 2007, by and among the Registrant, Jefferies &
Company, Inc., Merrill Lynch, Pierce, Fenner and Smith Incorporated and BNP Paribas Securities
Corp. (Incorporated by reference to Exhibit 4.2 to the Registrants Current Report on Form 8-K
filed on August 1, 2007)4.15
    
    Form of 101/4% Unrestricted Senior Note due 2014 (Incorporated by reference to Exhibit 4.13 of
Form S-4 of the Registrant, Registration No. 333-148465)Executive Compensation Plans and Arrangements (Exhibit No.s 10.1 through 10.11):10.1
    
    1992 Stock Option Plan (Incorporated by reference to Exhibit 10.1 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2004)10.2
    
    Non-Employee Directors Stock Option Plan (Incorporated by reference to Exhibit 10.3 of the
Registrants Form 10-Q of the Registrant for the fiscal quarter ended June 30, 2005)10.3
    
    1998 Stock Option Plan (Incorporated by reference to Exhibit 10.4 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2006)10.4
    
    2001 Non-Employee Directors Stock Option Plan (Incorporated by reference to Exhibit 10.7 of
the Registrants Form 10-Q Report for the fiscal quarter ended March 31, 2004)10.5
    
    2004 Non-Employee Director Stock Grant Plan (Incorporated by reference to Exhibit 10.1 of the
Registrants Form 8-K Report dated September 22, 2004)10.6
    
    Incentive and Retention Plan (Incorporated by reference to Exhibit 10.7 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2006)10.7
    
    2008 Long-Term Incentive Plan (Incorporated by reference to Exhibit 10.1 of the Registrants
Form 8-K Report dated March 27, 2008)10.8
    
    Form of Nonqualified Stock Option Agreement for nonqualified stock options granted under the
Registrants 2008 Long-Term Incentive Plan (Incorporated by reference to Exhibit 10.2 of the
Registrants Current Report on Form 8-K filed on June 18, 2008)10.9
    
    Form of Outside Director Stock Award Agreement for stock awards granted under the
Registrants 2008 Long-Term Incentive Plan (Incorporated by reference to Exhibit 10.3 of the
Registrants Current Report on Form 8-K filed on June 18, 2008)10.10
    
    Form of Outside Director Restricted Stock Agreement for restricted stock grants under the
Registrants 2008 Long-Term Incentive Plan (Incorporated by reference to Exhibit 10.4 of the
Registrants Current Report on Form 8-K filed on June 18, 2008)10.11
    
    Agreement of Limited Partnership of West Fork Pipeline Company LP (Incorporated by reference
to Exhibit 10.21 of Form 10-K of the Registrant for the fiscal year ended December 31, 2004)
 (62)




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##### Table of Contents



No.
    
    Description of Exhibit10.12
    
    ISDA Master Agreement, dated as of October 13, 2005, between Parallel, L.P. and Citibank,
N.A. (Incorporated by reference to Exhibit 10.5 of the Registrants Form 8-K Report dated
October 14, 2005 and filed with the Securities and Exchange Commission on October 20, 2005)10.13
    
    Third Amended and Restated Credit Agreement, dated as of December 23, 2005, among Parallel
Petroleum Corporation, Parallel, L.P., Parallel, L.L.C. and Citibank Texas, N.A., BNP Paribas,
CitiBank F.S.B., Western National Bank, Compass Bank, Comerica Bank, Bank of Scotland and
Fortis Capital Corp. (Incorporated by reference to Exhibit No. 10.1 of the Registrants Form
8-K Report, dated December 23, 2005, as filed with the Securities and Exchange Commission on
December 30, 2005)10.14
    
    Second Lien Term Loan Agreement, dated November 15, 2005, among Parallel Petroleum
Corporation, Parallel, L.P., BNP Paribas and Citibank Texas, N.A. (Incorporated by reference
to Exhibit No. 10.4 of the Registrants Form 8-K Report, dated November 15, 2005, as filed
with the Securities and Exchange Commission on November 21, 2005)10.15
    
    Intercreditor and Subordination Agreement, dated November 15, 2005, among Citibank Texas,
N.A., BNP Paribas, Parallel Petroleum Corporation, Parallel, L.P. and Parallel, L.L.C.
(Incorporated by reference to Exhibit No. 10.5 of the Registrants Form 8-K Report, dated
November 15, 2005, as filed with the Securities and Exchange Commission on November 21, 2005)10.16
    
    Guaranty, dated as of December 23, 2005, made by Parallel, L.L.C. to and in favor of
Citibank Texas, N.A. (Incorporated by reference to Exhibit 10.23 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2006)10.17
    
    Third Amended and Restated Pledge Agreement, dated as of December 23, 2005, between
Parallel, L.L.C. and Citibank Texas, N.A. (Incorporated by reference to Exhibit 10.24 of Form
10-K of the Registrant for the fiscal year ended December 31, 2006)10.18
    
    Second Lien Guarantee and Collateral Agreement, dated as of November 15, 2005, made by
Parallel Petroleum Corporation and Parallel, L.P. to and in favor of BNP Paribas (Incorporated
by reference to Exhibit 10.25 of Form 10-K of the Registrant for the fiscal year ended
December 31, 2006)10.19
    
    Third Amendment to Third Amended and Restated Credit Agreement, dated as of July 31, 2007,
among the Registrant, Citibank, N.A., BNP Paribas, Western National Bank, Compass Bank,
Comerica Bank, Bank of Scotland, and Fortis Capital Corp. (Incorporated by reference to
Exhibit 10.3 of the Registrants Current Report on Form 8-K filed on August 1, 2007)10.20
    
    Fourth Amendment to Third Amended and Restated Credit Agreement, dated as of November 30,
2007, among the Registrant, Citibank, N.A., BNP Paribas, Western National Bank, Compass Bank,
Comerica Bank, Bank of Scotland, and Fortis Capital Corp. (Incorporated by reference to
Exhibit 10.27 of Form S-4 of the Registrant, Registration No. 333-148465)10.21
    
    Hagerman Gas Gathering System Joint Venture Agreement, dated as of January 16, 2007, among
the Registrant, Feagan Gathering Company and Capstone Oil and Gas Company, L.P.
(Incorporated by reference to Exhibit 10.28 of Form 10-K of the Registrant for the fiscal
year ended December 31, 2007)10.22
    
    Fourth Amended and Restated Credit Agreement, dated as of May 16, 2008, among the
Registrant, Citibank, N.A., BNP Paribas, Western National Bank, Compass Bank, Comerica Bank,
Bank of Scotland plc, and Texas Capital Bank, N.A. (Incorporated by reference to Exhibit 10.1
of the Registrants Current Report on Form 8-K filed on May 22, 2008)
 (63)




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##### Table of Contents



No.
    
    Description of Exhibit10.23
    
    First Amendment to Fourth Amended and Restated Credit Agreement, dated as of October 31,
2008, by and among Parallel Petroleum Corporation, Citibank, N.A., BNP Paribas, Western
National Bank, Compass Bank, Bank of Scotland plc, Texas Capital Bank, N.A., Bank of America,
N.A. and West Texas National Bank (Incorporated by reference to Exhibit 10.34 of the
Registrants Form 10-Q Report for the third fiscal quarter ended September 30, 2008)10.24
    
    Second Amendment to Fourth Amended and Restated Credit Agreement, executed as of February
19, 2009, by and among Parallel Petroleum Corporation, Citibank, N.A., BNP Paribas, Western
National Bank, Compass Bank, Bank of Scotland plc, Texas Capital Bank, N.A., Bank of America,
N.A. and West Texas National Bank (Incorporated by reference to Exhibit 10.24 of Form 10-K of
the Registrant for the fiscal year ended December 31, 2008)10.25
    
    Third Amendment to Fourth Amended and Restated Credit Agreement, executed as of April 30,
2009, by and among Parallel Petroleum Corporation, Citibank, N.A., BNP Paribas, Western
National Bank, Compass Bank, Bank of Scotland plc, Texas Capital Bank, N.A., Bank of America,
N.A. and West Texas National Bank (Incorporated by reference to Exhibit 10.1 of the
Registrants Current Report on Form 8-K filed on May 4, 2009)14
    
    Code of Ethics (Incorporated by reference to Exhibit No. 14 of the Registrants Form 10-K
Report for the fiscal year ended December 31, 2003 and filed with the Securities and Exchange
Commission on March 22, 2004)*31.1
    
    Certification of Principal Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 302 of the Sarbanes 
Oxley Act of 2002.*31.2
    
    Certification of Principal Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 302 of the Sarbanes 
Oxley Act of 2002.**32.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes 
Oxley Act of 2002.**32.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes 
Oxley Act of 2002.
 
 *
    
    Filed herewith.**
    
    Furnished herewith. (64)




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##### Table of Contents



PARALLEL PETROLEUM CORPORATIONBy:
    /s/ Larry C. OldhamDate: August 4, 2009
    
    Larry C. OldhamPresident and Chief Executive Officer Date: August 4, 2009
    By:
    /s/ Steven D. FosterSteven D. Foster,Chief Financial Officer




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##### Table of Contents



No.
    
    Description of Exhibit3.1
    
    Certificate of Incorporation of Registrant (Incorporated by reference to Exhibit 3.1 to Form
10-Q of the Registrant for the fiscal quarter ended June 30, 2004)3.2
    
    Bylaws of Registrant (Incorporated by reference to Exhibit 10.1 of the Registrants Current
Report on Form 8-K filed on November 30, 2007)3.3
    
    Certificate of Formation of Parallel, L.L.C. (Incorporated by reference to Exhibit No. 3.3 of
the Registrants Registration Statement on Form S-3, No. 333-119725 filed on October 13, 2004)3.4
    
    Limited Liability Company Agreement of Parallel, L.L.C. (Incorporated by reference to Exhibit
No. 3.4 of the Registrants Statement on Form S-3, No. 333-119725 filed on October 13, 2004)3.5
    
    Certificate of Limited Partnership of Parallel, L.P. (Incorporated by reference to Exhibit
No. 3.5 of the Registrants Registration Statement on Form S-3, No. 333-119725 filed on
October 13, 2004)3.6
    
    Agreement of Limited Partnership of Parallel, L.P. (Incorporated by reference to Exhibit No.
3.6 of the Registrants Registration Statement on Form S-3, No. 333-119725 filed on October
13, 2004)4.1
    
    Certificate of Designations, Preferences and Rights of Serial Preferred Stock  6%
Convertible Preferred Stock (Incorporated by reference to Exhibit 4.1 of Form 10-Q of the
Registrant for the fiscal quarter ended June 30, 2004)4.2
    
    Certificate of Designations, Preferences and Rights of Series A Preferred Stock (Incorporated
by reference to Exhibit 4.2 of Form 10-K of the Registrant for the fiscal year ended December
31, 2000)4.3
    
    Rights Agreement, dated as of October 5, 2000, between the Registrant and Computershare Trust
Company, Inc., as Rights Agent (Incorporated by reference to Exhibit 1 of Form 8-A of the
Registrant filed with the Securities and Exchange Commission on October 10, 2000)4.4
    
    Form of common stock certificate of the Registrant (Incorporated by reference to Exhibit No.
4.6 of the Registrants Registration Statement on Form S-3, No. 333-119725 filed on October
13, 2004)4.5
    
    Warrant Purchase Agreement, dated November 20, 2001, between the Registrant and Stonington
Corporation (Incorporated by reference to Exhibit 4.7 of Form 10-K of the Registrant for the
fiscal year ended December 31, 2004)4.6
    
    Warrant Purchase Agreement, dated December 23, 2003, between the Registrant and Stonington
Corporation (Incorporated by reference to Exhibit 4.8 of Form 10-K of the Registrant for the
fiscal year ended December 31, 2004)4.7
    
    Purchase Warrant Agreement, dated as of October 1, 1980, between the Registrant and American
Stock Transfer, Inc. (Incorporated by reference to Exhibit 4.7 of Form 10-K of the Registrant
for the fiscal year ended December 31, 2006)4.8
    
    First Amendment to Warrant Agreement, dated as of February 22, 2007, among the Registrant,
Computershare Shareholder Services, Inc. and Computershare Trust Company, N.A. (Incorporated
by reference to Exhibit 4.8 of Form 10-K of the Registrant for the fiscal year ended December
31, 2006)




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##### Table of Contents



No.
    
    Description of Exhibit4.9
    
    Form of Rule 144A 101/4% Senior Note due 2014 (Incorporated by reference to Exhibit 4.2 to the
Registrants Current Report on Form 8-K filed on August 1, 2007)4.10
    
    Form of IAI 101/4% Senior Note due 2014 (Incorporated by reference to Exhibit 4.3 to the
Registrants Current Report on Form 8-K filed on August 1, 2007)4.11
    
    Form of Regulation S 101/4% Senior Note due 2014 (Incorporated by reference to Exhibit 4.4 to
the Registrants Current Report on Form 8-K filed on August 1, 2007)4.12
    
    Indenture, dated as of July 31, 2007, among the Registrant as Issuer and Wells Fargo Bank,
National Association as Trustee (Incorporated by reference to Exhibit 4.1 to the Registrants
Current Report on Form 8-K filed on August 1, 2007)4.13
    
    Registration Rights Agreement, dated as of July 31, 2007, by and among the Registrant,
Jefferies & Company, Inc., Merrill Lynch, Pierce, Fenner and Smith Incorporated and BNP
Paribas Securities Corp. (Incorporated by reference to Exhibit 10.2 to the Registrants
Current Report on Form 8-K filed on August 1, 2007)4.14
    
    Purchase Agreement, dated as of July 26, 2007, by and among the Registrant, Jefferies &
Company, Inc., Merrill Lynch, Pierce, Fenner and Smith Incorporated and BNP Paribas Securities
Corp. (Incorporated by reference to Exhibit 4.2 to the Registrants Current Report on Form 8-K
filed on August 1, 2007)4.15
    
    Form of 101/4% Unrestricted Senior Note due 2014 (Incorporated by reference to Exhibit 4.13 of
Form S-4 of the Registrant, Registration No. 333-148465)Executive Compensation Plans and Arrangements (Exhibit No.s 10.1 through 10.11):10.1
    
    1992 Stock Option Plan (Incorporated by reference to Exhibit 10.1 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2004)10.2
    
    Non-Employee Directors Stock Option Plan (Incorporated by reference to Exhibit 10.3 of the
Registrants Form 10-Q of the Registrant for the fiscal quarter ended June 30, 2005)10.3
    
    1998 Stock Option Plan (Incorporated by reference to Exhibit 10.4 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2006)10.4
    
    2001 Non-Employee Directors Stock Option Plan (Incorporated by reference to Exhibit 10.7 of
the Registrants Form 10-Q Report for the fiscal quarter ended March 31, 2004)10.5
    
    2004 Non-Employee Director Stock Grant Plan (Incorporated by reference to Exhibit 10.1 of the
Registrants Form 8-K Report dated September 22, 2004)10.6
    
    Incentive and Retention Plan (Incorporated by reference to Exhibit 10.7 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2006)10.7
    
    2008 Long-Term Incentive Plan (Incorporated by reference to Exhibit 10.1 of the Registrants
Form 8-K Report dated March 27, 2008)10.8
    
    Form of Nonqualified Stock Option Agreement for nonqualified stock options granted under the
Registrants 2008 Long-Term Incentive Plan (Incorporated by reference to Exhibit 10.2 of the
Registrants Current Report on Form 8-K filed on June 18, 2008)10.9
    
    Form of Outside Director Stock Award Agreement for stock awards granted under the
Registrants 2008 Long-Term Incentive Plan (Incorporated by reference to Exhibit 10.3 of the
Registrants Current Report on Form 8-K filed on June 18, 2008)




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##### Table of Contents



No.
    
    Description of Exhibit10.10
    
    Form of Outside Director Restricted Stock Agreement for restricted stock grants under the
Registrants 2008 Long-Term Incentive Plan (Incorporated by reference to Exhibit 10.4 of the
Registrants Current Report on Form 8-K filed on June 18, 2008)10.11
    
    Agreement of Limited Partnership of West Fork Pipeline Company LP (Incorporated by reference
to Exhibit 10.21 of Form 10-K of the Registrant for the fiscal year ended December 31, 2004)10.12
    
    ISDA Master Agreement, dated as of October 13, 2005, between Parallel, L.P. and Citibank,
N.A. (Incorporated by reference to Exhibit 10.5 of the Registrants Form 8-K Report dated
October 14, 2005 and filed with the Securities and Exchange Commission on October 20, 2005)10.13
    
    Third Amended and Restated Credit Agreement, dated as of December 23, 2005, among Parallel
Petroleum Corporation, Parallel, L.P., Parallel, L.L.C. and Citibank Texas, N.A., BNP Paribas,
CitiBank F.S.B., Western National Bank, Compass Bank, Comerica Bank, Bank of Scotland and
Fortis Capital Corp. (Incorporated by reference to Exhibit No. 10.1 of the Registrants Form
8-K Report, dated December 23, 2005, as filed with the Securities and Exchange Commission on
December 30, 2005)10.14
    
    Second Lien Term Loan Agreement, dated November 15, 2005, among Parallel Petroleum
Corporation, Parallel, L.P., BNP Paribas and Citibank Texas, N.A. (Incorporated by reference
to Exhibit No. 10.4 of the Registrants Form 8-K Report, dated November 15, 2005, as filed
with the Securities and Exchange Commission on November 21, 2005)10.15
    
    Intercreditor and Subordination Agreement, dated November 15, 2005, among Citibank Texas,
N.A., BNP Paribas, Parallel Petroleum Corporation, Parallel, L.P. and Parallel, L.L.C.
(Incorporated by reference to Exhibit No. 10.5 of the Registrants Form 8-K Report, dated
November 15, 2005, as filed with the Securities and Exchange Commission on November 21, 2005)10.16
    
    Guaranty, dated as of December 23, 2005, made by Parallel, L.L.C. to and in favor of
Citibank Texas, N.A. (Incorporated by reference to Exhibit 10.23 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2006)10.17
    
    Third Amended and Restated Pledge Agreement, dated as of December 23, 2005, between
Parallel, L.L.C. and Citibank Texas, N.A. (Incorporated by reference to Exhibit 10.24 of Form
10-K of the Registrant for the fiscal year ended December 31, 2006)10.18
    
    Second Lien Guarantee and Collateral Agreement, dated as of November 15, 2005, made by
Parallel Petroleum Corporation and Parallel, L.P. to and in favor of BNP Paribas (Incorporated
by reference to Exhibit 10.25 of Form 10-K of the Registrant for the fiscal year ended
December 31, 2006)10.19
    
    Third Amendment to Third Amended and Restated Credit Agreement, dated as of July 31, 2007,
among the Registrant, Citibank, N.A., BNP Paribas, Western National Bank, Compass Bank,
Comerica Bank, Bank of Scotland, and Fortis Capital Corp. (Incorporated by reference to
Exhibit 10.3 of the Registrants Current Report on Form 8-K filed on August 1, 2007)10.20
    
    Fourth Amendment to Third Amended and Restated Credit Agreement, dated as of November 30,
2007, among the Registrant, Citibank, N.A., BNP Paribas, Western National Bank, Compass Bank,
Comerica Bank, Bank of Scotland, and Fortis Capital Corp. (Incorporated by reference to
Exhibit 10.27 of Form S-4 of the Registrant, Registration No. 333-148465)10.21
    
    Hagerman Gas Gathering System Joint Venture Agreement, dated as of January 16, 2007, among
the Registrant, Feagan Gathering Company and Capstone Oil and Gas Company, L.P. (Incorporated
by reference to Exhibit 10.28 of Form 10-K of the Registrant for the fiscal year ended
December 31, 2007)




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##### Table of Contents



No.
    
    Description of Exhibit10.22
    
    Fourth Amended and Restated Credit Agreement, dated as of May 16, 2008, among the
Registrant, Citibank, N.A., BNP Paribas, Western National Bank, Compass Bank, Comerica Bank,
Bank of Scotland plc, and Texas Capital Bank, N.A. (Incorporated by reference to Exhibit 10.1
of the Registrants Current Report on Form 8-K filed on May 22, 2008)10.23
    
    First Amendment to Fourth Amended and Restated Credit Agreement, dated as of October 31,
2008, by and among Parallel Petroleum Corporation, Citibank, N.A., BNP Paribas, Western
National Bank, Compass Bank, Bank of Scotland plc, Texas Capital Bank, N.A., Bank of America,
N.A. and West Texas National Bank (Incorporated by reference to Exhibit 10.34 of the
Registrants Form 10-Q Report for the third fiscal quarter ended September 30, 2008)10.24
    
    Second Amendment to Fourth Amended and Restated Credit Agreement, executed as of February
19, 2009, by and among Parallel Petroleum Corporation, Citibank, N.A., BNP Paribas, Western
National Bank, Compass Bank, Bank of Scotland plc, Texas Capital Bank, N.A., Bank of America,
N.A. and West Texas National Bank (Incorporated by reference to Exhibit 10.24 of Form 10-K of
the Registrant for the fiscal year ended December 31, 2008)10.25
    
    Third Amendment to Fourth Amended and Restated Credit Agreement, executed as of April 30,
2009, by and among Parallel Petroleum Corporation, Citibank, N.A., BNP Paribas, Western
National Bank, Compass Bank, Bank of Scotland plc, Texas Capital Bank, N.A., Bank of America,
N.A. and West Texas National Bank (Incorporated by reference to Exhibit 10.1 of the
Registrants Current Report on Form 8-K filed on May 4, 2009)14
    
    Code of Ethics (Incorporated by reference to Exhibit No. 14 of the Registrants Form 10-K
Report for the fiscal year ended December 31, 2003 and filed with the Securities and Exchange
Commission on March 22, 2004)*31.1
    
    Certification of Principal Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 302 of the Sarbanes 
Oxley Act of 2002.*31.2
    
    Certification of Principal Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 302 of the Sarbanes 
Oxley Act of 2002.**32.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes 
Oxley Act of 2002.**32.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes 
Oxley Act of 2002.
 
 *
    
    Filed herewith.**
    
    Furnished herewith.