```

ASSETS
Current assets:
   Cash and cash equivalents                                                    $ 2,000,826       $ 4,996,866
   Accounts receivable:
      Oil and gas                                                                 4,057,527         2,940,852
      Others, net of allowance for doubtful account of $157,187 in
        2000 and 2001                                                               319,818           334,703
      Affiliate                                                                      19,569                 -
                                                                                -----------       -----------
                                                                                  4,396,914         3,275,555
   Other assets                                                                      27,166           286,457
   Deferred income taxes                                                                  -           249,855
                                                                                -----------       -----------
            Total current assets                                                  6,424,906         8,808,733
                                                                                -----------       -----------
 Property and equipment, at cost:
   Oil and gas properties, full cost method                                      72,316,384        78,079,312
   Other                                                                            372,765           542,913
                                                                                -----------       -----------
                                                                                 72,689,149        78,622,225
   Less accumulated depreciation and depletion                                  (32,742,060)      (36,185,626)
                                                                                -----------       -----------
            Net property and equipment                                           39,947,089        42,436,599
                                                                                -----------       -----------
 Other assets, net of accumulated amortization of $114,971 in
   2000 and $65,097 in 2001                                                          84,442           166,834
                                                                                -----------       -----------
                                                                                $46,456,437       $51,412,166
                                                                                ===========       ===========
```

```
                                                                                           ------------          -----------
LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Current maturities of long-term debt                                                         $   803,531           $ 1,314,000
   Investment liability in First Permian (Note 6)                                                   366,765               366,765
   Accounts payable and accrued liabilities:
      Trade                                                                                       2,443,773             3,077,285
      Affiliate                                                                                           -                     -
   Income taxes payable (Note 4)                                                                     50,000                     -
                                                                                                -----------           -----------
                                                                                                  3,664,069             4,758,050
                                                                                                -----------           -----------

Long-term debt, excluding current maturities (Note 2)                                            11,624,000             9,686,000

Stockholders' equity:
   Series A preferred stock -- par value $.10 per share (aggregate liquidation
      preference of $26) authorized 50,000 shares                                                         -                     -
   Preferred stock -- $.60 cumulative convertible preferred stock -- par value of
      $.10 per share (aggregate liquidation preference of $10) authorized
      10,000,000 shares, issued and outstanding 974,500 in 2000 and 2001                             97,450                97,450
   Common stock -- par value $.01 per share, authorized 60,000,000 shares,
      issued and outstanding 20,331,858 in 2000 and 20,443,608 in 2001                              203,319               204,436
   Additional paid-in capital                                                                    34,238,078            34,070,335
   Retained earnings (deficit)                                                                   (3,370,479)            2,595,895
                                                                                                -----------           -----------

Total stockholders' equity                                                                       31,168,368            36,968,116

Commitments and contingencies (Note 9)
                                                                                                -----------           -----------
                                                                                                $46,456,437           $51,412,166
                                                                                                ===========           ===========
```

```

                                                                  Three Months Ended June 30,          Six Months Ended June 30,
                                                                ------------------------------       -----------------------------
                                                                   2000                2001               2000             2001
                                                                -----------       ------------        -----------     ------------

Oil and gas revenues                                            $ 3,196,614        $ 5,143,894        $ 5,971,205     $ 12,432,096
                                                                -----------        -----------        -----------     ------------

Cost and expenses:
   Lease operating expense                                          618,570          1,076,936          1,232,385        2,196,001
   General and administrative                                       260,160            303,881            457,960          602,089
   Depreciation, depletion and amortization                       1,219,142          1,765,747          2,282,611        3,443,567
                                                                -----------        -----------        -----------     ------------
                                                                  2,097,872          3,146,564          3,972,956        6,241,657
                                                                -----------        -----------        -----------     ------------
Operating income                                                  1,098,742          1,997,330          1,998,249        6,190,439
                                                                -----------        -----------        -----------     ------------
Other income (expense), net:
   Equity in loss of First Permian, LLC                            (109,572)                 -           (496,083)               -
   Interest income                                                   12,490             63,739             31,245           82,788
   Other income                                                      41,976             25,207             48,437           50,413
   Interest expense                                                (348,842)          (247,655)          (691,747)        (474,511)
   Other expense                                                       (276)           (77,357)            (1,982)        (132,610)
                                                                -----------        -----------        -----------     ------------
      Total other expense, net                                     (404,224)          (236,066)        (1,110,130)        (473,920)
                                                                -----------        -----------        -----------     ------------
Income before income taxes                                          694,518          1,761,264            888,119        5,716,519
Income tax expense (benefit), net                                         -            430,813                  -         (249,855)
                                                                -----------        -----------        -----------     ------------
         Net income                                               $ 694,518        $ 1,330,451        $   888,119      $ 5,966,374
                                                                ===========        ===========        ===========     ============

Cumulative preferred stock dividend                               $ 146,175        $   146,175        $   316,713      $   292,350
                                                                ===========        ===========        ===========     ============
         Net income available to common stockholders              $ 548,343        $ 1,184,276        $   571,406      $ 5,674,024
                                                                ===========        ===========        ===========     ============
Net income per common share:
   Basic                                                            $ 0.027            $ 0.058            $ 0.028          $ 0.278
                                                                ===========        ===========        ===========     ============
   Diluted                                                          $ 0.027            $ 0.056            $ 0.028          $ 0.251
                                                                ===========        ===========        ===========     ============
Weighted average common share outstanding
   Diluted                                                       20,583,831         23,826,809         20,569,109       23,758,020
                                                                ===========        ===========        ===========     ============
```

```

                                                                                      Six Months Ended June 30
                                                                                     --------------------------
                                                                                         2000           2001
                                                                                      ---------     -----------
Cash flows from operating activities:
   Net income                                                                       $   888,119    $ 5,966,374

   Adjustments to reconcile net income to net cash
      provided by operating activities:
         Depreciation, depletion and amortization                                     2,282,611      3,443,567
         Equity in loss from investments in First Permian, LLC                          496,083              -
         Income taxes                                                                         -       (249,855)
   Other, net                                                                            (6,362)       (82,392)
   Changes in assets and liabilties:
      Decrease (increase) in accounts receivables                                      (648,109)     1,121,359
      Increase in prepaid expenses and other                                            (12,782)      (259,291)
      (Decrease) increase in accounts payable, accrued liabilities
           and taxes payable                                                           (464,337)       583,512
                                                                                    -----------    -----------
            Net cash provided by operating activities                                 2,535,223     10,523,274
                                                                                    -----------    -----------

Cash flows from investing activities:
   Additions to property and equipment                                               (1,909,566)    (5,933,076)
   Proceeds from disposition of property and equipment                                2,917,392              -
   Distribution from First Permian, LLC                                                  67,500              -
                                                                                    -----------    -----------
            Net cash provided by (used in) investing activities                       1,075,326     (5,933,076)
                                                                                    -----------    -----------

Cash flows from financing activities:
   Payments on bank line of credit                                                   (1,665,889)    (1,427,531)
   Proceeds from exercise of options and warrants                                             -        125,723
   Payment of preferred stock dividend                                                 (316,713)      (292,350)
                                                                                    -----------    -----------
            Net cash used in financing activities                                    (1,982,602)    (1,594,158)
                                                                                    -----------    -----------

Net increase in cash and cash equivalents                                             1,627,947      2,996,040

Beginning cash and cash equivalents                                                   1,276,417      2,000,826
                                                                                    -----------    -----------
Ending cash and cash equivalents                                                    $ 2,904,364    $ 4,996,866
                                                                                    ===========    ===========
Non-cash financing activities:
   Accrued preferred stock dividend                                                 $    24,363    $   316,713
                                                                                    ===========    ===========
   Transfer of assets held for sale to oil and gas property                         $ 2,127,734              -
                                                                                    ===========    ===========
```

```

     Type       Volume/Month       Term          Price         Commodity

    Collar     40,000 barrels  7/01 - 12/02  $18.00-$28.75     WTI NYMEX

    Collar     40,000 barrels  7/01 - 12/02  $19.00-$24.80     WTI NYMEX
```

```

                                                                      Three Months Ended                   Six Months Ended
                                                                          June 30,                              June 30,
                                                             ------------------------------          ---------------------------
                                                                 2000               2001                2000             2001
                                                             -----------        -----------          ---------         ---------
Basic EPS Computation:
   Numerator-
      Net income                                            $   694,518         $ 1,330,451         $   888,119       $ 5,966,374
      Preferred stock dividend                                 (146,175)           (146,175)           (316,713)         (292,350)
                                                            -----------         -----------         -----------       -----------
      Net income available to common
         stockholders                                       $   548,343         $ 1,184,276         $   571,406       $ 5,674,024
                                                            ===========         ===========         ===========       ===========

   Denominator-
   Weighted average common shares
      outstanding                                            20,331,858          20,433,721          20,331,858        20,426,480
                                                            ===========         ===========         ===========       ===========
Basic earnings per share                                    $     0.027         $     0.058          $    0.028       $     0.278
                                                            ===========         ===========         ===========       ===========

                                       10

                                                                     Three Months Ended                   Six Months Ended
                                                                          June 30,                              June 30,
                                                             ------------------------------          ---------------------------
                                                                 2000               2001                2000             2001
                                                             -----------        -----------          ---------         ---------

Diluted EPS Computation:
   Numerator-
      Net income                                            $   694,518         $ 1,330,451         $   888,119       $ 5,966,374
      Preferred stock dividend                                 (146,175)                  -            (316,713)                -
                                                            -----------         -----------         -----------       -----------

      Net income available to common
         stockholders                                        $  548,343         $ 1,330,451         $   571,406       $ 5,966,374
                                                             ==========         ===========         ===========       ===========
   Denominator-
   Weighted average common shares
      outstanding                                            20,331,858          20,433,721          20,331,858        20,426,480
   Employee stock options                                       251,973             608,844             237,251           547,296
   Preferred stock                                                    -           2,784,244                             2,784,244
                                                            -----------         -----------         -----------       -----------
                                                             20,583,831          23,826,809          20,569,109        23,758,020
                                                            ===========         ===========         ===========       ===========
Diluted earnings per share                                  $     0.027         $     0.056         $     0.028       $     0.251
                                                            ===========         ===========         ===========       ===========

     Convertible  preferred stock equivalent  shares for the three-month and six
month periods ended June 30, 2000 that could  potentially  dilute basic earnings
per share in the future were not included in the computation of diluted earnings
per share because to do so would have been antidilutive.

NOTE 8: RECENTLY ANNOUNCED ACCOUNTING PRONOUNCEMENTS

     In June 1998, the Financial  Accounting  Standards  Board ("FASB")  issued
Financial  Accounting  Standards No. 133, Accounting for Derivative  Instruments
and  Hedging  Activities  (AFAS  No.  133@),  which  establishes  standards  for
derivative  instruments,  including certain derivative  instruments  embedded in
other contracts, and for hedging activities. FAS No. 133 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.  We adopted
FAS No.  133,  as amended by FAS No.  138,  Accounting  for  Certain  Derivative
Instruments and Certain Hedging  Activities,  an amendment of FASB Statement No.
133, effective January 1, 2001. After assessing our contracts,  we are not aware
of any  freestanding or embedded  derivative  instruments  that would need to be
accounted for in accordance with FAS No. 133 as of January 1, 2001 or during the
period ending June 30, 2001.

     In July 2001 the  Financial  Accounting  Standards  Board  ("FASB")  issued
Statements of Financial Accounting Standards No. 141 "Business Combinations" and
No. 142 "Goodwill and Other Intangible  Assets." Statement 141 requires that all
business  combinations  initiated after June 30, 2001 be accounted for under the
purchased method and Statement 142 requires that goodwill no longer be amortized
to earnings,  but instead be reviewed for impairment.  As of June 30, 2001 there
is no impact to the Company's  financial  statements as we have not entered into
any business combination and have not acquired goodwill.

     Also, the FASB had voted to issue  Statement No. 143  "Accounting for Asset
Retirement  Obligations"  which  establishes  requirements for the accounting of
removal-type costs associated with asset retirements.  The standard is effective
for  fiscal  years  beginning  after June 15,  2002,  with  earlier  application
encouraged.  The  Company is  currently  assessing  the impact on its  financial
statements.

                                       11

NOTE 9. LEGAL PROCEEDINGS

     At June  30,  2001,  we were  involved  in one  lawsuit  incidental  to our
business.  In the opinion of  management,  the ultimate  outcome of this lawsuit
will not have a material  adverse  effect on  Parallel's  financial  position or
results of operations.  We are not aware of any other threatened litigation.  We
have  not  been  a  party  to  any  bankruptcy,  receivership,   reorganization,
adjustment or similar proceeding.

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

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

OVERVIEW

Strategy

     Our primary objectives are to build oil and gas reserves,  production, cash
flow and earnings per share by exploring for new oil and gas reserves, acquiring
oil and gas  properties  and  optimizing  production  from  existing oil and gas
properties. Management seeks to achieve these objectives by:

        .  using advanced technologies to conduct exploratory and development
           activities;
        .  acquiring producing properties we believe add incremental value
           to our asset base;
        .  keeping debt levels low;
        .  concentrating activities in core areas to achieve economies of
           scale; and
        .  emphasizing cost controls.

     Following this strategy,  we have discovered oil and gas reserves using 3-D
seismic  technology in the  Horseshoe  Atoll Reef Trend of west Texas and in the
Yegua/Frio/Wilcox  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 these properties has been provided primarily
by secured bank  financing,  sales of our equity  securities  and cash flow from
operations.

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

     First Permian is owned by Parallel and certain other privately held oil and
gas companies.  As of June 30, 2001,  Parallel owned a 30.675% common membership
interest in First  Permian.  We account for our interest in First  Permian using
the equity method of accounting whereby our investment is increased or decreased
by our proportionate share of First Permian=s net income or loss. See Note 6 for
further  discussion about the  discontinuance of the equity method of accounting
for our investment.

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

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

                                       12

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

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

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

     For the three  months  ended June 30,  2001,  the  average  sales  price we
received for our crude oil production  averaged  $26.35 per barrel compared with
$27.81 per  barrel  for the three  months  ended  March 31,  2001 and $32.38 per
barrel for the three months ended  December 31, 2000. The average sales price we
received for natural gas during this same period was $3.93 per mcf compared with
$6.25 per mcf for the three  months  ended  March 31, 2001 and $6.67 per mcf for
the three  months ended  December 31, 2000.  For the three months ended June 30,
2000, the average sales price we received for our crude oil averaged  $27.13 and
for our natural gas averaged $3.02 per mcf.

     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 5 to Financial Statements.
These  costs  include  lease  acquisition  costs,   geological  and  geophysical
expenditures,  costs of drilling both productive and  non-productive  wells, and
overhead  expenses  directly  related to land  acquisition  and  exploration and
development activities.  Proceeds from the disposition of oil and gas properties
are  accounted  for as a reduction in  capitalized  costs,  with no gain or loss
recognized  unless such disposition  involves a material change in reserves,  in
which case the gain or loss is recognized.

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

     Our production and results of operations  vary from quarter to quarter.  We
expect 2001  production  volumes to  increase  when  compared to our  production
volumes in the prior year as a result of increased drilling activities.

RESULTS OF OPERATIONS

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

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

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

                                       13

                                                                    Three Months Ended                Three Months Ended
                                                          -------------------------------------    ------------------------
                                                           12-31-00      3-31-01       6-30-01      6-30-00        6-30-01
                                                          ----------    ---------     ---------    ---------      ---------
Production and prices:
   Oil (Bbls)                                               38,784        34,914        43,311      44,753           43,311
   Natural gas (Mcf)                                       860,651     1,009,532     1,017,456     657,039        1,017,456
   Equivalent barrels of oil (EBO)                         182,226       203,169       212,887     154,260          212,887

   Oil price (per Bbl)                                     $ 32.38       $ 27.81       $ 26.35     $ 27.13          $ 26.35
   Gas price (per Mcf)                                     $  6.67       $  6.25       $  3.93     $  3.02          $  3.93
   Price per EBO                                           $ 38.42       $ 35.87       $ 24.16     $ 20.72          $ 24.16

Results of operations per EBO:
Oil and gas revenues                                       $ 38.42       $ 35.87       $ 24.16     $ 20.72          $ 24.16
Costs and expenses:
   Lease operating expense                                    6.19          5.51          5.06        4.01             5.06
   General and administrative                                 3.03          1.47          1.43        1.69             1.43
   Depreciation and depletion                                 9.10          8.26          8.29        7.90             8.29
                                                           -------       -------       -------     -------          -------
         Total costs and expense                             18.32         15.24         14.78       13.60            14.78
                                                           -------       -------       -------     -------          -------

Operating income                                             20.10         20.63          9.38        7.12             9.38
                                                           -------       -------       -------     -------          -------

Interest expense, net                                        (1.50)        (1.02)        (0.86)      (2.18)           (0.86)
Other income, net                                             0.71         (0.15)        (0.24)       0.27            (0.24)
                                                           -------       -------       -------     -------          -------
                                                             (0.79)        (1.17)        (1.10)      (1.91)           (1.10)
Equity in loss of First Permian, LLC                             -             -             -       (0.71)               -
                                                           -------       -------       -------     -------          -------
         Pretax income per EBO                               19.31         19.46          8.28        4.50             8.28

Income tax expense (benefit)                                  0.71         (3.35)         2.02           -             2.02
                                                           -------       -------       -------     -------          -------
         Net income per EBO                                $ 18.60       $ 22.81        $ 6.26      $ 4.50           $ 6.26
                                                           =======       =======       =======     =======          =======
Net operating cash flow before
   working capital adjustments                             $ 28.41       $ 27.72       $ 16.57     $ 13.11          $ 16.57
                                                           =======       =======       =======     =======          =======

                                       14

                                                                                    Six Months Ended
                                                                        ----------------------------------------
                                                                            6-30-99      6-30-00       6-30-01
                                                                        -------------- -----------  ------------
Production and prices:
   Oil (Bbls)                                                               90,527       84,037         78,224
   Natural gas (Mcf)                                                     1,447,449    1,227,543      2,026,988
   Equivalent barrels of oil (EBO)                                         331,768      288,627        416,055

   Oil price (per Bbl)                                                     $ 12.68      $ 26.93        $ 27.00
   Gas price (per Mcf)                                                     $  1.94      $  3.01        $  5.09
   Price per EBO                                                           $ 11.92      $ 20.69        $ 29.88

Results of operations per EBO:
Oil and gas revenues                                                       $ 11.92      $ 20.69        $ 29.88
Costs and expenses:
   Lease operating expense                                                    3.21         4.27           5.28
   General and administrative                                                 1.28         1.59           1.45
   Depreciation and depletion                                                 5.61         7.91           8.27
                                                                           -------      -------        -------
         Total costs and expense                                             10.10        13.77          15.00
                                                                           -------      -------        -------
Operating income                                                              1.82         6.92          14.88
                                                                           -------      -------        -------
Interest expense, net                                                        (2.17)       (2.29)         (0.94)
Other income, net                                                             0.03         0.16          (0.20)
                                                                           -------      -------        -------
                                                                             (2.14)       (2.13)         (1.14)
Equity in loss of First Permian, LLC                                             -        (1.72)             -
                                                                           -------      -------        -------
         Pretax income per EBO                                               (0.32)        3.07          13.74

Income tax expense (benefit)                                                     -            -           (.60)
                                                                           -------      -------        -------
         Net income (loss) per EBO                                         $ (0.32)     $  3.07        $ 14.34
                                                                           =======      =======        =======

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

                                                                       Three Months Ended                  Six Months Ended
                                                                -----------------------------------      ---------------------
                                                                12-31-00      3-31-01       6-30-01      6-30-00       6-30-01
                                                                --------      -------       -------      -------       -------

Oil and gas revenues                                              100.0%       100.0%        100.0%       100.0%        100.0%
Costs and expenses:
   Lease operating expense                                         16.1         15.4          20.9         20.6          17.7
   General and administrative                                       7.9          4.1           5.9          7.7           4.8
   Depreciation and depletion                                      23.7         23.0          34.3         38.2          27.7
                                                                 ------       ------        ------       ------        ------
         Total costs and expenses                                  47.7         42.5          61.1         66.5          50.2
                                                                 ------       ------        ------       ------        ------
Operating income                                                   52.3         57.5          38.9         33.5          49.8
                                                                 ------       ------        ------       ------        ------
Interest expense, net                                              (3.9)        (2.9)         (3.6)       (11.1)         (3.1)
Other income, net                                                   1.9         (0.4)         (1.0)         0.8          (0.7)
                                                                 ------       ------        ------       ------        ------
                                                                   (2.0)        (3.3)         (4.6)       (10.3)         (3.8)
Equity in loss of First Permian, LLC                                  -            -             -         (8.3)            -
                                                                 ------       ------        ------       ------        ------
                                                                   (2.0)        (3.3)         (4.6)       (18.6)         (3.8)
                                                                 ------       ------        ------       ------        ------
         Pretax income                                             50.3         54.2          34.3         14.9          46.0

Income tax expense (benefit)                                        1.9         (9.4)          8.4            -          (2.0)
                                                                 ------       ------        ------       ------        ------

         Net income                                                48.4         63.6          25.9         14.9          48.0
                                                                 ======       ======        ======       ======        ======

                                       15

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2000 AND 2001:

     Oil and Gas Revenues. Oil and gas revenues increased $1,947,280, or 61%, to
$5,143,894  for the three months ended June 30, 2001,  from  $3,196,614  for the
same period of 2000.  The increase was primarily the result of a 38% increase in
oil and gas production and a 17% increase in the average sales price per EBO. We
received  $24.16 per EBO in the three months ended June 30, 2001  compared  with
$20.72 per EBO for the same period of 2000.

     Production  Costs.  Production  costs  increased  $458,366,  or  74%,  to
$1,076,936  during the three months ended June 30, 2001,  compared with $618,570
for the same period of 2000. The increase was primarily  attributable  to higher
production  taxes  and  ad  valorem  taxes,  the  result  of a 38%  increase  in
production  volumes  and  higher  oil and gas  prices,  which in turn  increased
revenues.  Average production costs per EBO increased 26% to $5.06 for the three
months ended June 30, 2001 compared with $4.01 for the same period in 2000.  The
increase was primarily the result of increased taxes  associated with higher oil
and gas revenues and a 38% increase in oil and gas production.

     General and Administrative  Expenses.  General and administrative  expenses
increased  by $43,721,  or 17%, to $303,881  for the three months ended June 30,
2001 from  $260,160 for the same period of 2000.  The increase was primarily due
to higher  legal and  public  reporting  costs,  franchise  taxes and  increased
staffing  requirements.  General and administrative  expenses were $1.43 per EBO
for the three months ended June 30, 2001, compared to $1.69 per EBO for the same
period of 2000, primarily because of the 38% increase in production volumes.

     Depreciation,  Depletion and Amortization Expense. Depreciation,  depletion
and  amortization  expense  ("DD&A")  increased  by  $546,605,  or  45%,  to
$1,765,747 for the three months ended June 30, 2001 compared with $1,219,142 for
the same  period of 2000  primarily  because  of a 38%  increase  in  production
volumes. As a percentage of revenues,  DD&A decreased to 34% compared to 38%
last  year,  a result  of an  increase  in the  average  sales  price per EBO we
received in the second  quarter of 2001.  The DD&A rate per EBO increased to
$8.29 for the second  quarter of 2001 compared with $7.90 per EBO for the second
quarter of 2000.  The increase in the DD&A  rate per EBO, when compared with
the same quarter a year ago, is  attributable  to an increase in net  depletable
property basis and a decrease in reserves as of fiscal year-end 2000.

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

     Net Interest  Expense.  Interest  expense  decreased  $152,436,  or 45%, to
$183,916 for the three months ended June 30, 2001 compared with $336,352 for the
same period of 2000 due  principally to decreased bank borrowings and a decrease
in the bank's prime rate.

     Income Tax Benefit.  Our effective tax rate for the three months ended June
30, 2001 is 24%. For further discussion see Note 4.

     Net Income and  Operating  Cash Flow.  We reported net income of $1,330,451
for the three  months ended June 30, 2001  compared  with net income of $694,518
for the three months ended June 30, 2000.  Operating  cash flow  (defined as net
income  before  taxes,   adding  back  equity  in  loss  of  First  Permian  and
depreciation,  depletion  and  amortization)  increased  $1,503,779,  or 74%, to
$3,527,011 for the three months ended June 30, 2001 compared with $2,023,232 for
the three months ended June 30, 2000.  The increase in net income and  operating
cash flow resulted  from a 61% increase in oil and gas revenues,  a 17% increase
in the average  sales price we received  per EBO, a 38%  increase in  production
volumes and a 45% decrease in net interest expense. These factors were partially
offset by a 74%  increase  in  production  costs and a 45%  increase in DD&A
expenses.

                                       16

RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 2001:

     Oil and Gas Revenues.  Oil and gas revenues increased $6,460,891,  or 108%,
to $12,432,096  for the six months ended June 30, 2001,  from $5,971,205 for the
same period of 2000.  The increase was primarily the result of a 44% increase in
the average  sales price per EBO and a 44% increase in  production.  We received
$29.88 per EBO in the six months  ended June 30, 2001  compared  with $20.69 per
EBO for the same period of 2000.

     Production Costs. Production costs increased $963,616 or 78%, to $2,196,001
during  the first six  months of 2001,  compared  with  $1,232,385  for the same
period of 2000.  Average  production  costs per EBO increased 24%, to $5.28, for
the first  six  months in 2001  compared  to $4.27 for the same  period in 2000,
primarily a result of increased  production taxes associated with higher oil and
gas revenues and a 44% increase in oil and gas production.

     General and Administrative  Expenses.  General and administrative  expenses
increased  by  $144,129,  or 31%, to $602,089  for the first six months of 2001,
from  $457,960 for the same period of 2000. The increase was primarily due to an
increase in audit,  legal, public reporting,  reservoir  engineering and payroll
related expenses.  General and administrative expenses were $1.45 per EBO in the
first six  months of 2001  compared  to $1.59 per EBO in the first six months of
2000. The decrease per EBO is a result of higher production volumes in the first
six months of 2001 when  compared  with the same  six-month  period of the prior
year.  Future  general and  administrative  costs are expected to remain  fairly
stable with no material increases expected in any particular category.

     Depreciation,  Depletion and Amortization Expense. Depreciation,  depletion
and  amortization  expense  ("DD&A")  increased  by  $1,160,956,  or 51%, to
$3,443,567  for the first six months of 2001  compared with  $2,282,611  for the
same period of 2000. As a percentage of revenues,  the DD&A decreased to 28%
when  compared to 38% for the prior year six months,  a result of an increase in
the average sales price per EBO we received in the first six months of 2001. The
DD&A  rate per EBO  increased  to $8.27  for the  first  six  months of 2001
compared  with $7.91 per EBO for the first six months of 2000.  The  increase in
the DD&A rate per EBO is attributable to a decrease in proved reserves as of
fiscal year-end 2000.

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

     Equity in Earnings (Loss) of First Permian, LLC. Our share of the operating
results of First  Permian  resulted in a noncash  charge of $496,083 for the six
months ended June 30, 2000, which reflects our pro rata share of First Permian's
loss for the six months ended June 30, 2000.  First Permian  recorded a loss for
the  six-month  period  primarily  as a result of a noncash  charge of  $960,825
associated  with the  restructuring  of its debt during the second quarter ended
June 30,  2000,  which was booked as a  nonrecurring  extraordinary  item.  Also
contributing to First Permian's loss were oil hedge payments totaling $6,125,064
for the six months ended June 30, 2000.

     At December 31, 2000, we had recorded  cumulative losses of $366,765 in our
investment liability in First Permian, LLC because we had guaranteed $10,000,000
of the debt of First  Permian,  LLC.  We were  released  from this  guaranty  on
October 25, 2000 and have  discontinued  the equity method of accounting for our
share of losses in First  Permian from that date.  At June 30, 2001,  we did not
record  our  share of  losses  associated  with our  30.675%  interest  in First
Permian,  LLC.  For the six months ended June 30, 2001,  First  Permian,  L.L.C.
incurred  a net loss of  $280,327, which

                                       17

includes $6,748,457 loss primarily associated with its oil hedge.

     Net Interest  Expense.  Net interest expense decreased $268,779, or 41%, to
$391,723 for the six months ended June 30, 2001  compared  with $660,502 for the
same period of 2000; due principally to decreased bank borrowings.

     Income Tax  Expense.  For the six months  ended June 30, 2001 we recorded a
tax benefit of $249,855. For further discussion see Note 4.

     Net Income and  Operating  Cash Flow.  We reported net income of $5,966,374
for the six months  ended June 30, 2001  compared to $888,119 for the six months
ended June 30, 2000.  Operating  cash flow  (defined as net income before taxes,
adding back  equity in loss of First  Permian and  depreciation,  depletion  and
amortization)  increased  $5,493,273,  or 150%, to $9,160,086 for the six months
ended June 30, 2001  compared to  $3,666,813  for the six months  ended June 30,
2000.  The increase in net income and  operating  cash flow resulted from a 108%
increase in oil and gas  revenues due to a 44%  increase in  production  volumes
sold,  a 44%  increase in the average  sales price per EBO and a 41% decrease in
interest  expense.  These  factors  were  partially  offset by a 78% increase in
production costs, a 31% increase in general and administrative  costs, and a 51%
increase in DD&A expense.

LIQUIDITY AND CAPITAL RESOURCES

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

     Working  capital  increased  $1,289,846  as of June 30, 2001  compared with
December 31, 2000. Current assets exceeded current  liabilities by $4,050,683 at
June 30, 2001 compared with  $2,760,837  at December 31, 2000.  Working  capital
increased  primarily  due to an  increase  in cash  offset  by the  decrease  in
accounts  receivable.  Current  assets  increased  primarily  as a result  of an
increase in production volumes and higher oil and gas prices.

     We incurred property costs of $5,933,076, for the six months ended June 30,
2001,  primarily  for our oil and gas  property  acquisition,  development,  and
enhancement  activities.  Such costs were  financed by the  utilization  of cash
flows provided by operations.

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

TRENDS AND PRICES

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

     Our capital  expenditure  budget for 2001 is highly dependent on future oil
and gas prices and will be consistent with internally generated cash flows.

     During fiscal year 2000 the average sales price we received for our oil was
approximately  $28.88 per barrel while the average  sales prices we received for
natural gas was  approximately  $4.38 per thousand  cubic feet ("Mcf").  For the
three  months  ended June 30,  2001,  the average  price we

                                       18

received for our oil  production  was  approximately  $26.35 per Bbl,  while the
average  price  received at that same date for our natural  gas  production  was
approximately $3.93 per Mcf.

FORWARD-LOOKING STATEMENTS

     In addition to  historical  information  contained  herein,  this Form 10-Q
Report  contains  forward-looking   statements  subject  to  various  risks  and
uncertainties that could cause the company's actual results to differ materially
from those in the forward-looking statements.  Forward-looking statements can be
identified  by the use of  forward-looking  terminology  such as "may",  "will",
"expect,"  "intend,"  "anticipate,   "estimate,"  "continue,"  "present  value,"
"future,"  "reserves" or other  variations  thereof or  comparable  terminology.
Factors that could cause or contribute to such  differences  could include,  but
are not  limited to,  those  relating  to the  results of  exploratory  drilling
activity,  changes in oil and natural gas prices, operating risks,  availability
of drilling  equipment,  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,  these 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 the company  with the  Securities  and Exchange
Commission.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

     Our major market risk exposure is in the pricing  applicable to our oil and
natural gas production.  Realized  pricing is primarily driven by the prevailing
domestic  price for crude oil and spot prices  applicable to the region in which
we produce natural gas. Historically, prices received for oil and gas production
have  been  volatile  and  unpredictable.  Pricing  volatility  is  expected  to
continue. Oil prices ranged from a monthly low of $17.56 per barrel to a monthly
high of $29.99 per barrel during second  quarter 2001. The natural gas prices we
received  during second  quarter 2001 ranged from a monthly low of $2.54 per Mcf
to a monthly high of $12.03 per Mcf. A significant  decline in the prices of oil
and natural gas could have a material adverse effect on our financial  condition
and results of operations.

     Our only  financial  instrument  sensitive to changes in interest  rates is
bank debt. Our annual  interest costs in 2001 will fluctuate based on short-term
interest  rates.  As the interest rate is variable and reflects  current  market
conditions,  the carrying  value  approximates  the fair value.  The table below
shows  principal  cash flows and  related  weighted  average  interest  rates by
expected  maturity dates.  Weighted average interest rates were determined using
weighted average interest paid and accrued in June 2001.

                                  June       June     October             Fair
                                  2002       2003       2003    Total     Value
                                  ----       ----       ----    -----     -----
                                        (In 000's, except interest rates)
Variable rate debt:

 Revolving facility (secured)    $1,314      $3,876    $5,810  $11,000  $11,000

   Average interest rate           6.75%       6.75%     6.75%

                                       19

                           PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     At June  30,  2001,  we were  involved  in one  lawsuit  incidental  to our
business.  In the opinion of  management,  the ultimate  outcome of this lawsuit
will not have a material  adverse  effect on  Parallel's  financial  position or
results of operations.  We are not aware of any other threatened litigation.  We
have  not  been  a  party  to  any  bankruptcy,  receivership,   reorganization,
adjustment or similar proceeding.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     Parallel's annual meeting of stockholders was held on June 20, 2001. At the
meeting,  the  following  persons were elected to serve as Directors of Parallel
for a term of one year  expiring in 2002 and until their  respective  successors
are duly  qualified  and  elected:  (1)  Thomas R.  Cambridge,  (2)  Dewayne  E.
Chitwood,  (3) Ernest R. Duke, (4) Larry C. Oldham and (5) Martin B. Oring,  (6)
Charles R. Pannill (7) Jeffrey G.  Shrader.  Set forth below is a tabulation  of
votes with respect to each nominee for Director:

             NAME                VOTES CAST FOR     VOTES WITHHELD
             ----                --------------     --------------

     Thomas R. Cambridge         16,709,044              40,511
     Dewayne E. Chitwood         16,706,574              42,981
     Ernest R. Duke              16,700,294              49,291
     Larry Oldham                16,619,294             130,261
     Martin B. Oring             16,707,399              42,156
     Charles R. Pannill          16,699,444              50,111
     Jeffrey G. Shrader          16,705,249              44,306

     In addition to electing Directors, the stockholders voted upon the approval
of the Parallel Petroleum  Corporation 2001 Non-Employee  Directors Stock Option
Plan. Set forth below is a tabulation of votes with respect to this proposal.

             VOTES CAST FOR           VOTES CAST AGAINST          ABSTENTIONS
             --------------           ------------------          -----------

                15,909,957                  594,008                245,450

     In addition to electing  Directors,  the  stockholders  also voted upon and
ratified  the  appointment  of  KPMG  LLP to  serve  as our  independent  public
accountants  for 2001.  Set forth below is a tabulation of votes with respect to
the  proposal  to  ratify  the  appointment  of  Parallel's  independent  public
accountants:

      VOTES CAST FOR           VOTES CAST AGAINST                ABSTENTIONS
      --------------           ------------------                -----------

       16,705,873                   28,078                         15,604

                                       20

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits

     Exhibit No.           Description of Exhibit
     -----------           -----------------------

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

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

          4.2  Certificate of  Designation,  Preferences  and Rights of Series A
               Preferred  Stock.  (Incorporated  by  reference to Exhibit 4.2 of
               Form 10-K for the fiscal year ended December 31, 2000.)

          4.3  Rights  Agreement,  dated as of  October  5,  2000,  between  the
               Registrant  and  Computershare  Trust  Company,  Inc.,  as Rights
               Agent. (Incorporated by reference to Exhibit 4.3 of Form 10-K for
               the fiscal year ended December 31, 2000.)

               Executive Compensation Plans and Arrangements (Exhibit No.'s 10.1
               through 10.8):

          10.1 1983 Incentive  Stock Option Plan  (Incorporated  by reference to
               Exhibit 10.2 to Form S-l of the Registrant  (File No. 2-92397) as
               filed with the  Securities  and Exchange  Commission  on July 26,
               1984,  as amended by  Amendments  No. 1 and 2 on October 5, 1984,
               and October 25, 1984, respectively.)

          10.2 1992 Stock Option Plan (Incorporated by reference to Exhibit 28.1
               to Form S-8 of the Registrant  (File No.  33-57348) as filed with
               the Securities and Exchange Commission on January 25, 1993.)

          10.3 Stock  Option  Agreement  between  the  Registrant  and Thomas R.
               Cambridge dated December 11, 1991  (Incorporated  by reference to
               Exhibit 10.4 of Form 10-K of the  Registrant  for the fiscal year
               ended December 31, 1992.)

          10.4 Stock  Option  Agreement  between  the  Registrant  and Thomas R.
               Cambridge  dated October 18, 1993  (Incorporated  by reference to
               Exhibit  10.4(e)  of Form 10-K of the  Registrant  for the fiscal
               year ended December 31, 1993.)

          10.5 Merrill Lynch, Pierce, Fenner & Smith Incorporated  Prototype
               Simplified  Employee  Pension Plan  (Incorporated by reference to
               Exhibit  10.6 of the  Registrant's  Form 10-K for the fiscal year
               ended December 31, 1995.)

          10.6 Non-Employee   Directors  Stock  Option  Plan   (Incorporated  by
               reference  to Exhibit 10.6 of the  Registrant's  Form 10-K Report
               for the fiscal year ended December 31, 1997).

          10.7 1998 Stock Option Plan (Incorporated by reference to Exhibit 10.7
               of Form 10-K of the Registrant for the fiscal year ended December
               31, 1998.)

         *10.8 2001 Non-Employee Directors Stock Option Plan.

                                       21

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

         10.10 Loan  Agreement  dated  December 18, 2000 between the  Registrant
               and Bank  United.  (Incorporated  by reference to Exhibit 10.9 of
               Form 10-K for the fiscal year ended December 31, 2000.)

         10.11 Letter  agreement,  dated March 24, 1999,  between the Registrant
               and Bank One, Texas,  N.A.  (Incorporated by reference to Exhibit
               10.9 of Form 10-K for the fiscal year ended December 31, 1998.)

         10.12 Certificate of Formation of First Permian,  L.L.C.  (Incorporated
               by reference to Exhibit 10.1 of the Registrant's  Form 8-K report
               dated June 30, 1999.)

         10.13 Limited  Liability  Company  Agreement of First  Permian,  L.L.C.
               (Incorporated  by reference  to Exhibit 10.2 of the  Registrant's
               Form 8-K report dated June 30, 1999.)

         10.14 Merger Agreement dated June 25, 1999.  (Incorporated by reference
               to Exhibit  10.3 of the  Registrant's  Form 8-K report dated June
               30, 1999.)

         10.15 Agreement and Plan of Merger of First  Permian,  L.L.C.  and Nash
               Oil Company, L.L.C. (Incorporated by reference to Exhibit 10.4 of
               the Registrant's Form 8-K report dated June 30, 1999.)

         10.16 Certificate  of  Merger  of First  Permian,  L.L.C.  and Nash Oil
               Company,  L.L.C (Incorporated by reference to Exhibit 10.5 of the
               Registrant's Form 8-K Report dated June 30, 1999.)

         10.17 Amended and  Restated  Limited  Liability  Company  Agreement  of
               First Permian, L.L.C. dated as of May 31, 2000.  (Incorporated by
               reference to Exhibit 10.16 of Form 10-K for the fiscal year ended
               December 31, 2000.)

         10.18 Credit  Agreement  dated  June  30,  1999,  by  and  among  First
               Permian,  L.L.C., Parallel Petroleum Corporation,  Baytech, Inc.,
               and Bank One, Texas,  N.A.  (Incorporated by reference to Exhibit
               10.6 of the Registrant's Form 8-K report dated June 30, 1999.)

         10.19 Limited  Guaranty,  dated  June  30,  1999,  by and  among  First
               Permian,  L.L.C.,  Parallel Petroleum Corporation,  and Bank One,
               Texas,  N.A.  (Incorporated  by  reference to Exhibit 10.7 of the
               Registrant's Form 8-K report dated June 30, 1999.)

         10.20 Intercreditor Agreement,  dated as of June 30, 1999, by and 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 of the  Registrant's  Form 8-K report
               dated June 30, 1999.)

         10.21 Subordinated  Promissory  Note,  dated  June  30,  1999,  in  the
               original  principal amount of $8.0 million made by First Permian,
               L.L.C.   payable  to  the  order  of  Tejon  Exploration  Company
               (Incorporated  by reference  to Exhibit 10.9 of the  Registrant's
               Form 8-K report dated June 30, 1999.)

                                       22

         10.22 Subordinated  Promissory  Note,  dated  June  30,  1999,  in  the
               original  principal amount of $8.0 million made by First Permian,
               L.L.C. payable to the order of Mansefeldt Investment  Corporation
               (Incorporated  by reference to Exhibit 10.10 of the  Registrant's
               Form 8-K report dated June 30, 1999.)

         10.23 Second Restated Credit  Agreement,  dated October 25, 2000, among
               First  Permian,  L.L.C.,  Bank  One,  Texas,  N.A.,  and Bank One
               Capital Markets, Inc. (Incorporated by reference to Exhibit 10.22
               of Form 10-K for the fiscal year ended December 31, 2000.)

  _____________
  *Filed herewith.

(2)  Reports on Form 8-K

     No reports were filed on form 8-K during the quarter ended June 30, 2001.

                                       24

                          SIGNATURES

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

                                            PARALLEL PETROLEUM CORPORATION

Date:   August 14, 2001                    BY:/s/ Thomas R. Cambridge
                                           ------------------------------------
                                           Thomas R. Cambridge
                                           Chairman of the Board of Directors
                                           and Chief Executive Officer

Date:   August 14, 2001                    BY: /s/ Larry C. Oldham
                                           -------------------------------------
                                           Larry C. Oldham,
                                           President and Principal Financial
                                           Officer
```