<PAGE>
                                       1




                       SECURITIES AND EXCHANGE COMMISSION

                            WASHINGTON, D. C. 20549

                                   FORM 10-Q


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

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

          For the quarterly period ended June 30, 2000 or

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

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

                         COMMISSION FILE NUMBER 0-13305

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


                         PARALLEL PETROLEUM CORPORATION
             (Exact name of registrant as specified in its charter)

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

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

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

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

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

                      Yes  'X'                        No

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


================================================================================


<PAGE>
                                       2


                                     INDEX



                        PART I. - FINANCIAL INFORMATION
                                                                    Page No.

ITEM 1. FINANCIAL STATEMENTS

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

          - Balance Sheets as of December 31, 1999 and June 30, 2000
            (unaudited)                                                  3

          - Unaudited  Statements  of  Operations  for the three
            months and six months ended June 30, 1999 and 2000           5

          - Unaudited  Statements  of Cash Flows for the six months      6
            ended June 30, 1999 and 2000

          - Notes to Financial Statements                                7

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK      16



                          PART II. - OTHER INFORMATION

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS             16


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                17

<PAGE>
                                       3



                        PARALLEL PETROLEUM CORPORATION

                                 BALANCE SHEETS


<TABLE>

ASSETS                                             December 31,            June 30, 2000
                                                     1999 *                (Unaudited)
                                                   -----------            --------------
<S>                                                <C>                     <C>

Current assets:

Cash and cash equivalents                       $  1,276,417              $  2,904,364


Accounts receivable:

   Oil and gas                                     1,312,923                 2,015,856

   Others, net of allowance for
    doubtful accounts of $157,187
    in 1999 and 2000                                 314,911                   262,910

Affiliate                                             20,658                    17,835
                                                ------------              ------------
                                                   1,648,492                 2,296,601
                                                ------------              ------------
Other assets                                          39,677                    52,459

Assets held for sale                               2,127,734                         -
                                                ------------              ------------

Total current asset                                5,092,320                 5,253,424
                                                ------------              ------------

Property and equipment, at cost:

   Oil and gas properties, full cost method       65,136,783                66,230,708

   Other                                             289,720                   315,703
                                                ------------              ------------
                                                  65,426,503                66,546,411

   Less accumulated depreciation and depletion    27,502,855                29,785,466
                                                ------------              ------------
       Net property and equipment                 37,923,648                36,760,945
                                                ------------              ------------

Investment in First Permian, LLC (Notes 1 and 5)     201,311                         -

Other assets, net of accumulated amortization of
     $141,428 in 1999 and $86,391 in 2000             46,791                    53,153
                                                ------------              ------------
                                                $ 43,264,070              $ 42,067,522
                                                ============              ============
</TABLE>



<PAGE>
                                       4

                         PARALLEL PETROLEUM CORPORATION


                                 BALANCE SHEETS
                                  (Continued)


<TABLE>

LIABILITIES AND STOCKHOLDERS' EQUITY                   December 31,            June 30, 2000
                                                          1999 *                (Unaudited)
                                                      ------------            --------------
<S>                                                <C>                     <C>

Current liabilities:

  Current maturities of long-term debt               $  3,665,889            $  3,600,000

  Investment liability in First Permian
     (Notes 1 and 5)                                           -                  362,272

  Accounts payable and accrued liabilities:

    Trade                                               1,471,013               1,007,832

   Affiliate                                                2,702                   1,546

   Preferred stock dividend                                24,363                  24,363
                                                     ------------            ------------
                                                        1,498,078               1,033,741
                                                     ------------            ------------
  Total current liabilities                             5,163,967               4,996,013
                                                     ------------            ------------
Long-term debt, excluding current maturities
     (Note 2)                                          12,300,000              10,700,000



Stockholders' equity:

  Preferred stock 6% convertible preferred stock
    par value $.10 per share (aggregate liquidation
    preference of $10) authorized 10,000,000
    shares, issued and outstanding 974,500
    in 1999 and 2000                                       97,450                  97,450

  Common stock - par value $.01 per share,
    authorized 60,000,000 shares, issued and
    outstanding 20,331,858 in 1999 and 2000               203,319                 203,319

  Additional paid-in surplus                           34,847,141              34,530,428

  Retained deficit                                     (9,347,807)             (8,459,688)
                                                     ------------            ------------
    Total stockholders' equity                         25,800,103              26,371,509


Contingencies
                                                     ------------            ------------
                                                     $ 43,264,070            $ 42,067,522
                                                     ============            ============
</TABLE>


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



<PAGE>
                                       5


                         PARALLEL PETROLEUM CORPORATION

                            STATEMENTS OF OPERATIONS

                                  (Unaudited)


<TABLE>

                                                      Three Months Ended                 Six Months Ended
                                                          June 30,                           June 30,
                                                    ------------------------           ----------------------
                                                     1999             2000              1999            2000
                                                    ------           ------            ------          ------
<S>                                                 <C>              <C>               <C>             <C>

Oil and gas revenues                           $  1,991,727      $  3,196,614      $  3,954,816    $  5,971,205

Cost and expenses:
    Lease operating expense                         551,142           618,570         1,064,964       1,232,385
    General and administrative                      220,911           260,160           424,148         457,960
    Depreciation, depletion and amortization        956,958         1,219,142         1,860,794       2,282,611
                                               ------------      ------------      ------------     -----------
                                                  1,729,011         2,097,872         3,349,906       3,972,956
                                               ------------      ------------      ------------     -----------

          Operating income                          262,716         1,098,742           604,910       1,998,249
                                               ------------      ------------      ------------     -----------

Other income (expense), net:
    Interest income                                  13,695            12,490            26,971          31,245
    Other income                                      6,606            41,976            13,229          48,437
    Interest expense                               (376,057)         (348,842)         (747,128)       (691,747)
    Other expense                                    (1,205)             (276)           (2,510)         (1,982)
                                               ------------      ------------      ------------    ------------
          Total other expense, net                 (356,961)         (294,652)         (709,438)       (614,047)


    Equity in loss of First Permian, LLC                 -           (109,572)               -         (496,083)
                                               ------------      ------------      ------------    ------------
                                                   (356,961)         (404,224)         (709,438)     (1,110,130)
                                               ------------      ------------      ------------    ------------
Income (loss) before income taxes                   (94,245)          694,518          (104,528)        888,119
Inncome taxes                                            -                 -                 -               -
                                               ------------      ------------      ------------    ------------
          Net income (loss)                    $    (94,245)     $    694,518      $   (104,528)   $    888,119
                                               ============      ============      ============    ============

Cumulative preferred stock dividend            $    146,175      $    146,175      $    316,713    $    316,713
                                               ============      ============      ============    ============

    Net income (loss) available to
       common stockholders                     $   (240,420)     $    548,343      $   (421,241)   $    571,406
                                               ============      ============      ============    ============

Net income (loss) per common share:
     Basic                                     $      (.013)     $       .027      $      (.023)   $       .028
                                               ============      ============      ============    ============

     Diluted                                   $      (.013)     $       .027      $      (.023)   $       .028
                                               ============      ============      ============    ============

Weighted average common shares
   outstanding - diluted                         18,331,858        20,583,831        18,120,194      20,569,109
                                               ============      ============      ============    ============

</TABLE>

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




<PAGE>
                                       6


                         PARALLEL PETROLEUM CORPORATION

                            STATEMENTS OF CASH FLOWS

                                  (Unaudited)


<TABLE>

                                                                        Six Months Ended June 30,
                                                                      -----------------------------
                                                                       1999                   2000
                                                                      ------                 ------
<S>                                                                   <C>                    <C>

Cash flows from operating activities:
     Net income (loss)                                            $   (104,528)         $    888,119
     Adjustments to reconcile net income
        (loss) to net cash provided by operating activities:
          Depreciation and depletion                                 1,860,794             2,282,611
          Equity in loss from investments in First Permian, LLC             -                496,083
          Other, net                                                    (7,520)               (6,362)
          Changes in assets and liabilities:
          Decrease (increase) in accounts receivables                  (42,239)             (648,109)
          Decrease (increase) in prepaid expenses and other             33,492               (12,782)
          Decrease in accounts payable and accrued liabilities      (1,051,732)             (464,337)
                                                                  ------------         -------------
           Net cash provided by operating activities                   688,267             2,535,223
                                                                  ------------         -------------

Cash flows from investing activities:
      Additions to property and equipment                          (2,035,289)            (1,909,566)
      Proceeds from disposition of property and equipment             255,240              2,917,392
      Investment in First Permian, LLC                                 (2,250)                    -
      Distribution from First Permian, LLC                                 -                  67,500
                                                                 ------------          -------------
           Net cash provided by (used in) investing activities     (1,782,299)             1,075,326
                                                                 ------------          -------------
Cash flows from financing activities:
           Borrowings from bank line of credit                        780,000                    -
           Payments on bank line of credit                                 -             (1,665,889)
           Proceeds from exercise of options and warrants              17,189                    -
           Payment of preferred stock dividend                       (316,713)             (316,713)
                                                                 ------------         -------------
           Net cash provided by (used in) financing activities        480,476            (1,982,602)
                                                                 ------------         -------------

           Net increase (decrease) in cash and cash equivalents      (613,556)            1,627,947


Beginning cash and cash equivalents                                 1,178,819             1,276,417
                                                                 ------------         -------------
Ending cash and cash equivalents                                 $    565,263         $   2,904,364
                                                                 ============         =============

Non-cash financing activities:
    Accrued preferred stock dividend                             $     24,362         $      24,363
                                                                 ============         =============
     Transfer of assets held for sale to oil and gas property    $         -          $   2,127,734
                                                                 ============         =============
</TABLE>

The accompanying notes are an integral part of these financials.



<PAGE>
                                       7


                         PARALLEL PETROLEUM CORPORATION

                         NOTES TO FINANCIAL STATEMENTS


NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

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

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

     We own an equity  interest  in First  Permian,  LLC,  a  limited  liability
company.   The  founding  members  of  First  Permian  were  Parallel  Petroleum
Corporation,  Baytech, Inc., Tejon Exploration Company and Mansefeldt Investment
Corporation.  Parallel,  Baytech, Tejon and Mansefeldt each contributed cash for
initial members' interests of 22.5%,  22.5%, 27.5% and 27.5%,  respectively,  on
June 30, 1999. At March 31, 2000,  Parallel,  Baytech,  Tejon and Mansefeldt and
affiliates  owned  member  interests  of 35%,  35%,  15% and 15%,  respectively.
Effective May 31, 2000,  First  Permian's  original  limited  liability  company
agreement  was amended and  restated to provide  for,  among other  things,  the
admission  of  additional  members,  the  issuance  of a new class of  preferred
membership  units and the  issuance of  additional  common  membership  units in
return  for  additional  capital  contributions  totaling  $20,000,000  from new
members.  As a result of the issuance of additional common membership units, our
interest at June 30, 2000 was 28.665%.  However,  on or before January 15, 2001,
we expect our interest to increase to 30.675%.

     We  account  for our  investment  in  First  Permian  on an  equity  basis.
Accordingly,  our  investment  in  First  Permian  is  recorded  at cost  and is
increased or decreased by our  proportionate  share of First Permian's income or
loss. Our 28.665% interest is reported as an investment on the balance sheet and
our share of income or loss is recognized  on the income  statement as equity in
earnings (loss) of First Permian.

NOTE 2. LONG TERM DEBT

     Our long term debt at June 30, 2000 consisted of the following:

     Revolving credit facility payable to bank at the bank's base
       lending rate plus .25% (9.75% at June 30, 2000)              $14,300,000
                                                                    ===========
     Scheduled maturities of Parallel's debt at June 30, 2000
       are as follows:

         June 30, 2001                                              $ 3,600,000
         July 1, 2001                                                10,700,000
                                                                    -----------
                                                                    $14,300,000
                                                                    ===========

     Revolving  Credit  Facility.  Parallel is a party to a loan  agreement with
Bank One,  Texas,  N.A.  The loan  agreement,  as  restated  in  December  1999,
currently  provides for a revolving credit facility under which we may borrow up
to the lesser of (a)  $30,000,000 or (b) the borrowing base then in effect.  The
borrowing base automatically reduces by $300,000 each month, which means that we
are  required  to make a  principal  payment  in the same  amount  by which  the
borrowing base is reduced.  The total  outstanding  principal amount of our bank
borrowings  was  $15,965,889  at December 31, 1999 and  $14,300,000  at June 30,
2000. The borrowing base and the borrowing base reduction amount are required to
be  redetermined  by the bank on February 1, 2000 and on May 1 and November 1 of
each year, beginning May 1, 2000. Our borrowing base is currently under review.


<PAGE>
                                       8

     At June 30, 2000, we had borrowed all the funds  currently  available under
the revolving  facility.  All indebtedness  under the revolving facility matures
July 1,  2001.  The  loan is  secured  by  substantially  all of our oil and gas
properties.  Commitment  fees of .25% per annum on the  difference  between  the
commitment and the average daily amount outstanding are due quarterly.

     The unpaid  principal  balance of the revolving  facility bears interest at
our  election at a rate equal to (i) the bank's base  lending  rate plus .25% or
(ii) the  bank's  Eurodollar  rate  plus a margin  of 3.0%.  Interest  under the
revolving  facility is due and payable  monthly.  At June 30, 2000, the interest
rate was the bank's base rate plus .25% or 9.75%.

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

NOTE 3. PREFERRED STOCK

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

NOTE 4. FULL COST CEILING TEST

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

     During  the fourth  quarter of 1999,  we  recognized  a noncash  impairment
charge  of  $1,705,000  related  to  our  oil  and  gas  reserves  and  unproved
properties.  The  impairment of oil and gas assets was primarily the result of a
decrease in year-end  proved  reserves.  At June 30, 2000, our net book value of
oil and gas,  less  related  deferred  income  taxes,  was below the  calculated
ceiling.  As a result, we were not required to record a reduction of our oil and
gas properties under the full cost method of accounting.

NOTE 5. LIABILITY IN FIRST PERMIAN, LLC

     At June 30, 2000, our net investment in First Permian,  LLC was a liability
as a result of  recording  our share of the  losses  of First  Permian.  We have
recorded a liability to the extent that we have  guaranteed  $10,000,000  of the
debt of First Permian, LLC. We expect the $10,000,000 guarantee to be removed on
or before December 31, 2000.

NOTE 6. NET INCOME PER COMMON SHARE

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



<PAGE>
                                       9



computed  similarly to the previously  reported fully diluted earnings per share
and reflects the assumed conversion of all potentially dilutive securities.

<TABLE>

                                                      Three Months Ended          Six Months Ended
                                                         June 30,                   June 30,
                                                     --------------------    ----------------------
                                                      1999          2000      1999            2000
                                                     ------        ------    ------          ------
<S>                                                  <C>           <C>       <C>             <C>

Basic EPS Computation:
        Numerator -
                Net income (loss)                 $ (94,245)    $ 694,518   $ (104,528)     $ 888,119
                Preferred stock dividends          (146,175)     (146,175)    (316,713)      (316,713)
                                                  ---------     ---------   ----------      ---------
                Net income (loss) available
                  to common stockholders          $ (240,420)   $ 548,343   $ (421,241)     $ 571,406
                                                  ==========    =========   ==========      =========
        Denominator -
        Weighted average common shares
                  outstanding                     18,331,858   20,331,858   18,120,194     20,331,858
                                                  ==========   ==========   ==========     ==========
Basic earnings (loss) per share                   $    (.013)  $     .027   $    (.023)    $     .028
                                                  ==========   ==========   ==========     ==========

</TABLE>

<TABLE>

                                                      Three Months Ended          Six Months Ended
                                                         June 30,                   June 30,
                                                     --------------------    ----------------------
                                                      1999          2000      1999            2000
                                                     ------        ------    ------          ------
<S>                                                 <C>           <C>        <C>            <C>


Diluted EPS Computation:
        Numerator -
                Net income (loss)                 $  (94,245)  $  694,518   $ (104,528)    $  888,119
                Preferred stock dividends           (146,175)    (146,175)    (316,713)      (316,713)
                                                  ----------    ---------   ----------      ---------
                 Net income (loss) available
                   to common stockholders         $ (240,420)  $  548,343   $ (421,241)    $  571,406
                                                  ==========   ==========   ==========     ==========
                Denominator -
                Weighted average common shares
                   outstanding                    18,331,858   20,331,858   18,120,194     20,331,858
               Employee stock options                     -       251,973           -         237,251
                                                  ----------   ----------   ----------     ----------
                                                  18,331,858   20,583,831   18,120,194     20,569,109
                                                  ==========   ==========   ==========     ==========
Diluted earnings (loss) per share                 $    (.013)  $     .027   $    (.023)    $     .028
                                                  ==========   ==========   ==========     ==========

</TABLE>

     Convertible   preferred  stock   equivalents  of  974,500  shares  for  the
three-month  period ended March 31, 2000 and the six-month period 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 for the periods
presented because to do so would have been antidilutive.

NOTE 7: RECENTLY ANNOUNCED ACCOUNTING PRONOUNCEMENTS

     In June 1998,  the FASB  issued  SFAS No. 133  "Accounting  for  Derivative
Instruments and Hedging  Activities" which establishes  standards for derivative
instruments,   including  certain  derivative   instruments  embedded  in  other
contracts, and for hedging activities.  It requires that an entity recognize all
derivatives  as either  assets or  liabilities  in the  statement  of  financial
position and measure those instruments at fair value. It establishes  conditions
under which a derivative may be designated as a hedge, and establishes standards
for  reporting  changes  in the fair  value  of a  derivative.  SFAS No.  133 is
required to be implemented  for the first quarter of the fiscal year ended 2001.
Early  adoption is permitted.  Recently,  the FASB  deferred the  implementation
requirements  of SFAS No. 133 for one year. We have not evaluated the effects of
implementing SFAS No. 133.



<PAGE>
                                       10


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

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


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

OVERVIEW

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

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

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

     Investment in First  Permian.  During 1999, we joined with three  privately
held oil and gas companies to acquire oil and gas  properties  from Fina Oil and
Chemical  Company.  The acquisition was effected  through the formation of First
Permian,  LLC, a limited  liability  company.  First Permian 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.

     The founding members of First Permian were Parallel Petroleum  Corporation,
Baytech, Inc., Tejon Exploration Company and Mansefeldt Investment  Corporation.
Parallel,  Baytech,  Tejon and  Mansefeldt  each  contributed  cash for  initial
members' interests of 22.5%, 22.5%, 27.5% and 27.5%,  respectively,  on June 30,
1999. At March 31, 2000, Parallel,  Baytech, Tejon and Mansefeldt and affiliates
owned member interests of 35%, 35%, 15% and 15%, respectively. Effective May 31,
2000,  First Permian's  original  company  agreement was amended and restated to
provide for,  among other  things,  the  admission of  additional  members,  the
issuance  of a new  class of  preferred  membership  units and the  issuance  of
additional common membership units in return for capital contributions  totaling
$20,000,000. As a result of issuance of additional common units, our interest at
June 30, 2000 was 28.665%. However, on or before January 15, 2001, we expect our
interest to increase to 30.675%.

     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.




<PAGE>
                                       11


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

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

     .    cash flow from  operations,

     .    sales of our equity securities, and

     .    bank borrowings.

     For the six months ended June 30, 2000, the average sales price we received
for our crude oil production averaged $26.93 per barrel compared with $12.68 per
barrel at June 30, 1999 and $17.32 per barrel at December 31, 1999.  The average
sales price for  natural gas during this same period was $3.01 per mcf  compared
with $1.94 per mcf at June 30, 1999 and $2.27 per mcf at December 31, 1999.

     Sustained  low oil and gas prices in 1998 and 1999  limited  the capital we
had available for drilling activities during this time, which adversely affected
the  quantities and value of our proved oil and gas reserves.  As a result,  our
available  borrowing  capacity under our revolving  credit  facility was reduced
from $18,815,889 to $15,965,889 at December 31, 1999 and $14,300,000 at June 30,
2000.  This means we have borrowed all the funds  currently  available under our
revolving  credit  agreement.  In the past few  months,  oil and gas prices have
increased significantly. Our borrowing base is currently under review.

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

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

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

RESULTS OF OPERATIONS

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

     .    sources of production;

     .    product mix (oil vs. gas volumes); and

     .    the prices we receive for our oil and gas production.

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



<PAGE>
                                       12

<TABLE>
                                                   Three Months Ended            Three Months Ended
                                         ------------------------------------   ----------------------
                                          12-31-99      3-31-00      6-30-00     6-30-99      6-30-00
                                          --------      -------      -------     -------      -------
<S>                                      <C>            <C>          <C>         <C>          <C>

Production and prices:
        Oil (Bbls)                         41,177        39,283       44,753      45,908       44,753
        Natural gas (Mcf)                 615,766       570,504      657,039     749,856      657,039
        Equivalent barrels of oil (EBO)   143,805       134,367      154,260     170,884      154,260

        Oil price (per BBL)                $23.96        $26.70       $27.13      $13.17       $27.13
        Gas price (per Mcf)                 $2.82         $3.02        $3.02       $1.85        $3.02
        Price per EBO                      $18.97        $20.65       $20.72      $11.66       $20.72

Results of operations per EBO:
Oil and gas revenues                       $18.97        $20.65       $20.72      $11.66       $20.72
Costs and expenses:
        Lease operating expense              4.80          4.57         4.01        3.23         4.01
        Provision for losses on
           trade receivables                 0.60          0.00         0.00        0.00         0.00
        General and administrative           1.13          1.47         1.69        1.29         1.69
        Depreciation and depletion          13.49          7.91         7.90        5.60         7.90
        Impairment of oil and gas
           properties                       11.86          0.00         0.00        0.00         0.00
                                           ------        ------       ------      ------       ------
                Total costs and expenses    31.88         13.95        13.60       10.12        13.60
                                           ------        ------       ------      ------       ------
Operating income (loss)                    (12.91)         6.70         7.12        1.54         7.12
                                           ------        ------       ------      ------       ------

Interest expense, net                       (2.50)        (2.41)       (2.18)      (2.12)       (2.18)
Other income, net                            0.03          0.04         0.27        0.03         0.27
                                           ------        ------       ------      ------       ------
                                            (2.47)        (2.37)       (1.91)      (2.09)       (1.91)
Equity in earnings (loss) of
   First Permian, LLC                        0.12         (2.88)       (0.71)         -         (0.71)
                                           ------        ------       ------      ------       ------
                Net income (loss)         $(15.26)       $ 1.45       $ 4.50      $(0.55)      $ 4.50
                                           ======        ======       ======      ======       ======
Net operating cash flow before working
   capital adjustments                    $  9.97        $12.24       $13.11      $ 5.05       $13.11
                                           ======        ======       ======      ======       ======
</TABLE>

<TABLE>
                                                                      Six Months Ended
                                                        -------------------------------------------
                                                         6/30/98          6/30/99          6-30-00
                                                        ---------        ---------        ---------
<S>                                                     <C>              <C>              <C>

Production and prices:
        Oil (Bbls)                                        87,859            90,527           84,037
        Natural gas (Mcf)                              1,538,536         1,447,449        1,227,543
        Equivalent barrels of oil (EBO)                  344,281           331,768          288,627

        Oil price (per BBL)                               $13.86            $12.68           $26.93
        Gas price (per Mcf)                                $2.18             $1.94            $3.01
        Price per EBO                                     $13.26            $11.92           $20.69

Results of operations per EBO:
Oil and gas revenues                                      $13.26            $11.92           $20.69
Costs and expenses:
        Lease operating expense                             3.40              3.21             4.27
        General and administrative                          1.22              1.28             1.59
        Depreciation and depletion                          5.79              5.61             7.91
                                                          ------            ------           ------
                Total costs and expenses                   10.41             10.10            13.77
                                                          ------            ------           ------
Operating income                                            2.85              1.82             6.92
                                                          ------            ------           ------
Interest expense, net                                      (1.88)            (2.17)           (2.29)
Other income, net                                           0.12              0.03             0.16
                                                          ------            ------           ------
                                                           (1.76)            (2.14)           (2.13)
Equity in earnings (loss) of First Permian, LLC             0.00              0.00            (1.72)
                                                          ------            ------           ------
                Net income (loss) before income taxes     $ 1.09            $(0.32)          $ 3.07

Income tax expense - deferred                               0.36              0.00             0.00
                                                          ------            ------           ------
                Net income (loss)                         $ 0.73            $(0.32)          $ 3.07
                                                          ======            ======           ======
Net operating cash flow before working
    capital adjustments                                   $ 6.88            $ 5.29           $12.70
                                                          ======            ======           ======
</TABLE>

<PAGE>
                                       13



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

<TABLE>



                                                   Three Months Ended            Three Months Ended
                                         ------------------------------------   ----------------------
                                          12-31-99      3-31-00      6-30-00     6-30-99      6-30-00
                                          --------      -------      -------     -------      -------
<S>                                      <C>            <C>          <C>         <C>          <C>

Oil and gas revenues                        100.0%       100.0%       100.0%      100.0%       100.0%
Costs and expenses:
        Lease operating expense              25.3         22.1         19.4        26.9         20.6
        Provision for losses on
           trade receivables                  3.2          0.0          0.0         0.0          0.0
        General and administrative            6.0          7.1          8.1        10.7          7.7
        Depreciation and depletion           71.1         38.3         38.1        47.1         38.2
        Impairment of oil and gas
           properties                        62.5          0.0          0.0         0.0          0.0

                                            -----        -----        -----       -----        -----
                Total costs and expenses    168.1         67.5         65.6        84.7         66.5
                                            -----        -----        -----       -----        -----
Operating income                            (68.1)        32.5         34.4        15.3         33.5
                                            -----        -----        -----       -----        -----
Interest expense, net                       (13.2)       (11.7)       (10.5)      (18.2)       (11.1)
Other income, net                             0.2          0.2          1.3         0.3          0.8
                                            -----        -----        -----       -----        -----
                                            (13.0)       (11.5)        (9.2)      (17.9)       (10.3)
Equity in earnings (loss) of
   First Permian, LLC                         0.6        (13.9)        (3.4)        0.0         (8.3)
                                            -----        -----        -----       -----        -----
                                            (12.4)       (25.4)       (12.6)      (17.9)       (18.6)
                                            -----        -----        -----       -----        -----
                Net income (loss)           (80.5)         7.1         21.8        (2.6)        14.9
                                            =====        =====        =====       =====        =====
</TABLE>


RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 2000

     Oil and Gas Revenues. Oil and gas revenues increased $1,204,887, or 60%, to
$3,196,614  for the three months ended June 30, 2000,  from  $1,991,727  for the
same period of 1999.  The increase was primarily the result of a 78% increase in
the average sales price per EBO. We received  $20.72 per EBO in the three months
ended June 30,  2000  compared  with $11.66 per EBO for the same period of 1999.
Higher prices were partially  offset by a 10% decrease in oil and gas production
volumes.

     Production Costs.  Production costs increased $67,428,  or 12%, to $618,570
during the second  three  months of 2000,  compared  with  $551,142 for the same
period of 1999.  Average  production  costs per EBO increased 24%, to $4.01, for
the second three  months in 2000  compared to $3.23 for the same period in 1999,
primarily a result of increased  production taxes associated with higher oil and
gas revenues and a 10% decrease in oil and gas production volumes.

     General and Administrative  Expenses.  General and administrative  expenses
increased  by $39,249 or 18% to $260,160  for the second  three  months of 2000,
from $220,911 for the same period of 1999.  The increase was primarily due to an
increase  in audit,  legal  and  reservoir  engineering  expenses.  General  and
administrative  expenses  were $1.69 per EBO in the second  three months of 2000
compared to $1.29 per EBO in the second three  months of 1999.  The increase per
EBO is a result of lower  production  volumes in the second quarter of 2000 when
compared  with  the  same  period  of  the  prior  year.   Future   general  and
administrative  costs are  expected  to remain  fairly  stable  with no material
increases expected in any particular category.

     Depreciation,  Depletion and Amortization Expense. Depreciation,  depletion
and amortization  expense  ("DD&A")  increased by $262,184 or 27%, to $1,219,142
for the second three months of 2000  compared  with $956,958 for the same period
of 1999.  As a  percentage  of  revenues,  the DD&A  rate  decreased  by 1% when
compared  with the prior year  second  quarter,  a result of an  increase in the
average sales price per EBO we received in the second  quarter of 2000. The DD&A
rate per EBO  increased to $7.90 for the second  quarter of 2000  compared  with
$5.60 per EBO for the second  quarter of 1999. The increase in the DD&A rate per
EBO is  attributable  to lower  production  volumes in the  current  quarter,  a
decrease in proved  reserves  and a noncash  impairment  charge  incurred in the
fourth quarter of 1999 that reduced our full cost pool.



<PAGE>
                                       14



     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 $109,572 for the three
months ended June 30, 2000, which reflects our pro rata share of First Permian's
loss for the three months ended June 30, 2000. First Permian recorded a loss for
the quarter  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 was an oil hedge payment of  $3,046,548  for the three
months ended June 30, 2000. Since First Permian's date of inception was June 30,
1999, there are no results for the comparable period a year ago.

     Net  Interest  Expense.  Interest  expense  decreased  $26,010,  or 7%,  to
$336,352 for the three months ended June 30, 2000 compared with $362,362 for the
same period of 1999, due principally to decreased bank borrowings.

     Net Income and Operating  Cash Flow. We reported net income of $694,518 for
the three months  ended June 30, 2000  compared to a net loss of $94,245 for the
three months ended June 30, 1999.  Operating cash flow  increased  $1,160,519 or
134%,  to  $2,023,232  for the three  months  ended June 30,  2000  compared  to
$862,713 for the three  months  ended June 30, 1999.  The increase in net income
and operating cash flow resulted from a 60% increase in oil and gas revenues,  a
78%  increase in the  average  sales price per EBO and a 7% decrease in interest
expense.  These  factors were  partially  offset by a 12% increase in production
costs,  a 18% increase in general and  administrative  costs,  a 27% increase in
DD&A expenses and a 10% decrease in production volumes. In addition, we recorded
a loss of $109,572  associated with our 28.665% interest in First Permian.  This
is a noncash charge and does not affect operating cash flows.

RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 2000:

     Oil and Gas Revenues. Oil and gas revenues increased $2,016,389, or 51%, to
$5,971,205 for the six months ended June 30, 2000,  from $3,954,816 for the same
period of 1999.  The increase was  primarily the result of a 74% increase in the
average sales price per EBO. We received  $20.69 per EBO in the six months ended
June 30, 2000 compared  with $11.92 per EBO for the same period of 1999.  Higher
prices were partially offset by a 13% decrease in oil and gas production.

     Production Costs. Production costs increased $167,421 or 16%, to $1,232,385
during  the first six  months of 2000,  compared  with  $1,064,964  for the same
period of 1999.  Average  production  costs per EBO increased 33%, to $4.27, for
the first  six  months in 2000  compared  to $3.21 for the same  period in 1999,
primarily a result of increased  production taxes associated with higher oil and
gas revenues and a 13% decrease in oil and gas production.

     General and Administrative  Expenses.  General and administrative  expenses
increased  by $33,812 or 8% to $457,960  for the first six months of 2000,  from
$424,148  for the same  period of  1999.The  increase  was  primarily  due to an
increase  in audit,  legal  and  reservoir  engineering  expenses.  General  and
administrative  expenses  were  $1.59 per EBO in the  first  six  months of 2000
compared to $1.28 per EBO in the first six months of 1999.  The increase per EBO
is a result of lower  production  volumes  in the first six  months of 2000 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 $421,817,  or 23%, to $2,282,611
for the first six months of 2000 compared with $1,860,974 for the same period of
1999. As a percentage of revenues,  the DD&A rate  decreased by 9% when compared
with 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 2000. The DD&A rate per EBO
increased to $7.91 for the first six months of 2000  compared with $5.61 per EBO
for the  first  six  months of 1999.  The  increase  in the DD&A rate per EBO is
attributable to lower  production  volumes in the current  six-month  period,  a
decrease in proved  reserves  and a noncash  impairment  charge  incurred in the
fourth quarter of 1999 that reduced our full cost pool.



<PAGE>
                                       15


     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.  Since First Permian's date of inception
was June 30, 1999, there are no results for the comparable period a year ago.

     Net  Interest  Expense.  Interest  expense  decreased  $59,655,  or 8%,  to
$660,502 for the six months ended June 30, 2000  compared  with $720,157 for the
same period of 1999; due principally to decreased bank borrowings.

     Net Income and Operating  Cash Flow. We reported net income of $888,119 for
the six months  ended June 30, 2000  compared to a net loss of $104,528  for the
six months ended June 30, 1999.  Operating  cash flow increased  $1,910,547,  or
74%, to $3,666,813 for the six months ended June 30, 2000 compared to $1,756,266
for the six months ended June 30, 1999. The increase in net income and operating
cash flow resulted  from a 51% increase in oil and gas revenues,  a 74% increase
in the average sales price per EBO and an 8% decrease in interest expense. These
factors were  partially  offset by a 16%  increase in  production  costs,  an 8%
increase in general and  administrative  costs,  a 23% increase in DD&A expenses
and a 13% decrease in  production  volumes.  In addition,  we recorded a loss of
$496,083  associated  with our  28.665%  interest  in First  Permian.  This is a
noncash charge and does not affect operating cash flows.

LIQUIDITY AND CAPITAL RESOURCES

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

     Working capital increased $329,058 as of June 30, 2000 compared to December
31, 1999.  Current assets exceeded  current  liabilities by $257,411 at June 30,
2000. As of December 31, 1999,  current  liabilities  exceeded current assets by
$71,647.  Current  assets  as of June 30,  2000  increased  primarily  due to an
increase in cash and cash  equivalents and an increase in accounts  receivables.
Current  liabilities  as of June 30, 2000  decreased  because of a reduction  in
accounts payable - trade.

     We incurred property costs of approximately  $1,900,000,  primarily for our
oil and gas property acquisition,  development,  and enhancement  activities for
the six months ended June 30, 2000.  Such costs were financed by the utilization
of the cash  provided  by  operations  and  proceeds  from  the sale of  certain
undeveloped properties.

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

TRENDS AND PRICES

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


<PAGE>
                                       16



     Because of the prolonged deterioration in oil and gas prices experienced in
1998 and the first half of 1999, the capital  normally  available to us from our
cash flows and bank  borrowings  during that period was  significantly  reduced,
affecting  our ability to fund future  capital  expenditures.  Although  oil and
natural  gas prices have  improved  significantly  since that time,  our capital
expenditure  budget  for 2000 is still  highly  dependent  on future oil and gas
prices and will be consistent with internally generated cash flows.

     During  1999,  the  average  sales  price  we  received  for  our  oil  was
approximately  $17.32 per barrel while the average  sales prices we received for
natural gas was approximately $2.27 per thousand cubic feet ("Mcf"). At June 30,
2000,  the average price we received for our oil  production  was  approximately
$26.93  per Bbl,  while the  average  price  received  at that same date for our
natural gas production was approximately $3.01 per Mcf.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

     Our major market risk exposure is in the pricing  applicable to our oil and
natural gas production.  Realized  pricing is primarily driven by the prevailing
domestic  price for crude oil and spot prices  applicable to the region in which
we produce natural gas. Historically, prices received for oil and gas production
have  been  volatile  and  unpredictable.  Pricing  volatility  is  expected  to
continue. Oil prices ranged from a monthly low of $24.91 per barrel to a monthly
high of $29.68 per barrel during second  quarter 2000. The natural gas prices we
received  during second  quarter 2000 ranged from a monthly low of $1.19 per Mcf
to a monthly high of $3.58 per Mcf. A  significant  decline in the prices of oil
and natural gas could have a material adverse effect on our financial  condition
and results of operations.

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

<TABLE>

                                          June      July
                                          2001      2001      Total   Fair Value
                                          ----      ----      -----   ----------
                                            (in 000's, except interest rates)
<S>                                        <C>     <C>    <C>     <C>

Variable rate debt:
        Revolving Facility (secured)     $ 3,600   $ 10,700   $ 14,300 $ 14,300
            Average interest rate           9.75%      9.75%      9.75%

</TABLE>


                          PART II - OTHER INFORMATION

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

     Parallel's annual meeting of stockholders was held on June 22, 2000. At the
meeting,  the  following  persons were elected to serve as Directors of Parallel
for a term of one year  expiring in 2001 and until their  respective  successors
are duly qualified and elected: (1) Thomas R. Cambridge, (2) Ernest R. Duke, (3)
Myrle  Greathouse,  (4) Larry C.  Oldham and (5) Charles R.  Pannill.  Set forth
below is a tabulation of votes with respect to each nominee for Director:

<TABLE>
           NAME                VOTES CAST FOR     VOTES WITHHELD     BROKER NON-VOTES
     -------------------       --------------     --------------     ----------------
     <S>                       <C>                <C>                <C>


     Thomas R. Cambridge        17,912,441           308,060                 --
     Ernest R. Duke             17,912,011           308,490                 --
     Myrle Greathouse           17,892,791           327,710                 --
     Larry C. Oldham            17,910,442           310,059                 --
     Charles R. Pannill         17,911,911           308,590                 --

</TABLE>



<PAGE>
                                       17



     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 2000.  Set forth below is a tabulation of votes with respect to
the  proposal  to  ratify  the  appointment  of  Parallel's  independent  public
accountants:

<TABLE>

                VOTES CAST FOR          VOTES CAST AGAINST          ABSTENTIONS
                --------------          ------------------          -----------
<S>             <C>                     <C>                         <C>

                  18,181,168                   12,933                  26,400
</TABLE>



ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

     (a)  Exhibits

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

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

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

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

     *27. Financial Data Schedule

          (b)  Reports on Form 8-K

          No reports  were filed on Form 8-K during the  quarter  ended June 30,
          2000.

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

* Filed herewith.



<PAGE>
                                       18



                                   SIGNATURES



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

                                            PARALLEL PETROLEUM CORPORATION


                                            BY:  /s/ THOMAS R. CAMBRIDGE
Date:   August 14, 2000                    ------------------------------
                                            Thomas R. Cambridge
                                            Chairman of the Board of Directors
                                            and Chief Executive Officer



Date:   August 14, 2000                     BY:  /s/ LARRY C. OLDHAM
                                            -------------------------------
                                            Larry C. Oldham,
                                            President and
                                               Principal Financial Officer