##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D. C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2008 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Transition period from  to
 Commission File Number 000-13305
 PARALLEL PETROLEUM CORPORATION
  Delaware
    
    75-1971716(State of other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)1004 N. Big Spring, Suite 400, 
Midland, Texas
    
    79701(Address of Principal Executive Offices)
    
    (Zip Code)
 (Registrants telephone number, including area code)
 (Former name, former address and former fiscal year, if changed since last report)
  þ o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller Reporting Company o
 o þ
 
 o o




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##### 



Page No.PART I.  FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTSReference is made to the succeeding pages for the following consolidated financial statements:- Consolidated Balance Sheets as of September 30, 2008 (unaudited) and December 31, 2007
    
    
    1- Unaudited Consolidated Statements of Operations for the three months and nine months ended September 30, 2008 and 2007
    
    
    3- Consolidated Statements of Stockholders Equity for year ended December 31, 2007 and as of September 30, 2008 (unaudited)
    
    
    4- Unaudited Consolidated Statements of Cash Flows for the nine months ended September 30, 2008 and 2007
    
    
    5- Notes to Consolidated Financial Statements
    
    
    7ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    22ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    43ITEM 4. CONTROLS AND PROCEDURES
    
    
    46PART II.  OTHER INFORMATIONITEM 1. LEGAL PROCEEDINGS
    
    
    46ITEM 1A. RISK FACTORS
    
    
    48ITEM 6. EXHIBITS
    
    
    51SIGNATURESEX-10.34EX-31.1EX-31.2EX-32.1EX-32.2
  (i)




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##### Table of Contents



PART 1 FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 PARALLEL PETROLEUM CORPORATION
 
 Consolidated Balance Sheets  ($ in thousands)
 September 30,
    
    
    December 31,2008
    
    
    2007(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    10,717
    
    
    $
    7,816Accounts receivable:Oil and
natural gas sales
    
    
    28,263
    
    
    
    20,499Joint interest owners and other, net of allowance for
doubtful account of $50
    
    
    2,736
    
    
    
    2,460Affiliates and joint ventures
    
    
    5
    
    
    
    3,97031,004
    
    
    
    26,929Other current assets
    
    
    357
    
    
    
    449Derivatives
    
    
    4,180
    
    
    
    151Deferred tax asset
    
    
    5,894
    
    
    
    10,293Total current assets
    
    
    52,152
    
    
    
    45,638Property and equipment, at cost:Oil and natural gas properties, full cost method (including $128,464 and
$86,402 not subject to depletion)
    
    
    830,290
    
    
    
    648,576Other
    
    
    3,317
    
    
    
    2,877833,607
    
    
    
    651,453Less accumulated depreciation, depletion and amortization
    
    
    (176,731
    )
    
    
    (145,482
    )Net property and equipment
    
    
    656,876
    
    
    
    505,971Restricted cash
    
    
    80
    
    
    
    78Investment in pipelines and gathering system ventures
    
    
    332
    
    
    
    8,638Other assets, net of accumulated amortization of $1,469 and $1,193
    
    
    4,204
    
    
    
    2,768Derivatives
    
    
    5,013
    
    
    
    $
    718,657
    
    
    $
    563,093
  (1)




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PARALLEL PETROLEUM CORPORATION
Consolidated Balance Sheets  ($ in thousands)
 September 30,
    
    
    December 31,2008
    
    
    2007(unaudited)LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    58,868
    
    
    $
    47,848Asset retirement obligations
    
    
    780
    
    
    
    598Derivative obligations
    
    
    21,506
    
    
    
    30,424Put premium obligations
    
    
    464
    
    
    
    Total current liabilities
    
    
    81,618
    
    
    
    78,870Long-term liabilities :Revolving credit facility
    
    
    162,500
    
    
    
    60,000Senior notes (principal amount $150,000)
    
    
    145,758
    
    
    
    145,383Asset retirement obligations
    
    
    5,058
    
    
    
    4,339Derivative obligations
    
    
    19,357
    
    
    
    13,194Put premium obligations
    
    
    2,906
    
    
    
    Deferred tax liability
    
    
    36,323
    
    
    
    26,045Total long-term liabilities
    
    
    371,902
    
    
    
    248,961Commitments and contingenciesStockholders equity:Series A preferred stock  par value $0.10 per share, authorized 50,000 shares
    
    
    
    
    
    
    Common stock  par value $0.01 per share, authorized 60,000,000 shares,
issued and outstanding 41,597,161 and 41,252,644
    
    
    415
    
    
    
    412Additional paid-in capital
    
    
    199,597
    
    
    
    196,457Retained earnings
    
    
    65,125
    
    
    
    38,393Total stockholders equity
    
    
    265,137
    
    
    
    235,262$
    718,657
    
    
    $
    563,093
  (2)




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##### Table of Contents



PARALLEL PETROLEUM CORPORATION
 
 Consolidated Statements of Operations
 (unaudited)
 (in thousands, except per share data)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Oil and natural gas revenues:Oil and natural gas sales
    
    $
    56,201
    
    
    $
    29,487
    
    
    $
    156,217
    
    
    $
    79,957Cost and expenses:Lease operating expense
    
    
    7,539
    
    
    
    6,445
    
    
    
    21,772
    
    
    
    16,420Production taxes
    
    
    2,836
    
    
    
    1,448
    
    
    
    8,121
    
    
    
    3,696Production tax refund
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,209
    )General and administrative
    
    
    3,125
    
    
    
    2,492
    
    
    
    8,958
    
    
    
    7,737Depreciation, depletion and amortization
    
    
    11,551
    
    
    
    7,821
    
    
    
    31,386
    
    
    
    21,680Total costs and expenses
    
    
    25,051
    
    
    
    18,206
    
    
    
    70,237
    
    
    
    48,324Operating income
    
    
    31,150
    
    
    
    11,281
    
    
    
    85,980
    
    
    
    31,633Other income (expense), net:Gain (loss) on derivatives not classified as hedges
    
    
    65,661
    
    
    
    (4,556
    )
    
    
    (27,834
    )
    
    
    (11,161
    )Interest and other income
    
    
    20
    
    
    
    55
    
    
    
    85
    
    
    
    163Interest expense
    
    
    (6,139
    )
    
    
    (5,429
    )
    
    
    (17,025
    )
    
    
    (13,449
    )Cost of debt retirement
    
    
    (102
    )
    
    
    (760
    )
    
    
    (102
    )
    
    
    (760
    )Other expense
    
    
    (11
    )
    
    
    (76
    )
    
    
    (12
    )
    
    
    (91
    )Equity in gain (loss) of pipelines and gathering system ventures
    
    
    (2
    )
    
    
    (69
    )
    
    
    380
    
    
    
    (663
    )Total other income (expense), net
    
    
    59,427
    
    
    
    (10,835
    )
    
    
    (44,508
    )
    
    
    (25,961
    )Income before income taxes
    
    
    90,577
    
    
    
    446
    
    
    
    41,472
    
    
    
    5,672Income tax expense, deferred
    
    
    (31,900
    )
    
    
    (153
    )
    
    
    (14,740
    )
    
    
    (2,011
    )Net income
    
    $
    58,677
    
    
    $
    293
    
    
    $
    26,732
    
    
    $
    3,661Net income per common share:Basic
    
    $
    1.41
    
    
    $
    0.01
    
    
    $
    0.65
    
    
    $
    0.10Diluted
    
    $
    1.41
    
    
    $
    0.01
    
    
    $
    0.64
    
    
    $
    0.09Weighted average common shares outstanding:Basic
    
    
    41,566
    
    
    
    38,033
    
    
    
    41,429
    
    
    
    37,791Diluted
    
    
    41,733
    
    
    
    38,767
    
    
    
    41,803
    
    
    
    38,806
  (3)




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PARALLEL PETROLEUM CORPORATION
 
 Consolidated Statements of Stockholders Equity
Year-Ended December 31, 2007 and as of September 30, 2008  (unaudited)
(in thousands)
 Common stock
    
    
    Additional
    
    
    
    
    
    
    TotalNumber of
    
    
    
    
    
    
    paid-in
    
    
    Retained
    
    
    stockholdersshares
    
    
    Amount
    
    
    capital
    
    
    earnings
    
    
    equityBalanceDecember 31, 2007
    
    
    41,253
    
    
    $
    412
    
    
    $
    196,457
    
    
    $
    38,393
    
    
    $
    235,262Common stock issued to directors
    
    
    22
    
    
    
    
    
    
    
    335
    
    
    
    
    
    
    
    335Warrants exercised, net of transaction costs
    
    
    148
    
    
    
    1
    
    
    
    795
    
    
    
    
    
    
    
    796Options exercised
    
    
    174
    
    
    
    2
    
    
    
    733
    
    
    
    
    
    
    
    735Stock offering costs
    
    
    
    
    
    
    
    
    
    
    368
    
    
    
    
    
    
    
    368Stock option expense
    
    
    
    
    
    
    
    
    
    
    772
    
    
    
    
    
    
    
    772Tax benefit
of stock option exercise in excess of compensation
    
    
    
    
    
    
    
    
    
    
    137
    
    
    
    
    
    
    
    137Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,732
    
    
    
    26,732BalanceSeptember 30, 2008
    
    
    41,597
    
    
    $
    415
    
    
    $
    199,597
    
    
    $
    65,125
    
    
    $
    265,137
  (4)




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PARALLEL PETROLEUM CORPORATION
 
 Consolidated Statements of Cash Flows
 Nine Months Ended September 30, 2008 and 2007  (unaudited)
($ in thousands)
 2008
    
    
    2007Cash flows from operating activities:Net income
    
    $
    26,732
    
    
    $
    3,661Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation, depletion and amortization
    
    
    31,386
    
    
    
    21,680Gain on sale of automobiles
    
    
    
    
    
    
    (25
    )Accretion of asset retirement obligation
    
    
    275
    
    
    
    243Accretion of senior notes discount
    
    
    375
    
    
    
    114Deferred income tax expense
    
    
    14,740
    
    
    
    2,011Loss on derivatives not classified as hedges
    
    
    27,834
    
    
    
    11,161Amortization of deferred financing cost
    
    
    509
    
    
    
    372Cost of debt retirement
    
    
    102
    
    
    
    760Accretion of interest on put obligations
    
    
    45
    
    
    
    Common stock issued in lieu of cash for directors fees
    
    
    335
    
    
    
    96Stock option expense
    
    
    772
    
    
    
    161Equity in (gain) loss of pipelines and gathering system ventures
    
    
    (380
    )
    
    
    663Bad debt expense
    
    
    
    
    
    
    (30
    )Changes in assets and liabilities:Other assets, net
    
    
    (1,409
    )
    
    
    (146
    )Restricted cash
    
    
    (2
    )
    
    
    272Accounts receivable
    
    
    (4,001
    )
    
    
    3,438Other current assets
    
    
    92
    
    
    
    713Accounts payable and accrued liabilities
    
    
    11,020
    
    
    
    6,385Net cash provided by operating activities
    
    
    108,425
    
    
    
    51,529Cash flows from investing activities:Additions to oil and natural gas properties
    
    
    (172,381
    )
    
    
    (110,015
    )Proceeds from disposition of oil and natural gas properties
and other property and equipment
    
    
    
    
    
    
    1,711Additions to other property and equipment
    
    
    (577
    )
    
    
    (340
    )Settlements on derivative instruments
    
    
    (36,306
    )
    
    
    (9,875
    )Net investment in pipelines and gathering system ventures
    
    
    (21
    )
    
    
    (2,830
    )Net cash used in investing activities
    
    
    (209,285
    )
    
    
    (121,349
    )Cash flows from financing activities:Borrowings from bank line of credit
    
    
    102,500
    
    
    
    68,500Payments on bank line of credit
    
    
    
    
    
    
    (94,500
    )Payment on term loan
    
    
    
    
    
    
    (50,000
    )Senior notes (principal amount $150,000)
    
    
    
    
    
    
    145,186Deferred financing cost
    
    
    (270
    )
    
    
    (2,346
    )Proceeds from exercise of stock options and warrants
    
    
    1,531
    
    
    
    2,388Net cash provided by financing activities
    
    
    103,761
    
    
    
    69,228Net increase (decrease) in cash and cash equivalents
    
    
    2,901
    
    
    
    (592
    )Cash and cash equivalents at beginning of period
    
    
    7,816
    
    
    
    5,910Cash and cash equivalents at end of period
    
    $
    10,717
    
    
    $
    5,318
 (5)




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PARALLEL PETROLEUM CORPORATION
 Consolidated Statements of Cash Flows  Continued
 Nine Months Ended September 30, 2008 and 2007  (unaudited)
($ in thousands)
 Non-cash financing and investing activities:Deferred purchase of derivative puts
    
    $
    3,325
    
    
    $
    Oil and natural gas properties asset retirement obligations
    
    $
    626
    
    
    $
    (505
    )Property transfer:Transfer to oil and natural gas properties
    
    $
    8,707
    
    
    $
    Transfer from equity investment
    
    $
    (8,707
    )
    
    $
    Non-cash exchange of oil and natural gas propertiesProperties received in exchange
    
    $
    
    
    
    $
    6,463Properties delivered in exchange
    
    $
    
    
    
    $
    (5,495
    )Other transactions:Interest paid
    
    $
    19,385
    
    
    $
    10,451
  (6)




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




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##### Table of Contents



($ in thousands)Fourth quarter 2008
    
    
    5492009
    
    
    1,5342010
    
    
    7892011 and 2012
    
    
    480Total
    
    $
    3,352
   2008
    
    2007
    
    2005
    
    2001Expected volatility
    
    
    46.50
    %
    
    
    52.52
    %
    
    
    54.20
    %
    
    
    57.95
    %Weighted-average volatility
    
    
    46.50
    %
    
    
    52.52
    %
    
    
    54.20
    %
    
    
    57.95
    %Expected dividends
    
    
    0.00
    
    
    
    0.00
    
    
    
    0.00
    
    
    
    0.00Expected term (in years)
    
    
    6.25
    
    
    
    5.75
    
    
    
    6.50
    
    
    
    7.50Risk-free rate
    
    
    3.81%-3.86
    %
    
    
    4.89
    %
    
    
    4.20
    %
    
    
    5.05
    %
  WeightedAverageWeighted
    
    
    RemainingAverage Exercise
    
    
    Contractual
    
    
    AggregateOptions
    
    
    Price
    
    
    Term
    
    
    Intrinsic Value(in thousands)
    
    
    
    
    
    
    (years)
    
    
    ($ in thousands)Outstanding December 31, 2007
    
    
    558
    
    
    $
    7.03Granted
    
    
    355
    
    
    $
    21.02Exercised
    
    
    (174
    )
    
    $
    4.23Surrendered
    
    
    
    
    
    $
    Outstanding September 30, 2008
    
    
    739
    
    
    $
    14.41
    
    
    
    9.0
    
    
    $
    1,095Exercisable at September 30, 2008
    
    
    293
    
    
    $
    7.30
    
    
    
    4.9
    
    
    $
    995
 ($ in thousands)Average weighted grant date fair value of options issued and unvested, September 30, 2008
    
    $
    4,383Average weighted grant date fair value of options issued and outstanding, September 30, 2008
    
    $
    5,617
 (8)




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Restricted Stock
 th
  ($ in thousands)Fourth quarter 2008
    
    
    242009
    
    
    672010
    
    
    292011
    
    
    7Total
    
    $
    127
  WeightedAverageRemainingAward Date
    
    
    ContractualRestricted Stock
    
    
    Fair Value
    
    
    Term(years)Outstanding December 31, 2007
    
    
    
    
    
    $
    Granted
    
    
    10,000
    
    
    $
    20.91Vested
    
    
    (2,500
    )
    
    $
    20.91Surrendered
    
    
    
    
    
    $
    Non-vested shares at September 30, 2008
    
    
    7,500
    
    
    $
    20.91
    
    
    
    2.7
 Stock Awards
    (9)




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##### Table of Contents



Warrants
  NOTE 3. CREDIT FACILITIES
   Revolving Credit Facility
      (10)




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##### Table of Contents



Senior Notes
  (11)




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##### Table of Contents



Interest Accrued
  NOTE 4. PROPERTY EXCHANGE AND ACQUISITIONS
     NOTE 5. FULL COST CEILING TEST
  (12)




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##### Table of Contents



NOTE 6. DERIVATIVE INSTRUMENTS
 General
    Adoption of SFAS No. 157
  Level 1:
    
    Unadjusted quoted prices in active markets that are accessible at
the measurement date for identical, unrestricted assets or liabilities. We
consider active markets as those in which transactions for the assets or
liabilities occur in sufficient frequency and volume to provide pricing
information on an ongoing basis.
 (13)




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##### Table of Contents



Level 2:
    
    Quoted prices in markets that are not active, or inputs which are
observable, either directly or indirectly, for substantially the full term of
the asset or liability. This category includes those derivative instruments
that we value using observable market data. Substantially all of these inputs
are observable in the marketplace throughout the full term of the derivative
instrument, can be derived from observable data, or supported by observable
levels at which transactions are executed in the marketplace. Instruments in
this category include non-exchange traded derivatives such as
over-the-counter commodity price swaps and interest rate swaps.Level 3:
    
    Measured based on prices or valuation models that require inputs
that are both significant to the fair value measurement and less observable
from objective sources (i.e., supported by little or no market activity). Our
valuation models are primarily industry-standard models that consider various
inputs including: (a) quoted forward prices for commodities, (b) time value,
(c) volatility factors and (d) current market and contractual prices for the
underlying instruments, as well as other relevant economic measures. Level 3
instruments primarily include derivative instruments, such as commodity price
collars and puts. Although we review our counterpartys valuation and assess
the reasonableness of our prices and valuation techniques, we do not have
sufficient corroborating market evidence to support classifying these price
collars and put assets and liabilities as Level 2.
  Quoted Prices inActive Marketsfor Identical
    
    
    Other Observable
    
    
    Unobservable
    
    
    Fair Value atAssets (Level 1)
    
    
    Inputs (Level 2)
    
    
    Inputs (Level 3)
    
    
    September 30, 2008Interest Swaps
    
    $
    
    
    
    $
    (2,397
    )
    
    $
    
    
    
    $
    (2,397
    )Oil Puts
    
    $
    
    
    
    $
    
    
    
    $
    5,867
    
    
    $
    5,867Oil & Gas Collars
    
    $
    
    
    
    $
    
    
    
    $
    (27,787
    )
    
    $
    (27,787
    )Oil Swaps
    
    $
    
    
    
    $
    (7,353
    )
    
    $
    
    
    
    $
    (7,353
    )$
    
    
    
    $
    (9,750
    )
    
    $
    (21,920
    )
    
    $
    (31,670
    )
  (14)




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Three Months Ended
    
    
    Nine Months EndedSeptember 30, 2008
    
    
    September 30, 2008Derivative
    
    
    Derivative
    
    
    Derivative
    
    
    DerivativeCollars
    
    
    Puts
    
    
    Collars
    
    
    PutsBeginning balance
    
    $
    (88,018
    )
    
    $
    2,900
    
    
    $
    (15,852
    )
    
    $
    Total gains (losses)
    
    
    56,649
    
    
    
    2,967
    
    
    
    (20,840
    )
    
    
    2,542Settlements
    
    
    3,582
    
    
    
    
    
    
    
    8,905
    
    
    
    Purchases
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,325Transfers in and/or out of level 3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Ending balance
    
    $
    (27,787
    )
    
    $
    5,867
    
    
    $
    (27,787
    )
    
    $
    5,867Change in unrealized gains (losses) included in earnings relating
to derivatives still held as of September 30, 2008 (1)
    
    $
    60,231
    
    
    $
    2,967
    
    
    $
    (11,935
    )
    
    $
    2,542
 
 (1)
    
    Gains and losses (realized and unrealized) included in earnings for the three months and nine months ended
September 30, 2008 are reported in other income on the Consolidated Statement of Operations.  Interest Rate Sensitivity
   Weighted Average
    
    
    EstimatedNotional
    
    
    Fixed
    
    
    FairPeriod of Time
    
    Amounts
    
    
    Interest Rates
    
    
    Market Value($ in millions)
    
    
    
    
    
    
    ($ in thousands)October 1, 2008 thru December 31, 2008
    
    $
    100
    
    
    
    4.86
    %
    
    $
    (264
    )January 1, 2009 thru December 31, 2009
    
    $
    100
    
    
    
    4.22
    %
    
    
    (1,084
    )January 1, 2010 thru December 31, 2010
    
    $
    100
    
    
    
    4.71
    %
    
    
    (822
    )January 1, 2011 thru December 31, 2011
    
    $
    100
    
    
    
    4.60
    %
    
    
    (227
    )Total Fair Market Value
    
    
    
    
    
    
    
    
    
    $
    (2,397
    )
 (15)




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##### Table of Contents



Commodity Price Sensitivity
  Put Options.
   EstimatedBarrels of
    
    
    
    
    
    
    Fair MarketPeriod of Time
    
    Oil
    
    
    Floor
    
    
    Value($ in thousands)January 1, 2009 through December 31, 2009
    
    
    109,500
    
    
    $
    100.00
    
    
    $
    1,470January 1, 2010 through December 31, 2010
    
    
    134,100
    
    
    $
    100.00
    
    
    
    2,083January 1, 2011 through December 31, 2011
    
    
    146,000
    
    
    $
    100.00
    
    
    
    2,314Total Fair Market Value
    
    
    
    
    
    
    
    
    
    $
    5,867
 Collars.
  EstimatedBarrels of
    
    NyMex Oil Prices
    
    Fair MarketPeriod of Time
    
    Oil
    
    Floor
    
    Cap
    
    Value($ in thousands)October 1, 2008 thru December 31, 2008
    
    
    87,400
    
    
    $
    63.42
    
    
    $
    83.86
    
    
    
    (1,581
    )January 1, 2009 thru December 31, 2009
    
    
    620,500
    
    
    $
    63.53
    
    
    $
    80.21
    
    
    
    (15,664
    )January 1, 2010 thru October 31, 2010
    
    
    486,400
    
    
    $
    63.44
    
    
    $
    78.26
    
    
    
    (13,869
    )
 MM Btu of
    
    
    WAHA Gas PricesNatural Gas
    
    
    Floor
    
    
    CapOctober 1, 2008 through December 31, 2008
    
    
    920,000
    
    
    $
    7.38
    
    
    $
    9.28
    
    
    
    1,793January 1, 2009 through December 31, 2009
    
    
    3,285,000
    
    
    $
    7.06
    
    
    $
    9.93
    
    
    
    1,534Total Fair Market Value
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (27,787
    )
 (16)




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##### Table of Contents



Commodity Swaps.
  EstimatedNumber of
    
    NyMex Oil
    
    Fair MarketPeriod of Time
    
    Barrels of Oil
    
    Swap Price
    
    Value($ in thousands)October 1, 2008 thru December 31, 2008
    
    
    110,400
    
    
    $
    33.37
    
    
    
    (7,353
    )
 NOTE 7. NET INCOME PER COMMON SHARE
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(dollars in thousands, except per share data)Basic EPS Computation:Numerator-Net income
    
    $
    58,677
    
    
    $
    293
    
    
    $
    26,732
    
    
    $
    3,661Denominator-Weighted average common shares outstanding
    
    
    41,566
    
    
    
    38,033
    
    
    
    41,429
    
    
    
    37,791Basic EPS:Net income per share
    
    $
    1.41
    
    
    $
    0.01
    
    
    $
    0.65
    
    
    $
    0.10Diluted EPS Computation:Numerator-Net income
    
    $
    58,677
    
    
    $
    293
    
    
    $
    26,732
    
    
    $
    3,661Denominator-Weighted average common shares outstanding
    
    
    41,566
    
    
    
    38,033
    
    
    
    41,429
    
    
    
    37,791Employee stock options
    
    
    167
    
    
    
    521
    
    
    
    300
    
    
    
    749Warrants
    
    
    
    
    
    
    213
    
    
    
    74
    
    
    
    266Weighted average common shares for diluted
earnings per share assuming conversion
    
    
    41,733
    
    
    
    38,767
    
    
    
    41,803
    
    
    
    38,806Diluted EPS:Net income per share
    
    $
    1.41
    
    
    $
    0.01
    
    
    $
    0.64
    
    
    $
    0.09
 (17)




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NOTE 8. ASSET RETIREMENT OBLIGATIONS
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(in thousands)Beginning asset retirement obligation
    
    $
    5,606
    
    
    $
    4,842
    
    
    $
    4,937
    
    
    $
    5,063Additions related to new properties
    
    
    211
    
    
    
    85
    
    
    
    917
    
    
    
    151Revisions in estimated cash flows
    
    
    (58
    )
    
    
    (130
    )
    
    
    (267
    )
    
    
    (297
    )Deletions related to property disposals
    
    
    (9
    )
    
    
    (74
    )
    
    
    (24
    )
    
    
    (358
    )Accretion expense
    
    
    88
    
    
    
    79
    
    
    
    275
    
    
    
    243Ending asset retirement obligation
    
    $
    5,838
    
    
    $
    4,802
    
    
    $
    5,838
    
    
    $
    4,802
 NOTE 9. RECENTLY ANNOUNCED ACCOUNTING PRONOUNCEMENTS
    Fair Value Measurements
 The Fair Value Option for Financial Assets and
Financial Liabilities, Including an Amendment of FASB Statement No. 115,
 (18)




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Business Combinations
 Noncontrolling Interests in Consolidated
Financial Statementsan amendment of ARB No. 51
 Disclosures about Derivative Instruments and
Hedging Activities, an amendment of FASB Statement No. 133
 NOTE 10. INVESTMENT IN GAS GATHERING SYSTEMS
    (19)




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NOTE 11. COMMITMENTS AND CONTINGENCIES
    th
    (20)




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##### Table of Contents



NOTE 12. SUBSEQUENT EVENTS
   (21)




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##### Table of Contents




    
    one-fourth of one percent (.25%) when the borrowing base usage is equal to or
greater than 75%; and
    
    zero percent when the borrowing base usage is less than 75%.In addition, the Libor Margin was amended to mean:
    
    2.75% when the borrowing base usage is equal to or greater than 75%;
    
    2.50% per annum when the borrowing base usage is equal to greater than 50% but less
than 75%; and
    
    2.25% per annum when the borrowing base usage is less than 50%.
   
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
  OVERVIEW
 Strategy
 Conduct Exploitation Activities on Our Existing Assets.
 Use of Horizontal Drilling and Fracture Stimulation Activities in Gas Resource Plays.
 Use of Advanced Technologies and Production Techniques.
 (22)




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Acquire Long-Lived Properties with Enhancement Opportunities.
 Conduct Exploratory Activities.
  
    
    the prices we receive for the oil and natural gas we produce;
    
    the results of reprocessing and reinterpreting our 3-D seismic data;
    
    the results of our drilling activities;
    
    the costs of obtaining high quality field services;
    
    our ability to find and consummate acquisition opportunities; and
    
    our ability to negotiate and enter into work to earn arrangements, joint ventures
or other similar arrangements on terms acceptable to us.
  Operating Performance
  
    
    seasonal demand;
    
    weather;
    
    hurricane conditions in the Gulf of Mexico;
    
    availability of pipeline transportation to end users;
    
    proximity of our wells to major transportation pipeline infrastructures; and
    
    to a lesser extent, world oil prices.
 (23)




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##### Table of Contents




    
    production expenses;
    
    overhead requirements;
    
    costs of capital; and
    
    effects of derivative contracts.
  
    
    cash flow from operations;
    
    sales of our equity and debt securities;
    
    bank borrowings; and
    
    industry joint ventures.
     (24)




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##### Table of Contents



Results of Operations
  
    
    reserve base;
    
    sources of production;
    
    product mix (gas versus oil volumes); and
    
    the prices we receive for our oil and natural gas production.
  Three Months Ended
    
    
    Nine Months Ended9/30/2008
    
    
    9/30/2007
    
    
    9/30/2008
    
    
    9/30/2007(in thousands, except per unit data)Production Volumes:Oil (Bbls)
    
    
    274
    
    
    
    254
    
    
    
    758
    
    
    
    797Natural gas (Mcf)
    
    
    2,886
    
    
    
    2,043
    
    
    
    8,338
    
    
    
    5,243BOE(1)
    
    
    755
    
    
    
    595
    
    
    
    2,148
    
    
    
    1,671BOE per day
    
    
    8.2
    
    
    
    6.5
    
    
    
    7.8
    
    
    
    6.1Sales Prices:Oil (per Bbl)
    
    $
    115.19
    
    
    $
    69.45
    
    
    $
    109.52
    
    
    $
    59.98Natural gas (per Mcf)
    
    $
    8.54
    
    
    $
    5.81
    
    
    $
    8.78
    
    
    $
    6.14BOE price
    
    $
    74.45
    
    
    $
    49.62
    
    
    $
    72.73
    
    
    $
    47.86Operating
Revenues:Oil
    
    $
    31,552
    
    
    $
    17,619
    
    
    $
    83,043
    
    
    $
    47,786Natural gas
    
    
    24,649
    
    
    
    11,868
    
    
    
    73,174
    
    
    
    32,171$
    56,201
    
    
    $
    29,487
    
    
    $
    156,217
    
    
    $
    79,957Operating Expenses:Lease operating expense
    
    $
    7,539
    
    
    $
    6,445
    
    
    $
    21,772
    
    
    $
    16,420Production taxes
    
    
    2,836
    
    
    
    1,448
    
    
    
    8,121
    
    
    
    3,696Production tax refund
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,209
    )General and administrative
    
    
    3,125
    
    
    
    2,492
    
    
    
    8,958
    
    
    
    7,737Depreciation, depletion and amortization
    
    
    11,551
    
    
    
    7,821
    
    
    
    31,386
    
    
    
    21,680$
    25,051
    
    
    $
    18,206
    
    
    $
    70,237
    
    
    $
    48,324Operating income
    
    $
    31,150
    
    
    $
    11,281
    
    
    $
    85,980
    
    
    $
    31,633
 
 (1)
    
    A BOE means one barrel of oil equivalent using the ratio of six Mcf of gas to one
barrel of oil. (25)




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##### Table of Contents



RESULTS OF OPERATIONS
 For the Three Months Ended September 30, 2008 and 2007:
  Oil and Gas Revenues
 Revenues
    
    
    Production2008
    
    
    2007
    
    
    2008
    
    
    2007Oil (Bbls)
    
    
    56
    %
    
    
    60
    %
    
    
    36
    %
    
    
    43
    %Natural gas (Mcf)
    
    
    44
    %
    
    
    40
    %
    
    
    64
    %
    
    
    57
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
  Three Months Ended September 30,
    
    
    Increase
    
    
    % Increase2008
    
    
    2007
    
    
    (Decrease)
    
    
    (Decrease)(in thousands except per unit data)Production VolumesOil (Bbls)
    
    
    274
    
    
    
    254
    
    
    
    20
    
    
    
    8
    %Natural gas (Mcf)
    
    
    2,886
    
    
    
    2,043
    
    
    
    843
    
    
    
    41
    %BOE (1)
    
    
    755
    
    
    
    595
    
    
    
    160
    
    
    
    27
    %BOE/Day
    
    
    8.2
    
    
    
    6.5
    
    
    
    1.7
    
    
    
    26
    %Sales PriceOil (per Bbl)
    
    $
    115.19
    
    
    $
    69.45
    
    
    $
    45.74
    
    
    
    66
    %Natural gas (per Mcf)
    
    $
    8.54
    
    
    $
    5.81
    
    
    $
    2.73
    
    
    
    47
    %BOE price
    
    $
    74.45
    
    
    $
    49.62
    
    
    $
    24.83
    
    
    
    50
    %Operating RevenuesOil
    
    $
    31,552
    
    
    $
    17,619
    
    
    $
    13,933
    
    
    
    79
    %Natural gas
    
    
    24,649
    
    
    
    11,868
    
    
    
    12,781
    
    
    
    108
    %Total
    
    $
    56,201
    
    
    $
    29,487
    
    
    $
    26,714
    
    
    
    91
    %
 
 (1)
    
    A BOE means one barrel of oil equivalent using the ratio of six Mcf of gas to one
barrel of oil. Oil revenues
  Natural gas revenues
  (26)




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##### Table of Contents



Cost and Expenses
 Three months ended September 30,
    
    
    Increase
    
    
    % Increase2008
    
    
    2007
    
    
    (Decrease)
    
    
    (Decrease)($ in thousands)Lease operating expense
    
    $
    7,539
    
    
    $
    6,445
    
    
    $
    1,094
    
    
    
    17
    %Production taxes
    
    
    2,836
    
    
    
    1,448
    
    
    
    1,388
    
    
    
    96
    %General and administrative
    
    
    3,125
    
    
    
    2,492
    
    
    
    633
    
    
    
    25
    %Depreciation, depletion and amortization
    
    
    11,551
    
    
    
    7,821
    
    
    
    3,730
    
    
    
    48
    %Total
    
    $
    25,051
    
    
    $
    18,206
    
    
    $
    6,845
    
    
    
    38
    %
 Lease operating expense
  Production taxes
  General and administrative
  Depreciation, depletion and amortization
  (27)




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##### Table of Contents



Other income (expense)
 Three months ended September 30,
    
    
    Increase
    
    
    % Increase2008
    
    
    2007
    
    
    (Decrease)
    
    
    (Decrease)($ in thousands)Gain (loss) on derivatives not classified as hedges
    
    $
    65,661
    
    
    $
    (4,556
    )
    
    $
    70,217
    
    
    
    (1,541
    )%Interest and other income
    
    
    20
    
    
    
    55
    
    
    
    (35
    )
    
    
    (64
    )%Interest expense, net
    
    
    (6,139
    )
    
    
    (5,429
    )
    
    
    (710
    )
    
    
    13
    %Cost of debt retirement
    
    
    (102
    )
    
    
    (760
    )
    
    
    658
    
    
    
    (87
    )%Other expense
    
    
    (11
    )
    
    
    (76
    )
    
    
    65
    
    
    
    (86
    )%Equity in loss of pipelines
and gathering system ventures
    
    
    (2
    )
    
    
    (69
    )
    
    
    67
    
    
    
    (97
    )%Total
    
    $
    59,427
    
    
    $
    (10,835
    )
    
    $
    70,262
    
    
    
    (648
    )%
 Gain (loss) on derivatives not classified as hedges
  Interest expense
   Equity in loss of pipelines and gathering system ventures
   Income taxes, deferred
  (28)




---



##### Table of Contents



Basic and diluted net income
  RESULTS OF OPERATIONS
 For the Nine Months Ended September 30, 2008 and 2007:
  Oil and Gas Revenues
 Revenues
    
    
    Production2008
    
    
    2007
    
    
    2008
    
    
    2007Oil (Bbls)
    
    
    53
    %
    
    
    60
    %
    
    
    35
    %
    
    
    48
    %Natural gas (Mcf)
    
    
    47
    %
    
    
    40
    %
    
    
    65
    %
    
    
    52
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
  Nine Months Ended September 30,
    
    
    Increase
    
    
    % Increase2008
    
    
    2007
    
    
    (Decrease)
    
    
    (Decrease)(in thousands except per unit data)Production VolumesOil (Bbls)
    
    
    758
    
    
    
    797
    
    
    
    (39
    )
    
    
    (5
    )%Natural gas (Mcf)
    
    
    8,338
    
    
    
    5,243
    
    
    
    3,095
    
    
    
    59
    %BOE (1)
    
    
    2,148
    
    
    
    1,671
    
    
    
    477
    
    
    
    29
    %BOE/Day
    
    
    7.8
    
    
    
    6.1
    
    
    
    1.7
    
    
    
    28
    %Sales PriceOil (per Bbl)
    
    $
    109.52
    
    
    $
    59.98
    
    
    $
    49.54
    
    
    
    83
    %Natural gas (per Mcf)
    
    $
    8.78
    
    
    $
    6.14
    
    
    $
    2.64
    
    
    
    43
    %BOE price
    
    $
    72.73
    
    
    $
    47.86
    
    
    $
    24.87
    
    
    
    52
    %Operating RevenuesOil
    
    $
    83,043
    
    
    $
    47,786
    
    
    $
    35,257
    
    
    
    74
    %Natural gas
    
    
    73,174
    
    
    
    32,171
    
    
    
    41,003
    
    
    
    127
    %Total
    
    $
    156,217
    
    
    $
    79,957
    
    
    $
    76,260
    
    
    
    95
    %
 
 (1)
    
    A BOE means one barrel of oil equivalent using the ratio of six Mcf of gas to one
barrel of oil. (29)




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##### Table of Contents



Oil revenues
  Natural gas revenues
  Cost and Expenses
 Nine months ended September 30,
    
    
    Increase
    
    
    % Increase2008
    
    
    2007
    
    
    (Decrease)
    
    
    (Decrease)($ in thousands)Lease operating expense
    
    $
    21,772
    
    
    $
    16,420
    
    
    $
    5,352
    
    
    
    33
    %Production taxes
    
    
    8,121
    
    
    
    3,696
    
    
    
    4,425
    
    
    
    120
    %Production tax refund
    
    
    
    
    
    
    (1,209
    )
    
    
    1,209
    
    
    
    N/AGeneral and administrative
    
    
    8,958
    
    
    
    7,737
    
    
    
    1,221
    
    
    
    16
    %Depreciation, depletion and amortization
    
    
    31,386
    
    
    
    21,680
    
    
    
    9,706
    
    
    
    45
    %Total
    
    $
    70,237
    
    
    $
    48,324
    
    
    $
    21,913
    
    
    
    45
    %
 Lease operating expense
  Production taxes
   (30)




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##### Table of Contents



General and Administrative
  Depreciation, depletion and amortization
  Other income (expense)
 Nine months ended September 30,
    
    
    Increase
    
    
    % Increase2008
    
    
    2007
    
    
    (Decrease)
    
    
    (Decrease)($ in thousands)Loss on derivatives not classified as hedges
    
    $
    (27,834
    )
    
    $
    (11,161
    )
    
    $
    (16,673
    )
    
    
    149
    %Interest and other income
    
    
    85
    
    
    
    163
    
    
    
    (78
    )
    
    
    (48
    )%Interest expense, net
    
    
    (17,025
    )
    
    
    (13,449
    )
    
    
    (3,576
    )
    
    
    27
    %Cost of debt retirement
    
    
    (102
    )
    
    
    (760
    )
    
    
    658
    
    
    
    (87
    )%Other expense
    
    
    (12
    )
    
    
    (91
    )
    
    
    79
    
    
    
    (87
    )%Equity in gain (loss) of pipelines
and gathering system ventures
    
    
    380
    
    
    
    (663
    )
    
    
    1,043
    
    
    
    (157
    )%Total
    
    $
    (44,508
    )
    
    $
    (25,961
    )
    
    $
    (18,547
    )
    
    
    71
    %
 Loss on derivatives not classified as hedges
  (31)




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##### Table of Contents



Interest expense
   Equity in gain (loss) of pipelines and gathering system ventures
   Income taxes, deferred
  Basic and diluted net income
  LIQUIDITY AND CAPITAL RESOURCES
    (32)




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##### Table of Contents



Bank Borrowings
   Revolving Credit Facility
   (33)




---



##### Table of Contents



(34)




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##### Table of Contents




    
    one-fourth of one percent (.25%) when the borrowing base usage is equal to or
greater than 75%; and
    
    zero percent when the borrowing base usage is less than 75%.In addition, the Libor Margin was amended to mean:
    
    2.75% when the borrowing base usage is equal to or greater than 75%;
    
    2.50% per annum when the borrowing base usage is equal to greater than 50% but less
than 75%; and
    
    2.25% per annum when the borrowing base usage is less than 50%.
   Senior Notes
    (35)




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##### Table of Contents



Interest Accrued
  Commodity Price Risk Management Transactions and Effects of Derivative Instruments
        (36)




---



##### Table of Contents



Contractual Obligations, Commitments and Off-Balance Sheet Arrangements
   Obligation Due in PeriodThree monthsendingDecember 31,
    
    
    Years ending December 31,
    
    
    AfterContractual Cash Obligations
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    5 years
    
    
    Total(in thousands)Revolving Credit Facility (secured)(1)
    
    $
    2,042
    
    
    $
    8,125
    
    
    $
    8,125
    
    
    $
    8,125
    
    
    $
    8,147
    
    
    $
    170,625
    
    
    $
    205,189Senior Notes (unsecured)(2)
    
    
    
    
    
    
    15,375
    
    
    
    15,375
    
    
    
    15,375
    
    
    
    15,375
    
    
    
    180,750
    
    
    
    242,250Office Lease (Dinero Plaza)
    
    
    67
    
    
    
    271
    
    
    
    107
    
    
    
    31
    
    
    
    
    
    
    
    
    
    
    
    476Asset retirement obligations(3)
    
    
    662
    
    
    
    223
    
    
    
    44
    
    
    
    91
    
    
    
    33
    
    
    
    4,785
    
    
    
    5,838Derivative Obligations
    
    
    9,198
    
    
    
    16,748
    
    
    
    14,691
    
    
    
    226
    
    
    
    
    
    
    
    
    
    
    
    40,863Put premium obligations(4)
    
    
    
    
    
    
    646
    
    
    
    1,378
    
    
    
    1,689
    
    
    
    
    
    
    
    
    
    
    
    3,713Total
    
    $
    11,969
    
    
    $
    41,388
    
    
    $
    39,720
    
    
    $
    25,537
    
    
    $
    23,555
    
    
    $
    356,160
    
    
    $
    498,329
 
 (1)
    
    Outstanding principal of $162.5 million due December 31, 2013 and estimated
interest obligation calculated using the interest rate at September 30, 2008 of 5.0%.
See Note 12  Subsequent Events.(2)
    
    Outstanding principal of $150.0 million due August 1, 2014 and interest
obligation calculated at an interest rate of 10.25%.(3)
    
    Assets retirement obligations of oil and natural gas assets, excluding salvage value and
accretion.(4)
    
    The put premium obligations above rep resent the undiscounted obligation to our counterparty. We
have recognized $45,000 of interest for the nine months ended September 30, 2008 and will
recognize $343,000 interest associated with the put premium obligations over the remaining life of the
contracts.  Trends and Outlook
    (37)




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##### Table of Contents




    
    revised our 2008 capital expenditures downward from $171.6 million to $153.9
million, of which:
 
    
    $14.2 million is associated with a 9 gross (9.0 net) well decrease in
our previously planned drilling activity in the New Mexico Wolfcamp
project;
    
    $2.3 million is associated with the deferral of 3 gross (2.6 net) wells
in the Diamond M Canyon Reef project due to the unavailability of a
drilling rig until November 15, 2008; and
    
    $1.2 million is associated with the deferral of 3 gross (2.9 net) wells
in the Utah/Colorado project due to delays in permitting;
 
    
    adopted a less aggressive capital expenditure budget of $118.8 million for 2009;
    
    drawn an additional $62.5 million under our Revolving Credit Agreement and invested
the majority of the $62.5 million in a demand deposit money market account for the purpose of strengthening our
liquidity; and
    
    requested that our bank lenders not increase our borrowing base at the present time
because of the associated interest rate and fee increases that our lenders advised us
would accompany any such borrowing base increase.
  
    
    internally generated cash from operations;
    
    proceeds from bank borrowings; and
    
    proceeds from sales of equity and debt securities.
  
    
    our proved reserves;
    
    the volumes of oil and natural gas we produce from existing wells;
    
    the prices at which we sell oil and natural gas;
    
    our ability to acquire, locate and produce new reserves; and
    
    events occurring within the global capital markets.
  
    
    increased bank borrowings;
    
    additional sales of our debt or equity securities;
    
    sales of non-core properties;
    
    other forms of financing; or
 (38)




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##### Table of Contents




    
    a combination of the above.
  Oil and Natural Gas Price Trends
    Production Trends
    Lease Operating Expense Trends
  (39)




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##### Table of Contents



Interest Expense Trends
  Recent Accounting Pronouncements
 Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109
   Fair Value Measurements
 The Fair Value Option for Financial Assets and
Financial Liabilities, Including an Amendment of FASB Statement No. 115,
 Business Combinations
 Noncontrolling Interests in Consolidated
 (40)




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##### Table of Contents



Financial Statementsan amendment of ARB No. 51
 Disclosures about Derivative Instruments and
Hedging Activities, an amendment of FASB Statement No. 133
 Critical Accounting Policies
  FORWARD-LOOKING STATEMENTS
 Cautionary Statement Regarding Forward-Looking Statements
  
    
    our future financial and operating performance and results;
    
    our drilling plans and ability to secure drilling rigs to effectuate our plans;
 
    
    production volumes;
    
    our business strategy;
    
    market prices;
    
    sources of funds necessary to conduct operations and complete acquisitions;
    
    development costs;
    
    number and location of planned wells;
    
    our future commodity price risk management activities; and
    
    our plans and forecasts.
 (41)




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##### Table of Contents




    
    difficult and adverse conditions in the global and domestic capital and credit
markets;
    
    continued volatility and further deterioration of the capital and credit markets;
    
    uncertainty about the effectiveness of the U.S. governments plan to purchase large
amounts of illiquid, mortgage-backed and other securities from financial institutions;
    
    the impairment of financial institutions;
    
    exposure to financial and capital market risk;
    
    changes in general economic conditions, including the performance of financial
markets and interest rates, which may affect our ability to raise capital and generate
operating cash flow;
    
    unanticipated changes in industry trends;
    
    fluctuations in prices of oil and natural gas;
    
    dependent on key personnel;
    
    reliance on technological development and technology development programs;
    
    demand for oil and natural gas;
    
    losses due to potential or future litigation;
    
    future capital requirements and availability of financing;
    
    geological concentration of our reserves;
    
    risks associated with drilling and operating wells;
    
    competition;
    
    general economic conditions;
    
    governmental regulations and liability for environmental matters;
    
    receipt of amounts owed to us by purchasers of our production and counterparties to
our hedging contracts;
    
    hedging decisions, including whether or not to hedge;
    
    events similar to 911;
    
    actions of third party co-owners of interests in properties in which we also own an
interest; and
 (42)




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##### Table of Contents




    
    fluctuations in interest rates and availability of capital.
   
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Interest Rate Sensitivity as of September 30, 2008
  2012 and2008
    
    2009
    
    2010
    
    2011
    
    after
    
    Total($ in thousands, except interest rates)Revolving Credit Facility (secured)
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    162,500
    
    
    $
    162,500Average interest rate
    
    
    5.00
    %
    
    
    5.00
    %
    
    
    5.00
    %
    
    
    5.00
    %
    
    
    5.00
    %Senior notes
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    150,000
    
    
    $
    150,000Average interest rate
    
    
    10.25
    %
    
    
    10.25
    %
    
    
    10.25
    %
    
    
    10.25
    %
    
    
    10.25
    %
    (43)




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##### Table of Contents



Weighted Average
    
    
    EstimatedNotional
    
    
    Fixed
    
    
    FairPeriod of Time
    
    Amounts
    
    
    Interest Rates
    
    
    Market Value($ in millions)
    
    
    
    
    
    
    ($ in thousands)October 1, 2008 thru December 31, 2008
    
    $
    100
    
    
    
    4.86
    %
    
    $
    (264
    )January 1, 2009 thru December 31, 2009
    
    $
    100
    
    
    
    4.22
    %
    
    
    (1,084
    )January 1, 2010 thru December 31, 2010
    
    $
    100
    
    
    
    4.71
    %
    
    
    (822
    )January 1, 2011 thru December 31, 2011
    
    $
    100
    
    
    
    4.60
    %
    
    
    (227
    )Total Fair Market Value
    
    
    
    
    
    
    
    
    
    $
    (2,397
    )
 Commodity Price Sensitivity
      (44)




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##### Table of Contents



Put Options.
   EstimatedBarrels of
    
    
    
    
    
    
    Fair MarketPeriod of Time
    
    Oil
    
    
    Floor
    
    
    Value($ in thousands)January 1, 2009 through December 31, 2009
    
    
    109,500
    
    
    $
    100.00
    
    
    $
    1,470January 1, 2010 through December 31, 2010
    
    
    134,100
    
    
    $
    100.00
    
    
    
    2,083January 1, 2011 through December 31, 2011
    
    
    146,000
    
    
    $
    100.00
    
    
    
    2,314Total Fair Market Value
    
    
    
    
    
    
    
    
    
    $
    5,867
 Collars.
  EstimatedBarrels of
    

NyMex Oil Prices
    
    Fair MarketPeriod of Time
    
    Oil
    
    Floor
    
    Cap
    
    Value($ in thousands)October 1, 2008 thru December 31, 2008
    
    
    87,400
    
    
    $
    63.42
    
    
    $
    83.86
    
    
    
    (1,581
    )January 1, 2009 thru December 31, 2009
    
    
    620,500
    
    
    $
    63.53
    
    
    $
    80.21
    
    
    
    (15,664
    )January 1, 2010 thru October 31, 2010
    
    
    486,400
    
    
    $
    63.44
    
    
    $
    78.26
    
    
    
    (13,869
    )M M Btu of
    
    
    WAHA Gas PricesNatural Gas
    
    
    Floor
    
    
    CapOctober 1, 2008 through December 31, 2008
    
    
    920,000
    
    
    $
    7.38
    
    
    $
    9.28
    
    
    
    1,793January 1, 2009 through December 31, 2009
    
    
    3,285,000
    
    
    $
    7.06
    
    
    $
    9.93
    
    
    
    1,534Total Fair Market Value
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (27,787
    )
 (45)




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##### Table of Contents



Commodity Swaps.
  EstimatedNumber of
    
    
    NyMex Oil
    
    
    Fair MarketPeriod of Time
    
    Barrels of Oil
    
    
    Swap Price
    
    
    Value($ in thousands)October 1, 2008 thru December 31, 2008
    
    
    110,400
    
    
    $
    33.37
    
    
    
    (7,353
    )
 
 ITEM 4. CONTROLS AND PROCEDURES
   
 PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
   (46)




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##### Table of Contents



th
    (47)




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##### Table of Contents



ITEM 1A. RISK FACTORS
  General economic conditions could adversely impact our capital expenditure program which would
affect our results of operations.
  Adverse capital and credit market conditions may significantly affect our ability to meet
liquidity needs, access to capital and cost of capital.
    (48)




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##### Table of Contents



Difficult conditions in the global capital markets and the economy generally may materially
adversely affect our business and results of operations and we do not expect these conditions to
improve in the near future.
    There can be no assurance that actions of the U.S. Government, Federal Reserve and other
governmental and regulatory bodies for the purpose of stabilizing the financial markets will
achieve the intended effect.
 (49)




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##### Table of Contents



The impairment of financial institutions could adversely affect us.
  If the counterparties to the derivative instruments we use to hedge our business risks default
or fail to perform, we may be exposed to risks we had sought to mitigate, which could materially
adversely affect our financial condition and results of operations.
  The fluctuation and volatility of oil and natural gas prices may adversely affect our
business, the value of our mineral properties, our revenues and profitability.
  (50)




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##### Table of Contents



ITEM 6. EXHIBITS
   No.
    
    Description of Exhibit3.1
    
    Certificate of Incorporation of Registrant (Incorporated by reference to Exhibit 3.1 to Form
10-Q of the Registrant for the fiscal quarter ended June 30, 2004)3.2
    
    Bylaws of Registrant (Incorporated by reference to Exhibit 10.1 of the Registrants Current
Report on Form 8-K filed on November 30, 2007)3.3
    
    Certificate of Formation of Parallel, L.L.C. (Incorporated by reference to Exhibit No. 3.3 of
the Registrants Registration Statement on Form S-3, No. 333-119725 filed on October 13, 2004)3.4
    
    Limited Liability Company Agreement of Parallel, L.L.C. (Incorporated by reference to Exhibit
No. 3.4 of the Registrants Statement on Form S-3, No. 333-119725 filed on October 13, 2004)3.5
    
    Certificate of Limited Partnership of Parallel, L.P. (Incorporated by reference to Exhibit
No. 3.5 of the Registrants Registration Statement on Form S-3, No. 333-119725 filed on
October 13, 2004)3.6
    
    Agreement of Limited Partnership of Parallel, L.P. (Incorporated by reference to Exhibit No.
3.6 of the Registrants Registration Statement on Form S-3, No. 333-119725 filed on October
13, 2004)4.1
    
    Certificate of Designations, Preferences and Rights of Serial Preferred Stock  6%
Convertible Preferred Stock (Incorporated by reference to Exhibit 4.1 of Form 10-Q of the
Registrant for the fiscal quarter ended June 30, 2004)4.2
    
    Certificate of Designations, Preferences and Rights of Series A Preferred Stock (Incorporated
by reference to Exhibit 4.2 of Form 10-K of the Registrant for the fiscal year ended December
31, 2000)4.3
    
    Rights Agreement, dated as of October 5, 2000, between the Registrant and Computershare Trust
Company, Inc., as Rights Agent (Incorporated by reference to Exhibit 1 of Form 8-A of the
Registrant filed with the Securities and Exchange Commission on October 10, 2000)4.4
    
    Form of common stock certificate of the Registrant (Incorporated by reference to Exhibit No.
4.6 of the Registrants Registration Statement on Form S-3, No. 333-119725 filed on October
13, 2004)4.5
    
    Warrant Purchase Agreement, dated November 20, 2001, between the Registrant and Stonington
Corporation (Incorporated by reference to Exhibit 4.7 of Form 10-K of the Registrant for the
fiscal year ended December 31, 2004)4.6
    
    Warrant Purchase Agreement, dated December 23, 2003, between the Registrant and Stonington
Corporation (Incorporated by reference to Exhibit 4.8 of Form 10-K of the Registrant for the
fiscal year ended December 31, 2004)
 (51)




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##### Table of Contents



No.
    
    Description of Exhibit4.7
    
    Purchase Warrant Agreement, dated as of October 1, 1980, between the Registrant and American
Stock Transfer, Inc. (Incorporated by reference to Exhibit 4.7 of Form 10-K of the Registrant
for the fiscal year ended December 31, 2006)4.8
    
    First Amendment to Warrant Agreement, dated as of February 22, 2007, among the Registrant,
Computershare Shareholder Services, Inc. and Computershare Trust Company, N.A. (Incorporated
by reference to Exhibit 4.8 of Form 10-K of the Registrant for the fiscal year ended December
31, 2006)4.9
    
    Form of Rule 144A 101/4% Senior Note due 2014 (Incorporated by reference to Exhibit 4.2 to the
Registrants Current Report on Form 8-K filed on August 1, 2007)4.10
    
    Form of IAI 101/4% Senior Note due 2014 (Incorporated by reference to Exhibit 4.3 to the
Registrants Current Report on Form 8-K filed on August 1, 2007)4.11
    
    Form of Regulation S 101/4% Senior Note due 2014 (Incorporated by reference to Exhibit 4.4 to
the Registrants Current Report on Form 8-K filed on August 1, 2007)4.12
    
    Indenture, dated as of July 31, 2007, among the Registrant as Issuer and Wells Fargo Bank,
National Association as Trustee (Incorporated by reference to Exhibit 4.1 to the Registrants
Current Report on Form 8-K filed on August 1, 2007)4.13
    
    Registration Rights Agreement, dated as of July 31, 2007, by and among the Registrant,
Jefferies & Company, Inc., Merrill Lynch, Pierce, Fenner and Smith Incorporated and BNP
Paribas Securities Corp. (Incorporated by reference to Exhibit 10.2 to the Registrants
Current Report on Form 8-K filed on August 1, 2007)4.14
    
    Purchase Agreement, dated as of July 26, 2007, by and among the Registrant, Jefferies &
Company, Inc., Merrill Lynch, Pierce, Fenner and Smith Incorporated and BNP Paribas Securities
Corp. (Incorporated by reference to Exhibit 4.2 to the Registrants Current Report on Form 8-K
filed on August 1, 2007)4.15
    
    Form of 101/4% Unrestricted Senior Note due 2014 (Incorporated by reference to Exhibit 4.13 of
Form S-4 of the Registrant, Registration No. 333-148465)Executive Compensation Plans and Arrangements (Exhibit No.s 10.1 through 10.11):10.1
    
    1992 Stock Option Plan (Incorporated by reference to Exhibit 10.1 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2004)10.2
    
    Merrill Lynch, Pierce, Fenner & Smith Incorporated Prototype Simplified Employee Pension Plan
(Incorporated by reference to Exhibit 10.6 of the Registrants Form 10-K for the fiscal year
ended December 31, 1995)10.3
    
    Non-Employee Directors Stock Option Plan (Incorporated by reference to Exhibit 10.3 of the
Registrants Form 10-Q of the Registrant for the fiscal quarter ended June 30, 2005)10.4
    
    1998 Stock Option Plan (Incorporated by reference to Exhibit 10.4 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2006)10.5
    
    2001 Non-Employee Directors Stock Option Plan (Incorporated by reference to Exhibit 10.7 of
the Registrants Form 10-Q Report for the fiscal quarter ended March 31, 2004)
 (52)




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##### Table of Contents



No.
    
    Description of Exhibit10.6
    
    2004 Non-Employee Director Stock Grant Plan (Incorporated by reference to Exhibit 10.1 of the
Registrants Form 8-K Report dated September 22, 2004)10.7
    
    Incentive and Retention Plan (Incorporated by reference to Exhibit 10.7 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2006)10.8
    
    2008 Long-Term Incentive Plan (Incorporated by reference to Exhibit 10.1 of the Registrants
Form 8-K Report dated March 27, 2008)10.9
    
    Form of Nonqualified Stock Option Agreement for nonqualified stock options granted under the
Registrants 2008 Long-Term Incentive Plan (Incorporated by reference to Exhibit 10.2 of the
Registrants Current Report on Form 8-K filed on June 18, 2008)10.10
    
    Form of Outside Director Stock Award Agreement for stock awards granted under the
Registrants 2008 Long-Term Incentive Plan (Incorporated by reference to Exhibit 10.3 of the
Registrants Current Report on Form 8-K filed on June 18, 2008)10.11
    
    Form of Outside Director Restricted Stock Agreement for restricted stock grants under the
Registrants 2008 Long-Term Incentive Plan (Incorporated by reference to Exhibit 10.4 of the
Registrants Current Report on Form 8-K filed on June 18, 2008)10.12
    
    First Amended and Restated Credit Agreement, dated December 20, 2002, by and among Parallel
Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First American Bank, SSB, Western
National Bank and BNP Paribas (Incorporated by reference to Exhibit 10.2 of Form 8-K of the
Registrant, dated December 20, 2002)10.13
    
    Guaranty dated December 20, 2002, between Parallel, L.L.C. and First American Bank, SSB, as
Agent (Incorporated by reference to Exhibit 10.3 of Form 8-K of the Registrant, dated December
20, 2002)10.14
    
    First Amendment to First Amended and Restated Credit Agreement, dated as of September 12,
2003, by and among Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First
American Bank, SSB, Western National Bank, and BNP Paribas (Incorporated by reference to
Exhibit 10.29 of Form 10-Q of the Registrant for the quarter ended September 30, 2003)10.15
    
    Second Amended and Restated Credit Agreement, dated September 27, 2004, by and among
Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First American Bank, SSB,
BNP Paribas, Citibank, F.S.B. and Western National Bank (Incorporated by reference to Exhibit
10.1 of the Registrants Form 8-K Report dated September 27, 2004 and filed with the
Securities and Exchange Commission on October 1, 2004)10.16
    
    Agreement of Limited Partnership of West Fork Pipeline Company LP (Incorporated by reference
to Exhibit 10.21 of Form 10-K of the Registrant for the fiscal year ended December 31, 2004)10.17
    
    First Amendment to Second Amended and Restated Credit Agreement, dated as of December 27,
2004, by and among Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First
American Bank, SSB, BNP Paribas, Citibank, F.S.B. and Western National Bank (Incorporated by
reference to Exhibit 10.1 of the Registrants Form 8-K Report dated December 30, 2004 and
filed with the Securities and Exchange Commission on December 30, 2004)10.18
    
    Second Amendment to Second Amended and Restated Credit Agreement, dated as of April 1, 2005,
by and among Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First American
Bank, SSB, BNP Paribas, Citibank, F.S.B. and Western National Bank (Incorporated by reference
to Exhibit 10.1 of the Registrants Form 8-K Report dated April 4, 2005 and filed with the
Securities and Exchange Commission on April 8, 2005)
 (53)




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##### Table of Contents



No.
    
    Description of Exhibit10.19
    
    Third Amendment to Second Amended and Restated Credit Agreement (Incorporated by reference
to Exhibit 10.1 of the Registrants Form 8-K Report dated October 4, 2005 and filed with the
Securities and Exchange Commission on October 20, 2005)10.20
    
    Purchase and Sale Agreement, dated as of October 14, 2005, among Parallel, L.P., Lynx
Production Company, Inc., Elton Resources, Inc., Cascade Energy Corporation, Chelsea Energy,
Inc., William P. Sutter, Trustee, William P. Sutter Trust, J. Leroy Bell, E. L. Brahaney,
Brent Beck, Cavic Interests, LLC and Stanley Talbott (Incorporated by reference to Exhibit
10.2 of the Registrants Form 8-K Report dated October 14, 2005 and filed with the Securities
and Exchange Commission on October 20, 2005)10.21
    
    Ancillary Agreement to Purchase and Sale Agreement, dated October 14, 2005, between
Parallel, L.P. and Lynx Production Company, Inc. (Incorporated by reference to Exhibit 10.3 of
the Registrants Form 8-K Report dated October 14, 2005 and filed with the Securities and
Exchange Commission on October 20, 2005)10.22
    
    Guarantee of Parallel, L.P., dated October 13, 2004 (Incorporated by reference to Exhibit
10.4 of the Registrants Form 8-K Report dated October 14, 2005 and filed with the Securities
and Exchange Commission on October 20, 2005)10.23
    
    ISDA Master Agreement, dated as of October 13, 2005, between Parallel, L.P. and Citibank,
N.A. (Incorporated by reference to Exhibit 10.5 of the Registrants Form 8-K Report dated
October 14, 2005 and filed with the Securities and Exchange Commission on October 20, 2005)10.24
    
    Third Amended and Restated Credit Agreement, dated as of December 23, 2005, among Parallel
Petroleum Corporation, Parallel, L.P., Parallel, L.L.C. and Citibank Texas, N.A., BNP Paribas,
CitiBank F.S.B., Western National Bank, Compass Bank, Comerica Bank, Bank of Scotland and
Fortis Capital Corp. (Incorporated by reference to Exhibit No. 10.1 of the Registrants Form
8-K Report, dated December 23, 2005, as filed with the Securities and Exchange Commission on
December 30, 2005)10.25
    
    Second Lien Term Loan Agreement, dated November 15, 2005, among Parallel Petroleum
Corporation, Parallel, L.P., BNP Paribas and Citibank Texas, N.A. (Incorporated by reference
to Exhibit No. 10.4 of the Registrants Form 8-K Report, dated November 15, 2005, as filed
with the Securities and Exchange Commission on November 21, 2005)10.26
    
    Intercreditor and Subordination Agreement, dated November 15, 2005, among Citibank Texas,
N.A., BNP Paribas, Parallel Petroleum Corporation, Parallel, L.P. and Parallel, L.L.C.
(Incorporated by reference to Exhibit No. 10.5 of the Registrants Form 8-K Report, dated
November 15, 2005, as filed with the Securities and Exchange Commission on November 21, 2005)10.27
    
    Guaranty, dated as of December 23, 2005, made by Parallel, L.L.C. to and in favor of
Citibank Texas, N.A. (Incorporated by reference to Exhibit 10.23 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2006)10.28
    
    Third Amended and Restated Pledge Agreement, dated as of December 23, 2005, between
Parallel, L.L.C. and Citibank Texas, N.A. (Incorporated by reference to Exhibit 10.24 of Form
10-K of the Registrant for the fiscal year ended December 31, 2006)10.29
    
    Second Lien Guarantee and Collateral Agreement, dated as of November 15, 2005, made by
Parallel Petroleum Corporation and Parallel, L.P. to and in favor of BNP Paribas (Incorporated
by reference to Exhibit 10.25 of Form 10-K of the Registrant for the fiscal year ended
December 31, 2006)
 (54)




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No.
    
    Description of Exhibit10.30
    
    Third Amendment to Third Amended and Restated Credit Agreement, dated as of July 31, 2007,
among the Registrant, Citibank, N.A., BNP Paribas, Western National Bank, Compass Bank,
Comerica Bank, Bank of Scotland, and Fortis Capital Corp. (Incorporated by reference to
Exhibit 10.3 of the Registrants Current Report on Form 8-K filed on August 1, 2007)10.31
    
    Fourth Amendment to Third Amended and Restated Credit Agreement, dated as of November 30,
2007, among the Registrant, Citibank, N.A., BNP Paribas, Western National Bank, Compass Bank,
Comerica Bank, Bank of Scotland, and Fortis Capital Corp. (Incorporated by reference to
Exhibit 10.27 of Form S-4 of the Registrant, Registration No. 333-148465)10.32
    
    Hagerman Gas Gathering System Joint Venture Agreement, dated as of January 16, 2007, among
the Registrant, Feagan Gathering Company and Capstone Oil and Gas Company, L.P. (Incorporated
by reference to Exhibit 10.28 of Form 10-K of the Registrant for the fiscal year ended
December 31, 2007)10.33
    
    Fourth Amended and Restated Credit Agreement, dated as of May 16, 2008, among the
Registrant, Citibank, N.A., BNP Paribas, Western National Bank, Compass Bank, Comerica Bank,
Bank of Scotland plc, and Texas Capital Bank, N.A. (Incorporated by reference to Exhibit 10.1
of the Registrants Current Report on Form 8-K filed on May 22, 2008)*10.34
    
    First Amendment to Fourth Amended and Restated Credit Agreement, dated as of October 31,
2008, by and among Parallel Petroleum Corporation, Citibank, N.A., BNP Paribas, Western
National Bank, Compass Bank, Bank of Scotland plc, Texas Capital Bank, N.A., Bank of America,
N.A. and West Texas National Bank14
    
    Code of Ethics (Incorporated by reference to Exhibit No. 14 of the Registrants Form 10-K
Report for the fiscal year ended December 31, 2003 and filed with the Securities and Exchange
Commission on March 22, 2004)*31.1
    
    Certification of Principal Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 302 of the Sarbanes -
Oxley Act of 2002.*31.2
    
    Certification of Principal Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 302 of the Sarbanes -
Oxley Act of 2002.*32.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes -
Oxley Act of 2002.*32.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes -
Oxley Act of 2002.
 
 *
    
    Filed herewith. (55)




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##### Table of Contents



PARALLEL PETROLEUM CORPORATIONBY:   /s/ Larry C. OldhamDate: November 3, 2008
    Larry C. OldhamPresident and Chief Executive OfficerDate: November 3, 2008
    BY:  /s/ Steven D. FosterSteven D. Foster,Chief Financial Officer




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##### Table of Contents



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




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##### Table of Contents



No.
    
    Description of Exhibit(Incorporated by reference to Exhibit 4.8 of Form 10-K of the Registrant for the fiscal year
ended December 31, 2006)4.9
    
    Form of Rule 144A 101/4% Senior Note due 2014 (Incorporated by reference to Exhibit 4.2 to the
Registrants Current Report on Form 8-K filed on August 1, 2007)4.10
    
    Form of IAI 101/4% Senior Note due 2014 (Incorporated by reference to Exhibit 4.3 to the
Registrants Current Report on Form 8-K filed on August 1, 2007)4.11
    
    Form of Regulation S 101/4% Senior Note due 2014 (Incorporated by reference to Exhibit 4.4 to
the Registrants Current Report on Form 8-K filed on August 1, 2007)4.12
    
    Indenture, dated as of July 31, 2007, among the Registrant as Issuer and Wells Fargo Bank,
National Association as Trustee (Incorporated by reference to Exhibit 4.1 to the Registrants
Current Report on Form 8-K filed on August 1, 2007)4.13
    
    Registration Rights Agreement, dated as of July 31, 2007, by and among the Registrant,
Jefferies & Company, Inc., Merrill Lynch, Pierce, Fenner and Smith Incorporated and BNP
Paribas Securities Corp. (Incorporated by reference to Exhibit 10.2 to the Registrants
Current Report on Form 8-K filed on August 1, 2007)4.14
    
    Purchase Agreement, dated as of July 26, 2007, by and among the Registrant, Jefferies &
Company, Inc., Merrill Lynch, Pierce, Fenner and Smith Incorporated and BNP Paribas Securities
Corp. (Incorporated by reference to Exhibit 4.2 to the Registrants Current Report on Form 8-K
filed on August 1, 2007)4.15
    
    Form of 101/4% Unrestricted Senior Note due 2014 (Incorporated by reference to Exhibit 4.13 of
Form S-4 of the Registrant, Registration No. 333-148465)Executive Compensation Plans and Arrangements (Exhibit No.s 10.1 through 10.11):10.1
    
    1992 Stock Option Plan (Incorporated by reference to Exhibit 10.1 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2004)10.2
    
    Merrill Lynch, Pierce, Fenner & Smith Incorporated Prototype Simplified Employee Pension Plan
(Incorporated by reference to Exhibit 10.6 of the Registrants Form 10-K for the fiscal year
ended December 31, 1995)10.3
    
    Non-Employee Directors Stock Option Plan (Incorporated by reference to Exhibit 10.3 of the
Registrants Form 10-Q of the Registrant for the fiscal quarter ended June 30, 2005)10.4
    
    1998 Stock Option Plan (Incorporated by reference to Exhibit 10.4 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2006)10.5
    
    2001 Non-Employee Directors Stock Option Plan (Incorporated by reference to Exhibit 10.7 of
the Registrants Form 10-Q Report for the fiscal quarter ended March 31, 2004)10.6
    
    2004 Non-Employee Director Stock Grant Plan (Incorporated by reference to Exhibit 10.1 of the
Registrants Form 8-K Report dated September 22, 2004)10.7
    
    Incentive and Retention Plan (Incorporated by reference to Exhibit 10.7 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2006)




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##### Table of Contents



No.
    
    Description of Exhibit10.8
    
    2008 Long-Term Incentive Plan (Incorporated by reference to Exhibit 10.1 of the Registrants
Form 8-K Report dated March 27, 2008)10.9
    
    Form of Nonqualified Stock Option Agreement for nonqualified stock options granted under the
Registrants 2008 Long-Term Incentive Plan (Incorporated by reference to Exhibit 10.2 of the
Registrants Current Report on Form 8-K filed on June 18, 2008)10.10
    
    Form of Outside Director Stock Award Agreement for stock awards granted under the
Registrants 2008 Long-Term Incentive Plan (Incorporated by reference to Exhibit 10.3 of the
Registrants Current Report on Form 8-K filed on June 18, 2008)10.11
    
    Form of Outside Director Restricted Stock Agreement for restricted stock grants under the
Registrants 2008 Long-Term Incentive Plan (Incorporated by reference to Exhibit 10.4 of the
Registrants Current Report on Form 8-K filed on June 18, 2008)10.12
    
    First Amended and Restated Credit Agreement, dated December 20, 2002, by and among Parallel
Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First American Bank, SSB, Western
National Bank and BNP Paribas (Incorporated by reference to Exhibit 10.2 of Form 8-K of the
Registrant, dated December 20, 2002)10.13
    
    Guaranty dated December 20, 2002, between Parallel, L.L.C. and First American Bank, SSB, as
Agent (Incorporated by reference to Exhibit 10.3 of Form 8-K of the Registrant, dated December
20, 2002)10.14
    
    First Amendment to First Amended and Restated Credit Agreement, dated as of September 12,
2003, by and among Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First
American Bank, SSB, Western National Bank, and BNP Paribas (Incorporated by reference to
Exhibit 10.29 of Form 10-Q of the Registrant for the quarter ended September 30, 2003)10.15
    
    Second Amended and Restated Credit Agreement, dated September 27, 2004, by and among
Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First American Bank, SSB,
BNP Paribas, Citibank, F.S.B. and Western National Bank (Incorporated by reference to Exhibit
10.1 of the Registrants Form 8-K Report dated September 27, 2004 and filed with the
Securities and Exchange Commission on October 1, 2004)10.16
    
    Agreement of Limited Partnership of West Fork Pipeline Company LP (Incorporated by reference
to Exhibit 10.21 of Form 10-K of the Registrant for the fiscal year ended December 31, 2004)10.17
    
    First Amendment to Second Amended and Restated Credit Agreement, dated as of December 27,
2004, by and among Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First
American Bank, SSB, BNP Paribas, Citibank, F.S.B. and Western National Bank (Incorporated by
reference to Exhibit 10.1 of the Registrants Form 8-K Report dated December 30, 2004 and
filed with the Securities and Exchange Commission on December 30, 2004)10.18
    
    Second Amendment to Second Amended and Restated Credit Agreement, dated as of April 1, 2005,
by and among Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First American
Bank, SSB, BNP Paribas, Citibank, F.S.B. and Western National Bank (Incorporated by reference
to Exhibit 10.1 of the Registrants Form 8-K Report dated April 4, 2005 and filed with the
Securities and Exchange Commission on April 8, 2005)10.19
    
    Third Amendment to Second Amended and Restated Credit Agreement (Incorporated by reference
to Exhibit 10.1 of the Registrants Form 8-K Report dated October 4, 2005 and filed with the
Securities and Exchange Commission on October 20, 2005)




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##### Table of Contents



No.
    
    Description of Exhibit10.20
    
    Purchase and Sale Agreement, dated as of October 14, 2005, among Parallel, L.P., Lynx
Production Company, Inc., Elton Resources, Inc., Cascade Energy Corporation, Chelsea Energy,
Inc., William P. Sutter, Trustee, William P. Sutter Trust, J. Leroy Bell, E. L. Brahaney,
Brent Beck, Cavic Interests, LLC and Stanley Talbott (Incorporated by reference to Exhibit
10.2 of the Registrants Form 8-K Report dated October 14, 2005 and filed with the Securities
and Exchange Commission on October 20, 2005)10.21
    
    Ancillary Agreement to Purchase and Sale Agreement, dated October 14, 2005, between
Parallel, L.P. and Lynx Production Company, Inc. (Incorporated by reference to Exhibit 10.3 of
the Registrants Form 8-K Report dated October 14, 2005 and filed with the Securities and
Exchange Commission on October 20, 2005)10.22
    
    Guarantee of Parallel, L.P., dated October 13, 2004 (Incorporated by reference to Exhibit
10.4 of the Registrants Form 8-K Report dated October 14, 2005 and filed with the Securities
and Exchange Commission on October 20, 2005)10.23
    
    ISDA Master Agreement, dated as of October 13, 2005, between Parallel, L.P. and Citibank,
N.A. (Incorporated by reference to Exhibit 10.5 of the Registrants Form 8-K Report dated
October 14, 2005 and filed with the Securities and Exchange Commission on October 20, 2005)10.24
    
    Third Amended and Restated Credit Agreement, dated as of December 23, 2005, among Parallel
Petroleum Corporation, Parallel, L.P., Parallel, L.L.C. and Citibank Texas, N.A., BNP Paribas,
CitiBank F.S.B., Western National Bank, Compass Bank, Comerica Bank, Bank of Scotland and
Fortis Capital Corp. (Incorporated by reference to Exhibit No. 10.1 of the Registrants Form
8-K Report, dated December 23, 2005, as filed with the Securities and Exchange Commission on
December 30, 2005)10.25
    
    Second Lien Term Loan Agreement, dated November 15, 2005, among Parallel Petroleum
Corporation, Parallel, L.P., BNP Paribas and Citibank Texas, N.A. (Incorporated by reference
to Exhibit No. 10.4 of the Registrants Form 8-K Report, dated November 15, 2005, as filed
with the Securities and Exchange Commission on November 21, 2005)10.26
    
    Intercreditor and Subordination Agreement, dated November 15, 2005, among Citibank Texas,
N.A., BNP Paribas, Parallel Petroleum Corporation, Parallel, L.P. and Parallel, L.L.C.
(Incorporated by reference to Exhibit No. 10.5 of the Registrants Form 8-K Report, dated
November 15, 2005, as filed with the Securities and Exchange Commission on November 21, 2005)10.27
    
    Guaranty, dated as of December 23, 2005, made by Parallel, L.L.C. to and in favor of
Citibank Texas, N.A. (Incorporated by reference to Exhibit 10.23 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2006)10.28
    
    Third Amended and Restated Pledge Agreement, dated as of December 23, 2005, between
Parallel, L.L.C. and Citibank Texas, N.A. (Incorporated by reference to Exhibit 10.24 of Form
10-K of the Registrant for the fiscal year ended December 31, 2006)10.29
    
    Second Lien Guarantee and Collateral Agreement, dated as of November 15, 2005, made by
Parallel Petroleum Corporation and Parallel, L.P. to and in favor of BNP Paribas (Incorporated
by reference to Exhibit 10.25 of Form 10-K of the Registrant for the fiscal year ended
December 31, 2006)10.30
    
    Third Amendment to Third Amended and Restated Credit Agreement, dated as of July 31, 2007,
among the Registrant, Citibank, N.A., BNP Paribas, Western National Bank, Compass Bank,




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##### Table of Contents



No.
    
    Description of ExhibitComerica Bank, Bank of Scotland, and Fortis Capital Corp. (Incorporated by reference to
Exhibit 10.3 of the Registrants Current Report on Form 8-K filed on August 1, 2007)10.31
    
    Fourth Amendment to Third Amended and Restated Credit Agreement, dated as of November 30,
2007, among the Registrant, Citibank, N.A., BNP Paribas, Western National Bank, Compass Bank,
Comerica Bank, Bank of Scotland, and Fortis Capital Corp. (Incorporated by reference to
Exhibit 10.27 of Form S-4 of the Registrant, Registration No. 333-148465)10.32
    
    Hagerman Gas Gathering System Joint Venture Agreement, dated as of January 16, 2007, among
the Registrant, Feagan Gathering Company and Capstone Oil and Gas Company, L.P. (Incorporated
by reference to Exhibit 10.28 of Form 10-K of the Registrant for the fiscal year ended
December 31, 2007)10.33
    
    Fourth Amended and Restated Credit Agreement, dated as of May 16, 2008, among the
Registrant, Citibank, N.A., BNP Paribas, Western National Bank, Compass Bank, Comerica Bank,
Bank of Scotland plc, and Texas Capital Bank, N.A. (Incorporated by reference to Exhibit 10.1
of the Registrants Current Report on Form 8-K filed on May 22, 2008)*10.34
    
    First Amendment to Fourth Amended and Restated Credit Agreement, dated as of October 31,
2008, by and among Parallel Petroleum Corporation, Citibank, N.A., BNP Paribas, Western
National Bank, Compass Bank, Bank of Scotland plc, Texas Capital Bank, N.A., Bank of America,
N.A. and West Texas National Bank14
    
    Code of Ethics (Incorporated by reference to Exhibit No. 14 of the Registrants Form 10-K
Report for the fiscal year ended December 31, 2003 and filed with the Securities and Exchange
Commission on March 22, 2004)*31.1
    
    Certification of Principal Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 302 of the Sarbanes -
Oxley Act of 2002.*31.2
    
    Certification of Principal Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 302 of the Sarbanes -
Oxley Act of 2002.*32.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes -
Oxley Act of 2002.*32.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes -
Oxley Act of 2002.
 
 *
    
    Filed herewith.