```

                                                                              (unaudited)
                                                      (audited)   (unaudited)  Proforma
                                                     December 31, March 31,    March 31,
                                                        2001*        2002      2002 (1)
                                                     ------------ ----------- ------------

ASSETS
Current assets:
Cash and cash equivalents                            $ 3,351,044  $ 1,249,109 $ 6,750,812
Accounts receivable:
Oil and gas                                            1,420,859   1,265,973    1,265,973
Others, net of allowance for doubtful account of
  $0 in 2001 and 2002                                    263,819     242,546      242,546
Affiliate                                                 16,687      31,262       31,262
                                                     ------------ ----------- ------------
                                                       1,701,365   1,539,781    1,539,781
Fair value of derivative instruments                           -      51,246       51,246
Other assets                                             207,120     111,549      111,549
                                                     ------------ ----------- ------------
Total current assets                                   5,259,529   2,951,685    8,453,388
                                                     ------------ ----------- ------------
Property and equipment, at cost:
Oil and gas properties, full cost method              85,132,345  87,538,232   87,538,232
Other                                                    552,219     566,807      566,807
                                                     ------------ ----------- ------------
                                                      85,684,564  88,105,039   88,105,039
Less accumulated depreciation and depletion          (55,854,378) (57,209,008)(57,209,008)
                                                     ------------ ----------- ------------
Net property and equipment                            29,830,186  30,896,031   30,896,031
                                                     ------------ ----------- ------------
Net deferred tax asset                                 6,137,670   6,616,397            -
Investment in First Permian                              473,764     157,471            -
Marketable securities, available for sale                      -           -   25,580,339
Other assets, net of accumulated amortization of
  $55,984 in  2001 and $65,097 in  2002                   58,754      70,619       70,619
                                                     ------------ ----------- ------------
                                                     $ 41,759,903 $ 40,692,203$ 65,000,377
                                                     ============ ========================
```

```

                                                                                                     (unaudited)
                                                                        (audited)     (unaudited)     Proforma
                                                                       December 31,    March 31,     March 31,
                                                                          2001*          2002         2002 (1)
                                                                       ------------- -------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Current maturities of long-term debt                                    $ 2,400,000    $ 3,300,000   $ 3,300,000
Accounts payable and accrued liabilities:
Trade                                                                     3,446,370      2,728,007     4,209,522
                                                                       ------------- -------------- -------------
                                                                          5,846,370      6,028,007     7,509,522
                                                                       ------------- -------------- -------------
Long-term debt, excluding current maturities (Note 2)                     9,600,000      9,265,589     9,265,589
Deferred taxes payable                                                            -              -     3,688,673

Stockholders' equity:
Series A preferred stock -- par value $.10 per share (aggregate liquidation
preference of $26) authorized 50,000 shares                                       -              -             -
Preferred stock -- $.60 cumulative convertible preferred stock -- par value
of $.10 per share (aggregate liquidation preference of $10) authorized
10,000,000 shares, issued and outstanding 974,500 in 2001 and 2002           97,450         97,450        97,450
Common stock -- par value $.01 per share, authorized 60,000,000 shares,
issued and outstanding 20,663,861 in 2001 and 2002                          206,639        206,639       206,639
Additional paid-in capital                                               34,087,498     33,941,323    33,941,323
Retained earnings (deficit)                                              (8,078,054)    (8,846,805)   10,291,181
                                                                       ------------- -------------- -------------
Total stockholders' equity                                               26,313,533     25,398,607    44,536,593

Commitments and contingencies (Note 9)
                                                                       ------------- -------------- -------------
                                                                       $ 41,759,903   $ 40,692,203  $ 65,000,377
                                                                       ============= ============== =============
```

```

                                       2

                         PARALLEL PETROLEUM CORPORATION

                            STATEMENTS OF OPERATIONS

                 (Unaudited)

                                               Three Months Ended March 31,
                                               -------------------------
                                                  2001         2002
                                               ------------ ------------
Oil and gas revenues                           $ 7,288,202  $ 1,971,191
                                               ------------ ------------
Cost and expenses:
Lease operating expense                          1,119,065      549,376
General and administrative                         298,208      349,764
Depreciation, depletion and amortization         1,677,820    1,354,630
                                               ------------ ------------
                                                 3,095,093    2,253,770
                                               ------------ ------------
Operating income (loss)                          4,193,109     (282,579)
                                               ------------ ------------

Other income (expense), net:
Equity in loss of First Permian, LLC                     -     (316,293)
Change in fair value of derivatives                      -     (339,858)
Interest income                                     19,049       10,378
Other income                                        25,207        5,997
Interest expense                                  (226,857)    (153,057)
Other expense                                      (55,254)    (172,066)
                                               ------------ ------------
Total other expense, net                          (237,855)    (964,899)
                                               ------------ ------------
Income (loss) before income taxes                3,955,254   (1,247,478)
Income tax benefit, net                           (680,668)    (478,727)
                                               ------------ ------------
Net income (loss)                              $ 4,635,922  $  (768,751)

Cumulative preferred stock dividend               (146,175)    (146,175)
                                               ------------ ------------
Net income (loss) available to common
  stockholder                                  $ 4,489,747  $  (914,926)
                                               ============ ============
Net income (loss) per common share:

Basic                                               $ 0.22      $ (0.04)
                                               ============ ============
Diluted                                             $ 0.20      $ (0.04)
                                               ============ ============
Weighted average common share outstanding

Basic                                           20,419,158   20,663,861
                                               ============ ============
Diluted                                         23,692,582   20,663,861
                                               ============ ============

*The balance sheet as of December 31, 2001 has been derived from Parallel’s
audited financial  statements.  See accompanying notes to Financial  Statements.

                                       3

                        PARALLEL PETROLEUM CORPORATION

                           STATEMENTS OF CASH FLOWS

                                  (Unaudited)

                                                                                  Three Months Ended March 31,
                                                                                ---------------------------------
                                                                                     2001             2002
                                                                                --------------- -----------------

Cash flows from operating activities:
Net income (loss)                                                                  $ 4,635,922        $ (768,751)

Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and depletion                                                           1,677,820         1,354,630
Equity in loss from investments in First Permian, LLC                                        -           316,293
Change in fair value of derivative instruments                                               -           339,859
Deferred income taxes                                                                 (718,168)         (478,727)
Other, net                                                                             (33,526)          (11,865)
Changes in assets and liabilties:
Decrease in accounts receivables                                                       346,381           161,584
Decrease (increase) in prepaid expenses and other                                      (15,036)           95,571
Decrease in accounts payable and accrued liabilities                                  (357,201)         (864,538)
Purchase of derivative instruments                                                           -          (391,105)
                                                                                --------------- -----------------
Net cash provided by (used in) operating activities                                  5,536,192          (247,049)
                                                                                --------------- -----------------
Cash flows from investing activities:
Additions to property and equipment                                                 (2,267,716)       (2,785,855)
Proceeds from disposition of property and equipment                                          -           365,380
                                                                                --------------- -----------------
Net cash used in investing activities                                               (2,267,716)       (2,420,475)
                                                                                --------------- -----------------
Cash flows from financing activities:
Borrowings from bank line of credit                                                          -           565,589
Payments on bank line of credit                                                       (427,531)                -
Proceeds from exercise of options and warrants                                          99,910                 -
                                                                                --------------- -----------------
Net cash provided by (used in) financing activities                                   (327,621)          565,589
                                                                                --------------- -----------------
Net increase (decrease) in cash and cash equivalents                                 2,940,855        (2,101,935)

Beginning cash and cash equivalents                                                  2,000,826         3,351,044
                                                                                --------------- -----------------
Ending cash and cash equivalents                                                   $ 4,941,681       $ 1,249,109
                                                                                =============== =================
Non-cash financing activities:
Accrued preferred stock dividend                                                   $   146,175       $   146,175
                                                                                =============== =================

The accompany notes are an integral part of these financials.

                                       4

                         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,  2001,  is  unaudited.  However,  such  information  includes  all
adjustments (consisting solely of normal recurring  adjustments),  which are, in
the opinion of  management,  necessary  for a fair  statement  of the results of
operations  for the interim  periods.  The results of operations for the interim
period are not  necessarily  indicative  of the  results to be  expected  for an
entire year.

     Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting  principles
have been  condensed  or omitted in this Form 10-Q  Report  pursuant  to certain
rules and regulations of the Securities and Exchange Commission. These financial
statements  should be read with the financial  statements  and notes included in
Parallel's 2001 Form 10-K.

     We account  for our  30.675%  interest  in First  Permian  using the equity
method of  accounting.  Under the  equity  method of  accounting,  we record our
investment in First Permian at cost on the balance  sheet.  This is increased or
reduced by our  proportionate  share of First Permian's income or loss, which is
presented as one amount in the statements of operations.

Reclassifications

     Certain reclassifications related to accrued preferred stock dividends have
been made to the 2001 amounts to conform to the 2002 presentation.

NOTE 2.  LONG TERM DEBT

Long-term debt consists of the following at March 31, 2002:

     Revolving Facility note payable to bank, at bank's base
       lending rate (5.0% at March 31, 2002)                     $12,565,589
     Less: current maturities                                      3,300,000
                                                                 -----------
                                                                 $ 9,265,589
                                                                 ===========

Schedules maturities of long-term debt at March 31, 2002 are
as follows:

     March 31, 2003                                               $ 3,300,000
     March 31, 2004                                                 3,600,000
     March 31, 2005                                                 3,600,000
     January 25, 2006                                               2,065,589
                                                                  -----------
                                                                  $12,565,589
                                                                  ===========

     Revolving  Credit  Facility.  On January 25, 2002,  Parallel entered into a
loan agreement with First American Bank ("New Revolving  Facility") to refinance
the  outstanding  indebtedness  with  our  former  lender.  Pursuant  to the New
Revolving  Facility,  Parallel  may  borrow  the  lesser of  $30,000,000  or the
"borrowing  base" then in effect.  The  borrowing  base at January  25, 2002 was
$13,000,000.  The

                                       5

borrowing  base  is  reduced  by a  monthly  commitment  reduction  of  $300,000
beginning May 1, 2002. At the closing of the loan  transaction,  the outstanding
balance  was  $12,065,589,  bearing  interest  at 5.00%.  The total  outstanding
principal  amount of our bank  indebtedness was $12,000,000 at December 31, 2001
and  $12,565,589 at March 31, 2002.  The borrowing  base and monthly  commitment
reduction are subject to  redetermination  semi-annually,  on or about May 1 and
November 1 of each year,  beginning May 1, 2002. The bank is currently reviewing
our borrowing base. The bank may require a redetermination of the borrowing base
and  monthly   commitment   reduction  at  any  time  in  its  sole  discretion.
Indebtedness  under  the  New  Revolving  Facility  matures  January  25,  2006.
Substantially  all of our  producing  properties  are  pledged  to the  bank  as
collateral for the payment and  performance of our  liabilities  and obligations
under the loan agreement.

     The unpaid principal balance for the New Revolving  Facility bears interest
at the election of Parallel at a rate equal to (i) the bank's base lending rate,
or (ii) the applicable Adjusted Eurodollar Rate, as defined in the New Revolving
Facility,  plus a margin of 2.75% during the related Eurodollar Interest Period,
as defined in the New Revolving Facility.  However,  the interest rate may never
be less than  5.00%.  Interest  is due and  payable on the day which the related
Eurodollar Interest Period ends.

     In addition to customary affirmative covenants, the loan agreement contains
various restrictive covenants and compliance requirements, including:

      o  Maintaining certain financial requirements;
      o  Limitations on additional indebtedness;
      o  Prohibiting the payment of dividends on our common stock;
      o  Limitations on the disposition of assets;
      o  Prohibiting liens (other than in favor of the bank) to exist on
           any of our properties; and
      o  Limitations on investments, mergers, forming subsidiaries, affiliate
           transactions, changes in accounting methods, rental and lease
           payments and derivative transactions.

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
semi-annually on June 15 and December 15 of each year. Each share of Convertible
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 Convertible  Preferred Stock has a
liquidation  preference  of $10 per share and has no  voting  rights,  except as
required by law. We may redeem the preferred  stock,  in whole or part,  for $10
per share plus accrued and unpaid dividends.

NOTE 4. INCOME TAX BENEFIT

     Income tax benefit in the amount of $478,727 was recorded in the Statements
of  Operations  which  resulted in a net  deferred  tax asset of $6.6 million at
March 31, 2002.  The sale of the oil and gas assets of First  Permian,  L.P. was
closed on April 8, 2002 and  resulted  in a pre-tax  gain of  approximately  $30
million; therefore, no valuation allowance has been established since we believe
all  the   available  net  operating   losses,   statutory   depletion  and  AMT
carryforwards  will be utilized to reduce the tax liability  associated with the
First Permian, L.P. gain.

NOTE 5. 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

                                      6

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

     At  March  31,  2002 our net book  value  of oil and gas  properties,  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 at that time.

NOTE 6. INVESTMENT IN FIRST PERMIAN, LLC

     For the three months ended March 31,  2002,  First  Permian had net loss of
$1,031,110. Our share of the net loss for the three months ended March 31, 2002,
was  $316,293.  At December 31, 2001,  we had  recorded  cumulative  earnings of
$840,529 in our  investment in First  Permian,  LLC because we had been released
from our $10,000,000  guaranty as of October 25, 2000 and had resumed the equity
method of  accounting  for our share of net income  associated  with our 30.675%
interest in First  Permian,  LLC.  Using the equity  method of  accounting,  our
investment  is  increased  or  decreased  by our  proportionate  share  of First
Permian's net income or loss.

     On March 7, 2002,  First  Permian  entered  into an  Agreement  of Sale and
Purchase  with  Energen  Resources  Corporation,  a wholly owned  subsidiary  of
Energen  Corporation  (Energen),  to sell  all of  First  Permian's  oil and gas
properties  for $120  million  in cash and  3,043,479  shares in  Energen  stock
approximating $70 million in value.  Energen is a publicly traded company listed
on the NYSE.  The  transaction  closed on April 8, 2002.  As a 30.675%  interest
owner in First Permian, Parallel received its prorata share of the net proceeds,
$5.5 million in cash and 933,589 shares of Energen stock.  At April 8, 2002, the
market value of Energen's stock was $27.40 per share.

     Commodity  Hedges.  First  Permian uses various  swap  contracts  and other
financial  instruments  to hedge  the  effect of prices  changes  on future  oil
production.

     The  following  table  sets forth  First  Permian's  outstanding  oil hedge
contracts at March 31, 2002:

        Type                 Volume/Month                  Term                    Price                 Commodity
       -----                 ------------                  ----                    -----                 ----------

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

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

     Interest Rate Swap  Agreements.  These  instruments  are used to reduce the
potential impact of increases in interest rates on floating-rate long-term debt.
At March 31, 2002,  First Permian was party to one interest rate swap  agreement
to provide it with a fixed  interest rate of 6.52% on $40,000,000 of a revolving
line of credit through July 1, 2002.

NOTE 7. DERIVATIVE INSTRUMENTS

     In January and February,  2002, we purchased put floors with a counterparty
to sell  notional  volumes of 210,000  Mcf of gas per month for the  seven-month
period  April,  2002 through  October,  2002,  at a floor price of $2.40 per Mcf
based on NYMEX pricing.  The cost of implementing  these hedges was $311,930 and
$79,179,  respectively,  or approximately  $56,000 per month for the seven-month
period. These derivatives are not held for trading purposes.

                                       7

    The  fair  value  of the put  floors  as of March  31,  2002  was  $51,426;
therefore, a $339,858 decrease in fair value was recognized as of March 31, 2002
in the Statements of Operations.

NOTE 8. NET INCOME PER COMMON SHARE

     Basic income per share is computed by dividing  income  available to common
stockholders by the weighted average number of common shares outstanding for the
period.  Diluted  income  per  share  reflects  the  assumed  conversion  of all
potentially dilutive securities.

                                                                  Three Months Ended
                                                                     March 31,
                                                        ----------------------------------------
                                                               2001                 2002
                                                        -------------------- -------------------
Basic EPS Computation:
Numerator-
Net income                                                      $ 4,635,922          $ (768,751)
Preferred stock dividend                                           (146,175)           (146,175)
                                                        -------------------- -------------------
Net income available to common
stockholders                                                    $ 4,489,747          $ (914,926)
                                                        ==================== ===================
Denominator-
Weighted average common shares
outstanding                                                      20,419,158          20,663,861
                                                        ==================== ===================
Basic earnings per share                                             $ 0.22             $ (0.04)
                                                        ==================== ===================
Diluted EPS Computation:
Numerator-
Net income                                                      $ 4,635,922          $ (768,751)
Preferred stock dividend                                                  -            (146,175)
                                                        -------------------- -------------------
Net income available to common
stockholders                                                    $ 4,635,922          $ (914,926)
                                                        ==================== ===================
Denominator-
Weighted average common shares
outstanding                                                      20,419,158          20,663,861
Employee stock options                                              489,180                   -
Preferred stock                                                   2,784,244                   -
                                                        -------------------- -------------------
                                                                 23,692,582          20,663,861
                                                        ==================== ===================
Diluted earnings per share                                           $ 0.20             $ (0.04)
                                                        ==================== ===================

                                       8

     Convertible  preferred stock equivalent  shares for the three-month  period
ended March 31, 2002 that could  potentially  dilute basic earnings per share in
the future were not included in the  computation  of diluted  earnings per share
because to do so would have been anti-dilutive.

NOTE 9: RECENTLY ANNOUNCED ACCOUNTING PRONOUNCEMENTS

     In July 2001 the  Financial  Accounting  Standards  Board  ("FASB")  issued
Statements of Financial Accounting Standards No. 141 "Business Combinations" and
No. 142 "Goodwill and Other Intangible  Assets." Statement 141 requires that all
business combinations  initiated after March 31, 2002 be accounted for under the
purchase  method and Statement 142 requires that goodwill no longer be amortized
to earnings, but instead be reviewed for impairment.  As of March 31, 2002 there
was no impact on Parallel's financial statements as we have not entered into any
business combination and have not acquired goodwill.

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

     On October 3, 2001, the FASB issued  Statement No. 144  "Accounting for the
Impairment or Disposal of Long-Lived Assets". This pronouncement  supersedes FAS
121  "Accounting  for the  Impairment  of Long-Lived  Assets and for  Long-Lived
Assets to Be Disposed Of" and  eliminates  the  requirement  of Statement 121 to
allocate goodwill to long-lived assets to be tested for impairment Statement 144
also describes a probability-weighted cash flow estimation approach to deal with
situations in which alternative courses of action to recover the carrying amount
of  long-lived  assets are under  consideration  or a range is estimated for the
amount  of  possible  future  cash  flows.  The  statement  also  establishes  a
"primary-asset"  approach to  determine  the cash flow  estimation  period for a
group of assets and  liabilities  that  represents  the unit of accounting for a
long-lived  asset to be held and used.  The  provisions of this  statement  were
adopted  with no impact on the  financial  statements  issued for  fiscal  years
beginning  after  December 15,  2001,  and interim  periods  within those fiscal
years.

NOTE 10. LEGAL PROCEEDINGS

     At March 31,  2002,  we were  involved  in one  lawsuit  incidental  to our
business.  In the opinion of  management,  the ultimate  outcome of this lawsuit
will not have a material  adverse  effect on  Parallel's  financial  position or
results of operations.  We are not aware of any other threatened litigation.  We
have  not  been  a  party  to  any  bankruptcy,  receivership,   reorganization,
adjustment or similar proceeding.

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

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

OVERVIEW

Strategy

     Our primary  strategy has been to build oil and gas  reserves,  production,
cash flow and  earnings  per share by  exploring  for new oil and gas  reserves,
acquiring oil and gas properties and optimizing production from existing oil and
gas properties. To achieve these objectives, we have:

      o  used advanced technologies to conduct exploratory and development
            activities;
      o  acquired producing properties we believe add incremental value to
            our asset base;
      o  attempted to keep debt levels low;

                                       9

      o  concentrated activities in core areas to achieve economies of scale;
            and
      o  emphasized cost controls.

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

     As a result of the sale of First Permian properties,  we now have available
additional  capital resources for pursuing our business  strategy.  By utilizing
these additional  capital  resources,  we believe we can more effectively pursue
our goal of increasing Parallel's per share net asset value.

     Investment  in First  Permian.  In  September  1999,  we joined  with three
privately held oil and gas companies to acquire oil and gas properties from Fina
Oil and Chemical Company.  The acquisition was effected through the formation of
First Permian,  which entered into a cash merger with a wholly owned  subsidiary
of Fina Oil and Chemical  Company.  The primary assets acquired by First Permian
in the merger 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 purchase was financed
primarily  with senior  secured  bank  borrowings  in the amount of $74 million,
proceeds of  subordinated  notes in the principal  amount of $16 million and the
remainder with proceeds from a simultaneous sale of minerals.

     First  Permian is owned by Parallel  and other  privately  held oil and gas
companies and individuals. As of March 31, 2002, Parallel owned a 30.675% common
membership  interest  in First  Permian.  We account  for our  interest in First
Permian using the equity method of accounting, under this accounting method, our
investment  is  increased  or  decreased  by our  proportionate  share  of First
Permian's net income or loss.  See Note 6 to our financial  statements  for more
discussion  about the  continuance  of the equity method of  accounting  for our
investment.

     On March 7, 2002,  First  Permian  entered  into an  Agreement  of Sale and
Purchase with an affiliate of Energen Corporation (Energen),  to sell all of its
oil and gas properties for $120 million in cash and 3,043,479  shares in Energen
stock  approximating $70 million in value.  Energen is a publicly traded company
listed on the  NYSE.  The  transaction  closed  on April 8,  2002.  As a 30.675%
interest owner in First Permian,  Parallel received its prorata share of the net
proceeds,  approximately  $5.5  million  in cash and  933,589  shares of Energen
stock.  At April 8, 2002,  the market  value of  Energen's  stock was $27.40 per
share.

     Operating  Performance.  Our operating performance is influenced by several
factors, the most significant of which are the prices we receive for our oil and
gas and production.  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.

                                       10

     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:

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

     For the three months ended March 31, 2002,  the sales price we received for
our crude oil  production  averaged  $21.20 per barrel  compared with $19.86 per
barrel for the three  months  ended  December 31, 2001 and $27.81 per barrel for
the three months ended March 31, 2001.  The average  sales price we received for
natural  gas for the  three  months  ended  March  31,  2002,  was $2.25 per mcf
compared  with $2.37 per mcf for the three  months  ended  December 31, 2001 and
$6.25 per mcf for the three months  ended March 31,  2001.  For the three months
ended  September 30, 2001, the average sales price we received for our crude oil
was $23.91 and for our natural gas was $4.02 per mcf.

     Our oil and gas producing  activities are accounted for using the full cost
method of  accounting.  Under this method,  we capitalize  all costs incurred in
connection  with the  acquisition of oil and gas properties and the  exploration
for and development of oil and gas reserves. See Note 5 to Financial Statements.
These  costs  include  lease  acquisition  costs,   geological  and  geophysical
expenditures,  costs of drilling both productive and  non-productive  wells, and
overhead  expenses  directly  related to land  acquisition  and  exploration and
development activities.  Proceeds from the disposition of oil and gas properties
are  accounted  for as a reduction in  capitalized  costs,  with no gain or loss
recognized  unless the 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.

                                       11

RESULTS OF OPERATIONS

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

      o  sources of production;
      o  product mix (oil vs. gas volumes); and
      o  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.

                                                                 Three Months Ended                         Three Months Ended
                                                             ----------------------------------------- -----------------------------
                                                                9-30-01      12-31-01       3-31-02        3-31-01        3-31-02
                                                             ------------ -------------- ------------- -------------- --------------
               Production and prices:
              Oil (Bbls)                                          36,211         28,021        30,161         34,914         30,161
              Natural gas (Mcf)                                  732,604        589,263       590,650      1,009,532        590,650
              Equivalent barrels of oil (EBO)                    158,312        126,232       128,603        203,169        128,603

              Oil price (per Bbl)                                $ 23.91        $ 19.86       $ 21.20        $ 27.81        $ 21.20
              Gas price (per Mcf)                                 $ 4.02         $ 2.37        $ 2.25         $ 6.25         $ 2.25
              Price per EBO                                      $ 24.08        $ 15.44       $ 15.33        $ 35.87        $ 15.33

              Results of operations per EBO:
              Oil and gas revenues                               $ 24.08        $ 15.44       $ 15.33        $ 35.87        $ 15.33
              Costs and expenses:
              Lease operating expense                               5.41           7.11          4.27           5.51           4.27
              General and administrative                            2.30           3.02          2.72           1.47           2.72
              Depreciation and depletion                            9.65          11.85         10.53           8.26          10.53
              Impairment of oil and gas properties                 13.75         116.00             -              -              -
                                                             ------------ -------------- ------------- -------------- --------------
               Total costs and expense                              31.11         137.98         17.52          15.24          17.52
                                                             ------------ -------------- ------------- -------------- --------------
              Operating income (loss)                              (7.03)       (122.54)        (2.19)         20.63          (2.19)
                                                             ------------ -------------- ------------- -------------- --------------

              Interest expense, net                                (0.85)         (1.05)        (1.11)         (1.02)         (1.11)
              Other income, net                                     0.12          (2.95)        (1.29)         (0.15)         (1.29)
                                                             ------------ -------------- ------------- -------------- --------------
                                                                   (0.73)         (4.00)        (2.40)         (1.17)         (2.40)
              Equity in earnings (loss) of First Permian,           2.79           3.16         (2.46)             -          (2.46)
                                                             ------------ -------------- ------------- -------------- --------------
                                                                    2.06          (0.84)        (4.86)         (1.17)         (4.86)
                                                             ------------ -------------- ------------- -------------- --------------
              Pretax income per EBO                                (4.97)       (123.38)        (7.05)         19.46          (7.05)
              Income tax expense (benefit)                         (1.86)        (43.63)        (3.72)         (3.35)         (3.72)
                                                             ------------ -------------- ------------- -------------- --------------
               Net income per EBO                                $ (3.11)      $ (79.75)      $ (3.33)       $ 22.81        $ (3.33)
                                                             ============ ============== ============= ============== ==============
              Net operating cash flow before
              working capital adjustments                        $ 15.64       $   1.31       $  3.48        $ 27.72        $  3.48
                                                             ============ ============== ============= ============== ==============

                                       12

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

                                                        Three Months Ended                      Three Months Ended
                                                    ---------------------------------------- --------------------------
                                                      9-30-01      12-31-01       3-31-02      3-31-01       3-31-02
                                                    ------------ -------------- ------------ ------------- ------------

Oil and gas revenues                                     100.0%         100.0%       100.0%        100.0%       100.0%
Costs and expenses:
Lease operating expense                                    22.5           46.1         27.9          15.4         27.9
General and administrative                                  9.5           19.5         17.7           4.1         17.7
Depreciation and depletion                                 50.6           76.7         68.7          23.0         68.7
Impairment of oil and gas properties                       46.5          751.4            -             -
                                                    ------------ -------------- ------------ ------------- ------------
Total costs and expenses                                  129.1          893.7        114.3          42.5        114.3
                                                    ------------ -------------- ------------ ------------- ------------

Operating income                                          (29.1)        (793.7)       (14.3)         57.5        (14.3)
                                                    ------------ -------------- ------------ ------------- ------------

Interest expense, net                                      (3.5)          (6.8)        (7.2)         (2.9)        (7.2)
Other income, net                                           0.5          (19.1)        (8.4)         (0.4)        (8.4)
                                                    ------------ -------------- ------------ ------------- ------------
                                                           (3.0)         (25.9)       (15.6)         (3.3)       (15.6)
                                                    ------------ -------------- ------------ ------------- ------------

Equity in earnings (loss) of First Permian, LLC            11.6           20.4        (16.0)            -        (16.0)
Change in FMV of Put Option                                   -              -        (17.2)            -        (17.2)
                                                    ------------ -------------- ------------ ------------- ------------
                                                           11.6           20.4        (33.2)            -        (33.2)
                                                    ------------ -------------- ------------ ------------- ------------

Pretax income                                             (20.5)        (799.2)       (63.1)         54.2        (63.1)
Income tax expense (benefit)                               (7.7)        (282.6)       (24.3)         (9.4)       (24.3)
                                                    ------------ -------------- ------------ ------------- ------------
Net income                                                (12.8)        (516.6)       (38.8)         63.6        (38.8)
                                                    ============ ============== ============ ============= ============

RESULTS  OF  OPERATIONS  FOR THE THREE  MONTHS  ENDED  MARCH 31,  2001 AND 2002:

     Oil and Gas Revenues. Oil and gas revenues decreased, $5,317,011 or 73%, to
$1,971,191  for the three months ended March 31, 2002,  from  $7,288,202 for the
same period of 2001.  The decrease was primarily the result of a 37% decrease in
oil and gas production and a 57% decrease in the average sales price per EBO. We
received  $15.33 per EBO in the three months ended March 31, 2002  compared with
$35.87 per EBO for the same period of 2001.

     Production Costs.  Production costs decreased  $569,689 or 51%, to $549,376
during the three months ended March 31, 2002,  compared with  $1,119,065 for the
same period of 2001.  The decrease  was  primarily  attributable  to lower lease
operating costs. Average production costs per EBO decreased 23% to $4.27 for the
three  months  ended March 31, 2002  compared  with $5.51 for the same period in
2001.

     General and Administrative  Expenses.  General and administrative  expenses
increased  by $51,556,  or 17%, to $349,764 for the three months ended March 31,
2002 from  $298,208 for the same period of 2001.  The increase was primarily due
to higher legal and public  reporting  costs and  franchise  taxes.  General and
administrative  expenses were $2.72 per EBO for the three months ended March 31,
2002, compared to $1.47 per EBO for the same period of 2001.

                                       13

     Depreciation, Depletion and Amortization Expense. Depreciation, depletion
and amortization expense ("DD&A") decreased by $323,190, or 19%, to
$1,354,630 for the three months ended March 31, 2002 compared with $1,677,820
for the same period of 2001 primarily because of a 37% decrease in production
volumes. As a percentage of revenues, DD&A increased to 69% compared to 23%
last year, a result of a decrease in the average sales price per EBO we received
in the first quarter of 2002. The DD&A rate per EBO increased to $10.53 for
the first quarter of 2002 compared with $8.26 per EBO for the first quarter of
2001. The increase in the DD&A rate per EBO, when compared with the same
quarter a year ago, is attributable to an increase in net depletable property
basis and a decrease in reserves as of fiscal year-end 2001.

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

     Equity in Earnings  (Loss) of First Permian,  LLC. At December 31, 2001, we
had recorded cumulative earnings of $840,529 in our investment in First Permian,
LLC because we had been released from the $10,000,000 guaranty as of October 25,
2000 and had resumed the equity method of accounting for our share of net income
associated with our 30.675% interest in First Permian, LLC. For the three months
ended March 31, 2002, First Permian had net loss of $1,031,110. Our share of the
net loss for the three months ended March 31, 2002, was $316,293.

     Net  Interest  Expense.  Interest  expense  decreased  $65,129,  or 31%, to
$142,679 for the three months ended March 31, 2002  compared  with  $207,808 for
the same period of 2001 due a decrease in the bank's prime rate.

     Income Tax Benefit. Our effective tax rate for the three months ended March
31, 2002 is 38%. For further discussion see Note 4.

     Net  Income  (Loss)  and Cash Flow from  Operations.  Our net loss,  before
preferred  stock  dividends,  was  $768,751 for the three months ended March 31,
2002 compared  with a net income of $4,635,922  for the three months ended March
31, 2001. The decrease in net income and operating cash flow resulted  primarily
from a 73%  decrease in oil and gas  revenues,  because of a 57% decrease in the
average  sales  price we received  per EBO,  and a 37%  decrease  in  production
volumes.

     Cash flow from  operations  for three months ended March 31, 2002 decreased
approximately  $5,783,241 to a deficit of $247,049  compared with $5,536,192 for
the three  months ended March 31, 2001.  The decrease was  primarily  associated
with the $5,404,673  decrease in net income and an $864,538 decrease in accounts
payable and accrued liabilities.

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 prices we
receive for oil and natural gas we produce.

     Working  capital  decreased  $2,489,481  as of March 31, 2002 compared with
December 31, 2001. Current liabilities  exceeded current assets by $3,076,322 at
March 31, 2002  compared  with  $586,841 at December 31, 2001.  Working  capital
decreased  primarily due to a decrease in current  assets of  $2,307,844  and an
increase of $181,637 in current liabilities.

     We incurred net  property  costs of  $2,420,475  for the three months ended
March 31, 2002, primarily for our oil and gas property acquisition, development,
and enhancement activities.  Such costs were financed by the utilization of cash
flows provided by operations.

                                       14

     Based on our projected oil and gas revenues and related expenses, available
bank  borrowings,  and the cash and  marketable  securities we received from the
sale of First  Permian's  properties,  we believe  that we will have  sufficient
capital  resources to fund normal  operations,  interest  expense and  principal
reduction payments on bank debt, if required, and preferred stock dividends.  We
continually review and consider alternative methods of financing.

TRENDS AND PRICES

     Changes in oil and gas prices significantly affect our revenues, cash flows
and borrowing capacity. Markets for oil and gas have historically been, and will
continue to be, volatile. Prices for oil and gas typically fluctuate in response
to relatively minor changes in supply and demand, market uncertainty,  seasonal,
political  and other  factors  beyond our control.  We are unable to  accurately
predict  domestic  or  worldwide  political  events or the effects of other such
factors on the prices we receive for our oil and gas. As described under Item 3,
in January  2002 we  implemented  a hedging  strategy of  purchasing  put floors
covering a portion of our natural gas production.

     Our capital  expenditure budgets are highly dependent on future oil and gas
prices and will be consistent with internally generated cash flows.

     During fiscal year 2001 the average sales price we received for our oil was
approximately  $24.80 per barrel while the average  sales prices we received for
natural gas was  approximately  $4.41 per thousand  cubic feet ("Mcf").  For the
three  months ended March 31,  2002,  the average  price we received for our oil
production was approximately $21.20 per Bbl, while the average price received at
that same date for our natural gas production was approximately $2.25 per Mcf.

FORWARD-LOOKING STATEMENTS

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

                                       15

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Our only financial instrument sensitive to changes in interest rates is our
bank debt. Our annual interest costs in 2002 could 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 March, 2002.

                                       March         March        March       January                      Fair
                                       2003          2004         2005          2006         Total        Value
                                    ------------  ------------ ------------ ------------- ------------ -------------
                                                         (In 000's, except interest rates)

Variable rate debt:
Revolving facility (secured)            $ 3,300       $ 3,600      $ 3,600       $ 2,066     $ 12,566      $ 12,566
Average interest rate                     5.00%         5.00%        5.00%         5.00%

     At  February  1,  2002,  we had bank  loans in the  amount  of  $12,565,589
outstanding  at an  average  interest  rate of 5.00%.  Borrowings  under our new
credit facility bear interest,  at our election,  at (i) the bank's base rate or
(ii) the  Eurodollar  rate,  plus 2.75%,  but in no event less than 5.00%.  As a
result,  our annual  interest costs in 2002 could  fluctuate based on short-term
interest rates.  Assuming no change in the amount  outstanding  during 2002, the
impact on interest  expense of a one-half  of one percent  change in the average
interest  rate above the 5.00%  floor  would be  approximately  $62,828.  As the
interest rate is variable and is reflective of current  market  conditions,  the
carrying value approximates the fair value.

     Our major market risk exposure is in the pricing  applicable to our oil and
natural gas  production.  Market  risk  refers to the risk of loss from  adverse
changes in oil and natural gas prices.  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 $16.81 per barrel
to a monthly  high of $33.95  per  barrel  during  2001.  Natural  gas prices we
received  during  2001  ranged  from a monthly low of $1.08 per Mcf to a monthly
high of $11.81 per Mcf.  During the first  quarter 2002 oil prices ranged from a
monthly  low of  $16.04 to a  monthly  high of  $26.74.  Natural  gas  prices we
received  during  2002  ranged  from a monthly low of $1.05 per Mcf to a monthly
high of $3.80 per Mcf. A significant decline in the prices of natural gas or oil
could have a material  adverse effect on our financial  condition and results of
operations.

     Historically,  we have not entered into hedging  arrangements  and have not
had any delivery  commitments.  While hedging  arrangements  reduce  exposure to
losses as a result of unfavorable price changes, they may also limit the ability
to benefit from favorable market price changes.  However, in January,  2002, our
Board  determined  that Parallel should hedge natural gas prices for one-half of
its natural gas production. After reviewing alternative strategies, we purchased
put  options  on gas  prices to create a sales  price  floor for part of our gas
production.  We believe put floors  provide us with the  advantage  of no margin
requirements,  participating in the upside of potential increases in natural gas
prices and  establishing a minimum selling price at a fixed cost.  However,  put
floors can also be  expensive  if markets do not  change,  and in most cases the
protection of a floor will not be  immediately  realized at current  levels.  In
January and February,  2002, we purchased put floors with a counterparty to sell
notional  volumes of  210,000  Mcf of gas per month for the  seven-month  period
April,  2002 through  October,  2002, at a floor price of $2.40 per Mcf based on
NYMEX pricing.  The cost of implementing  these hedges was $311,930 and $79,179,
respectively,  or  approximately  $56,000 per month for the seven-month  period.
These derivatives are not held for trading purposes.

     The  fair  value  of the put  floors  as of March  31,  2002  was  $51,426;
therefore, a $339,858 decrease in fair value was recognized as of March 31, 2002
in the Statements of Operations.

                                       16

     The following table  illustrations our gas hedge,  which we entered into in
the first quarter of 2002.

                                                                       Average
                                                                       Cost of
                        Mcf Per                                       Floor per
       Period             Day         Total Mcf       Commodity          Mcf
--------------------- ------------- --------------- -------------- -------------

April 2002                   7,000         210,000  natural gas        $ 0.2893

May 2002                     7,000         210,000  natural gas        $ 0.2657

June 2002                    7,000         210,000  natural gas        $ 0.2486

July 2002                    7,000         210,000  natural gas        $ 0.2414

August 2002                  7,000         210,000  natural gas        $ 0.2479

September 2002               7,000         210,000  natural gas        $ 0.2679

October 2002                 7,000         210,000  natural gas        $ 0.2751

                           PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     At March 31,  2002,  we were  involved  in one  lawsuit  incidental  to our
business.  In the opinion of  management,  the ultimate  outcome of this lawsuit
will not have a material  adverse  effect on  Parallel's  financial  position or
results of operations.  We are not aware of any other threatened litigation.  We
have  not  been  a  party  to  any  bankruptcy,  receivership,   reorganization,
adjustment or similar proceeding.

ITEM 6. EXHIBIT AND REPORTS ON FORM 8-K

(a)         Exhibits

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

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

     3.2  Bylaws of  Registrant  (Incorporated  by reference to Exhibit 3 to the
          Registrant's  Form 8-K,  dated  October  9,  2000,  as filed  with the
          Securities and Exchange Commission on October 10, 2000.)

     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.)

                                       17

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

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

Executive Compensation Plans and Arrangements (Exhibit No.'s 10.1 through
10.10):

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

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

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

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

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

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

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

     10.8 2001  Non-employee   Directors  Stock  Option  Plan  (Incorporated  by
          reference  to  Exhibit  10.8 of Form  10-Q of the  Registrant  for the
          fiscal quarter ended June 30, 2001.)

     10.9 Form of Incentive Award Agreements,  dated December 12, 2001,  between
          the  Registrant  and Thomas R.  Cambridge,  Larry C.  Oldham,  Eric A.
          Bayley and John S. Rutherford granting 2,394 Unit Equivalent Rights to
          Mr. Cambridge;  9,564 Unit Equivalent Rights to Mr. Oldham; 2,869 Unit
          Equivalent  Rights to Mr. Bayley;  and 7,173 Unit Equivalent Rights to
          Mr.  Rutherford.  (Incorporated  by  reference  to Exhibit 10.8 of the
          Registrant's  Form 10-K Report for the fiscal year ended  December 31,
          2001).

    10.10 Form of Change of Control Agreements,  dated June 1, 2001, between the
          Registrant and Thomas R.  Cambridge,  Larry C. Oldham,  Eric A. Bayley
          and John S. Rutherford.  (Incorporated by reference to Exhibit 10.9 of
          the  Registrant's  Form 10-K Report for the fiscal year ended December
          31, 2001).

                                       18

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

    10.12 Restated  Loan  Agreement   dated  December  18,  2000,   between  the
          Registrant and Bank One,  Texas,  N.A.  (Incorporated  by reference to
          Exhibit 10.8 of Form 10-K of the  Registrant for the fiscal year ended
          December 31, 2000.)

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

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

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

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

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

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

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

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

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

    10.22 Intercreditor  Agreement,  dated as of June  30,  1999,  by and  among
          First  Permian,  L.L.C.,  Bank One,  Texas,  N.A.,  Tejon  Exploration
          Company,  and  Mansefeldt  Investment  Corporation   (Incorporated  by
          reference  to Exhibit 10.8 of the  Registrant's  Form 8-K report dated
          June 30, 1999.)

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

                                     19

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

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

    10.26 Loan  Agreement,  dated January 25, 2002,  between the  Registrant and
          First American Bank, SSB  (Incorporated  by reference to Exhibit 10.25
          of Form 10-K for the fiscal year ended December 31, 2001.)

     (b)  Reports on Form 8-K

          On March 22, 2002,  one report on Form 8-K,  dated March 21, 2002, was
          filed  which  reported  First  Permian,  LLC  having  entered  into an
          agreement with Energen  Corporation to sell all of First Permian's oil
          and gas properties to Energen Corporation for $120 million in cash and
          approximately $70 million in common stock of Energen  Corporation.  As
          of the date of this Form 10-Q  Report,  financial  statements  had not
          been filed with the Form 8-K Report, but will be filed as an amendment
          to the Form 8-K not later than May 21, 2002.

                                       20

                                   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:  May 15, 2002                  -------------------------------------------
                                     Thomas R. Cambridge
                                     Chairman of the Board of Directors
                                     and Chief Executive Officer

Date:  May 15, 2002                  BY: /s/ Larry C. Oldham
                                     -------------------------------------------
                                     Larry C. Oldham,
                                     President and Principal Financial Officer

                                       21
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