UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

(Mark One)

[x]  Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934

                For the quarterly period ended March 31, 2005 or

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

                         Commission File Number 0-13305

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

               DELAWARE                               75-1971716
     -------------------------------      ------------------------------------
     (State of other jurisdiction of      (I.R.S. Employer Identification No.)
      incorporation or organization)

     1004 N. Big Spring, Suite 400,
            Midland, Texas                               79701
----------------------------------------               ----------
(Address of principal executive offices)               (Zip Code)

                                 (432) 684-3727
              -----------------------------------------------------
              (Registrant's telephone number, including area code)

                                 Not Applicable
              ----------------------------------------------------
              (Former name, former address and former fiscal year,
                          if changed since last report)

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

              Yes        x                        No
                       ------                         ------

         Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).

              Yes        x                        No
                       ------                         ------

         At May 4, 2005, 31,189,292 shares of the registrant's common stock,
$0.01 par value, were outstanding.


<PAGE>

                                      INDEX



                         PART I. - FINANCIAL INFORMATION
                                                                       Page No.
                                                                       --------
ITEM 1. FINANCIAL STATEMENTS

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

        - Consolidated Balance Sheets as of March 31, 2005
          (unaudited) and December 31, 2004 ................................1

        - Unaudited Consolidated Statements of Operations for the three
          months ended March 31, 2005 and 2004..............................2

        - Unaudited Consolidated Statements of Cash Flows for the
          three months ended March 31, 2005 and 2004........................3

        - Unaudited Consolidated Statements of Comprehensive Income (Loss)
          for the three months and ended March 31, 2005 and 2004............4

        - Notes to Consolidated Financial Statements........................5




ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
        CONDITION AND RESULTS OF OPERATIONS...............................14

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK........31

ITEM 4. CONTROLS AND PROCEDURES...........................................34

                          PART II. - OTHER INFORMATION



ITEM 1. LEGAL PROCEEDINGS.................................................34

ITEM 6. EXHIBITS..........................................................35

SIGNATURES



                                      (i)
<PAGE>

                             PARALLEL PETROLEUM CORPORATION
                               Consolidated Balance Sheets
                                 (dollars in thousands)
<table>
                                                                                              March 31,     December 31,
                                         Assets                                                  2005            2004
                                                                                            -------------- ---------------
                                                                                            (unaudited)

                                                                                          <c>             <c>
Current assets:
  Cash and cash equivalents                                                                    $   3,152       $   4,781

  Accounts receivable:
    Oil and gas                                                                                    6,747           6,642
    Other, net of allowance for doubtful account of $9                                               790             389
    Affiliates                                                                                         5               7
                                                                                               ---------       ---------
                                                                                                   7,542           7,038
  Other current assets                                                                               104             179
  Deferred tax asset                                                                               4,941           2,531
                                                                                               ---------       ---------
       Total current assets                                                                       15,739          14,529
                                                                                               ---------       ---------
Property and equipment, at cost:
  Oil and gas properties, full cost method                                                       235,256         229,245
  Other                                                                                            2,445           2,062
                                                                                               ---------       ---------
                                                                                                 237,701         231,307
  Less accumulated depreciation, depletion and amortization                                      (81,064)        (78,782)
                                                                                               ---------       ---------
       Net property and equipment                                                                156,637         152,525

Restricted cash                                                                                        -           2,287
Investment in Westfork Pipeline Company LP                                                           761             595
Other assets, net of accumulated amortization of $662 and $581                                       687             735
                                                                                               ---------       ---------
                                                                                               $ 173,824       $ 170,671
                                                                                               =========       =========
                      Liabilities and Stockholders' Equity


Current liabilities:
  Accounts payable and accrued liabilities                                                     $   5,988       $   5,568
  Asset retirement obligations                                                                       135             150
  Derivative obligations                                                                          15,827           7,965
                                                                                               ---------       ---------
       Total current liabilities                                                                  21,950          13,683
                                                                                               ---------       ---------
Revolving credit facility                                                                         50,000          79,000
Asset retirement obligations                                                                       1,977           1,982
Derivative obligations                                                                            24,107           9,525
Deferred tax liability                                                                             1,764           6,487
                                                                                               ---------       ---------
       Total long-term liabilities                                                                77,848          96,994
                                                                                               ---------       ---------
Commitments and contingencies

Stockholders' equity:
  Series A preferred stock -- par value $0.10 per share, authorized 50,000 shares                      -               -
  Preferred stock -- 6% convertible preferred stock -- par value of $0.10 per share
    (liquidation preference of $10 per share), authorized 10,000,000 shares,
    issued and outstanding 950,000                                                                    95              95
  Common stock -- par value $0.01 per share, authorized 60,000,000 shares,
    issued and outstanding 31,189,292 and 25,439,292                                                 312             254
  Additional paid-in capital                                                                      76,163          48,328
  Retained earnings                                                                               21,523          22,073
  Accumulated other comprehensive loss                                                           (24,067)        (10,756)
                                                                                               ---------       ---------

       Total stockholders' equity                                                                 74,026          59,994
                                                                                               ---------       ---------

                                                                                               $ 173,824       $ 170,671
                                                                                               =========       =========
</table>

The accompanying notes are an integral part of these Consolidated Financial
Statements.




                                      (1)

<PAGE>

                       PARALLEL PETROLEUM CORPORATION
                    Consolidated Statements of Operations
               For three months ended March 31, 2005 and 2004
                                 (unaudited)
                (dollars in thousands, except per share data)
<table>
                                                                                      2005              2004
                                                                                   -----------      ------------


                                                                                <c>                <c>
Oil and Natural Gas Revenues:
  Oil and natural gas sales                                                          $ 12,969         $   9,106
  Loss on hedging and derivatives                                                      (3,212)           (1,105)
                                                                                     --------         ---------
     Total revenues                                                                     9,757             8,001
                                                                                     --------         ---------

Cost and expenses:
  Lease operating expense                                                               2,558             1,529
  Production taxes                                                                        580               478
  General and administrative                                                            1,688             1,222
  Depreciation, depletion and amortization                                              2,282             2,077
                                                                                    ---------         ---------
     Total costs and expenses                                                           7,108             5,306
                                                                                    ---------         ---------
     Operating income                                                                   2,649             2,695
                                                                                    ---------         ---------

Other income (expense), net:
  Loss on ineffective portion of hedges                                                (2,276)              (10)
  Interest and other income                                                                19               140
  Interest expense                                                                     (1,138)             (468)
  Other expense                                                                            (1)              (26)
  Equity loss in Westfork Pipeline Company LP                                             (79)                -
                                                                                    ---------         ---------
     Total other expense, net                                                          (3,475)             (364)
                                                                                    ---------         ---------
     Income (loss) before income taxes                                                   (826)            2,331
Income tax benefit (expense), deferred                                                    276              (849)
                                                                                    ---------         ---------
     Net income (loss)                                                                   (550)            1,482
Cumulative preferred stock dividend                                                      (143)             (143)
                                                                                    ---------         ---------
     Net income (loss) available to common stockholders                             $    (693)        $   1,339
                                                                                    =========         =========

Net income (loss) per common share:
  Basic                                                                             $   (0.02)        $    0.05
                                                                                    =========         =========
  Diluted                                                                           $   (0.02)        $    0.05
                                                                                    =========         =========

Weighted average common share outstanding:
  Basic                                                                                28,698            25,223
                                                                                    =========         =========
  Diluted                                                                              28,698            28,267
                                                                                    =========         =========

</table>

The accompanying notes are an integral part of these Consolidated Financial
Statements.



                                     (2)
<PAGE>

                             PARALLEL PETROLEUM CORPORATION
                         Consolidated Statements of Cash Flows
                       Three Months Ended March 31, 2005 and 2004
                                      (unaudited)
                                 (dollars in thousands)

<table>
                                                                                               2005                2004
                                                                                            ---------           ---------

                                                                                            <c>              <c>
Cash flows from operating activities:
  Net income (loss)                                                                         $     (550)         $   1,482
Adjustments to reconcile net income (loss) to net cash
  provided by operating activities:
    Depreciation, depletion and amortization                                                     2,282              2,077
    Accretion of asset retirement obligation                                                        26                 33
    Deferred income tax                                                                           (276)               849
    Loss on ineffective portion of hedges                                                        2,276                 10
    Stock option expense                                                                            42                 41
    Equity loss in Westfork Pipeline Company LP                                                     79                  -

Changes in assets and liabilities:
    Other, net                                                                                      48                (67)
    Increase in accounts receivable                                                               (504)              (144)
    Decrease (increase) in other current assets                                                     75                (11)
    Increase (decrease) in accounts payable and accrued liabilities                                277               (298)
                                                                                            ----------          ---------
      Net cash provided by operating activities                                                  3,775              3,972
                                                                                            ----------          ---------
Cash flows from investing activities:
  Additions to oil and gas property                                                             (8,596)            (7,626)
  Use of restricted cash for acquisition of oil and gas properties                               2,287                  -
  Proceeds from disposition of oil and gas properties                                            2,539                 25
  Additions to other property and equipment                                                       (383)              (360)
  Investment in Westfork Pipeline Company LP                                                      (245)                 -
                                                                                            ----------          ---------
      Net cash used in investing activities                                                     (4,398)            (7,961)
                                                                                            ----------          ---------
Cash flows from financing activities:
  Net borrowing (payments) on revolving line of credit                                         (29,000)            (9,750)
  Proceeds (net) from common stock issued                                                       27,994                  -
  Deferred stock offering costs                                                                      -                 (7)
                                                                                            ----------          ---------
      Net cash used in financing activities                                                     (1,006)            (9,757)
                                                                                            ----------          ---------
      Net decrease in cash and cash equivalents                                                 (1,629)           (13,746)
Cash and cash equivalents at beginning of period                                                 4,781             17,378
                                                                                            ----------          ---------
Cash and cash equivalents at end of period                                                  $    3,152          $   3,632
                                                                                            ==========          =========
Non-cash financing and investing activities:
  Oil and gas properties asset retirement obligation                                        $      (46)         $     130
  Accrued preferred stock dividend                                                          $      143          $     143

</table>

The accompanying notes are an integral part of these Consolidated Financial
Statements.

                                      (3)

<PAGE>

                        PARALLEL PETROLEUM CORPORATION
            Consolidated Statements of Comprehensive Income (Loss)
                  Three Months Ended March 31, 2005 and 2004
                                 (unaudited)
                            (dollars in thousands)

<table>
                                                                                     2005               2004
                                                                                   ---------          ---------

                                                                                <c>                <c>
Net income (loss)                                                                  $    (550)         $    1,482


Other comprehensive loss:
  Unrealized losses on derivatives                                                   (23,480)             (4,353)
  Reclassification adjustments for losses
    on derivatives included in net income (loss)                                       3,312               1,219
                                                                                   ---------          ----------
   Change in fair value of derivatives                                               (20,168)             (3,134)
   Income tax benefit                                                                  6,857               1,072
                                                                                   ---------          ----------

Total other comprehensive loss                                                       (13,311)             (2,062)
                                                                                   ---------          -----------

Total comprehensive loss                                                           $ (13,861)         $     (580)
                                                                                   =========          ===========

</table>



The accompanying notes are an integral part of these Consolidated Financial
Statements.



                                      (4)

<PAGE>

                         PARALLEL PETROLEUM CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1. DESCRIPTION OF BUSINESS - NATURE OF OPERATIONS AND BASIS OF PRESENTATION

         Parallel was incorporated in Texas on November 26, 1979, and
reincorporated in the State of Delaware on December 18, 1984.

         We are engaged in the acquisition, development and exploitation of long
life oil and natural gas reserves and, to a lesser extent, the exploration for
new oil and natural gas reserves. Our activities are focused in the Permian
Basin of west Texas and New Mexico, Liberty County in east Texas and the onshore
Gulf Coast area of south Texas. We are actively evaluating, leasing and drilling
new projects located in New Mexico, the Fort Worth Basin of Texas, the Cotton
Valley Reef trend of east Texas and the Uinta Basin of Utah.

         The financial information included herein is unaudited, except the
balance sheet as of December 31, 2004 which has been derived from our audited
Consolidated Financial Statements as of December 31, 2004. 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 2004 amounts have been reclassified
to conform to the 2005 financial statement presentation.

         Certain information, accounting policies and footnote disclosures
normally included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America 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 in conjunction with the audited consolidated financial
statements and notes included in our Annual Report on Form 10-K for the year
ended December 31, 2004.

         Unless otherwise indicated or unless the context otherwise requires,
all references in this Quarterly Report on Form 10-Q to "Parallel", "we", "us",
and "our" are to Parallel Petroleum Corporation and its consolidated
subsidiaries, Parallel L.P. and Parallel, L.L.C.

NOTE 2. STOCKHOLDERS' EQUITY

         Options

         In September, 2003, Parallel adopted the provisions of Statement of
Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation
- Transition and Disclosure, an amendment to SFAS No. 123, whereby certain
transitional alternatives are

                                      (5)

<PAGE>

available for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. Parallel used the prospective method
which applied prospectively the fair value recognition method to all employee
and director awards granted, modified or settled after the beginning of the
fiscal year in which the fair value based method of accounting for stock-based
compensation was adopted. The potential impact of using the fair value method
for all options, on a pro forma basis, is presented in the table that follows.

         For the three months ended March 31, 2005 and 2004, Parallel recognized
compensation expense of approximately $42,000 associated with its stock option
grants. No options were granted during the quarter ended March 31, 2005 or the
quarter ended March 31, 2004.

         The following table illustrates the effect on net income (loss) and
earnings (loss) per share as if the fair value based method had been applied to
all outstanding and unvested awards in each period. The fair value of each grant
is estimated on the date of grant using the Black-Scholes option-pricing model.

<table>
                                                                              Three Months Ended
                                                                                 March 31,
                                                                      ---------------------------------
                                                                        2005                     2004
                                                                      ---------               ---------
                                                                 (dollars in thousands except per share data)


                                                                   <c>                      <c>
Net income (loss), as reported                                        $    (550)              $   1,482

Add:
  Expense recorded in 2005 and 2004                                          42                      42

Deduct:
  Total stock-based employee compensation expense
    determined under fair value based method for all awards,
    net of related tax effects                                              (48)                    (48)
                                                                      ---------               ---------
       Pro forma net income (loss)                                    $    (556)              $   1,476
                                                                      =========               =========

Earnings (loss) per share:
  Basic -- as reported                                                $   (0.02)              $    0.05
                                                                      =========               =========
  Basic -- pro forma                                                  $   (0.02)              $    0.05
                                                                      =========               =========

  Diluted -- as reported                                              $   (0.02)              $    0.05
                                                                      =========               =========
  Diluted --  pro forma                                               $   (0.02)              $    0.05
                                                                      =========               =========
</table>


Sale of Equity Securities

         On February 9, 2005, we sold 5,750,000 shares of our common stock, $.01
par value per share, pursuant to a public offering at a price of $5.27 per
share. Gross cash proceeds were $30.3 million, and net proceeds were
approximately $28.0 million. The common shares were issued under Parallel's
$100.0 million Universal Shelf Registration Statement on Form S-3 which


                                      (6)

<PAGE>


became effective in November 2004. The proceeds were used to reduce the
revolving credit facility.

NOTE 3. REVOLVING CREDIT FACILITY

         On April 1, 2005, we entered into the Second Amendment to Second
Amended and Restated Credit Agreement (or the "Credit Agreement") with Citibank
Texas, N.A. (formerly known as First American Bank, SSB, and referred to in this
report as "Citibank"), BNP Paribas, Citibank, F.S.B. and Western National Bank.

         The Credit Agreement provides for a revolving credit facility which
means that we can borrow, repay and reborrow funds drawn under the credit
facility. The total amount that we can borrow and have outstanding at any one
time is limited to the lesser of $200.0 million or the "borrowing base"
established by our lenders. Our current borrowing base is $90.0 million. The
principal amount outstanding under the credit facility at March 31, 2005 was
$50.0 million, excluding $350,000 reserved for our letters of credit. The amount
of the borrowing base is based primarily upon the estimated value of our oil and
gas reserves. The borrowing base amount is redetermined by the lenders
semi-annually on or about April 1 and October 1 of each year or at other times
required by the lenders or at our request. If, as a result of the lenders'
redetermination of the borrowing base, the outstanding principal amount of our
loan exceeds the borrowing base, we must either provide additional collateral to
the lenders or repay the principal of the note in an amount equal to the excess.
Except for the principal payments that may be required because of our
outstanding loans being in excess of the borrowing base, interest only is
payable monthly.

         Loans made to us under this credit facility bear interest at Citibank's
base rate or the LIBOR rate, at our election. Generally, Citibank's base rate is
equal to the "prime rate" published in the Wall Street Journal. At March 31,
2005, Parallel had no base set loans outstanding under the credit facility.

         The LIBOR rate is generally equal to the sum of (a) the rate designated
as "British Bankers Association Interest Settlement Rates" and offered on one,
two, three, six or twelve month interest periods for deposits of $1.0 million,
and (b) a margin ranging from 2.25% to 2.75%, depending upon the outstanding
principal amount of the loans. If the principal amount outstanding is equal to
or greater than 75% of the borrowing base, the margin is 2.75%. If the principal
amount outstanding is equal to or greater than 50%, but less than 75% of the
borrowing base, the margin is 2.50%. If the principal amount outstanding is less
than 50% of the borrowing base, the margin is 2.25%. At March 31, 2005, the
average interest rate on our LIBOR rate loans was 5.0%

         The interest rate we are required to pay on our borrowings, including
the applicable margin, may never be less than 4.50%. At March 31, 2005, our
Libor interest rate was 5.05% on $31.0 million and 5.04% on $19.0 million. We
obtain different interest rates on bank base rates and on each LIBOR tranche.

         In the case of base rate loans, interest is payable on the last day of
each month. In the case of LIBOR loans, interest is payable on the last day of
each applicable interest period.

                                      (7)

<PAGE>

         If the total outstanding borrowings under the credit facility are less
than the borrowing base, an unused commitment fee is required to be paid to the
lenders. The amount of the fee is .25% of the daily average of the unadvanced
amount of the borrowing base. The fee is payable quarterly.

         If the borrowing base is increased, we are required to pay a fee of
..375% on the amount of any increase in the borrowing base.

         Parallel, L.L.C., a subsidiary of Parallel Petroleum Corporation,
guaranteed payment of the loans.

         Parallel's obligations to the lenders are secured by substantially all
of its oil and gas properties.

         All outstanding principal under the revolving credit facility is due
and payable on December 20, 2008. The maturity date of our outstanding loans may
be accelerated by the lenders upon the occurrence of an event of default under
the Credit Agreement.

         The Credit Agreement contains various restrictive covenants and
compliance requirements as follows:

          .    at the end of each quarter, a current ratio (as defined in the
               credit agreement) of at least 1.1 to 1.0;

          .    for each period (as calculated in the Credit Agreement) ending on
               December 31, March 31, June 30 and September 30, a funded debt
               ratio (as defined in the Credit Agreement) of not more than 3.70,
               3.60 and 3.50, respectively, for December 31, 2005, 2006 and
               2007; and

          .    at all times, adjusted consolidated net worth (as defined in the
               Credit Agreement) of at least (a) $50.0 million, plus (b)
               seventy-five percent (75%) of the net proceeds from any equity
               securities issued by Parallel, plus (c) fifty percent (50%) of
               consolidated net income for each fiscal quarter, if positive, and
               zero percent (0%) if negative.

         As of March 31, 2005 we were in compliance with all covenants.

         The Credit Agreement also contains restrictions on all retained
earnings and net income for payment of dividends on common stock.

         If we have borrowing capacity under our Credit Agreement, we intend to
borrow, repay and reborrow under the revolving credit facility from time to time
as necessary, subject to borrowing base limitations, to fund:


                                      (8)

<PAGE>

          .    interpretation and processing of 3-D seismic survey data;

          .    lease acquisitions and drilling activities;

          .    acquisitions of producing properties or companies owning
               producing properties; and,

          .    general corporate purposes.

NOTE 4. ACQUISITIONS

         In September and October 2004, with two separate transactions, we
purchased additional non-operated working interest in the Fullerton Field
properties. The net purchase price for these transactions was approximately
$20.9 million.

         In October and December 2004, we purchased properties in the Carm-Ann
San Andres and North Means Queen Unit located in Andrews and Gaines counties,
Texas. The combined net purchase price was approximately $16.5 million. In the
first quarter of 2005, we acquired additional interest in these properties for a
net purchase price of approximately $2.3 million.

         The unaudited pro forma results summarized below reflects our
consolidated pro forma results of operations for the three months ended March
31, 2004, assuming these acquisitions were consummated on January 1, 2004.


<table>
                                                                  Three Months Ended
                                                                      March 31,
                                                        ----------------------------------------
                                                                                 Pro Forma
                                                               2005                 2004
                                                        -------------------- -------------------
                                                        (in thousands, except per share data)


                                                      <C>                 <C>
Oil and gas revenue, net of hedge losses                     $ 9,757             $ 9,963
Operating income                                             $ 2,649             $ 3,157
Net income (loss) available to common shareholder            $ (693)             $ 1,351


Net income per common share:
  Basic                                                      $ (0.02)            $ 0.05
  Diluted                                                    $ (0.02)            $ 0.05


</table>

NOTE 5. PREFERRED STOCK

         We have outstanding 950,000 shares of 6% 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 preferred
stock may be converted, at the option of the holder, into 2.8571 shares of
common stock at an initial conversion price of $3.50 per share, subject to
adjustment in certain events. The preferred stock has a liquidation preference
of $10


                                      (9)

<PAGE>


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.

         On May 4, 2005, notice was mailed that all 950,000 outstanding shares
of our 6% preferred stock would be redeemed on June 6, 2005 (the "Redemption
Date"), at a price of $10.00 per share, plus cash in an amount equal to all
accumulated and unpaid dividends on the preferred stock up to the Redemption
Date. In lieu of redemption, holders of the shares of preferred stock have the
option to convert all or any portion of their shares prior to 5:00 p.m., Central
Standard Time, on or before the Redemption Date.

NOTE 6. FULL COST CEILING TEST

         We use the full cost method to account for our oil and gas producing
activities. Under the full cost method of accounting, the net book value of oil
and gas properties, less related deferred income taxes and asset retirement
obligations, may not exceed a calculated "ceiling". The ceiling limitation is
the discounted estimated after-tax future net cash flows from proved oil and gas
properties. In calculating future net cash flows, current prices and costs are
generally held constant indefinitely as adjusted for qualifying cash flow
hedges. The net book value of oil and gas properties, less related deferred
income taxes over the ceiling, 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 have increased sufficiently that such excess above the ceiling would not
have existed if the increased prices were used in the calculations.

         At March 31, 2005, we had a cushion (i.e. the excess of the ceiling
over our capitalized cost) of $137.6 million. 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.

          Under the full cost method of accounting, all costs incurred in the
acquisition, exploration and development of oil and natural gas properties,
including a portion of our overhead, are capitalized. In the three month periods
ended March 31, 2005 and 2004, overhead costs capitalized were approximately
$286,000 and $290,000 respectively.

NOTE 7. DERIVATIVE INSTRUMENTS

General

         We enter into derivative contracts to provide a measure of stability in
our oil and gas revenues and interest rate payments and to manage exposure to
commodity price and interest rate risk. Our objective is to lock in a range of
oil and gas prices and fixed interest rate. Our line of credit agreement as of
March 31, 2005, required at least 50% of our estimated monthly crude oil
produced from proved producing oil and gas properties during the 2005 calendar
year and thereafter until the maturity date to be hedged. We designate our
interest rate swaps, costless collars and commodity swaps as cash flow hedges.
The effective portion of the unrealized gain or loss on cash flow hedges is
recorded in other comprehensive income until the forecasted


                                      (10)

<PAGE>


transaction occurs. During the term of a cash flow hedge, the effective portion
of the quarterly change in the fair value of the derivatives is recorded in
stockholders' equity as other comprehensive income (loss) and then transferred
to oil and gas revenues when the production is sold and interest expense as the
interest accrues. Ineffective portions of hedges (changes in realized prices
that do not match the changes in the hedge price) are recognized in other
expense as they occur. While the hedge contract is open, the ineffective gain or
loss may increase or decrease until settlement of the contract.

         As of March 31, 2005, we have recorded unrealized losses of $39.9
($24.1 million, net of tax) related to our derivative instruments, which
represented the estimated aggregate fair values of our open derivative contracts
as of that date. These unrealized losses are presented on the Consolidated
Balance Sheet as a current liability of $15.8 million and long-term liabilities
of $24.1 million. During the twelve month period ending March 31, 2006, we
expect approximately $9.6 million, net of tax, to be transferred out of other
comprehensive income (loss) and charged to earnings.

         We are exposed to credit risk in the event of nonperformance by the
counterparty to these contracts, BNP Paribas. However, we periodically assess
the creditworthiness of the counterparty to mitigate this credit risk.

Interest Rate Sensitivity

         We entered into fixed rate swap contracts with BNP Paribas based on the
90-day LIBOR rates at the time of the contract. The effect of the swap is that
we converted our variable rate debt into fixed rate debt. We will receive
variable interest rates (see Note 3) and pay fixed rates as shown in the table
below.

<table>

                                                    Notional
                Period of Time                      Amounts        Fixed Interest Rates
----------------------------------------------- ----------------- ------------------------
                                                 $ in millions
<S>                                              <c>                <c>
April 1, 2005 thru December 31, 2005                  $50                  3.36%

January 1, 2006 thru December 31, 2006                $50                  3.82%

January 1, 2007 thru December 31, 2007                $50                  4.30%

January 1, 2008 thru December 30, 2008                $50                  4.74%

</table>

Commodity Price Sensitivity

         Puts. On April 7, 2005, we purchased put floors on volumes of 1,000 Mcf
per day for a total of 214,000 Mcf during the seven month period from April 1,
2006 through October 31, 2006, at a floor price of $5.50 per Mcf for a total
consideration of approximately $35,310. These derivatives were not held for
trading purposes.

         Costless Collars. Collars are created by purchasing puts to establish a
floor price and then selling a call which establishes a maximum amount we will
receive for the oil or gas


                                      (11)

<PAGE>


hedged. Calls are sold to offset the premium paid for buying the put. We have
entered into several costless gas collars and light sweet crude oil collars.

         A recap for the period of time, number of MMBtu's, number of barrels,
and oil and gas prices is as follows:

<table>
                                                                                             Houston Ship Channel
                                                           NyMex oil prices                      gas prices
                                            Barrels of  ---------------------  MMBtu of     -----------------------
             Period of Time                   Oil         Floor       Cap     Natural Gas     Floor        Cap
------------------------------------------ ----------   ---------- ---------- ------------- ----------- -----------

                                        <c>          <c>        <c>        <c>            <c>        <c>
April 1, 2005 thru October 31, 2005                -     $  -       $  -       428,000      $ 5.00      $ 7.26

April 1, 2005 thru December 31, 2005          55,000     $36.00     $49.60        -         $  -        $  -

January 1, 2006 thru December 31, 2006        70,800     $35.00     $44.00        -         $  -        $  -


</table>


         Swaps. Generally, swaps are an agreement to buy or sell a specified
commodity for delivery in the future, but at an agreed fixed price. Swap
transactions convert a floating price into a fixed price. For any particular
swap transaction, the counterparty is required to make a payment to the hedge
party if the reference price for any settlement period is less than the swap
price for such hedge, and the hedge party is required to make a payment to the
counterparty if the reference price for any settlement period is greater than
the swap price for such hedge.

         We have entered into oil swap contracts with BNP Paribas. A recap for
the period of time, number of barrels and swap prices are as follows:

<table>

                                              Barrels
                                                 of          Nymex Oil
             Period of Time                     Oil         Swap Price
------------------------------------------ --------------- --------------

                                        <c>             <c>
April 1, 2005 thru December 31, 2005           467,500        $ 30.18

January 1, 2006 thru December 20, 2006         448,000        $ 28.46

January 1, 2007 thru December 31, 2007         474,500        $ 34.36

January 1, 2008 thru December 31, 2008         439,200        $ 33.37

</table>

NOTE 8. NET INCOME PER COMMON SHARE

         Basic earnings per share ("EPS") exclude any dilutive effects of
option, warrants and convertible securities and is computed by dividing income
available to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share are computed similar to
basic earnings per share. However, diluted earnings per share reflect the
assumed conversion of all potentially dilutive securities.

                                      (12)

<PAGE>


         The following table provides the computation of basic and diluted
earnings per share for the three months ended March 31, 2005 and 2004:

<table>
                                                                                        Three Months Ended
                                                                                             March 31,
                                                                                ---------------------------------
                                                                                      2005             2004
                                                                                ---------------   ---------------
                                                                               (in thousands except per share data)

                                                                            <c>               <c>
Basic EPS Computation:
  Numerator-
    Income (loss)                                                                 $    (550)         $   1,482
    Preferred stock dividend                                                           (143)              (143)
                                                                                  ---------          ---------

      Income (loss) available to common stockholders                              $    (693)         $   1,339
                                                                                  =========          =========

  Denominator-
    Weighted average common shares outstanding                                       28,698             25,223
                                                                                  =========          =========

Basic EPS:
  Income (loss) per share                                                         $   (0.02)         $    0.05
                                                                                  =========          =========

Diluted EPS Computation:
  Numerator-
    Income (loss)                                                                 $    (550)         $   1,482
    Preferred stock dividend                                                           (143)                 -
                                                                                  ---------          ---------

    Income (loss) available to common stockholders                                $    (693)         $   1,482
                                                                                  =========          =========

  Denominator -
    Weighted average common shares outstanding                                       28,698             25,223
    Employee stock options                                                                -                258
    Warrants                                                                              -                 52
    Preferred stock                                                                       -              2,734
                                                                                  ---------          ---------
      Weighted average common shares for diluted earnings
        per share assuming conversion                                                28,698             28,267
                                                                                  =========          =========

Diluted EPS:
  Income (loss) per share                                                         $   (0.02)         $    0.05
                                                                                  =========          =========

</table>


         Some stock options and the convertible preferred stock outstanding
during 2005 were not included in the computation of diluted net earnings (loss)
per share because Parallel had a net loss from continuing operations and
therefore, the effect would be antidilutive.

NOTE 9.         ASSET RETIREMENT OBLIGATIONS

         On January 1, 2003, we adopted Statement of Financial Accounting
Standards No. 143, Accounting for Asset Retirement Obligations "SFAS 143". SFAS
143 requires us to recognize a liability for the present value of all
obligations associated with the retirement of tangible long-lived assets and to
capitalize an equal amount as a cost of the related oil and gas properties.


                                      (13)
<PAGE>


         The following table summarizes our asset retirement obligation
transactions:

<table>

                                                               Three Months Ended March 31,
                                                     --------------------------------------------------
                                                               2005                     2004
                                                     ------------------------- ------------------------
                                                                (dollars in thousands)

                                                  <c>                         <c>
Beginning asset retirement obligation                       $  2,132                  $ 1,701

Additions related to new properties                               17                      172

Deletions related to property disposals                          (63)                     (42)

Accretion expense                                                 26                       33

                                                            --------                  -------
 Ending asset retirement obligation                         $  2,112                  $ 1,864
                                                           =========                  =======

</table>

NOTE 10. RECENTLY ANNOUNCED ACCOUNTING PRONOUNCEMENTS

        In December 2004, the Financial Accounting Standards Board ("FASB")
issued "Statement of Financial Accounting Standards No. 123 (revised 2004)",
"Share-Based Payment" (SFAS No. 123(R). SFAS No. 123(R) requires an entity to
recognize the grant-date fair value of stock options and other equity-based
compensation issued to employees in the income statement. SFAS No. 123(R)
initially was to be effective for the Company beginning July 1, 2005. On April
14, 2005, the Securities and Exchange Commission announced a delay in the
implementation of SFAS No. 123(R) until the beginning of the fiscal year after
June 15, 2005. The Company does not expect SFAS No. 123(R) to have a material
impact on its results of operations.

NOTE 11. COMMITMENTS AND CONTINGENCIES

         From time to time, we are a party to ordinary routine litigation
incidental to our business. We are currently a defendant in one lawsuit
incidental to our business. We do not believe the ultimate outcome of this
lawsuit will have a material adverse effect on our financial condition or
results of operations. We are not aware of any other threatened litigation and
we have not been a party to any bankruptcy, receivership, reorganization,
adjustment or similar proceeding.

         Effective January 1, 2005, we established a 401(k) Plan and Trust for
eligible employees. Employees may not participate in the former SEP plan with
the establishment of the 401(k) Plan and Trust. As of the quarter ended March
31, 2005 Parallel had made contributions to the 401(k) Plan and Trust of
approximately $38,000.

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 Consolidated Financial Statements and the related notes.


                                      (14)

<PAGE>

OVERVIEW

Strategy

         Our primary objective is to increase shareholder value of our common
stock through increasing reserves, production, cash flow and earnings. We have
shifted the balance of our investments from properties having high rates of
production in early years to properties expected to produce more consistently
over a longer term. We attempt to reduce our financial risks by dedicating a
smaller portion of our capital to high risk projects, while reserving the
majority of our available capital for exploitation and development drilling
opportunities. Obtaining positions in long-lived oil and natural gas reserves
are given priority over properties that might provide more cash flow in the
early years of production, but which have shorter reserve lives. We also attempt
to further reduce risk by emphasizing acquisition possibilities over high risk
exploration projects.

              Since the latter part of 2002, we have reduced our emphasis on
high risk exploration efforts and focused on established geologic trends where
we utilize the engineering, operational, financial and technical expertise of
our entire staff. Although we anticipate participating in exploratory drilling
activities in the future, reducing financial, reservoir, drilling and geological
risks and diversifying our property portfolio are important criteria in the
execution of our business plan. In summary, our current business plan:

          .    focuses on projects having less geological risk;

          .    emphasizes exploitation and enhancement activities;

          .    focuses on acquiring producing properties; and

          .    expands the scope of operations by diversifying our exploratory
               and development efforts, both in and outside of our current areas
               of operation.

         Although the direction of our exploration and development activities
has shifted from high risk exploratory activities to lower risk development
opportunities, we will continue our efforts, as we have in the past, to maintain
low general and administrative expenses relative to the size of our overall
operations, utilize advanced technologies, serve as operator in appropriate
circumstances, and reduce operating costs.

         The extent to which we are able to implement and follow through with
our business plan will be influenced by:

          .    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;


                                      (15)

<PAGE>


          .    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 venture or other similar agreements on terms
               acceptable to us.

         Significant changes in the prices we receive for the oil and natural
gas, or the occurrence of unanticipated events beyond our control may cause us
to defer or deviate from our business plan, including the amounts we have
budgeted for our activities.

Operating Performance

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

          .    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.

         Additional factors influencing our overall operating performance
include:

          .    production expenses;

          .    overhead requirements; and

          .    costs of capital.

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


                                      (16)

<PAGE>


          .    cash flow from operations;

          .    sales of our equity securities;

          .    bank borrowings; and

          .    industry joint ventures.

         For the three months ended March 31, 2005, the sale price we received
for our crude oil production (excluding hedges) averaged $45.29 per barrel
compared with $44.07 per barrel for the three months ended December 31, 2004 and
$32.93 per barrel for the three months ended March 31, 2004. The average sales
price we received for natural gas for the three months ended March 31, 2005
(excluding hedges), was $6.00 per Mcf compared with $6.99 per Mcf for the three
months ended December 31, 2004 and $5.21 per Mcf for the three months ended
March 31, 2004. For information regarding prices received including our hedges,
refer to the selected operating data table in the Results of Operations on page
18. Hedge costs for oil and natural gas was $3.2 million, $3.0 million and $1.1
million for the three months ended March 31, 2005, December 31, 2004 and March
31, 2004 respectively. The hedge loss associated with the ineffective portion of
our hedges increased $2.3 million in the three months ended March 31, 2005. The
ineffectiveness is caused by a widening of the differential price of West Texas
Intermediate Light and current designated sales of West Texas Sour barrels. U.S.
refineries are currently paying a premium for West Texas Intermediate, which is
the NyMex benchmark. The majority of our oil is West Texas Sour. Actual gains or
losses may increase or decrease until settlement of these contracts.

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

         Depletion of the capitalized costs of oil and natural gas properties,
including estimated future development costs, is provided using the equivalent
unit-of-production method based upon estimates of proved oil and natural gas
reserves and production, which are converted to a common unit of measure based
upon their relative energy content. Unproved oil and natural 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. Depletion per BOE at March 31, 2005 and 2004 was $7.06 and $7.02
respectively.


                                      (17)

<PAGE>


Results of Operations

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

          .    reserve base;

          .    sources of production;

          .    product mix (gas versus oil volumes); and

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

         Year-to-year or other periodic comparisons of the results of our
operations can be difficult and may not fully and accurately describe our
condition. The following table shows selected operating data for each of the
three months ended March 31, 2005, December 31, 2004, and March 31, 2004.

<table>

                                                                        Three Months Ended
                                                            ---------------------------------------------
                                                              3/31/2005     12/31/2004      3/31/2004
                                                            -------------- -------------- --------------
                                                                (in thousands, except per unit data)

                                                         <c>            <c>            <c>
Production Volumes:
  Oil (Bbls)                                                      207            234            161
  Natural gas (Mcf)                                               602            695            732
  BOE(1)                                                          307            349            283
  BOE per day                                                     3.4            3.8            3.1

Sales Prices:
  Oil (per Bbl)(2)                                            $ 45.29        $ 44.07        $ 32.93
  Natural gas (per Mcf)(2)                                    $  6.00        $  6.99        $  5.21
  BOE price(2)                                                $ 42.25        $ 43.36        $ 32.21
  BOE price(3)                                                $ 31.78        $ 34.90        $ 28.30

Operating Revenues:
  Oil                                                         $ 9,359        $ 10,271       $ 5,290
  Oil hedge                                                    (3,011)         (2,654)       (1,124)
  Natural gas                                                   3,610           4,853         3,816
  Natural gas hedge                                              (201)           (296)           19
                                                              -------        --------       -------
                                                              $ 9,757        $ 12,174       $ 8,001
                                                              =======        ========       =======

Operating Expenses:
Lease operating expense                                       $ 2,558        $ 1,936        $ 1,529
Production taxes                                                  580            701            478
General and administrative:
  General and administrative                                    1,029            743            734
  Public reporting                                                659            754            488
Depreciation, depletion and amortization                        2,282          2,682          2,077
                                                              -------        -------        -------
                                                              $ 7,108        $ 6,816        $ 5,306
                                                              -------        -------        -------
Operating income                                              $ 2,649        $ 5,358        $ 2,695
                                                              =======        =======        =======
</table>
________________
(1) A BOE means one barrel of oil equivalent using the ratio of six Mcf of
    gas to one barrel of oil.
(2) Excludes hedge transactions.
(3) Includes hedge transactions.



                                      (18)
<PAGE>


RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004:

         Our oil and natural gas revenues and production product mix are
displayed in the following table for the three months ended March 31, 2005 and
March 31, 2004.

<table>
Oil and Gas Revenues
                                                     Revenues(1)                 Production
                                            --------------------------   -------------------------
                                               2005             2004        2005           2004
                                            ----------       ---------   ---------       ---------

                                         <c>              <c>         <c>             <c>
Oil (Bbls)                                     65%                52%         67%            57%
Natural gas (Mcf)                              35%                48%         33%            43%
                                            ----------       ---------   ---------       ---------
  Total                                        100%              100%        100%           100%
                                            ==========       =========   =========       =========
</table>
__________
(1) Includes hedge transactions


         The following table outlines the detail of our operating revenues for
the following periods.


<table>

                                        Three Months Ended March 31,
                                    ------------------------------------     Increase     % Increase
                                         2005                2004           (Decrease)    (Decrease)
                                    --------------      -------------       ----------     ---------
                                                  (in thousands except per unit data)


                                 <c>                 <c>                 <c>               <c>
Production Volumes
  Oil (Bbls)                             207                 161               46             29%
  Natural gas (Mcf)                      602                 732             (130)          (18)%
  BOE                                    307                 283               24              8%

Sales Price
  Oil (per Bbl)(1)                   $ 45.29             $ 32.93          $ 12.36             38%
  Natural gas (per Mcf)(1)           $  6.00             $  5.21          $  0.79             15%
  BOE price(1)                       $ 42.25             $ 32.21          $ 10.04             31%
  BOE price(2)                       $ 31.78             $ 28.30          $  3.48             12%

Operating Revenues
  Oil                                $ 9,359             $ 5,290            4,069             77%
  Oil hedges                         $(3,011)            $(1,124)          (1,887)         (168)%
  Natural gas                        $ 3,610             $ 3,816             (206)           (5)%
  Natural gas hedges                 $  (201)            $    19             (220)        (1158)%
                                     -------             -------          -------
      Total                          $ 9,757             $ 8,001          $ 1,756             22%
                                     =======             =======          =======

</table>
______________
(1) Excludes hedge transactions.
(2) Includes hedge transactions.



                                      (19)


<PAGE>


         Oil revenues, excluding hedges, increased $4.1 million or 77% for the
three months ended March 31, 2005 compared to the same period of 2004. Oil
production volumes increased 29% attributable to acquisitions and
re-stimulations in the Fullerton San Andres Field, acquisitions in the Carm-Ann
San Andres Field/N. Means Queen Unit and the drilling of producing and injection
wells on our Diamond M Property. The increase in oil production increased
revenue approximately $1.5 million for 2005. Wellhead average realized crude oil
prices increased $12.36 per Bbl or 38% to $45.29 per Bbl for 2005 compared to
2004. The increase in oil price increased revenue approximately $2.6 million for
2005.

         Natural gas revenues, excluding hedges, decreased $0.2 million or 5%
for the three months ended March 31, 2005 compared to the same period of 2004.
Natural gas production volumes decreased 18% due to natural production declines
in our south Texas Yegua/Frio and Cook Mountain projects. The decline in natural
gas volumes decreased revenue approximately $0.7 million for 2005. Average
realized wellhead natural gas prices increased 15% or $0.79 per Mcf to $6.00 per
Mcf. The increase in natural gas prices had a positive effect on revenues of
approximately $0.5 million for the three months ending March 31, 2005.

         Losses on oil hedges increased $1.9 million or 168% for 2005 compared
to 2004 due to the increase in oil prices. Natural gas hedge losses were $0.2
million in 2005 compared to a gain of $19,000 in 2004. On a BOE basis, hedges
accounted for a realized loss of $10.46 per BOE in 2005 compared to $3.90 per
BOE in 2004. We have hedged certain oil and natural gas volumes to try and
mitigate price changes in our oil and natural gas movements and to meet the
requirements under our loan facility.

         With our recently announced results in the Diamond M Canyon Reef Unit,
the New Mexico Gas Project and our onshore Gulf Coast Wilcox well, we expect
increased production volumes over the first quarter 2005 if initial rates are
maintained.

<table>

Cost and Expenses
                                                      Three months ended March 31,
                                                    ----------------------------------     Increase       % Increase
                                                          2005              2004          (Decrease)      (Decrease)
                                                    ----------------  ---------------- ---------------- --------------
                                                         (dollars in thousands)

                                                 <c>               <c>               <c>              <c>
Lease operating expense                             $     2,558       $     1,529        $     1,029         67%
Production taxes                                            580               478                102         21%
General and administrative:
  General and administrative                              1,029               734                295         40%
  Public reporting                                          659               488                171         35%
                                                    -----------       -----------        -----------
    Total general and administrative                      1,688             1,222                466         38%
                                                    -----------       -----------        -----------
Depreciation, depletion and amortization                  2,282             2,077                205         10%
                                                    -----------       -----------        -----------
    Total                                           $     7,108       $     5,306        $     1,802         34%
                                                    ===========       ===========        ===========

</table>

         Lease operating costs increased approximately $1.0 million, or 67%, to
$2.6 million during the three months ended March 31, 2005 compared with $1.5
million for the same period of 2004. The increase in lease operating expense is
primarily due to our acquisitions in the


                                      (20)


<PAGE>


Fullerton San Andres Field and the Carm-Ann San Andres Field/N. Means Queen
Unit, increased ad valorem taxes and increased utility costs on our oil
properties. Lifting costs were $8.33 per BOE in 2005 compared to $5.41 per BOE
in 2004 on a BOE bases. As we continue to exploit and develop our long-life
Permian Basin oil properties (Fullerton, Carm-Ann and Diamond M), we expect that
lifting costs will continue around the same level or decline due to increased
activity. The lifting costs are also expected to be reduced by the development
of natural gas properties in south Texas, Barnett Shale and New Mexico.

         Production taxes increased 21% or $0.1 million in 2005, associated with
a net wellhead increase in revenues of $3.9 million. Production taxes in future
periods will be a function of product mix, production volumes and product
prices.

         General and administrative expenses in total increased 38% or $0.5
million in 2005 compared to 2004. Included in our total general and
administrative expenses is public reporting cost which increased 35% or $0.2
million for 2005. The SOX 404 costs continue to be a significant portion of the
increase in our public reporting costs and we expect SOX 404 costs to continue
through 2005. The remainder of the increase in general and administrative costs
is due to increased estimated Texas franchise tax, salary increases and legal
expense. General and administrative expenses capitalized to the full cost pool
were $0.3 million for 2005 and 2004. On a BOE basis, general and administrative
costs were $3.35 per BOE in 2005 compared to $2.60 per BOE in 2004, while public
reporting costs were $2.14 per BOE and $1.72 per BOE for the same period.
General and administrative expenses will increase in 2005 in association with
reporting requirements and operational support.

         Depreciation, depletion and amortization expense increased 10% or $0.2
million for 2005 compared to 2004. Depletion per BOE was $7.43 for 2005 and
$7.34 for 2004. This increase is attributable to increased drilling costs and
producing property purchases. Depletion costs are highly correlated with
production volumes and capital expenditures. Fiscal year 2005 depletion costs
will increase with increased production volumes.

<table>

Other income (expense)
                                                      Three months ended March 31,
                                                    ----------------------------------   Increase       % Increase
                                                         2005              2004          (Decrease)      (Decrease)
                                                    ----------------  ---------------- ---------------- --------------
                                                                         (dollars in thousands)

                                                 <c>                <c>              <c>             <c>

Loss on ineffective portion of hedges                  $ (2,276)            $ (10)        $ (2,266)      22660%
Interest and other income                                    19               140             (121)       (86)%
Interest expense                                         (1,138)             (468)            (670)        143%
Other expense                                                (1)              (26)              25        (96)%
Equity loss in Westfork Pipeline Company LP                 (79)                -              (79)          0%
                                                       --------            ------         --------
Total                                                  $ (3,475)           $ (364)        $ (3,111)
                                                       ========            ======         ========
</table>

         The loss associated with the ineffective portion of our hedges
increased $2.3 million for 2005 compared to 2004. Commodity prices continued to
increase into the first quarter of 2005. The spread between sweet and sour crude
was wider for the first quarter of 2005 as compared


                                      (21)

<PAGE>

to the same period of 2004 resulting in an increased ineffectiveness. The actual
gain or loss may increase or decrease until settlement of these contracts.
Interest expense increased with the increase of debt from approximately $30.0
million at March 31, 2004 to $50.0 million at March 31, 2005 along with an
increase of our loan interest rate for 2005. Overhead expenses related to our
equity investment in the construction phase of the Westfork Pipeline Company LP,
resulted in a loss for the first quarter of 2005.

         Income tax benefit was $0.3 million in 2005 compared to an expense of
$0.8 million in 2004. Income tax expense for 2005 will be dependent on our
earnings and is expected to be approximately 35% of income before income taxes.

         We had basic net loss per share of $.02 and net earnings of $.05 and
diluted net loss per share of $.02 and net earnings of $.05 for 2005 and 2004,
respectively. Basic weighted average common shares outstanding increased from
25.2 million shares in 2004 to 28.7 million shares in 2005. The increase in
common shares is due to the sale of 5,750,000 shares of common stock in a public
offering in February of 2005. The stock options and the convertible preferred
stock outstanding were not included in the computation of diluted net earnings
(loss) per share for the first quarter 2005 because we had a net loss and the
effect would be antidilutive.

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 gas we produce.

         Working capital decreased 834% or approximately $7.1 million as of
March 31, 2005 compared with December 31, 2004. Current liabilities exceeded
current assets by $6.2 million at March 31, 2005. The working capital decrease
was primarily due to the increased current maturity of derivative obligations of
approximately $7.9 million.

         We incurred net property costs of $4.3 million for the three months
ended March 31, 2005 compared to $8.0 million for the same period in 2004. Our
property expenditures were $8.6 million for the first quarter of 2005, which was
partially offset by restricted cash utilized for property purchases and proceeds
from non-strategic property dispositions. Included in our property basis for the
first quarter of 2005 and 2004 were net asset retirement costs (deletions) of
approximately ($46,000) and $130,000 respectively (see Note 9 to Consolidated
Financial Statements). Our property leasehold acquisition, development and
enhancement activities were financed by our revolving credit facility, the
utilization of cash flows provided by operations, cash on hand and proceeds from
non strategic property sales and bank borrowings.

         On February 9, 2005, we had gross cash proceeds of $30.3 million and
net proceeds of approximately $28.0 million from the sale of common stock (see
Note 2 to Consolidated Financial Statements). These proceeds and cash available
were used to reduce our borrowings on the revolving line of credit by
approximately $29.0 million.


                                      (22)

<PAGE>


         Stockholders' equity is $74.0 million for March 31, 2005 compared to
$60.0 million at December 31, 2004, an increase of 23%. The increase is
attributable to the net proceeds of approximately $28.0 received from the sale
of equity securities of 5,750,000 shares of our common stock offset by the
increase in accumulated comprehensive loss of $13.3 million related to our
derivative instruments (see Note 7 to Consolidated Financial Statements) and the
net income loss of $550,000. Proceeds from the stock offering were used to
reduce our long-term debt.

         Based on our projected oil and gas revenues and related expenses,
available bank borrowings and expected cash derived from non-strategic asset
divestitures, we believe that we will have sufficient capital resources to fund
normal operations and capital requirements, interest expense and principal
reduction payments on bank debt, if required, and preferred stock dividends and
redemption. We continually review and consider alternative methods of financing.

Bank Borrowings

         On April 1, 2005, we entered into the Second Amendment to Second
Amended and Restated Credit Agreement (or the "Credit Agreement") with Citibank
Texas, N.A. (formerly known as First American Bank, SSB, and referred to in this
report as "Citibank"), BNP Paribas, Citibank, F.S.B. and Western National Bank.

         The Credit Agreement provides for a revolving credit facility which
means that we can borrow, repay and reborrow funds drawn under the credit
facility. The total amount that we can borrow and have outstanding at any one
time is limited to the lesser of $200.0 million or the "borrowing base"
established by our lenders. Our current borrowing base is $90.0 million. The
principal amount outstanding under the credit facility at March 31, 2005 was
$50.0 million, excluding $350,000 reserved for our letters of credit. The amount
of the borrowing base is based primarily upon the estimated value of our oil and
gas reserves. The borrowing base amount is redetermined by the lenders
semi-annually on or about April 1 and October 1 of each year or at other times
required by the lenders or at our request. If, as a result of the lenders'
redetermination of the borrowing base, the outstanding principal amount of our
loan exceeds the borrowing base, we must either provide additional collateral to
the lenders or repay the principal of the note in an amount equal to the excess.
Except for the principal payments that may be required because of our
outstanding loans being in excess of the borrowing base, interest only is
payable monthly.

         Loans made to us under this credit facility bears interest at
Citibank's base rate or the LIBOR rate, at our election. Generally, Citibank's
base rate is equal to the sum the "prime rate" published in the Wall Street
Journal.

         The LIBOR rate is generally equal to the sum of (a) the rate designated
as "British Bankers Association Interest Settlement Rates" and offered on one,
two, three, six or twelve month interest periods for deposits of $1.0 million,
and (b) a margin ranging from 2.25% to 2.75%, depending upon the outstanding
principal amount of the loans. If the principal amount outstanding is equal to
or greater than 75% of the borrowing base, the margin is 2.75%. If the principal
amount outstanding is equal to or greater than 50%, but less than 75% of the
borrowing


                                      (23)

<PAGE>


base, the margin is 2.50%. If the principal amount outstanding is less than 50%
of the borrowing base, the margin is 2.25%.

         The interest rate we are required to pay on our borrowings, including
the applicable margin, may never be less than 4.50%. At March 31, 2005, our
Libor interest rate was 5.05% on $31.0 million and 5.04% on $19.0 million. We
obtain different interest rates on bank base rates and on each LIBOR tranche.

         In the case of base rate loans, interest is payable on the last day of
each month. In the case of LIBOR loans, interest is payable on the last day of
each applicable interest period.

         If the total outstanding borrowings under the credit facility are less
than the borrowing base, an unused commitment fee is required to be paid to the
lenders. The amount of the fee is .25% of the daily average of the unadvanced
amount of the borrowing base. The fee is payable quarterly.

         If the borrowing base is increased, we are required to pay a fee of
..375% on the amount of any increase in the borrowing base.

         Parallel, L.L.C., a subsidiary of Parallel Petroleum Corporation,
guaranteed payment of the loans.

         Parallel's obligations to the lenders are secured by substantially all
of its oil and gas properties.

         All outstanding principal under the revolving credit facility is due
and payable on December 20, 2008. The maturity date of our outstanding loans may
be accelerated by the lenders upon the occurrence of an event of default under
the Credit Agreement.

         The Credit Agreement contains various restrictive covenants and
compliance requirements as follows:

          .    at the end of each quarter, a current ratio (as defined in the
               credit agreement) of at least 1.1 to 1.0;

          .    for each period (as calculated in the Credit Agreement) ending on
               December 31, March 31, June 30 and September 30, a funded debt
               ratio (as defined in the Credit Agreement) of not more than 3.70,
               3.60 and 3.50, respectively, for December 31, 2005, 2006 and
               2007; and

          .    at all times, adjusted consolidated net worth (as defined in the
               Credit Agreement) of at least (a) $50.0 million, plus (b)
               seventy-five percent (75%) of the net proceeds from any equity
               securities issued by Parallel, plus (c) fifty percent (50%) of
               consolidated net income for each fiscal quarter, if positive, and
               zero percent (0%) if negative.


                                      (24)

<PAGE>

           As of March 31, 2005 we were in compliance with all covenants.

         The Credit Agreement also contains restrictions on all retained
earnings and net income for payment of dividends on common stock.

         If we have borrowing capacity under our Credit Agreement, we intend to
borrow, repay and reborrow under the revolving credit facility from time to time
as necessary, subject to borrowing base limitations, to fund:

          .    interpretation and processing of 3-D seismic survey data;

          .    lease acquisitions and drilling activities;

          .    acquisitions of producing properties or companies owning
               producing properties; and,

          .    general corporate purposes.

Preferred Stock

         At March 31, 2005 we had 950,000 shares of 6% preferred stock
outstanding. The preferred stock:

          .    requires us to pay dividends of $.60 per annum, semi-annually on
               June 15 and December 15 of each year;

          .    is convertible into common stock at any time, at the option of
               the holder, into 2.8751 shares of common stock at an initial
               conversion price of $3.50 per shares, subject to adjustment in
               certain events;

          .    is redeemable at our option, in whole or in part, for $10 per
               share, plus accrued dividends;

          .    has no voting rights, except as required by applicable law, and
               except that as long as any shares of preferred stock remain
               outstanding, the holders of a majority of the outstanding shares
               of the preferred stock may vote on any proposal to change any
               provision of the preferred stock which materially and adversely
               affects the rights, preferences or privileges of the preferred
               stock;

          .    is senior to the common stock with respect to dividends and on
               liquidation, dissolution or winding up of Parallel; and

          .    has a liquidation value of $10 per share, plus accrued and unpaid
               dividends.

                                      (25)

<PAGE>


         On May 4, 2005 notice was mailed that all 950,000 outstanding shares of
its 6% Preferred Stock would be redeemed on June 6, 2005 (the "Redemption
Date"), at a price of $10.00 per share, plus cash in an amount equal to all
accumulated and unpaid dividends on the preferred stock up to the Redemption
Date. In lieu of redemption, holders of the shares of preferred stock have the
option to convert all or any portion of their shares prior to 5:00 p.m., Central
Standard Time, on or before the Redemption Date.

Sale of Equity Securities

         On February 9, 2005, we sold 5,750,000 shares of our common stock, $.01
par value per share, pursuant to a public offering at a price of $5.27 per
share. Gross cash proceeds were $30.3 million, and net proceeds were
approximately $28.0 million. The common shares were issued under Parallel's
$100.0 million Universal Shelf Registration Statement on Form S-3 which became
effective in November 2004. The proceeds were used to reduce the revolving
credit facility.

Commodity Price Risk Management Transactions

         The purpose of our hedges is to provide a measure of stability in our
oil and gas prices and interest rate payments and to manage exposure to
commodity price and interest rate risk. Our objective is to lock in a range of
oil and gas prices and a fixed interest rate for certain notional amounts.

         Under cash flow hedge accounting, the quarterly change in the fair
value of the commodity derivatives is recorded in stockholders' equity as other
comprehensive income (loss) and then transferred to revenue when the production
is sold. Ineffective portions of cash flow hedges (changes in realized prices
that do not match the changes in the hedge price) are recognized in other
expense as they occur. While the cash flow hedge contract is open, the
ineffective gain or loss many increase or decrease until settlement of the
contract.

         Under cash flow hedge accounting for interest rate swaps, the quarterly
change in the fair value of the derivatives is recorded in stockholders' equity
as other comprehensive income (loss) and then transferred to interest expense
when the contract settles. Ineffective portions of cash flow hedges are
recognized in other expense as they occur.

         We are exposed to credit risk in the event of nonperformance by the
counterparty in its derivative instruments. However, we periodically assess the
creditworthiness of the counterparty to mitigate this credit risk.

         Certain of our commodity price risk management arrangements have
required us to deliver cash collateral or other assurances of performance to the
counterparties in the event that our payment obligations with respect to our
commodity price risk management transactions exceed certain levels.


                                      (26)


<PAGE>


Contractual Obligations, Commitments and Off-Balance Sheet Arrangements

         We have contractual obligations and commitments that may affect our
financial position. However, based on our assessment of the provisions and
circumstances of our contractual obligation and commitments, we do not feel
there would be an adverse effect on our consolidated results of operations,
financial condition or liquidity.

         The following table is a summary of significant contractual obligations
as of March 31, 2005:

<table>
                                                                  Obligation Due in Period
                                            -------------------------------------------------------------------------
                                                         Periods ended December 31,
                                            ---------------------------------------------------  After
Contractual Cash Obligations                  2005       2006       2007      2008      2009    5 years     Total
-----------------------------------------   ---------- ---------- --------- ---------- -------- -------- ------------
                                                                        (in thousands)

                                         <c>        <c>        <c>        <c>       <c>      <c>      <c>
Revolving Credit Facility (secured)          $      -   $      -  $      -   $ 50,000    $   -    $   -     $ 50,000

Office Lease (Dinero Plaza)                       118        105         -          -        -        -          223

Andrews and Snyder Field Offices                   17         23        23         14       14         (1)        97

Preferred Stock Dividend                          427        570       570        570      570         (2)     2,850

Asset retirement obligations(3)                   135         30       206         30      136    1,575        2,112

Derivative Obligations                         15,827     10,900     7,867      5,340        -        -       39,934
                                             --------   --------   -------   --------    -----    -----     --------
Total                                        $ 16,524   $ 11,628   $ 8,666   $ 55,954    $ 720    $ 998     $ 95,216
                                             ========   ========   =======   ========    =====    =====     ========

</table>
_________________
(1) The Snyder field office lease remains in effect until the termination of our
trade agreement with a third party working interest owner in the Diamond "M"
project. The Andrews field office lease expires in December 2007. The lease cost
for these two office facilities are billed to nonaffiliated third party working
interest owners under our joint operating agreements with these third parties.
(2) Payments of preferred dividends so long as preferred stock remains
outstanding and not converted. In connection with the redemption of our
preferred stock, if none of the holders elect to convert to common stock, we
would have an obligation of $9.5 million.
(3) Assets retirement obligations of oil and natural gas assets, excluding
salvage value and accretion.


Outlook

         The oil and natural gas industry is capital intensive. We make, and
anticipate that we will continue to make, substantial capital expenditures in
the exploration for, development and acquisition of oil and natural gas
reserves. Historically, our capital expenditures have been financed primarily
with:

          .    internally generated cash from operations;

          .    proceeds from bank borrowings; and

          .    proceeds from sales of equity securities.


                                      (27)

<PAGE>

         The continued availability of these capital sources depends upon a
number of variables, including:

          .    our proved reserves;

          .    the volumes of oil and natural gas we produce from existing
               wells;

          .    the prices at which we sell oil and gas; and

          .    our ability to acquire, locate and produce new reserves.

         Each of these variables materially affects our borrowing capacity. We
may from time to time seek additional financing in the form of:

          .    increased bank borrowings;

          .    sales of Parallel's securities;

          .    sales of non-core properties; or

          .    other forms of financing.

         Except for the revolving credit facility we have with our bank lenders,
we do not have agreements for any future financing and there can be no assurance
as to the availability or terms of any such financing.

Inflation

         Our drilling costs have escalated and we would expect this trend to
continue, but our commodity prices have also increased at the same time.

Critical Accounting Policies

         This discussion should be read in conjunction with the financial
statements and the accompanying notes and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included in our Annual Report
or Form 10-K for the year ended December 31, 2004, filed with the Securities and
Exchange Commission on March 15, 2005.

         In December 2004, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 123 (revised 2004),
"Share-Based Payment" (SFAS No. 123(R)). SFAS No. 123(R) requires an entity to
recognize the grant-date fair value of stock options and other equity-based
compensation issued to employees in the income


                                      (28)

<PAGE>


statement. SFAS No. 123(R) initially was effective for Parallel beginning July
1, 2005. On April 14, 2005, the Securities and Exchange Commission announced a
delay in the implementation of SFAS No. 123(R) until the beginning of the fiscal
year after June 15, 2005. We do not expect SFAS No. 123(R) to have a material
impact on its results of operations.

Effects of Derivative Instruments

         As of January 1, 2003 we designated our costless collars, oil and gas
swaps and interest rate swaps as cash flow hedges under the provisions of SFAS
133, as amended. The adoption of cash flow hedge accounting allows us to record
changes in fair value of contracts designated as cash flow hedges through other
comprehensive income until realized. When realized, we reflect the gain or loss
on commodity derivatives designated as cash flow hedges in revenue and on
interest rate derivatives designated as cash flow hedges in interest expense. We
utilize mark-to-market accounting for our put positions. The purpose of our
hedges is to provide a measure of stability in our oil and gas prices and
interest rate payments and to manage exposure to commodity price and interest
rate risk. Our objective is to lock in a range of oil and gas prices and a fixed
interest rate for certain notional amounts.

         Under cash flow hedge accounting, the quarterly change in the fair
value of the derivatives is recorded in stockholders' equity as other
comprehensive income (loss) and then transferred to earnings when the production
is sold. Ineffective portions of cash flow hedges (changes in realized prices
that do not match the changes in the hedge price) are recognized in other
expense as they occur. While the cash flow hedge contract is open, the
ineffective gain or loss many increase or decrease until settlement of the
contract.

         We are exposed to credit risk in the event of nonperformance by the
counterparty in its derivative instruments. However, we periodically assess the
creditworthiness of the counterparty to mitigate this credit risk.

TRENDS AND PRICES

         Changes in oil and gas prices significantly affect our revenues, cash
flows and borrowing capacity. Markets for oil and natural gas have historically
been, and will continue to be, volatile. Prices for oil and natural 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 natural gas.

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

         During fiscal year 2004 the average realized sales price for our oil
and natural gas was $37.55 (unhedged) per BOE. For the three months ended March
31, 2005, our average realized price was $42.25 (unhedged) per BOE.


                                      (29)


<PAGE>


FORWARD-LOOKING STATEMENTS

Cautionary Statement Regarding Forward-Looking Statements

         Some statements contained in this Quarterly Report on Form 10-Q are
"forward-looking statements". These forward looking statements relate to, among
others, the following:

          .    our future financial and operating performance and results;

          .    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.


         We have based these forward-looking statements on our current
assumptions, expectations and projections about future events.

         We use the words "may," "will," "expect," "anticipate," "estimate,"
"believe," "continue," "intend, " "plan," "budget," "present value," "future" or
"reserves" or other similar words to identify forward-looking statements. These
statements also involve risks and uncertainties that could cause our actual
results or financial condition to materially differ for our expectations. We
believe the assumptions and expectations reflected in these forward-looking
statements are reasonable. However, we cannot give any assurance that our
expectations will prove to be correct or that we will be able to take any
actions that are presently planned. All of these statements involve assumptions
of future events and risks and uncertainties. Risks and uncertainties associated
with forward-looking statements include, but are not limited to:

          .    fluctuations in prices of oil and natural gas;

          .    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;


                                      (30)

<PAGE>


          .    risks associated with drilling and operating wells;

          .    competition;

          .    general economic conditions;

          .    governmental regulations;

          .    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

          .    fluctuations in interest rates and availability of capital.

         For these and other reasons, actual results may differ materially from
those projected or implied. We believe it is important to communicate our
expectations of future performance to our investors. However, events may occur
in the future that we are unable to accurately predict, or over which we have no
control. We caution you against putting undue reliance on forward-looking
statements or projecting any future results based on such statements.

         Before you invest in our common stock, you should be aware that there
are various risks associated with an investment. We have described some of these
risks under "Risks Related to Our Business" beginning on page 20 of our Form
10-K for year ended December 31, 2004.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         The following quantitative and qualitative information is provided
about market risks and derivative instruments to which Parallel was a party at
March 31, 2005, and from which Parallel may incur future earnings, gains or
losses from changes in market interest rates and oil and natural gas prices.



                                      (31)

<PAGE>


Interest Rate Sensitivity as of March 31, 2005

         Our only financial instrument sensitive to changes in interest rates is
our bank debt. 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, 2005. You should read Note
3 to the Consolidated Financial Statements for further discussion of our debt
that is sensitive to interest rates.

<table>

                                      2005          2006         2007         2008          Total
                                   ------------ ------------- ------------ ------------  ------------
                                                (in thousands, except interest rates)

                                <c>          <c>           <c>          <c>            <c>
Variable rate debt                     $   -         $  -         $  -       $ 50,000       $ 50,000

Revolving Facility (secured)
Average interest rate                    5.12%         5.12%        5.12%        5.12%             -


</table>

         At March 31, 2005, we had bank loans in the amount of approximately
$50.0 million outstanding on our revolving credit facility at an average
interest rate of 5.12%. Borrowings under our credit facility bear interest, at
our election, at (i) the bank's base rate or (ii) the LIBOR rate, plus LIBOR
margin, but in no event less than 4.50%. As a result, our annual interest cost
in 2005 will fluctuate based on short-term interest rates. As the interest rate
is variable and is reflective of current market conditions, the carrying value
approximates the fair value.

         Under our credit facility, we may elect an interest rate based upon the
agent lender's base lending rate, or the LIBOR rate, plus a margin ranging from
2.25% to 2.75% per annum, depending on our borrowing base usage. The interest
rate we are required to pay, including the applicable margin, may never be less
than 4.50%. At March 31, 2005, the average interest rate for our LIBOR rate
loans was 5.0%

         We entered into LIBOR fixed interest rate swap contracts with BNP
Paribas. We will pay a fixed interest rate, as noted in the table below, for the
period beginning April 1, 2005 through December 30, 2006.

         A recap for the period of time, notional amounts, LIBOR fixed interest
rates, expected margin rates and expected fixed interest rates for the contract
are as follows:

<table>

                                                    Notional
                Period of Time                      Amounts        Fixed Interest Rates
----------------------------------------------- ----------------- ------------------------
                                                 $ in millions

                                              <c>                <c>
April 1, 2005 thru December 31, 2005                  $50                  3.36%

January 1, 2006 thru December 31, 2006                $50                  3.82%

January 1, 2007 thru December 31, 2007                $50                  4.30%

January 1, 2008 thru December 30, 2008                $50                  4.74%

</table>


                                      (32)


<PAGE>


Commodity Price Sensitivity as of March 31, 2005

         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. We expect pricing
volatility to continue. Oil prices ranged from a low of $26.76 per barrel to a
high of $52.82 per barrel during 2004. Natural gas prices we received during
2004 ranged from a low of $2.31 per Mcf to a high of $8.79 per Mcf. During the
first quarter ended March 31, 2005 oil prices ranged from a low of $36.43 to a
high of $49.12. Natural gas prices we received during the first quarter ended
March 31, 2005 ranged from a low of $2.59 per Mcf to a high of $9.95 per Mcf. A
significant decline in the prices of oil or natural gas could have a material
adverse effect on our financial condition and results of operations.

         Costless Collar. Collars are created by purchasing puts to establish a
floor price and then selling a call which establishes a maximum amount the
producer will receive for the oil or gas hedged. Calls are sold to offset or
reduce the premium paid for buying the put. In 2003, we entered into several
costless, seven-month Houston ship channel gas collars. A majority of our
natural gas production is sold based on Houston ship channel prices. A recap for
the period of time, number of MMBtu's and gas prices is as follows:


<table>
                                                                                             Houston Ship Channel
                                                           NyMex oil prices                      gas prices
                                            Barrels of  ---------------------  MMBtu of     -----------------------
             Period of Time                   Oil         Floor       Cap     Natural Gas     Floor        Cap
------------------------------------------ ----------   ---------- ---------- ------------- ----------- -----------

                                        <c>          <c>        <c>        <c>            <c>        <c>
April 1, 2005 thru October 31, 2005                -     $  -       $  -       428,000      $ 5.00      $ 7.26

April 1, 2005 thru December 31, 2005          55,000     $36.00     $49.60        -         $  -        $  -

January 1, 2006 thru December 31, 2006        70,800     $35.00     $44.00        -         $  -        $  -


</table>


         Swaps. Generally, swaps are an agreement to buy or sell a specified
commodity for delivery in the future, but at an agreed fixed price. Swap
transactions convert a floating price into a fixed price. For any particular
swap transaction, the counterparty is required to make a payment to the hedge
party if the reference price for any settlement period is less than the swap
price for such hedge, and the hedge party is required to make a payment to the
counterparty if the reference price for any settlement period is greater than
the swap price for such hedge.


                                      (33)
<PAGE>


         We have entered into oil swap contracts with BNP Paribas. A recap for
the period of time, number of barrels and swap prices are as follows:


<table>

                                              Barrels
                                                 of          Nymex Oil
             Period of Time                     Oil         Swap Price
------------------------------------------ --------------- --------------

                                        <c>             <c>
April 1, 2005 thru December 31, 2005           467,500        $ 30.18

January 1, 2006 thru December 20, 2006         448,000        $ 28.46

January 1, 2007 thru December 31, 2007         474,500        $ 34.36

January 1, 2008 thru December 31, 2008         439,200        $ 33.37

</table>

ITEM 4. CONTROLS AND PROCEDURES

         As of the end of the period covered by this Quarterly Report on Form
10-Q, the effectiveness of our disclosure controls and procedures was evaluated
by our management, with the participation of our chief executive officer, Larry
C. Oldham (principal executive officer), and our chief financial officer, Steven
D. Foster (principal financial officer). Our disclosure controls and procedures
are designed to help ensure that information we are required to disclose in
reports that we file with the SEC is accumulated and communicated to our
management and recorded, processed, summarized and reported within the time
periods prescribed by the SEC. Mr. Oldham and Mr. Foster have concluded that our
disclosure controls and procedures are effective for their intended purposes.
There were no changes in internal control over financial reporting that occurred
during the last fiscal quarter that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.


                           PART II - OTHER INFORMATION


ITEM 1. LEGAL PROCEEDINGS

         From time to time, we are a party to ordinary routine litigation
incidental to our business. We are currently a defendant in one lawsuit
incidental to our business. We do not believe the ultimate outcome of this
lawsuit will have a material adverse effect on our financial condition or
results of operations. We are not aware of any other threatened litigation and
we have not been a party to any bankruptcy, receivership, reorganization,
adjustment or similar proceeding.



                                      (34)


<PAGE>



ITEM 6. EXHIBITS


(a)      Exhibits

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

          3.1   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 3 of
                the Registrant's Form 8-K, dated October 9, 2000, as filed with
                the Securities and Exchange Commission on October 10, 2000)

          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 Designation, 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


                                      (35)

<page>

                Exhibit 4.3 of Form 10-K of the Registrant for the fiscal year
                ended December 31, 2000)

          4.4   Form of Indenture relating to senior debt securities of the
                Registrant (Incorporated by reference to Exhibit No. 4.4 of the
                Registrant's Statement on Form S-3, No. 333-119725 filed on
                October 13, 2004)

          4.5   Form of Indenture relating to subordinated debt securities of
                the Registrant (Incorporated by reference to Exhibit No. 4.5 of
                the Registrant's Registration Statement on Form S-3, No.
                333-119725 filed on October 13, 2004)

          4.6   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)

          4.7   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)

          4.8   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)

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

         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 10.6 of the Registrant's Form 10-K Report
                for the fiscal year ended December 31, 1997)

         10.4   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)

         10.5   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


                                      (36)

<PAGE>


                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 Form 10-K of the
                Registrant for the fiscal year ended December 31, 2001)

         10.6   2001 Non-Employee Directors Stock Option Plan (Incorporated by
                reference to Exhibit 10.7 of the Registrant's Form 10-Q Report
                for the first fiscal quarter ended March 31, 2004)

         10.7   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)

         10.8   Incentive and Retention Plan (Incorporated by reference to
                Exhibit 10.1 of the Registrant's Form 8-K Report dated September
                23, 2004 and filed with the Securities and Exchange Commission
                on September 29, 2004)

         10.9   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)

        10.10   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)

        10.11   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 of the Registrant for
                the fiscal year ended December 31, 2000)

        10.12   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)

        10.13   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)

        10.14   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 of the Registrant for the fiscal year ended
                December 31, 2000)

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

        10.16   Purchase and Sale Agreement, dated as of November 27, 2002,
                among JMC Exploration, Inc., Arkoma Star L.L.C., Parallel, L.P.
                and Texland Petroleum, Inc.


                                      (37)

<PAGE>


                (Incorporated by reference to Exhibit 10.1 of Form 8-K of the
                Registrant, dated December 20, 2002)

        10.17   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)

        10.18   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)

        10.19   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)

        10.20   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)

        10.21   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)

        10.22   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)

        10.23   Second Amendment to Second Amended and Restated Credit
                Agreements 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)


                                      (38)

<PAGE>


           14   Code of Ethics (Incorporated by reference to Exhibit No. 14 of
                the Registrant's Form 10-K Report for the fiscal year ended
                December 31, 2003 and filed with the Securities and Exchange
                Commission on March 22, 2004)

           21   Subsidiaries (Incorporated by reference to Exhibit No. 21 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.


                                      (39)

<PAGE>

                                   SIGNATURES


         Pursuant to the requirements of the Securities 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/ Larry C. Oldham
                                     -------------------------------
Date: May 10, 2005                   Larry C. Oldham
                                     President and Chief Executive Officer



Date: May 10, 2005               BY: /s/ Steven D. Foster
                                      -------------------------------
                                      Steven D. Foster,
                                      Chief Financial Officer

<PAGE>


                                INDEX TO EXHIBITS

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

          3.1   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 3 of
                the Registrant's Form 8-K, dated October 9, 2000, as filed with
                the Securities and Exchange Commission on October 10, 2000)

          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 Designation, 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 4.3 of Form 10-K of
                the Registrant for the fiscal year ended December 31, 2000)

          4.4   Form of Indenture relating to senior debt securities of the
                Registrant (Incorporated by reference to Exhibit No. 4.4 of the
                Registrant's Statement on Form S-3, No. 333-119725 filed on
                October 13, 2004)

<PAGE>

          4.5   Form of Indenture relating to subordinated debt securities of
                the Registrant (Incorporated by reference to Exhibit No. 4.5 of
                the Registrant's Registration Statement on Form S-3, No.
                333-119725 filed on October 13, 2004)

          4.6   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)

          4.7   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)

          4.8   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)

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

         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 10.6 of the Registrant's Form 10-K Report
                for the fiscal year ended December 31, 1997)

         10.4   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)

         10.5   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 Form 10-K of the Registrant for the
                fiscal year ended December 31, 2001)

         10.6   2001 Non-Employee Directors Stock Option Plan (Incorporated by
                reference to Exhibit 10.7 of the Registrant's Form 10-Q Report
                for the first fiscal quarter ended March 31, 2004)

<PAGE>

         10.7   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)

         10.8   Incentive and Retention Plan (Incorporated by reference to
                Exhibit 10.1 of the Registrant's Form 8-K Report dated September
                23, 2004 and filed with the Securities and Exchange Commission
                on September 29, 2004)

         10.9   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)

        10.10   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)

        10.11   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 of the Registrant for
                the fiscal year ended December 31, 2000)

        10.12   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)

        10.13   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)

        10.14   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 of the Registrant for the fiscal year ended
                December 31, 2000)

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

        10.16   Purchase and Sale Agreement, dated as of November 27, 2002,
                among JMC Exploration, Inc., Arkoma Star L.L.C., Parallel, L.P.
                and Texland Petroleum, Inc. (Incorporated by reference to
                Exhibit 10.1 of Form 8-K of the Registrant, dated December 20,
                2002)

        10.17   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)


<PAGE>


        10.18   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)

        10.19   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)

        10.20   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)

        10.21   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)

        10.22   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)

        10.23   Second Amendment to Second Amended and Restated Credit
                Agreements 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)

        14      Code of Ethics (Incorporated by reference to Exhibit No. 14 of
                the Registrant's Form 10-K Report for the fiscal year ended
                December 31, 2003 and filed with the Securities and Exchange
                Commission on March 22, 2004)

        21      Subsidiaries (Incorporated by reference to Exhibit No. 21 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

<PAGE>

        *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.


<PAGE>


                                                                EXHIBIT 31.1
                                 CERTIFICATIONS

I, Larry C. Oldham, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Parallel Petroleum
Corporation.

2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report.

4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the
registrant and have:

         (a) Designed such disclosure controls and procedures, or caused such
     disclosure controls and procedures to be designed under our supervision, to
     ensure that material information relating to the registrant, including its
     consolidated subsidiaries, is made known to us by others within those
     entities, particularly during the period in which this report is being
     prepared;

         (b) Designed such internal control over financial reporting, or caused
     such internal control over financial reporting to be designed under our
     supervision, to provide reasonable assurance regarding the reliability of
     financial reporting and the preparation of financial statements for
     external purposes in accordance with generally accepted accounting
     principles;

         (c) Evaluated the effectiveness of the registrant's disclosure controls
     and procedures and presented in this report our conclusions about the
     effectiveness of the disclosure controls and procedures, as of the end of
     the period covered by this report based on such evaluation; and

         (d) Disclosed in this report any change in the registrant's internal
     control over financial reporting that occurred during the registrant's most
     recent fiscal quarter that has materially affected, or is reasonably likely
     to materially affect, the registrant's internal control over financial
     reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and audit committee of the registrant's board of directors
(or persons performing the equivalent functions):

         (a) All significant deficiencies and material weaknesses in the design
     or operation of internal control over financial reporting which are
     reasonably likely to adversely affect the registrant's ability to record,
     process, summarize and report financial information; and

         (b) Any fraud, whether or not material, that involves management or
     other employees who have a significant role in the registrant's internal
     control over financial reporting.


Dated: May 10, 2005           /s/ Larry C. Oldham
                             -----------------------------------------
                             Larry C. Oldham, President and
                             Chief Executive Officer
                             (principal executive officer)


<PAGE>


                                                              EXHIBIT 31.2
                                 CERTIFICATIONS

I, Steven D. Foster, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Parallel Petroleum
Corporation.

2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report.

4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the
registrant and have:

         (a) Designed such disclosure controls and procedures, or caused such
     disclosure controls and procedures to be designed under our supervision, to
     ensure that material information relating to the registrant, including its
     consolidated subsidiaries, is made known to us by others within those
     entities, particularly during the period in which this report is being
     prepared;

         (b) Designed such internal control over financial reporting, or caused
     such internal control over financial reporting to be designed under our
     supervision, to provide reasonable assurance regarding the reliability of
     financial reporting and the preparation of financial statements for
     external purposes in accordance with generally accepted accounting
     principles;

         (c) Evaluated the effectiveness of the registrant's disclosure controls
     and procedures and presented in this report our conclusions about the
     effectiveness of the disclosure controls and procedures, as of the end of
     the period covered by this report based on such evaluation; and

         (d) Disclosed in this report any change in the registrant's internal
     control over financial reporting that occurred during the registrant's most
     recent fiscal quarter that has materially affected, or is reasonably likely
     to materially affect, the registrant's internal control over financial
     reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and audit committee of the registrant's board of directors
(or persons performing the equivalent functions):

         (a) All significant deficiencies and material weaknesses in the design
     or operation of internal control over financial reporting which are
     reasonably likely to adversely affect the registrant's ability to record,
     process, summarize and report financial information; and

         (b) Any fraud, whether or not material, that involves management or
     other employees who have a significant role in the registrant's internal
     control over financial reporting.

Dated:  May 10, 2005         /s/ Steven D. Foster
                             -----------------------------------------
                             Steven D. Foster
                             Chief Financial Officer
                             (principal financial officer)


<PAGE>


                                                             Exhibit 32.1


                                  CERTIFICATION


           (Not filed pursuant to the Securities Exchange Act of 1934)


         Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, the undersigned, Larry C. Oldham, the
President and Chief Executive Officer of Parallel Petroleum Corporation
("Parallel"), hereby certifies that the Quarterly Report on Form 10-Q of
Parallel for the quarter ended March 31, 2005 fully complies with the periodic
reporting requirements of the Securities Exchange Act of 1934, as amended, and
the information contained in that Form 10-Q Report fairly presents, in all
material respects, the financial condition and results of operations of
Parallel.

Dated: May 10, 2005



                             /s/ Larry C. Oldham
                             -----------------------------------------
                             Larry C. Oldham,
                             President and Chief Executive Officer



         A signed original of this written statement required by Section 906 has
been provided to Parallel Petroleum Corporation and will be retained by Parallel
Petroleum Corporation and furnished to the Securities and Exchange Commission or
its staff upon request.



<PAGE>



                                                              Exhibit 32.2


                                  CERTIFICATION

           (Not filed pursuant to the Securities Exchange Act of 1934)

         Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, the undersigned, Steven D. Foster, the Chief
Financial Officer of Parallel Petroleum Corporation ("Parallel"), hereby
certifies that the Quarterly Report on Form 10-Q of Parallel for the quarter
ended March 31, 2005 fully complies with the periodic reporting requirements of
the Securities Exchange Act of 1934, as amended, and the information contained
in that Form 10-Q Report fairly presents, in all material respects, the
financial condition and results of operations of Parallel.

Dated: May 10, 2005

                             /s/ Steven D. Foster
                             -----------------------------------------
                             Steven D. Foster,
                             Chief Financial Officer

         A signed original of this written statement required by Section 906 has
been provided to Parallel Petroleum Corporation and will be retained by Parallel
Petroleum Corporation and furnished to the Securities and Exchange Commission or
its staff upon request.