##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D. C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2007
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Transition period from  to
 Commission File Number 000-13305
 PARALLEL PETROLEUM CORPORATION
  Delaware
    
    75-1971716(State of other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)1004 N. Big Spring, Suite 400,Midland, Texas
    
    79701(Address of Principal Executive Offices)
    
    (Zip Code)
 (Registrants telephone number, including area code)
 (Former name, former address and former fiscal year, if changed since last report)
 þ o
  þ o o
 o þ




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##### 



Page No.PART I.  FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTSReference is made to the succeeding pages for the following consolidated financial statements:- Consolidated Balance Sheets as of September 30, 2007 (unaudited) and December 31, 2006
    
    
    1- Unaudited Consolidated Statements of Operations for the three months and nine months
ended September 30, 2007 and 2006
    
    
    2- Unaudited Consolidated Statements of Cash Flows for the nine months ended
September 30, 2007 and 2006
    
    
    3- Unaudited Consolidated Statements of Comprehensive Income for the three months
and nine months ended September 30, 2007 and 2006
    
    
    4- Notes to Consolidated Financial Statements
    
    
    5ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
    
    
    17ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    38ITEM 4. CONTROLS AND PROCEDURES
    
    
    41PART II.  OTHER INFORMATIONITEM 1. LEGAL PROCEEDINGS
    
    
    41ITEM 1A. RISK FACTORS
    
    
    41ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    46ITEM 6. EXHIBITS
    
    
    47SIGNATURESCertification of Principal Executive Officer - Section 302Certification of Principal Financial Officer - Section 302Certification of Chief Executive Officer - Section 906Certification of Chief Financial Officer - Section 906
  (i)




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PART
I.  FINANCIAL INFORMATION
 
   
  (dollars in thousands, except share data)
 September 30,
    
    
    December 31,2007
    
    
    2006(unaudited)AssetsCurrent assets:Cash and cash equivalents
    
    $
    5,318
    
    
    $
    5,910Accounts receivable:Oil and natural gas sales
    
    
    18,902
    
    
    
    18,605Joint interest owners and other, net of allowance for
doubtful account of $50 and $80
    
    
    3,507
    
    
    
    7,209Affiliates and joint ventures
    
    
    3,335
    
    
    
    3,33825,744
    
    
    
    29,152Other current assets
    
    
    1,515
    
    
    
    2,863Deferred tax asset
    
    
    6,514
    
    
    
    4,340Total current assets
    
    
    39,091
    
    
    
    42,265Property and equipment, at cost:Oil and natural gas properties, full cost method (including
$72,435 and $50,375 not
subject to depletion)
    
    
    609,216
    
    
    
    501,405Other
    
    
    2,839
    
    
    
    2,614612,055
    
    
    
    504,019Less accumulated depreciation, depletion and amortization
    
    
    (137,064
    )
    
    
    (115,513
    )Net property and equipment
    
    
    474,991
    
    
    
    388,506Restricted cash
    
    
    53
    
    
    
    325Investment in pipelines and gathering system ventures
    
    
    8,621
    
    
    
    6,454Other assets, net of accumulated amortization of
$1,386 and $760
    
    
    2,820
    
    
    
    5,268$
    525,576
    
    
    $
    442,818Liabilities and Stockholders EquityCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    42,556
    
    
    $
    36,171Asset retirement obligations
    
    
    583
    
    
    
    701Derivative obligations
    
    
    19,867
    
    
    
    14,109Total current liabilities
    
    
    63,006
    
    
    
    50,981Revolving credit facility
    
    
    89,000
    
    
    
    115,000Term loan
    
    
    
    
    
    
    50,000Senior notes (principal amount $150,000)
    
    
    145,300
    
    
    
    Asset retirement obligations
    
    
    4,219
    
    
    
    4,362Derivative obligations
    
    
    5,471
    
    
    
    14,386Deferred tax liability
    
    
    28,493
    
    
    
    24,307Total long-term liabilities
    
    
    272,483
    
    
    
    208,055Commitments and contingenciesStockholders equity:Series A preferred stock  par value $0.10 per share, authorized 50,000 shares
    
    
    
    
    
    
    Common stock  par value $0.01 per share, authorized 60,000,000
shares, issued and outstanding 38,231,144 and 37,547,010
    
    
    382
    
    
    
    375Additional paid-in capital
    
    
    142,991
    
    
    
    140,353Retained earnings
    
    
    46,714
    
    
    
    43,054Total stockholders equity
    
    
    190,087
    
    
    
    183,782$
    525,576
    
    
    $
    442,818
  (1)




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(unaudited)
 (in thousands, except per share data)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Oil and natural gas revenues:Oil and natural gas sales
    
    $
    29,487
    
    
    $
    29,490
    
    
    $
    79,957
    
    
    $
    82,360Loss on hedging
    
    
    
    
    
    
    (3,279
    )
    
    
    
    
    
    
    (9,264
    )Total revenues
    
    
    29,487
    
    
    
    26,211
    
    
    
    79,957
    
    
    
    73,096Cost and expenses:Lease operating expense
    
    
    6,445
    
    
    
    5,323
    
    
    
    16,420
    
    
    
    12,639Production taxes
    
    
    1,448
    
    
    
    1,538
    
    
    
    3,696
    
    
    
    4,116Production tax refund
    
    
    
    
    
    
    
    
    
    
    (1,209
    )
    
    
    General and administrative
    
    
    2,492
    
    
    
    2,405
    
    
    
    7,737
    
    
    
    7,147Depreciation, depletion and amortization
    
    
    7,821
    
    
    
    7,420
    
    
    
    21,680
    
    
    
    17,848Total costs and expenses
    
    
    18,206
    
    
    
    16,686
    
    
    
    48,324
    
    
    
    41,750Operating income
    
    
    11,281
    
    
    
    9,525
    
    
    
    31,633
    
    
    
    31,346Other income (expense), net:Gain (loss) on derivatives not classified as hedges
    
    
    (4,556
    )
    
    
    10,323
    
    
    
    (11,161
    )
    
    
    116Gain on ineffective portion of hedges
    
    
    
    
    
    
    305
    
    
    
    
    
    
    
    500Interest and other income
    
    
    55
    
    
    
    29
    
    
    
    163
    
    
    
    122Interest expense
    
    
    (5,429
    )
    
    
    (3,345
    )
    
    
    (13,449
    )
    
    
    (8,944
    )Cost of debt retirement
    
    
    (760
    )
    
    
    
    
    
    
    (760
    )
    
    
    Other expense
    
    
    (76
    )
    
    
    (96
    )
    
    
    (91
    )
    
    
    (164
    )Equity in loss of pipelines and gathering system ventures
    
    
    (69
    )
    
    
    (39
    )
    
    
    (663
    )
    
    
    (68
    )Total other income (expense), net
    
    
    (10,835
    )
    
    
    7,177
    
    
    
    (25,961
    )
    
    
    (8,438
    )Income before income taxes
    
    
    446
    
    
    
    16,702
    
    
    
    5,672
    
    
    
    22,908Income tax expense, deferred
    
    
    (153
    )
    
    
    (5,706
    )
    
    
    (2,011
    )
    
    
    (7,837
    )Net income
    
    $
    293
    
    
    $
    10,996
    
    
    $
    3,661
    
    
    $
    15,071Net income per common share:Basic
    
    $
    0.01
    
    
    $
    0.30
    
    
    $
    0.10
    
    
    $
    0.43Diluted
    
    $
    0.01
    
    
    $
    0.30
    
    
    $
    0.09
    
    
    $
    0.42Weighted average common shares outstanding:Basic
    
    
    38,033
    
    
    
    36,215
    
    
    
    37,791
    
    
    
    35,340Diluted
    
    
    38,767
    
    
    
    36,919
    
    
    
    38,806
    
    
    
    36,027
  (2)




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(unaudited)
 (dollars in thousands)
 2007
    
    
    2006Cash flows from operating activities:Net income
    
    $
    3,661
    
    
    $
    15,071Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation, depletion and amortization
    
    
    21,680
    
    
    
    17,848Gain on sale of automobiles
    
    
    (25
    )
    
    
    Accretion of asset retirement obligation
    
    
    243
    
    
    
    172Accretion of senior notes discount
    
    
    114
    
    
    
    Deferred income tax
    
    
    2,011
    
    
    
    7,837(Gain) loss on derivatives not classified as hedges
    
    
    11,161
    
    
    
    (116
    )Gain on ineffective portion of hedges
    
    
    
    
    
    
    (500
    )Cost of debt retirement
    
    
    760

    
    
    
    Common stock issued in lieu of cash for directors fees
    
    
    96
    
    
    
    100Stock option expense
    
    
    161
    
    
    
    435Equity in loss of pipelines and gathering system ventures
    
    
    663
    
    
    
    68Bad debt expense
    
    
    (30
    )
    
    
    Changes in assets and liabilities:Other assets, net
    
    
    226
    
    
    
    1,140Restricted cash
    
    
    272
    
    
    
    (50
    )Decrease (increase) in accounts receivable
    
    
    3,438
    
    
    
    (12,084
    )Decrease (increase) in other current assets
    
    
    713
    
    
    
    (151
    )Increase in accounts payable and accrued liabilities
    
    
    6,385
    
    
    
    14,880Federal tax deposit
    
    
    
    
    
    
    (40
    )Net cash provided by operating activities
    
    
    51,529
    
    
    
    44,610Cash flows from investing activities:Additions to oil and natural gas properties
    
    
    (110,015
    )
    
    
    (147,058
    )Use of restricted cash for acquisition of oil and natural gas properties
    
    
    
    
    
    
    2,366Proceeds from disposition of oil and natural gas properties and other property and equipment
    
    
    1,711
    
    
    
    130Additions to other property and equipment
    
    
    (340
    )
    
    
    (800
    )Settlements on derivative instruments
    
    
    (9,875
    )
    
    
    (3,568
    )Investment in pipelines and gathering system ventures
    
    
    (2,830
    )
    
    
    (9,688
    )Net cash used in investing activities
    
    
    (121,349
    )
    
    
    (158,618
    )Cash flows from financing activities:Borrowings from bank line of credit
    
    
    68,500
    
    
    
    90,000Payments on bank line of credit
    
    
    (94,500
    )
    
    
    (43,000
    )Payment on term loan
    
    
    (50,000
    )
    
    
    Senior notes (principal amount $150,000)
    
    
    145,186
    
    
    
    Deferred financing cost
    
    
    (2,346
    )
    
    
    (179
    )Proceeds (net) from common stock issued
    
    
    
    
    
    
    60,315Proceeds from exercise of stock options
    
    
    2,388
    
    
    
    766Net cash provided by financing activities
    
    
    69,228
    
    
    
    107,902Net decrease in cash and cash equivalents
    
    
    (592
    )
    
    
    (6,106
    )Cash and cash equivalents at beginning of period
    
    
    5,910
    
    
    
    6,418Cash and cash equivalents at end of period
    
    $
    5,318
    
    
    $
    312Non-cash financing and investing activities:Oil and natural gas properties asset retirement obligations
    
    $
    (505
    )
    
    $
    1,957Non-cash exchange of oil and natural gas propertiesProperties received in exchange
    
    $
    6,463
    
    
    $
    Properties delivered in exchange
    
    $
    (5,495
    )
    
    $
    Other transactions:Interest paid
    
    $
    10,451
    
    
    $
    9,065
  (3)




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(unaudited)
 (dollars in thousands)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income
    
    $
    293
    
    
    $
    10,996
    
    
    $
    3,661
    
    
    $
    15,071Other comprehensive loss:Unrealized gain (loss) on derivatives
    
    
    
    
    
    
    634
    
    
    
    
    
    
    
    (1,750
    )Reclassification adjustments for losses
on derivatives included in net income
    
    
    
    
    
    
    3,240
    
    
    
    
    
    
    
    9,191Change in fair value of derivatives
    
    
    
    
    
    
    3,874
    
    
    
    
    
    
    
    7,441Income tax expense
    
    
    
    
    
    
    (1,317
    )
    
    
    
    
    
    
    (2,530
    )Total other comprehensive income
    
    
    
    
    
    
    2,557
    
    
    
    
    
    
    
    4,911Total comprehensive income
    
    $
    293
    
    
    $
    13,553
    
    
    $
    3,661
    
    
    $
    19,982
  (4)




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##### Table of Contents



PARALLEL PETROLEUM CORPORATION
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1. DESCRIPTION OF BUSINESS  NATURE OF OPERATIONS AND BASIS OF PRESENTATION
   
    
    Permian Basin of west Texas and New Mexico;
    
    Fort Worth Basin of north Texas; and
    
    the onshore gulf coast area of south Texas.
     NOTE
2. STOCKHOLDERS EQUITY
 Options
 Share-Based
Payment
  (5)




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##### Table of Contents



(in thousands)Fourth quarter 2007
    
    
    862008
    
    
    2282009 through 2011
    
    
    122Total
    
    $
    436
   2007
    
    
    2005
    
    
    2001Expected volatility
    
    
    52.52
    %
    
    
    54.20
    %
    
    
    57.95
    %Expected dividends
    
    
    0.00
    
    
    
    0.00
    
    
    
    0.00Expected term (in years)
    
    
    6
    
    
    
    7
    
    
    
    8Risk-free rate
    
    
    4.89
    %
    
    
    4.20
    %
    
    
    5.05
    %
 (6)




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##### Table of Contents



WeightedAverageRemainingWeighted Average
    
    
    Contractual
    
    
    AggregateOptions
    
    
    Exercise Price
    
    
    Term
    
    
    Intrinsic Value(in thousands)
    
    
    
    
    
    (years)
    
    
    (in thousands)Outstanding December 31, 2006
    
    
    1,199
    
    
    $
    5.40Granted
    
    
    17
    
    
    $
    22.89Exercised
    
    
    (597
    )
    
    $
    4.00Forfeited
    
    
    (40
    )
    
    $
    12.27Outstanding September 30, 2007
    
    
    579
    
    
    $
    6.90
    
    
    
    6.1
    
    
    $
    5,844Exercisable at September 30, 2007
    
    
    442
    
    
    $
    5.30
    
    
    
    5.2
    
    
    $
    5,163
 (in thousands)Intrinsic Value of Options Exercised Nine Months Ended September 30, 2007
    
    $
    9,705Intrinsic Value of Options Exercised Nine Months Ended September 30, 2006
    
    $
    2,855Fair Market Value of Options Granted Nine Months Ended September 30, 2007
    
    $
    218Fair Market Value of Options Granted Nine Months Ended September 30, 2006
    
    $
    
  NOTE 3. CREDIT ARRANGEMENTS
  Revolving Credit Facility
  (7)




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##### Table of Contents



Second Lien Term Loan Facility
 1 2
  (8)




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##### Table of Contents



Senior Notes
   (9)




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##### Table of Contents



Interest Accrued
  NOTE 4. PROPERTY EXCHANGE
  NOTE 5. FULL COST CEILING TEST
   (10)




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##### Table of Contents



NOTE 6. DERIVATIVE INSTRUMENTS
 General
    Interest Rate Sensitivity
    EstimatedNotional
    
    
    Fixed
    
    
    FairPeriod of Time
    
    Amounts
    
    
    Interest Rates
    
    
    Market Value($ in millions)
    
    
    
    
    
    
    ($ in thousands)October 1, 2007 thru December 31, 2007
    
    $
    100
    
    
    
    4.62
    %
    
    $
    161January 1, 2008 thru December 31, 2008
    
    $
    100
    
    
    
    4.86
    %
    
    
    (323
    )January 1, 2009 thru December 31, 2009
    
    $
    50
    
    
    
    5.06
    %
    
    
    (283
    )January 1, 2010 thru October 31, 2010
    
    $
    50
    
    
    
    5.15
    %
    
    
    (146
    )Total Fair Market Value
    
    
    
    
    
    
    
    
    
    $
    (591
    )
 (11)




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##### Table of Contents



Commodity Price Sensitivity
  Collars.
  EstimatedBarrles of
    
    NyMex Oil Prices
    
    Fair MarketPeriod of Time
    
    Oil
    
    Floor
    
    Cap
    
    Value($ in thousands)October 1, 2007 thru December 31, 2007
    
    
    73,600
    
    
    $
    55.63
    
    
    $
    84.88
    
    
    $
    (108
    )January 1, 2008 thru December 31, 2008
    
    
    237,900
    
    
    $
    60.38
    
    
    $
    81.08
    
    
    
    (553
    )January 1, 2009 thru December 31, 2009
    
    
    620,500
    
    
    $
    63.53
    
    
    $
    80.21
    
    
    
    (473
    )January 1, 2010 thru October 31, 2010
    
    
    486,400
    
    
    $
    63.44
    
    
    $
    78.26
    
    
    
    (80
    )
 Houston ShipM M Btu of
    
    Channel Gas PricesNatural Gas
    
    Floor
    
    CapOctober 1, 2007 thru October 31, 2007
    
    
    31,000
    
    
    $
    6.00
    
    
    $
    11.05
    
    
    
    
 M M Btu of
    
    
    WAHA Gas PricesNatural Gas
    
    
    Floor
    
    
    CapOctober 1, 2007 thru October 31, 2007
    
    
    93,000
    
    
    $
    6.25
    
    
    $
    8.90
    
    
    
    75October 1, 2007 thru March 31, 2008
    
    
    1,098,000
    
    
    $
    6.50
    
    
    $
    9.50
    
    
    
    472Total Fair Market Value
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (667
    )
 Commodity Swaps.
  EstimatedNumber of
    
    
    NyMex Oil
    
    
    Fair MarketPeriod of Time
    
    Barrels of Oil
    
    
    Swap Price
    
    
    Value($ in thousands)October 1, 2007 thru December 31, 2007
    
    
    119,600
    
    
    $
    34.36
    
    
    $
    (5,411
    )January 1, 2008 thru December 31, 2008
    
    
    439,200
    
    
    $
    33.37
    
    
    
    (17,923
    )Total fair market value
    
    
    
    
    
    
    
    
    
    $
    (23,334
    )
 (12)




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NOTE 7. NET INCOME PER COMMON SHARE
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(dollars in thousands, except per share data)Basic EPS Computation:Numerator-Income
    
    $
    293
    
    
    $
    10,996
    
    
    $
    3,661
    
    
    $
    15,071Denominator-Weighted average common shares outstanding
    
    
    38,033
    
    
    
    36,215
    
    
    
    37,791
    
    
    
    35,340Basic EPS:Income per share
    
    $
    0.01
    
    
    $
    0.30
    
    
    $
    0.10
    
    
    $
    0.43Diluted EPS Computation:Numerator-Income
    
    $
    293
    
    
    $
    10,996
    
    
    $
    3,661
    
    
    $
    15,071Denominator -Weighted average common shares outstanding
    
    
    38,033
    
    
    
    36,215
    
    
    
    37,791
    
    
    
    35,340Employee stock options
    
    
    521
    
    
    
    596
    
    
    
    749
    
    
    
    581Warrants
    
    
    213
    
    
    
    108
    
    
    
    266
    
    
    
    106Weighted average common shares for diluted
earnings per share assuming conversion
    
    
    38,767
    
    
    
    36,919
    
    
    
    38,806
    
    
    
    36,027Diluted EPS:Income per share
    
    $
    0.01
    
    
    $
    0.30
    
    
    $
    0.09
    
    
    $
    0.42
 (13)




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NOTE 8. ASSET RETIREMENT OBLIGATIONS
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(in thousands)Beginning asset retirement obligation
    
    $
    4,842
    
    
    $
    4,420
    
    
    $
    5,063
    
    
    $
    2,495Additions related to new properties
    
    
    85
    
    
    
    123
    
    
    
    151
    
    
    
    314Revisions in estimated cash flows
    
    
    (130
    )
    
    
    11
    
    
    
    (297
    )
    
    
    1,674Deletions related to property disposals
    
    
    (74
    )
    
    
    
    
    
    
    (358
    )
    
    
    (30
    )Accretion expense
    
    
    79
    
    
    
    71
    
    
    
    243
    
    
    
    172Ending asset retirement obligation
    
    $
    4,802
    
    
    $
    4,625
    
    
    $
    4,802
    
    
    $
    4,625
 NOTE 9. RECENTLY ANNOUNCED ACCOUNTING PRONOUNCEMENTS
      (14)




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##### Table of Contents



NOTE 10. INVESTMENT IN GAS GATHERING SYSTEMS
    West Fork Pipeline Company II, L.P.
    
    
    35.8750
    %Hagerman Gas Gathering System
    
    
    76.5000
    %
   September 30,
    
    
    December 31,2007
    
    
    2006($ in thousands)West Fork Pipeline Company II, L.P.
    
    $
    306
    
    
    $
    280Hagerman Gas Gathering System
    
    
    8,315
    
    
    
    6,174$
    8,621
    
    
    $
    6,454
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006($ in thousands)
    
    
    ($ in thousands)West Fork Pipeline Company I, L.P.
    
    $
    
    
    
    $
    169
    
    
    $
    
    
    
    $
    195West Fork Pipeline Company II, L.P.
    
    
    
    
    
    
    (15
    )
    
    
    5
    
    
    
    (35
    )West Fork Pipeline Company V, L.P.
    
    
    
    
    
    
    (22
    )
    
    
    
    
    
    
    (57
    )Hagerman Gas Gathering System
    
    
    (69
    )
    
    
    (171
    )
    
    
    (668
    )
    
    
    (171
    )$
    (69
    )
    
    $
    (39
    )
    
    $
    (663
    )
    
    $
    (68
    )
 (15)




---



##### Table of Contents



September 30,
    
    December 31,2007
    
    2006($ in thousands)Balance SheetCurrent assets
    
    $
    601
    
    
    $
    1,408Non-current assets
    
    
    11,032
    
    
    
    8,351Current liabilities
    
    
    541
    
    
    
    1,329Owners equity
    
    
    11,092
    
    
    
    8,430
 Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006($ in thousands)
    
    
    ($ in thousands)Income StatementRevenues
    
    $
    181
    
    
    $
    1,276
    
    
    $
    346
    
    
    $
    2,383Costs and expenses
    
    
    (426
    )
    
    
    (963
    )
    
    
    (1,234
    )
    
    
    (1,971
    )Net income (loss)
    
    $
    (245
    )
    
    $
    313
    
    
    $
    (888
    )
    
    $
    412
 NOTE 11. COMMITMENTS AND CONTINGENCIES
    (16)




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
  OVERVIEW
 Strategy
 Conduct Exploitation Activities on Our Existing Assets.
 Accelerate Horizontal Drilling and Fracture Stimulation Activities in Gas Resource Plays.
 Use Advanced Technologies and Production Techniques.
 Acquire Long-Lived Properties with Enhancement Opportunities.
 (17)




---



##### Table of Contents



Conduct Exploratory Activities.
  
    
    the prices we receive for the oil and natural gas we produce;
    
    the results of reprocessing and reinterpreting our 3-D seismic data;
    
    the results of our drilling activities;
    
    the costs of obtaining high quality field services;
    
    our ability to find and consummate acquisition opportunities; and
    
    our ability to negotiate and enter into work to earn arrangements, joint venture or
other similar agreements on terms acceptable to us.
  Operating Performance
  
    
    seasonal demand;
    
    weather;
    
    hurricane conditions in the Gulf of Mexico;
    
    availability of pipeline transportation to end users;
    
    proximity of our wells to major transportation pipeline infrastructures; and
    
    to a lesser extent, world oil prices.
 
  
    
    production expenses;
    
    overhead requirements;
    
    costs of capital; and
    
    effects of derivative contracts.
 (18)




---



##### Table of Contents




    
    cash flow from operations;
    
    sales of our equity and debt securities;
    
    bank borrowings; and
    
    industry joint ventures.
     (19)




---



##### Table of Contents



Results of Operations
  
    
    reserve base;
    
    sources of production;
    
    product mix (gas versus oil volumes); and
    
    the prices we receive for our oil and natural gas production.
  Three Months Ended
    
    
    Nine Months Ended9/30/2007
    
    
    9/30/2006
    
    
    9/30/2007
    
    
    9/30/2006(in thousands, except per unit data)Production Volumes:Oil (Bbls)
    
    
    254
    
    
    
    282
    
    
    
    797
    
    
    
    848Natural gas (Mcf)
    
    
    2,043
    
    
    
    2,001
    
    
    
    5,243
    
    
    
    4,894BOE (1)
    
    
    595
    
    
    
    616
    
    
    
    1,671
    
    
    
    1,664BOE per day
    
    
    6.5
    
    
    
    6.7
    
    
    
    6.1
    
    
    
    6.1Sales Prices:Oil (per
Bbl) (2)
    
    $
    69.45
    
    
    $
    64.53
    
    
    $
    59.98
    
    
    $
    61.88Natural gas (per Mcf)
    
    $
    5.81
    
    
    $
    5.64
    
    
    $
    6.14
    
    
    $
    6.11BOE price (2)
    
    $
    49.62
    
    
    $
    47.91
    
    
    $
    47.86
    
    
    $
    49.50BOE price (3)
    
    $
    49.62
    
    
    $
    42.58
    
    
    $
    47.86
    
    
    $
    43.93Operating RevenuesOil
    
    $
    17,619
    
    
    $
    18,194
    
    
    $
    47,786
    
    
    $
    52,478Oil hedge
    
    
    
    
    
    
    (3,279
    )
    
    
    
    
    
    
    (9,264
    )Natural gas
    
    
    11,868
    
    
    
    11,296
    
    
    
    32,171
    
    
    
    29,882$
    29,487
    
    
    $
    26,211
    
    
    $
    79,957
    
    
    $
    73,096Operating Expenses:Lease operating expense
    
    $
    6,445
    
    
    $
    5,323
    
    
    $
    16,420
    
    
    $
    12,639Production taxes
    
    
    1,448
    
    
    
    1,538
    
    
    
    3,696
    
    
    
    4,116Production tax refund
    
    
    
    
    
    
    
    
    
    
    (1,209
    )
    
    
    General and administrative
    
    
    2,492
    
    
    
    2,405
    
    
    
    7,737
    
    
    
    7,147Depreciation, depletion and amortization
    
    
    7,821
    
    
    
    7,420
    
    
    
    21,680
    
    
    
    17,848$
    18,206
    
    
    $
    16,686
    
    
    $
    48,324
    
    
    $
    41,750Operating income
    
    $
    11,281
    
    
    $
    9,525
    
    
    $
    31,633
    
    
    $
    31,346
 
 (1)
    
    A BOE means one barrel of oil equivalent using the ratio of six Mcf of gas
to one barrel of oil.(2)
    
    Unhedged price is the actual price received at the wellhead for our oil.(3)
    
    Hedged price is the actual price received at the wellhead for our oil and natural
gas plus or minus the settlements on our cash flow hedges. (20)




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##### Table of Contents



RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006:
  Oil
and Gas Revenues
 Revenues(1)
    
    Production2007
    
    2006
    
    2007
    
    2006Oil (Bbls)
    
    
    60
    %
    
    
    57
    %
    
    
    43
    %
    
    
    46
    %Natural gas (Mcf)
    
    
    40
    %
    
    
    43
    %
    
    
    57
    %
    
    
    54
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 
 (1)
    
    Includes hedge transactions  Three Months Ended September 30,
    
    
    Increase
    
    
    % Increase2007
    
    
    2006
    
    
    (Decrease)
    
    
    (Decrease)(in thousands except per unit data)Production VolumesOil (Bbls)
    
    
    254
    
    
    
    282
    
    
    
    (28
    )
    
    
    (10
    )%Natural gas (Mcf)
    
    
    2,043
    
    
    
    2,001
    
    
    
    42
    
    
    
    2
    %BOE
    
    
    595
    
    
    
    616
    
    
    
    (22
    )
    
    
    (3
    )%BOE/Day
    
    
    6.5
    
    
    
    6.7
    
    
    
    (0.2
    )
    
    
    (3
    )%Sales PriceOil (per Bbl)(1)
    
    $
    69.45
    
    
    $
    64.53
    
    
    $
    4.92
    
    
    
    8
    %Natural gas (per Mcf)
    
    $
    5.81
    
    
    $
    5.64
    
    
    $
    0.17
    
    
    
    3
    %BOE price(1)
    
    $
    49.62
    
    
    $
    47.91
    
    
    $
    1.71
    
    
    
    4
    %BOE price(2)
    
    $
    49.62
    
    
    $
    42.58
    
    
    $
    7.04
    
    
    
    17
    %Operating RevenuesOil
    
    $
    17,619
    
    
    $
    18,194
    
    
    $
    (575
    )
    
    
    (3
    )%Oil hedges
    
    
    
    
    
    
    (3,279
    )
    
    
    3,279
    
    
    
    (100
    )%Natural gas
    
    
    11,868
    
    
    
    11,296
    
    
    
    572
    
    
    
    5
    %Total
    
    $
    29,487
    
    
    $
    26,211
    
    
    $
    3,276
    
    
    
    12
    %
 
 (1)
    
    Excludes hedge transactions.(2)
    
    Includes hedge transactions. Oil revenues
  (21)




---



##### Table of Contents



Natural gas revenues
  Oil hedges
  Cost
and Expenses
 Three months ended September 30,
    
    
    Increase
    
    
    % Increase2007
    
    
    2006
    
    
    (Decrease)
    
    
    (Decrease)(dollars in thousands)Lease operating expense
    
    $
    6,445
    
    
    $
    5,323
    
    
    $
    1,122
    
    
    
    21
    %Production taxes
    
    
    1,448
    
    
    
    1,538
    
    
    
    (90
    )
    
    
    (6
    )%General and administrative
    
    
    2,492
    
    
    
    2,405
    
    
    
    87
    
    
    
    4
    %Depreciation, depletion and amortization
    
    
    7,821
    
    
    
    7,420
    
    
    
    401
    
    
    
    5
    %Total
    
    $
    18,206
    
    
    $
    16,686
    
    
    $
    1,520
    
    
    
    9
    %
 Lease operating expense
  Production taxes
  General and administrative
  (22)




---



##### Table of Contents



Depreciation, depletion and amortization
  Other
income (expense)
 Three months ended September 30,
    
    
    Increase
    
    
    % Increase2007
    
    
    2006
    
    
    (Decrease)
    
    
    (Decrease)(dollars in thousands)Gain (loss) on derivatives not classified as hedges
    
    $
    (4,556
    )
    
    $
    10,323
    
    
    
    (14,879
    )
    
    
    (144
    )%Gain on ineffective portion of hedges
    
    
    
    
    
    
    305
    
    
    
    (305
    )
    
    
    (100
    )%Interest and other income
    
    
    55
    
    
    
    29
    
    
    
    26
    
    
    
    90
    %Interest expense, net
    
    
    (5,429
    )
    
    
    (3,345
    )
    
    
    (2,084
    )
    
    
    62
    %Cost of debt retirement
    
    
    (760
    )
    
    
    
    
    
    
    (760
    )
    
    
    N/AOther expense
    
    
    (76
    )
    
    
    (96
    )
    
    
    20
    
    
    
    (21
    )%Equity in loss of pipelines
and gathering system ventures
    
    
    (69
    )
    
    
    (39
    )
    
    
    (30
    )
    
    
    77
    %Total
    
    $
    (10,835
    )
    
    $
    7,177
    
    
    $
    (18,012
    )
    
    
    (251
    )%
 Gain (loss) on derivatives not classified as hedges
  Interest expense
  Cost of debt retirement
  Equity in loss of pipelines and gathering system ventures
  (23)




---



##### Table of Contents



Federal income tax
  Basic and diluted net income
  RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006:
  Oil
and Gas Revenues
 Revenues(1)
    
    Production2007
    
    2006
    
    2007
    
    2006Oil (Bbls)
    
    
    60
    %
    
    
    59
    %
    
    
    48
    %
    
    
    51
    %Natural gas (Mcf)
    
    
    40
    %
    
    
    41
    %
    
    
    52
    %
    
    
    49
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 
 (1)
    
    Includes hedge transactions (24)




---



##### Table of Contents



Nine Months Ended September 30,
    
    
    Increase
    
    
    % Increase2007
    
    
    2006
    
    
    (Decrease)
    
    
    (Decrease)(in thousands except per unit data)Production VolumesOil (Bbls)
    
    
    797
    
    
    
    848
    
    
    
    (51
    )
    
    
    (6
    )%Natural gas (Mcf)
    
    
    5,243
    
    
    
    4,894
    
    
    
    349
    
    
    
    7
    %BOE
    
    
    1,671
    
    
    
    1,664
    
    
    
    7
    
    
    
    0
    %BOE/Day
    
    
    6.1
    
    
    
    6.1
    
    
    
    
    
    
    
    0
    %Sales PriceOil (per Bbl)(1)
    
    $
    59.98
    
    
    $
    61.88
    
    
    $
    (1.90
    )
    
    
    (3
    )%Natural gas (per Mcf)
    
    $
    6.14
    
    
    $
    6.11
    
    
    $
    0.03
    
    
    
    0
    %BOE price(1)
    
    $
    47.86
    
    
    $
    49.50
    
    
    $
    (1.64
    )
    
    
    (3
    )%BOE price(2)
    
    $
    47.86
    
    
    $
    43.93
    
    
    $
    3.93
    
    
    
    9
    %Operating RevenuesOil
    
    $
    47,786
    
    
    $
    52,478
    
    
    
    (4,692
    )
    
    
    (9
    )%Oil hedges
    
    
    
    
    
    
    (9,264
    )
    
    
    9,264
    
    
    
    (100
    )%Natural gas
    
    
    32,171
    
    
    
    29,882
    
    
    
    2,289
    
    
    
    8
    %Total
    
    $
    79,957
    
    
    $
    73,096
    
    
    $
    6,861
    
    
    
    9
    %
 
 (1)
    
    Excludes hedge transactions.(2)
    
    Includes hedge transactions. Oil revenues
  Natural gas revenues
  (25)




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##### Table of Contents



Oil hedges
  Cost
and Expenses
 Nine months ended September 30,
    
    
    Increase
    
    
    % Increase2007
    
    
    2006
    
    
    (Decrease)
    
    
    (Decrease)(dollars in thousands)Lease operating expense
    
    $
    16,420
    
    
    $
    12,639
    
    
    $
    3,781
    
    
    
    30
    %Production taxes
    
    
    3,696
    
    
    
    4,116
    
    
    
    (420
    )
    
    
    (10
    )%Production tax refund
    
    
    (1,209
    )
    
    
    
    
    
    
    (1,209
    )
    
    
    N/AGeneral and administrative
    
    
    7,737
    
    
    
    7,147
    
    
    
    590
    
    
    
    8
    %Depreciation, depletion and amortization
    
    
    21,680
    
    
    
    17,848
    
    
    
    3,832
    
    
    
    21
    %Total
    
    $
    48,324
    
    
    $
    41,750
    
    
    $
    6,574
    
    
    
    16
    %
 Lease operating expense
  Production taxes
   General and administrative
  (26)




---



##### Table of Contents



Depreciation, depletion and amortization
  Other
income (expense)
 Nine months ended September 30,
    
    
    Increase
    
    
    % Increase2007
    
    
    2006
    
    
    (Decrease)
    
    
    (Decrease)(dollars in thousands)Gain (loss) on derivatives not classified as hedges
    
    $
    (11,161
    )
    
    $
    116
    
    
    $
    (11,277
    )
    
    
    (9,722
    )%Gain on ineffective portion of hedges
    
    
    
    
    
    
    500
    
    
    
    (500
    )
    
    
    (100
    )%Interest and other income
    
    
    163
    
    
    
    122
    
    
    
    41
    
    
    
    34
    %Interest expense, net
    
    
    (13,449
    )
    
    
    (8,944
    )
    
    
    (4,505
    )
    
    
    50
    %Cost of debt retirement
    
    
    (760
    )
    
    
    
    
    
    
    (760
    )
    
    
    N/AOther expense
    
    
    (91
    )
    
    
    (164
    )
    
    
    73
    
    
    
    (45
    )%Equity in loss of pipelines
and gathering system ventures
    
    
    (663
    )
    
    
    (68
    )
    
    
    (595
    )
    
    
    875
    %Total
    
    $
    (25,961
    )
    
    $
    (8,438
    )
    
    $
    (17,523
    )
    
    
    208
    %
 Gain (loss) on derivatives not classified as hedges
  (27)




---



##### Table of Contents



Interest expense
   Cost of debt retirement
  Equity in loss of pipelines and gathering system venturers
  Federal income tax
  Basic and diluted net income
 
 LIQUIDITY AND CAPITAL RESOURCES
   (28)




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##### Table of Contents



Credit Arrangements
    Revolving Credit Facility
  (29)




---



##### Table of Contents




    
    reducing the borrowing base from $190.0 million to $150.0 million;
 
    
    providing that our ratio of Consolidated Funded Debt to Consolidated EBITDA (as
defined in the Revolving Credit Agreement) shall not exceed (i) 4.25 to 1.00 during the
year 2007; (ii) 4.00 to 1.00 during the year 2008; or (iii) 3.50 to 1.00 during the
year 2009 and thereafter, in
 (30)




---



##### Table of Contents



each case calculated at the end of each fiscal quarter
using the results of the twelve-month period immediately preceding the end of each such
fiscal quarter;
 
    
    allowing for the issuance and sale of the senior notes;
 
    
    providing that an event of default under the senior notes will also constitute an
event of default under the Revolving Credit Agreement.
 Second Lien Term Loan Facility
      Senior Notes
  (31)




---



##### Table of Contents



Shelf Registration
   Interest Accrued
  Commodity Price Risk Management Transactions and Effects of Derivative Instruments
     (32)




---



##### Table of Contents



Contractual Obligations, Commitments and Off-Balance Sheet Arrangements
   Obligation Due in PeriodThree monthsendingDecember 31,
    
    
    Periods ending December 31,
    
    
    AfterContractual Cash Obligations
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    5 years
    
    
    Total(in thousands)Revolving Credit Facility
(secured)(1)
    
    $
    1,714
    
    
    $
    6,818
    
    
    $
    6,800
    
    
    $
    94,663
    
    
    $
    
    
    
    $
    
    
    
    $
    109,995Senior Notes (unsecured)(2)
    
    
    
    
    
    
    15,418
    
    
    
    15,375
    
    
    
    15,375
    
    
    
    15,375
    
    
    
    196,125
    
    
    
    257,668Office Lease (Dinero Plaza)
    
    
    51
    
    
    
    210
    
    
    
    216
    
    
    
    36
    
    
    
    
    
    
    
    
    
    
    
    513Andrews and Snyder Field
Offices(3)
    
    
    5
    
    
    
    14
    
    
    
    14
    
    
    
    14
    
    
    
    14
    
    
    
    598
    
    
    
    659Asset retirement
obligations(4)
    
    
    474
    
    
    
    150
    
    
    
    103
    
    
    
    122
    
    
    
    53
    
    
    
    3,900
    
    
    
    4,802Derivative Obligations
    
    
    5,520
    
    
    
    18,813
    
    
    
    780
    
    
    
    225
    
    
    
    
    
    
    
    
    
    
    
    25,338Total
    
    $
    7,764
    
    
    $
    41,423
    
    
    $
    23,288
    
    
    $
    110,435
    
    
    $
    15,442
    
    
    $
    200,623
    
    
    $
    398,975
 
 (1)
    
    Outstanding principal of $89.0 million due October 31, 2010 and estimated interest obligation
calculated using the weighted average rate at September 30, 2007 of 7.64%(2)
    
    Principal of $150.0 million due August 1, 2014 bearing interest at 10.25% which is payable
semi-annually beginning February 1, 2008.(3)
    
    The Snyder office lease expires up on the cessation of
production from the Diamond M area
wells. The Andrews office lease would have expired in December 2007, however, Parallel exercised
an option to purchase this office lease at the end of October 2007. The lease cost for these two
office facilities are billed to nonaffiliated third party working interest owners under our joint
agreements with these third parties.(4)
    
    Assets retirement obligations of oil and natural gas assets, excluding salvage value and
accretion.   Outlook
  
    
    internally generated cash from operations;
 (33)




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##### Table of Contents




    
    proceeds from bank borrowings; and
    
    proceeds from sales of equity securities.
  
    
    our proved reserves;
    
    the volumes of oil and natural gas we produce from existing wells;
    
    the prices at which we sell oil and natural gas; and
    
    our ability to acquire, locate and produce new reserves.
  
    
    increased bank borrowings;
    
    sales of Parallels securities;
    
    sales of non-core properties; or
    
    other forms of financing.
  Oil and Natural Gas Price Trends
    Production Trends
  (34)




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##### Table of Contents



Lease Operating Expense Trends
  Interest Expense Trends
  Recent Accounting Pronouncements
   (35)




---



##### Table of Contents



Critical Accounting Policies
  FORWARD-LOOKING STATEMENTS
 Cautionary Statement Regarding Forward-Looking Statements
  
    
    our future financial and operating performance and results;
    
    our drilling plans and ability to secure drilling rigs to effectuate our plans;
    
    production volumes;
    
    availability of natural gas gathering and transmission facilities;
    
    our business strategy;
    
    market prices;
 
    
    sources of funds necessary to conduct operations and complete acquisitions;
    
    development costs;
    
    number and location of planned wells;
 (36)




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##### Table of Contents




    
    our future commodity price risk management activities; and
    
    our plans and forecasts.
   
    
    fluctuations in prices of oil and natural gas;
    
    dependent on key personnel;
    
    reliance on technological development and technology development programs;
    
    demand for oil and natural gas;
    
    losses due to future litigation;
    
    future capital requirements and availability of financing;
    
    geological concentration of our reserves;
    
    risks associated with drilling and operating wells;
    
    competition;
    
    general economic conditions;
    
    governmental regulations and liability for environmental matters;
    
    receipt of amounts owed to us by customers and counterparties to our derivative
contracts;
    
    derivative decisions, including whether or not to hedge;
    
    terrorist attacks or war;
    
    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.
  (37)




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Interest Rate Sensitivity as of September 30, 2007
  2011 and2007
    
    2008
    
    2009
    
    2010
    
    after
    
    Total(in thousands, except interest rates)Revolving Facility (secured)
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    89,000
    
    
    $
    
    
    
    $
    89,000Average interest rate
    
    
    7.64
    %
    
    
    7.64
    %
    
    
    7.64
    %
    
    
    7.64
    %
    
    
    Senior notes
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    150,000
    
    
    $
    150,000Average interest rate
    
    
    10.25
    %
    
    
    10.25
    %
    
    
    10.25
    %
    
    
    10.25
    %
    
    
    10.25
    %
    (38)




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##### Table of Contents



EstimatedNotional
    
    
    Fixed
    
    
    FairPeriod of Time
    
    Amounts
    
    
    Interest Rates
    
    
    Market Value($ in millions)
    
    
    
    
    
    
    ($ in thousands)October 1, 2007 thru December 31, 2007
    
    $
    100
    
    
    
    4.62
    %
    
    $
    161January 1, 2008 thru December 31, 2008
    
    $
    100
    
    
    
    4.86
    %
    
    
    (323
    )January 1, 2009 thru December 31, 2009
    
    $
    50
    
    
    
    5.06
    %
    
    
    (283
    )January 1, 2010 thru October 31, 2010
    
    $
    50
    
    
    
    5.15
    %
    
    
    (146
    )Total Fair Market Value
    
    
    
    
    
    
    
    
    
    $
    (591
    )
 Commodity Price Sensitivity as of September 30, 2007
    (39)




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##### Table of Contents



Collars.
  EstimatedBarrles of
    
    NyMex Oil Prices
    
    Fair MarketPeriod of Time
    
    Oil
    
    Floor
    
    Cap
    
    Value($ in thousands)October 1, 2007 thru December 31, 2007
    
    
    73,600
    
    
    $
    55.63
    
    
    $
    84.88
    
    
    $
    (108
    )January 1, 2008 thru December 31, 2008
    
    
    237,900
    
    
    $
    60.38
    
    
    $
    81.08
    
    
    
    (553
    )January 1, 2009 thru December 31, 2009
    
    
    620,500
    
    
    $
    63.53
    
    
    $
    80.21
    
    
    
    (473
    )January 1, 2010 thru October 31, 2010
    
    
    486,400
    
    
    $
    63.44
    
    
    $
    78.26
    
    
    
    (80
    )
 Houston ShipM M Btu of
    
    Channel Gas PricesNatural Gas
    
    Floor
    
    CapOctober 1, 2007 thru October 31, 2007
    
    
    31,000
    
    
    $
    6.00
    
    
    $
    11.05
    
    
    
    
 M M Btu of
    
    
    WAHA Gas PricesNatural Gas
    
    
    Floor
    
    
    CapOctober 1, 2007 thru October 31, 2007
    
    
    93,000
    
    
    $
    6.25
    
    
    $
    8.90
    
    
    
    75October 1, 2007 thru March 31, 2008
    
    
    1,098,000
    
    
    $
    6.50
    
    
    $
    9.50
    
    
    
    472Total Fair Market Value
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (667
    )
 Commodity Swaps.
  EstimatedNumber of
    
    
    NyMex Oil
    
    
    Fair MarketPeriod of Time
    
    Barrels of Oil
    
    
    Swap Price
    
    
    Value($ in thousands)October 1, 2007 thru December 31, 2007
    
    
    119,600
    
    
    $
    34.36
    
    
    $
    (5,411
    )January 1, 2008 thru December 31, 2008
    
    
    439,200
    
    
    $
    33.37
    
    
    
    (17,923
    )Total fair market value
    
    
    
    
    
    
    
    
    
    $
    (23,334
    )
 
 (40)




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##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
   
 PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
   
 ITEM 1A. RISK FACTORS
  (41)




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##### Table of Contents



Risks Relating to the Senior Notes and Our Other Indebtedness
 We have a substantial amount of indebtedness which may adversely affect our cash flow and our
ability to operate our business, remain in compliance with debt covenants and make payments on our
debt, including our senior notes.
  
    
    we may have difficulty borrowing money in the future for acquisitions, capital
expenditures or to meet our operating expenses or other general corporate obligations;
    
    we will need to use a substantial portion of our cash flows to pay principal and
interest on our debt, which will reduce the amount of money we have for operations,
working capital, capital expenditures, expansion, acquisitions or general corporate or
other business activities;
 
    
    we may have a higher level of debt than some of our competitors, which may put us at
a competitive disadvantage;
    
    we may be more vulnerable to economic downturns and adverse developments in our
industry or the economy in general, especially declines in oil and natural gas prices;
and
    
    our debt level could limit our flexibility in planning for, or reacting to, changes
in our business and the industry in which we operate.
 We may incur substantially more debt, which may intensify the risks described above, including
our ability to service our indebtedness.
  To service our indebtedness, we will require a significant amount of cash. Our ability to
generate cash depends on many factors beyond our control, and any failure to meet our debt
obligations could harm our business, financial condition and results of operations.
   (42)




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##### Table of Contents




    
    our debt holders declaring all outstanding principal and interest due and payable;
    
    the lenders under our revolving credit facility terminating their commitments to
loan us money and foreclose against the assets securing their loans to us; and
 
    
    our bankruptcy or liquidation, which is likely to result in delays in the payment of
the senior notes or the revolving credit facility and in the exercise of enforcement
remedies under the senior notes or our revolving credit facility.
  Restrictive debt covenants in the indenture and our revolving credit facility will restrict
our business in many ways.
  
    
    transfer or sell assets;
    
    make investments;
    
    pay dividends, redeem subordinated indebtedness or make other restricted payments;
    
    incur or guarantee additional indebtedness or issue disqualified capital stock;
    
    create or incur liens;
    
    incur dividend or other payment restrictions affecting certain subsidiaries;
    
    consummate a merger, consolidation or sale of all or substantially all of our
assets;
    
    enter into transactions with affiliates; and
 (43)




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##### Table of Contents




    
    engage in businesses other than the oil and gas business.
   Our borrowings under our revolving credit facility expose us to interest rate risk.
  The senior notes are structurally subordinated to liabilities and indebtedness of our
non-guarantor subsidiaries, if any, and are effectively subordinated to our secured indebtedness to
the extent of the assets securing such indebtedness.
   (44)




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##### Table of Contents



A subsidiary guarantee could be voided if it constitutes a fraudulent transfer under U.S.
bankruptcy or similar state laws, which would prevent the holders of senior notes from relying on
the subsidiary to satisfy our payment obligations under the senior notes.
  
    
    was insolvent or rendered insolvent by making the subsidiary guarantee;
    
    was engaged in a business or transaction for which the subsidiary guarantors
remaining assets constituted unreasonably small capital; or
 
    
    intended to incur, or believed that it would incur, debts beyond its ability to pay
them as they mature.
    
    
    the sum of its debts, including contingent liabilities, was greater than the fair
saleable value of all of its assets;
    
    the present fair saleable value of its assets was less than the amount that would be
required to pay its probable liability on its existing debts, including contingent
liabilities, as they become absolute and mature; or
    
    it could not pay its debts as they become due.
  (45)




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##### Table of Contents



We may not be able to repurchase the senior notes upon a change of control.
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
   (46)




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##### Table of Contents



ITEM 6. EXHIBITS
 (a)
    
    ExhibitsThe following exhibits are filed herewith or incorporated by reference, as indicated:
 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 No. 3.2 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2006)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 1 of Form 8-A of the
Registrant filed with the Securities and Exchange Commission on October 10, 2000)4.4
    
    Form of common stock certificate of the Registrant (Incorporated by reference to Exhibit No.
4.6 of the Registrants Registration Statement on Form S-3, No. 333-119725 filed on October
13, 2004)4.5
    
    Warrant Purchase Agreement, dated November 20, 2001, between the Registrant and Stonington
Corporation (Incorporated by reference to Exhibit 4.7 of Form 10-K of the Registrant for the
fiscal year ended December 31, 2004)4.6
    
    Warrant Purchase Agreement, dated December 23, 2003, between the Registrant and Stonington
Corporation (Incorporated by reference to Exhibit 4.8 of Form 10-K of the Registrant for the
fiscal year ended December 31, 2004)4.7
    
    Purchase Warrant Agreement, dated as of October 1, 1980, between the Registrant and American
Stock Transfer, Inc. (Incorporated by reference to Exhibit No. 4.7 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2006)
 (47)




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##### Table of Contents



No.
    
    Description of Exhibit
 4.8
    
    First Amendment to Warrant Agreement, dated as of February 22, 2007, among the Registrant,
Computershare Shareholder Services, Inc. and Computershare Trust Company, N.A. (Incorporated
by reference to Exhibit No. 4.8 of Form 10-K of the Registrant for the fiscal year ended
December 31, 2006)4.9
    
    Indenture dated as of July 31, 2007 between the Registrant and Wells Fargo Bank, N.A.
(Incorporated by reference to Exhibit 4.1 of the Registrants Form 8-K Report dated July 26,
2007)4.10
    
    Form of Rule 144A 10
1/4% Senior Notes due 2014 (Incorporated by reference to Exhibit 4.2 of
the Registrants Form 8-K Report dated July 26, 2007)4.11
    
    Form of IAI Global Security 10 1/4% Senior Note due 2014 (Incorporated by reference to
Exhibit 4.3 of the Registrants Form 8-K Report dated July 26, 2007)4.12
    
    Form of Regulation S 10 1/4% Senior Notes due 2014 (Incorporated by reference to Exhibit 4.4
of the Registrants Form 8-K Report dated July 26, 2007)Executive Compensation Plans and Arrangements (Exhibit No.s 10.1 through 10.7):10.1
    
    1992 Stock Option Plan (Incorporated by reference to Exhibit 10.1 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2004)10.2
    
    Merrill Lynch, Pierce, Fenner & Smith Incorporated Prototype Simplified Employee Pension Plan
(Incorporated by reference to Exhibit 10.6 of the Registrants Form 10-K for the fiscal year
ended December 31, 1995)10.3
    
    Non-Employee Directors Stock Option Plan (Incorporated by reference to Exhibit 10.3 of the
Registrants Form 10-Q of the Registrant for the fiscal quarter ended June 30, 2005)10.4
    
    1998 Stock Option Plan (Incorporated by reference to Exhibit No. 10.4 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2006)10.5
    
    2001 Non-Employee Directors Stock Option Plan (Incorporated by reference to Exhibit 10.7 of
the Registrants Form 10-Q Report for the fiscal quarter ended March 31, 2004)10.6
    
    2004 Non-Employee Director Stock Grant Plan (Incorporated by reference to Exhibit 10.1 of the
Registrants Form 8-K Report dated September 22, 2004)10.7
    
    Incentive and Retention Plan (Incorporated by reference to Exhibit No. 10.7 of the Registrant
for the fiscal year ended December 31, 2006)10.8
    
    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)10.9
    
    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)10.10
    
    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)
 (48)




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##### Table of Contents



No.
    
    Description of Exhibit
 10.11
    
    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)10.12
    
    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)10.13
    
    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)10.14
    
    Second Amendment to Second Amended and Restated Credit Agreement, dated as of April 1, 2005,
by and among Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First American
Bank, SSB, BNP Paribas, Citibank, F.S.B. and Western National Bank (Incorporated by reference
to Exhibit 10.1 of the Registrants Form 8-K Report dated April 4, 2005 and filed with the
Securities and Exchange Commission on April 8, 2005)10.15
    
    Third Amendment to Second Amended and Restated Credit Agreement (Incorporated by reference
to Exhibit 10.1 of the Registrants Form 8-K Report dated October 4, 2005 and filed with the
Securities and Exchange Commission on October 20, 2005)10.16
    
    Purchase and Sale Agreement, dated as of October 14, 1005, among Parallel, L.P., Lynx
Production Company, Inc., Elton Resources, Inc., Cascade Energy Corporation, Chelsea Energy,
Inc., William P. Sutter, Trustee, William P. Sutter Trust, J. Leroy Bell, E. L. Brahaney,
Brent Beck, Cavic Interests, LLC and Stanley Talbott (Incorporated by reference to Exhibit 10.2 of
the Registrants Form 8-K Report dated October 14, 2005 and filed with the Securities and
Exchange Commission on October 20, 2005)10.17
    
    Ancillary Agreement to Purchase and Sale Agreement, dated October 14, 2005, between
Parallel, L.P. and Lynx Production Company, Inc. (Incorporated by reference to Exhibit 10.3 of
the Registrants Form 8-K Report dated October 14, 2005 and filed with the Securities and
Exchange Commission on October 20, 2005)10.18
    
    Guarantee of Parallel, L.P., dated October 13, 2004 (Incorporated by reference to Exhibit
10.4 of the Registrants Form 8-K Report dated October 14, 2005 and filed with the Securities
and Exchange Commission on October 20, 2005)10.19
    
    ISDA Master Agreement, dated as of October 13, 2005, between Parallel, L.P. and Citibank,
N.A. (Incorporated by reference to Exhibit 10.5 of the Registrants Form 8-K Report dated
October 14, 2005 and filed with the Securities and Exchange Commission on October 20, 2005)10.20
    
    Third Amended and Restated Credit Agreement, dated as of December 23, 2005, among Parallel
Petroleum Corporation, Parallel, L.P., Parallel, L.L.C. and Citibank Texas, N.A., BNP Paribas,
CitiBank F.S.B., Western National Bank, Compass Bank, Comerica Bank, Bank of Scotland and
Fortis Capital Corp. (Incorporated by reference to Exhibit No. 10.1 of the Registrants Form
8-K Report, dated December 23, 2005, as filed with the Securities and Exchange Commission on
December 30, 2005)
 (49)




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##### Table of Contents



No.
    
    Description of Exhibit
 10.21
    
    Second Lien Term Loan Agreement, dated November 15, 2005, among Parallel Petroleum
Corporation, Parallel, L.P., BNP Paribas and Citibank Texas, N.A. (Incorporated by reference
to Exhibit No. 10.4 of the Registrants Form 8-K Report, dated November 15, 2005, as filed
with the Securities and Exchange Commission on November 21, 2005)10.22
    
    Intercreditor and Subordination Agreement, dated November 15, 2005, among Citibank Texas,
N.A., BNP Paribas, Parallel Petroleum Corporation, Parallel, L.P. and Parallel, L.L.C.
(Incorporated by reference to Exhibit No. 10.5 of the Registrants Form 8-K Report, dated
November 15, 2005, as filed with the Securities and Exchange Commission on November 21, 2005)10.23
    
    Guaranty, dated as of December 23, 2005, made by Parallel, L.L.C. to and in favor of
Citibank Texas, N.A. (Incorporated by reference to Exhibit No. 10.23 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2006)10.24
    
    Third Amended and Restated Pledge Agreement, dated as of December 23, 2005, between
Parallel, L.L.C. and Citibank Texas, N.A. (Incorporated by reference to Exhibit No. 10.24 of
Form 10-K of the Registrant for the fiscal year ended December 31, 2006)10.25
    
    Second Lien Guarantee and Collateral Agreement, dated as of November 15, 2005, made by
Parallel Petroleum Corporation and Parallel, L.P. to and in favor of BNP Paribas (Incorporated
by reference to Exhibit No. 10.25 of Form 10-K of the Registrant for the fiscal year ended
December 31, 2006)10.26
    
    Purchase Agreement, dated July 26, 2007 (Incorporated by reference to Exhibit 10.1 of the
Registrants Form 8-K Report dated July 26, 2007)10.27
    
    Registration Rights Agreement, dated July 31, 2007 (Incorporated by reference to Exhibit
10.2 of the Registrants Form 8-K Report dated July 26, 2007)10.28
    
    Third Amendment to Third Amended and Restated Credit Agreement dated as of July 31, 2007
between Parallel Petroleum Corporation individually and as successor by merger to Parallel
L.P. and Parallel, L.L.C. and Citibank, N.A., successor by merger to
Citibank Texas, N.A., BNP Paribas, Western National Bank, Compass Bank, Comerica Bank, Bank of Scotland and Fortis
Capital Corp. (Incorporated by reference to Exhibit 10.3 of the Registrants Form 8-K Report
dated July 26, 2007)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.
 (50)




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##### Table of Contents



*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. (51)




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##### Table of Contents



PARALLEL PETROLEUM CORPORATIONBy: /s/ Larry C. OldhamDate:
November 9, 2007
    
    
    
    Larry C. OldhamPresident and Chief Executive OfficerDate:
November 9, 2007
    
    
    
    By: /s/ Steven D. FosterSteven D. Foster,Chief Financial Officer




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##### Table of Contents



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 No. 3.2 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2006)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 1 of Form 8-A of the
Registrant filed with the Securities and Exchange Commission on October 10, 2000)4.4
    
    Form of common stock certificate of the Registrant (Incorporated by reference to Exhibit No.
4.6 of the Registrants Registration Statement on Form S-3, No. 333-119725 filed on October
13, 2004)4.5
    
    Warrant Purchase Agreement, dated November 20, 2001, between the Registrant and Stonington
Corporation (Incorporated by reference to Exhibit 4.7 of Form 10-K of the Registrant for the
fiscal year ended December 31, 2004)4.6
    
    Warrant Purchase Agreement, dated December 23, 2003, between the Registrant and Stonington
Corporation (Incorporated by reference to Exhibit 4.8 of Form 10-K of the Registrant for the
fiscal year ended December 31, 2004)4.7
    
    Purchase Warrant Agreement, dated as of October 1, 1980, between the Registrant and American
Stock Transfer, Inc. (Incorporated by reference to Exhibit No. 4.7 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2006)4.8
    
    First Amendment to Warrant Agreement, dated as of February 22, 2007, among the Registrant,
Computershare Shareholder Services, Inc. and Computershare Trust Company, N.A. (Incorporated
by reference to Exhibit No. 4.8 of Form 10-K of the Registrant for the fiscal year ended
December 31, 2006)




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##### Table of Contents



No.
    
    Description of Exhibit
 4.9
    
    Indenture dated as of July 31, 2007 between the Registrant and Wells Fargo Bank, N.A.
(Incorporated by reference to Exhibit 4.1 of the Registrants Form 8-K Report dated July 26,
2007)4.10
    
    Form of Rule 144A 10 1/4% Senior Notes due 2014 (Incorporated by reference to Exhibit 4.2 of
the Registrants Form 8-K Report dated July 26, 2007)4.11
    
    Form of IAI Global Security 10 1/4% Senior Note due 2014 (Incorporated by reference to
Exhibit 4.3 of the Registrants Form 8-K Report dated July 26, 2007)4.12
    
    Form of Regulation S 10 1/4% Senior Notes due 2014 (Incorporated by reference to Exhibit 4.4
of the Registrants Form 8-K Report dated July 26, 2007)Executive Compensation Plans and Arrangements (Exhibit No.s 10.1 through 10.7):10.1
    
    1992 Stock Option Plan (Incorporated by reference to Exhibit 10.1 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2004)10.2
    
    Merrill Lynch, Pierce, Fenner & Smith Incorporated Prototype Simplified Employee Pension Plan
(Incorporated by reference to Exhibit 10.6 of the Registrants Form 10-K for the fiscal year
ended December 31, 1995)10.3
    
    Non-Employee Directors Stock Option Plan (Incorporated by reference to Exhibit 10.3 of the
Registrants Form 10-Q of the Registrant for the fiscal quarter ended June 30, 2005)10.4
    
    1998 Stock Option Plan (Incorporated by reference to Exhibit No. 10.4 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2006)10.5
    
    2001 Non-Employee Directors Stock Option Plan (Incorporated by reference to Exhibit 10.7 of
the Registrants Form 10-Q Report for the fiscal quarter ended March 31, 2004)10.6
    
    2004 Non-Employee Director Stock Grant Plan (Incorporated by reference to Exhibit 10.1 of the
Registrants Form 8-K Report dated September 22, 2004)10.7
    
    Incentive and Retention Plan (Incorporated by reference to Exhibit No. 10.7 of the Registrant
for the fiscal year ended December 31, 2006)10.8
    
    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)10.9
    
    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)10.10
    
    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)10.11
    
    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)10.12
    
    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)




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##### Table of Contents



No.
    
    Description of Exhibit
 10.13
    
    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)10.14
    
    Second Amendment to Second Amended and Restated Credit Agreement, dated as of April 1, 2005,
by and among Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First American
Bank, SSB, BNP Paribas, Citibank, F.S.B. and Western National Bank (Incorporated by reference
to Exhibit 10.1 of the Registrants Form 8-K Report dated April 4, 2005 and filed with the
Securities and Exchange Commission on April 8, 2005)10.15
    
    Third Amendment to Second Amended and Restated Credit Agreement (Incorporated by reference
to Exhibit 10.1 of the Registrants Form 8-K Report dated October 4, 2005 and filed with the
Securities and Exchange Commission on October 20, 2005)10.16
    
    Purchase and Sale Agreement, dated as of October 14, 1005, among Parallel, L.P., Lynx
Production Company, Inc., Elton Resources, Inc., Cascade Energy Corporation, Chelsea Energy,
Inc., William P. Sutter, Trustee, William P. Sutter Trust, J. Leroy Bell, E. L. Brahaney,
Brent Beck, Cavic Interests, LLC and Stanley Talbott (Incorporated by reference to Exhibit
10.2 of the Registrants Form 8-K Report dated October 14, 2005 and filed with the Securities
and Exchange Commission on October 20, 2005)10.17
    
    Ancillary Agreement to Purchase and Sale Agreement, dated October 14, 2005, between
Parallel, L.P. and Lynx Production Company, Inc. (Incorporated by reference to Exhibit 10.3 of
the Registrants Form 8-K Report dated October 14, 2005 and filed with the Securities and
Exchange Commission on October 20, 2005)10.18
    
    Guarantee of Parallel, L.P., dated October 13, 2004 (Incorporated by reference to Exhibit
10.4 of the Registrants Form 8-K Report dated October 14, 2005 and filed with the Securities
and Exchange Commission on October 20, 2005)10.19
    
    ISDA Master Agreement, dated as of October 13, 2005, between Parallel, L.P. and Citibank,
N.A. (Incorporated by reference to Exhibit 10.5 of the Registrants Form 8-K Report dated
October 14, 2005 and filed with the Securities and Exchange Commission on October 20, 2005)10.20
    
    Third Amended and Restated Credit Agreement, dated as of December 23, 2005, among Parallel
Petroleum Corporation, Parallel, L.P., Parallel, L.L.C. and Citibank Texas, N.A., BNP Paribas,
CitiBank F.S.B., Western National Bank, Compass Bank, Comerica Bank, Bank of Scotland and
Fortis Capital Corp. (Incorporated by reference to Exhibit No. 10.1 of the Registrants Form
8-K Report, dated December 23, 2005, as filed with the Securities and Exchange Commission on
December 30, 2005)10.21
    
    Second Lien Term Loan Agreement, dated November 15, 2005, among Parallel Petroleum
Corporation, Parallel, L.P., BNP Paribas and Citibank Texas, N.A. (Incorporated by reference
to Exhibit No. 10.4 of the Registrants Form 8-K Report, dated November 15, 2005, as filed
with the Securities and Exchange Commission on November 21, 2005)10.22
    
    Intercreditor and Subordination Agreement, dated November 15, 2005, among Citibank Texas,
N.A., BNP Paribas, Parallel Petroleum Corporation, Parallel, L.P. and Parallel, L.L.C.
(Incorporated by reference to Exhibit No. 10.5 of the Registrants Form 8-K Report, dated
November 15, 2005, as filed with the Securities and Exchange Commission on November 21,
2005)




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##### Table of Contents



No.
    
    Description of Exhibit
 10.23
    
    Guaranty, dated as of December 23, 2005, made by Parallel, L.L.C. to and in favor of
Citibank Texas, N.A. (Incorporated by reference to Exhibit No. 10.23 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2006)10.24
    
    Third Amended and Restated Pledge Agreement, dated as of December 23, 2005, between
Parallel, L.L.C. and Citibank Texas, N.A. (Incorporated by reference to Exhibit No. 10.24 of
Form 10-K of the Registrant for the fiscal year ended December 31, 2006)10.25
    
    Second Lien Guarantee and Collateral Agreement, dated as of November 15, 2005, made by
Parallel Petroleum Corporation and Parallel, L.P. to and in favor of BNP Paribas (Incorporated
by reference to Exhibit No. 10.25 of Form 10-K of the Registrant for the fiscal year ended
December 31, 2006)10.26
    
    Purchase Agreement, dated July 26, 2007 (Incorporated by reference to Exhibit 10.1 of the
Registrants Form 8-K Report dated July 26, 2007)10.27
    
    Registration Rights Agreement, dated July 31, 2007 (Incorporated by reference to Exhibit
10.2 of the Registrants Form 8-K Report dated July 26, 2007)10.28
    
    Third Amendment to Third Amended and Restated Credit Agreement dated as of July 31, 2007
between Parallel Petroleum Corporation individually and as successor by merger to Parallel
L.P. and Parallel, L.L.C. and Citibank, N.A., successor by merger to Citibank Texas, N.A., BNP
Paribas, Western National Bank, Compass Bank, Comerica Bank, Bank of Scotland and Fortis
Capital Corp. (Incorporated by reference to Exhibit 10.3 of the Registrants Form 8-K Report
dated July 26, 2007)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.