<PAGE>
                                       1


                       SECURITIES AND EXCHANGE COMMISSION

                            WASHINGTON, D. C. 20549

                                  FORM 10-Q/A
                                Amendment No. 2

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

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

                 For the quarterly period ended June 30, 1999 or

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

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

                         COMMISSION FILE NUMBER 0-13305

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


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

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

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

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

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

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

                                   Yes 'X'         No

     At August 1, 1999,  18,331,858  shares of the  Registrant's  Common  Stock,
$0.01 par value, were outstanding.


================================================================================
<PAGE>
                                       2


                                     INDEX


                         PART I - FINANCIAL INFORMATION

                                                                        Page No.

ITEM 1. FINANCIAL STATEMENTS

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

     - Balance Sheet as of December 31, 1998 and June 30, 1999
       (unaudited)                                                         4

     - Unaudited Statements of Operations for the three months
       ended June 30, 1998 and 1999 and six months ended
       June 30, 1998 and 1999                                              6

     - Unaudited Statements of Cash Flows for the six months ended         7
       June 30, 1998 and 1999

     - Notes to Financial Statements                                       8

ITEM 2. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
        AND RESULTS OF OPERATIONS                                         11

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK        19


                          PART II. - OTHER INFORMATION

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K                                 20

<PAGE>
                                       3

                                EXPLANATORY NOTE

     This amendment  reflects the  retroactive  exclusion of Parallel's pro rata
share of the assets and liabilities of First Permian, L.L.C. with respect to our
22.5% member  interest.  First Permian is a Delaware limited  liability  company
formed on June 25,  1999 to  acquire  the oil and gas  assets of a wholly  owned
subsidiary of Fina Oil and Chemical Company.

     For the quarter ended June 30, 1999, we accounted for our interest in First
Permian  under  the pro rata  method  of  consolidation.  Under  this  method of
accounting,  our pro rata share of the assets and  liabilities  of First Permian
were consolidated with the assets and liabilities of Parallel.  However, because
of recent  SEC  interpretations  of  accounting  for  consolidated  investments,
beginning  with the fourth  quarter of 1999, we changed our method of accounting
for our interest in First Permian from the pro rata consolidation  method to the
equity  method of  accounting  and are  restating  the June 30,  1999  quarterly
amounts. Under the equity method of accounting, investments are recorded at cost
and are increased or reduced by the company's  proportionate  share of income or
loss. Therefore,  Parallel's restated balance sheet as of June 30, 1999 does not
include  our 22.5% pro rata  interest  in the  assets and  liabilities  of First
Permian. Instead, our 22.5% interest is reported as an investment on the balance
sheet.

<PAGE>
                                       4


                         PARALLEL PETROLEUM CORPORATION
                                 BALANCE SHEETS

<TABLE>

                                                      December 31,     June 30, 1999
ASSETS                                                   1998*          (Unaudited)
-------------                                         ------------    --------------
<S>                                                   <C>              <C>

Current assets:
  Cash and cash equivalents                             $ 1,178,819     $   565,263
  Accounts receivable:
    Oil and gas                                           1,432,659       1,366,385
    Others, net of allowance for doubtful accounts
      of $71,358 in 1998 and 1999                           247,740         368,097
    Affiliate                                                11,844              --
                                                       ------------    ------------
                                                          1,692,243       1,734,482
  Other assets                                               61,504          28,012
                                                       ------------    ------------
                Total current assets                      2,932,566       2,327,757
                                                       ------------    ------------
Property and equipment, at cost:
  Oil and gas properties, full cost method               65,565,466      67,344,763
  Other                                                     287,586         288,338
                                                       ------------    ------------
                                                         65,853,052      67,633,101
  Less accumulated depreciation and depletion            22,279,355      24,140,149
                                                       ------------    ------------
                Net property and equipment               43,573,697      43,492,952
                                                       ------------    ------------
Investment in First Permian, LLC (Note 2)                        --           2,250

Other assets, net of accumulated amortization of
      $86,917 in 1998 and $95,248 in 1999                    58,519          66,039
                                                       ------------    ------------
                                                       $ 46,564,782    $ 45,888,998
                                                       ============    ============
</TABLE>

<PAGE>
                                       5

                         PARALLEL PETROLEUM CORPORATION
                                 BALANCE SHEETS
                                  (Continued)

<TABLE>

                                                      December 31,    June 30, 1999
LIABILITIES AND STOCKHOLDERS' EQUITY                     1998*         (Unaudited)
------------------------------------                  ------------    -------------
<S>                                                   <C>             <C>

Current liabilities:
  Accounts payable and accrued liabilities:
    Trade                                            $   2,803,539     $  1,727,658
    Affiliate                                                  214               --
    Preferred stock dividend                                    --           24,363
                                                      ------------     ------------
                Total current liabilities                2,803,753        1,752,021
                                                      ------------     ------------

Long-term debt:
  Bank credit facility (Note 3)                          18,035,889       18,815,889

Deferred income taxes                                           --                --

Stockholders' equity:
  Preferred stock  6% convertible preferred stock
    par value $.10 per share(aggregate liquidation
    preference of $10) authorized 10,000,000 shares,
    issued and outstanding 974,500 in 1998 and 1999          97,450          97,450
  Common stock - par value $.01 per share, authorized
    60,000,000 shares, issued and outstanding
    18,306,858 in 1998 and 18,331,858 in 1999               183,069        183,319
  Additional paid-in surplus                             32,341,971     32,042,197
  Retained deficit                                       (6,897,350)    (7,001,878)
                                                       ------------   ------------
                Total stockholders' equity               25,725,140     25,321,088

Contingencies
                                                       ------------   ------------
                                                       $ 46,564,782   $ 45,888,998
                                                       ============   ============
</TABLE>


*The balance  sheet as of December  31, 1998 has been  derived  from  Parallel's
audited  financial  statements.  The accompanying  notes are an integral part of
these financial statements.

<PAGE>
                                       6


                         PARALLEL PETROLEUM CORPORATION
                            STATEMENTS OF OPERATIONS
                                  (Unaudited)

<TABLE>

                                                     Three Months Ended               Six Months Ended
                                                  -------------------------      -----------------------------
                                                         June 30,                          June 30,
                                                  -------------------------      -----------------------------
                                                     1998          1999            1998                1999
                                                  ----------    -----------      ----------        -----------
<S>                                               <C>         <C>               <C>         <C>

Oil and gas revenues                             $2,453,140      $1,991,727      $4,565,703        $3,954,816
                                                 ----------      ----------      ----------        ----------
Cost and expenses:
  Lease operating expense                           613,053         551,142       1,170,691          1,064,964
  General and administrative                        199,117         220,911         419,505            424,148
  Depreciation, depletion
     and amortization                             1,063,466         956,958       1,994,283          1,860,794
                                                 ----------      ----------      ----------         ----------
                                                  1,875,636       1,729,011       3,584,479          3,349,906
                                                 ----------      ----------      ----------         ----------
          Operating income                          577,504         262,716         981,224            604,910
                                                 ----------      ----------      ----------         ----------
Other income (expense), net:
   Interest income                                      395          13,695             470             26,971
   Other income                                      37,552           6,606          51,111             13,229
   Interest expense                                (341,817)       (376,057)       (646,095)          (747,128)
   Other expense                                     (4,195)         (1,205)         (8,577)            (2,510)
                                                 ----------      ----------      ----------         ----------
          Total other expense, net                 (308,065)       (356,961)       (603,091)          (709,438)
                                                 ----------      ----------      ----------         ----------
Income (loss) before income taxes                   269,439         (94,245)        378,133           (104,528)

Income tax expense deferred                          88,826             --          124,695                 --
                                                 ----------      ----------      ----------         ----------
          Net income (loss)                      $  180,613      $  (94,245)     $  253,438         $ (104,528)
                                                 ==========      ==========      ==========         ==========
Cumulative preferred stock dividend              $   68,000      $  146,175      $   68,000         $  316,713
                                                 ==========      ==========      ==========         ==========
          Net income (loss) available
             to common stockholders              $  112,613      $ (240,420)     $  185,438         $ (421,241)
                                                 ==========      ==========      ==========         ==========
Net income (loss) per common share
          Basic                                  $     .006      $    (.013)     $     .010         $    (.023)
                                                 ==========      ==========      ==========         ==========
          Diluted                                $     .006      $    (.013)     $     .010         $    (.023)
                                                 ==========      ==========      ==========         ==========
Weighted average common shares
   Outstanding  diluted                          18,123,822      18,331,858      18,121,533         18,120,194
                                                 ==========      ==========      ==========         ==========

</TABLE>

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

<PAGE>
                                       7


                         PARALLEL PETROLEUM CORPORATION
                            STATEMENTS OF CASH FLOWS
                                   (Unaudited)
<TABLE>

                                                               Six Months Ended June 30,
                                                              ---------------------------
                                                                 1998             1999
                                                              ----------       ----------
<S>                                                           <C>              <C>

Cash flows from operating activities:
  Net income (loss)                                           $  253,438      $  (104,528)
  Adjustments to reconcile net income (loss) to
    net cash provided by (used in) operating
    activities:
    Depreciation, depletion and amortization                   1,994,283        1,860,794
    Income taxes                                                 124,695               --
    Other, net                                                    (5,702)          (7,520)

    Changes in assets and liabilities:
       Increase in trade receivables                             (53,602)         (42,239)
       (Increase) decrease in prepaid expenses
         and other                                               (73,701)          33,492
       Decrease in accounts payable
         and accrued liabilities                              (1,419,721)      (1,051,732)
                                                             -----------      -----------
             Net cash provided by operating
                activities                                       819,690          688,267
                                                             -----------      -----------
Cash flows from investing activities:
  Additions to property and equipment                        (12,953,814)      (2,035,289)
  Proceeds from disposition of property and equipment                 --          255,240
  Investment in First Permian, LLC                                    --           (2,250)
                                                             -----------      -----------
             Net cash used in investing
                activities                                   (12,953,814)      (1,782,299)
                                                             -----------      -----------
Cash flows from financing activities:
  Proceeds from the issuance of long-term debt                13,343,000          780,000
  Payment of long-term debt                                   (7,234,000)              --
  Proceeds from exercise of options and warrants                  53,438           17,189
  Stock offering costs                                           (80,851)              --
  Proceeds from preferred stock issuance                       6,000,000               --
  Payment of preferred stock dividend                            (68,000)        (316,713)
                                                             -----------      -----------
             Net cash provided by financing
                activities                                    12,013,587          480,476
                                                             -----------      -----------
             Net increase (decrease) in cash
                and cash equivalents                            (120,537)        (613,556)
Beginning cash and cash equivalents                              597,149        1,178,819
                                                             -----------      -----------
Ending cash and cash equivalents                             $   476,612      $   565,263
                                                             ===========      ===========
Non-cash financing activities:
  Accrued preferred stock dividend                           $        --      $    24,362
                                                             ===========      ===========

</TABLE>

The accompanying notes are an integral part of these financials.

<PAGE>
                                       8


                         PARALLEL PETROLEUM CORPORATION
                         NOTES TO FINANCIAL STATEMENTS


NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

     The  financial  information  included  herein,  with the  exception  of the
balance sheet as of December 31, 1998, is unaudited.  However,  such information
includes all adjustments  (consisting  solely of normal recurring  adjustments),
which are, in the opinion of  management,  necessary for a fair statement of the
results of operations for the interim periods. The results of operations for the
interim period are not necessarily  indicative of the results to be expected for
an entire year.

     Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting  principles
have been  condensed  or omitted in this Form 10-Q  Report  pursuant  to certain
rules and regulations of the Securities and Exchange Commission. These financial
statements should be read in conjunction with the financial statements and notes
included in Parallel's 1998 Annual Report and 1998 Form 10-K.

NOTE 2. RECENT EVENTS

     On June 30, 1999, First Permian and a wholly owned,  indirect subsidiary of
Fina Oil and Chemical Company  consummated a cash merger.  First Permian was the
surviving  entity.  The transaction was accounted for as a purchase.  The assets
acquired consisted  primarily of producing oil and gas properties located in the
Permian Basin of west Texas.  After giving effect to purchase price adjustments,
First Permian paid to Fina cash in the aggregate amount of  approximately  $92.0
million.

     First  Permian  is owned by  Parallel,  Baytech,  Inc.,  Tejon  Exploration
Company and Mansefeldt Investment Corporation. Baytech, Tejon and Mansefeldt are
privately held oil and gas  companies.  Parallel and Baytech are the managers of
First Permian and each owns a 22.5% membership  interest.  Tejon Exploration and
Mansefeldt  Investment  each own a 27.5% interest in First  Permian.  If certain
conditions are met regarding the prepayment of $16.0 million aggregate principal
amount of  subordinated  unsecured  notes made by First  Permian  and payable to
Tejon and  Mansefeldt,  the  proceeds  of which  were used to help  finance  the
acquisition,  Parallel's interest in First Permian could increase to 37.5% for a
nominal fee per membership unit.

     The  purchase was  financed,  in part,  with the proceeds of the  revolving
credit facility provided by Bank One, Texas, N.A. to First Permian.  On June 30,
1999, Parallel and Baytech entered into a credit agreement with Bank One, Texas,
N.A.  that  established  the  $110.0  million  revolving  credit  facility.  The
principal amount of the initial loan from Bank One is $74.0 million.  Parallel's
obligation is limited to a guaranty of $10.0 million of the bank borrowings.

     In addition to the $74.0 million loan from Bank One, First Permian borrowed
$8.0 million  from Tejon  Exploration  Company and $8.0 million from  Mansefeldt
Investment Corporation to help finance the acquisition of oil and gas properties
from Fina Oil and Chemical Company.  Under terms of an Intercreditor  Agreement,
dated June 30, 1999,  the loans made by Tejon and  Mansefeldt  are unsecured and
subordinate in all respects to the senior loans made by Bank One.

     Each loan requires a principal payment of $2.5 million on December 31, 1999
and $5.5 million on June 30, 2000.  Principal payments on the subordinated loans
are subject to certain restrictions.

NOTE 3. LONG TERM DEBT

     Our long term debt at June 30, 1999 consisted of the following:

     Revolving credit facility note payable to bank at the bank's
        base lending rate plus .25% (8.0% at June 30, 1999)         $18,815,889
                                                                    ===========
<PAGE>
                                       9


     Revolving Credit Facility. At June 30, 1999, Parallel was a party to a loan
agreement with Bank One, Texas,  N.A. Under terms of the loan agreement,  we may
borrow up to the lesser of $30,000,000  or the "borrowing  base" then in effect.
The borrowing  base in effect at June 30, 1999 was  $18,815,889  (the  Revolving
Facility).  The borrowing base was subject to reduction by a monthly  commitment
reduction of $380,000. However, effective March 23, 1999, the monthly commitment
reduction  was  suspended  by the  bank  until  May 1,  1999 at  which  time the
borrowing   base  and  monthly   commitment   reduction   were   scheduled   for
redetermination.  The  loan  agreement  provides  for a  redetermination  of the
borrowing base and monthly commitment  reduction every six months on April 1 and
October 1 of each year or at such other times as the bank elects. As of the date
of this  Form  10-Q  Report,  we had not  received  notice  from the bank of the
redetermined  borrowing base or monthly  reduction  amount. At June 30, 1999, we
had borrowed all the funds currently available under the Revolving Facility. All
indebtedness  under the  Revolving  Facility  matures July 1, 2001.  The loan is
secured by substantially  all of our oil and gas properties.  Commitment fees of
 .25% per annum on the  difference  between the  commitment and the average daily
amount outstanding are due quarterly.

     The unpaid  principal  balance of the Revolving  Facility bears interest at
our  election at a rate equal to (i) the bank's base  lending  rate plus .25% or
(ii) the  bank's  Eurodollar  rate  plus a margin  of 2.5%.  Interest  under the
Revolving  Facility is due and payable  monthly.  At June 30, 1999, the interest
rate was the bank's base rate plus .25% or 8.0%.

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

     At June 30, 1999 we were in default under our loan  agreement for events of
noncompliance  with certain covenants of the loan agreement.  We have obtained a
waiver of the default from our bank lender.

NOTE 4. PREFERRED STOCK

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

     We may redeem the  preferred  stock,  in whole or part,  after  October 20,
1999, for $10 per share plus accrued and unpaid dividends.

NOTE 5: FULL COST CEILING TEST

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

     During the fourth  quarter of 1998,  we  recognized  a non-cash  impairment
charge of $15.0 million, or $12.0 million net of tax, related to our oil and gas
reserves  and  unproved  properties.  The  impairment  of oil and gas assets was
primarily  the result of the effect of  significantly  lower oil and natural gas
prices on both proved and unproved oil and gas properties. At June 30, 1999, our
net book value of oil and gas, less related deferred income taxes, was below the
calculated  ceiling.  As a result, we were not required to record a reduction of
our oil and gas properties under the full cost method of accounting.
<PAGE>
                                       10


NOTE 6. NET INCOME PER COMMON SHARE

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

<TABLE>

                                                THREE MONTHS ENDED           SIX MONTHS ENDED
                                                      June 30,                    June 30,
                                               --------------------       ---------------------
                                                1998          1999         1998           1999
                                               ------        ------       ------         ------
<S>                                            <C>           <C>          <C>            <C>

Basic EPS Computation:
  Numerator -
    Net income (loss)                           $  180,613    $  (94,245)   $  253,438     $ (104,528)
    Preferred stock dividends                      (68,000)     (146,175)      (68,000)      (316,713)
                                                ----------    ----------    ----------     ----------
    Net income (loss) available to common
       stockholders                                112,613      (240,420)      185,438       (421,241)
                                                ==========    ==========    ==========     ==========


  Denominator -
    Weighted average common shares outstanding  18,123,822    18,331,858    18,121,533     18,120,194
                                                ==========    ==========    ==========     ==========

Basic earnings (loss) per share                 $     .006    $    (.013)   $    (.010)    $    (0.23)
                                                ==========    ==========    ==========     ==========
Diluted EPS Computation:
  Numerator -
    Net income (loss)                           $  180,613    $  (94,245)   $  253,438     $ (104,528)
    Preferred stock dividends                      (68,000)     (146,175)      (68,000)      (131,713)
                                                ----------    ----------    ----------     ----------
    Net income (loss) available to common
       stockholders                                112,613      (240,420)      185,438       (421,241)
                                                ==========    ==========    ==========     ==========

  Denominator -
    Weighted average common shares outstanding  18,123,822    18,331,858    18,121,533     18,120,194
                                                ==========    ==========    ==========     ==========
 Diluted earnings (loss) per share              $     .006    $    (.013)   $    (.010)    $    (.023)
                                                ==========    ==========    ==========     ==========

</TABLE>

     Employee stock options to purchase  shares of common stock and  convertible
preferred stock were  outstanding  during the three-month and six-month  periods
ended June 30, 1998 and 1999 but were not included in the computation of diluted
net loss per share because either (i) the employee stock options' exercise price
was greater than the average market price of the common stock of Parallel,  (ii)
the effect of the assumed  conversion  of Parallel's  preferred  stock to common
stock would be  antidilutive,  or (iii) Parallel had a net loss from  continuing
operations and, therefore, the effect would be antidilutive.


<PAGE>
                                       11

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

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


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

OVERVIEW

     Our long term business strategy is to increase our reserve base by

     .    using 3-D  seismic  and other  advanced  technologies  to conduct  our
          exploratory activities,
     .    acquiring properties we believe can be enhanced by developing reserves
          not previously produced,
     .    exploiting our existing producing properties, and
     .    maximizing  the  present  value  of  our  properties  by  accelerating
          production of reserves consistent with prudent reservoir management.

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

     Investment  in  First  Permian.   As  described  in  Note  2  to  Financial
Statements,  on June 25,  1999 we joined with three  privately  held oil and gas
companies to acquire oil and gas properties from Fina Oil and Chemical  Company.
The  acquisition  was  effected  through the  formation of First  Permian  which
entered into a cash merger with a wholly owned,  indirect subsidiary of Fina Oil
and Chemical Company.  The primary assets of the acquired subsidiary are oil and
gas reserves and  associated  assets in producing  fields located in the Permian
Basin of west Texas.  After giving effect to purchase price  adjustments,  First
Permian paid to Fina Oil and Chemical  Company cash in the  aggregate  amount of
approximately $92.0 million.

     First  Permian  is owned by  Parallel,  Baytech,  Inc.,  Tejon  Exploration
Company and Mansefeldt Investment Corporation. Baytech, Tejon and Mansefeldt are
privately held oil and gas  companies.  Parallel and Baytech are the managers of
First Permian and each owns a 22.5% membership  interest.  Tejon Exploration and
Mansefeldt  Investment  each own a 27.5% interest in First  Permian.  If certain
conditions are met regarding the prepayment of $16.0 million aggregate principal
amount of  subordinated  unsecured  notes made by First  Permian  and payable to
Tejon and  Mansefeldt,  the  proceeds  of which  were used to help  finance  the
acquisition,  Parallel's interest in First Permian could increase to 37.5% for a
nominal fee per  membership  unit.  We account for our interest in First Permian
using the equity  method of  accounting  whereby our  investment is increased or
decreased by our proportionate share of First Permian's net income or loss.

     The purchase was financed,  in part,  with the proceeds of a $110.0 million
revolving  credit facility  provided by Bank One, Texas,  N.A. to First Permian.

<PAGE>
                                       12



The principal amount of the initial loan was $74.0 million.  In addition,  First
Permian  also  borrowed  $8.0 million  from Tejon  Exploration  Company and $8.0
million from Mansefeldt Investment Corporation to help finance the purchase.

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

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

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

     Because of the sustained deterioration in prices we receive for the oil and
gas we produce, the capital normally available to us from our cash flow and bank
borrowings has been  significantly  reduced.  In January 1998, we were receiving
approximately  $17.00 per barrel of oil and $2.70 per Mcf of gas for the oil and
gas we produced.  Since then,  oil prices have been as low as $10.00 per barrel.
At January 1, 1999, we were receiving approximately $10.50 per barrel of oil and
$2.00 per Mcf of gas.

     For the six months ended June 30, 1999, the average sales price we received
for our crude oil production averaged $12.68 per barrel compared with $13.86 per
barrel at June 30, 1998 and $12.49 per barrel at December 31, 1998.  The average
sales price for  natural gas during this same period was $1.94 per mcf  compared
with $2.18 per mcf at June 30, 1998 and $2.04 per mcf at December 31, 1998.

     Primarily  because of  sustained  low oil and gas prices,  which  adversely
affected the value of our proved oil and gas reserves,  our available  borrowing
capacity  under our revolving  credit  facility was reduced from  $21,000,000 to
$18,815,889. This means we have borrowed all the funds currently available under
our revolving  credit  agreement.  We have also reduced our drilling  activities
during this  period of low oil and gas prices.  If the prices we receive for oil
and gas  production  continue to  improve,  increasing  cash flow,  or if we are
successful in raising additional capital,  1999 planned drilling activity may be
accelerated.

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

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

     Our production and results of operations  vary from quarter to quarter.  We
do not currently  anticipate  that our production  volumes in 1999 will increase
significantly  compared to our production  volumes in the prior year as a result
of our drilling activities.

<PAGE>
                                       13


RESULTS OF OPERATIONS

     Because of our ever-changing  reserve base and sources of production,  year
to year or quarter to quarter  comparisons  of our results of operations  can be
difficult.  This  situation is further  complicated  by  significant  changes in
product mix (oil vs. gas volumes) and related  price  fluctuations  for both oil
and gas. For these  reasons,  the table below compares the results of operations
on the basis of equivalent  barrels of oil ("EBO") for the period indicated.  An
EBO means one barrel of oil equivalent  using the ratio of six Mcf of gas to one
barrel of oil.

<TABLE>

                                            THREE MONTHS ENDED      THREE MONTHS ENDED
                                    ------------------------------  --------------------
                                     12-31-98   3-31-99   6-30-99     6-30-98   6-30-99
                                     --------   -------   -------     -------   -------
<S>                                  <C>        <C>       <C>         <C>       <C>

Production and prices:

  Oil (Bbls)                           49,294    44,619    45,908      44,484    45,908
  Natural gas (Mcf)                   868,131   697,593   749,856     818,631   749,856
  Equivalent barrels of oil(EBO)      193,982   160,884   170,884     180,923   170,884

  Oil price (per Bbl)                  $10.36    $12.18    $13.17      $13.64    $13.17
  Gas price (per Mcf)                  $ 1.59    $ 2.03    $ 1.85      $ 2.26    $ 1.85
  Price per EBO                        $ 9.77    $12.20    $11.66      $13.56    $11.66

Results of operations per EBO

Oil and gas revenues                   $ 9.77    $12.20    $11.66      $13.56    $11.66
Costs and expenses:
  Lease operating expense                3.31      3.19      3.23        3.39      3.23
  General and administrative             1.30      1.26      1.29        1.10      1.29
  Depreciation and depletion            14.73      5.62      5.60        5.88      5.60
  Impairment of oil and
     gas properties                     76.07       .00       .00         .00       .00
                                      -------    ------    ------      ------    ------
     Total costs and expenses           95.41     10.07     10.12       10.37     10.12
                                      -------    ------    ------      ------    ------
Operating income (loss)                (85.64)     2.13      1.54        3.19      1.54

Interest expense, net                   (1.73)    (2.22)    (2.12)      (1.89)    (2.12)

Other income, net                        1.49       .03       .03         .18       .03
                                      -------    ------    ------      ------    ------
Pretax income (loss)                   (85.88)     (.06)     (.55)       1.48      (.55)
Income tax (expense) benefit            16.94       .00       .00        (.49)      .00
                                      -------    ------    ------      ------    ------
Net income (loss)                     $(68.94)   $ (.06)   $ (.55)     $  .99    $ (.55)
                                      -------    ------    ------      ------    ------
Income before working
  capital adjustments                 $  4.92    $ 5.56    $ 5.05      $ 7.36    $ 5.05
                                      =======    ======    ======      ======    ======

</TABLE>

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


<PAGE>
                                       14


<TABLE>

                                                      SIX MONTHS ENDED
                                                ---------------------------------
                                                 6-30-97     6-30-98     6-30-99
                                                 -------     -------     -------
<S>                                              <C>         <C>         <C>

Production and prices:

   Oil (Bbls)                                     98,707      87,859      90,527
   Natural gas (Mcf)                           1,838,800   1,538,536   1,447,449
   Equivalent barrels of oil (EBO)               405,174     344,281     331,768

   Oil price (per Bbl)                            $20.05      $13.86      $12.68
   Gas price (per Mcf)                            $ 2.56      $ 2.18      $ 1.94
   Price per EBO                                  $16.52      $13.26      $11.92

Results of operations per EBO

Oil and gas revenues                              $16.52      $13.26      $11.92
Costs and expenses:
   Lease operating expense                          3.80        3.40        3.21
   General and administrative                        .73        1.22        1.28
   Depreciation and depletion                       4.48        5.79        5.61
                                                  ------      ------      ------
Total costs and expenses                            9.01       10.41       10.10
                                                  ------      ------      ------
Operating income                                    7.51        2.85        1.82
                                                  ------      ------      ------
Interest expense, net                               (.92)      (1.88)      (2.17)
Other expense                                        .03         .12         .03
                                                  ------      ------      ------
Pretax income (loss)                                6.62        1.09        (.32)
Income tax expense  deferred                        2.19         .36         .00
                                                  ------      ------      ------
     Net income (loss)                            $ 4.43      $  .73      $ (.32)
                                                  ======      ======      ======
Net cash flow before working
   capital adjustments                            $11.10      $ 6.88      $ 5.29
                                                  ======      ======      ======
</TABLE>

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

<TABLE>
                                             THREE MONTHS ENDED           SIX MONTHS ENDED
                                       ------------------------------    ------------------
                                        12-31-98   3-31-99  6-30-99       6-30-98  6-30-99
                                        --------   -------  -------       -------  -------
<S>                                     <C>        <C>       <C>          <C>      <C>

Oil and gas revenues                      100.0%    100.0%  100.0%         100.0%  100.0%
Costs and expenses:
  Production costs                         33.9      26.1    27.7           25.6    26.9
  General and administrative               13.3      10.3    11.1            9.2    10.7
  Depreciation, depletion and
     amortization                         150.8     46.0     48.0           43.7    47.1
  Impairment of oil and gas
     properties                           778.6       .0       .0             .0      .0
                                         ------   ------   ------         ------  ------
      Total costs and expenses            976.6     82.4     86.8           78.5    84.7
                                         ------   ------   ------         ------  ------
Operating income (loss)                  (876.6)    17.6     13.2           21.5    15.3
                                         ------   ------   ------         ------  ------
Interest expense, net                     (17.7)   (18.2)   (18.2)         (14.1)  (18.2)
Other income, net                          15.3       .2       .2             .9      .3
                                         ------   ------   ------         ------  ------
Pretax income (loss)                     (879.0)     (.4)    (4.8)           8.3    (2.6)
Income tax (expense) benefit              173.4       .0       .0            2.7      .0
                                         ------   ------   ------         ------  ------
Net income (loss)                        (705.6)%    (.4)%   (4.8)%          5.6%   (2.6)%
                                         ======   ======   ======         ======  ======
</TABLE>
<PAGE>
                                       15


RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1999:


     Oil and Gas Revenues.  Oil and gas revenues decreased $461,413,  or 19%, to
$1,991,727  for the three months ended June 30, 1999,  from  $2,453,140  for the
same period of 1998.  The decrease was primarily the result of a 14% decrease in
the average sales price per EBO. We received  $11.66 per EBO in the three months
ended June 30, 1999 compared with $13.56 per EBO for the same period of 1998. In
addition,  oil and gas production decreased 10,039 EBO, or 6%. Approximately 75%
of the  decrease in revenues  was  attributable  to the  decrease in the average
sales price and approximately 25% of the decrease was attributable to a decrease
in oil and gas production volumes.  Oil and gas production declined primarily as
a result of decreased drilling activity.

     Production Costs.  Production costs decreased $61,911,  or 10%, to $551,142
during the second  three  months of 1999,  compared  with  $613,053 for the same
period of 1998.  Average production costs per EBO decreased 5%, to $3.23 for the
second  three  months in 1999  compared  to $3.39  for the same  period in 1998,
primarily a result of adding lower cost oil and gas production.

     General and Administrative  Expenses.  General and administrative  expenses
increased  by $21,794 or 11%, to $220,911  for the second  three months of 1999,
from  $199,117 for the same period of 1998.  The increase was  primarily  due to
accounting  adjustments  made in the  prior  year.  General  and  administrative
expenses were $1.29 per EBO in the second three months of 1999 compared to $1.10
per EBO in the second three months of 1998.  Future  general and  administrative
costs are expected to remain fairly stable with no material  increases  expected
in any particular category.

     Depreciation,  Depletion and Amortization Expense. Depreciation,  depletion
and amortization expense ("DD&A") decreased by $106,508, or 10%, to $956,958 for
the second three months of 1999 compared with  $1,063,466 for the same period of
1998. As a percentage of revenues,  the DD&A rate increased by 11% when compared
with the prior year three months, a result of decreased  production  volumes,  a
decrease  in the average  sales price per EBO we received  and a decrease in the
DD&A rate per EBO. The DD&A rate per EBO decreased to $5.60 for the three months
ended June 30, 1999  compared  with $5.88 per EBO for the second three months of
1998. The decrease in the DD&A rate per EBO is attributable to a revision in our
proven  reserve  estimates,  primarily the result of lower oil and gas prices in
effect at December 31, 1998 compared with prices in effect at December 31, 1997,
and a non-cash  impairment  charge  incurred in the fourth  quarter of 1998 that
reduced our full cost pool.

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

     Net Interest  Expense.  Net interest expense increased  $20,940,  or 6%, to
$362,362 for the three months ended June 30, 1999 compared with $341,422 for the
same period of 1998, due principally to borrowings against our revolving line of
credit  during  1998,  when  substantially  lower oil and gas  prices  adversely
affected cash flow.

     Net Income and Operating Cash Flow. Net income decreased $274,858, or 152%,
to $(94,245) for the three months ended June 30, 1999,  compared to $180,613 for
the three months ended June 30, 1998. Operating cash flow decreased $470,191, or
35%, to $862,713 for the three months ended June 30, 1999 compared to $1,332,905
for the three  months  ended  June 30,  1998.  The  decrease  in net  income and
operating  cash flow  resulted from a 19% decrease in oil and gas revenues and a
10% increase in intere expense.  These increases were partially  offset by a 10%
decrease in production costs and a 10% decrease in DD&A.

RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999:

     Oil and Gas Revenues.  Oil and gas revenues decreased $610,887,  or 13%, to
$3,954,816 for the six months ended June 30, 1999,  from $4,565,703 for the same
period of 1998.  The decrease was  primarily the result of a 10% decrease in the
average sales price per EBO.  Parallel received $11.92 per EBO in the six months
ended June 30, 1999 compared with $13.26 per EBO for the same period of 1998. In
addition,  oil and gas production  decreased 12,513 EBO, or 4%.

<PAGE>
                                       16


Approximately  76% of the decrease in revenues was  attributable to the decrease
in  the  average  sales  price  and   approximately  24%  of  the  decrease  was
attributable to a decrease in oil and gas production volumes.

     Production Costs. Production costs decreased $105,727, or 9%, to $1,064,964
during  the first six  months of 1999,  compared  with  $1,170,691  for the same
period of 1998.  Average production costs per EBO decreased 6%, to $3.21 for the
first  six  months  in 1999  compared  to  $3.40  for the same  period  in 1998,
primarily a result of adding lower cost oil and gas production.

     General and Administrative  Expenses.  General and administrative  expenses
increased by $4,643,  or 1%, to $424,148 for the first six months of 1999,  from
$419,505 for the same period of 1998. General and  administrative  expenses were
$1.28 per EBO in the first six months of 1999  compared  to $1.22 per EBO in the
first six months of 1998. Future general and  administrative  costs are expected
to remain fairly stable with no material  increases  expected in any  particular
category.

     Depreciation,  Depletion and Amortization Expense. Depreciation,  depletion
and amortization  expense ("DD&A")  decreased by $133,489,  or 7%, to $1,860,794
for the first six months of 1999 compared with $1,994,283 for the same period of
1998. As a percentage of revenues,  the DD&A rate  increased by 3% when compared
with the prior year six months,  a result of  decreased  production  volumes,  a
decrease in the average  sales price per EBO received by Parallel and a decrease
in the DD&A rate per EBO.  The DD&A rate per EBO  decreased to $5.61 for the six
months ended June 30, 1999  compared with $5.79 per EBO for the first six months
of 1998. The decrease in the DD&A rate per EBO is  attributable to a revision in
our proven reserve  estimates,  primarily the result of lower oil and gas prices
in effect at December  31, 1998  compared  with prices in effect at December 31,
1997, and a non-cash  impairment  charge  incurred in the fourth quarter of 1998
that reduced our full cost pool.

     Net Interest Expense.  Net interest expense increased  $74,532,  or 11%, to
$720,157 for the six months ended June 30, 1999  compared  with $645,625 for the
same period of 1998; due principally to borrowings against our revolving line of
credit  during  1998,  when  substantially  lower oil and gas  prices  adversely
affected cash flow.

     Net Income and Operating Cash Flow. Net income decreased  $357,966 or 141%,
to $(104,528)  for the six months ended June 30, 1999,  compared to $253,438 for
the six months ended June 30, 1998.  Operating cash flow decreased $616,150,  or
26%, to $1,756,266 for the six months ended June 30, 1999 compared to $2,372,416
for the six months ended June 30, 1998. The decrease in net income and operating
cash  flow  resulted  from a 13%  decrease  in oil and gas  revenues,  and a 16%
increase in interest  expense.  These  increases were  partially  offset by a 9%
decrease in production costs and a 3% decrease in DD&A.

LIQUIDITY AND CAPITAL RESOURCES

     Our cash flow is highly  dependent on oil and gas prices.  Decreases in the
market  price of oil and gas have  reduced  cash flow and also  resulted  in the
reduction of our borrowing  base under our bank credit  facility.  These factors
have decreased the funds available to us for capital expenditures.

     Our working  capital  increased as of June 30, 1999  compared with December
31, 1998.  Current assets exceeded  current  liabilities by $575,736 at June 30,
1999 compared with working capital of $128,813 at December 31, 1998

     We incurred net property  costs of $1,780,589 for the six months ended June
30, 1999 for our 3-D seismic  interpretation,  leasehold  costs and drilling and
completion activities.  These activities were financed by the utilization of our
cash provided by  operations,  proceeds from the sale of certain  properties and
cash provided by credit lines.

     At the  present  time,  our cash flow from  operations  is adequate to meet
normal  operating  expenses,  the interest expense under our credit facility and
preferred  stock  dividends.   However,  during  a  period  of  sustained  price
downturns,  we reduced exploration activities to match internally generated cash
flows.  Therefore,  without  additional  capital  or an  increase  in our credit
facility  borrowing  base, our capital  expenditure  budget for the remainder of
1999 remains  highly  dependent  on future oil and gas prices.  If the prices we
receive for oil and gas production continue to improve, increasing cash flow, or
if we are  successful  in raising  additional  capital,  1999  planned  drilling
activity may be accelerated.

<PAGE>
                                       17


TRENDS AND PRICES

     Industry conditions  deteriorated  significantly  during 1998 and the first
three  months of 1999 as a result of  declining  oil  prices and  weakening  gas
prices.  While  prices  recovered  somewhat  during the second  quarter of 1999,
prices  for the  first  six  months  of 1999 are  significantly  lower  than the
comparable period in 1998. There is substantial uncertainty regarding future oil
and gas prices and there can be no  assurance  that oil and gas prices  will not
decline in the future.

     Our revenues,  cash flows and borrowing capacity are affected by changes in
oil and gas prices. The markets for oil and gas have historically been, and will
continue to be, volatile. Prices for oil and gas typically fluctuate in response
to  relatively  minor  changes in supply and  demand,  market  uncertainty,  and
seasonal,  political  and other  factors  beyond our  control.  We are unable to
accurately predict domestic or worldwide political events or the effects of such
other factors on the prices we receive for oil and gas.

INFORMATION SYSTEMS FOR THE YEAR 2000

     We place a high  priority  on  resolving  the  computer  or  embedded  chip
problems related to the Year 2000 that might cause operational disruptions.  Our
Year 2000 project  addresses  the  inability of computer  software;  hardware or
equipment  with  embedded  microprocessors  that are time  sensitive  to process
correctly  dates data  beginning on January 1, 2000.  This problem  results from
computer  programs  using two digits  rather  than four to define an  applicable
year.

     In planning and developing the project,  we considered both our information
technology,  or IT, systems and non-IT  systems.  IT systems  generally  include
computer equipment and software. Alarm systems, fax machines, monitors for field
operations  and  other  miscellaneous   systems,   which  may  contain  embedded
technology,  are  considered  non-IT  systems.  These  types of systems are more
difficult to assess and repair than IT systems.

     The scope of the project includes:

          .    conducting  an  inventory  of  software,  hardware  and  embedded
               systems equipment;
          .    assessing the potential for failure and the associated risk;
          .    prioritizing  the need for  remediation,  repairing  or replacing
               significant non-compliant items; and
          .    testing any modifications to ensure Year 2000 compliance.

     Additionally,  the project assesses the risks associated with the Year 2000
compliance of material business partners.

     The  assessment  phase of our Year 2000  project  is at  varying  stages of
completion  as it pertains to IT and non-IT  systems and  applications.  We have
begun a comprehensive  analysis of the operational problems and costs that would
be  reasonably  likely to result  from the failure by us and  significant  third
parties to complete  efforts  necessary  to achieve  Year 2000  compliance  on a
timely basis.

     We believe our most significant risks will be in two areas:

          .    measuring the quantities of oil and natural gas produced; and
          .    receiving timely payment from the purchasers of its gas and oil.

     We  also  depend  upon  third  parties  for  most  of  our  non-information
technology systems such as:

          .    telephones;
          .    facsimile machines;
          .    air conditioning;
          .    heating;
          .    elevators in the office building; and
          .    other  equipment  which  may  have  embedded  technology  such as
               microprocessors.
<PAGE>
                                       18


     Many systems  owned or  controlled  by third  parties that we are dependent
upon, including non-information  technology systems, may or may not be Year 2000
compliant.  Written inquiries have been sent to these third parties, but most of
this  technology  is outside of our  control  and it is  difficult  to assess or
remedy any  non-compliance  that could  adversely  affect our ability to conduct
business.

     In December  1998,  letters  were mailed to  significant  vendors,  service
providers and business partners to determine the extent to which interfaces with
such  entities are  vulnerable  to Year 2000 issues and whether the products and
services  purchased  from or provided by such entities are Year 2000  compliant.
Written assurances have been obtained from our bank lender, our major purchasers
of production,  with the exception of one, and our accounting  software provider
indicating  that  they  are or will  be Y2K  compliant  by the end of the  year.
Efforts are being made to locate the Y2K  coordinator  of the one  purchaser  to
determine their Y2K  compliance.  We are mindful that our own level of readiness
is  partially  dependent  on the ability of these and other third  parties to be
fully  compliant.  The  failure  of third  parties to be Y2K  compliant  creates
likelihood  that we will also  experience  Y2K  interruptions  through a "ripple
effect" stemming from external forces.

     The remedial  phase of the project is also at varying stages of completion.
The  remedial  phase  includes  the  upgrade  and/or   replacement  of  software
applications and hardware systems. Most of the software providers for Parallel's
personal  computers  have  confirmed  their  readiness for the Year 2000 or have
provided  updates to correct most identified Year 2000 problems.  Testing of our
local area network and a check for embedded  systems have been completed.  Minor
corrections to the local computers have been identified and will be corrected by
September 30, 1999.

     It is impossible  to accurately  predict all potential Y2K problems and the
magnitude of any adverse effects on Parallel. Because of these uncertainties, we
are developing a contingency plan to minimize potential business  interruptions.
In preparing contingency plans, we have assumed that many third parties will not
be Y2K compliant.  Our remediation efforts are expected to reduce  significantly
our level of  uncertainty  about Year 2000  compliance  and the  possibility  of
interruptions of normal business  operations.  After completion of the Year 2000
review and  testing,  which is  currently  expected to be  completed by June 30,
1999,  we will further  develop a  contingency  plan as  required.  This plan is
expected to be completed by September 30, 1999.

     The following  table  summarizes the current  overall status of our project
and lists anticipated completion dates for each phase of the project.

<TABLE>
                                      Phase
---------------------------------------------------------------------------------------
   Component               Inventory             Assessment               Remediation
---------------------------------------------------------------------------------------
<S>                       <C>                   <C>                       <C>

Business Partners        January 31, 1999       August 31, 1999      September 15, 1999
Software                 April 30, 1999         May 31, 1999         Completed
Hardware                 April 30, 1999         September 15,1999    September 30, 1999
Embedded Systems         April 30, 1999         May 31, 1999         Completed

</TABLE>

     To date,  only  minor  costs  have  been  incurred  for  project  planning.
Substantially all of the personnel  working on the project to identify,  assess,
remediate  and test Year 2000 issues are existing  employees.  Therefore,  labor
costs incurred in connection with the project are expected to be minimal.  Based
on current information,  we do not anticipate that the costs associated with any
necessary in-house modifications will be material to its operations or financial
condition.  The total cost of the project is  expected to range from  $10,000 to
$20,000.

     The  failure to correct a material  Year 2000  problem  could  result in an
interruption  in,  or a  failure  of,  certain  normal  business  activities  or
operations that could  materially and adversely  affect  Parallel's  operations,
liquidity and financial condition.  Because of the uncertainty  surrounding Year
2000 issues,  primarily those associated with third party suppliers and material
business  partners;  we are unable to  determine  at this time whether Year 2000
failures will have a material impact on its operations.  However, the project is
expected  to reduce  the risk of Year 2000  issues  significantly,  particularly
regarding the  compliance and readiness of our material  vendors,  suppliers and
business  partners.  We believe that the timely  completion of this project will
reduce  the  possibility  of  significant   interruptions   of  normal  business
operations.

<PAGE>
                                       19


     This is a flexible plan that will change to address  additional  Y2K issues
as new problems are  identified.  As a result,  any time and costs estimates and
the  assessment of risks  associated  with Y2K issues are subject to revision as
needed to meet our goal to be Y2K compliant.

ITEM 3. QUANTITATIVE AND QUALITIVE DISCLOSURES ABOUT MARKET RISK

     Our major market risk exposure is in the pricing  applicable to our oil and
natural gas production.  Realized  pricing is primarily driven by the prevailing
domestic  price for crude oil and spot prices  applicable to the region in which
we produce natural gas. Historically, prices received for oil and gas production
have been volatile and unpredictable.

     While  the use of these  price  risk  management  arrangements  limits  the
downside risk of adverse price movements, it may also limit future revenues from
favorable  price  movements.  At June 30,  1999,  we did not  have  any  hedging
contracts in place.

     Our only  financial  instrument  sensitive to changes in interest  rates is
bank debt. Our annual  interest costs in 1999 will fluctuate based on short-term
interest  rates.  As the interest rate is variable and reflects  current  market
conditions,  the carrying value approximates the fair value. The following table
shows  principal  cash flows and  related  weighted  average  interest  rates by
expected  maturity  dates.  Weighted  average  interest  rates  for the  secured
revolving  facility were  determined  using weighted  average  interest paid and
accrued in December 1998.

<TABLE>

Value                                     1999     2000     2001     2002     Total    Fair Value
-------------------------------------------------------------------------------------------------
                                               (in 000's, except interest rates)
<S>                                       <C>      <C>      <C>      <C>      <C>      <C>

Variable rate debt
     Revolving Facility (secured)           -        -   $18,816       -     $18,816      $18,816
        Average interest rate            7.50%    7.50%     7.50%

</TABLE>

<PAGE>
                                       20


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a)    Exhibits

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

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

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

              10.1   Certificate  of Formation of First Permian,  L.L.C.,  dated
                     June 24, 1999 (Incorporated by reference to Exhibit 10.1 to
                     Form 8-K of the  Registrant  dated July 14,  1999 and filed
                     with the  Securities  and Exchange  Commission  on July 15,
                     1999)

              10.2   Limited  Liability  Company  Agreement  of  First  Permian,
                     L.L.C.,  dated June 25, 1999  (Incorporated by reference to
                     Exhibit 10.2 to Form 8-K of the  Registrant  dated July 14,
                     1999 and filed with the Securities and Exchange  Commission
                     on July 15, 1999)

              10.3   Merger  Agreement,  dated June 25,  1999  (Incorporated  by
                     reference  to  Exhibit  10.3 to Form 8-K of the  Registrant
                     dated  July 14,  1999 and  filed  with the  Securities  and
                     Exchange Commission on July 15, 1999)

              10.4   Agreement and Plan of merger, dated June 30, 1999, of First
                     Permian, L.L.C. and Nash Oil Company, L.L.C.  (Incorporated
                     by reference to Exhibit 10.4 to Form 8-K of the  Registrant
                     dated  July 14,  1999 and  filed  with the  Securities  and
                     Exchange Commission on July 15, 1999)

              10.5   Certificate of Merger of First Permian L.L.C.  and Nash Oil
                     Company,  dated June 30, 1999 (Incorporated by reference to
                     Exhibit 10.5 to Form 8-K of the  Registrant  dated July 14,
                     1999 and filed with the Securities and Exchange  Commission
                     on July 15, 1999)

              10.6   Credit Agreement, dated June 30, 1999, among First Permian,
                     L.L.C., as Borrower, and Parallel Petroleum Corporation and
                     Baytech,  Inc. as Guarantors and Bank One, Texas,  N.A. and
                     the Institutions named Herein as Banks and Bank One, Texas,
                     N.A., as Agent  (Incorporated  by reference to Exhibit 10.6
                     to Form 8-K of the Registrant dated July 14, 1999 and filed
                     with the  Securities  and Exchange  Commission  on July 15,
                     1999)

              10.7   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
                     to Form 8-K of the Registrant dated July 14, 1999 and filed
                     with the  Securities  and Exchange  Commission  on July 15,
                     1999)

              10.8   Intercreditor  Agreement,  dated as of June 30, 1999, among
                     First  Permian,   L.L.C.,  Bank  One,  Texas,  N.A.,  Tejon
                     Exploration Company and Mansefeldt Investment  Corporation.
                     (Incorporated  by  reference to Exhibit 10.8 to Form 8-K of
                     the  Registrant  dated  July 14,  1999 and  filed  with the
                     Securities and Exchange Commission on July 15, 1999)

              10.9   Subordinated  Promissory  Note,  dated June 30, 1999, among
                     First  Permian,   L.L.C.  and  Tejon  Exploration   Company
                     (Incorporated  by  reference to Exhibit 10.9 to Form 8-K of
                     the  Registrant  dated  July 14,  1999 and  filed  with the
                     Securities and Exchange Commission on July 15, 1999)

<PAGE>
                                       21



              10.10  Subordinated  Promissory  Note,  dated June 30, 1999, among
                     First Permian,  L.L.C.  and Mansefeldt  Investment  Company
                     (Incorporated  by reference to Exhibit 10.10 to Form 8-K of
                     the  Registrant  dated  July 14,  1999 and  filed  with the
                     Securities and Exchange Commission on July 15, 1999)

              *27    Financial Data Schedule

              (b)    Reports on Form 8-K

                     No reports were filed on Form 8-K during the quarter  ended
                     June 30, 1999.  On July 15, 1999, We filed a report on Form
                     8-K to report the formation of First Permian, LLC and First
                     Permian's  acquisition of oil and gas properties  from Fina
                     Oil and Chemical Company.


                     -----------------------
                     * Filed herewith.

<PAGE>
                                       22




                                   SIGNATURES



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

                                      PARALLEL PETROLEUM CORPORATION


                                      BY:  /s/ THOMAS R. CAMBRIDGE
Date:  May 4, 2000                   -------------------------------------
                                     Thomas R. Cambridge
                                     Chairman of the Board of Directors
                                     and Chief Executive Officer



Date:  May 4, 2000                   BY:  /s/ LARRY C. OLDHAM
                                     -------------------------------------
                                     Larry C. Oldham,
                                     President (Principal Financial Officer)