<PAGE>
                                       1

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D. C. 20549

                                    FORM 10-Q

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

     /X/  Quarterly  report  pursuant  to Section 13 or 15(d) of the  Securities
Exchange Act of 1934 For the quarterly period ended March 31, 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

     The number of  outstanding  shares of the issuer's  common stock,  $.01 par
value,     was     18,331,858      shares     as     of     May     1,     1999.
================================================================================

<PAGE>
                                       2
                            

                                      INDEX



                         PART I. - FINANCIAL INFORMATION


ITEM 1.       FINANCIAL STATEMENTS

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

              -   Balance Sheets as of December 31, 1998 and March 31, 1999

              -   Statements of Operations for the three months ended March 31, 
                  1998 and 1999

              -   Statements of Cash Flows for the three months ended March 31, 
                  1998 and 1999

              -   Notes to Financial Statements

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

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


                          PART II. - OTHER INFORMATION

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

           /a/    Exhibits

           /b/    Reports on Form 8-K



<PAGE>
                                       3

                         PARALLEL PETROLEUM CORPORATION

                                 BALANCE SHEETS

<TABLE>
                                                                                         December 31,       March 31, 1999
ASSETS                                                                                       1998*            (Unaudited)
-------------                                                                            ------------       --------------
<S>                                                                                      <C>                <C>    

Current assets:
   Cash and cash equivalents                                                              $ 1,178,819         $ 1,440,167
   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             189,572
      Affiliate                                                                                11,844               1,381
                                                                                         ------------        ------------
                                                                                            1,692,243           1,557,338
   Other assets                                                                                61,504              12,659
                                                                                         ------------        ------------
      Total current assets                                                                  2,932,566           3,010,164
                                                                                         ------------        ------------
Property and equipment, at cost:
   Oil and gas properties, full cost method                                                65,565,466          66,428,628
   Other                                                                                      287,586             288,788
                                                                                         ------------        ------------
                                                                                           65,853,052          66,717,416
   Less accumulated depreciation and depletion                                             22,279,355          23,183,191
                                                                                         ------------        ------------
      Net property and equipment                                                           43,573,697          43,534,225
                                                                                         ------------        ------------
Other assets, net of accumulated amortization of
      $86,917 in 1998 and $95,248 in 1999                                                      58,519              73,039
                                                                                         ------------        ------------
                                                                                         $ 46,564,782        $ 46,617,428
                                                                                         ============        ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
   Accounts payable and accrued liabilities:
      Trade                                                                              $  2,803,539        $  2,067,027
      Affiliate                                                                                   214               2,467
      Preferred stock dividend                                                                     --             170,538
                                                                                         ------------        ------------
      Total current liabilities                                                             2,803,753           2,240,032
                                                                                         ------------        ------------
Long-term debt                                                                             18,035,889          18,815,889
Deferred income taxes                                                                              --                  --

Stockholders' equity:
 Preferred stock - 6% convertible preferred stock - par value
      of $.10 per share, (aggregate liquidation preference of $10)
      authorized 10,000,000 shares, issued and outstanding
      974,500 in 1998                                                                          97,450              97,450
   Common stock - par value of $.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          32,188,371
   Retained deficit                                                                        (6,897,350)         (6,907,633)
                                                                                         ------------        ------------
      Total stockholders' equity                                                           25,725,140          25,561,507

Contingencies
                                                                                         ------------        ------------
                                                                                         $ 46,564,782        $ 46,617,428
                                                                                         ============        ============

</TABLE>

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

<PAGE>
                                       4
  
                        PARALLEL PETROLEUM CORPORATION

                            STATEMENTS OF OPERATIONS

                   Three Months Ended March 31, 1998 and 1999

                                   (Unaudited)
<TABLE>

                                                                                1998                   1999
                                                                            ------------            -----------
<S>                                                                         <C>                     <C>

Oil and gas revenues                                                         $ 2,112,563            $ 1,963,089
                                                                            ------------            -----------
Cost and expenses:
     Lease operating expense                                                     557,638                513,822
     General and administrative                                                  220,389                203,237
     Depreciation, depletion and amortization                                    930,816                903,836
                                                                             -----------            -----------
                                                                               1,708,843              1,620,895
                                                                             -----------            -----------
              Operating income                                                   403,720                342,194
                                                                             -----------            -----------
Other income (expense), net:
     Interest income                                                                  76                 13,276
     Other income                                                                 13,559                  6,623
     Interest expense                                                           (304,278)              (371,071)
     Other expense                                                                (4,382)                (1,305)
                                                                             -----------            -----------
              Total other expense, net                                          (295,025)              (352,477)
                                                                             -----------            -----------
Income before income taxes                                                       108,695                (10,283)
Income tax expense - deferred                                                     35,869                     --
                                                                             -----------            -----------
              Net income (loss)                                              $    72,826            $   (10,283)
                                                                             ===========            ===========
Net income (loss) per common share:
              Basic                                                                $.004                 $(.010)
                                                                                   -----                 ------
              Diluted                                                              $.004                 $(.010)
                                                                                   -----                 ------
Weighted average common shares outstanding:
              Basic                                                           18,118,733             18,328,525
                                                                              ==========             ==========
              Diluted                                                         18,779,453             18,328,525
                                                                             ===========            ===========
</TABLE>




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


<PAGE>
                                       5

                         PARALLEL PETROLEUM CORPORATION

                            STATEMENTS OF CASH FLOWS

                   Three Months Ended March 31, 1998 and 1999

                                   (Unaudited)

<TABLE>
                                                                                         1998                  1999
                                                                                       ----------            ----------
<S>                                                                                    <C>                   <C>

Cash flows from operating activities:
     Net income (loss)                                                                 $   72,826              (10,283)
     Adjustments to reconcile net income to
       net cash provided by (used in) operating
        activities:
         Depreciation, depletion and amortization                                         930,816               903,836
         Incomes taxes                                                                     35,869                    --
     Other (increase) decrease, net                                                         6,526               (14,520)
     Changes in assets and liabilities:
         Decrease (increase) in trade receivables                                        (367,128)              134,905
         Increase in subscription receivable                                           (6,000,000)                   --
         (Increase)in prepaid expenses
              and other                                                                    (6,979)               48,845
         Decrease in accounts payable
           and accrued liabilities                                                       (488,706)             (734,259)
                                                                                      -----------           -----------
              Net cash provided by (used in) operating
                 activities                                                            (5,816,776)              328,524
                                                                                      -----------           -----------
Cash flows from investing activities:
     Additions to property and equipment                                               (4,916,115)           (1,119,604)
     Proceeds from disposition of property and equipment                                       --               255,240
                                                                                      -----------           -----------
              Net cash used in investing
                 activities                                                            (4,916,115)             (864,364)
                                                                                       -----------          -----------
Cash flows from financing activities:
     Proceeds from the issuance of long-term debt                                       4,450,000               780,000
     Stock offering costs                                                                 (58,859)                   --
     Proceeds from common stock issuance                                                6,000,000                    --
     Proceeds from exercise of options and warrants                                        33,750                17,188
                                                                                      -----------           -----------
              Net cash provided by financing
                 activities                                                            10,424,891               797,188
                                                                                      -----------           -----------
              Net increase (decrease) in cash
                  and cash equivalents                                                   (308,000)              261,348
Beginning cash and cash equivalents                                                       597,149             1,178,819
                                                                                      -----------           -----------
Ending cash and cash equivalents                                                      $   289,149             1,440,167
                                                                                      ===========           ===========

Non-cash financing activities:
     Accrued preferred stock dividend                                                 $        --               170,538
                                                                                      ===========           ===========
</TABLE>

The accompanying notes are an integral part of these financials.

<PAGE>
                                       6

                         PARALLEL PETROLEUM CORPORATION
                          NOTES TO FINANCIAL STATEMENTS


NOTE 1.  OPINION OF MANAGEMENT

     The  financial  information  included  herein 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.

     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  pursuant  to the rules and
regulations  of  the  Securities  and  Exchange   Commission.   These  financial
statements should be read in conjunction with the financial statements and notes
thereto included in the Company's 1999 Annual Report and 1998 Form 10-K.

NOTE 2.       LONG TERM DEBT

     At December 31, 1998,  the Company was a party to a loan  agreement  with a
bank. Pursuant to the loan agreement,  the Company was permitted to borrow up to
the lesser of $30,000,000 or the "borrowing base" then in effect.  The borrowing
base in effect at  December  31,  1998 was  $21,100,000,  which  included  (i) a
$19,100,000  revolving  credit  facility  ("Revolving   Facility")  and  (ii)  a
$2,000,000 non-revolving line of credit ("Development Facility").  The borrowing
base was subject to reduction  each month by a monthly  commitment  reduction of
$380,000  until  April  1,  1999.  The  borrowing  base and  monthly  commitment
reduction are subject to redetermination every six months on April 1 and October
1 of each year or at such other times as the bank elects. On March 23, 1999, the
Company  entered into an agreement  with its bank amending  certain terms of the
loan agreement.  Under the amendment, (i) the principal amount outstanding under
the Development  Facility,  $1,592,000,  was included in the Revolving Facility,
(ii) the  borrowing  base was  redetermined  at  $18,815,889  (iii)  the  unpaid
principal  balance for the Revolving  Facility bears interest at the bank's base
lending rate plus .25%, or 8% at March 31, 1999, and (iv) the monthly commitment
reduction was suspended  until May 1, 1999,  when the borrowing base and monthly
commitment  reduction are scheduled for  redetermination  by the bank. As of the
date of this Form 10-Q Report, the Company had not received notice from its bank
lender of the redetermined  borrowing base or monthly reduction amount. At March
31, 1999 the Company had borrowed all the funds  currently  available  under its
revolving credit  facility.  Indebtedness  under the Revolving  Facility matures
July 1, 2001. The loan is secured by substantially  all of the Company's 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 for the Revolving  Facility bears interest at
the  election of the Company 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.

     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,  and (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.

NOTE 3.       PREFERRED STOCK

     The Company has outstanding 974,500 shares of its 6% Convertible  Preferred
Stock,  $0.10 par value per share (the  "Preferred  Stock").  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.

     The Company may redeem the Preferred Stock, in whole or part, after October
20, 1999, for $10 per share plus accrued and unpaid dividends.

<PAGE>
                                       7

NOTE 4:       FULL COST CEILING TEST

     The  Company  uses the full  cost  method  to  account  for its 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 related deferred income taxes,
is compared to the ceiling on a quarterly  and annual  basis.  Any excess of the
net book value,  less related deferred income taxes, is generally written off as
an expense.  Under the Securities and Exchange Commission rules and regulations,
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,  the  Company  recognized  a non-cash
impairment charge of $14,757,028,  or $12,269,834 net of tax, related to its 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 March 31,
1999, the Company's net book value of oil and gas, less related  deferred income
taxes,  was below the  calculated  ceiling.  As a result,  the  Company  was not
required to record a reduction of its oil and gas properties under the full cost
method of accounting.

NOTE 5.       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 option,  warrants and
convertible  securities and is computed by dividing  income  available to common
stockholders by the weighted average number of common shares outstanding for the
period.  Diluted  earnings  per share is 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
                                                                                                 March 31,
                                                                                        1998                  1999
                                                                                     ----------            ----------
<S>                                                                                  <C>                   <C>    

Basic EPS Computation:
     Numerator -
         Net income                                                                  $   72,826             $ (10,283)
         Preferred stock dividends                                                           --              (170,538)
                                                                                     ----------            ----------
         Net income available to common Stockholders                                     72,826              (180,821)
                                                                                     ==========            ==========
     Denominator -
         Weighted average common shares outstanding                                  18,118,733            18,328,525
                                                                                     ----------            ----------
Basic EPS                                                                            $     .004            $    (.010)
                                                                                     ==========            ==========
Diluted EPS Computation
     Numerator -
         Net income                                                                  $   72,826            $  (10,283)
         Preferred stock dividends                                                           --              (170,538)
                                                                                     ----------            ----------
         Net income available to common Stockholders                                     72,826              (180,821)
                                                                                     ==========            ==========
     Denominator -
         Weighted average common shares outstanding                                  18,118,733            18,328,525
         Employee stock options                                                         641,160                    --
         Warrants                                                                        22,060                    --
                                                                                     ----------            ----------
                                                                                     18,781,953            18,328,525
                                                                                     ----------            ----------
Diluted EPS                                                                          $     .004             $   (.010)
                                                                                     ==========            ==========


</TABLE>

<PAGE>
                                       8

     Employee stock options to purchase  shares of common stock and  convertible
preferred stock were outstanding  during the three-month  period ended March 31,
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 the Company,  (ii) the effect of
the assumed conversion of the Company's preferred stock to common stock would be
antidilutive,  or (iii) the  Company had a net loss from  continuing  operations
and, therefore, the effect would be antidilutive.

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

     The following  discussion and analysis  should be read in conjunction  with
the Company's Financial Statements and the related notes thereto.

OVERVIEW

     The  Company's  long term  business  strategy is to increase the  Company's
reserve base by utilizing 3-D seismic technology to obtain exploratory  drilling
returns on capital invested with developmental drilling risks.

     The Company  intends to exploit its existing  properties  and acquire those
properties,  which it believes  can be  exploited  by  developing  reserves  not
previously  produced.  The Company undertakes projects only when it believes the
project has the potential for initial cash flow adequate to return the project's
capital  expenditures  within a short  period  of time,  generally  less than 36
months. The Company also endeavors to maximize the present value of its projects
by accelerating  production of its reserves  consistent  with prudent  reservoir
management.
           
     As part of this business strategy, the Company has made acquisitions of oil
and  gas  producing  properties  in the  Permian  Basin  of West  Texas  and has
discovered oil and gas reserves through the use of 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.  Capital  utilized to acquire  such  reserves  has been
provided  primarily by secured bank  financing,  sales of the  Company's  equity
securities and cash flow from operations.

     The Company's operating  performance is influenced by several factors,  the
most  significant  of which are the prices  received for its oil and gas and the
Company's  production volumes.  The world price for oil has overall influence on
the prices that the Company receives for its 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 the Company
receives  are  primarily  influenced  by  seasonal  demand,  weather,  hurricane
conditions in the Gulf of Mexico, availability of pipeline transportation to end
users and  proximity of the  Company's  wells to major  transportation  pipeline
infrastructure  and, to a lesser extent,  world oil prices.  Additional  factors
influencing   operating   performance  include  production  expenses,   overhead
requirements, and cost of capital.

     For the three months ended March 31, 1999, the average sales price received
by the Company for its crude oil production  averaged $12.18 per barrel compared
with $14.08 per barrel at March 31,  1998 and $12.49 per barrel at December  31,
1998.  The average sales price for natural gas during this same period was $2.03
per mcf  compared  with  $2.09  per mcf at March  31,  1998 and $2.04 per mcf at
December 31, 1998.

     The Company's oil and gas producing  activities are accounted for using the
full cost method of accounting.  Accordingly,  the Company capitalizes 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 4 of Notes 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


<PAGE>
                                       9

are individually  assessed for impairment.  The cost of any impaired property is
transferred to the balance of oil and gas properties being depleted.

     The Company's  production  and results of  operations  vary from quarter to
quarter.  Based on its  scheduled  drilling  activities,  the  Company  does not
currently   anticipate  that  its  production  volumes  in  1999  will  increase
significantly  compared to its  production  volumes in the prior year.  However,
normal  operating  considerations  and other  factors  could result in decreased
production for the year.

RESULTS OF OPERATIONS

     Because  of  the  Company's  ever-changing  reserve  base  and  sources  of
production,  year to year or  quarter to quarter  comparisons  of the  Company's
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
                                                      ------------------------------------       ------------------------
                                                       9-30-98       12-31-98      3-31-99         3-31-98        3-31-99
                                                      --------      ---------     --------       ---------      ---------
<S>                                                   <C>           <C>           <C>            <C>            <C>

Production and prices:

  Oil (Bbls)                                            48,321        49,294        44,619        43,375          44,619
  Natural gas (Mcf)                                    869,215       868,131       697,593       719,905         697,593
  Equivalent barrels of oil(EBO)                       193,190       193,982       160,884       163,359         160,884

  Oil price (per Bbl)                                   $12.15        $10.36        $12.18        $14.08          $12.18
  Gas price (per Mcf)                                   $ 2.25        $ 1.59        $ 2.03        $ 2.09          $ 2.03
  Price per EBO                                         $13.15        $ 9.77        $12.20        $12.93          $12.20

Results of operations per EBO

Oil and gas revenues                                    $13.15        $ 9.77        $12.20        $12.93          $12.20
Costs and expenses:
  Lease operating expense                                 3.22          3.31          3.19          3.41            3.19
  General and administrative                              1.18          1.30          1.26          1.35            1.26
  Depreciation and depletion                              5.77         14.73          5.62          5.70            5.62
    Impairment of oil and
         gas properties                                    .00         76.07          .00            .00             .00
                                                        ------        ------       ------         ------          ------
     Total costs and expenses                            10.17         95.41        10.07          10.46           10.07
                                                        ------        ------       ------         ------          ------
Operating income                                          2.98        (85.64)        2.13           2.47            2.13

Interest expense, net                                    (2.05)        (1.73)       (2.22)         (1.86)          (2.22)
Other income, net                                          .03          1.49          .03            .06             .03
                                                        ------        ------       ------         ------          ------
Pretax income                                              .96        (85.88)        (.06)           .67            (.06)
Income tax (expense) benefit                              (.32)        16.94          .00           (.22)            .00
                                                        ------        ------       ------         ------          ------
Net income                                                 .64        (68.94)        (.06)           .45            (.06)
                                                        ------        ------       ------         ------          ------
Income before working
  capital adjustments                                   $ 6.73        $ 4.92       $ 5.56         $ 6.37          $ 5.56
                                                        ======        ======       ======         ======          ======


</TABLE>


<PAGE>
                                       10



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

<TABLE>

                                                                 THREE MONTHS ENDED                   THREE MONTHS ENDED
                                                      ------------------------------------        -----------------------
                                                       9-30-98       12-31-98      3-31-99         3-31-98        3-31-99
                                                      --------       --------     --------        --------       --------
<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                                      24.5           33.9         26.1           26.4            26.1
  General and administrative                             9.0           13.3         10.3           10.4            10.3
  Depreciation, depletion and
     amortization                                       43.8          150.8         46.0           44.1            46.0
  Impairment of oil and gas
     properties                                           .0          778.6           .0             .0              .0
                                                      ------         ------       ------          ------         ------
      Total costs and expense                           77.3          976.6         82.4           80.9            82.4
                                                      ------         ------       ------          ------         ------
Operating income                                        22.7         (876.6)        17.6           19.1            17.6
                                                      ------         ------       ------          ------         ------
Interest expense, net                                  (15.6)         (17.7)       (18.2)         (14.4)          (18.2)
Other income, net                                         .2           15.3           .2             .5              .2
                                                      ------         ------       ------          ------         ------
Pretax income                                            7.3         (879.0)         (.4)           5.2             (.4)
Income tax (expense) benefit                            (2.4)         173.4           .0           (1.7)             .0
                                                      ------         ------       ------          ------         ------
Net income                                               4.9%        (705.6)%        (.4)%          3.5%            (.4)%
                                                      ======         ======       ======          ======         ======

</TABLE>

THREE MONTHS ENDED MARCH 31, 1998 AND 1999:

     Oil and Gas Revenues.  Oil and gas revenues decreased  $149,474,  or 7%, to
$1,963,089  for the three months ended March 31, 1999,  from  $2,112,563 for the
same period of 1998.  The decrease was  primarily the result of a 6% decrease in
the average  sales price per EBO.  The  Company  received  $12.20 per EBO in the
three  months  ended  March 31, 1999  compared  with $12.93 per EBO for the same
period  of  1998.  In  addition,  oil  and  gas  decreased  2,475  EBO,  or  2%.
Approximately  80% of the decrease in revenues were attributable to the decrease
in  the  average  sales  price  and   approximately  20%  of  the  decrease  was
attributable to a decrease in oil and gas production volumes.

     Production Costs.  Production costs decreased  $43,816,  or 8%, to $513,882
during the first  three  months of 1999,  compared  with  $557,638  for the same
period of 1998.  Average production costs per EBO decreased 6%, to $3.19 for the
first  three  months  in 1999  compared  to $3.41  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
decreased by $17,152 or 8% to $203,237 for the first three months of 1999,  from
$220,389  for the same  period of 1998.  The  decrease  was  primarily  due to a
decrease  in   communications   expense  and   membership   fees.   General  and
administrative  expenses  were $1.26 per EBO in the first  three  months of 1999
compared to $1.35 per EBO in the first 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 $26,980,  or 3%, to $903,836 for
the first three  months of 1999  compared  with  $930,816 for the same period of
1998. As a percentage of revenues,  the DD&A rate  increased by 2% when compared
with the prior year first quarter, a result of decreased  production  volumes, a
decrease  in the  average  sales  price per EBO  received  by the  Company and a
decrease in the DD&A rate per EBO. The DD&A rate per EBO  decreased to $5.62 for
the first  quarter  1999  compared  with $5.70 per EBO for the first  quarter of
1998. The decrease in the DD&A rate per EBO is attributable to a revision in the
Company's  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 the Company's full cost pool.


<PAGE>
                                       11

     Historically,  the Company has  reviewed its  estimates  of proven  reserve
quantities on an annual basis.  However,  due to the current  uncertainty of oil
and gas prices,  the Company  conducts  internal reviews of its estimated proven
reserves on a more  frequent  basis and makes  necessary  adjustment to its DD&A
rate  accordingly.  The Company believes  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.  Interest  expense  increased  $53,593,  or 18%, to
$357,795 for the three months ended March 31, 1999  compared  with  $304,202 for
the same period of 1998;  due  principally to increased  borrowings  against the
Company's 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 $83,109,  or 114%,
to $(10,283) for the three months ended March 31, 1999,  compared to $72,826 for
the three months ended March 31, 1998.  Operating cash flow decreased  $145,958,
or 14%,  to $893,553  for the three  months  ended  March 31,  1999  compared to
$1,039,511 for the three months ended March 31, 1998. The decrease in net income
and operating cash flow resulted from a 7% decrease in oil and gas revenues, and
an 18%  increase  in  interest  expense  partially  offset by an 8%  decrease in
production costs, an 8% decrease in general and  administrative  costs, and a 3%
decrease in DD&A.

LIQUIDITY AND CAPITAL RESOURCES

     Working  capital  increased  $641,319  as of March  31,  1999  compared  to
December 31, 1998.  Current assets exceeded  current  liabilities by $770,132 at
March 31,  1999  compared  to $128,813 at  December  31,  1998.  Current  assets
increased  primarily due to an increase of $261,348 in cash offset by a decrease
of  $48,845  in  prepaid  expenses  and a decrease  in  accounts  receivable  of
$134,905.  The Company continues to employ 3-D seismic technology in conjunction
with its drilling  activities,  which are  concentrated on certain gas prospects
located onshore, the Texas Gulf Coast.

     The Company  incurred net property costs of $864,364  primarily for its oil
and gas property acquisition,  development,  and enhancement  activities for the
three months ended March 31, 1999.  Such costs were financed by the  utilization
of the Company's cash provided by operations,  proceeds from the sale of certain
properties,  cash  provided  by its line of  credit  and net  proceeds  from the
issuance of preferred stock.

     Based on the Company's projected oil and gas revenues and related expenses,
management  believes that its internally  generated cash flow will be sufficient
to fund its normal  operations,  interest  expense or on bank debt and preferred
stock  dividends.  The Company  continually  reviews and  considers  alternative
methods of financing.

TRENDS AND PRICES

     The Company's  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,  seasonal,  political and other  factors  beyond the control of the
Company.  The Company is unable to  accurately  predict  domestic  or  worldwide
political  events or the effects of such other factors on the prices received by
the Company for its oil and gas. The Company  historically  has not entered into
transactions  to hedge against  changes in oil and gas prices,  but may elect to
enter into hedging transactions in the future to protect against fluctuations in
oil and gas 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.  There is an  excess  supply  of,  and  reduced  demand  for,  crude oil
worldwide.  This excess supply has placed downward pressure on oil prices in the
United  States as well as  worldwide.  Natural gas prices also declined in 1998,
primarily  because cold weather failed to develop in key demand areas.  In April
1999,  the  price the  Company  received  for its oil  production  increased  to
approximately  $16.00 per barrel while the gas price received was  approximately
$2.00 per mcf. There is  substantial  uncertainty  regarding  future oil and gas
prices.  There can be no  assurance  that oil and gas prices will not decline in
the future.

     Because of the recent and  sustained  deterioration  in prices the  Company
receives for oil and gas produced, the capital normally available to the Company



<PAGE>
                                       12


from  its cash  flow and bank  borrowings  has been  significantly  reduced.  In
January, 1998, the Company was receiving  approximately $17.00 per barrel of oil
and $2.70 per Mcf of gas for the oil and gas it produced. Since then, oil prices
have been as low as $10.00 per barrel,  the lowest  level seen since the Company
was  formed in 1979.  At January 1, 1999,  the  Company  received  approximately
$10.50 per barrel of oil and $2.00 per Mcf of gas.  Primarily as a result of the
decline in prices of oil and gas, the Company  experienced a significant decline
in operating cash flow and revenues.  In April,  1999,  oil prices  increased to
approximately  $16.00  per  barrel of oil,  while gas prices  have  remained  at
approximately  $2.00 per Mcf.  There can be no assurance that oil and gas prices
will not decline in the future.

     The Company's  capital  expenditure  budget for 1999 is highly dependent on
future oil and gas prices and will be consistent with internally  generated cash
flows.  If the prices  received for oil and gas production  improve,  increasing
cash flow, or if the Company is successful in raising additional  capital,  1999
planned drilling activity maybe increased.

     During 1998,  the average  sales price  received by the Company for its oil
was  approximately  $12.49 per barrel  while the  average  sales  prices for the
Company's gas was approximately  $2.04 per thousand cubic feet ("Mcf"). At March
31, 1999,  the average price  received by the Company for its oil production was
approximately  $12.18 per Bbl,  while the average price received by the Company,
at that same date, for its gas production was approximately $2.03 per Mcf.

INFORMATION SYSTEMS FOR THE YEAR 2000

     The Company  places a high  priority on resolving  the computer or embedded
chip problems related to the Year 2000 that might cause operational disruptions.
Its 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,  the Company  considered  both its
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 the  Company's  Year 2000  project  is at varying
stages of completion as it pertains to IT and non-IT  systems and  applications.
The Company has begun a comprehensive  analysis of the operational  problems and
costs  that  would be  reasonably  likely to result  from the  failure by it and
significant  third  parties to complete  efforts  necessary to achieve Year 2000
compliance on a timely basis.

     The Company believes its 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.

     The Company also depends upon third parties for most of its non-information
technology systems such as:

     . telephones;


<PAGE>
                                       13

     . facsimile machines;

     . air conditioning;

     . heating;

     . elevators in the office building; and

     .  other   equipment   which   may  have   embedded   technology   such  as
microprocessors.

     Many systems  owned or  controlled by third parties and that the Company is
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 the  Company's  control  and it is
difficult to assess or remedy any non-compliance that could adversely affect the
Company's 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 the  Company's  bank lender,  major
purchasers of production and its accounting  software  provider  indicating that
they are or will be Y2K compliant by the end of the year.  However,  the Company
is mindful that its 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 a  likelihood  that the Company  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 the
Company's personal computers have confirmed their readiness for the Year 2000 or
have provided  updates to correct most identified  Year 2000 problems.  Based on
identification  and assessment  efforts to be completed by the end of the second
quarter of 1999, the Company plans to replace or upgrade  critical  hardware and
software  to become  Year 2000  compliant.  This  phase of the  project  is also
expected  to be  completed  by the end of the  second  quarter  of  1999.  Other
activities  either  underway  or  scheduled  include  the testing of its desktop
computers and local area network and conducting an inventory of embedded systems
in field locations that could affect its operations.

     It is impossible  to accurately  predict all potential Y2K problems and the
magnitude of any adverse effects on the Company. Because of these uncertainties,
the Company is  developing a  contingency  plan to minimize  potential  business
interruptions.  In preparing  contingency  plans,  the Company assumes that many
third parties will not be Y2K compliant.  The Company's  remediation efforts are
expected to reduce  significantly  the Company's 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,  the Company 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 the Company's
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               May 31, 1999              June 30, 1999

Software                                April 30, 1999                 May 31, 1999              June 30, 1999

Hardware                                April 30, 1999                 May 31, 1999              June 30, 1999

Embedded Systems                        April 30, 1999                 May 31, 1999              June 30, 1999

</TABLE>

<PAGE>
                                       14

     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,  the  Company  does  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 the Company'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;  the Company is 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 the Company's  material
vendors,  suppliers and business partners.  The Company believes that the timely
completion  of  this  project  will  reduce  the   possibility   of  significant
interruptions of normal business operations.

     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 the Company's goal to be Y2K compliant.

FORWARD-LOOKING STATEMENTS

     In addition to  historical  information  contained  herein,  this Form 10-Q
Report  contains  forward-looking   statements  subject  to  various  risks  and
uncertainties that could cause the Company's actual results to differ materially
from those in the forward-looking statements.  Forward-looking statements can be
identified  by the use of  forward-looking  terminology  such as "may,"  "will,"
"expect,"  "intend,"  "anticipate,"  "estimate,"  "continue,"  "present  value,"
"future,"  "reserves" or other  variations  thereof or  comparable  terminology.
Factors,  that could cause or contribute to such differences could include,  but
are not limited to, those relating to the Company's 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 the
Company  believes  its  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 the  Company's  control.
Investors are directed to consider such risks and other uncertainties  discussed
in documents filed by the Company with the Securities and Exchange Commission.

ITEM 3.       QUANTITATIVE AND QUALITIVE DISCLOSURES ABOUT MARKET RISK

     The Company does not have or trade in derivative financial  instruments and
does not have firmly committed sales  transactions.  The Company has not entered
into  hedging  arrangements  and does not have any delivery  commitments.  While
hedging  arrangements reduce exposure to losses as a result of unfavorable price
changes,  they also limit the ability to benefit  from  favorable  market  price
changes.

     The Company's  major market risk  exposure is in the pricing  applicable to
its 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 the Company produces natural gas. Historically, prices received for oil
and gas production have been volatile and  unpredictable.  Pricing volatility is
expected to continue.  Oil prices  ranged from a monthly low of $9.74 per barrel
to a monthly high of $11.04 per barrel during first  quarter  1999.  Natural gas
prices the Company  received during first quarter 1999 ranged from a monthly low
of $1.73 per Mcf to a monthly  high of $2.06 per Mcf. A  significant  decline in
the prices of oil and  natural gas could have a material  adverse  effect on the
Company's financial condition and results of operations.

     The Company's  only financial  instrument  sensitive to changes in interest
rates is its  bank  debt.  The  Company's  annual  interest  costs in 1999  will
fluctuate  based on short-term  interest rates. As the interest rate is variable

<PAGE>
                                       15

and reflects current market conditions, the carrying value approximates the fair
value.  The table below shows principal cash flows and related  weighted average
interest rates by expected maturity dates.  Weighted average interest rates were
determined using weighted average interest paid and accrued in December, 1998.
<TABLE>

                                                                  1999       2000       2001       Total      Fair Value
                                                                  -----     -----       ----       -----      ----------
                                                                              (in 000's, except interest rates)
<S>                                                               <C>       <C>         <C>        <C>        <C>    
Variable rate debt:
         Revolving Facility (secured)                                                 $18,036      $18,036      $18,036
              Average interest rate                               7.50%      7.50%      7.50%


</TABLE>

                           PART II - OTHER INFORMATION

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)

     *27. Financial Data Schedule

          (b) Reports on Form 8-K

              No reports were filed on Form 8-K during the quarter ended 
              March 31, 1999.


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


<PAGE>
                                       16


                                   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 14, 1999                          ------------------------------
                                              Thomas R. Cambridge
                                              Chairman of the Board of Directors
                                                  and Chief Executive Officer



Date:   May 14, 1999                          BY:  /s/ LARRY C. OLDHAM
                                              ------------------------------
                                              Larry C. Oldham,
                                              President and Principal 
                                                 Financial Officer