##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D. C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended September 30, 2006 or
 o
    
    Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the Transition period from  to
 Commission File Number 0-13305
 PARALLEL PETROLEUM CORPORATION
  DELAWARE
    
    75-1971716(State of other jurisdiction
    
    (I.R.S. Employer Identificationof incorporation or organization)
    
    Number)1004 N. Big Spring, Suite 400
Midland, Texas
(Address of principal executive offices)
    
    79701
(Zip Code)
 
 
  þ o
  o þ o
  o þ




---



##### Table of Contents



Page No.PART I.  FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTSReference is made to the succeeding pages for the following consolidated financial statements:- Consolidated Balance Sheets as of September 30, 2006 (unaudited) and December 31, 2005
    
    
    1- Unaudited Consolidated Statements of Operations for the three months and nine months
ended September 30, 2006 and 2005
    
    
    2- Unaudited Consolidated Statements of Cash Flows for the nine months
ended September 30, 2006 and 2005
    
    
    3- Unaudited Consolidated Statements of Comprehensive Income (Loss) for the three months
and nine months ended September 30, 2006 and 2005
    
    
    4- Notes to Consolidated Financial Statements
    
    
    5ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
    
    
    15ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    31ITEM 4. CONTROLS AND PROCEDURES
    
    
    34PART II.  OTHER INFORMATIONITEM 1. LEGAL PROCEEDINGS
    
    
    34ITEM 1A. RISK FACTORS
    
    
    34ITEM 6. EXHIBITS
    
    
    35SIGNATURESCertification Pursuant to Section 302Certification Pursuant to Section 302Certification Pursuant to Section 906Certification Pursuant to Section 906
 ii




---



##### Table of Contents



PARALLEL PETROLEUM CORPORATION
 
 Consolidated Balance Sheets
 (dollars in thousands, except per share amounts)
 September 30,
    
    
    December 31,2006
    
    
    2005(unaudited)AssetsCurrent assets:Cash and cash equivalents
    
    $
    312
    
    
    $
    6,418Accounts receivable:Oil and natural gas
    
    
    16,625
    
    
    
    13,183Other, net of allowance for doubtful account of $80 and $9
    
    
    9,524
    
    
    
    877Affiliates
    
    
    7
    
    
    
    1226,156
    
    
    
    14,072Other current assets
    
    
    3,026
    
    
    
    2,364Deferred tax asset
    
    
    4,762
    
    
    
    5,241Total current assets
    
    
    34,256
    
    
    
    28,095Property and equipment, at cost:Oil and natural gas properties, full cost method
(including $42,036 and $19,869 not
subject to depletion)
    
    
    452,704
    
    
    
    303,819Other
    
    
    3,204
    
    
    
    2,404455,908
    
    
    
    306,223Less accumulated depreciation, depletion and amortization
    
    
    (108,674
    )
    
    
    (90,826
    )Net property and equipment
    
    
    347,234
    
    
    
    215,397Restricted cash
    
    
    324
    
    
    
    2,640Investment in pipelines and gathering system ventures
    
    
    12,946
    
    
    
    3,326Other assets, net of accumulated amortization of $1,236 and $901
    
    
    3,785
    
    
    
    3,550$
    398,545
    
    
    $
    253,008Liabilities and Stockholders EquityCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    25,721
    
    
    $
    10,841Asset retirement obligations
    
    
    384
    
    
    
    214Derivative obligations
    
    
    15,514
    
    
    
    16,607Total current liabilities
    
    
    41,619
    
    
    
    27,662Revolving credit facility
    
    
    97,000
    
    
    
    50,000Term loan
    
    
    50,000
    
    
    
    50,000Asset retirement obligations
    
    
    4,241
    
    
    
    2,281Derivative obligations
    
    
    16,702
    
    
    
    25,527Deferred tax liability
    
    
    17,883
    
    
    
    8,036Total long-term liabilities
    
    
    185,826
    
    
    
    135,844Commitments and contingenciesStockholders equity:Series A preferred stock  par value $0.10 per share, authorized 50,000 shares
    
    
    
    
    
    
    Preferred stock  6% convertible preferred stock par value of $0.10 per share
(liquidation preference of $10 per share), authorized 10,000,000 shares
    
    
    
    
    
    
    Common stock  par value $0.01 per share, authorized 60,000,000 shares,
issued and outstanding 37,464,991 and 34,748,916
    
    
    374
    
    
    
    347Additional paid-in capital
    
    
    140,288
    
    
    
    78,699Retained earnings
    
    
    31,970
    
    
    
    16,899Accumulated other comprehensive loss
    
    
    (1,532
    )
    
    
    (6,443
    )Total stockholders equity
    
    
    171,100
    
    
    
    89,502$
    398,545
    
    
    $
    253,008
  (1)




---



##### Table of Contents



PARALLEL PETROLEUM CORPORATION
 Consolidated Statements of Operations
 
 (unaudited)
 (in thousands, except per share data)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Oil and natural gas revenues:Oil and natural gas sales
    
    $
    29,490
    
    
    $
    25,501
    
    
    $
    82,360
    
    
    $
    53,474Loss on hedging
    
    
    (3,279
    )
    
    
    (3,664
    )
    
    
    (9,264
    )
    
    
    (8,960
    )Total revenues
    
    
    26,211
    
    
    
    21,837
    
    
    
    73,096
    
    
    
    44,514Cost and expenses:Lease operating expense
    
    
    5,323
    
    
    
    2,663
    
    
    
    12,639
    
    
    
    7,399Production taxes
    
    
    1,538
    
    
    
    1,334
    
    
    
    4,116
    
    
    
    2,615General and administrative
    
    
    2,405
    
    
    
    1,735
    
    
    
    7,147
    
    
    
    4,771Depreciation, depletion and amortization
    
    
    7,420
    
    
    
    3,104
    
    
    
    17,848
    
    
    
    8,159Total costs and expenses
    
    
    16,686
    
    
    
    8,836
    
    
    
    41,750
    
    
    
    22,944Operating income
    
    
    9,525
    
    
    
    13,001
    
    
    
    31,346
    
    
    
    21,570Other income (expense), net:Change in fair market value of derivative instruments
    
    
    10,323
    
    
    
    (9,388
    )
    
    
    116
    
    
    
    (33,086
    )Gain (loss) on ineffective portion of hedges
    
    
    305
    
    
    
    404
    
    
    
    500
    
    
    
    (456
    )Interest and other income
    
    
    29
    
    
    
    83
    
    
    
    122
    
    
    
    124Interest expense
    
    
    (3,345
    )
    
    
    (1,060
    )
    
    
    (8,944
    )
    
    
    (3,101
    )Other expense
    
    
    (96
    )
    
    
    (75
    )
    
    
    (164
    )
    
    
    (77
    )Equity in gain (loss) of pipelines and gathering system ventures
    
    
    (39
    )
    
    
    22
    
    
    
    (68
    )
    
    
    (72
    )Total other income (expense), net
    
    
    7,177
    
    
    
    (10,014
    )
    
    
    (8,438
    )
    
    
    (36,668
    )Income (loss) before income taxes
    
    
    16,702
    
    
    
    2,987
    
    
    
    22,908
    
    
    
    (15,098
    )Income tax benefit (expense), deferred
    
    
    (5,706
    )
    
    
    (998
    )
    
    
    (7,837
    )
    
    
    5,137Net income (loss)
    
    
    10,996
    
    
    
    1,989
    
    
    
    15,071
    
    
    
    (9,961
    )Cumulative preferred stock dividend
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (271
    )Net income (loss) available to common stockholders
    
    $
    10,996
    
    
    $
    1,989
    
    
    $
    15,071
    
    
    $
    (10,232
    )Net income (loss) per common share:Basic
    
    $
    0.30
    
    
    $
    0.06
    
    
    $
    0.43
    
    
    $
    (0.32
    )Diluted
    
    $
    0.30
    
    
    $
    0.06
    
    
    $
    0.42
    
    
    $
    (0.32
    )Weighted average common share outstanding:Basic
    
    
    36,215
    
    
    
    34,033
    
    
    
    35,340
    
    
    
    31,585Diluted
    
    
    36,919
    
    
    
    34,951
    
    
    
    36,027
    
    
    
    31,585
  (2)




---



##### Table of Contents



PARALLEL PETROLEUM CORPORATION
 Consolidated Statements of Cash Flows
 Nine Months Ended September 30, 2006 and 2005
 
 (unaudited)
 (dollars in thousands)
 2006
    
    
    2005Cash flows from operating activities:Net income (loss)
    
    $
    15,071
    
    
    $
    (9,961
    )Adjustments to reconcile net income (loss) to net cash
provided by operating activities:Depreciation, depletion and amortization
    
    
    17,848
    
    
    
    8,159Accretion of asset retirement obligation
    
    
    172
    
    
    
    82Deferred income tax
    
    
    7,837
    
    
    
    (5,137
    )Change in fair value of derivative instruments
    
    
    (116
    )
    
    
    33,086(Gain) loss on ineffective portion of hedges
    
    
    (500
    )
    
    
    456Common stock issued in lieu of cash for directors fees
    
    
    100
    
    
    
    99Stock option expense
    
    
    435
    
    
    
    119Equity in loss of pipelines and gathering system ventures
    
    
    68
    
    
    
    72Changes in assets and liabilities:Other assets, net
    
    
    1,140
    
    
    
    186Restricted cash
    
    
    (50
    )
    
    
    (149
    )Increase in accounts receivable
    
    
    (12,084
    )
    
    
    (7,927
    )(Increase) decrease in other current assets
    
    
    (151
    )
    
    
    61Increase in accounts payable and accrued liabilities
    
    
    14,880
    
    
    
    3,988Federal tax deposit
    
    
    (40
    )
    
    
    Net cash provided by operating activities
    
    
    44,610
    
    
    
    23,134Cash flows from investing activities:Additions to oil and natural gas properties
    
    
    (147,058
    )
    
    
    (37,888
    )Use of restricted cash for acquisition of oil and natural gas properties
    
    
    2,366
    
    
    
    2,287Proceeds from disposition of oil and natural gas properties
    
    
    130
    
    
    
    3,028Additions to other property and equipment
    
    
    (800
    )
    
    
    (421
    )Settlements on derivative instruments
    
    
    (3,568
    )
    
    
    (3,424
    )Purchase of derivative instruments
    
    
    
    
    
    
    (598
    )Investment in pipelines and gathering system ventures
    
    
    (9,688
    )
    
    
    (1,686
    )Net cash used in investing activities
    
    
    (158,618
    )
    
    
    (38,702
    )Cash flows from financing activities:Net borrowings (payments) on revolving line of credit
    
    
    47,000
    
    
    
    (11,000
    )Deferred financing cost
    
    
    (179
    )
    
    
    Proceeds (net) from common stock issued
    
    
    60,315
    
    
    
    27,743Proceeds from exercise of stock options
    
    
    766
    
    
    
    450Payment of preferred stock dividend
    
    
    
    
    
    
    (271
    )Net cash provided by financing activities
    
    
    107,902
    
    
    
    16,922Net increase (decrease) in cash and cash equivalents
    
    
    (6,106
    )
    
    
    1,354Cash and cash equivalents at beginning of period
    
    
    6,418
    
    
    
    4,781Cash and cash equivalents at end of period
    
    $
    312
    
    
    $
    6,135Non-cash financing and investing activities:Oil and natural gas properties asset retirement obligations
    
    $
    1,957
    
    
    $
    73Conversion of preferred stock
    
    $
    
    
    
    $
    95Other transactions:Interest paid
    
    $
    9,065
    
    
    $
    3,319
  (3)




---



##### Table of Contents



PARALLEL PETROLEUM CORPORATION
 Consolidated Statements of Comprehensive Income (Loss)
 
 (unaudited)
 (dollars in thousands)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net income (loss)
    
    $
    10,996
    
    
    $
    1,989
    
    
    $
    15,071
    
    
    $
    (9,961
    )Other comprehensive income (loss):Unrealized gain (loss) on derivatives
    
    
    634
    
    
    
    (3,702
    )
    
    
    (1,750
    )
    
    
    (12,175
    )Reclassification adjustments for losses
on derivatives included in net income (loss)
    
    
    3,240
    
    
    
    3,694
    
    
    
    9,191
    
    
    
    9,112Change in fair value of derivatives
    
    
    3,874
    
    
    
    (8
    )
    
    
    7,441
    
    
    
    (3,063
    )Income tax benefit (expense)
    
    
    (1,317
    )
    
    
    3
    
    
    
    (2,530
    )
    
    
    1,041Total other comprehensive income (loss)
    
    
    2,557
    
    
    
    (5
    )
    
    
    4,911
    
    
    
    (2,022
    )Total comprehensive income (loss)
    
    $
    13,553
    
    
    $
    1,984
    
    
    $
    19,982
    
    
    $
    (11,983
    )
  (4)




---



##### Table of Contents



PARALLEL PETROLEUM CORPORATION
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1. DESCRIPTION OF BUSINESS  NATURE OF OPERATIONS AND BASIS OF PRESENTATION
      NOTE 2. STOCKHOLDERS EQUITY
 Options
 Accounting for Stock-Based Compensation  Transition and Disclosure,
 Share-Based Payment
   (5)




---



##### Table of Contents



(in thousands)Fourth quarter 2006
    
    
    962007
    
    
    3242008 through 2011
    
    
    338Total
    
    $
    758
   2001
    
    2005Expected volatility
    
    
    57.95
    %
    
    
    54.20
    %Expected dividends
    
    
    0.00
    
    
    
    0.00Expected term (in years)
    
    
    8
    
    
    
    7Risk-free rate
    
    
    5.050
    %
    
    
    4.200
    %
  WeightedAverageWeighted
    
    
    RemainingAverage
    
    
    Contractual
    
    
    AggregateOptions
    
    
    Exercise Price
    
    
    Term
    
    
    Intrinsic Value(in thousands)
    
    
    (years)
    
    
    (in thousands)Outstanding December 31, 2005
    
    
    1,405
    
    
    $
    5.22Granted
    
    
    
    
    
    $
    Exercised
    
    
    (176
    )
    
    $
    4.35Surrendered
    
    
    (30
    )
    
    $
    3.09Outstanding September 30, 2006
    
    
    1,199
    
    
    $
    5.40
    
    
    
    5.6
    
    
    $
    17,571Exercisable at September 30, 2006
    
    
    1,001
    
    
    $
    4.32
    
    
    
    4.6
    
    
    $
    15,759
 (6)




---



##### Table of Contents



(in thousands)Intrinsic Value of Options Exercised Nine Months Ending September 30, 2006
    
    $
    2,855Intrinsic Value of Options Exercised Nine Months Ending September 30, 2005
    
    $
    897Fair Market Value of Options Granted Nine Months Ending September 30, 2006
    
    $
    Fair Market Value of Options Granted Nine Months Ending September 30, 2005
    
    $
    1,423
   Three Months
    
    
    Nine Months EndedSeptember 30, 2005
    
    
    September 30, 2005(in thousands, except per share data)Net income (loss), as reported
    
    $
    1,989
    
    
    $
    (9,961
    )Add:Expense recorded in 2005, net of related tax effects
    
    
    49
    
    
    
    119Deduct:Total stock-based employee compensation expense
determined under fair value based method for all awards,
net of related tax effects
    
    
    (35
    )
    
    
    (106
    )Pro forma net income (loss)
    
    $
    2,003
    
    
    $
    (9,948
    )Income (loss) per share:Basic  as reported
    
    $
    0.06
    
    
    $
    (0.32
    )Basic  pro forma
    
    $
    0.06
    
    
    $
    (0.32
    )Diluted  as reported
    
    $
    0.06
    
    
    $
    (0.32
    )Diluted  pro forma
    
    $
    0.06
    
    
    $
    (0.32
    )
  Sale of Equity Securities
   Preferred Stock
  (7)




---



##### Table of Contents



NOTE 3. CREDIT FACILITIES
  Revolving Credit Facility
          Second Lien Term Loan Facility
 1 2
 (8)




---



##### Table of Contents



NOTE 4. ACQUISITIONS
     Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,Pro Forma
    
    Pro Forma
    
    Pro Forma
    
    Pro Forma2006
    
    2005
    
    2006
    
    2005(in thousands, except per share data)Oil and natural gas sales, net of hedge losses
    
    $
    26,211
    
    
    $
    24,640
    
    
    $
    73,652
    
    
    $
    50,760Operating income
    
    $
    9,525
    
    
    $
    15,021
    
    
    $
    31,666
    
    
    $
    26,012Net income (loss) available to common stockholder
    
    $
    10,996
    
    
    $
    2,661
    
    
    $
    15,207
    
    
    $
    (9,277
    )Net income (loss) per common share:Basic
    
    $
    0.30
    
    
    $
    0.08
    
    
    $
    0.43
    
    
    $
    (0.29
    )Diluted
    
    $
    0.30
    
    
    $
    0.08
    
    
    $
    0.42
    
    
    $
    (0.29
    )
 (9)




---



##### Table of Contents



NOTE 5. PREFERRED STOCK
   NOTE 6. FULL COST CEILING TEST
    NOTE 7. DERIVATIVE INSTRUMENTS
 General
   (10)




---



##### Table of Contents



Interest Rate Sensitivity
    Notional
    
    
    
    
    
    
    FairPeriod of Time
    
    Amounts
    
    
    Fixed Interest Rates
    
    
    Market Value($ in millions)
    
    
    
    
    
    
    ($ in thousands)October 1, 2006 thru December 31, 2006 (1)
    
    $
    10
    
    
    
    4.05
    %
    
    $
    30October 1, 2006 thru December 31, 2006
    
    $
    50
    
    
    
    4.41
    %
    
    
    307January 1, 2007 thru December 31, 2007
    
    $
    100
    
    
    
    4.62
    %
    
    
    469January 1, 2008 thru December 31, 2008
    
    $
    100
    
    
    
    4.86
    %
    
    
    (119
    )January 1, 2009 thru December 31, 2009
    
    $
    50
    
    
    
    5.06
    %
    
    
    (82
    )January 1, 2010 thru October 31, 2010
    
    $
    50
    
    
    
    5.15
    %
    
    
    (59
    )Total Fair Market Value
    
    
    
    
    
    
    
    
    
    $
    546
 
 (1)
    
    Designated as cash flow hedge. Commodity Price Sensitivity
  Put Options.
 Collars.
 (11)




---



##### Table of Contents



M M Btu
    
    
    Houston Ship
    
    
    
    
    
    
    
    
    
    
    FairBarrels of
    
    
    NyMex Oil Prices
    
    
    of Natural
    
    
    Channel Gas Prices
    
    
    WAHA Gas Prices
    
    
    MarketPeriod of Time
    
    Oil
    
    
    Floor
    
    
    Cap
    
    
    Gas
    
    
    Floor
    
    
    Cap
    
    
    Floor
    
    
    Cap
    
    
    Value($ inthousands)October 1, 2006 thru
December 31, 2006
    
    
    99,000
    
    
    $
    53.12
    
    
    $
    80.87
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (246
    )October 1, 2006 thru
October 31, 2006
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    62,000
    
    
    $
    7.50
    
    
    $
    13.90
    
    
    $
    
    
    
    $
    
    
    
    
    217October 1, 2006 thru
October 31, 2006
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    31,000
    
    
    $
    
    
    
    $
    
    
    
    $
    9.00
    
    
    $
    14.55
    
    
    
    164January 1, 2007 thru
December 31, 2007
    
    
    292,000
    
    
    $
    55.63
    
    
    $
    84.88
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    146April 1, 2007 thru
October 31, 2007
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    214,000
    
    
    $
    6.00
    
    
    $
    11.05
    
    
    $
    
    
    
    $
    
    
    
    
    51January 1, 2008 thru
December 31, 2008
    
    
    237,900
    
    
    $
    60.38
    
    
    $
    81.08
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    236January 1, 2009 thru
December 31, 2009
    
    
    620,500
    
    
    $
    63.53
    
    
    $
    80.21
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    1,583January 1, 2010 thru
October 31, 2010
    
    
    486,400
    
    
    $
    63.44
    
    
    $
    78.26
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    1,492Total Fair Market Value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    3,643
 Commodity Swaps.
  Nymex Oil
    
    
    Fair MarketPeriod of Time
    
    Barrels of Oil
    
    
    Swap Price
    
    
    Value($ in thousands)October 1, 2006 thru December 20, 2006 (1)
    
    
    60,750
    
    
    $
    23.04
    
    
    $
    (2,476
    )October 1, 2006 thru December 31, 2006
    
    
    46,000
    
    
    $
    36.35
    
    
    
    (1,275
    )January 1, 2007 thru December 31, 2007
    
    
    474,500
    
    
    $
    34.36
    
    
    
    (15,315
    )January 1, 2008 thru December 31, 2008
    
    
    439,200
    
    
    $
    33.37
    
    
    
    (14,195
    )Total fair market value
    
    
    
    
    
    
    
    
    
    $
    (33,261
    )
 
 (1)
    
    Designated as a cash flow hedge. NOTE 8. NET INCOME (LOSS) PER COMMON SHARE
  (12)




---



##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(dollars in thousands, except per share data)Basic EPS Computation:Numerator-Income (loss)
    
    $
    10,996
    
    
    $
    1,989
    
    
    $
    15,071
    
    
    $
    (9,961
    )Preferred stock dividend
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (271
    )Income (loss) available to common stockholders
    
    $
    10,996
    
    
    $
    1,989
    
    
    $
    15,071
    
    
    $
    (10,232
    )Denominator-Weighted average common shares outstanding
    
    
    36,215
    
    
    
    34,033
    
    
    
    35,340
    
    
    
    31,585Basic EPS:Income (loss) per share
    
    $
    0.30
    
    
    $
    0.06
    
    
    $
    0.43
    
    
    $
    (0.32
    )Diluted EPS Computation:Numerator-Income (loss)
    
    $
    10,996
    
    
    $
    1,989
    
    
    $
    15,071
    
    
    $
    (9,961
    )Preferred stock dividend
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (271
    )Income (loss) available to common stockholders
    
    $
    10,996
    
    
    $
    1,989
    
    
    $
    15,071
    
    
    $
    (10,232
    )Denominator -Weighted average common shares outstanding
    
    
    36,215
    
    
    
    34,033
    
    
    
    35,340
    
    
    
    31,585Employee stock options
    
    
    596
    
    
    
    774
    
    
    
    581
    
    
    
    Warrants
    
    
    108
    
    
    
    144
    
    
    
    106
    
    
    
    Preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted average common shares for diluted
earnings per share assuming conversion
    
    
    36,919
    
    
    
    34,951
    
    
    
    36,027
    
    
    
    31,585Diluted EPS:Income (loss) per share
    
    $
    0.30
    
    
    $
    0.06
    
    
    $
    0.42
    
    
    $
    (0.32
    )
  NOTE 9. ASSET RETIREMENT OBLIGATIONS
  (13)




---



##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(in thousands)Beginning asset retirement obligation
    
    $
    4,420
    
    
    $
    2,251
    
    
    $
    2,495
    
    
    $
    2,132Additions related to new properties
    
    
    123
    
    
    
    37
    
    
    
    314
    
    
    
    166Revisions in estimated cash flows
    
    
    11
    
    
    
    (12
    )
    
    
    1,674
    
    
    
    (9
    )Deletions related to property disposals
    
    
    
    
    
    
    (17
    )
    
    
    (30
    )
    
    
    (84
    )Accretion expense
    
    
    71
    
    
    
    28
    
    
    
    172
    
    
    
    82Ending asset retirement obligation
    
    $
    4,625
    
    
    $
    2,287
    
    
    $
    4,625
    
    
    $
    2,287
  NOTE 10. RECENTLY ANNOUNCED ACCOUNTING PRONOUNCEMENTS
    NOTE 11. INVESTMENT IN GAS GATHERING SYSTEM
  (14)




---



##### Table of Contents



NOTE 12. COMMITMENTS AND CONTINGENCIES
     .
 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
  OVERVIEW
 Strategy
  (15)




---



##### Table of Contents




    
    focuses on projects having less geological risk;
    
    emphasizes exploitation and enhancement activities;
    
    focuses on acquiring producing properties; and
    
    expands the scope of operations by diversifying our exploratory and development
efforts, both in and outside of our current areas of operation.
   
    
    the prices we receive for the oil and natural gas we produce;
    
    the results of reprocessing and reinterpreting our 3-D seismic data;
    
    the results of our drilling activities;
    
    the costs of obtaining high quality field services;
    
    our ability to find and consummate acquisition opportunities; and
    
    our ability to negotiate and enter into work to earn arrangements, joint venture or
other similar agreements on terms acceptable to us.
  Operating Performance
  
    
    seasonal demand;
    
    weather;
    
    hurricane conditions in the Gulf of Mexico;
    
    availability of pipeline transportation to end users;
    
    proximity of our wells to major transportation pipeline infrastructures; and
    
    to a lesser extent, world oil prices.
 
 (16)




---



##### Table of Contents



Additional factors influencing our overall operating performance include:
 
    
    production expenses;
    
    overhead requirements; and
    
    costs of capital.
  
    
    cash flow from operations;
    
    sales of our equity securities;
    
    bank borrowings; and
    
    industry joint ventures.
     (17)




---



##### Table of Contents



Results of Operations
  
    
    reserve base;
    
    sources of production;
    
    product mix (gas versus oil volumes); and
    
    the prices we receive for our oil and natural gas production.
  Three Months Ended
    
    
    Nine Months Ended9/30/2006
    
    
    9/30/2005
    
    
    9/30/2006
    
    
    9/30/2005(in thousands, except per unit data)Production Volumes:Oil (Bbls)
    
    
    282
    
    
    
    247
    
    
    
    848
    
    
    
    672Natural gas (Mcf)
    
    
    2,001
    
    
    
    1,109
    
    
    
    4,894
    
    
    
    2,411BOE (1)
    
    
    616
    
    
    
    432
    
    
    
    1,664
    
    
    
    1,074BOE per day
    
    
    6.7
    
    
    
    4.7
    
    
    
    6.1
    
    
    
    3.9Sales Prices:Oil (per
Bbl) (2)
    
    $
    64.53
    
    
    $
    58.95
    
    
    $
    61.88
    
    
    $
    50.86Natural gas
(per Mcf) (2)
    
    $
    5.64
    
    
    $
    9.88
    
    
    $
    6.11
    
    
    $
    8.01BOE price (2)
    
    $
    47.91
    
    
    $
    59.09
    
    
    $
    49.50
    
    
    $
    49.81BOE price (3)
    
    $
    42.58
    
    
    $
    50.60
    
    
    $
    43.93
    
    
    $
    41.46Operating RevenuesOil
    
    $
    18,194
    
    
    $
    14,550
    
    
    $
    52,478
    
    
    $
    34,168Oil hedge
    
    
    (3,279
    )
    
    
    (3,664
    )
    
    
    (9,264
    )
    
    
    (8,759
    )Natural gas
    
    
    11,296
    
    
    
    10,951
    
    
    
    29,882
    
    
    
    19,306Natural gas hedge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (201
    )$
    26,211
    
    
    $
    21,837
    
    
    $
    73,096
    
    
    $
    44,514Operating Expenses:Lease operating expense
    
    $
    5,323
    
    
    $
    2,663
    
    
    $
    12,639
    
    
    $
    7,399Production taxes
    
    
    1,538
    
    
    
    1,334
    
    
    
    4,116
    
    
    
    2,615General and administrative:General and administrative
    
    
    1,579
    
    
    
    1,113
    
    
    
    4,236
    
    
    
    2,941Public reporting
    
    
    826
    
    
    
    622
    
    
    
    2,911
    
    
    
    1,830Depreciation, depletion and amortization
    
    
    7,420
    
    
    
    3,104
    
    
    
    17,848
    
    
    
    8,159$
    16,686
    
    
    $
    8,836
    
    
    $
    41,750
    
    
    $
    22,944Operating income
    
    $
    9,525
    
    
    $
    13,001
    
    
    $
    31,346
    
    
    $
    21,570
 
 (1)
    
    A BOE means one barrel of oil equivalent using the ratio of six Mcf of gas to
one barrel of oil.(2)
    
    Unhedged price is the actual price received at the wellhead
for our oil and natural gas.(3)
    
    Hedged price is the actual price received at the wellhead for our oil and natural gas plus or
minus the settlements on our derivatives. (18)




---



##### Table of Contents



RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005:
  Revenues (1)
    
    Production2006
    
    2005
    
    2006
    
    2005Oil and Gas RevenuesOil (Bbls)
    
    
    57
    %
    
    
    50
    %
    
    
    46
    %
    
    
    57
    %Natural gas (Mcf)
    
    
    43
    %
    
    
    50
    %
    
    
    54
    %
    
    
    43
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 
 (1)
    
    Includes hedge transactions  Three Months Ended September 30,
    
    
    Increase
    
    
    % Increase2006
    
    
    2005
    
    
    (Decrease)
    
    
    (Decrease)(in thousands except per unit data)Production VolumesOil (Bbls)
    
    
    282
    
    
    
    247
    
    
    
    35
    
    
    
    14
    %Natural gas (Mcf)
    
    
    2,001
    
    
    
    1,109
    
    
    
    892
    
    
    
    80
    %BOE
    
    
    616
    
    
    
    432
    
    
    
    184
    
    
    
    43
    %BOE/Day
    
    
    6.7
    
    
    
    4.7
    
    
    
    2.0
    
    
    
    43
    %Sales PriceOil (per Bbl)(1)
    
    $
    64.53
    
    
    $
    58.95
    
    
    $
    5.58
    
    
    
    9
    %Natural gas
(per Mcf) (1)
    
    $
    5.64
    
    
    $
    9.88
    
    
    $
    (4.24
    )
    
    
    (43
    )%BOE price (1)
    
    $
    47.91
    
    
    $
    59.09
    
    
    $
    (11.18
    )
    
    
    (19
    )%BOE price (2)
    
    $
    42.58
    
    
    $
    50.60
    
    
    $
    (8.02
    )
    
    
    (16
    )%Operating RevenuesOil
    
    $
    18,194
    
    
    $
    14,550
    
    
    $
    3,644
    
    
    
    25
    %Oil hedges
    
    $
    (3,279
    )
    
    $
    (3,664
    )
    
    $
    (385
    )
    
    
    (11
    )%Natural gas
    
    $
    11,296
    
    
    $
    10,951
    
    
    $
    345
    
    
    
    3
    %Total
    
    $
    26,211
    
    
    $
    21,837
    
    
    $
    4,374
    
    
    
    20
    %
 
 (1)
    
    Excludes hedge transactions.(2)
    
    Includes hedge transactions.   (19)




---



##### Table of Contents



Three months ended September 30,
    
    
    Increase
    
    
    % Increase2006
    
    
    2005
    
    
    (Decrease)
    
    
    (Decrease)(dollars in thousands)Cost and ExpensesLease operating expense
    
    $
    5,323
    
    
    $
    2,663
    
    
    $
    2,660
    
    
    
    100
    %Production taxes
    
    
    1,538
    
    
    
    1,334
    
    
    
    204
    
    
    
    15
    %General and administrative:General and administrative
    
    
    1,579
    
    
    
    1,113
    
    
    
    466
    
    
    
    42
    %Public reporting
    
    
    826
    
    
    
    622
    
    
    
    204
    
    
    
    33
    %Total general and administrative
    
    
    2,405
    
    
    
    1,735
    
    
    
    670
    
    
    
    39
    %Depreciation, depletion and amortization
    
    
    7,420
    
    
    
    3,104
    
    
    
    4,316
    
    
    
    139
    %Total
    
    $
    16,686
    
    
    $
    8,836
    
    
    $
    7,850
    
    
    
    89
    %
     (20)




---



##### Table of Contents



Three months ended September 30,
    
    
    Increase
    
    
    % Increase2006
    
    
    2005
    
    
    (Decrease)
    
    
    (Decrease)(dollars in thousands)Other income (expense)Change in fair market value of derivatives
    
    $
    10,323
    
    
    $
    (9,388
    )
    
    $
    19,711
    
    
    
    210
    %Gain on ineffective portion of hedges
    
    
    305
    
    
    
    404
    
    
    
    (99
    )
    
    
    (25
    )%Interest and other income
    
    
    29
    
    
    
    83
    
    
    
    (54
    )
    
    
    (65
    )%Interest expense, net
    
    
    (3,345
    )
    
    
    (1,060
    )
    
    
    2,285
    
    
    
    216
    %Other expense
    
    
    (96
    )
    
    
    (75
    )
    
    
    21
    
    
    
    28
    %Equity in gain (loss) of pipelines
and gathering system ventures
    
    
    (39
    )
    
    
    22
    
    
    
    (61
    )
    
    
    (277
    )%Total
    
    $
    7,177
    
    
    $
    (10,014
    )
    
    $
    17,191
    
    
    
    172
    %
     RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005:
  Revenues (1)
    
    Production2006
    
    2005
    
    2006
    
    2005Oil and Gas RevenuesOil (Bbls)
    
    
    59
    %
    
    
    57
    %
    
    
    51
    %
    
    
    63
    %Natural gas (Mcf)
    
    
    41
    %
    
    
    43
    %
    
    
    49
    %
    
    
    37
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 
 (1)
    
    Includes hedge transactions (21)




---



##### Table of Contents



Nine Months Ended September 30,
    
    
    Increase
    
    
    % Increase2006
    
    
    2005
    
    
    (Decrease)
    
    
    (Decrease)(in thousands except per unit data)Production VolumesOil (Bbls)
    
    
    848
    
    
    
    672
    
    
    
    176
    
    
    
    26
    %Natural gas (Mcf)
    
    
    4,894
    
    
    
    2,411
    
    
    
    2,483
    
    
    
    103
    %BOE
    
    
    1,664
    
    
    
    1,074
    
    
    
    590
    
    
    
    55
    %BOE/Day
    
    
    6.1
    
    
    
    3.9
    
    
    
    2.2
    
    
    
    56
    %Sales PriceOil (per
Bbl) (1)
    
    $
    61.88
    
    
    $
    50.86
    
    
    $
    11.02
    
    
    
    22
    %Natural gas
(per Mcf) (1)
    
    $
    6.11
    
    
    $
    8.01
    
    
    $
    (1.90
    )
    
    
    (24
    )%BOE price (1)
    
    $
    49.50
    
    
    $
    49.81
    
    
    $
    (0.31
    )
    
    
    (1
    )%BOE price (2)
    
    $
    43.93
    
    
    $
    41.46
    
    
    $
    2.47
    
    
    
    6
    %Operating RevenuesOil
    
    $
    52,478
    
    
    $
    34,168
    
    
    
    18,310
    
    
    
    54
    %Oil hedges
    
    $
    (9,264
    )
    
    $
    (8,759
    )
    
    
    505
    
    
    
    6
    %Natural gas
    
    $
    29,882
    
    
    $
    19,306
    
    
    
    10,576
    
    
    
    55
    %Natural gas hedges
    
    $
    
    
    
    $
    (201
    )
    
    
    (201
    )
    
    
    100
    %Total
    
    $
    73,096
    
    
    $
    44,514
    
    
    
    28,582
    
    
    
    64
    %
 
 (1)
    
    Excludes hedge transactions.(2)
    
    Includes hedge transactions.    (22)




---



##### Table of Contents



Nine months ended September 30,
    
    
    Increase
    
    
    % Increase2006
    
    
    2005
    
    
    (Decrease)
    
    
    (Decrease)(dollars in thousands)Cost and ExpensesLease operating expense
    
    $
    12,639
    
    
    $
    7,399
    
    
    $
    5,240
    
    
    
    71
    %Production taxes
    
    
    4,116
    
    
    
    2,615
    
    
    
    1,501
    
    
    
    57
    %General and administrative:General and administrative
    
    
    4,236
    
    
    
    2,941
    
    
    
    1,295
    
    
    
    44
    %Public reporting
    
    
    2,911
    
    
    
    1,830
    
    
    
    1,081
    
    
    
    59
    %Total general and administrative
    
    
    7,147
    
    
    
    4,771
    
    
    
    2,376
    
    
    
    50
    %Depreciation, depletion and amortization
    
    
    17,848
    
    
    
    8,159
    
    
    
    9,689
    
    
    
    119
    %Total
    
    $
    41,750
    
    
    $
    22,944
    
    
    $
    18,806
    
    
    
    82
    %
     (23)




---



##### Table of Contents



Nine months ended September 30,
    
    
    Increase
    
    
    % Increase2006
    
    
    2005
    
    
    (Decrease)
    
    
    (Decrease)(dollars in thousands)Other income (expense)Change in fair market value of derivatives
    
    $
    116
    
    
    $
    (33,086
    )
    
    $
    33,202
    
    
    
    100
    %Gain (loss) on ineffective portion of hedges
    
    
    500
    
    
    
    (456
    )
    
    
    956
    
    
    
    210
    %Interest and other income
    
    
    122
    
    
    
    124
    
    
    
    (2
    )
    
    
    (2
    )%Interest expense, net
    
    
    (8,944
    )
    
    
    (3,101
    )
    
    
    5,843
    
    
    
    188
    %Other expense
    
    
    (164
    )
    
    
    (77
    )
    
    
    87
    
    
    
    113
    %Equity in loss of pipelines and gathering system ventures
    
    
    (68
    )
    
    
    (72
    )
    
    
    (4
    )
    
    
    (6
    )%Total
    
    $
    (8,438
    )
    
    $
    (36,668
    )
    
    $
    (28,230
    )
    
    
    77
    %
     LIQUIDITY AND CAPITAL RESOURCES
     (24)




---



##### Table of Contents



Bank Borrowings
  Revolving Credit Facility
         (25)




---



##### Table of Contents



Second Lien Term Loan Facility
 1 2
        Preferred Stock
  Sale of Equity Securities
   Commodity Price Risk Management Transactions and Effects of Derivative Instruments
  (26)




---



##### Table of Contents



Contractual Obligations, Commitments and Off-Balance Sheet Arrangements
  (27)




---



##### Table of Contents



Obligation Due in PeriodThreemonthsending
    
    
    Periods ended December 31,
    
    
    AfterContractual Cash Obligations
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    5 years
    
    
    Total(in thousands)Revolving
Credit Facility (secured) (1)
    
    $
    1,868
    
    
    $
    7,411
    
    
    $
    7,431
    
    
    $
    7,411
    
    
    $
    103,172
    
    
    $
    
    
    
    $
    127,293Second Lien
Term Loan Agreement (2)
    
    
    1,252
    
    
    
    4,969
    
    
    
    4,982
    
    
    
    4,969
    
    
    
    54,342
    
    
    
    
    
    
    
    70,514Office Lease (Dinero Plaza)
    
    
    50
    
    
    
    204
    
    
    
    210
    
    
    
    216
    
    
    
    36
    
    
    
    
    
    
    
    716Andrews and Snyder Field Offices (3)
    
    
    6
    
    
    
    23
    
    
    
    14
    
    
    
    14
    
    
    
    14
    
    
    
    
    
    
    
    71Asset
retirement obligations (4)
    
    
    305
    
    
    
    83
    
    
    
    59
    
    
    
    258
    
    
    
    576
    
    
    
    3,344
    
    
    
    4,625Derivative Obligations
    
    
    4,075
    
    
    
    15,317
    
    
    
    14,289
    
    
    
    82
    
    
    
    (1,547
    )
    
    
    
    
    
    
    32,216Drilling Contract
    
    
    272
    
    
    
    808
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,080Total
    
    $
    7,828
    
    
    $
    28,815
    
    
    $
    26,985
    
    
    $
    12,950
    
    
    $
    156,593
    
    
    $
    3,344
    
    
    $
    236,515
 
 (1)
    
    Outstanding principal of $97.0 million due October 31, 2010 and estimated interest
obligation calculated using the
weighted average rate at September 30, 2006 of 7.64%(2)
    
    Outstanding principal of $50.0 million due November 15, 2010 and estimated interest
obligation calculated using the LIBOR
rate at September 30, 2006 of 9.9375%(3)
    
    The Snyder field office lease remains in effect until the termination of our trade agreement
with a third party working interest
owner in the Diamond M project. The Andrews field office lease expires in December 2007.
The lease cost for these two
office facilities are billed to nonaffiliated third party working interest owners under our
joint operating agreements
with these third parties.(4)
    
    Assets retirement obligations of oil and natural gas assets, excluding salvage value and
accretion. Outlook
  
    
    internally generated cash from operations;
    
    proceeds from bank borrowings; and
    
    proceeds from sales of equity securities.
  
    
    our proved reserves;
    
    the volumes of oil and natural gas we produce from existing wells;
    
    the prices at which we sell oil and natural gas; and
    
    our ability to acquire, locate and produce new reserves.
  
    
    increased bank borrowings;
    
    sales of Parallels securities;
 (28)




---



##### Table of Contents




    
    sales of non-core properties; or
    
    other forms of financing.
  Inflation
  Recent Accounting Pronouncements
    Critical Accounting Policies
  TRENDS AND PRICES
    (29)




---



##### Table of Contents



FORWARD-LOOKING STATEMENTS
 Cautionary Statement Regarding Forward-Looking Statements
  
    
    our future financial and operating performance and results;
    
    the drilling plans and ability to secure drilling rigs to effectuate plans;
    
    production volumes;
    
    our business strategy;
    
    market prices;
    
    sources of funds necessary to conduct operations and complete acquisitions;
    
    development costs;
    
    number and location of planned wells;
    
    our future commodity price risk management activities; and
    
    our plans and forecasts.
   
    
    fluctuations in prices of oil and natural gas;
    
    dependent on key personnel;
    
    reliance on technological development and technology development programs;
    
    demand for oil and natural gas;
    
    losses due to potential or future litigation;
    
    future capital requirements and availability of financing;
    
    geological concentration of our reserves;
    
    risks associated with drilling and operating wells;
    
    competition;
    
    general economic conditions;
    
    governmental regulations and liability for environmental matters;
    
    receipt of amounts owed to us by purchasers of our production and counterparties to our hedging contracts;
 (30)




---



##### Table of Contents




    
    hedging decisions, including whether or not to hedge;
    
    events similar to 911;
    
    actions of third party co-owners of interests in properties in which we also own an interest; and
    
    fluctuations in interest rates and availability of capital.
   
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Interest Rate Sensitivity as of September 30, 2006
  2006
    
    2007
    
    2008
    
    2009
    
    2010
    
    Total(in thousands, except interest rates)Revolving Facility (secured)
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    97,000
    
    
    $
    97,000Average interest rate
    
    
    7.64
    %
    
    
    7.64
    %
    
    
    7.64
    %
    
    
    7.64
    %
    
    
    7.64
    %Term Loan (Second Lien)
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    50,000
    
    
    $
    50,000Average interest rate
    
    
    9.94
    %
    
    
    9.94
    %
    
    
    9.94
    %
    
    
    9.94
    %
    
    
    9.94
    %
   (31)




---



##### Table of Contents



Notional
    
    
    
    
    
    
    FairPeriod of Time
    
    Amounts
    
    
    Fixed Interest Rates
    
    
    Market Value($ in millions)
    
    
    
    
    
    
    ($ in thousands)October 1, 2006 thru December 31, 2006 (1)
    
    $
    10
    
    
    
    4.05
    %
    
    $
    30October 1, 2006 thru December 31, 2006
    
    $
    50
    
    
    
    4.41
    %
    
    
    307January 1, 2007 thru December 31, 2007
    
    $
    100
    
    
    
    4.62
    %
    
    
    469January 1, 2008 thru December 31, 2008
    
    $
    100
    
    
    
    4.86
    %
    
    
    (119
    )January 1, 2009 thru December 31, 2009
    
    $
    50
    
    
    
    5.06
    %
    
    
    (82
    )January 1, 2010 thru October 31, 2010
    
    $
    50
    
    
    
    5.15
    %
    
    
    (59
    )Total Fair Market Value
    
    
    
    
    
    
    
    
    
    $
    546
 
 (1)
    
    Designated as cash flow hedge. Commodity Price Sensitivity as of September 30, 2006
     Put Options.
 Collars.
 (32)




---



##### Table of Contents



M M Btu
    
    
    Houston Ship
    
    
    
    
    
    
    
    
    
    
    FairBarrels of
    
    
    NyMex Oil Prices
    
    
    of Natural
    
    
    Channel Gas Prices
    
    
    WAHA Gas Prices
    
    
    MarketPeriod of Time
    
    Oil
    
    
    Floor
    
    
    Cap
    
    
    Gas
    
    
    Floor
    
    
    Cap
    
    
    Floor
    
    
    Cap
    
    
    Value($ inthousands)October 1, 2006 thru
December 31, 2006
    
    
    99,000
    
    
    $
    53.12
    
    
    $
    80.87
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (246
    )October 1, 2006 thru
October 31, 2006
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    62,000
    
    
    $
    7.50
    
    
    $
    13.90
    
    
    $
    
    
    
    $
    
    
    
    
    217October 1, 2006 thru
October 31, 2006
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    31,000
    
    
    $
    
    
    
    $
    
    
    
    $
    9.00
    
    
    $
    14.55
    
    
    
    164January 1, 2007 thru
December 31, 2007
    
    
    292,000
    
    
    $
    55.63
    
    
    $
    84.88
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    146April 1, 2007 thru
October 31, 2007
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    214,000
    
    
    $
    6.00
    
    
    $
    11.05
    
    
    $
    
    
    
    $
    
    
    
    
    51January 1, 2008 thru
December 31, 2008
    
    
    237,900
    
    
    $
    60.38
    
    
    $
    81.08
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    236January 1, 2009 thru
December 31, 2009
    
    
    620,500
    
    
    $
    63.53
    
    
    $
    80.21
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    1,583January 1, 2010 thru
October 31, 2010
    
    
    486,400
    
    
    $
    63.44
    
    
    $
    78.26
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    1,492Total Fair Market Value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    3,643
 Commodity Swaps.
  Period of Time
    

Barrels of Oil
    
    

Nymex Oil Swap Price
    
    

Fair
MarketValue($ in thousands)October 1, 2006 thru December 20, 2006 (1)
    
    
    60,750
    
    
    $
    23.04
    
    
    $
    (2,476
    )October 1, 2006 thru December 31, 2006
    
    
    46,000
    
    
    $
    36.35
    
    
    
    (1,275
    )January 1, 2007 thru December 31, 2007
    
    
    474,500
    
    
    $
    34.36
    
    
    
    (15,315
    )January 1, 2008 thru December 31, 2008
    
    
    439,200
    
    
    $
    33.37
    
    
    
    (14,195
    )Total fair market value
    
    
    
    
    
    
    
    
    
    $
    (33,261
    )
 
 (1)
    
    Designated as a cash flow hedge. (33)




---



##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
  
 PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
     
 ITEM 1A. RISK FACTORS
  (34)




---



##### Table of Contents



ITEM
6. EXHIBITS
  No.
    
    Description of Exhibit3.1
    
    Certificate of Incorporation of Registrant (Incorporated by reference to Exhibit 3.1 to Form
10-Q of the Registrant for the fiscal quarter ended June 30, 2004)3.2
    
    Bylaws of Registrant (Incorporated by reference to Exhibit 3 of the Registrants Form 8-K,
dated October 9, 2000, as filed with the Securities and Exchange Commission on October 10,
2000)3.3
    
    Certificate of Formation of Parallel, L.L.C. (Incorporated by reference to Exhibit No. 3.3 of
the Registrants Registration Statement on Form S-3, No. 333-119725 filed on October 13, 2004)3.4
    
    Limited Liability Company Agreement of Parallel, L.L.C. (Incorporated by reference to Exhibit
No. 3.4 of the Registrants Statement on Form S-3, No. 333-119725 filed on October 13, 2004)3.5
    
    Certificate of Limited Partnership of Parallel, L.P. (Incorporated by reference to Exhibit
No. 3.5 of the Registrants Registration Statement on Form S-3, No. 333-119725 filed on
October 13, 2004)3.6
    
    Agreement of Limited Partnership of Parallel, L.P. (Incorporated by reference to Exhibit No.
3.6 of the Registrants Registration Statement on Form S-3, No. 333-119725 filed on October
13, 2004)4.1
    
    Certificate of Designations, Preferences and Rights of Serial Preferred Stock  6%
Convertible Preferred Stock (Incorporated by reference to Exhibit 4.1 of Form 10-Q of the
Registrant for the fiscal quarter ended June 30, 2004)4.2
    
    Certificate of Designation, Preferences and Rights of Series A Preferred Stock (Incorporated
by reference to Exhibit 4.2 of Form 10-K of the Registrant for the fiscal year ended December
31, 2000)4.3
    
    Rights Agreement, dated as of October 5, 2000, between the Registrant and Computershare Trust
Company, Inc., as Rights Agent (Incorporated by reference to Exhibit 4.3 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2000)4.4
    
    Form of Indenture relating to senior debt securities of the Registrant (Incorporated by
reference to Exhibit No. 4.4 of the Registrants Statement on Form S-3, No. 333-119725 filed
on October 13, 2004)4.5
    
    Form of Indenture relating to subordinated debt securities of the Registrant (Incorporated by
reference to Exhibit No. 4.5 of the Registrants Registration Statement on Form S-3, No.
333-119725 filed on October 13, 2004)4.6
    
    Form of common stock certificate of the Registrant (Incorporated by reference to Exhibit No.
4.6 of the Registrants Registration Statement on Form S-3, No. 333-119725 filed on October
13, 2004)4.7
    
    Warrant Purchase Agreement, dated November 20, 2001, between the Registrant and Stonington
Corporation (Incorporated by reference to Exhibit 4.7 of Form 10-K of the Registrant for the
fiscal year ended December 31, 2004)4.8
    
    Warrant Purchase Agreement, dated December 23, 2003, between the Registrant and Stonington
Corporation (Incorporated by reference to Exhibit 4.8 of Form 10-K of the Registrant for the
fiscal year ended December 31, 2004)Executive Compensation Plans and Arrangements (Exhibit No.s 10.1 through 10.8):10.1
    
    1992 Stock Option Plan (Incorporated by reference to Exhibit 10.1 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2004)10.2
    
    Merrill Lynch, Pierce, Fenner & Smith Incorporated Prototype Simplified Employee Pension Plan
(Incorporated by reference to Exhibit 10.6 of the Registrants Form 10-K for the fiscal year
ended December 31, 1995)
 (35)




---



##### Table of Contents



No.
    
    Description of Exhibit10.3
    
    Non-Employee Directors Stock Option Plan (Incorporated by reference to Exhibit 10.3 of the
Registrants Form 10-Q of the Registrant for the fiscal quarter ended June 30, 2005)10.4
    
    1998 Stock Option Plan (Incorporated by reference to Exhibit 10.7 of Form 10-K of the
Registrant for the fiscal year ended December 31, 1998)10.5
    
    Form of Incentive Award Agreements, dated December 12, 2001, between the Registrant and
Thomas R. Cambridge, Larry C. Oldham, Eric A. Bayley and John S. Rutherford granting 2,394
Unit Equivalent Rights to Mr. Cambridge; 9,564 Unit Equivalent Rights to Mr. Oldham; 2,869
Unit Equivalent Rights to Mr. Bayley; and 7,173 Unit Equivalent Rights to Mr. Rutherford
(Incorporated by reference to Exhibit 10.8 of Form 10-K of the Registrant for the fiscal year
ended December 31, 2001)10.6
    
    2001 Non-Employee Directors Stock Option Plan (Incorporated by reference to Exhibit 10.7 of
the Registrants Form 10-Q Report for the fiscal quarter ended March 31, 2004)10.7
    
    2004 Non-Employee Director Stock Grant Plan (Incorporated by reference to Exhibit 10.1 of the
Registrants Form 8-K Report dated September 22, 2004)10.8
    
    Incentive and Retention Plan (Incorporated by reference to Exhibit 10.1 of the Registrants
Form 8-K Report dated September 23, 2004 and filed with the Securities and Exchange Commission
on September 29, 2004)10.9
    
    Certificate of Formation of First Permian, L.L.C. (Incorporated by reference to Exhibit 10.1
of the Registrants Form 8-K Report dated June 30, 1999)10.10
    
    Limited Liability Company Agreement of First Permian, L.L.C. (Incorporated by reference to
Exhibit 10.2 of the Registrants Form 8-K Report dated June 30, 1999)10.11
    
    Amended and Restated Limited Liability Company Agreement of First Permian, L.L.C. dated as
of May 31, 2000 (Incorporated by reference to Exhibit 10.16 of Form 10-K of the Registrant for
the fiscal year ended December 31, 2000)10.12
    
    Credit Agreement, dated June 30, 1999, by and among First Permian, L.L.C., Parallel
Petroleum Corporation, Baytech, Inc., and Bank One, Texas, N.A. (Incorporated by reference to
Exhibit 10.6 of the Registrants Form 8-K Report dated June 30, 1999)10.13
    
    Limited Guaranty, dated June 30, 1999, by and among First Permian, L.L.C., parallel
Petroleum Corporation and Bank One, Texas, N.A. (Incorporated by reference to Exhibit 10.7 of
the Registrants Form 8-K Report dated June 30, 1999)10.14
    
    Second Restated Credit Agreement, dated October 25, 2000, among First Permian, L.L.C., Bank
One, Texas, N.A., and Bank One Capital Markets, Inc. (Incorporated by reference to Exhibit
10.22 of Form 10-K of the Registrant for the fiscal year ended December 31, 2000)10.15
    
    Loan Agreement, dated as of January 25, 2002, between the Registrant and First American
Bank, SSB (Incorporated by reference to Exhibit 10.25 of Form 10-K of the Registrant for the
fiscal year ended December 31, 2001)10.16
    
    Purchase and Sale Agreement, dated as of November 27, 2002, among JMC Exploration, Inc.,
Arkoma Star L.L.C., Parallel, L.P. and Texland Petroleum, Inc. (Incorporated by reference to
Exhibit 10.1 of Form 8-K of the Registrant, dated December 20, 2002)10.17
    
    First Amended and Restated Credit Agreement, dated December 20, 2002, by and among Parallel
Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First American Bank, SSB, Western
National Bank and BNP Paribas (Incorporated by reference to Exhibit 10.2 of Form 8-K of the
Registrant, dated December 20, 2002)10.18
    
    Guaranty dated December 20, 2002, between Parallel, L.L.C. and First American Bank, SSB, as
Agent (Incorporated by reference to Exhibit 10.3 of Form 8-K of the Registrant, dated December
20, 2002)10.19
    
    First Amendment to First Amended and Restated Credit Agreement, dated as of September 12,
2003, by and among Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First
American Bank, SSB, Western National Bank, and BNP Paribas (Incorporated by reference to
Exhibit 10.29 of Form 10-Q of the Registrant for the quarter ended September 30, 2003)
 (36)




---



##### Table of Contents



No.
    
    Description of Exhibit10.20
    
    Second Amendment and Restated Credit Agreement, dated September 27, 2004, by and among
Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First American Bank, SSB,
BNP Paribas, Citibank, F.S.B. and
Western National Bank (Incorporated by reference to Exhibit 10.1 of the Registrants Form
8-K Report dated September 27, 2004 and filed with the Securities and Exchange Commission on
October 1, 2004)10.21
    
    Agreement of Limited Partnership of West Fork Pipeline Company LP (Incorporated by reference
to Exhibit 10.21 of Form 10-K of the Registrant for the fiscal year ended December 31, 2004)10.22
    
    First Amendment to Second Amended and Restated Credit Agreement, dated as of December 27,
2004, by and among Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First
American Bank, SSB, BNP Paribas, Citibank, F.S.B. and Western National Bank (Incorporated by
reference to Exhibit 10.1 of the Registrants Form 8-K Report dated December 30, 2004 and
filed with the Securities and Exchange Commission on December 30, 2004)10.23
    
    Second Amendment to Second Amended and Restated Credit Agreement, dated as of April 1, 2005,
by and among Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First American
Bank, SSB, BNP Paribas, Citibank, F.S.B. and Western National Bank (Incorporated by reference
to Exhibit 10.1 of the Registrants Form 8-K Report dated April 4, 2005 and filed with the
Securities and Exchange Commission on April 8, 2005)10.24
    
    Third Amendment to Second Amended and Restated Credit Agreement (Incorporated by reference
to Exhibit 10.1 of the Registrants Form 8-K Report dated October 4, 2005 and filed with the
Securities and Exchange Commission on October 20, 2005)10.25
    
    Purchase and Sale Agreement, dated as of October 14, 1005, among Parallel, L.P., Lynx
Production Company, Inc., Elton Resources, Inc., Cascade Energy Corporation, Chelsea Energy,
Inc., William P. Sutter, Trustee, William P. Sutter Trust, J. Leroy Bell, E. L. Brahaney,
Brent Beck, Cavic Interests, LLC and Stanley Talbott (Incorporated by reference to Exhibit
10.2 of the Registrants Form 8-K Report dated October 14, 2005 and filed with the Securities
and Exchange Commission on October 20, 2005)10.26
    
    Ancillary Agreement to Purchase and Sale Agreement, dated October 14, 2005, between
Parallel, L.P. and Lynx Production Company, Inc. (Incorporated by reference to Exhibit 10.3 of
the Registrants Form 8-K Report dated October 14, 2005 and filed with the Securities and
Exchange Commission on October 20, 2005)10.27
    
    Guarantee of Parallel, L.P., dated October 13, 2004 (Incorporated by reference to Exhibit
10.4 of the Registrants Form 8-K Report dated October 14, 2005 and filed with the Securities
and Exchange Commission on October 20, 2005)10.28
    
    ISDA Master Agreement, dated as of October 13, 2005, between Parallel, L.P. and Citibank,
N.A. (Incorporated by reference to Exhibit 10.5 of the Registrants Form 8-K Report dated
October 14, 2005 and filed with the Securities and Exchange Commission on October 20, 2005)10.29
    
    Third Amended and Restated Credit Agreement, dated as of December 23, 2005, among Parallel
Petroleum Corporation, Parallel, L.P., Parallel, L.L.C. and Citibank Texas, N.A., BNP Paribas,
CitiBank F.S.B., Western National Bank, Compass Bank, Comerica Bank, Bank of Scotland and
Fortis Capital Corp. (Incorporated by reference to Exhibit No. 10.1 of the Registrants Form
8-K Report, dated December 23, 2005, as filed with the Securities and Exchange Commission on
December 30, 2005)10.30
    
    Second Lien Term Loan Agreement, dated November 15, 2005, among Parallel Petroleum
Corporation, Parallel, L.P., BNP Paribas and Citibank Texas, N.A. (Incorporated by reference
to Exhibit No. 10.4 of the Registrants Form 8-K Report, dated November 15, 2005, as filed
with the Securities and Exchange Commission on November 21, 2005)10.31
    
    Intercreditor and Subordination Agreement, dated November 15, 2005, among Citibank Texas,
N.A., BNP Paribas, Parallel Petroleum Corporation, Parallel, L.P. and Parallel, L.L.C.
(Incorporated by reference to Exhibit No. 10.5 of the Registrants Form 8-K Report, dated
November 15, 2005, as filed with the Securities and Exchange Commission on November 21, 2005)
 (37)




---



##### Table of Contents



No.
    
    Description of Exhibit14
    
    Code of Ethics (Incorporated by reference to Exhibit No. 14 of the Registrants Form 10-K
Report for the fiscal year ended December 31, 2003 and filed with the Securities and Exchange
Commission on March 22, 2004)21
    
    Subsidiaries (Incorporated by reference to Exhibit No. 21 of the Registrants Form 10-K
Report for the fiscal year ended December 31, 2003 and filed with the Securities and Exchange
Commission on March 22, 2004)*31.1
    
    Certification of Principal Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 302 of the Sarbanes -
Oxley Act of 2002.*31.2
    
    Certification of Principal Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 302 of the Sarbanes -
Oxley Act of 2002.*32.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes -
Oxley Act of 2002.*32.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes -
Oxley Act of 2002.
 
 *
    
    Filed herewith. (38)




---



##### Table of Contents



PARALLEL PETROLEUM CORPORATIONBY:
    
    /s/ Larry C. OldhamDate: November 8, 2006
    
    Larry C. OldhamPresident and Chief Executive OfficerDate: November 8, 2006
    
    BY:
    
    /s/ Steven D. FosterSteven D. Foster,Chief Financial Officer




---



##### Table of Contents



No.
    
    Description of Exhibit3.1
    
    Certificate of Incorporation of Registrant (Incorporated by reference to Exhibit 3.1 to Form
10-Q of the Registrant for the fiscal quarter ended June 30, 2004)3.2
    
    Bylaws of Registrant (Incorporated by reference to Exhibit 3 of the Registrants Form 8-K,
dated October 9, 2000, as filed with the Securities and Exchange Commission on October 10,
2000)3.3
    
    Certificate of Formation of Parallel, L.L.C. (Incorporated by reference to Exhibit No. 3.3 of
the Registrants Registration Statement on Form S-3, No. 333-119725 filed on October 13, 2004)3.4
    
    Limited Liability Company Agreement of Parallel, L.L.C. (Incorporated by reference to Exhibit
No. 3.4 of the Registrants Statement on Form S-3, No. 333-119725 filed on October 13, 2004)3.5
    
    Certificate of Limited Partnership of Parallel, L.P. (Incorporated by reference to Exhibit
No. 3.5 of the Registrants Registration Statement on Form S-3, No. 333-119725 filed on
October 13, 2004)3.6
    
    Agreement of Limited Partnership of Parallel, L.P. (Incorporated by reference to Exhibit No.
3.6 of the Registrants Registration Statement on Form S-3, No. 333-119725 filed on October
13, 2004)4.1
    
    Certificate of Designations, Preferences and Rights of Serial Preferred Stock  6%
Convertible Preferred Stock (Incorporated by reference to Exhibit 4.1 of Form 10-Q of the
Registrant for the fiscal quarter ended June 30, 2004)4.2
    
    Certificate of Designation, Preferences and Rights of Series A Preferred Stock (Incorporated
by reference to Exhibit 4.2 of Form 10-K of the Registrant for the fiscal year ended December
31, 2000)4.3
    
    Rights Agreement, dated as of October 5, 2000, between the Registrant and Computershare Trust
Company, Inc., as Rights Agent (Incorporated by reference to Exhibit 4.3 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2000)4.4
    
    Form of Indenture relating to senior debt securities of the Registrant (Incorporated by
reference to Exhibit No. 4.4 of the Registrants Statement on Form S-3, No. 333-119725 filed
on October 13, 2004)4.5
    
    Form of Indenture relating to subordinated debt securities of the Registrant (Incorporated by
reference to Exhibit No. 4.5 of the Registrants Registration Statement on Form S-3, No.
333-119725 filed on October 13, 2004)4.6
    
    Form of common stock certificate of the Registrant (Incorporated by reference to Exhibit No.
4.6 of the Registrants Registration Statement on Form S-3, No. 333-119725 filed on October
13, 2004)4.7
    
    Warrant Purchase Agreement, dated November 20, 2001, between the Registrant and Stonington
Corporation (Incorporated by reference to Exhibit 4.7 of Form 10-K of the Registrant for the
fiscal year ended December 31, 2004)4.8
    
    Warrant Purchase Agreement, dated December 23, 2003, between the Registrant and Stonington
Corporation (Incorporated by reference to Exhibit 4.8 of Form 10-K of the Registrant for the
fiscal year ended December 31, 2004)Executive Compensation Plans and Arrangements (Exhibit No.s 10.1 through 10.8):10.1
    
    1992 Stock Option Plan (Incorporated by reference to Exhibit 10.1 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2004)10.2
    
    Merrill Lynch, Pierce, Fenner & Smith Incorporated Prototype Simplified Employee Pension Plan
(Incorporated by reference to Exhibit 10.6 of the Registrants Form 10-K for the fiscal year
ended December 31, 1995)




---



##### Table of Contents



No.
    
    Description of Exhibit10.3
    
    Non-Employee Directors Stock Option Plan (Incorporated by reference to Exhibit 10.3 of the
Registrants Form 10-Q of the Registrant for the fiscal quarter ended June 30, 2005)10.4
    
    1998 Stock Option Plan (Incorporated by reference to Exhibit 10.7 of Form 10-K of the
Registrant for the fiscal year ended December 31, 1998)10.5
    
    Form of Incentive Award Agreements, dated December 12, 2001, between the Registrant and
Thomas R. Cambridge, Larry C. Oldham, Eric A. Bayley and John S. Rutherford granting 2,394
Unit Equivalent Rights to Mr. Cambridge; 9,564 Unit Equivalent Rights to Mr. Oldham; 2,869
Unit Equivalent Rights to Mr. Bayley; and 7,173 Unit Equivalent Rights to Mr. Rutherford
(Incorporated by reference to Exhibit 10.8 of Form 10-K of the Registrant for the fiscal year
ended December 31, 2001)10.6
    
    2001 Non-Employee Directors Stock Option Plan (Incorporated by reference to Exhibit 10.7 of
the Registrants Form 10-Q Report for the fiscal quarter ended March 31, 2004)10.7
    
    2004 Non-Employee Director Stock Grant Plan (Incorporated by reference to Exhibit 10.1 of the
Registrants Form 8-K Report dated September 22, 2004)10.8
    
    Incentive and Retention Plan (Incorporated by reference to Exhibit 10.1 of the Registrants
Form 8-K Report dated September 23, 2004 and filed with the Securities and Exchange Commission
on September 29, 2004)10.9
    
    Certificate of Formation of First Permian, L.L.C. (Incorporated by reference to Exhibit 10.1
of the Registrants Form 8-K Report dated June 30, 1999)10.10
    
    Limited Liability Company Agreement of First Permian, L.L.C. (Incorporated by reference to
Exhibit 10.2 of the Registrants Form 8-K Report dated June 30, 1999)10.11
    
    Amended and Restated Limited Liability Company Agreement of First Permian, L.L.C. dated as
of May 31, 2000 (Incorporated by reference to Exhibit 10.16 of Form 10-K of the Registrant for
the fiscal year ended December 31, 2000)10.12
    
    Credit Agreement, dated June 30, 1999, by and among First Permian, L.L.C., Parallel
Petroleum Corporation, Baytech, Inc., and Bank One, Texas, N.A. (Incorporated by reference to
Exhibit 10.6 of the Registrants Form 8-K Report dated June 30, 1999)10.13
    
    Limited Guaranty, dated June 30, 1999, by and among First Permian, L.L.C., parallel
Petroleum Corporation and Bank One, Texas, N.A. (Incorporated by reference to Exhibit 10.7 of
the Registrants Form 8-K Report dated June 30, 1999)10.14
    
    Second Restated Credit Agreement, dated October 25, 2000, among First Permian, L.L.C., BankOne, Texas, N.A., and Bank One Capital Markets, Inc. (Incorporated by reference to Exhibit
10.22 of Form 10-K of the Registrant for the fiscal year ended December 31, 2000)10.15
    
    Loan Agreement, dated as of January 25, 2002, between the Registrant and First American
Bank, SSB (Incorporated by reference to Exhibit 10.25 of Form 10-K of the Registrant for the
fiscal year ended December 31, 2001)10.16
    
    Purchase and Sale Agreement, dated as of November 27, 2002, among JMC Exploration, Inc.,
Arkoma Star L.L.C., Parallel, L.P. and Texland Petroleum, Inc. (Incorporated by reference to
Exhibit 10.1 of Form 8-K of the Registrant, dated December 20, 2002)10.17
    
    First Amended and Restated Credit Agreement, dated December 20, 2002, by and among Parallel
Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First American Bank, SSB, Western
National Bank and BNP Paribas (Incorporated by reference to Exhibit 10.2 of Form 8-K of the
Registrant, dated December 20, 2002)10.18
    
    Guaranty dated December 20, 2002, between Parallel, L.L.C. and First American Bank, SSB, as
Agent (Incorporated by reference to Exhibit 10.3 of Form 8-K of the Registrant, dated December
20, 2002)




---



##### Table of Contents



No.
    
    Description of Exhibit10.19
    
    First Amendment to First Amended and Restated Credit Agreement, dated as of September 12,
2003, by and among Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First
American Bank, SSB, Western National Bank, and BNP Paribas (Incorporated by reference to
Exhibit 10.29 of Form 10-Q of the Registrant for the quarter ended September 30, 2003)10.20
    
    Second Amendment and Restated Credit Agreement, dated September 27, 2004, by and among
Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First American Bank, SSB,
BNP Paribas, Citibank, F.S.B. and Western National Bank (Incorporated by reference to Exhibit
10.1 of the Registrants Form 8-K Report dated September 27, 2004 and filed with the
Securities and Exchange Commission on October 1, 2004)10.21
    
    Agreement of Limited Partnership of West Fork Pipeline Company LP (Incorporated by reference
to Exhibit 10.21 of Form 10-K of the Registrant for the fiscal year ended December 31, 2004)10.22
    
    First Amendment to Second Amended and Restated Credit Agreement, dated as of December 27,
2004, by and among Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First
American Bank, SSB, BNP Paribas, Citibank, F.S.B. and Western National Bank (Incorporated by
reference to Exhibit 10.1 of the Registrants Form 8-K Report dated December 30, 2004 and
filed with the Securities and Exchange Commission on December 30, 2004)10.23
    
    Second Amendment to Second Amended and Restated Credit Agreement, dated as of April 1, 2005,
by and among Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First American
Bank, SSB, BNP Paribas, Citibank, F.S.B. and Western National Bank (Incorporated by reference
to Exhibit 10.1 of the Registrants Form 8-K Report dated April 4, 2005 and filed with the
Securities and Exchange Commission on April 8, 2005)10.24
    
    Third Amendment to Second Amended and Restated Credit Agreement (Incorporated by reference
to Exhibit 10.1 of the Registrants Form 8-K Report dated October 4, 2005 and filed with the
Securities and Exchange Commission on October 20, 2005)10.25
    
    Purchase and Sale Agreement, dated as of October 14, 1005, among Parallel, L.P., Lynx
Production Company, Inc., Elton Resources, Inc., Cascade Energy Corporation, Chelsea Energy,
Inc., William P. Sutter, Trustee, William P. Sutter Trust, J. Leroy Bell, E. L. Brahaney,
Brent Beck, Cavic Interests, LLC and Stanley Talbott (Incorporated by reference to Exhibit
10.2 of the Registrants Form 8-K Report dated October 14, 2005 and filed with the Securities
and Exchange Commission on October 20, 2005)10.26
    
    Ancillary Agreement to Purchase and Sale Agreement, dated October 14, 2005, between
Parallel, L.P. and Lynx Production Company, Inc. (Incorporated by reference to Exhibit 10.3 of
the Registrants Form 8-K Report dated October 14, 2005 and filed with the Securities and
Exchange Commission on October 20, 2005)10.27
    
    Guarantee of Parallel, L.P., dated October 13, 2004 (Incorporated by reference to Exhibit
10.4 of the Registrants Form 8-K Report dated October 14, 2005 and filed with the Securities
and Exchange Commission on October 20, 2005)10.28
    
    ISDA Master Agreement, dated as of October 13, 2005, between Parallel, L.P. and Citibank,
N.A. (Incorporated by reference to Exhibit 10.5 of the Registrants Form 8-K Report dated
October 14, 2005 and filed with the Securities and Exchange Commission on October 20, 2005)10.29
    
    Third Amended and Restated Credit Agreement, dated as of December 23, 2005, among Parallel
Petroleum Corporation, Parallel, L.P., Parallel, L.L.C. and Citibank Texas, N.A., BNP Paribas,
CitiBank F.S.B., Western National Bank, Compass Bank, Comerica Bank, Bank of Scotland and
Fortis Capital Corp. (Incorporated by reference to Exhibit No. 10.1 of the Registrants Form
8-K Report, dated December 23, 2005, as filed with the Securities and Exchange Commission on
December 30, 2005)10.30
    
    Second Lien Term Loan Agreement, dated November 15, 2005, among Parallel Petroleum
Corporation, Parallel, L.P., BNP Paribas and Citibank Texas, N.A. (Incorporated by reference
to Exhibit No. 10.4 of the
Registrants Form 8-K Report, dated November 15, 2005, as filed with the Securities and
Exchange Commission on November 21, 2005)




---



##### Table of Contents



No.
    
    Description of Exhibit10.31
    
    Intercreditor and Subordination Agreement, dated November 15, 2005, among Citibank Texas,
N.A., BNP Paribas, Parallel Petroleum Corporation, Parallel, L.P. and Parallel, L.L.C.
(Incorporated by reference to Exhibit No. 10.5 of the Registrants Form 8-K Report, dated
November 15, 2005, as filed with the Securities and Exchange Commission on November 21, 2005)14
    
    Code of Ethics (Incorporated by reference to Exhibit No. 14 of the Registrants Form 10-K
Report for the fiscal year ended December 31, 2003 and filed with the Securities and Exchange
Commission on March 22, 2004)21
    
    Subsidiaries (Incorporated by reference to Exhibit No. 21 of the Registrants Form 10-K
Report for the fiscal year ended December 31, 2003 and filed with the Securities and Exchange
Commission on March 22, 2004)*31.1
    
    Certification of Principal Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 302 of the Sarbanes -
Oxley Act of 2002.*31.2
    
    Certification of Principal Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 302 of the Sarbanes -
Oxley Act of 2002.*32.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes -
Oxley Act of 2002.*32.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes -
Oxley Act of 2002.
 
 *
    
    Filed herewith.