##### Table of Contents



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




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##### 



Page No.PART I.  FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTSReference is made to the succeeding pages for the following consolidated financial statements:- Consolidated Balance Sheets as of June 30, 2007 (unaudited) and December 31, 2006
    
    
    1- Unaudited Consolidated Statements of Operations for the three months and six months
ended June 30, 2007 and 2006
    
    
    2- Unaudited Consolidated Statements of Cash Flows for the six months ended
June 30, 2007 and 2006
    
    
    3- Unaudited Consolidated Statements of Comprehensive Income for the three months
and six months ended June 30, 2007 and 2006
    
    
    4- Notes to Consolidated Financial Statements
    
    
    5ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
    
    
    16ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    35ITEM 4. CONTROLS AND PROCEDURES
    
    
    37PART II  OTHER INFORMATIONITEM 1. LEGAL PROCEEDINGS
    
    
    38ITEM 1A. RISK FACTORS
    
    
    38ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    43ITEM 6. EXHIBITS
    
    
    44SIGNATURESCertification Pursuant to Section 302Certification Pursuant to Section 302Certification Pursuant to Section 906Certification Pursuant to Section 906
  (i)




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##### Table of Contents



PART I.  FINANCIAL INFORMATION
 
  PARALLEL PETROLEUM CORPORATION
 
 Consolidated Balance Sheets
 (dollars in thousands, except share data)
 June 30,
    
    
    December 31,2007
    
    
    2006(unaudited)AssetsCurrent assets:Cash and cash equivalents
    
    $
    5,515
    
    
    $
    5,910Accounts receivable:Oil and natural gas sales
    
    
    17,628
    
    
    
    18,605Joint interest owners and other, net of allowance for doubtful account of $50
    
    
    4,127
    
    
    
    7,209Affiliates and joint ventures
    
    
    1,538
    
    
    
    3,33823,293
    
    
    
    29,152Other current assets
    
    
    2,298
    
    
    
    2,863Deferred tax asset
    
    
    5,423
    
    
    
    4,340Total current assets
    
    
    36,529
    
    
    
    42,265Property and equipment, at cost:Oil and natural gas properties, full cost method (including $69,203 and $50,375 not
subject to depletion)
    
    
    572,809
    
    
    
    501,405Other
    
    
    2,771
    
    
    
    2,614575,580
    
    
    
    504,019Less accumulated depreciation, depletion and amortization
    
    
    (129,315
    )
    
    
    (115,513
    )Net property and equipment
    
    
    446,265
    
    
    
    388,506Restricted cash
    
    
    52
    
    
    
    325Investment in pipelines and gathering system ventures
    
    
    8,708
    
    
    
    6,454Other assets, net of accumulated amortization of $1,401 and $760
    
    
    2,724
    
    
    
    5,268$
    494,278
    
    
    $
    442,818Liabilities and Stockholders EquityCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    38,002
    
    
    $
    36,171Asset retirement obligations
    
    
    686
    
    
    
    701Derivative obligations
    
    
    17,022
    
    
    
    14,109Total current liabilities
    
    
    55,710
    
    
    
    50,981Revolving credit facility
    
    
    159,500
    
    
    
    115,000Term loan
    
    
    50,000
    
    
    
    50,000Asset retirement obligations
    
    
    4,156
    
    
    
    4,362Derivative obligations
    
    
    9,137
    
    
    
    14,386Deferred tax liability
    
    
    27,248
    
    
    
    24,307Total long-term liabilities
    
    
    250,041
    
    
    
    208,055Commitments and contingenciesStockholders equity:Series A preferred stock  par value $0.10 per share, authorized 50,000 shares
    
    
    
    
    
    
    Common stock  par value $0.01 per share, authorized 60,000,000 shares,
issued and outstanding 37,893,523 and 37,547,010
    
    
    378
    
    
    
    375Additional paid-in capital
    
    
    141,727
    
    
    
    140,353Retained earnings
    
    
    46,422
    
    
    
    43,054Total stockholders equity
    
    
    188,527
    
    
    
    183,782$
    494,278
    
    
    $
    442,818
  (1)




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PARALLEL PETROLEUM CORPORATION
 
 Consolidated Statements of Operations
 (unaudited)
(in thousands, except per share data)
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Oil and natural gas revenues:Oil and natural gas sales
    
    $
    27,354
    
    
    $
    29,594
    
    
    $
    50,470
    
    
    $
    52,870Loss on hedging
    
    
    
    
    
    
    (3,252
    )
    
    
    
    
    
    
    (5,985
    )Total revenues
    
    
    27,354
    
    
    
    26,342
    
    
    
    50,470
    
    
    
    46,885Cost and expenses:Lease operating expense
    
    
    5,576
    
    
    
    3,741
    
    
    
    9,975
    
    
    
    7,316Production taxes
    
    
    1,194
    
    
    
    1,468
    
    
    
    2,248
    
    
    
    2,578Production tax refund
    
    
    (1,209
    )
    
    
    
    
    
    
    (1,209
    )
    
    
    General and administrative
    
    
    2,580
    
    
    
    2,613
    
    
    
    5,245
    
    
    
    4,742Depreciation, depletion and amortization
    
    
    7,150
    
    
    
    6,140
    
    
    
    13,859
    
    
    
    10,428Total costs and expenses
    
    
    15,291
    
    
    
    13,962
    
    
    
    30,118
    
    
    
    25,064Operating income
    
    
    12,063
    
    
    
    12,380
    
    
    
    20,352
    
    
    
    21,821Other income (expense), net:Loss on derivatives not classified as hedges
    
    
    (2,170
    )
    
    
    (5,493
    )
    
    
    (6,605
    )
    
    
    (10,207
    )Gain on ineffective portion of hedges
    
    
    
    
    
    
    52
    
    
    
    
    
    
    
    195Interest and other income
    
    
    56
    
    
    
    25
    
    
    
    108
    
    
    
    93Interest expense
    
    
    (4,312
    )
    
    
    (3,158
    )
    
    
    (8,020
    )
    
    
    (5,599
    )Other expense
    
    
    21
    
    
    
    (39
    )
    
    
    (15
    )
    
    
    (68
    )Equity in loss of pipelines and
gathering system ventures
    
    
    (289
    )
    
    
    (10
    )
    
    
    (594
    )
    
    
    (29
    )Total other income (expense), net
    
    
    (6,694
    )
    
    
    (8,623
    )
    
    
    (15,126
    )
    
    
    (15,615
    )Income before income taxes
    
    
    5,369
    
    
    
    3,757
    
    
    
    5,226
    
    
    
    6,206Income tax expense, deferred
    
    
    (1,905
    )
    
    
    (1,293
    )
    
    
    (1,858
    )
    
    
    (2,131
    )Net income
    
    $
    3,464
    
    
    $
    2,464
    
    
    $
    3,368
    
    
    $
    4,075Net income per common share:Basic
    
    $
    0.09
    
    
    $
    0.07
    
    
    $
    0.09
    
    
    $
    0.12Diluted
    
    $
    0.09
    
    
    $
    0.07
    
    
    $
    0.09
    
    
    $
    0.11Weighted average common shares outstanding:Basic
    
    
    37,786
    
    
    
    34,940
    
    
    
    37,667
    
    
    
    34,896Diluted
    
    
    38,769
    
    
    
    35,638
    
    
    
    38,763
    
    
    
    35,572
  (2)




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PARALLEL PETROLEUM CORPORATION
 
 Consolidated Statements of Cash Flows
 Six Months Ended June 30, 2007 and 2006  (unaudited) (dollars in thousands)
 2007
    
    
    2006Cash flows from operating activities:Net income
    
    $
    3,368
    
    
    $
    4,075Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation, depletion and amortization
    
    
    13,859
    
    
    
    10,428Accretion of asset retirement obligation
    
    
    164
    
    
    
    101Deferred income tax
    
    
    1,858
    
    
    
    2,131Loss on derivatives not classified as hedges
    
    
    6,605
    
    
    
    10,207Gain on ineffective portion of hedges
    
    
    
    
    
    
    (195
    )Stock option expense
    
    
    59
    
    
    
    292Equity in loss of pipelines and gathering system ventures
    
    
    594
    
    
    
    29Bad debt expense
    
    
    (30
    )
    
    
    Changes in assets and liabilities:Other assets, net
    
    
    (88
    )
    
    
    718Restricted cash
    
    
    273
    
    
    
    Decrease (increase) in accounts receivable
    
    
    5,889
    
    
    
    (2,696
    )Decrease (increase) in other current assets
    
    
    293
    
    
    
    (457
    )Increase in accounts payable and accrued liabilities
    
    
    1,831
    
    
    
    15,508Federal tax deposit
    
    
    
    
    
    
    (40
    )Net cash provided by operating activities
    
    
    34,675
    
    
    
    40,101Cash flows from investing activities:Additions to oil and natural gas properties
    
    
    (73,553
    )
    
    
    (107,159
    )Use of restricted cash for acquisition of oil and natural gas properties
    
    
    
    
    
    
    2,366Proceeds from disposition of oil and natural gas properties
    
    
    1,764
    
    
    
    41Additions to other property and equipment
    
    
    (214
    )
    
    
    (784
    )Settlements on derivative instruments
    
    
    (5,862
    )
    
    
    (2,651
    )Investment in pipelines and gathering system ventures
    
    
    (2,848
    )
    
    
    (6,209
    )Net cash used in investing activities
    
    
    (80,713
    )
    
    
    (114,396
    )Cash flows from financing activities:Borrowings from bank line of credit
    
    
    46,000
    
    
    
    73,500Payments on bank line of credit
    
    
    (1,500
    )
    
    
    Deferred financing cost
    
    
    (175
    )
    
    
    (56
    )Proceeds from exercise of stock options
    
    
    1,318
    
    
    
    766Net cash provided by financing activities
    
    
    45,643
    
    
    
    74,210Net decrease in cash and cash equivalents
    
    
    (395
    )
    
    
    (85
    )Cash and cash equivalents at beginning of period
    
    
    5,910
    
    
    
    6,418Cash and cash equivalents at end of period
    
    $
    5,515
    
    
    $
    6,333Non-cash financing and investing activities:Oil and natural gas properties asset retirement obligations
    
    $
    (385
    )
    
    $
    1,825Non-cash exchange of oil and natural gas propertiesProperties received in exchange
    
    $
    6,463
    
    
    $
    Properties delivered in exchange
    
    $
    (5,495
    )
    
    $
    Other transactions:Interest paid
    
    $
    8,474
    
    
    $
    5,026
  (3)




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PARALLEL PETROLEUM CORPORATION
 
 Consolidated Statements of Comprehensive Income
 (unaudited)
(dollars in thousands)
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income
    
    $
    3,464
    
    
    $
    2,464
    
    
    $
    3,368
    
    
    $
    4,075Other comprehensive loss:Unrealized losses on derivatives
    
    
    
    
    
    
    (1,084
    )
    
    
    
    
    
    
    (2,384
    )Reclassification adjustments for losses
on derivatives included in net income
    
    
    
    
    
    
    3,230
    
    
    
    
    
    
    
    5,951Change in fair value of derivatives
    
    
    
    
    
    
    2,146
    
    
    
    
    
    
    
    3,567Income tax expense
    
    
    
    
    
    
    (730
    )
    
    
    
    
    
    
    (1,213
    )Total other comprehensive income
    
    
    
    
    
    
    1,416
    
    
    
    
    
    
    
    2,354Total comprehensive income
    
    $
    3,464
    
    
    $
    3,880
    
    
    $
    3,368
    
    
    $
    6,429
  (4)




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




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(in thousands)Third quarter 2007
    
    $
    101Fourth quarter 2007
    
    
    862008
    
    
    2282009 through 2011
    
    
    122Total
    
    $
    537
   2007
    
    2005
    
    2001Expected volatility
    
    
    52.52
    %
    
    
    54.20
    %
    
    
    57.95
    %Expected dividends
    
    
    0.00
    
    
    
    0.00
    
    
    
    0.00Expected term (in years)
    
    
    6
    
    
    
    7
    
    
    
    8Risk-free rate
    
    
    4.89
    %
    
    
    4.20
    %
    
    
    5.05
    %
 (6)




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##### Table of Contents



WeightedAverageRemainingWeighted Average
    
    
    Contractual
    
    
    AggregateOptions
    
    
    Exercise Price
    
    
    Term
    
    
    Intrinsic Value(in thousands)
    
    
    
    
    
    
    (years)
    
    
    (in thousands)Outstanding December 31, 2006
    
    
    1,199
    
    
    $
    5.40Granted
    
    
    17
    
    
    $
    22.89Exercised
    
    
    (305
    )
    
    $
    4.32Forfeited
    
    
    (40
    )
    
    $
    12.27Outstanding June 30, 2007
    
    
    871
    
    
    $
    5.81
    
    
    
    5.3
    
    
    $
    14,012Exercisable at June 30, 2007
    
    
    704
    
    
    $
    4.32
    
    
    
    4.4
    
    
    $
    12,366
 (in thousands)Intrinsic Value of Options Exercised Six Months Ended June 30, 2007
    
    $
    5,637Intrinsic Value of Options Exercised Six Months Ended June 30, 2006
    
    $
    2,855Fair Market Value of Options Granted Six Months Ended June 30, 2007
    
    $
    218Fair Market Value of Options Granted Six Months Ended June 30, 2006
    
    $
    
  NOTE 3. CREDIT FACILITIES
   Revolving Credit Facility
  (7)




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Second Lien Term Loan Facility
 1 2
   (8)




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##### Table of Contents



NOTE 4. PROPERTY EXCHANGE
  NOTE 5. FULL COST CEILING TEST
   (9)




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##### Table of Contents



NOTE 6. DERIVATIVE INSTRUMENTS
 General
    Interest Rate Sensitivity
    EstimatedNotional
    
    
    Fixed
    
    
    FairPeriod of Time
    
    Amounts
    
    
    Interest Rates
    
    
    Market Value($ in millions)
    
    
    
    
    
    
    ($ in thousands)July 1, 2007 thru December 31, 2007
    
    $
    100
    
    
    
    4.62
    %
    
    $
    415January 1, 2008 thru December 31,
2008
    
    $
    100
    
    
    
    4.86
    %
    
    
    331January 1, 2009 thru December 31,
2009
    
    $
    50
    
    
    
    5.06
    %
    
    
    100January 1, 2010 thru October 31, 2010
    
    $
    50
    
    
    
    5.15
    %
    
    
    93Total Fair Market Value
    
    
    
    
    
    
    
    
    
    $
    939
 (10)




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Commodity Price Sensitivity
  Collars.
  EstimatedBarrles of
    
    NyMex Oil Prices
    
    Fair MarketPeriod of Time
    
    Oil
    
    Floor
    
    Cap
    
    Value($ in thousands)July 1, 2007 thru December 31, 2007
    
    
    147,200
    
    
    $
    55.63
    
    
    $
    84.88
    
    
    $
    (25
    )January 1, 2008 thru December 31,
2008
    
    
    237,900
    
    
    $
    60.38
    
    
    $
    81.08
    
    
    
    (161
    )January 1, 2009 thru December 31,
2009
    
    
    620,500
    
    
    $
    63.53
    
    
    $
    80.21
    
    
    
    (38
    )January 1, 2010 thru October 31, 2010
    
    
    486,400
    
    
    $
    63.44
    
    
    $
    78.26
    
    
    
    (251
    )Houston ShipMMBtu of
    
    Channel Gas PricesNatural Gas
    
    Floor
    
    CapJuly 1, 2007 thru October 31, 2007
    
    
    123,000
    
    
    $
    6.00
    
    
    $
    11.05
    
    
    
    24MMBtu of
    
    
    WAHA Gas PricesNatural Gas
    
    
    Floor
    
    
    CapJuly 1, 2007 thru October 31, 2007
    
    
    369,000
    
    
    $
    6.25
    
    
    $
    8.90
    
    
    
    104July 1, 2007 thru March 31, 2008
    
    
    1,650,000
    
    
    $
    6.50
    
    
    $
    9.50
    
    
    
    218Total Fair Market Value
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (129
    )
 Commodity Swaps.
  Nymex Oil
    
    
    Fair MarketPeriod of Time
    
    Barrels of Oil
    
    
    Swap Price
    
    
    Value($ in thousands)July 1, 2007 thru December 31, 2007
    
    
    239,200
    
    
    $
    34.36
    
    
    $
    (8,674
    )January 1, 2008 thru December 31, 2008
    
    
    439,200
    
    
    $
    33.37
    
    
    
    (16,185
    )Total fair market value
    
    
    
    
    
    
    
    
    
    $
    (24,859
    )
 (11)




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NOTE 7. NET INCOME PER COMMON SHARE
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(dollars in thousands, except per share data)Basic EPS Computation:Numerator-Income
    
    $
    3,464
    
    
    $
    2,464
    
    
    $
    3,368
    
    
    $
    4,075Denominator-Weighted average common shares outstanding
    
    
    37,786
    
    
    
    34,940
    
    
    
    37,667
    
    
    
    34,896Basic EPS:Income per share
    
    $
    0.09
    
    
    $
    0.07
    
    
    $
    0.09
    
    
    $
    0.12Diluted EPS Computation:Numerator-Income
    
    $
    3,464
    
    
    $
    2,464
    
    
    $
    3,368
    
    
    $
    4,075Denominator -Weighted average common shares outstanding
    
    
    37,786
    
    
    
    34,940
    
    
    
    37,667
    
    
    
    34,896Employee stock options
    
    
    714
    
    
    
    591
    
    
    
    812
    
    
    
    571Warrants
    
    
    269
    
    
    
    107
    
    
    
    284
    
    
    
    105Weighted average common shares for diluted
earnings per share assuming conversion
    
    
    38,769
    
    
    
    35,638
    
    
    
    38,763
    
    
    
    35,572Diluted EPS:Income per share
    
    $
    0.09
    
    
    $
    0.07
    
    
    $
    0.09
    
    
    $
    0.11
 NOTE 8. ASSET RETIREMENT OBLIGATIONS
  (12)




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Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(in thousands)Beginning asset retirement  obligation
    
    $
    5,034
    
    
    $
    4,279
    
    
    $
    5,063
    
    
    $
    2,495Additions related to new properties
    
    
    48
    
    
    
    83
    
    
    
    66
    
    
    
    191Revisions in estimated cash flows
    
    
    (55
    )
    
    
    (1
    )
    
    
    (167
    )
    
    
    1,663Deletions related to property disposals
    
    
    (265
    )
    
    
    (10
    )
    
    
    (284
    )
    
    
    (30
    )Accretion expense
    
    
    80
    
    
    
    69
    
    
    
    164
    
    
    
    101Ending asset retirement obligation
    
    $
    4,842
    
    
    $
    4,420
    
    
    $
    4,842
    
    
    $
    4,420
 NOTE 9. RECENTLY ANNOUNCED ACCOUNTING PRONOUNCEMENTS
      (13)




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NOTE 10. INVESTMENT IN GAS GATHERING SYSTEMS
    West Fork Pipeline Company II, L.P.
    
    
    35.8750
    %Hagerman Gas Gathering System
    
    
    76.5000
    %
   June 30,
    
    
    December 31,2007
    
    
    2006($ in thousands)West Fork Pipeline Company II, L.P.
    
    $
    299
    
    
    $
    280Hagerman Gas Gathering System
    
    
    8,409
    
    
    
    6,174$
    8,708
    
    
    $
    6,454
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006($ in thousands)
    
    
    ($ in thousands)West Fork Pipeline Company I, L.P.
    
    $
    
    
    
    $
    28
    
    
    $
    
    
    
    $
    26West Fork Pipeline Company II, L.P.
    
    
    2
    
    
    
    (16
    )
    
    
    5
    
    
    
    (21
    )West Fork Pipeline Company V, L.P.
    
    
    
    
    
    
    (22
    )
    
    
    
    
    
    
    (34
    )Hagerman Gas Gathering System
    
    
    (291
    )
    
    
    
    
    
    
    (599
    )
    
    
    $
    (289
    )
    
    $
    (10
    )
    
    $
    (594
    )
    
    $
    (29
    )
 (14)




---



##### Table of Contents



June 30,
    
    December 31,2007
    
    2006($ in thousands)Balance SheetCurrent assets
    
    $
    621
    
    
    $
    1,408Non-current assets
    
    
    11,155
    
    
    
    8,361Current liabilities
    
    
    561
    
    
    
    1,338Owners equity
    
    
    11,215
    
    
    
    8,431
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006($ in thousands)
    
    
    ($ in thousands)Income StatementRevenues
    
    $
    124
    
    
    $
    706
    
    
    $
    165
    
    
    $
    1,107Costs and expenses
    
    
    (378
    )
    
    
    (636
    )
    
    
    (808
    )
    
    
    (1,008
    )Net income (loss)
    
    $
    (254
    )
    
    $
    70
    
    
    $
    (643
    )
    
    $
    99
 NOTE 11. COMMITMENTS AND CONTINGENCIES
    (15)




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##### Table of Contents



NOTE 12. SUBSEQUENT EVENTS
 Offering of Senior Notes
    Amendment to Revolving Credit Agreement
  
    
    reducing the borrowing base from $190.0 million to $150.0 million;
    
    providing that our ratio of Consolidated Funded Debt to Consolidated
EBITDA (as defined in the Revolving Credit Agreement) shall not exceed (i) 4.25 to 1.00
during the year 2007; (ii) 4.00 to 1.00 during the year 2008, or (iii) 3.50 to 1.00
during the year 2009 and thereafter during the term hereof, in each case calculated at
the end of each fiscal quarter using the results of the twelve-month period immediately
preceding the end of each such fiscal quarter;
    
    allowing for the issuance and sale of the senior notes; and
    
    providing that an event of default under the senior notes will also
constitute an event of default under the Revolving Credit Agreement.
 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
  (16)




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##### Table of Contents



OVERVIEW
 Strategy
   
    
    focuses on projects having less geological risk;
 
    
    emphasizes acquisition, exploitation, development and enhancement activities;
    
    includes the utilization of horizontal and fracture stimulation
technologies on certain types of reservoirs;
    
    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.
 (17)




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##### Table of Contents



Operating Performance
  
    
    seasonal demand;
    
    weather;
    
    hurricane conditions in the Gulf of Mexico;
    
    availability of pipeline transportation to end users;
    
    proximity of our wells to major transportation pipeline infrastructures; and
    
    to a lesser extent, world oil prices.
  
    
    production expenses;
    
    overhead requirements; and
    
    costs of capital.
  
    
    cash flow from operations;
    
    sales of our equity securities;
    
    bank borrowings; and
    
    industry joint ventures.
   (18)




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##### 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.
 (19)




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##### Table of Contents



Three Months Ended
    
    
    Six Months Ended6/30/2007
    
    
    6/30/2006
    
    
    6/30/2007
    
    
    6/30/2006(in thousands, except per unit data)Production Volumes:Oil (Bbls)
    
    
    270
    
    
    
    298
    
    
    
    543
    
    
    
    566Natural gas (Mcf)
    
    
    1,679
    
    
    
    1,726
    
    
    
    3,200
    
    
    
    2,893BOE (1)
    
    
    550
    
    
    
    586
    
    
    
    1,076
    
    
    
    1,048BOE per day
    
    
    6.0
    
    
    
    6.4
    
    
    
    5.9
    
    
    
    5.8Sales Prices:Oil (per Bbl) (2)
    
    $
    59.24
    
    
    $
    63.17
    
    
    $
    55.56
    
    
    $
    60.56Natural gas (per Mcf) (2)
    
    $
    6.79
    
    
    $
    6.25
    
    
    $
    6.34
    
    
    $
    6.42BOE price (2)
    
    $
    49.81
    
    
    $
    50.56
    
    
    $
    46.89
    
    
    $
    50.43BOE price (3)
    
    $
    49.81
    
    
    $
    45.01
    
    
    $
    46.89
    
    
    $
    44.72Operating RevenuesOil
    
    $
    15,956
    
    
    $
    18,802
    
    
    $
    30,167
    
    
    $
    34,284Oil hedge
    
    
    
    
    
    
    (3,252
    )
    
    
    
    
    
    
    (5,985
    )Natural gas
    
    
    11,398
    
    
    
    10,792
    
    
    
    20,303
    
    
    
    18,586$
    27,354
    
    
    $
    26,342
    
    
    $
    50,470
    
    
    $
    46,885Operating Expenses:Lease operating expense
    
    $
    5,576
    
    
    $
    3,741
    
    
    $
    9,975
    
    
    $
    7,316Production taxes
    
    
    1,194
    
    
    
    1,468
    
    
    
    2,248
    
    
    
    2,578Production tax refund
    
    
    (1,209
    )
    
    
    
    
    
    
    (1,209
    )
    
    
    General and administrative:General and administrative
    
    
    1,768
    
    
    
    1,523
    
    
    
    3,412
    
    
    
    2,657Public reporting
    
    
    812
    
    
    
    1,090
    
    
    
    1,833
    
    
    
    2,085Depreciation, depletion and amortization
    
    
    7,150
    
    
    
    6,140
    
    
    
    13,859
    
    
    
    10,428$
    15,291
    
    
    $
    13,962
    
    
    $
    30,118
    
    
    $
    25,064Operating income
    
    $
    12,063
    
    
    $
    12,380
    
    
    $
    20,352
    
    
    $
    21,821
 
 (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 cash flow hedges. (20)




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##### Table of Contents



RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2007 AND 2006:
  Oil and Gas Revenues
 Revenues(1)
    
    Production2007
    
    2006
    
    2007
    
    2006Oil (Bbls)
    
    
    58
    %
    
    
    59
    %
    
    
    49
    %
    
    
    51
    %Natural gas (Mcf)
    
    
    42
    %
    
    
    41
    %
    
    
    51
    %
    
    
    49
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 
 (1)
    
    Includes hedge transactions  Three Months Ended June 30,
    
    
    Increase
    
    
    % Increase2007
    
    
    2006
    
    
    (Decrease)
    
    
    (Decrease)(in thousands except per unit data)Production VolumesOil (Bbls)
    
    
    270
    
    
    
    298
    
    
    
    (28
    )
    
    
    (9
    )%Natural gas (Mcf)
    
    
    1,679
    
    
    
    1,726
    
    
    
    (47
    )
    
    
    (3
    )%BOE
    
    
    550
    
    
    
    586
    
    
    
    (36
    )
    
    
    (6
    )%BOE/Day
    
    
    6.0
    
    
    
    6.4
    
    
    
    (0.4
    )
    
    
    (6
    )%Sales PriceOil (per Bbl)(1)
    
    $
    59.24
    
    
    $
    63.17
    
    
    $
    (3.93
    )
    
    
    (6
    )%Natural gas (per Mcf)(1)
    
    $
    6.79
    
    
    $
    6.25
    
    
    $
    0.54
    
    
    
    9
    %BOE price(1)
    
    $
    49.81
    
    
    $
    50.56
    
    
    $
    (0.75
    )
    
    
    (1
    )%BOE price(2)
    
    $
    49.81
    
    
    $
    45.01
    
    
    $
    4.80
    
    
    
    11
    %Operating RevenuesOil
    
    $
    15,956
    
    
    $
    18,802
    
    
    $
    (2,846
    )
    
    
    (15
    )%Oil hedges
    
    
    
    
    
    
    (3,252
    )
    
    
    3,252
    
    
    
    100
    %Natural gas
    
    
    11,398
    
    
    
    10,792
    
    
    
    606
    
    
    
    6
    %Total
    
    $
    27,354
    
    
    $
    26,342
    
    
    $
    1,012
    
    
    
    4
    %
 
 (1)
    
    Excludes hedge transactions.(2)
    
    Includes hedge transactions.   (21)




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##### Table of Contents



Cost and Expenses
 Three months ended June 30,
    
    
    Increase
    
    
    % Increase2007
    
    
    2006
    
    
    (Decrease)
    
    
    (Decrease)(dollars in thousands)Lease operating expense
    
    $
    5,576
    
    
    $
    3,741
    
    
    $
    1,835
    
    
    
    49
    %Production taxes
    
    
    1,194
    
    
    
    1,468
    
    
    
    (274
    )
    
    
    (19
    )%Production tax refund
    
    
    (1,209
    )
    
    
    
    
    
    
    (1,209
    )
    
    
    N/AGeneral and administrative:General and administrative
    
    
    1,768
    
    
    
    1,523
    
    
    
    245
    
    
    
    16
    %Public reporting
    
    
    812
    
    
    
    1,090
    
    
    
    (278
    )
    
    
    (26
    )%Total general and administrative
    
    
    2,580
    
    
    
    2,613
    
    
    
    (33
    )
    
    
    (1
    )%Depreciation, depletion and amortization
    
    
    7,150
    
    
    
    6,140
    
    
    
    1,010
    
    
    
    16
    %Total
    
    $
    15,291
    
    
    $
    13,962
    
    
    $
    1,329
    
    
    
    10
    %
     (22)




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##### Table of Contents



Other income (expense)
 Three months ended June 30,
    
    
    Increase
    
    
    % Increase2007
    
    
    2006
    
    
    (Decrease)
    
    
    (Decrease)(dollars in thousands)Loss on derivatives not classified as hedges
    
    $
    (2,170
    )
    
    $
    (5,493
    )
    
    $
    3,323
    
    
    
    60
    %Gain on ineffective portion of hedges
    
    
    
    
    
    
    52
    
    
    
    (52
    )
    
    
    (100
    )%Interest and other income
    
    
    56
    
    
    
    25
    
    
    
    31
    
    
    
    124
    %Interest expense, net
    
    
    (4,312
    )
    
    
    (3,158
    )
    
    
    (1,154
    )
    
    
    (37
    )%Other expense
    
    
    21
    
    
    
    (39
    )
    
    
    60
    
    
    
    154
    %Equity in loss of pipelines and gathering system ventures
    
    
    (289
    )
    
    
    (10
    )
    
    
    (279
    )
    
    
    (2,790
    )%Total
    
    $
    (6,694
    )
    
    $
    (8,623
    )
    
    $
    1,929
    
    
    
    22
    %
     (23)




---



##### Table of Contents



RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2007 AND 2006:
  Oil and Gas Revenues
 Revenues(1)
    
    Production2007
    
    2006
    
    2007
    
    2006Oil (Bbls)
    
    
    60
    %
    
    
    60
    %
    
    
    50
    %
    
    
    54
    %Natural gas (Mcf)
    
    
    40
    %
    
    
    40
    %
    
    
    50
    %
    
    
    46
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 
 (1)
    
    Includes hedge transactions  Six Months Ended June 30,
    
    
    Increase
    
        
% Increase2007
    
    
    2006
    
    
    (Decrease)
    
    
    (Decrease)(in thousands except per unit data)Production VolumesOil (Bbls)
    
    
    543
    
    
    
    566
    
    
    
    (23
    )
    
    
    (4
    )%Natural gas (Mcf)
    
    
    3,200
    
    
    
    2,893
    
    
    
    307
    
    
    
    11
    %BOE
    
    
    1,076
    
    
    
    1,048
    
    
    
    28
    
    
    
    3
    %BOE/Day
    
    
    5.9
    
    
    
    5.8
    
    
    
    0.1
    
    
    
    3
    %Sales PriceOil (per Bbl)(1)
    
    $
    55.56
    
    
    $
    60.56
    
    
    $
    (5.00
    )
    
    
    (8
    )%Natural gas (per Mcf)(1)
    
    $
    6.34
    
    
    $
    6.42
    
    
    $
    (0.08
    )
    
    
    (1
    )%BOE price(1)
    
    $
    46.89
    
    
    $
    50.43
    
    
    $
    (3.54
    )
    
    
    (7
    )%BOE price(2)
    
    $
    46.89
    
    
    $
    44.72
    
    
    $
    2.17
    
    
    
    5
    %Operating RevenuesOil
    
    $
    30,167
    
    
    $
    34,284
    
    
    
    (4,117
    )
    
    
    (12
    )%Oil hedges
    
    
    
    
    
    
    (5,985
    )
    
    
    5,985
    
    
    
    100
    %Natural gas
    
    
    20,303
    
    
    
    18,586
    
    
    
    1,717
    
    
    
    9
    %Total
    
    $
    50,470
    
    
    $
    46,885
    
    
    $
    3,585
    
    
    
    8
    %
 
 (1)
    
    Excludes hedge transactions.(2)
    
    Includes hedge transactions.  (24)




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##### Table of Contents



Cost and Expenses
 Six months ended June 30,
    
    
    Increase
    
    
    % Increase2007
    
    
    2006
    
    
    (Decrease)
    
    
    (Decrease)(dollars in thousands)Lease operating expense
    
    $
    9,975
    
    
    $
    7,316
    
    
    $
    2,659
    
    
    
    36
    %Production taxes
    
    
    2,248
    
    
    
    2,578
    
    
    
    (330
    )
    
    
    (13
    )%Production tax refund
    
    
    (1,209
    )
    
    
    
    
    
    
    (1,209
    )
    
    
    N/AGeneral and administrative:General and administrative
    
    
    3,412
    
    
    
    2,657
    
    
    
    755
    
    
    
    28
    %Public reporting
    
    
    1,833
    
    
    
    2,085
    
    
    
    (252
    )
    
    
    (12
    )%Total general and administrative
    
    
    5,245
    
    
    
    4,742
    
    
    
    503
    
    
    
    11
    %Depreciation, depletion and amortization
    
    
    13,859
    
    
    
    10,428
    
    
    
    3,431
    
    
    
    33
    %Total
    
    $
    30,118
    
    
    $
    25,064
    
    
    $
    5,054
    
    
    
    20
    %
     (25)




---



##### Table of Contents



Other income (expense)
 Six months ended June 30,
    
    
    Increase
    
    
    % Increase2007
    
    
    2006
    
    
    (Decrease)
    
    
    (Decrease)(dollars in thousands)Loss on derivatives not classified as hedges
    
    $
    (6,605
    )
    
    $
    (10,207
    )
    
    $
    3,602
    
    
    
    35
    %Gain on ineffective portion of hedges
    
    
    
    
    
    
    195
    
    
    
    (195
    )
    
    
    (100
    )%Interest and other income
    
    
    108
    
    
    
    93
    
    
    
    15
    
    
    
    16
    %Interest expense, net
    
    
    (8,020
    )
    
    
    (5,599
    )
    
    
    (2,421
    )
    
    
    (43
    )%Other expense
    
    
    (15
    )
    
    
    (68
    )
    
    
    53
    
    
    
    78
    %Equity in loss of pipelines and gathering system ventures
    
    
    (594
    )
    
    
    (29
    )
    
    
    (565
    )
    
    
    (1,948
    )%Total
    
    $
    (15,126
    )
    
    $
    (15,615
    )
    
    $
    489
    
    
    
    3
    %
     (26)




---



##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
      Bank Borrowings
   (27)




---



##### Table of Contents



Revolving Credit Facility
           (28)




---



##### Table of Contents




    
    reducing the borrowing base from $190.0 million to $150.0 million;
    
    providing that our ratio of Consolidated Funded Debt to Consolidated
EBITDA (as defined in the Revolving Credit Agreement) shall not exceed (i) 4.25 to 1.00
during the year 2007; (ii) 4.00 to 1.00 during the year 2008; or (iii) 3.50 to 1.00
during the year 2009 and thereafter, in each case calculated at the end of each fiscal
quarter using the results of the twelve-month period immediately preceding the end of
each such fiscal quarter;
    
    allowing for the issuance and sale of the senior notes;
    
    providing that an event of default under the senior notes will also
constitute an event of default under the Revolving Credit Agreement.
 Second Lien Term Loan Facility
 1 2
        (29)




---



##### Table of Contents



Senior Notes
    Commodity Price Risk Management Transactions and Effects of Derivative Instruments
   (30)




---



##### Table of Contents



Contractual Obligations, Commitments and Off-Balance Sheet Arrangements
   Obligation Due in PeriodSix monthsendingDecember 31,
    
    
    Periods ended December 31,
    
    
    AfterContractual Cash Obligations
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    5 years
    
    
    Total(in thousands)Revolving Credit Facility (secured)(1)
    
    $
    6,577
    
    
    $
    13,009
    
    
    $
    12,998
    
    
    $
    170,326
    
    
    $
    
    
    
    $
    
    
    
    $
    202,910Second Lien Term Loan Agreement(2)
    
    
    2,716
    
    
    
    5,020
    
    
    
    5,006
    
    
    
    54,375
    
    
    
    
    
    
    
    
    
    
    
    67,117Office Lease (Dinero Plaza)
    
    
    102
    
    
    
    210
    
    
    
    216
    
    
    
    36
    
    
    
    
    
    
    
    
    
    
    
    564Andrews and Snyder Field Offices(3)
    
    
    12
    
    
    
    14
    
    
    
    14
    
    
    
    14
    
    
    
    14
    
    
    
    598
    
    
    
    666Asset retirement obligations(4)
    
    
    574
    
    
    
    132
    
    
    
    139
    
    
    
    99
    
    
    
    51
    
    
    
    3,847
    
    
    
    4,842Derivative Obligations
    
    
    8,743
    
    
    
    16,552
    
    
    
    458
    
    
    
    406
    
    
    
    
    
    
    
    
    
    
    
    26,159Drilling Contract
    
    
    272
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    272Total
    
    $
    18,996
    
    
    $
    34,937
    
    
    $
    18,831
    
    
    $
    225,256
    
    
    $
    65
    
    
    $
    4,445
    
    
    $
    302,530
 
 (1)
    
    Outstanding principal of $159.5 million due October 31, 2010 and estimated interest
obligation calculated using the weighted average rate at June 30, 2007 of 8.11%(2)
    
    Outstanding principal of $50.0 million due November 15, 2010 and estimated interest
obligation calculated using the LIBO rate at June 30, 2007 of 9.88%(3)
    
    The Sny der office lease expires up on the cessation of production from the Diamond M
 area wells. The Andrews 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
 (31)




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##### Table of Contents




    
    proceeds from sales of equity securities.
  
    
    our proved reserves;
    
    the volumes of oil and natural gas we produce from existing wells;
    
    the prices at which we sell oil and natural gas; and
    
    our ability to acquire, locate and produce new reserves.
  
    
    increased bank borrowings;
    
    sales of Parallels securities;
    
    sales of non-core properties; or
    
    other forms of financing.
  Inflation
  Recent Accounting Pronouncements
     (32)




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##### Table of Contents



Critical Accounting Policies
  TRENDS AND PRICES
    FORWARD-LOOKING STATEMENTS
 Cautionary Statement Regarding Forward-Looking Statements
  
    
    our future financial and operating performance and results;
    
    our drilling plans and ability to secure drilling rigs to effectuate our plans;
    
    production volumes;
    
    our business strategy;
    
    market prices;
    
    sources of funds necessary to conduct operations and complete acquisitions;
 (33)




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##### Table of Contents




    
    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 future litigation;
    
    future capital requirements and availability of financing;
    
    geological concentration of our reserves;
    
    risks associated with drilling and operating wells;
    
    competition;
    
    general economic conditions;
    
    governmental regulations and liability for environmental matters;
    
    receipt of amounts owed to us by customers and counterparties to our derivative contracts;
    
    derivative decisions, including whether or not to hedge;
    
    terrorist attacks or war;
    
    actions of third party co-owners of interests in properties in which we
also own an interest; and
    
    fluctuations in interest rates and availability of capital.
  (34)




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Interest Rate Sensitivity as of June 30, 2007
  2007
    
    2008
    
    2009
    
    2010
    
    2011
    
    Total(in thousands, except interest rates)Revolving Facility (secured)
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    159,500
    
    
    $
    159,500Average interest rate
    
    
    8.115
    %
    
    
    8.115
    %
    
    
    8.115
    %
    
    
    8.115
    %
    
    
    8.115
    %Term Loan (Second Lien)
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    50,000
    
    
    $
    50,000Average interest rate
    
    
    9.875
    %
    
    
    9.875
    %
    
    
    9.875
    %
    
    
    9.875
    %
    
    
    9.875
    %
    (35)




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##### Table of Contents



EstimatedNotional
    
    
    Fixed
    
    
    FairPeriod of Time
    
    Amounts
    
    
    Interest Rates
    
    
    Market Value($ in millions)
    
    
    
    
    
    
    ($ in thousands)July 1, 2007 thru December 31, 2007
    
    $
    100
    
    
    
    4.62
    %
    
    $
    415January 1, 2008 thru December 31, 2008
    
    $
    100
    
    
    
    4.86
    %
    
    
    331January 1, 2009 thru December 31, 2009
    
    $
    50
    
    
    
    5.06
    %
    
    
    100January 1, 2010 thru October 31, 2010
    
    $
    50
    
    
    
    5.15
    %
    
    
    93Total Fair Market Value
    
    
    
    
    
    
    
    
    
    $
    939
 Commodity Price Sensitivity as of June 30, 2007
    Collars.
 (36)




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##### Table of Contents



EstimatedBarrels of
    
    Ny Mex Oil Prices
    
    Fair MarketPeriod of Time
    
    Oil
    
    Floor
    
    Cap
    
    Value($ in thousands)July 1, 2007 thru December 31, 2007
    
    
    147,200
    
    
    $
    55.63
    
    
    $
    84.88
    
    
    $
    (25
    )January 1, 2008 thru December 31, 2008
    
    
    237,900
    
    
    $
    60.38
    
    
    $
    81.08
    
    
    
    (161
    )January 1, 2009 thru December 31, 2009
    
    
    620,500
    
    
    $
    63.53
    
    
    $
    80.21
    
    
    
    (38
    )January 1, 2010 thru October 31, 2010
    
    
    486,400
    
    
    $
    63.44
    
    
    $
    78.26
    
    
    
    (251
    )Houston ShipMMBtu of
    
    Channel Gas PricesNatural Gas
    
    Floor
    
    CapJuly 1, 2007 thru October 31, 2007
    
    
    123,000
    
    
    $
    6.00
    
    
    $
    11.05
    
    
    
    24MMBtu of
    
    
    WAHA Gas PricesNatural Gas
    
    
    Floor
    
    
    CapJuly 1, 2007 thru October 31, 2007
    
    
    369,000
    
    
    $
    6.25
    
    
    $
    8.90
    
    
    
    104July 1, 2007 thru M arch 31, 2008
    
    
    1,650,000
    
    
    $
    6.50
    
    
    $
    9.50
    
    
    
    218Total Fair M arket Value
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (129
    )
 Commodity Swaps.
  EstimatedNy mex Oil
    
    
    Fair M arketPeriod of Time
    
    Barrels of Oil
    
    
    Swap Price
    
    
    Value($ in thousands)July 1, 2007 thru December 31, 2007
    
    
    239,200
    
    
    $
    34.36
    
    
    $
    (8,674
    )January 1, 2008 thru December 31, 2008
    
    
    439,200
    
    
    $
    33.37
    
    
    
    (16,185
    )Total fair market value
    
    
    
    
    
    
    
    
    
    $
    (24,859
    )
 
 ITEM 4. CONTROLS AND PROCEDURES
  (37)




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##### Table of Contents



PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
   
 ITEM 1A. RISK FACTORS
  Risks Relating to the Senior Notes and Our Other Indebtedness
 We have a substantial amount of indebtedness which may adversely affect our cash flow and our
ability to operate our business, remain in compliance with debt covenants and make payments on our
debt, including our senior notes.
  (38)




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##### Table of Contents




    
    we may have difficulty borrowing money in the future for acquisitions,
capital expenditures or to meet our operating expenses or other general corporate
obligations;
    
    we will need to use a substantial portion of our cash flows to pay
principal and interest on our debt, which will reduce the amount of money we have for
operations, working capital, capital expenditures, expansion, acquisitions or general
corporate or other business activities;
    
    we may have a higher level of debt than some of our competitors, which may
put us at a competitive disadvantage;
    
    we may be more vulnerable to economic downturns and adverse developments
in our industry or the economy in general, especially declines in oil and natural gas
prices; and
    
    our debt level could limit our flexibility in planning for, or reacting
to, changes in our business and the industry in which we operate.
 We may incur substantially more debt, which may intensify the risks described above, including
our ability to service our indebtedness.
  To service our indebtedness, we will require a significant amount of cash. Our ability to
generate cash depends on many factors beyond our control, and any failure to meet our debt
obligations could harm our business, financial condition and results of operations.
   (39)




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##### Table of Contents




    
    our debt holders declaring all outstanding principal and interest due and
payable;
    
    the lenders under our revolving credit facility terminating their
commitments to loan us money and foreclose against the assets securing their loans to
us; and
    
    our bankruptcy or liquidation, which is likely to result in delays in the
payment of the senior notes or the revolving credit facility and in the exercise of
enforcement remedies under the senior notes or our revolving credit facility.
  Restrictive debt covenants in the indenture and our revolving credit facility will restrict
our business in many ways.
  
    
    transfer or sell assets;
    
    make investments;
    
    pay dividends, redeem subordinated indebtedness or make other restricted payments;
 
    
    incur or guarantee additional indebtedness or issue disqualified capital stock;
    
    create or incur liens;
    
    incur dividend or other payment restrictions affecting certain subsidiaries;
    
    consummate a merger, consolidation or sale of all or substantially all of our assets;
    
    enter into transactions with affiliates; and
    
    engage in businesses other than the oil and gas business.
  (40)




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##### Table of Contents



Our borrowings under our revolving credit facility expose us to interest rate risk.
  The senior notes are structurally subordinated to liabilities and indebtedness of our
non-guarantor subsidiaries, if any, and are effectively subordinated to our secured indebtedness to
the extent of the assets securing such indebtedness.
   (41)




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##### Table of Contents



A subsidiary guarantee could be voided if it constitutes a fraudulent transfer under U.S.
bankruptcy or similar state laws, which would prevent the holders of senior notes from relying on
the subsidiary to satisfy our payment obligations under the senior notes.
  
    
    was insolvent or rendered insolvent by making the subsidiary guarantee;
    
    was engaged in a business or transaction for which the subsidiary
guarantors remaining assets constituted unreasonably small capital; or
    
    intended to incur, or believed that it would incur, debts beyond its
ability to pay them as they mature.
    
    
    the sum of its debts, including contingent liabilities, was greater than
the fair saleable value of all of its assets;
 
    
    the present fair saleable value of its assets was less than the amount
that would be required to pay its probable liability on its existing debts, including
contingent liabilities, as they become absolute and mature; or
    
    it could not pay its debts as they become due.
  (42)




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##### Table of Contents



We may not be able to repurchase the senior notes upon a change of control.
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 BROKERNAME
    
    VOTES CAST FOR
    
    VOTES W ITHHELD
    
    NON-VOTESEdward A. Nash
    
    
    34,953,537
    
    
    
    181,195
    
    
    
    Larry C. Oldham
    
    
    34,954,945
    
    
    
    179,787
    
    
    
    Martin B. Oring
    
    
    34,904,601
    
    
    
    230,131
    
    
    
    Ray M. Poage
    
    
    34,905,283
    
    
    
    229,449
    
    
    
    Jeffrey G. Shrader
    
    
    30,747,254
    
    
    
    4,387,478
    
    
    
    
   VOTES FOR
    
    VOTES AGAINST
    
    ABSTENTIONS35,073,669
    
    
    26,569
    
    
    
    34,494
 (43)




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##### Table of Contents



ITEM 6. EXHIBITS
 (a)
    
    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 No. 3.2 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2006)3.3
    
    Certificate of Formation of Parallel, L.L.C. (Incorporated by reference to Exhibit No. 3.3 of
the Registrants Registration Statement on Form S-3, No. 333-119725 filed on October 13, 2004)3.4
    
    Limited Liability Company Agreement of Parallel, L.L.C. (Incorporated by reference to Exhibit
No. 3.4 of the Registrants Statement on Form S-3, No. 333-119725 filed on October 13, 2004)3.5
    
    Certificate of Limited Partnership of Parallel, L.P. (Incorporated by reference to Exhibit
No. 3.5 of the Registrants Registration Statement on Form S-3, No. 333-119725 filed on
October 13, 2004)3.6
    
    Agreement of Limited Partnership of Parallel, L.P. (Incorporated by reference to Exhibit No.
3.6 of the Registrants Registration Statement on Form S-3, No. 333-119725 filed on October
13, 2004)4.1
    
    Certificate of Designations, Preferences and Rights of Serial Preferred Stock  6%
Convertible Preferred Stock (Incorporated by reference to Exhibit 4.1 of Form 10-Q of the
Registrant for the fiscal quarter ended June 30, 2004)4.2
    
    Certificate of Designation, Preferences and Rights of Series A Preferred Stock (Incorporated
by reference to Exhibit 4.2 of Form 10-K of the Registrant for the fiscal year ended December
31, 2000)4.3
    
    Rights Agreement, dated as of October 5, 2000, between the Registrant and Computershare Trust
Company, Inc., as Rights Agent (Incorporated by reference to Exhibit 1 of Form 8-A of the
Registrant filed with the Securities and Exchange Commission on October 10, 2000)4.4
    
    Form of common stock certificate of the Registrant (Incorporated by reference to Exhibit No.
4.6 of the Registrants Registration Statement on Form S-3, No. 333-119725 filed on October
13, 2004)4.5
    
    Warrant Purchase Agreement, dated November 20, 2001, between the Registrant and Stonington
Corporation (Incorporated by reference to Exhibit 4.7 of Form 10-K of the Registrant for the
fiscal year ended December 31, 2004)4.6
    
    Warrant Purchase Agreement, dated December 23, 2003, between the Registrant and Stonington
Corporation (Incorporated by reference to Exhibit 4.8 of Form 10-K of the Registrant for the
fiscal year ended December 31, 2004)4.7
    
    Purchase Warrant Agreement, dated as of October 1, 1980, between the Registrant and American
Stock Transfer, Inc. (Incorporated by reference to Exhibit No. 4.7 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2006)
 (44)




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##### Table of Contents



No.
    
    Description of Exhibit4.8
    
    First Amendment to Warrant Agreement, dated as of February 22, 2007, among the Registrant,
Computershare Shareholder Services, Inc. and Computershare Trust Company, N.A. (Incorporated
by reference to Exhibit No. 4.8 of Form 10-K of the Registrant for the fiscal year ended
December 31, 2006)4.9
    
    Indenture dated as of July 31, 2007 between the Registrant and Wells Fargo Bank, N.A.
(Incorporated by reference to Exhibit 4.1 of the
Registrants Form 8-K Report dated July 26, 2007)4.10
    
    Rule 144A 10 1/4% Senior Notes due 2014 (Incorporated by reference to Exhibit 4.2 of the
Registrants Form 8-K Report dated July 26, 2007).4.11
    
    IAI Global Security 10 1/4% Senior Note due 2014 (Incorporated by reference to Exhibit 4.3 of
the Registrants Form 8-K Report dated July 26, 2007)4.12
    
    Regulation S 10 1/4% Senior Notes due 2014 (Incorporated by reference to Exhibit 4.4 of the
Registrants Form 8-K Report dated July 26, 2007)
 Executive Compensation Plans and Arrangements (Exhibit No.s 10.1 through 10.7):
 10.1
    
    1992 Stock Option Plan (Incorporated by reference to Exhibit 10.1 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2004)10.2
    
    Merrill Lynch, Pierce, Fenner & Smith Incorporated Prototype Simplified Employee Pension Plan
(Incorporated by reference to Exhibit 10.6 of the Registrants Form 10-K for the fiscal year
ended December 31, 1995)10.3
    
    Non-Employee Directors Stock Option Plan (Incorporated by reference to Exhibit 10.3 of the
Registrants Form 10-Q of the Registrant for the fiscal quarter ended June 30, 2005)10.4
    
    1998 Stock Option Plan (Incorporated by reference to Exhibit No. 10.4 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2006)10.5
    
    2001 Non-Employee Directors Stock Option Plan (Incorporated by reference to Exhibit 10.7 of
the Registrants Form 10-Q Report for the fiscal quarter ended March 31, 2004)10.6
    
    2004 Non-Employee Director Stock Grant Plan (Incorporated by reference to Exhibit 10.1 of the
Registrants Form 8-K Report dated September 22, 2004)10.7
    
    Incentive and Retention Plan (Incorporated by reference to Exhibit No. 10.7 of the Registrant
for the fiscal year ended December 31, 2006)10.8
    
    First Amended and Restated Credit Agreement, dated December 20, 2002, by and among Parallel
Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First American Bank, SSB, Western
National Bank and BNP Paribas (Incorporated by reference to Exhibit 10.2 of Form 8-K of the
Registrant, dated December 20, 2002)10.9
    
    Guaranty dated December 20, 2002, between Parallel, L.L.C. and First American Bank, SSB, as
Agent (Incorporated by reference to Exhibit 10.3 of Form 8-K of the Registrant, dated December
20, 2002)10.10
    
    First Amendment to First Amended and Restated Credit Agreement, dated as of September 12,
2003, by and among Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First
American Bank, SSB, Western National Bank, and BNP Paribas (Incorporated by reference to
Exhibit 10.29 of Form 10-Q of the Registrant for the quarter ended September 30, 2003)10.11
    
    Second Amended and Restated Credit Agreement, dated September 27, 2004, by and among
Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First American Bank, SSB,
BNP
 (45)




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##### Table of Contents



No.
    
    Description of ExhibitParibas, Citibank, F.S.B. and Western National Bank (Incorporated by reference to Exhibit
10.1 of the Registrants Form 8-K Report dated September 27, 2004 and filed with the
Securities and Exchange Commission on October 1, 2004)10.12
    
    Agreement of Limited Partnership of West Fork Pipeline Company LP (Incorporated by reference
to Exhibit 10.21 of Form 10-K of the Registrant for the fiscal year ended December 31, 2004)10.13
    
    First Amendment to Second Amended and Restated Credit Agreement, dated as of December 27,
2004, by and among Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First
American Bank, SSB, BNP Paribas, Citibank, F.S.B. and Western National Bank (Incorporated by
reference to Exhibit 10.1 of the Registrants Form 8-K Report dated December 30, 2004 and
filed with the Securities and Exchange Commission on December 30, 2004)10.14
    
    Second Amendment to Second Amended and Restated Credit Agreement, dated as of April 1, 2005,
by and among Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First American
Bank, SSB, BNP Paribas, Citibank, F.S.B. and Western National Bank (Incorporated by reference
to Exhibit 10.1 of the Registrants Form 8-K Report dated April 4, 2005 and filed with the
Securities and Exchange Commission on April 8, 2005)10.15
    
    Third Amendment to Second Amended and Restated Credit Agreement (Incorporated by reference
to Exhibit 10.1 of the Registrants Form 8-K Report dated October 4, 2005 and filed with the
Securities and Exchange Commission on October 20, 2005)10.16
    
    Purchase and Sale Agreement, dated as of October 14, 1005, among Parallel, L.P., Lynx
Production Company, Inc., Elton Resources, Inc., Cascade Energy Corporation, Chelsea Energy,
Inc., William P. Sutter, Trustee, William P. Sutter Trust, J. Leroy Bell, E. L. Brahaney,
Brent Beck, Cavic Interests, LLC and Stanley Talbott (Incorporated by reference to Exhibit
10.2 of the Registrants Form 8-K Report dated October 14, 2005 and filed with the Securities
and Exchange Commission on October 20, 2005)10.17
    
    Ancillary Agreement to Purchase and Sale Agreement, dated October 14, 2005, between
Parallel, L.P. and Lynx Production Company, Inc. (Incorporated by reference to Exhibit 10.3 of
the Registrants Form 8-K Report dated October 14, 2005 and filed with the Securities and
Exchange Commission on October 20, 2005)10.18
    
    Guarantee of Parallel, L.P., dated October 13, 2004 (Incorporated by reference to Exhibit
10.4 of the Registrants Form 8-K Report dated October 14, 2005 and filed with the Securities
and Exchange Commission on October 20, 2005)10.19
    
    ISDA Master Agreement, dated as of October 13, 2005, between Parallel, L.P. and Citibank,
N.A. (Incorporated by reference to Exhibit 10.5 of the Registrants Form 8-K Report dated
October 14, 2005 and filed with the Securities and Exchange Commission on October 20, 2005)10.20
    
    Third Amended and Restated Credit Agreement, dated as of December 23, 2005, among Parallel
Petroleum Corporation, Parallel, L.P., Parallel, L.L.C. and Citibank Texas, N.A., BNP Paribas,
CitiBank F.S.B., Western National Bank, Compass Bank, Comerica Bank, Bank of Scotland and
Fortis Capital Corp. (Incorporated by reference to Exhibit No. 10.1 of the Registrants Form
8-K Report, dated December 23, 2005, as filed with the Securities and Exchange Commission on
December 30, 2005)10.21
    
    Second Lien Term Loan Agreement, dated November 15, 2005, among Parallel Petroleum
Corporation, Parallel, L.P., BNP Paribas and Citibank Texas, N.A. (Incorporated by reference
to Exhibit No. 10.4 of the Registrants Form 8-K Report, dated November 15, 2005, as filed
with the Securities and Exchange Commission on November 21, 2005)
 (46)




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##### Table of Contents



No.
    
    Description of Exhibit10.22
    
    Intercreditor and Subordination Agreement, dated November 15, 2005, among Citibank Texas,
N.A., BNP Paribas, Parallel Petroleum Corporation, Parallel, L.P. and Parallel, L.L.C.
(Incorporated by reference to Exhibit No. 10.5 of the Registrants Form 8-K Report, dated
November 15, 2005, as filed with the Securities and Exchange Commission on November 21, 2005)10.23
    
    Guaranty, dated as of December 23, 2005, made by Parallel, L.L.C. to and in favor of
Citibank Texas, N.A. (Incorporated by reference to Exhibit No. 10.23 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2006)10.24
    
    Third Amended and Restated Pledge Agreement, dated as of December 23, 2005, between
Parallel, L.L.C. and Citibank Texas, N.A. (Incorporated by reference to Exhibit No. 10.24 of
Form 10-K of the Registrant for the fiscal year ended December 31, 2006)10.25
    
    Second Lien Guarantee and Collateral Agreement, dated as of November 15, 2005, made by
Parallel Petroleum Corporation and Parallel, L.P. to and in favor of BNP Paribas (Incorporated
by reference to Exhibit No. 10.25 of Form 10-K of the Registrant for the fiscal year ended
December 31, 2006)10.26
    
    Purchase Agreement, dated July 26, 2007 (Incorporated by reference to Exhibit 10.1 of the
Registrants Form 8-K Report dated July 26, 2007)10.27
    
    Registration Rights Agreement, dated July 31, 2007 (Incorporated by reference to Exhibit
10.2 of the Registrants Form 8-K Report dated July 26, 2007)10.28
    
    Third Amendment to Third Amended and Restated Credit Agreement dated as of July 31, 2007
between Parallel Petroleum Corporation individually and as successor by merger to Parallel
L.P. and Parallel, L.L.C. and Citibank, N.A., successor by merger to Citibank Texas, N.A., BNP
Paribas, Western National Bank, Compass Bank, Comerica Bank, Bank of Scotland and Fortis
Capital Corp. (Incorporated by reference to Exhibit 10.3 of the Registrants Form 8-K Report
dated July 26, 2007)14
    
    Code of Ethics (Incorporated by reference to Exhibit No. 14 of the Registrants Form 10-K
Report for the fiscal year ended December 31, 2003 and filed with the Securities and Exchange
Commission on March 22, 2004)21
    
    Subsidiaries (Incorporated by reference to Exhibit No. 21 of the Registrants Form 10-K
Report for the fiscal year ended December 31, 2003 and filed with the Securities and Exchange
Commission on March 22, 2004)*31.1
    
    Certification of Principal Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 302 of the Sarbanes 
Oxley Act of 2002.*31.2
    
    Certification of Principal Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 302 of the Sarbanes 
Oxley Act of 2002.*32.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes 
Oxley Act of 2002.*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. (47)




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##### Table of Contents



PARALLEL PETROLEUM CORPORATIONBY:
    
    /s/ Larry C. OldhamDate: August 8, 2007
    
    Larry C. OldhamPresident and Chief Executive OfficerDate: August 8, 2007
    
    BY:
    
    /s/ Steven D. FosterSteven D. Foster,Chief Financial Officer




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##### 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 No. 3.2 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2006)3.3
    
    Certificate of Formation of Parallel, L.L.C. (Incorporated by reference to Exhibit No. 3.3 of
the Registrants Registration Statement on Form S-3, No. 333-119725 filed on October 13, 2004)3.4
    
    Limited Liability Company Agreement of Parallel, L.L.C. (Incorporated by reference to Exhibit
No. 3.4 of the Registrants Statement on Form S-3, No. 333-119725 filed on October 13, 2004)3.5
    
    Certificate of Limited Partnership of Parallel, L.P. (Incorporated by reference to Exhibit
No. 3.5 of the Registrants Registration Statement on Form S-3, No. 333-119725 filed on
October 13, 2004)3.6
    
    Agreement of Limited Partnership of Parallel, L.P. (Incorporated by reference to Exhibit No.
3.6 of the Registrants Registration Statement on Form S-3, No. 333-119725 filed on October
13, 2004)4.1
    
    Certificate of Designations, Preferences and Rights of Serial Preferred Stock  6%
Convertible Preferred Stock (Incorporated by reference to Exhibit 4.1 of Form 10-Q of the
Registrant for the fiscal quarter ended June 30, 2004)4.2
    
    Certificate of Designation, Preferences and Rights of Series A Preferred Stock (Incorporated
by reference to Exhibit 4.2 of Form 10-K of the Registrant for the fiscal year ended December
31, 2000)4.3
    
    Rights Agreement, dated as of October 5, 2000, between the Registrant and Computershare Trust
Company, Inc., as Rights Agent (Incorporated by reference to Exhibit 1 of Form 8-A of the
Registrant filed with the Securities and Exchange Commission on October 10, 2000)4.4
    
    Form of common stock certificate of the Registrant (Incorporated by reference to Exhibit No.
4.6 of the Registrants Registration Statement on Form S-3, No. 333-119725 filed on October
13, 2004)4.5
    
    Warrant Purchase Agreement, dated November 20, 2001, between the Registrant and Stonington
Corporation (Incorporated by reference to Exhibit 4.7 of Form 10-K of the Registrant for the
fiscal year ended December 31, 2004)4.6
    
    Warrant Purchase Agreement, dated December 23, 2003, between the Registrant and Stonington
Corporation (Incorporated by reference to Exhibit 4.8 of Form 10-K of the Registrant for the
fiscal year ended December 31, 2004)4.7
    
    Purchase Warrant Agreement, dated as of October 1, 1980, between the Registrant and American
Stock Transfer, Inc. (Incorporated by reference to Exhibit No. 4.7 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2006)4.8
    
    First Amendment to Warrant Agreement, dated as of February 22, 2007, among the Registrant,
Computershare Shareholder Services, Inc. and Computershare Trust Company, N.A. (Incorporated
by reference to Exhibit No. 4.8 of Form 10-K of the Registrant for the fiscal year ended
December 31, 2006)




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##### Table of Contents



No.
    
    Description of Exhibit4.9
    
    Indenture dated as of July 31, 2007 between the Registrant and Wells Fargo Bank, N.A.
(Incorporated by reference to Exhibit 4.1 of the
Registrants Form 8-K Report dated July 26, 2007)4.10
    
    Rule 144A 10 1/4% Senior Notes due 2014 (Incorporated by reference to Exhibit 4.2 of the
Registrants Form 8-K Report dated July 26, 2007)4.11
    
    IAI Global Security 10 1/4% Senior Note due 2014 (Incorporated by reference to Exhibit 4.3 of
the Registrants Form 8-K Report dated July 26, 2007)4.12
    
    Regulation S 10 1/4% Senior Notes due 2014 (Incorporated by reference to Exhibit 4.4 of the
Registrants Form 8-K Report dated July 26, 2007)
 Executive Compensation Plans and Arrangements (Exhibit No.s 10.1 through 10.7):
 10.1
    
    1992 Stock Option Plan (Incorporated by reference to Exhibit 10.1 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2004)10.2
    
    Merrill Lynch, Pierce, Fenner & Smith Incorporated Prototype Simplified Employee Pension Plan
(Incorporated by reference to Exhibit 10.6 of the Registrants Form 10-K for the fiscal year
ended December 31, 1995)10.3
    
    Non-Employee Directors Stock Option Plan (Incorporated by reference to Exhibit 10.3 of the
Registrants Form 10-Q of the Registrant for the fiscal quarter ended June 30, 2005)10.4
    
    1998 Stock Option Plan (Incorporated by reference to Exhibit No. 10.4 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2006)10.5
    
    2001 Non-Employee Directors Stock Option Plan (Incorporated by reference to Exhibit 10.7 of
the Registrants Form 10-Q Report for the fiscal quarter ended March 31, 2004)10.6
    
    2004 Non-Employee Director Stock Grant Plan (Incorporated by reference to Exhibit 10.1 of the
Registrants Form 8-K Report dated September 22, 2004)10.7
    
    Incentive and Retention Plan (Incorporated by reference to Exhibit No. 10.7 of the Registrant
for the fiscal year ended December 31, 2006)10.8
    
    First Amended and Restated Credit Agreement, dated December 20, 2002, by and among Parallel
Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First American Bank, SSB, Western
National Bank and BNP Paribas (Incorporated by reference to Exhibit 10.2 of Form 8-K of the
Registrant, dated December 20, 2002)10.9
    
    Guaranty dated December 20, 2002, between Parallel, L.L.C. and First American Bank, SSB, as
Agent (Incorporated by reference to Exhibit 10.3 of Form 8-K of the Registrant, dated December
20, 2002)10.10
    
    First Amendment to First Amended and Restated Credit Agreement, dated as of September 12,
2003, by and among Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First
American Bank, SSB, Western National Bank, and BNP Paribas (Incorporated by reference to
Exhibit 10.29 of Form 10-Q of the Registrant for the quarter ended September 30, 2003)10.11
    
    Second Amended and Restated Credit Agreement, dated September 27, 2004, by and among
Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First American Bank, SSB,
BNP Paribas, Citibank, F.S.B. and Western National Bank (Incorporated by reference to Exhibit
10.1 of the Registrants Form 8-K Report dated September 27, 2004 and filed with the
Securities and Exchange Commission on October 1, 2004)




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##### Table of Contents



No.
    
    Description of Exhibit10.12
    
    Agreement of Limited Partnership of West Fork Pipeline Company LP (Incorporated by reference
to Exhibit 10.21 of Form 10-K of the Registrant for the fiscal year ended December 31, 2004)10.13
    
    First Amendment to Second Amended and Restated Credit Agreement, dated as of December 27,
2004, by and among Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First
American Bank, SSB, BNP Paribas, Citibank, F.S.B. and Western National Bank (Incorporated by
reference to Exhibit 10.1 of the Registrants Form 8-K Report dated December 30, 2004 and
filed with the Securities and Exchange Commission on December 30, 2004)10.14
    
    Second Amendment to Second Amended and Restated Credit Agreement, dated as of April 1, 2005,
by and among Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First American
Bank, SSB, BNP Paribas, Citibank, F.S.B. and Western National Bank (Incorporated by reference
to Exhibit 10.1 of the Registrants Form 8-K Report dated April 4, 2005 and filed with the
Securities and Exchange Commission on April 8, 2005)10.15
    
    Third Amendment to Second Amended and Restated Credit Agreement (Incorporated by reference
to Exhibit 10.1 of the Registrants Form 8-K Report dated October 4, 2005 and filed with the
Securities and Exchange Commission on October 20, 2005)10.16
    
    Purchase and Sale Agreement, dated as of October 14, 1005, among Parallel, L.P., Lynx
Production Company, Inc., Elton Resources, Inc., Cascade Energy Corporation, Chelsea Energy,
Inc., William P. Sutter, Trustee, William P. Sutter Trust, J. Leroy Bell, E. L. Brahaney,
Brent Beck, Cavic Interests, LLC and Stanley Talbott (Incorporated by reference to Exhibit
10.2 of the Registrants Form 8-K Report dated October 14, 2005 and filed with the Securities
and Exchange Commission on October 20, 2005)10.17
    
    Ancillary Agreement to Purchase and Sale Agreement, dated October 14, 2005, between
Parallel, L.P. and Lynx Production Company, Inc. (Incorporated by reference to Exhibit 10.3 of
the Registrants Form 8-K Report dated October 14, 2005 and filed with the Securities and
Exchange Commission on October 20, 2005)10.18
    
    Guarantee of Parallel, L.P., dated October 13, 2004 (Incorporated by reference to Exhibit
10.4 of the Registrants Form 8-K Report dated October 14, 2005 and filed with the Securities
and Exchange Commission on October 20, 2005)10.19
    
    ISDA Master Agreement, dated as of October 13, 2005, between Parallel, L.P. and Citibank,
N.A. (Incorporated by reference to Exhibit 10.5 of the Registrants Form 8-K Report dated
October 14, 2005 and filed with the Securities and Exchange Commission on October 20, 2005)10.20
    
    Third Amended and Restated Credit Agreement, dated as of December 23, 2005, among Parallel
Petroleum Corporation, Parallel, L.P., Parallel, L.L.C. and Citibank Texas, N.A., BNP Paribas,
CitiBank F.S.B., Western National Bank, Compass Bank, Comerica Bank, Bank of Scotland and
Fortis Capital Corp. (Incorporated by reference to Exhibit No. 10.1 of the Registrants Form
8-K Report, dated December 23, 2005, as filed with the Securities and Exchange Commission on
December 30, 2005)10.21
    
    Second Lien Term Loan Agreement, dated November 15, 2005, among Parallel Petroleum
Corporation, Parallel, L.P., BNP Paribas and Citibank Texas, N.A. (Incorporated by reference
to Exhibit No. 10.4 of the Registrants Form 8-K Report, dated November 15, 2005, as filed
with the Securities and Exchange Commission on November 21, 2005)10.22
    
    Intercreditor and Subordination Agreement, dated November 15, 2005, among Citibank Texas,
N.A., BNP Paribas, Parallel Petroleum Corporation, Parallel, L.P. and Parallel, L.L.C.




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##### Table of Contents



No.
    
    Description of Exhibit(Incorporated by reference to Exhibit No. 10.5 of the Registrants Form 8-K Report, dated November
15, 2005, as filed with the Securities and Exchange Commission on November 21, 2005)10.23
    
    Guaranty, dated as of December 23, 2005, made by Parallel, L.L.C. to and in favor of
Citibank Texas, N.A. (Incorporated by reference to Exhibit No. 10.23 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2006)10.24
    
    Third Amended and Restated Pledge Agreement, dated as of December 23, 2005, between
Parallel, L.L.C. and Citibank Texas, N.A. (Incorporated by reference to Exhibit No. 10.24 of
Form 10-K of the Registrant for the fiscal year ended December 31, 2006)10.25
    
    Second Lien Guarantee and Collateral Agreement, dated as of November 15, 2005, made by
Parallel Petroleum Corporation and Parallel, L.P. to and in favor of BNP Paribas (Incorporated
by reference to Exhibit No. 10.25 of Form 10-K of the Registrant for the fiscal year ended
December 31, 2006)10.26
    
    Purchase Agreement, dated July 26, 2007 (Incorporated by reference to Exhibit 10.1 of the
Registrants Form 8-K Report dated July 26, 2007)10.27
    
    Registration Rights Agreement, dated July 31, 2007 (Incorporated by reference to Exhibit
10.2 of the Registrants Form 8-K Report dated July 26, 2007)10.28
    
    Third Amendment to Third Amended and Restated Credit Agreement dated as of July 31, 2007
between Parallel Petroleum Corporation individually and as successor by merger to Parallel
L.P. and Parallel, L.L.C. and Citibank, N.A., successor by merger to Citibank Texas, N.A., BNP
Paribas, Western National Bank, Compass Bank, Comerica Bank, Bank of Scotland and Fortis
Capital Corp. (Incorporated by reference to Exhibit 10.3 of the Registrants Form 8-K Report
dated July 26, 2007)14
    
    Code of Ethics (Incorporated by reference to Exhibit No. 14 of the Registrants Form 10-K
Report for the fiscal year ended December 31, 2003 and filed with the Securities and Exchange
Commission on March 22, 2004)21
    
    Subsidiaries (Incorporated by reference to Exhibit No. 21 of the Registrants Form 10-K
Report for the fiscal year ended December 31, 2003 and filed with the Securities and Exchange
Commission on March 22, 2004)*31.1
    
    Certification of Principal Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 302 of the Sarbanes 
Oxley Act of 2002.*31.2
    
    Certification of Principal Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 302 of the Sarbanes 
Oxley Act of 2002.*32.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes 
Oxley Act of 2002.*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.