SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-Q
                          ----------------------------
                                   (Mark One)

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

                For the quarterly period ended March 31, 2004 or

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

                           --------------------------
                         COMMISSION FILE NUMBER 0-13305
                           --------------------------

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

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

     1004 N. Big Spring, Suite 400,
            Midland, Texas                                  79701
(Address of principal executive offices)                  (Zip Code)

                                 (432) 684-3727 (Registrant's telephone number,
              including area code)

                                 Not Applicable (Former name, former address and
              former fiscal year,
                          if changed since last report)

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

                           Yes `X'          No

          Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).

                           Yes              No `X'

          At May 4, 2004, 25,244,005 shares of the Registrant's Common Stock,
$0.01 par value, were outstanding.


<PAGE>




                                      INDEX



                         PART I. - FINANCIAL INFORMATION
                                                                         Page
                                                                          No.
ITEM 1.  FINANCIAL STATEMENTS

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

          -    Consolidated Balance Sheets as of March 31, 2004
                  (unaudited)and December 31, 2003                          2

          -    Unaudited Consolidated Statements of Income for the
                  three months ended March  31, 2004 and 2003               3

          -    Unaudited Consolidated Statements of Cash Flows
                  for the three months ended March 31, 2004 and 2003        4

          -    Unaudited Consolidated Statements of Comprehensive
                  Income for the three months and ended March 31,
                  2004 and 2003                                             5

          -    Notes to Consolidated Financial Statements                   6

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
           CONDITION AND RESULTS OF OPERATIONS                             14

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
           MARKET RISK                                                     25

ITEM 4.  CONTROLS AND PROCEDURES                                           27

                          PART II. - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS                                                 28

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K                                  28

SIGNATURES

                                      -1-
<PAGE>

                            PARALLEL PETROLEUM CORPORATION
                             Consolidated Balance Sheets
                                (dollars in thousands)

<table>
                                                                                            March 31,      December 31,
                                                                                              2004            2003
                                                                                         ---------------  -------------
                                        Assets                                             (unaudited)

                                                                                      <c>               <c>
Current assets:
  Cash and cash equivalents                                                                   $   3,632       $ 17,378
  Accounts receivable:
    Oil and gas                                                                                   4,482          4,610
    Others, net of allowance for doubtful account of  $9                                            588            316
                                                                                              ---------      ---------
                                                                                                  5,070          4,926
  Other current assets                                                                              221            210
  Deferred tax asset                                                                              1,675          1,098
                                                                                              ---------      ---------
      Total current assets                                                                       10,598         23,612
                                                                                              ---------      ---------

Property and equipment, at cost:
  Oil and gas properties, full cost method                                                      170,352        162,621
  Other                                                                                           1,774          1,414
                                                                                              ---------      ---------
                                                                                                172,126        164,035
  Less accumulated depreciation and depletion                                                   (72,147)       (70,070)
                                                                                              ---------      ---------

      Net property and equipment                                                                 99,979         93,965
                                                                                              ---------      ---------
Other assets, net of accumulated amortization of  $169 in 2004 and $182 in 2003                     833            766
                                                                                              ---------      ---------
                                                                                              $ 111,410      $ 118,343
                                                                                              =========      =========

                         Liabilities and Stockholders' Equity

Current liabilities:
  Accounts payable and accrued liabilities                                                    $   3,810      $   3,965
  Derivative obligations                                                                          5,152          3,231
                                                                                              ---------      ---------
      Total current liabilities                                                                   8,962          7,196
                                                                                              ---------      ---------
Long-term debt, excluding current maturities                                                     30,000         39,750
Asset retirement obligations                                                                      1,864          1,701
Derivative obligations                                                                            3,868          2,655
Deferred tax liability                                                                            6,172          5,809
                                                                                              ---------      ---------
      Total long-term liabilities                                                                41,904         49,915
                                                                                              ---------      ---------
Commitments and contingencies

Stockholders' equity:
  Series A preferred stock -- par value $0.10 per share , authorized 50,000 shares                    -              -
  Preferred stock -- $0.60 cumulative convertible preferred stock -- par value of
    $.10 per share,  (aggregate liquidation preference of $10) authorized 10,000,000
    shares, issued and outstanding 957,000 and 959,500                                               96             96
  Common stock -- par value $0.01 per share, authorized 60,000,000
    shares, issued and outstanding 25,224,005 and 25,216,863                                        252            253
  Additional paid-in capital                                                                     47,580         47,544
  Retained earnings                                                                              18,399         17,060
  Accumulated comprehensive loss                                                                 (5,783)        (3,721)
                                                                                              ---------      ---------
      Total stockholders' equity                                                                 60,544         61,232
                                                                                              ---------      ---------

                                                                                              $ 111,410      $ 118,343
                                                                                              =========      =========

</table>
*The balance sheet as of December 31, 2003 has been derived from Parallel's
audited financial statements. The accompanying notes are an integral part of
these Consolidated Financial Statements.

                                      -2-

<page>

                       PARALLEL PETROLEUM CORPORATION
                      Consolidated Statements of Income
               For three months ended March 31, 2004 and 2003
                                 (Unaudited)
                    (in thousands, except per share data)

<table>
                                                                                        2004             2003
                                                                                     ---------         ---------
 
                                                                                 <c>               <c>
Oil and gas revenues                                                                 $  8,001          $  8,493
                                                                                     --------          --------
Cost and expenses:
  Lease operating expense                                                               1,529               890
  Production taxes                                                                        478               565
  General and administrative                                                            1,222               802
  Depreciation and depletion                                                            2,077             2,066
                                                                                     --------          --------
    Total costs and expenses                                                            5,306             4,323
                                                                                     --------          --------
    Operating income                                                                    2,695             4,170
                                                                                     --------          --------

Other income (expense), net:
  Change in fair market value of derivatives                                                -               (19)
  Loss on ineffective portion of hedges                                                   (10)             (183)
  Interest and other income                                                               140                45
  Interest expense                                                                       (468)             (486)
  Other expense                                                                           (26)              (21)
                                                                                     --------          --------
    Total other income (expense), net                                                    (364)             (664)
                                                                                     --------          --------
    Income before income taxes                                                          2,331             3,506
Income tax expense, deferred                                                             (849)           (1,192)
                                                                                     --------          --------

Income before cumulative effect of change in accounting principle                       1,482             2,314
Cumulative effect on prior years of a change in accounting principle,
  net of tax of $32                                                                         -               (62)
                                                                                     --------          --------
    Net income                                                                          1,482             2,252
Cumulative preferred stock dividend                                                      (143)             (146)
                                                                                     --------          --------
    Net income available to common stockholders                                      $  1,339          $  2,106
                                                                                     ========          ========

Net income per common share:
  Basic - before cumulative effect of a change in accounting principal               $   0.05          $   0.10
  Cumulative effect of a change in accounting principle, net of tax                         -                 -
                                                                                     --------          --------
  Basic - after cumulative effect of a change in accounting principle                $   0.05          $   0.10
                                                                                     ========          ========

  Diluted - before cumulative effect of a change in accounting principle             $   0.05          $   0.09
  Cumulative effect of a change in accounting principle, net of tax                         -                 -
                                                                                     --------          --------
  Diluted - after cumulative effect of a change in accounting principle              $   0.05          $   0.09
                                                                                     ========          ========

Weighted average common share outstanding:
  Basic                                                                                25,223            21,143
                                                                                     ========          ========
  Diluted                                                                              28,267            24,038
                                                                                     ========          ========

</table>

The accompanying notes are an integral part of these Consolidated Financial
Statements.

                                      -3-

<page>

                        PARALLEL PETROLEUM CORPORATION
                     Consolidated Statements of Cash Flows
                  Three Months Ended March 31, 2004 and 2003
                                  (Unaudited)
                            (dollars in thousands)
<table>
                                                                                     2004                2003
                                                                                ---------------   -----------------

                                                                             <c>               <c>
Cash flows from operating activities:
  Net income                                                                       $  1,482            $  2,252

  Adjustments to reconcile net income to net cash
    provided by operating activities:
      Depreciation and depletion                                                      2,077               2,066
      Accretion of asset retirement obligation                                           33                  34
      Deferred income taxes                                                             849               1,192
      Change in fair value of derivative instruments                                      -                  19
      Loss on ineffective portion of hedges                                              10                 183
      Stock option expense                                                               41                   -
      Cumulative effect on prior years of a change in accounting principle,
        net of tax                                                                        -                  62
Changes in assets and liabilties:
  Other, net                                                                            (67)                 23
  Increase in accounts receivables                                                     (144)             (1,966)
  Decrease (increase) in prepaid expenses                                               (11)                 23
  Decrease in accounts payable and accrued liabilities                                 (298)               (314)
                                                                                   --------            --------
    Net cash provided by operating activities                                         3,972               3,574
                                                                                   --------            --------

Cash flows from investing activities:
  Additions to oil and gas property                                                  (7,626)             (4,409)
  Proceeds from dispostion of oil and gas property                                       25                  20
  Additions to other property and equipment                                            (360)               (163)
                                                                                   --------            --------
    Net cash used in investing activities                                            (7,961)             (4,552)
                                                                                   --------            --------

Cash flows from financing activities:
  Borrowings from bank line of credit                                                 2,550               3,174
  Payments on bank line of credit                                                   (12,300)            (10,174)
  Deferred stock offering costs                                                          (7)                  -
                                                                                   --------            --------
    Cash provided by (used in) financing activities                                  (9,757)             (7,000)
                                                                                   --------            --------

Net decrease in cash and cash equivalents                                           (13,746)             (7,978)

Cash and cash equivalents at beginning of period                                     17,378              11,812
                                                                                   --------            --------

Cash and cash equivalents at end of period                                         $  3,632            $  3,834
                                                                                   ========            ========

Non-cash financing and investing activities:
  Oil and gas properties asset retirement obligation, net                          $   130             $ 1,206
  Accrued preferred stock dividend                                                 $   143             $   146

</table>

The accompanying notes are an integral part of these Consolidated Financial
Statements.





                                      -4-

<page>

                      PARALLEL PETROLEUM CORPORATION
          Consolidated Statements of Comprehensive Income (Loss)
                Three Months Ended March 31, 2004 and 2003
                                (Unaudited)
                          (dollars in thousands)
<table>

                                                                                     2004                  2003
                                                                                    -------               ------

                                                                                 <c>                   <c>
Net income                                                                          $ 1,482               $ 2,252

Other comprehensive loss:
  Unrealized losses on derivatives                                                   (4,353)               (1,852)
  Reclassification adjustments for losses on derivatives included in net income       1,219                     -
                                                                                    -------               -------
  Change in fair value of derivatives                                                (3,134)               (1,852)
  Income tax benefit                                                                  1,072                    630
                                                                                    -------               -------

Total other comprehensive loss                                                       (2,062)               (1,222)
                                                                                    -------               -------

Total comprehensive income (loss)                                                   $  (580)              $  1,030
                                                                                    =======               ========


</table>


The accompanying notes are an integral part of these Consolidated Financial
Statements.


                                      -5-
<PAGE>



                         PARALLEL PETROLEUM CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1.   DESCRIPTION OF BUSINESS - NATURE OF OPERATIONS AND BASIS OF
          PRESENTATION

          Parallel was incorporated in Texas on November 26, 1979, and
reincorporated in the State of Delaware on December 18, 1994.

          We are engaged in the acquisition, development, exploitation and
production of oil and natural gas and, to a lesser extent, the domestic
exploration for oil and natural gas. These activities are concentrated in the
Permian Basin of west Texas and New Mexico, east Texas, the onshore gulf coast
area of south Texas and the Fort Worth Basin of north Texas.

          The financial information included herein, except the balance sheet as
of December 31, 2003, is unaudited. However, such information includes all
adjustments (consisting solely of normal recurring adjustments), which are, in
the opinion of management, necessary for a fair statement of the results of
operations for the interim periods. The results of operations for the interim
period are not necessarily indicative of the results to be expected for an
entire year. Certain 2003 amounts have been reclassified to conform with the
2004 financial statement presentation.

          Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted in this Form 10-Q Report pursuant to
certain rules and regulations of the Securities and Exchange Commission. These
financial statements should be read in conjunction with the financial statements
and notes included in our 2003 Form 10-K Report.

NOTE 2.   STOCKHOLDERS' EQUITY

          Options

          Prior to September 2003, Parallel accounted for stock-based
compensation utilizing the intrinsic value method prescribed by Accounting
Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees" ("APB
25") and related interpretations. In September, 2003, Parallel adopted the
provisions of Statement of Financial Accounting Standards No. 148, Accounting
for Stock-Based Compensation - Transition and Disclosure, an amendment to SFAS
No. 123, whereby certain transitional alternatives are available for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. Parallel uses the prospective method which applies prospectively
the fair value recognition method to all employee and director awards granted,
modified or settled after the beginning of the fiscal year in which the fair
value based method of accounting for stock-based compensation is adopted. The
potential impact of using the fair value method, on a pro forma basis, is
presented in the table that follows. As Parallel adopted the fair value
recognition provisions of SFAS No. 123 prospectively for all employee awards
granted, modified or settled after January 1, 2003, the charge for stock-based
compensation included in the determination of income for the three month period
ended March 31, 2003 is less than that which would have been recognized if the
fair value method had been applied to all awards since the original

                                      -6-

<page>

effective date of SFAS No. 123.

          For the three months ended March 31, 2004, Parallel recognized
compensation expense of approximately $42,000 associated with its stock option
grants. No options were granted during the quarter ended March 31, 2004.

          The following table illustrates the effect on net income and earnings
per share as if the fair value based method had been applied to all outstanding
and unvested awards in each period. The fair value of each grant is estimated on
the date of grant using the Black-Scholes option-pricing model.

<table>
                                                                                Three Months Ended
                                                                                    March 31,
                                                                    --------------------------------------------
                                                                            2004                     2003
                                                                         ----------                ----------
                                                                    (dollars in thousands except per share data)

                                                                 <c>                            <c>

Net income, as reported                                                  $ 1,482                  $ 2,252

Add:
  Expense recorded in 2004                                                    42                        -

Deduct:
  Total stock-based employee compensation expense
    determined under fair value based method for all awards,
    net of related tax effects                                               (48)                     (48)
                                                                         -------                  -------
      Pro forma net income                                               $ 1,476                  $ 2,204
                                                                         =======                  =======

Earnings per share:
  Basic -- as reported                                                   $  0.05                  $  0.10
                                                                        ========                  =======
  Basic -- pro forma                                                     $  0.05                  $  0.10
                                                                         =======                  =======

  Diluted -- as reported                                                 $  0.05                  $  0.09
                                                                         =======                  =======
  Diluted --  pro forma                                                  $  0.05                  $  0.09
                                                                         =======                  =======

</table>

NOTE 3.       LONG TERM DEBT

              Long-term debt consists of the following at March 31, 2004:
<table>
              
                                                              <c>
              Revolving Credit Facility note payable to banks, at the
              agent banks' base Lending Rate (4.5% at March 31, 2004)          $ 30,000,000

              Less:  current maturities                                                   -
                                                                               ------------

                                                                               $ 30,000,000
                                                                               ============

</table>

          Revolving Credit Facility. Under our revolving credit facility ("the
Facility"), we may borrow the lesser of $100.0 million or the "borrowing base"
then in effect. The borrowing base calculation is based upon the estimated value
of our oil and gas reserves. The Facility was amended in September, 2003 to
delete the monthly commitment reduction, a provision that would have required us
to begin repaying our loan beginning August 31, 2003. The amendment

                                      -7-

<page>

also modified certain financial ratio tests; changed certain reporting
requirements to the banks; and revised covenants in the Facility governing our
hedging activities.

          The borrowing base at March 31, 2004 was $50.0 million. All borrowings
are collateralized by our oil and gas reserves. The total outstanding principal
amount of our bank indebtedness at March 31, 2004 was $30.0 million, excluding
$250,000 reserved for our letters of credit. The borrowing base is subject to
redetermination semi-annually on or about April 1 and October 1 or at other
times required by the banks or at our request. All indebtedness matures December
20, 2006. In April 2004, the borrowing base was increased to $52.0 million.

          Unpaid principal balances outstanding under the Facility bear
interest, at our election, at a rate equal to (i) the bank's base lending rate,
or (ii) the LIBOR rate plus a LIBOR margin of 2.25% to 2.75%. However, the
interest rate may never be less than 4.50%. Interest is due and payable on the
day which the related LIBOR interest period ends. We are required to pay a
commitment fee of .25% times the daily average of the unadvanced amount of the
commitment.

          The Facility includes various restrictive covenants and compliance
requirements. Among these covenants and restrictions are limitations on our
ability to:

          .    dispose of assets;

          .    incur additional indebtedness;

          .    create liens on our assets;

          .    enter into specified investments or acquisitions;

          .    repurchase, redeem or retire our capital stock or other
               securities;

          .    merge or consolidate, or transfer all or substantially all of our
               assets and the assets of our subsidiaries;

          .    engage in specified transactions with subsidiaries and
               affiliates;

          .    engage in other specified corporate activities; and

          .    the Facility also contains restrictions on all retained earnings
               and net income for payment of dividends on our common stock.

          As of March 31, 2004 we were in compliance with all covenants.

NOTE 4.   PREFERRED STOCK

          We have outstanding 957,000 shares of 6% Convertible Preferred
Stock, $0.10 par value per share. Cumulative annual dividends of $0.60 per share
are payable semi-annually on June 15 and December 15 of each year. Each share of
Convertible Preferred Stock may be converted, at the option of the holder, into
2.8571 shares of common stock at an initial conversion price of $3.50 per share,
subject to adjustment in certain events. The Convertible

                                      -8-

<page>

Preferred Stock has a liquidation preference of $10 per share and has no voting
rights, except as required by law. We may redeem the preferred stock, in whole
or part, for $10 per share plus accrued and unpaid dividends.


NOTE 5.   FULL COST CEILING TEST

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

          At March 31, 2004 the net book value of our oil and gas properties,
less related deferred income taxes, was below the calculated ceiling. As a
result, we were not required to record a reduction of our oil and gas properties
under the full cost method of accounting at that time.

          Under the full cost method of accounting, all costs incurred in the
acquisition, exploration and development of oil and natural gas properties,
including a portion of our overhead, are capitalized. In the three month periods
ended March 31, 2004 and 2003, overhead costs capitalized were approximately
$290,000 and $264,000 respectively.

NOTE 6.   DERIVATIVE INSTRUMENTS

General

          We enter into derivative contracts to provide a measure of stability
in our oil and gas revenues and interest rate payments and to manage exposure to
commodity price and interest rate risk. Our objective is to lock in a range of
oil and gas prices and a fixed interest rate for certain notional amounts. We
designate our interest rate swaps, costless collars and commodity swaps as cash
flow hedges. The effective portion of the unrealized gain or loss on cash flow
hedges is recorded in other comprehensive income until the forecasted
transaction occurs. During the term of a cash flow hedge, the effective portion
of the quarterly change in the fair value of the derivatives is recorded in
stockholders' equity as other comprehensive income (loss) and then transferred
to oil and gas revenues when the production is sold and interest expense when
the interest payment is made. Ineffective portions of hedges (changes in
realized prices that do not match the changes in the hedge price) are recognized
in other expense as they occur. While the hedge contract is open, the
ineffective gain or loss may increase or decrease until settlement of the
contract.

          As of March 31, 2004, we have recorded unrealized losses of $9.0 ($5.8
million, net of tax) related to our derivative instruments, which represented
the estimated aggregate fair


                                      -9-

<page>

values of our open derivative contracts as of that date. These unrealized losses
are presented on the Consolidated Balance Sheet as a current liability of $5.1
million and long-term liabilities of $3.9 million. During the twelve month
period ending March 31, 2005 we expect approximately $3.2 million, net of tax,
to be transferred out of other comprehensive income (loss) and charged to
earnings.

          We are exposed to credit risk in the event of nonperformance by the
counterparty to these contracts, BNP Paribas.

Interest Rate Sensitivity

          In January, 2003, we entered into a 45-month LIBOR fixed interest rate
swap contract with BNP Paribas. We receive a fixed interest rate, as noted in
the table below, for the 45-month period beginning March 31, 2003 through
December 20, 2006.

          Under our Facility, we may elect an interest rate based upon the agent
lender's base lending rate, or the LIBOR rate, plus a margin ranging from 2.25%
to 2.75% per annum, depending on our borrowing base usage. The interest rate we
are required to pay, including the applicable margin, may never be less than
4.50%.

          A recap for the period of time, notional amounts, LIBOR fixed interest
rates, expected margin rates and expected fixed interest rates for the contract
are as follows:

<table>
                                                                        Libor          Expected       Expected
                                                    Notional            Fixed           Margin          Fixed
                Period of Time                    Amounts (1)     Interest Rates (2)  Rates (3)   Interest Rates (4)
----------------------------------------------- ----------------- ------------------- ----------- ------------------

                                             <c>               <c>                 <c>          <c>
April 1, 2004 thru December 31, 2004                $ 30,000,000        2.660%          2.500%         5.160%

December 31, 2004 thru December 31, 2005            $ 20,000,000        4.050%          2.250%         6.300%

December 31, 2005 thru December 20, 2006            $ 10,000,000        4.050%          2.250%         6.300%

</table>
___________________
(1)  Based on the anticipated principal reductions under our Facility.
(2)  Parallel's swap contract with BNP Paribas.
(3)  Based on the anticipated borrowing base usage under our Facility.
(4)  Total of the LIBOR fixed rate plus the expected margin rate under our
      Facility. Our credit agreement requires the interest rate to not be
      below 4.50%.

Commodity Price Sensitivity

          Costless Collars. Collars are created by purchasing puts to establish
a floor price and then selling a call which establishes a maximum amount the
producer will receive for the oil or gas hedged. Calls are sold to offset the
premium paid for buying the put. We have entered into several costless Houston
ship channel gas collars. A majority of our natural gas


                                      -10-
<PAGE>


production is sold based on Houston ship channel prices. A recap for the period
of time, number of MMBtu's and average gas prices is as follows:

<table>

                                                            Houston Ship Channel
                                                                 gas prices
                                                         ---------------------------
                                            MMBtu of
            Period of Time                Natural Gas       Floor          Cap
---------------------------------------- --------------- ------------- -------------

                                       <c>            <c>           <c>
April 1, 2004 thru October 31, 2004             214,000        $ 4.40        $ 5.50

</table>

          Swaps. Generally, swaps are an agreement to buy or sell a specified
commodity for delivery in the future, but at an agreed fixed price. Swap
transactions convert a floating price into a fixed price. For any particular
swap transaction, the counterparty is required to make a payment to the hedge
party if the reference price for any settlement period is less than the swap
price for such hedge, and the hedge party is required to make a payment to the
counterparty if the reference price for any settlement period is greater than
the swap price for such hedge.

          We have entered into oil and gas swap contracts with BNP Paribas. A
recap for the period of time, number of MMBtu's, number of barrels, and swap
prices are as follows:

<table>

                                                                                            Houston Ship
                                              Barrels of      Nymex Oil       MMBtu of        Channel
              Period of Time                     Oil         Swap Prices    Natural Gas    Gas Swap Price
-------------------------------------------- ------------- ---------------- ------------- -----------------

                                          <c>           <c>              <c>            <c>

April 1,2004 thru December 31, 2004               330,000          $ 24.45       764,000           $ 4.692

January 1, 2005 thru December 31, 2005            365,000          $ 23.35             -           $     -

January 1, 2005 thru Mach 31, 2005                      -          $     -       180,000           $ 4.705

January 1, 2006 thru December 20, 2006            265,500          $ 23.04             -           $     -

</table>


NOTE 7.   NET INCOME PER COMMON SHARE

          Basic earnings per share exclude any dilutive effects of option,
warrants and convertible securities and is computed by dividing income available
to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share are computed similar to
basic earnings per share. However, diluted earnings per share reflects the
assumed conversion of all potentially dilutive securities.



                                      -11-

<PAGE>


          The following table provides the computation of basic and diluted
earnings per share for the three months ended March 31, 2004 and 2003:

<table>
                                                                                         Three Months Ended
                                                                                              March 31,
                                                                                    ------------------------------
                                                                                        2004             2003
                                                                                    -------------    -------------
                                                                                         (dollars in thousands
                                                                                       except per share data)

                                                                                 <c>              <c>
Basic EPS Computation:
  Numerator-
    Income before cumulative effect of a change in accounting principle                  $ 1,482          $ 2,314
    Cumulative effect of a change in accounting principle, net of tax                          -              (62)
                                                                                         -------          -------
                                                                                           1,482            2,252
    Preferred stock dividend                                                                (143)            (146)
                                                                                         -------          -------

      Net income available to common stockholders                                        $ 1,339          $ 2,106
                                                                                         =======          =======

  Denominator-
    Weighted average common shares outstanding                                            25,223           21,143
                                                                                         =======          =======

Basic EPS:
  Income before cumulative effect of a change                                            $  0.05          $  0.10
    in accounting principle
  Cumulative effect of a change in accounting principle, net of tax                            -                -
                                                                                         -------          -------
    Net income per share                                                                 $  0.05          $  0.10
                                                                                         =======          =======

Diluted EPS Computation:
  Numerator-
    Income before cumulative effect of a change in accounting principle                  $ 1,482          $ 2,314
    Cumulative effect of a change in accounting principle, net of tax                          -              (62)
                                                                                         -------          -------
                                                                                           1,482            2,252
    Preferred stock dividend                                                                   -                -
                                                                                         -------          -------

    Net income available to common stockholders                                          $ 1,482          $ 2,252
                                                                                         =======          =======

Denominator -
  Weighted average common shares outstanding                                              25,223           21,143
  Employee stock options                                                                     258              111
  Warrants                                                                                    52                -
  Preferred stock                                                                          2,734            2,784
                                                                                         -------          -------
    Weighted average common shares for diluted earnings
      per share assuming conversion                                                       28,267           24,038
                                                                                         =======          =======

Diluted EPS:
  Income before cumulative effect of a change in accounting principle                    $  0.05          $  0.09
  Cumulative effect of a change in accounting principle, net of tax                            -                -
                                                                                         -------          -------
    Net income per share                                                                 $  0.05          $  0.09
                                                                                         =======          =======


</table>



                                      -12-


<PAGE>


NOTE 8:   ASSET RETIREMENT OBLIGATIONS

          On January 1, 2003 we adopted Statement of Financial Accounting
Standards No. 143, Accounting for Asset Retirement Obligations "SFAS 143". SFAS
143 requires us to recognize a liability for the present value of all
obligations associated with the retirement of tangible long-lived assets and to
capitalize an equal amount as a cost of the related oil and gas properties

          The adoption of this statement required us to record a non-cash
expense, net of tax, of approximately $62,000 as a cumulative effect of change
in accounting principle in the first quarter of 2003, as well as a non-current
liability of approximately $1.7 million and an addition to oil and gas
properties of approximately $1.5 million. The following table summarizes our
asset retirement obligation transactions

<table>


                                                                   Three Months Ended March 31,
                                                            ------------------------------------------
                                                                  2004                     2003
                                                            ----------------          ----------------
                                                                      (dollars in thousands)


                                                         <c>                       <c>
    Beginning asset retirement obligation                        $ 1,701                  $ 1,693

    Additions related to new properties                              172                        -

    Deletions related to property disposals                          (42)                       -

    Accretion expense                                                 33                       34

                                                                 -------                  -------
    Ending asset retirement obligation                           $ 1,864                  $ 1,727
                                                                 =======                  =======

</table>


NOTE 9:   RECENTLY ANNOUNCED ACCOUNTING PRONOUNCEMENTS

          FIN No. 46, Consolidation of Variable Interest Entities. In December
2003, the FASB issued Interpretation No. 46R, which requires the consolidation
of certain entities that are determined to be variable interest entities
("VIE"). An entity is considered to be a VIE when either (i) the entity lacks
sufficient equity to carry on its principal operations, (ii) the equity owners
of the entity cannot make decisions about the entity's activities or (iii) the
entity's equity neither absorbs losses or benefits from gains. We own no
interests in variable interest entities, and therefore this new interpretation
has not affected our consolidated financial statements.

          In March 2004, the Emerging Issues Task Force ("EITF") reached a
consensus that mineral rights, as defined in EITF Issue No. 04-2, "Whether
Mineral Rights Are Tangible or Intangible Assets," are tangible assets and that
they should be removed as examples of intangible assets in SFAS Nos. 141 and
142. The FASB has recently ratified this consensus and directed the FASB staff
to amend SFAS Nos. 141 and 142 through the issuance of FASB Staff Positions FSP
FAS 141-1 and FSP FAS 142-1. Historically, we have included the costs of such
mineral rights as tangible assets which is consistent with the EITF's consensus.
As such, EITF 04-2 will not affect our consolidated financial statements.


                                      -13-

<PAGE>


NOTE 10.  COMMITMENTS AND CONTINGENCIES

          From time to time, we are a party to ordinary routine litigation
incidental to our business. We are not currently a party to any pending
litigation, and we are not aware of any threatened litigation. We have not been
a party to any bankruptcy, receivership, reorganization, adjustment or similar
proceeding.

          The Compensation Committee has considered the creation of an incentive
plan for our executive officers that would be based on net asset value of the
company, exclusive of the artificial or temporary effects (favorable or
unfavorable) that wide fluctuations in oil and natural gas prices can have on
Parallel. In November 2003, the Committee approved in principle the adoption of
an employee retention/severance plan which, generally, would provide for a
one-time payment to all officers and employees upon the occurrence of a merger,
sale or other change of control of the company. Since then, the Committee has
considered and is still working on finalizing the specific compensatory features
of the plan, which we expect will include features tied more closely to the
market price of Parallel's stock.

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

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

OVERVIEW

Strategy

          Our primary objective is to increase shareholder value of our common
stock through increasing reserves, production, cash flow from operations and
earnings. We have shifted the balance of our investments from properties having
high rates of production in early years to properties with more consistent
production over a longer term. We attempt to reduce our financial risks by
dedicating a smaller portion of our capital to high risk projects, while
reserving the majority of our available capital for exploitation and development
drilling opportunities. Obtaining positions in long-lived oil and gas reserves
are given priority over properties that might provide more cash flow in the
early years of production, but which have shorter reserve lives. We also attempt
to further reduce risk by emphasizing acquisition possibilities over high risk
exploration projects.

          Since latter part of 2002, we have reduced our emphasis on high risk
exploration efforts and focused on established geologic trends where we utilize
the engineering, operational, financial and technical expertise of our entire
staff. Although we anticipate participating in exploratory drilling activities
in the future, reducing financial, reservoir, drilling and geological risks and
diversifying our property portfolio are important criteria in the execution of
our business plan. In summary, our current business plan:

          .    focuses on projects having less geological risk;

          .    emphasizes exploitation and enhancement activities;

          .    focuses on acquiring producing properties; and

                                      -14-

<page>

          .    expands the scope of operations by diversifying our exploratory
               and development efforts, both in and outside of our current areas
               of operation.

          Although the direction of our exploration and development activities
has shifted from high risk exploratory activities to lower risk development
opportunities, we will continue our efforts, as we have in the past, to maintain
low general and administrative expenses relative to the size of our overall
operations, utilize advanced technologies, serve as operator in appropriate
circumstances, and reduce operating costs.

          The extent to which we are able to pursue our business plan is
influenced by:

          .    the prices we receive for the oil and 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.

          Significant changes in the prices we receive for the oil and gas we
produce or the occurrence of unanticipated events beyond our control may cause
us to defer or deviate from our business plan, including the amounts we have
budgeted for our activities.

Operating Performance

          Our operating performance is influenced by several factors, the most
significant of which are the prices we receive for our oil and gas and the
volumes of oil and gas that we are able to produce. The world price for oil has
overall influence on the prices that we receive for our oil production. The
prices received for different grades of oil are based upon the world price for
oil, which is then adjusted based upon the particular grade. Typically, light
oil is sold at a premium, while heavy grades of crude are discounted. Gas prices
we receive are influenced by:

          .    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.

                                      -15-

<page>
          Additional factors influencing our overall operating performance
include:

          . production expenses;

          . overhead requirements; and

          . costs of capital.

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

          .    cash flow from operations;

          .    sales of our equity securities;

          .    bank borrowings; and

          .    industry joint ventures.

          For the three months ended March 31, 2004, the sale price we received
for our crude oil production (excluding hedges) averaged $32.93 per barrel
compared with $26.87 per barrel for the three months ended December 31, 2003 and
$32.60 per barrel for the three months ended March 31, 2003. The average sales
price we received for natural gas for the three months ended March 31, 2004
(excluding hedges), was $5.21 per Mcf compared with $5.02 per Mcf for the three
months ended December 31, 2003 and $5.82 per Mcf for the three months ended
March 31, 2003. For information regarding prices received including our hedges,
refer to the selected operating data table in the Results of Operations on page
17.

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

          Depletion of the capitalized costs of oil and gas properties,
including estimated future development costs, is provided using the equivalent
unit-of-production method based upon estimates of proved oil and gas reserves
and production, which are converted to a common unit of measure based upon their
relative energy content. Unproved oil and gas properties are not amortized, but
are individually assessed for impairment. The cost of any impaired property is
transferred to the balance of oil and gas properties being depleted. Depletion
per BOE at March 31, 2004 and 2003 was $7.02 and $7.07 respectively.


                                      -16-

<page>

Results of Operations

          Our business activities are characterized by frequent, and sometimes
significant, changes in our:

          .    reserve base;

          .    sources of production;

          .    product mix (gas versus oil volumes); and

          .    the prices we receive for our oil and gas production.

          Year-to-year or other periodic comparisons of the results of our
operations can be difficult and may not fully and accurately describe our
condition. The following table shows selected operating data for each of the
three months ended March 31, 2004, December 31, 2003, and March 31, 2003.

<table>

                                                                           Three Months Ended
                                                              ---------------------------------------------
                                                                3/31/2004      12/31/2003       3/31/2003
                                                              --------------  --------------  -------------

                                                           <c>            <c>             <c>

Sales Volumes:
  Oil (MBbls)                                                           161            157            154
  Natural gas (MMcf)                                                    732            874            782
  Equivalent barrels of oil (MBOE)(1)                                   283            303            284
  Equivalent barrels of oil (BOE) per day                             3,106          3,289          3,154

Average Sales Prices:
  per Bbl (unhedged)(2)                                             $ 32.93        $ 26.87        $ 32.60
  per Bbl (hedged)(3)                                               $ 25.93        $ 22.56        $ 31.80
  per MCF (unhedged)(2)                                             $  5.21        $  5.02        $  5.82
  per MCF (hedged)(3)                                               $  5.24        $  5.22        $  4.62
  per BOE (unhedged)(2)                                             $ 32.21        $ 28.43        $ 33.66
  per BOE (hedged)(3)                                               $ 28.30        $ 26.77        $ 29.92

Revenues:
(dollars in thousands)
  Oil revenue                                                       $ 5,290        $ 4,217        $ 5,006
  Oil hedge                                                          (1,124)          (677)          (122)
  Gas Revenue                                                         3,816          4,387          4,549
  Gas Hedge                                                              19            172           (940)
                                                                    -------        -------        -------
    Total oil and gas revenues                                      $ 8,001        $ 8,099        $ 8,493
                                                                    =======        =======        =======

Cost per BOE:
  Lease operating expense                                           $  5.40        $  7.35        $  3.25
  Production taxes                                                  $  1.69        $  1.52        $  1.87
  General and administrative                                        $  4.32        $  4.99        $  2.82
  Depreciation, depletion and amortization                          $  7.34        $  7.09        $  7.27
</table>
________________
(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.



                                      -17-

<page>


RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003:

          Oil and Gas Revenues. Oil and gas revenues decreased $492,000 or 6%,
to $8.0 million for the three months ended March 31, 2004, from $8.5 million for
the same period of 2003. The decrease was primarily the result of natural
decline curves on our south Texas production and a reduction in hedged sale
price per BOE.

          Lease Operating Costs. Lease operating costs increased approximately
$639,000, or 72%, to $1.5 million during the three months ended March 31, 2004,
compared with $890,000 for the same period of 2003. The increase was primarily
due to increased costs associated with the waterfloods on Fullerton and Diamond
M properties.

          General and Administrative Expenses. General and administrative
expenses increased by approximately $420,000, or 52%, to $1.2 million for the
three months ended March 31, 2004 from $802,000 for the same period of 2003. The
increase was primarily due to costs associated with additional personnel hired
and increased public reporting costs. General and administrative expense
capitalized to oil and gas properties is $290,000 and $264,000 for 2004 and 2003
respectively.

          Depreciation, Depletion and Amortization Expense. Depreciation,
depletion and amortization expenses were substantially the same for the three
months period ending March 31, 2004 compared to the same period of 2003.

          Change in Fair Market Value of Derivatives. Due to the expiration of
our put options not designated as cash flow hedges, no gain or loss was recorded
for the three months ending March 31, 2004. A loss of approximately $19,000 was
recognized for the three months ended March 31, 2003.

          Loss on Ineffective Portion of Hedges. A loss on the ineffective
portion of our hedges of approximately $10,000 was recognized for the three
months ended March 31, 2004 compared to approximately $183,000 for the same
period in 2003.

          Interest and Other Income. Interest and other income increased by
approximately $95,000 to $140,000 for the three months ended March 31, 2004
compared to $45,000 for the same period in 2003.

          Interest Expense. Interest expense decreased approximately $18,000, or
4%, to $468,000 for the three months ended March 31, 2004 compared with $486,000
for the same period in 2003. Although we reduced borrowings by $9.8 million, our
interest rate hedges added $114,000 to interest expense for the first quarter
2004.

          Income Tax Expense. Income tax expense decreased $343,000, or 29%, to
$849,000 for the three months ended March 31, 2004 compared to approximately
$1.2 million for the same period in 2003. The decrease was associated with the
6% reduction in oil and gas revenues and increased lease operating and general
and administrative expenses.

          Net Income. We reported net income of approximately $1.5 million for
the three months ended March 31, 2004 compared to $2.2 million for the three
months ended March 31, 2003. The decrease of $770,000, or 34%, is mainly
associated with the 6% decrease in oil and gas revenues, 72% increase in lease
operating expense and 52% increase in general and administrative expense.



                                  -18-

<page>

LIQUIDITY AND CAPITAL RESOURCES

          Our capital resources consist primarily of cash flows from our oil and
gas properties and bank borrowings supported by our oil and gas reserves. Our
level of earnings and cash flows depends on many factors, including the prices
we receive for oil and gas we produce.

          Working capital decreased 94% or approximately $15.4 million as of
March 31, 2004 compared with December 31, 2003. Current assets exceeded current
liabilities by $1.1 million at March 31, 2004. The working capital decrease was
primarily due to the payments on our revolving credit facility of $9.8 million,
increased current maturity of derivative obligations of approximately $1.9
million and working capital requirements associated with our drilling program.

          We incurred net property costs of $8.0 million for the three months
ended March 31, 2004 compared to $4.5 million for the same period in 2003. This
is a result of our increased capital budget from $15.5 million in 2003 to an
estimated $25.3 million in 2004. Included in our property basis for the first
quarter of 2004 and 2003 were asset retirement costs of approximately $130,000
and $1.7 million respectively, net of disposals, for the adoption of SFAS 143
(see Note 8 to Consolidated Financial Statements). Our property leasehold
acquisition, development and enhancement activities were financed by the
utilization of cash flows provided by operations and cash on hand.

          Stockholders' equity is $60.5 million for March 31, 2004 compared to
$61.2 million at December 31, 2003 a decrease of 1%. The decline is attributable
to an increased accumulated comprehensive loss of $2.1 million related to our
derivative instruments (see Note 6 to Consolidated Financial Statements). This
decline is partially offset by net income available to common shareholders of
$1.3 million.

          Based on our projected oil and gas revenues and related expenses,
available bank borrowings and expected cash derived from non-strategic asset
divestitures, we believe that we will have sufficient capital resources to fund
normal operations and capital requirements, interest expense and principal
reduction payments on bank debt, if required, and preferred stock dividends. We
continually review and consider alternative methods of financing.

Bank Borrowings

          Parallel and its subsidiary, Parallel, L.P., are parties to a credit
agreement with First American Bank, SSB, Western National Bank and BNP Paribas
which provides for revolving loans. This means that we can borrow, repay and
reborrow funds drawn under the credit facility. However, the aggregate amount
that we can borrow and have outstanding at any one time is subject to a
borrowing base. Generally, we can borrow only up to the borrowing base in effect
from time to time. The borrowing base amount is redetermined by the banks on or
about April 1 and October 1 of each year or at other times required by the banks
or at our request. At April 2004, the borrowing base was $52.0 million. If, as a
result of the banks' redetermination of the borrowing base, the outstanding
principal amount of our loan exceeds the borrowing base, we must either provide
additional collateral to the banks or prepay the principal of the note in an
amount equal to the excess. Except for principal payments that may be required
because of our outstanding loans being in excess of the borrowing base, interest
only is payable monthly.

          The principal amount outstanding under the revolving credit facility
bears interest at First American Bank's base rate or the LIBOR rate, at our
election. Generally, First American


                                      -19-

<page>

Bank's base rate is equal to the prime rate published in the Wall Street
Journal, but not less than 4.50%. The LIBOR rate is generally equal to the sum
of (a) the rate designated as "British Bankers Association Interest Settlement
Rates" and offered in one, two, three or six month Bank's base rate is equal to
the prime rate published in the Wall Street Journal, but not less than 4.50%.
The LIBOR rate is generally equal to the sum of (a) the rate designated as
"British Bankers Association Interest Settlement Rates" and offered in one, two,
three or six month interest periods for deposits of $1.0 million, and (b) a
margin ranging from 2.25% to 2.75%, depending upon the outstanding principal
amount of the loans. The interest rate we are required to pay, including the
applicable margin, may never be less than 4.50%. If the principal amount
outstanding is equal to or greater than 75% of the borrowing base established by
the banks, the margin is 2.75%. If the principal amount outstanding is equal to
or greater than 50%, but less than 75% of the borrowing base, the margin is
2.50%. If the principal amount outstanding is less than 50% of the borrowing
base, the margin is 2.25%.

          In the case of base rate loans, interest is payable on the last day of
each month. In the case of LIBOR loans, interest is payable on the last day of
each applicable interest period.

          If the total outstanding borrowings under the facility are less than
the borrowing base, an unused commitment fee is required to be paid to the bank
lenders. The amount of the fee is .25% of the daily average of the unadvanced
amount of the borrowing base. The fee is payable quarterly.

          All outstanding principal under the revolving credit facility is due
and payable on December 20, 2006. The loan is secured by substantially all of
our oil and gas properties, including the properties of Parallel, L.P. Parallel,
L.L.C., a subsidiary of Parallel, guaranteed payment of the loans.

          We are highly dependent on bank borrowings to fund our exploration and
drilling activities. Our borrowing base is generally equivalent to the loan
value of our producing oil and gas properties as determined by the banks in
their sole discretion. If our borrowing base declines significantly, our
liquidity would be suddenly and materially limited.

          If the borrowing base is increased, we are required to pay a fee of
..25% on the amount of any increase in the borrowing base.

          Our bank borrowings have been incurred to finance our property
acquisition, 3-D seismic surveys, enhancement and drilling activities.

          In addition to customary affirmative covenants, the credit agreement
contains various restrictive covenants and compliance requirements, including:

          .    maintaining certain financial ratios;

          .    limitations on incurring additional indebtedness;

          .    prohibiting the payment of dividends on our common stock;

          .    limitations on the disposition of assets; and

          .    prohibiting liens (other than in favor of the banks) to exist on
               any of our properties.

          As of March 31, 2004 we were in compliance with all covenants.



                                      -20-

<page>

          If we have borrowing capacity under our credit agreement, we intend to
borrow, repay and reborrow under the revolving credit facility from time to time
as necessary, subject to borrowing base limitations, to fund:

          .    interpretation and processing of 3-D seismic survey data;

          .    lease acquisitions and drilling activities;

          .    acquisitions of producing properties or companies owning
               producing properties; and

          .    general corporate purposes.

Preferred Stock

          At March 31, 2004 we had 957,000 shares of 6% convertible preferred
stock outstanding. The preferred stock:

          .    requires us to pay dividends of $.60 per annum, semi-annually on
               June 15 and December 15 of each year;

          .    is convertible into common stock at any time, at the option of
               the holder, into 2.8751 shares of common stock at an initial
               conversion price of $3.50 per shares, subject to adjustment in
               certain events;

          .    is redeemable at our option, in whole or in part, for $10 per
               share, plus accrued dividends;

          .    has no voting rights, except as required by applicable law, and
               except that as long as any shares of preferred stock remain
               outstanding, the holders of a majority of the outstanding shares
               of the preferred stock may vote on any proposal to change any
               provision of the preferred stock which materially and adversely
               affects the rights, preferences or privileges of the preferred
               stock;.

          .    is senior to the common stock with respect to dividends and on
               liquidation, dissolution or winding up of Parallel; and

          .    has a liquidation value of $10 per share, plus accrued and unpaid
               dividends.

Commodity Price Risk Management Transactions

          The purpose of our hedges is to provide a measure of stability in our
oil and gas prices and interest rate payments and to manage exposure to
commodity price and interest rate risk. Our objective is to lock in a range of
oil and gas prices and a fixed interest rate for certain notional amounts.

          Under cash flow hedge accounting, the quarterly change in the fair
value of the commodity derivatives is recorded in stockholders' equity as other
comprehensive income (loss) and then transferred to revenue when the production
is sold. Ineffective portions of cash flow hedges (changes in realized prices
that do not match the changes in the hedge price) are recognized in other
expense as they occur. While the cash flow hedge contract is open, the
ineffective gain or loss many increase or decrease until settlement of the
contract.


                                      -21-

<page>

          Under cash flow hedge accounting for interest rate swaps, the
quarterly change in the fair value of the derivatives is recorded in
stockholders' equity as other comprehensive income (loss) and then transferred
to interest expense when the contract settles. Ineffective portions of cash flow
hedges are recognized in other expense as they occur.

          We are exposed to credit risk in the event of nonperformance by the
counterparty in its derivative instruments. However, we periodically assess the
creditworthiness of the counterparty to mitigate this credit risk.

          Certain of our commodity price risk management arrangements have
required us to deliver cash collateral or other assurances of performance to the
counterparties in the event that our payment obligations with respect to our
commodity price risk management transactions exceed certain levels.

Outlook

          The oil and gas industry is capital intensive. We make, and anticipate
that we will continue to make, substantial capital expenditures in the
exploration for, development and acquisition of oil and gas reserves.
Historically, our capital expenditures have been financed primarily with:

          .    internally generated cash from operations;

          .    proceeds from bank borrowings; and

          .    proceeds from sales of equity securities.

          The continued availability of these capital sources depends upon a
number of variables, including:

          .    our proved reserves;

          .    the volumes of oil and gas we produce from existing wells;

          .    the prices at which we sell oil and gas; and

          .    our ability to acquire, locate and produce new reserves.

          Each of these variables materially affects our borrowing capacity. We
may from time to time seek additional financing in the form of:

          .    increased bank borrowings;

          .    sales of Parallel's securities;

          .    sales of non-core properties; or

          .    other forms of financing.



                                      -22-

<page>

          Except for the revolving credit facility we have with our bank
lenders, we do not have agreements for any future financing and there can be no
assurance as to the availability or terms of any such financing.

Inflation

          Inflation has not had a significant impact on our financial condition
or results of operations. We do not believe that inflation poses a material risk
to our business.

Recent Accounting Pronouncements

          FIN No. 46, Consolidation of Variable Interest Entities. In December
2003, the FASB issued Interpretation No. 46R, which requires the consolidation
of certain entities that are determined to be variable interest entities
("VIE"). An entity is considered to be a VIE when either (i) the entity lacks
sufficient equity to carry on its principal operations, (ii) the equity owners
of the entity cannot make decisions about the entity's activities or (iii) the
entity's equity neither absorbs losses or benefits from gains. We own no
interests in variable interest entities, and therefore this new interpretation
has not affected our consolidated financial statements.

          In March 2004, the Emerging Issues Task Force ("EITF") reached a
consensus that mineral rights, as defined in EITF Issue No. 04-2, "Whether
Mineral Rights Are Tangible or Intangible Assets," are tangible assets and that
they should be removed as examples of intangible assets in SFAS Nos. 141 and
142. The FASB has recently ratified this consensus and directed the FASB staff
to amend SFAS Nos. 141 and 142 through the issuance of FASB Staff Positions FSP
FAS 141-1 and FSP FAS 142-1. Historically, we have included the costs of such
mineral rights as tangible assets which is consistent with the EITF's consensus.
As such, EITF 04-2 will not effect our consolidated financial statements.

Effects of Derivative Instruments

          As of January 1, 2003 we designated our costless collars, oil and gas
swaps and interest rate swaps as cash flow hedges under the provisions of SFAS
133, as amended. The adoption of cash flow hedge accounting allows us to record
changes in fair value of contracts designated as cash flow hedges through other
comprehensive income until realized. When realized, we reflect the gain or loss
on commodity derivatives designated as cash flow hedges in revenue and on
interest rate derivatives designated as cash flow hedges in interest expense. We
utilize mark-to-market accounting for our put positions. The purpose of our
hedges is to provide a measure of stability in our oil and gas prices and
interest rate payments and to manage exposure to commodity price and interest
rate risk. Our objective is to lock in a range of oil and gas prices and a fixed
interest rate for certain notional amounts.

          Under cash flow hedge accounting, the quarterly change in the fair
value of the derivatives is recorded in stockholders' equity as other
comprehensive income (loss) and then transferred to earnings when the production
is sold. Ineffective portions of cash flow hedges (changes in realized prices
that do not match the changes in the hedge price) are recognized in other
expense as they occur. While the cash flow hedge contract is open, the
ineffective gain or loss many increase or decrease until settlement of the
contract.

                                      -23-

<page>

          We are exposed to credit risk in the event of nonperformance by the
counterparty in its derivative instruments. However, we periodically assess the
creditworthiness of the counterparty to mitigate this credit risk.

TRENDS AND PRICES

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

          Our capital expenditure budgets are highly dependent on future oil and
gas prices and will be consistent with internally generated cash flows.

          During fiscal year 2003 the average realized sales price for our oil
and natural gas was $30.66 (unhedged) per BOE. For the three months ended March
31, 2004, our average realized price was $32.21 (unhedged) per BOE.

FORWARD-LOOKING STATEMENTS

Cautionary Statement Regarding Forward Looking Statements

          Some statements contained in this Quarterly Report on Form 10-Q are
"forward-looking statements". All statements other than statements of historical
facts included in this report, including, without limitation, statements
regarding planned capital expenditures, the availability of capital resources to
fund capital expenditures, estimates of proved reserves, our financial position,
business strategy and other plans and objectives for future operations, are
forward-looking statements. You can identify forward-looking statements by the
use of forward-looking terminology like "may," "will," "expect," "intend,"
"anticipate," "budget", "estimate," "continue," "present value," "future" or
"reserves" or other variations or comparable terminology. We believe the
assumptions and expectations reflected in these forward-looking statements are
reasonable. However, we cannot give any assurance that our expectations will
prove to be correct or that we will be able to take any actions that are
presently planned. All of these statements involve assumptions of future events
and risks and uncertainties. Risks and uncertainties associated with
forward-looking statements include, but are not limited to:

          .    fluctuations in prices of oil and gas;

          .    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;


                                      -24-

<page>

          .    receipt of amounts owed to us by purchasers of our production and
               counterparties to our hedging contracts;

          .    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.

          While we believe our forward-looking statements are based upon
reasonable assumptions, these are factors that are difficult to predict and that
are influenced by economic and other conditions beyond our control. Investors
are urged to consider such risks and other uncertainties discussed in documents
filed by us with the SEC.

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

          The following quantitative and qualitative information is provided
about market risks and derivative instruments to which Parallel was a party at
March 31, 2004, and from which Parallel may incur future earnings, gains or
losses from changes in market interest rates and oil and natural gas prices.

Interest Rate Sensitivity as of March 31, 2004

          Our only financial instrument sensitive to changes in interest rates
is our bank debt. As the interest rate is variable and reflects current market
conditions, the carrying value approximates the fair value. The table below
shows principal cash flows and related weighted average interest rates by
expected maturity dates. Weighted average interest rates were determined using
weighted average interest paid and accrued in March, 2004. You should read Note
3 to the Consolidated Financial Statements for further discussion of our debt
that is sensitive to interest rates.


<table>
                                      2004          2005         2006         2007          2008         Total
                                   ------------ ------------- ------------ ------------  ------------ ------------
                                                   (in thousands, except interest rates)

                                <c>          <c>           <c>          <c>           <c>          <c>

Variable rate debt                     $    -        $    -     $ 30,000          $  -           $ -     $ 30,000

Revolving Facility (secured)
  Average interest rate                  4.50%         4.50%        4.50%            -             -            -


</table>

          At March 31, 2004, we had bank loans in the amount of approximately
$30.0 million outstanding on our revolving credit facility at an average
interest rate of 4.50%. Borrowings under our credit facility bear interest, at
our election, at (i) the bank's base rate or (ii) the LIBOR rate, plus LIBOR
margin, but in no event less than 4.50%. As a result, our annual interest cost
in 2004 will fluctuate based on short-term interest rates. As the interest rate
is variable and is reflective of current market conditions, the carrying value
approximates the fair value.

                                      -25-

<page>

          Under our credit facility, we may elect an interest rate based upon
the agent lender's base lending rate, or the LIBOR rate, plus a margin ranging
from 2.25% to 2.75% per annum, depending on our borrowing base usage. The
interest rate we are required to pay, including the applicable margin, may never
be less than 4.50%.

          In January, 2003, we entered into a 45-month LIBOR fixed interest rate
swap contract with BNP Paribas. We receive fixed 90-day LIBOR interest rates for
the 45-month period beginning March 31, 2003 through December 20, 2006.

          A recap for the period of time, notional amounts, LIBOR fixed interest
rates, expected margin rates and expected fixed interest rates for the contract
are as follows:

<table>
                                                                        Libor          Expected       Expected
                                                    Notional            Fixed           Margin          Fixed
                Period of Time                    Amounts (1)     Interest Rates (2)  Rates (3)   Interest Rates (4)
----------------------------------------------- ----------------- ------------------- ----------- ------------------

                                             <c>                <c>                <c>         <c>
April 1, 2004 thru December 31, 2004                $ 30,000,000        2.660%          2.500%         5.160%

December 31, 2004 thru December 31, 2005            $ 20,000,000        4.050%          2.250%         6.300%

December 31, 2005 thru December 20, 2006            $ 10,000,000        4.050%          2.250%         6.300%

</table>
___________________
(1)  Based on the anticipated principal reductions under our Facility.
(2)  Parallel's swap contract with BNP Paribas.
(3)  Based on the anticipated borrowing base usage under our Facility.
(4)  Total of the LIBOR fixed rate plus the expected margin rate under our
     Facility. Our credit agreement requires the interest rate to not be
     below 4.50%.

Commodity Price Sensitivity as of March 31, 2004

          Our major market risk exposure is in the pricing applicable to our oil
and natural gas production. Market risk refers to the risk of loss from adverse
changes in oil and natural gas prices. Realized pricing is primarily driven by
the prevailing domestic price for crude oil and spot prices applicable to the
region in which we produce natural gas. Historically, prices received for oil
and gas production have been volatile and unpredictable. We expect pricing
volatility to continue. Oil prices ranged from a low of $16.49 per barrel to a
high of $36.60 per barrel during 2003. Natural gas prices we received during
2003 ranged from a low of $1.98 per Mcf to a high of $10.28 per Mcf. During the
first quarter ended March 31, 2004 oil prices ranged from a low of $27.49 to a
high of $36.10. Natural gas prices we received during the first quarter ended
March 31, 2004 ranged from a low of $2.42 per Mcf to a high of $7.85 per Mcf. A
significant decline in the prices of oil or natural gas could have a material
adverse effect on our financial condition and results of operations.

          Put Options. On May 24, 2002 we purchased put floors on volumes of
100,000 Mcf per month for a total of 700,000 Mcf during the seven month period
from April 2003 through October 2003 at a floor price of $3.00 per Mcf for a
total consideration of $139,500. These derivatives are not held for trading or
speculation purposes.



                                      -26-

<page>

          A decrease in fair value of the put floors of approximately $19,000
was recognized for the three month period ending March 31, 2003 in our
consolidated statements of operations.

          Costless Collar. Collars are created by purchasing puts to establish a
floor price and then selling a call which establishes a maximum amount the
producer will receive for the oil or gas hedged. Calls are sold to offset or
reduce the premium paid for buying the put. In 2003, we entered into several
costless, seven-month Houston ship channel gas collars. A majority of our
natural gas production is sold based on Houston ship channel prices. A recap for
the period of time, number of MMBtu's and gas prices is as follows:

<table>
                                                            Houston Ship Channel
                                                                 gas prices
                                                         ---------------------------
                                             MMBtu of
            Period of Time                Natural Gas       Floor          Cap
---------------------------------------- --------------- ------------- -------------

                                      <c>             <c>            <c>
April 1, 2004 thru October 31, 2004             214,000        $ 4.40        $ 5.50

</table>

          Swaps. Generally, swaps are an agreement to buy or sell a specified
commodity for delivery in the future, but at an agreed fixed price. Swap
transactions convert a floating price into a fixed price. For any particular
swap transaction, the counterparty is required to make a payment to the hedge
party if the reference price for any settlement period is less than the swap
price for such hedge, and the hedge party is required to make a payment to the
counterparty if the reference price for any settlement period is greater than
the swap price for such hedge.

          In 2003, we entered into oil and gas swap contracts with BNP Paribas.
A recap for the period of time, number of MMBtu's, number of barrels, and swap
prices are as follows:

<table>

                                                                                            Houston Ship
                                              Barrels of      Nymex Oil       MMBtu of        Channel
              Period of Time                     Oil         Swap Prices    Natural Gas    Gas Swap Price
-------------------------------------------- ------------- ---------------- ------------- -----------------

                                           <c>          <c>              <c>            <c>

April 1,2004 thru December 31, 2004               330,000          $ 24.45       764,000           $ 4.692

January 1, 2005 thru December 31, 2005            365,000          $ 23.35             -           $     -

January 1, 2005 thru Mach 31, 2005                      -          $     -       180,000           $ 4.705

January 1, 2006 thru December 20, 2006            265,500          $ 23.04             -           $     -


</table>

ITEM 4.   CONTROLS AND PROCEDURES

          As of the end of the period covered by this Quarterly Report on Form
10-Q, the effectiveness of our disclosure controls and procedures was evaluated
by our management, with the participation of our chief executive officer, Larry
C. Oldham (principal executive officer), and our chief financial officer, Steven
D. Foster (principal financial officer). Our disclosure controls and procedures
are designed to help ensure that information we are required to disclose in
reports that we file with the SEC is accumulated and communicated to our
management and recorded, processed, summarized and reported within the time
periods prescribed by the SEC.

                                      -27-
<page>

Mr. Oldham and Mr. Foster have concluded that our disclosure controls and
procedures are effective for their intended purposes. There were no changes in
internal control over financial reporting that occurred during the last fiscal
quarter that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.


                           PART II - OTHER INFORMATION


ITEM 1.   LEGAL PROCEEDINGS

          From time to time, we are a party to ordinary routine litigation
incidental to our business. We are not currently a party to any pending
litigation, and we are not aware of any threatened litigation. We have not been
a party to any bankruptcy, receivership, reorganization, adjustment or similar
proceeding.

ITEM 6.   EXHIBIT AND REPORTS ON FORM 8-K

          (a)       Exhibits

          No.       Description of Exhibit

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

          3.2       Bylaws of Registrant (Incorporated by reference to Exhibit 3
                    to the Registrant's Form 8-K, dated October 9, 2000, as
                    filed with the Securities and Exchange Commission on October
                    10, 2000.)

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

          4.2       Certificate of Designation, Preferences and Rights of Series
                    A Preferred Stock. (Incorporated by reference to Exhibit 4.2
                    of Form 10-K 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 for the fiscal year ended December 31, 2000.)

                    Executive Compensation Plans and Arrangements (Exhibit No.'s
                    10.1 through 10.7):

          10.1      1992 Stock Option Plan (Incorporated by reference to Exhibit
                    28.1 to Form S-8 of the Registrant (File No. 33-57348) as
                    filed with the Securities and Exchange Commission on January
                    25, 1993.)



                                      -28-

<page>

          10.2      Stock Option Agreement between the Registrant and Thomas R.
                    Cambridge dated December 11, 1991 (Incorporated by reference
                    to Exhibit 10.4 of Form 10-K of the Registrant for the
                    fiscal year ended December 31, 1992.)

          10.3      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.)

          10.4      Non-Employee Directors Stock Option Plan (Incorporated by
                    reference to Exhibit 10.6 of the Registrant's Form 10-K
                    Report for the fiscal year ended December 31, 1997).

          10.5      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.)

          10.6      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 the Registrant's Form 10-K Report for the fiscal year
                    ended December 31, 2001).

         *10.7      2001 Non-Employee Directors Stock Option Plan.

          10.8      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.)

          10.9      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.)

          10.10     Merger Agreement dated June 25, 1999. (Incorporated by
                    reference to Exhibit 10.3 of the Registrant's Form 8-K
                    report dated June 30, 1999.)

          10.11     Agreement and Plan of Merger of First Permian, L.L.C. and
                    Nash Oil Company, L.L.C. (Incorporated by reference to
                    Exhibit 10.4 of the Registrant's Form 8-K report dated June
                    30, 1999.)

          10.12     Certificate of Merger of First Permian, L.L.C. and Nash Oil
                    Company, L.L.C (Incorporated by reference to Exhibit 10.5 of
                    the Registrant's Form 8-K Report dated June 30, 1999.)

          10.13     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 for
                    the fiscal year ended December 31, 2000.)

                                      -29-

<page>

          10.14     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.)

          10.15     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.)

          10.16     Intercreditor Agreement, dated as of June 30, 1999, by and
                    among First Permian, L.L.C., Bank One, Texas, N.A., Tejon
                    Exploration Company, and Mansefeldt Investment Corporation
                    (Incorporated by reference to Exhibit 10.8 of the
                    Registrant's Form 8-K report dated June 30, 1999.)

          10.17     Subordinated Promissory Note, dated June 30, 1999, in the
                    original principal amount of $8.0 million made by First
                    Permian, L.L.C. payable to the order of Tejon Exploration
                    Company (Incorporated by reference to Exhibit 10.9 of the
                    Registrant's Form 8-K report dated June 30, 1999.)

          10.18     Subordinated Promissory Note, dated June 30, 1999, in the
                    original principal amount of $8.0 million made by First
                    Permian, L.L.C. payable to the order of Mansefeldt
                    Investment Corporation (Incorporated by reference to Exhibit
                    10.10 of the Registrant's Form 8-K report dated June 30,
                    1999.)

          10.19     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 for the fiscal year ended
                    December 31, 2000.)

          10.20     Loan Agreement, dated January 25, 2002, between the
                    Registrant and First American Bank, SSB (Incorporated by
                    reference to Exhibit 10.25 of Form 10-K for the fiscal year
                    ended December 31, 2001.)

          10.21     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)

          10.22     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)

          10.23     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)

                                     -30-

<page>

          10.24     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, 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).

          14        Code of Ethics (Incorporated by reference to Exhibit 14 of
                    Form 10-K of the Registrant for the fiscal year ended
                    December 31, 2003).

          21        Subsidiaries (Incorporated by reference to Exhibit 21 of
                    Form 10-K of the Registrant for the fiscal year ended
                    December 31, 2003)

          *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 *31.2 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.

      (b) Reports on Form 8-K

          During the fiscal quarter ended March 31, 2004, we filed four reports
on Form 8-K.

          On January 22, 2004, we filed Form 8-K, dated January 21, 2004,
reporting matters furnished under Item 4 - Changes in Registrant's Certifying
Accounting.

          On January 23, 2004, we filed Form 8-K, dated January 23, 2004,
reporting matters furnished under Item 9 - Regulation FD Disclosure, and Item 12
- Results of Operations and Financial Condition. This report included our
January 23, 2004 press release announcing replacing 250% of 2003 production.
This information was filed in accordance with General Instruction B.6 of Form
8-K, shall not be deemed "filed" for purposes of Section 18 of the Securities
Exchange Act of 1934, shall not be subject to the liabilities of that section
and shall not be deemed incorporated by reference in any filing under the
Securities Act of 1933 or the Securities Exchange Act of 1934, except as shall
be expressly set forth by specific reference in such a filing.

          On January 30, 2004, we filed Form 8-K, dated January 29, 2004,
reporting matters furnished under Item 5 - Other Events. This report contains a
summary description of Parallel Petroleum Corporation's capital stock.

          On March 19, 2004, we filed Form 8-K, dated March 29, 2004, reporting
matters

                                      -31-

<PAGE>

furnished under Item 7 - Financial Statements and Exhibits, and Item 12
- Results of Operations and Financial Condition. This report included our March
18, 2004 press release announcing financial results for the fourth quarter and
year ended December 31, 2003.




                                      -32-

<page>

                                   SIGNATURES


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




                                     PARALLEL PETROLEUM CORPORATION


Date: May 13, 2004                    BY: /s/ Larry C. Oldham
                                     --------------------------------------
                                     Larry C. Oldham
                                     President and Chief Executive Officer



Date: May 13, 2004                  BY: /s/ Steven D. Foster
                                    --------------------------------------
                                    Steven D. Foster,
                                    Chief Financial Officer


                                      -33-
<PAGE>


                                INDEX TO EXHIBITS

          (a)       Exhibits

          No.       Description of Exhibit

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

          3.2       Bylaws of Registrant (Incorporated by reference to Exhibit 3
                    to the Registrant's Form 8-K, dated October 9, 2000, as
                    filed with the Securities and Exchange Commission on October
                    10, 2000.)

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

          4.2       Certificate of Designation, Preferences and Rights of Series
                    A Preferred Stock. (Incorporated by reference to Exhibit 4.2
                    of Form 10-K 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 for the fiscal year ended December 31, 2000.)

                    Executive Compensation Plans and Arrangements (Exhibit No.'s
                    10.1 through 10.7):

          10.1      1992 Stock Option Plan (Incorporated by reference to Exhibit
                    28.1 to Form S-8 of the Registrant (File No. 33-57348) as
                    filed with the Securities and Exchange Commission on January
                    25, 1993.)

          10.2      Stock Option Agreement between the Registrant and Thomas R.
                    Cambridge dated December 11, 1991 (Incorporated by reference
                    to Exhibit 10.4 of Form 10-K of the Registrant for the
                    fiscal year ended December 31, 1992.)

          10.3      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.)

          10.4      Non-Employee Directors Stock Option Plan (Incorporated by
                    reference to Exhibit 10.6 of the Registrant's Form 10-K
                    Report for the fiscal year ended December 31, 1997).


<page>

          10.5      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.)

          10.6      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 the Registrant's Form 10-K Report for the fiscal year
                    ended December 31, 2001).

         *10.7      2001 Non-Employee Directors Stock Option Plan

          10.8      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.)

          10.9      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.)

          10.10     Merger Agreement dated June 25, 1999. (Incorporated by
                    reference to Exhibit 10.3 of the Registrant's Form 8-K
                    report dated June 30, 1999.)

          10.11     Agreement and Plan of Merger of First Permian, L.L.C. and
                    Nash Oil Company, L.L.C. (Incorporated by reference to
                    Exhibit 10.4 of the Registrant's Form 8-K report dated June
                    30, 1999.)

          10.12     Certificate of Merger of First Permian, L.L.C. and Nash Oil
                    Company, L.L.C (Incorporated by reference to Exhibit 10.5 of
                    the Registrant's Form 8-K Report dated June 30, 1999.)

          10.13     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 for
                    the fiscal year ended December 31, 2000.)

          10.14     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.)

          10.15     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.)

<page>

          10.16     Intercreditor Agreement, dated as of June 30, 1999, by and
                    among First Permian, L.L.C., Bank One, Texas, N.A., Tejon
                    Exploration Company, and Mansefeldt Investment Corporation
                    (Incorporated by reference to Exhibit 10.8 of the
                    Registrant's Form 8-K report dated June 30, 1999.)

          10.17     Subordinated Promissory Note, dated June 30, 1999, in the
                    original principal amount of $8.0 million made by First
                    Permian, L.L.C. payable to the order of Tejon Exploration
                    Company (Incorporated by reference to Exhibit 10.9 of the
                    Registrant's Form 8-K report dated June 30, 1999.)

          10.18     Subordinated Promissory Note, dated June 30, 1999, in the
                    original principal amount of $8.0 million made by First
                    Permian, L.L.C. payable to the order of Mansefeldt
                    Investment Corporation (Incorporated by reference to Exhibit
                    10.10 of the Registrant's Form 8-K report dated June 30,
                    1999.)

          10.19     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 for the fiscal year ended
                    December 31, 2000.)

          10.20     Loan Agreement, dated January 25, 2002, between the
                    Registrant and First American Bank, SSB (Incorporated by
                    reference to Exhibit 10.25 of Form 10-K for the fiscal year
                    ended December 31, 2001.)

          10.21     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)

          10.22     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)

          10.23     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)

          10.24     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, 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).

<page>

          14        Code of Ethics (Incorporated by referenced to Exhibit 14 of
                    Form 10-K of the Registrant for the fiscal year ended
                    December 31, 2003).

          21        Subsidiaries (Incorporated by reference to Exhibit 21 of
                    Form 10-K of the Registrant for the fiscal year ended
                    December 31, 2002)

         *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.

         *32.1      Certification of Principal Financial Officer pursuant to 18
                    U.S.C. Section 1350, as adopted *31.2 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.

<PAGE>

                                                                   Exhibit 10.7



                         PARALLEL PETROLEUM CORPORATION

                  2001 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN


          1. Purpose of the Plan. The purpose of the Parallel Petroleum
Corporation 2001 Non-employee Directors Stock Option Plan (the "Plan") is to
secure for Parallel Petroleum Corporation (the "Company") and its stockholders
the benefits of the incentives inherent in increased common stock ownership by
members of the Board of Directors (the "Board") of the Company who are not
employees of the Company ("Non-employee Directors") or any of its subsidiaries
and to provide a means whereby Non-employee Directors of the Company may develop
a sense of proprietorship and personal involvement in the development and
financial success of the Company, and to encourage them to remain with and
devote their best efforts to the business of the Company, thereby advancing the
interests of the Company and its stockholders. Accordingly, the Plan provides
for granting to Non-employee Directors the option ("Option") to purchase shares
of common stock of the Company ("Stock"), as hereinafter set forth. Options
granted under the Plan to Non-employee Directors are not intended to be
incentive stock options within the meaning of section 422 of the Internal
Revenue Code of 1986, as amended.

          2. Administration. The Plan shall be administered by the Board of
Directors of the Company (the "Board") or by a committee (the "Committee") of
two or more directors of the Company appointed by the Board. If a Committee is
not appointed by the Board, the Board shall act as and be deemed to be the
Committee for all purposes of the Plan. The Committee shall have sole authority
(within the limitations described herein) to select the Non-employee Directors
who are to be granted Options; to establish the number of shares which may be
issued to Non-employee Directors under each Option; and to prescribe the form of
the agreement embodying awards of Options. The Committee is authorized to
interpret the Plan, to determine all questions arising thereunder and to adopt
such rules and regulations, consistent with the provisions of the Plan, as it
may deem advisable to carry out the Plan. All decisions made by the Committee
shall be final and conclusive. No member of the Board shall be liable for
anything done or omitted to be done by such member or by any other member of the
Board in connection with the Plan, except for such member's own willful
misconduct or as expressly provided by statute.

          3. Eligibility of Optionee. Options may be granted only to directors
who are not employees of the Company or any parent or subsidiary corporation of
the Company at the time the Option is granted. The adoption of this Plan shall
not be deemed to give any director any right to be granted an Option. Options
may be granted to the same Non-employee Director on more than one occasion.

          4. Shares Subject to the Plan. The aggregate number of shares which
may be issued

<page>



under Options granted under the Plan shall not exceed 500,000 shares of Stock.
Such shares may consist of authorized but unissued shares of Stock or previously
issued shares of Stock reacquired by the Company. Any of such shares which
remain unissued and which are not subject to outstanding Options at the
termination of the Plan shall cease to be subject to the Plan, but, until
termination of the Plan, the Company shall at all times make available
sufficient number of shares to meet the requirements of the Plan. If any Option
hereunder expires or terminates prior to its exercise in full, the shares
theretofore subject to such Option may again be subject to an Option granted
under the Plan. The aggregate number of shares which may be issued under the
Plan shall be subject to adjustment in the same manner as provided in Paragraph
7 hereof with respect to shares of Stock subject to Options then outstanding.
Exercise of an Option in any manner shall result in a decrease in the number of
shares of Stock which may thereafter be available, both for purposes of the Plan
and for sale to any one individual, by the number of shares as to which the
Option is exercised.

          5. Option Agreements; Terms and Conditions. Each Option granted under
the Plan shall be evidenced by an agreement and shall contain such terms and
conditions, and may be exercisable for such periods, as the Committee shall
prescribe from time to time in accordance with this Plan, and shall comply with
the following terms and conditions:

          (a) The Option exercise price shall be the fair market value of the
Stock subject to the Option on the date the Option is granted. For all purposes
under the Plan, the fair market of a share of Stock on a particular date shall
be equal to the average of the high and low sales prices of the Stock on the
date of grant as reported on the Nasdaq National Market tier of The Nasdaq Stock
Market ("NMS"), or on the stock exchange composite tape if the Stock is traded
on a national stock exchange on that date, or if no prices are reported on that
date, on the last preceding date on which such prices of the Stock are so
reported. If the Stock is not traded on the NMS or other stock exchange on that
date, but is otherwise traded over the counter at the time a determination of
its fair market value is required to be made hereunder, its fair market value
shall be deemed to be equal to the average between the reported high and low or
closing bid and asked prices of the Stock on the most recent date on which the
Stock was publicly traded. If the Stock is not publicly traded at the time a
determination of its value is required to be made hereunder, the determination
of its fair market value shall be made by the Committee in such manner as it
deems appropriate.

          (b) The Option shall not be transferable otherwise than by will or the
laws of descent and distribution, and may be exercised only by the Non-employee
Director during the Non-employee Director's lifetime and while the Non-employee
Director remains a director of the Company, except that:


               (i) If the Non-employee Director ceases to be a director of the
               Company because of disability, the Option may be exercised in
               full by the Non-employee Director (or the Non-

                                       2

<page>

               employee Director's estate or the person who acquires the Option
               by will or the laws of descent and distribution or otherwise by
               reason of the death of the Non-employee Director) at any time
               during the period of one year following such termination;

               (ii) If the Non-employee Director dies while he is a director of
               the Company, the Non-employee Director's estate, or the person
               who acquires the Option by will or the laws of descent and
               distribution or otherwise by reason of the death of the
               Non-employee Director, may exercise the Option in full at any
               time during the period of one year following the date of the
               Non-employee Director's death; and

               (iii) If the Non-employee Director ceases to be director of the
               Company for any reason other than as described in clause (i) or
               (ii) above, unless the Non-employee Director is removed for
               cause, the Option may be exercised by the Non-employee Director
               at any time during the period of three months following the date
               the Non-employee Director ceases to be a director of the Company,
               or by the Non-employee Director's estate (or the person who
               acquires the Option by will or the laws of descent and
               distribution or otherwise by reason of the death of the
               Non-employee Director) during a period of one year following the
               Non-employee Director's death if the Non-employee Director dies
               during such three-month period, but in each case only as to the
               number of shares the Non-employee Director was entitled to
               purchase hereunder upon exercise of the Option as of the date the
               Non-employee Director ceases to be a director.

     (c) The Option shall not be exercisable in any event after the expiration
of ten years from the date of grant.

     (d) The purchase price of shares as to which the Option is exercised shall
be paid in full at the time of exercise (a) in cash, (b) by delivering to the
Company shares of Stock having a fair market value equal to the purchase price,
or (c) any combination of cash or Stock, as shall be established by the
Committee. Unless and until a certificate or certificates representing such
shares shall have been issued by the Company to the Non-employee Director, the
Non-employee Director (or the person permitted to exercise the Option in the
event of Director's death) shall not be or have any of the rights or privileges
of a stockholder of the Company with respect to shares acquirable upon an
exercise of the Option.

     (e) The terms and conditions of the respective Non-employee Director Stock
Option agreements need not be identical.

                                       3
<page>

     6. Term of Plan. The Plan shall be effective upon the date of its approval
and adoption by the stockholders of the Company. Except with respect to Options
then outstanding, if not sooner terminated under the provisions of Paragraph 8,
the Plan shall terminate upon and no further Options shall be granted after the
expiration of ten years from the date of its adoption by the Board.

     7. Recapitalization or Reorganization.

     (a) The existence of the Plan and the Options granted hereunder shall not
affect in any way the right or power of the Board or the stockholders of the
Company to make or authorize any adjustment, recapitalization, reorganization or
other change in the Company's capital structure or its business, any merger or
consolidation of the Company, any issue of debt or equity securities ahead of or
affecting the Stock or the rights thereof, the dissolution or liquidation of the
Company or any sale, lease, exchange or other disposition of all or any part of
its assets or business or any other corporate act or proceeding.

     (b) The shares with respect to which Options may be granted are shares of
Stock as presently constituted, but if, and whenever, prior to the expiration of
an Option theretofore granted, the Company shall effect a subdivision or
consolidation of shares of Stock or the payment of a stock dividend on Stock
without receipt of consideration by the Company, the number of shares of Stock
with respect to which such Option may thereafter be exercised (i) in the event
of an increase in the number of outstanding shares shall be proportionately
increased, and the purchase price per share shall be proportionately reduced,
and (ii) in the event of a reduction in the number of outstanding shares shall
be proportionately reduced, and the purchase price per share shall be
proportionately increased.

     (c) If the Company recapitalizes or otherwise changes its capital
structure, thereafter upon any exercise of an Option theretofore granted the
optionee shall be entitled to purchase under such Option, in lieu of the number
of shares of Stock as to which such Option shall then be exercisable, the number
and class of shares of stock and securities to which the optionee would have
been entitled pursuant to the terms of the recapitalization if, immediately
prior to such recapitalization, the optionee had been the holder of record of
the number of shares of Stock as to which such Option is then exercisable. If
(i) the Company shall not be the surviving entity in any merger or consolidation
(or survives only as a subsidiary of an entity other than a previously
wholly-owned subsidiary of the Company), (ii) the Company sells, leases or
exchanges or agrees to sell, lease or exchange all or substantially all of its
assets to any other person or entity (other than a wholly-owned subsidiary of
the Company), (iii) the Company is to be dissolved and liquidated, (iv) any
person or entity, including a "group" as contemplated by Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended, acquires or gains ownership or
control (including, without limitation, power to vote) of more than 50% of the
outstanding shares of Stock, or (v) as a result of or in connection with a
contested election of directors, the persons who were directors of the

                                        4
<page>

Company before such election shall cease to constitute a majority of the Board
(each such event is referred to herein as a "Corporate Change"), then upon the
occurrence of any such Corporate Change, any outstanding Options held by
Non-employee Directors shall become fully exercisable and upon any exercise of
an Option theretofore granted the Non-employee Director shall be entitled to
purchase under such Option, in lieu of the number of shares of Stock as to which
such Option shall then be exercisable, the number and class of shares of stock
or other securities or property to which the Non-employee Director would have
been entitled pursuant to the terms of the Corporate Change if, immediately
prior to such Corporate Change, the Non-employee Director had been the holder of
record of the number of shares of Stock as to which such Option is then
exercisable.

     (d) Any adjustment provided for in Subparagraphs (b) or (c) above shall be
subject to any required stockholder action.

     (e) Except as hereinbefore expressly provided, the issuance by the Company
of shares of stock of any class or securities convertible into shares of stock
of any class, for cash, property, labor or services, upon direct sale, upon the
exercise of rights or warrants to subscribe therefor, or upon conversion of
shares or obligations of the Company convertible into such shares or other
securities, and in any case whether or not for fair value, shall not affect, and
no adjustment by reason thereof shall be made with respect to, the number of
shares of Stock subject to Options theretofore granted or the purchase price per
share.

     8. Amendment or Termination of the Plan. The Board in its discretion may
terminate the Plan at any time with respect to any shares for which Options have
not theretofore been granted. The Board shall have the right to alter or amend
the Plan or any part thereof from time to time, provided, that no change in any
Option theretofore granted may be made which would impair the rights of the
optionee without the consent of such optionee.

     9. Miscellaneous Provisions.

     (a) Neither the Plan nor any action taken hereunder shall be construed as
giving any Non-Employee Director any right to be retained in the service of the
Company.

     (b) An optionee's rights and interest under the Plan may not be assigned or
transferred in whole or in part either directly or by operation of law or
otherwise (except in the event of an optionee's death or disability, by will or
the laws of descent and distribution), including, but not by way of limitation,
execution, levy, garnishment, attachment, pledge, bankruptcy, or in any other
manner, and no such right or interest of any participant in the Plan shall be
subject to any obligation or liability of such participant.

                                       5

<page>

     (c) No shares of Stock shall be issued hereunder unless counsel for the
Company shall be satisfied that such issuance will be in compliance with
applicable Federal, state, and other securities laws and regulations.

     (d) It shall be a condition to the obligation of the Company to issue
shares of Stock upon exercise of an Option, that the optionee (or any
beneficiary or person entitled to act under or through Optionee as provided
herein) pay to the Company, upon its demand, such amount as may be requested by
the Company for the purpose of satisfying any liability to withhold Federal,
state, local, or foreign income or other taxes. If the amount requested is not
paid, the Company may refuse to issue shares of Stock.

     (e) By accepting any Option under the Plan, each optionee and each person
claiming under or through such person shall be conclusively deemed to have
indicated his or her acceptance and ratification of, and consent to, any action
taken under the Plan by the Company, the Board or the Committee.



                                       6

<page>


                                                                   EXHIBIT 31.1

                                 CERTIFICATIONS

I, Larry C. Oldham, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Parallel Petroleum
Corporation.

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operation and cash flows of the
registrant as of, and for, the periods presented in this report.

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)), for the registrant and have:

         a) Designed such disclosure controls and procedures, or caused such
     disclosure controls and procedures to be designed under our supervision, to
     ensure that material information relating to the registrant, including its
     consolidated subsidiaries, is made known to us by others within those
     entities, particularly during the period in which this report is being
     prepared;

         b) Evaluated the effectiveness of the registrant's disclosure controls
     and procedures and presented in this report our conclusions about the
     effectiveness of the disclosure controls and procedures, as of the end of
     the period covered by this report based on such evaluation; and

         c) Disclosed in this report any change in the registrant's internal
     control over financial reporting that occurred during the registrant's most
     recent fiscal quarter that has materially affected, or is reasonably likely
     to materially affect, the registrant's internal control over financial
     reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and audit committee of the registrant's board of directors
(or persons performing the equivalent functions):

         a) All significant deficiencies and material weaknesses in the design
     or operation of internal control over financial reporting which are
     reasonably likely to adversely affect the registrant's ability to record,
     process, summarize and report financial information; and

         b) Any fraud, whether or not material, that involves management or
     other employees who have a significant role in the registrant's internal
     control over financial reporting.

Dated: May 13, 2004                          /s/ Larry C. Oldham
                                             ---------------------------------
                                             Larry C. Oldham, President and
                                             Chief Executive Officer
                                             (principal executive officer)


<PAGE>


                                                                   EXHIBIT 31.2

                                 CERTIFICATIONS

I, Steven D. Foster, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Parallel Petroleum
Corporation.

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operation and cash flows of the
registrant as of, and for, the periods presented in this report.

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)), for the registrant and have:

         a) Designed such disclosure controls and procedures, or caused such
     disclosure controls and procedures to be designed under our supervision, to
     ensure that material information relating to the registrant, including its
     consolidated subsidiaries, is made known to us by others within those
     entities, particularly during the period in which this report is being
     prepared;

         b) Evaluated the effectiveness of the registrant's disclosure controls
     and procedures and presented in this report our conclusions about the
     effectiveness of the disclosure controls and procedures, as of the end of
     the period covered by this report based on such evaluation; and

         c) Disclosed in this report any change in the registrant's internal
     control over financial reporting that occurred during the registrant's most
     recent fiscal quarter that has materially affected, or is reasonably likely
     to materially affect, the registrant's internal control over financial
     reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and audit committee of the registrant's board of directors
(or persons performing the equivalent functions):

         a) All significant deficiencies and material weaknesses in the design
     or operation of internal control over financial reporting which are
     reasonably likely to adversely affect the registrant's ability to record,
     process, summarize and report financial information; and

         b) Any fraud, whether or not material, that involves management or
     other employees who have a significant role in the registrant's internal
     control over financial reporting.

Dated:  May 13, 2004                         /s/ Steven D. Foster
                                            ------------------------------
                                            Steven D. Foster
                                            Chief Financial Officer
                                            (principal financial officer)


<PAGE>


                                                                   Exhibit 32.1


                                  CERTIFICATION


           (Not filed pursuant to the Securities Exchange Act of 1934)


         Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, the undersigned, Larry C. Oldham, the
President and Chief Executive Officer of Parallel Petroleum Corporation
("Parallel"), hereby certifies that the Quarterly Report on Form 10-Q of
Parallel for the quarter ended March 31, 2004 fully complies with the periodic
reporting requirements of the Securities Exchange Act of 1934, as amended, and
the information contained in that Form 10-Q Report fairly presents, in all
material respects, the financial condition and results of operations of
Parallel.

Dated:  May 13, 2004


                                        /s/ Larry C. Oldham
                                        -------------------------------
                                        Larry C. Oldham,
                                        President and Chief Executive Officer



         A signed original of this written statement required by Section 906 has
been provided to Parallel Petroleum Corporation and will be retained by Parallel
Petroleum Corporation and furnished to the Securities and Exchange Commission or
its staff upon request.



<PAGE>



                                                                  Exhibit 32.2
                                  CERTIFICATION

           (Not filed pursuant to the Securities Exchange Act of 1934)

         Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, the undersigned, Steven D. Foster, the Chief
Financial Officer of Parallel Petroleum Corporation ("Parallel"), hereby
certifies that the Quarterly Report on Form 10-Q of Parallel for the quarter
ended March 31, 2004 fully complies with the periodic reporting requirements of
the Securities Exchange Act of 1934, as amended, and the information contained
in that Form 10-Q Report fairly presents, in all material respects, the
financial condition and results of operations of Parallel.

Dated:   May 13, 2004

                                       /s/ Steven D. Foster
                                       -------------------------------------
                                       Steven D. Foster,
                                       Chief Financial Officer



         A signed original of this written statement required by Section 906 has
been provided to Parallel Petroleum Corporation and will be retained by Parallel
Petroleum Corporation and furnished to the Securities and Exchange Commission or
its staff upon request.