##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D. C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2008 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Transition period from  to
 Commission File Number 000-13305
 PARALLEL PETROLEUM CORPORATION
  Delaware
    
    75-1971716(State of other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)1004 N. Big Spring, Suite 400, 
Midland, Texas
    
    79701(Address of Principal Executive Offices)
    
    (Zip Code)
 
 
  þ o
  Large accelerated filer þAccelerated filer oNon-accelerated filer o(Do not check if a smaller reporting company)Smaller reporting company o o þ




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##### 



Page No.PART I.  FINANCIAL INFORMATIONITEM 1.
    
    FINANCIAL STATEMENTSReference is made to the succeeding pages for the following consolidated financial statements:- Consolidated Balance Sheets as of June 30, 2008 (unaudited) and December 31, 2007
    
    
    1- Unaudited Consolidated Statements of Operations for the three months and six months
ended June 30, 2008 and 2007
    
    
    2- Unaudited Consolidated Statements of Cash Flows for the six months ended
June 30, 2008 and 2007
    
    
    3- Consolidated Statements of Stockholders Equity for year ended December 31, 2007
and as of June 30, 2008 (unaudited)
    
    
    4- Notes to Consolidated Financial Statements
    
    
    5ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    19ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    37ITEM 4.
    
    CONTROLS AND PROCEDURES
    
    
    40PART II.  OTHER INFORMATIONITEM 1.
    
    LEGAL PROCEEDINGS
    
    
    40ITEM 1A.
    
    RISK FACTORS
    
    
    42ITEM 2.
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    42ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    43ITEM 6.
    
    EXHIBITS
    
    
    43SIGNATURESCertification of Principal Executive Officer pursuant to Section 302Certification of Principal Financial Officer pursuant to Section 302Certification of Principal Executive Officer pursuant to Section 906Certification of Principal Financial Officer pursuant to Section 906




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##### Table of Contents



PART 1 FINANCIAL INFORMATION
 
 ITEM 1.
    
    FINANCIAL STATEMENTS
 
 PARALLEL PETROLEUM CORPORATION
Consolidated Balance Sheets  ($ in thousands)
 June 30,
    
    
    December 31,2008
    
    
    2007(unaudited)AssetsCurrent assets:Cash and cash equivalents
    
    $
    8,910
    
    
    $
    7,816Accounts receivable:Oil and natural gas sales
    
    
    33,334
    
    
    
    20,499Joint interest owners and other, net of allowance for doubtful account of $50
    
    
    1,905
    
    
    
    2,460Affiliates and joint ventures
    
    
    6
    
    
    
    3,97035,245
    
    
    
    26,929Other current assets
    
    
    548
    
    
    
    600Deferred tax asset
    
    
    21,461
    
    
    
    10,293Total current assets
    
    
    66,164
    
    
    
    45,638Property and equipment, at cost:Oil and natural gas properties, full cost method (including $109,761 and $86,402 not
subject to depletion)
    
    
    782,492
    
    
    
    648,576Other
    
    
    3,033
    
    
    
    2,877785,525
    
    
    
    651,453Less accumulated depreciation, depletion and amortization
    
    
    (165,196
    )
    
    
    (145,482
    )Net property and equipment
    
    
    620,329
    
    
    
    505,971Restricted cash
    
    
    80
    
    
    
    78Investment in pipelines and gathering system ventures
    
    
    328
    
    
    
    8,638Other assets, net of accumulated amortization of $1,711 and $1,425
    
    
    3,886
    
    
    
    2,768$
    690,787
    
    
    $
    563,093Liabilities and Stockholders EquityCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    62,917
    
    
    $
    47,848Asset retirement obligations
    
    
    877
    
    
    
    598Derivative obligations
    
    
    62,962
    
    
    
    30,424Put obligations
    
    
    302
    
    
    
    Total current liabilities
    
    
    127,058
    
    
    
    78,870Revolving credit facility
    
    
    137,000
    
    
    
    60,000Senior notes (principal amount $150,000)
    
    
    145,630
    
    
    
    145,383Asset retirement obligations
    
    
    4,729
    
    
    
    4,339Derivative obligations
    
    
    47,836
    
    
    
    13,194Put obligations
    
    
    3,029
    
    
    
    Deferred tax liability
    
    
    19,916
    
    
    
    26,045Total long-term liabilities
    
    
    358,140
    
    
    
    248,961Commitments and contingenciesStockholders equity:Series A preferred stock  par value $0.10 per share, authorized 50,000 shares
    
    
    
    
    
    
    Common stock  par value $0.01 per share, authorized 60,000,000 shares,
issued and outstanding 41,545,114 and 41,252,644
    
    
    415
    
    
    
    412Additional paid-in capital
    
    
    198,726
    
    
    
    196,457Retained earnings
    
    
    6,448
    
    
    
    38,393Total stockholders equity
    
    
    205,589
    
    
    
    235,262$
    690,787
    
    
    $
    563,093
  (1)




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##### Table of Contents



PARALLEL PETROLEUM CORPORATION
Consolidated Statements of Operations  (unaudited)
(in thousands, except per share data)
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Oil and natural gas revenues:Oil and natural gas sales
    
    $
    56,075
    
    
    $
    27,354
    
    
    $
    100,016
    
    
    $
    50,470Cost and expenses:Lease operating expense
    
    
    7,254
    
    
    
    5,576
    
    
    
    14,233
    
    
    
    9,975Production taxes
    
    
    2,996
    
    
    
    1,194
    
    
    
    5,285
    
    
    
    2,248Production tax refund
    
    
    
    
    
    
    (1,209
    )
    
    
    
    
    
    
    (1,209
    )General and administrative
    
    
    3,265
    
    
    
    2,580
    
    
    
    5,833
    
    
    
    5,245Depreciation, depletion and amortization
    
    
    10,483
    
    
    
    7,150
    
    
    
    19,835
    
    
    
    13,859Total costs and expenses
    
    
    23,998
    
    
    
    15,291
    
    
    
    45,186
    
    
    
    30,118Operating income
    
    
    32,077
    
    
    
    12,063
    
    
    
    54,830
    
    
    
    20,352Other income (expense), net:Loss on derivatives not classified as hedges
    
    
    (71,609
    )
    
    
    (2,170
    )
    
    
    (93,495
    )
    
    
    (6,605
    )Interest and other income
    
    
    32
    
    
    
    56
    
    
    
    65
    
    
    
    108Interest expense
    
    
    (5,368
    )
    
    
    (4,312
    )
    
    
    (10,886
    )
    
    
    (8,020
    )Other expense
    
    
    (1
    )
    
    
    21
    
    
    
    (1
    )
    
    
    (15
    )Equity in gain (loss) of pipelines
and gathering system ventures
    
    
    165
    
    
    
    (289
    )
    
    
    382
    
    
    
    (594
    )Total other income (expense), net
    
    
    (76,781
    )
    
    
    (6,694
    )
    
    
    (103,935
    )
    
    
    (15,126
    )Income (loss) before income taxes
    
    
    (44,704
    )
    
    
    5,369
    
    
    
    (49,105
    )
    
    
    5,226Income tax benefit (expense), deferred
    
    
    15,499
    
    
    
    (1,905
    )
    
    
    17,160
    
    
    
    (1,858
    )Net income (loss)
    
    $
    (29,205
    )
    
    $
    3,464
    
    
    $
    (31,945
    )
    
    $
    3,368Net income (loss) per common share:Basic
    
    $
    (0.70
    )
    
    $
    0.09
    
    
    $
    (0.77
    )
    
    $
    0.09Diluted
    
    $
    (0.70
    )
    
    $
    0.09
    
    
    $
    (0.77
    )
    
    $
    0.09Weighted average common shares outstanding:Basic
    
    
    41,446
    
    
    
    37,786
    
    
    
    41,359
    
    
    
    37,667Diluted
    
    
    41,446
    
    
    
    38,769
    
    
    
    41,359
    
    
    
    38,763
  (2)




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PARALLEL PETROLEUM CORPORATION
Consolidated Statements of Cash Flows
Six Months Ended June 30, 2008 and 2007  (unaudited)
($ in thousands)
 2008
    
    
    2007Cash flows from operating activities:Net income (loss)
    
    $
    (31,945
    )
    
    $
    3,368Adjustments to reconcile net income (loss) to net cash
provided by operating activities:Depreciation, depletion and amortization
    
    
    19,835
    
    
    
    13,859Gain on sale of automobiles
    
    
    (4
    )
    
    
    Accretion of asset retirement obligation
    
    
    187
    
    
    
    164Accretion of senior notes discount
    
    
    247
    
    
    
    Deferred income tax (benefit) expense
    
    
    (17,160
    )
    
    
    1,858Loss on derivatives not classified as hedges
    
    
    93,495
    
    
    
    6,605Accretion of
interest on put obligations
    
    
    6
    
    
    
    Common stock issued to directors
    
    
    217
    
    
    
    Stock option expense
    
    
    227
    
    
    
    59Equity in (gain) loss of pipelines and gathering system ventures
    
    
    (382
    )
    
    
    594Bad debt expense
    
    
    
    
    
    
    (30
    )Changes in assets and liabilities:Other assets, net
    
    
    (480
    )
    
    
    (88
    )Restricted cash
    
    
    (2
    )
    
    
    273Accounts receivable
    
    
    (8,316
    )
    
    
    5,889Other current assets
    
    
    (99
    )
    
    
    293Accounts payable and accrued liabilities
    
    
    15,069
    
    
    
    1,831Net cash provided by operating activities
    
    
    70,895
    
    
    
    34,675Cash flows from investing activities:Additions to oil and natural gas properties
    
    
    (124,727
    )
    
    
    (73,553
    )Proceeds from disposition of oil and natural gas properties
    
    
    
    
    
    
    1,764Additions to other property and equipment
    
    
    (273
    )
    
    
    (214
    )Settlements on derivative instruments
    
    
    (22,839
    )
    
    
    (5,862
    )Net investment in pipelines and gathering system ventures
    
    
    (15
    )
    
    
    (2,848
    )Net cash used in investing activities
    
    
    (147,854
    )
    
    
    (80,713
    )Cash flows from financing activities:Borrowings from bank line of credit
    
    
    77,000
    
    
    
    46,000Payments on bank line of credit
    
    
    
    
    
    
    (1,500
    )Deferred financing cost
    
    
    (270
    )
    
    
    (175
    )Proceeds from exercise of stock options and warrants
    
    
    1,323
    
    
    
    1,318Net cash provided by financing activities
    
    
    78,053
    
    
    
    45,643Net increase (decrease) in cash and cash equivalents
    
    
    1,094
    
    
    
    (395
    )Cash and cash equivalents at beginning of period
    
    
    7,816
    
    
    
    5,910Cash and cash equivalents at end of period
    
    $
    8,910
    
    
    $
    5,515Non-cash financing and investing activities:Deferred
purchase of derivative puts
    
    $
    3,325
    
    
    $
    Oil and natural gas properties asset retirement obligations
    
    $
    482
    
    
    $
    (385
    )Property transfer:Transfer to oil and natural gas properties
    
    $
    8,707
    
    
    $
    Transfer from equity investment
    
    $
    (8,707
    )
    
    $
    Non-cash exchange of oil and natural gas properties:Properties received in exchange
    
    $
    
    
    
    $
    6,463Properties delivered in exchange
    
    $
    
    
    
    $
    (5,495
    )Other transactions:Interest paid
    
    $
    9,901
    
    
    $
    8,474
  (3)




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##### Table of Contents



PARALLEL PETROLEUM CORPORATION
Consolidated Statements of Stockholders Equity
Year-Ended December 31, 2007 and Year-to-Date June 30, 2008  (unaudited)
(in thousands)
 Common stock
    
    
    Additional
    
    
    
    
    
    
    TotalNumber of
    
    
    
    
    
    
    paid-in
    
    
    Retained
    
    
    stockholdersshares
    
    
    Amount
    
    
    capital
    
    
    earnings
    
    
    equityBalanceDecember 31, 2007
    
    
    41,253
    
    
    $
    412
    
    
    $
    196,457
    
    
    $
    38,393
    
    
    $
    235,262Common stock issued to directors
    
    
    18
    
    
    
    
    
    
    
    217
    
    
    
    
    
    
    
    217Warrants exercised
    
    
    149
    
    
    
    1
    
    
    
    891
    
    
    
    
    
    
    
    892Fees associated with warrant exercise
    
    
    
    
    
    
    
    
    
    
    (74
    )
    
    
    
    
    
    
    (74
    )Options exercised
    
    
    125
    
    
    
    2
    
    
    
    503
    
    
    
    
    
    
    
    505Stock offering costs
    
    
    
    
    
    
    
    
    
    
    368
    
    
    
    
    
    
    
    368Stock option expense
    
    
    
    
    
    
    
    
    
    
    227
    
    
    
    
    
    
    
    227Tax benefit of stock option exercise
in excess of compensation
    
    
    
    
    
    
    
    
    
    
    137
    
    
    
    
    
    
    
    137Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (31,945
    )
    
    
    (31,945
    )BalanceJune 30, 2008
    
    
    41,545
    
    
    $
    415
    
    
    $
    198,726
    
    
    $
    6,448
    
    
    $
    205,589
  (4)




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##### Table of Contents



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




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##### Table of Contents



($ in thousands)Third quarter 2008
    
    $
    559Fourth quarter 2008
    
    
    5352009
    
    
    1,5342010
    
    
    7892011 and 2012
    
    
    480Total
    
    $
    3,897
   2008
    
    2007
    
    2005
    
    2001Expected volatility
    
    
    46.50
    %
    
    
    52.52
    %
    
    
    54.20
    %
    
    
    57.95
    %Weighted-average volatility
    
    
    46.50
    %
    
    
    52.52
    %
    
    
    54.20
    %
    
    
    57.95
    %Expected dividends
    
    
    0.00
    
    
    
    0.00
    
    
    
    0.00
    
    
    
    0.00Expected term (in years)
    
    
    6.25
    
    
    
    5.75
    
    
    
    6.50
    
    
    
    7.50Risk-free rate
    
    
    3.81%-3.86
    %
    
    
    4.89
    %
    
    
    4.20
    %
    
    
    5.05
    %
  WeightedAverageWeighted
    
    
    RemainingAverage Exercise
    
    
    Contractual
    
    
    AggregateOptions
    
    
    Price
    
    
    Term
    
    
    Intrinsic Value(in thousands)
    
    
    
    
    
    
    (years)
    
    
    (in thousands)Outstanding December 31, 2007
    
    
    558
    
    
    $
    7.03Granted
    
    
    355
    
    
    $
    21.02Exercised
    
    
    (126
    )
    
    $
    3.99Surrendered
    
    
    
    
    
    $
    Outstanding June 30, 2008
    
    
    787
    
    
    $
    13.84
    
    
    
    9.1
    
    
    $
    4,949Exercisable at June 30, 2008
    
    
    310
    
    
    $
    6.45
    
    
    
    4.4
    
    
    $
    4,242
 ($ in thousands)Average weighted grant date fair value of options issued and unvested, June 30, 2008
    
    $
    4,596Average weighted grant date fair value of options issued and outstanding, June 30, 2008
    
    $
    5,750
 (6)




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Restricted Stock
 th
  ($ in thousands)Third quarter 2008
    
    $
    24Fourth quarter 2008
    
    
    242009
    
    
    672010
    
    
    292011
    
    
    7Total
    
    $
    151
  WeightedAverageRemainingAward Date
    
    
    ContractualRestricted Stock
    
    
    Fair Value
    
    
    Term(years)Outstanding December 31, 2007
    
    
    
    
    
    $
    Granted
    
    
    10,000
    
    
    $
    20.91Vested
    
    
    (2,500
    )
    
    $
    20.91Surrendered
    
    
    
    
    
    $
    Non-vested shares at June 30, 2008
    
    
    7,500
    
    
    $
    20.91
    
    
    
    2.9
 Stock Awards
  Warrants
  (7)




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NOTE 3. CREDIT FACILITIES
   Revolving Credit Facility
      (8)




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##### Table of Contents



Senior Notes
   Interest Accrued
  NOTE 4. PROPERTY EXCHANGE AND ACQUISITIONS
  (9)




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##### Table of Contents



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




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##### Table of Contents



Adoption of SFAS No. 157
  Level 1:

    
    Unadjusted quoted prices in active markets that are accessible at
the measurement date for identical, unrestricted assets or liabilities. We
consider active markets as those in which transactions for the assets or
liabilities occur in sufficient frequency and volume to provide pricing
information on an ongoing basis.Level 2:

    
    Quoted prices in markets that are not active, or inputs which are
observable, either directly or indirectly, for substantially the full term of
the asset or liability. This category includes those derivative instruments
that we value using observable market data. Substantially all of these inputs
are observable in the marketplace throughout the full term of the derivative
instrument, can be derived from observable data, or supported by observable
levels at which transactions are executed in the marketplace. Instruments in
this category include non-exchange traded derivatives such as
over-the-counter commodity price swaps and interest rate swaps.Level 3:

    
    Measured based on prices or valuation models that require inputs
that are both significant to the fair value measurement and less observable
from objective sources (i.e., supported by little or no market activity). Our
valuation models are primarily industry-standard models that consider various
inputs including: (a) quoted forward prices for commodities, (b) time value,
(c) volatility factors and (d) current market and contractual prices for the
underlying instruments, as well as other relevant economic measures. Level 3
instruments primarily include derivative instruments, such as commodity price
collars and puts. Although we review our counterpartys valuation and assess
the reasonableness of our prices and valuation techniques, we do not have
sufficient corroborating market evidence to support classifying these price
collars and put assets and liabilities as Level 2.
 (11)




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Quoted Prices inActive Marketsfor Identical
    
    
    Other Observable
    
    
    Unobservable
    
    
    Fair Value atAssets (Level 1)
    
    
    Inputs (Level 2)
    
    
    Inputs (Level 3)
    
    
    June 30, 2008Interest Swaps
    
    $
    
    
    
    $
    (2,123
    )
    
    $
    
    
    
    $
    (2,123
    )Oil Swaps
    
    $
    
    
    
    $
    (23,557
    )
    
    $
    
    
    
    $
    (23,557
    )Oil & Gas Collars
    
    $
    
    
    
    $
    
    
    
    $
    (88,018
    )
    
    $
    (88,018
    )Oil Puts
    
    $
    
    
    
    $
    
    
    
    $
    2,900
    
    
    $
    2,900$
    
    
    
    $
    (25,680
    )
    
    $
    (85,118
    )
    
    $
    (110,798
    )
   Three Months Ended
    
    
    Six Months EndedJune 30, 2008
    
    
    June 30, 2008Derivative
    
    
    Derivative
    
    
    Derivative
    
    
    DerivativeCollars
    
    
    Puts
    
    
    Collars
    
    
    PutsBeginning balance
    
    $
    (31,389
    )
    
    $
    
    
    
    $
    (15,852
    )
    
    $
    Total losses
    
    
    (60,743
    )
    
    
    (425
    )
    
    
    (77,489
    )
    
    
    (425
    )Settlements
    
    
    4,114
    
    
    
    
    
    
    
    5,323
    
    
    
    Purchases
    
    
    
    
    
    
    3,325
    
    
    
    
    
    
    
    3,325Transfers in and/or out of level 3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Ending balance
    
    $
    (88,018
    )
    
    $
    2,900
    
    
    $
    (88,018
    )
    
    $
    2,900Change in unrealized losses included in earnings relating
to derivatives still held as of June 30, 2008(1)
    
    $
    (56,629
    )
    
    $
    (425
    )
    
    $
    (72,166
    )
    
    $
    (425
    )
 
 (1)
    
    Gains and losses (realized and unrealized) included in earnings for the three months and six months ended
June 30, 2008 are reported in Other Income on the Consolidated Statement of Operations. Interest Rate Sensitivity
  (12)




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##### Table of Contents



Notional
    
    
    Weighted Average
    
    
    EstimatedPeriod of Time
    
    Amounts
    
    
    Fixed Interest Rates
    
    
    Fair Market Value($ in millions)
    
    
    
    
    
    
    ($ in thousands)July 1, 2008 through December 31, 2008
    
    $
    100
    
    
    
    4.86
    %
    
    $
    (997
    )January 1, 2009 through December 31, 2009
    
    $
    50
    
    
    
    5.06
    %
    
    
    (774
    )January 1, 2010 through October 31, 2010
    
    $
    50
    
    
    
    5.15
    %
    
    
    (352
    )Total Fair Market Value
    
    
    
    
    
    
    
    
    
    $
    (2,123
    )
 Commodity Price Sensitivity
  Put Options.
   EstimatedBarrels of
    
    
    
    
    
    
    Fair MarketPeriod of Time
    
    Oil
    
    
    Floor
    
    
    Value($ in thousands)January 1, 2009 through December 31, 2009
    
    
    109,500
    
    
    $
    100.00
    
    
    $
    505January 1, 2010 through December 31, 2010
    
    
    134,100
    
    
    $
    100.00
    
    
    
    1,087January 1, 2011 through December 31, 2011
    
    
    146,000
    
    
    $
    100.00
    
    
    
    1,308Total Fair Market Value
    
    
    
    
    
    
    
    
    
    $
    2,900
 Collars.
 (13)




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##### Table of Contents



EstimatedBarrels of
    
    
    NYMEX Oil Prices
    
    
    Fair MarketPeriod of Time
    
    Oil
    
    
    Floor
    
    
    Cap
    
    
    Value($ in thousands)July 1, 2008 through December 31, 2008
    
    
    174,800
    
    
    $
    63.42
    
    
    $
    83.86
    
    
    $
    (9,941
    )January 1, 2009 through December 31, 2009
    
    
    620,500
    
    
    $
    63.53
    
    
    $
    80.21
    
    
    
    (36,970
    )January 1, 2010 through October 31, 2010
    
    
    486,400
    
    
    $
    63.44
    
    
    $
    78.26
    
    
    
    (28,180
    )MMBtu of
    
    
    WAHA Gas PricesNatural Gas
    
    
    Floor
    
    
    CapJuly 1, 2008 through December 31, 2008
    
    
    1,840,000
    
    
    $
    7.38
    
    
    $
    9.28
    
    
    
    (5,455
    )January 1, 2009 through December 31, 2009
    
    
    3,285,000
    
    
    $
    7.06
    
    
    $
    9.93
    
    
    
    (7,472
    )Total Fair Market Value
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (88,018
    )
 Commodity Swaps.
  EstimatedBarrels of
    
    
    NYMEX Oil
    
    
    Fair MarketPeriod of Time
    
    Oil
    
    
    Swap Price
    
    
    Value($ in thousandsJuly 1, 2008 through December 31, 2008
    
    
    220,800
    
    
    $
    33.37
    
    
    $
    (23,557
    )
 NOTE 7. NET INCOME (LOSS) PER COMMON SHARE
  (14)




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Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(in thousands, except per share data)Basic EPS Computation:Numerator-Net income (loss)
    
    $
    (29,205
    )
    
    $
    3,464
    
    
    $
    (31,945
    )
    
    $
    3,368Denominator-Weighted average common shares outstanding
    
    
    41,446
    
    
    
    37,786
    
    
    
    41,359
    
    
    
    37,667Basic EPS:Net income (loss) per share
    
    $
    (0.70
    )
    
    $
    0.09
    
    
    $
    (0.77
    )
    
    $
    0.09Diluted EPS Computation:Numerator-Net income (loss)
    
    $
    (29,205
    )
    
    $
    3,464
    
    
    $
    (31,945
    )
    
    $
    3,368Denominator -Weighted average common shares outstanding
    
    
    41,446
    
    
    
    37,786
    
    
    
    41,359
    
    
    
    37,667Employee stock options
    
    
    
    
    
    
    714
    
    
    
    
    
    
    
    812Warrants
    
    
    
    
    
    
    269
    
    
    
    
    
    
    
    284Weighted average common shares for diluted
earnings per share assuming conversion
    
    
    41,446
    
    
    
    38,769
    
    
    
    41,359
    
    
    
    38,763Diluted EPS:Net income (loss) per share
    
    $
    (0.70
    )
    
    $
    0.09
    
    
    $
    (0.77
    )
    
    $
    0.09
  NOTE 8. ASSET RETIREMENT OBLIGATIONS
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007($ in thousands)Beginning asset retirement obligation
    
    $
    5,802
    
    
    $
    5,034
    
    
    $
    4,937
    
    
    $
    5,063Additions related to new properties
    
    
    554
    
    
    
    48
    
    
    
    706
    
    
    
    66Revisions in estimated cash flows
    
    
    (851
    )
    
    
    (55
    )
    
    
    (209
    )
    
    
    (167
    )Deletions related to property disposals
    
    
    (3
    )
    
    
    (265
    )
    
    
    (15
    )
    
    
    (284
    )Accretion expense
    
    
    104
    
    
    
    80
    
    
    
    187
    
    
    
    164Ending asset retirement obligation
    
    $
    5,606
    
    
    $
    4,842
    
    
    $
    5,606
    
    
    $
    4,842
 (15)




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##### Table of Contents



NOTE 9. RECENTLY ANNOUNCED ACCOUNTING PRONOUNCEMENTS
 Fair Value Measurements
 The Fair Value Option for Financial Assets and
Financial Liabilities, Including an Amendment of FASB Statement No. 115,
 Business Combinations
 Noncontrolling Interests in Consolidated
Financial Statementsan amendment of ARB No. 51
  (16)




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NOTE 10. INVESTMENT IN GAS GATHERING SYSTEMS
    NOTE 11. COMMITMENTS AND CONTINGENCIES
    th
  (17)




---



##### Table of Contents



(18)




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
  OVERVIEW
 Strategy
 Conduct Exploitation Activities on Our Existing Assets.
 Use of Horizontal Drilling and Fracture Stimulation Activities in Gas Resource Plays.
 Use Advanced Technologies and Production Techniques.
 Acquire Long-Lived Properties with Enhancement Opportunities.
 Conduct Exploratory Activities.
  
    
    the prices we receive for the oil and natural gas we produce;
 (19)




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##### Table of Contents




    
    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 ventures
or other similar arrangements on terms acceptable to us.
  Operating Performance
  
    
    seasonal demand;
    
    weather;
    
    hurricane conditions in the Gulf of Mexico;
    
    availability of pipeline transportation to end users;
    
    proximity of our wells to major transportation pipeline infrastructures; and
    
    to a lesser extent, world oil prices.
  
    
    production expenses;
    
    overhead requirements;
    
    costs of capital; and
    
    effects of derivative contracts.
  
    
    cash flow from operations;
    
    sales of our equity and debt securities;
    
    bank borrowings; and
    
    industry joint ventures.
  (20)




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##### Table of Contents



Results of Operations
  
    
    reserve base;
    
    sources of production;
    
    product mix (gas versus oil volumes); and
    
    the prices we receive for our oil and natural gas production.
 (21)




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##### Table of Contents



Three Months Ended
    
    
    Six Months Ended6/30/2008
    
    
    6/30/2007
    
    
    6/30/2008
    
    
    6/30/2007(in thousands, except per unit data)Production Volumes:Oil (Bbls)
    
    
    237
    
    
    
    270
    
    
    
    484
    
    
    
    543Natural gas (Mcf)
    
    
    2,790
    
    
    
    1,679
    
    
    
    5,452
    
    
    
    3,200BOE(1)
    
    
    702
    
    
    
    550
    
    
    
    1,393
    
    
    
    1,076BOE per day
    
    
    7.7
    
    
    
    6.0
    
    
    
    7.7
    
    
    
    5.9Sales Prices:Oil (per Bbl)
    
    $
    119.42
    
    
    $
    59.24
    
    
    $
    106.32
    
    
    $
    55.56Natural gas (per Mcf)
    
    $
    9.95
    
    
    $
    6.79
    
    
    $
    8.90
    
    
    $
    6.34BOE price
    
    $
    79.86
    
    
    $
    49.81
    
    
    $
    71.80
    
    
    $
    46.89Operating RevenuesOil
    
    $
    28,322
    
    
    $
    15,956
    
    
    $
    51,491
    
    
    $
    30,167Natural gas
    
    
    27,753
    
    
    
    11,398
    
    
    
    48,525
    
    
    
    20,303$
    56,075
    
    
    $
    27,354
    
    
    $
    100,016
    
    
    $
    50,470Operating Expenses:Lease operating expense
    
    $
    7,254
    
    
    $
    5,576
    
    
    $
    14,233
    
    
    $
    9,975Production taxes
    
    
    2,996
    
    
    
    1,194
    
    
    
    5,285
    
    
    
    2,248Production tax refund
    
    
    
    
    
    
    (1,209
    )
    
    
    
    
    
    
    (1,209
    )General and administrative
    
    
    3,265
    
    
    
    2,580
    
    
    
    5,833
    
    
    
    5,245Depreciation, depletion and amortization
    
    
    10,483
    
    
    
    7,150
    
    
    
    19,835
    
    
    
    13,859$
    23,998
    
    
    $
    15,291
    
    
    $
    45,186
    
    
    $
    30,118Operating income
    
    $
    32,077
    
    
    $
    12,063
    
    
    $
    54,830
    
    
    $
    20,352
 
 (1)
    
    A BOE means one barrel of oil equivalent using the ratio of six Mcf of gas to
one barrel of oil. RESULTS OF OPERATIONS
 For the Three Months Ended June 30, 2008 and 2007:
  Revenues
    
    Production2008
    
    2007
    
    2008
    
    2007Oil
    
    
    51
    %
    
    
    58
    %
    
    
    34
    %
    
    
    49
    %Natural gas
    
    
    49
    %
    
    
    42
    %
    
    
    66
    %
    
    
    51
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 (22)




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##### Table of Contents



Three Months Ended June 30,
    
    
    Increase
    
    
    % Increase2008
    
    
    2007
    
    
    (Decrease)
    
    
    (Decrease)(in thousands except per unit data)Production VolumesOil (Bbls)
    
    
    237
    
    
    
    270
    
    
    
    (33
    )
    
    
    (12
    )%Natural gas (Mcf)
    
    
    2,790
    
    
    
    1,679
    
    
    
    1,111
    
    
    
    66
    %BOE
    
    
    702
    
    
    
    550
    
    
    
    152
    
    
    
    28
    %BOE/Day
    
    
    7.7
    
    
    
    6.0
    
    
    
    1.7
    
    
    
    28
    %Sales PriceOil (per Bbl)
    
    $
    119.42
    
    
    $
    59.24
    
    
    $
    60.18
    
    
    
    102
    %Natural gas (per Mcf)
    
    $
    9.95
    
    
    $
    6.79
    
    
    $
    3.16
    
    
    
    47
    %BOE price
    
    $
    79.86
    
    
    $
    49.81
    
    
    $
    30.05
    
    
    
    60
    %Operating RevenuesOil
    
    $
    28,322
    
    
    $
    15,956
    
    
    $
    12,366
    
    
    
    78
    %Natural gas
    
    
    27,753
    
    
    
    11,398
    
    
    
    16,355
    
    
    
    143
    %Total
    
    $
    56,075
    
    
    $
    27,354
    
    
    $
    28,721
    
    
    
    105
    %
 Oil revenues
  Natural gas revenues
  Cost and Expenses
 Three months ended June 30,
    
    
    Increase
    
    
    % Increase2008
    
    
    2007
    
    
    (Decrease)
    
    
    (Decrease)($ in thousands)Lease operating expense
    
    $
    7,254
    
    
    $
    5,576
    
    
    $
    1,678
    
    
    
    30
    %Production taxes
    
    
    2,996
    
    
    
    1,194
    
    
    
    1,802
    
    
    
    151
    %Production tax refund
    
    
    
    
    
    
    (1,209
    )
    
    
    1,209
    
    
    
    (100
    )%General and administrative
    
    
    3,265
    
    
    
    2,580
    
    
    
    685
    
    
    
    27
    %Depreciation, depletion and amortization
    
    
    10,483
    
    
    
    7,150
    
    
    
    3,333
    
    
    
    47
    %Total
    
    $
    23,998
    
    
    $
    15,291
    
    
    $
    8,707
    
    
    
    57
    %
 (23)




---



##### Table of Contents



Lease operating expense
  Production taxes
  General and administrative
  Depreciation, depletion and amortization
  Other income (expense)
 Three months ended June 30,
    
    
    Increase
    
    
    % Increase2008
    
    
    2007
    
    
    (Decrease)
    
    
    (Decrease)($ in thousands)Loss on derivatives not classified as hedges
    
    $
    (71,609
    )
    
    $
    (2,170
    )
    
    $
    (69,439
    )
    
    
    3,200
    %Interest and other income
    
    
    32
    
    
    
    56
    
    
    
    (24
    )
    
    
    (43
    )%Interest expense
    
    
    (5,368
    )
    
    
    (4,312
    )
    
    
    (1,056
    )
    
    
    24
    %Other expense
    
    
    (1
    )
    
    
    21
    
    
    
    (22
    )
    
    
    (105
    )%Equity in gain (loss) of pipelines and
gathering system ventures
    
    
    165
    
    
    
    (289
    )
    
    
    454
    
    
    
    157
    %Total
    
    $
    (76,781
    )
    
    $
    (6,694
    )
    
    $
    (70,087
    )
    
    
    1,047
    %
 (24)




---



##### Table of Contents



Loss on derivatives not classified as hedges
  Interest expense
  Equity in gain (loss) of pipelines and gathering system ventures
   Income taxes
  Basic and diluted net income (loss)
  (25)




---



##### Table of Contents



RESULTS OF OPERATIONS
 For the Six Months Ended June 30, 2008 and 2007:
  Revenues
    
    Production2008
    
    2007
    
    2008
    
    2007Oil
    
    
    51
    %
    
    
    60
    %
    
    
    35
    %
    
    
    50
    %Natural gas
    
    
    49
    %
    
    
    40
    %
    
    
    65
    %
    
    
    50
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
  Six Months Ended June 30,
    
    
    Increase
    
    
    % Increase2008
    
    
    2007
    
    
    (Decrease)
    
    
    (Decrease)(in thousands except per unit data)Production VolumesOil (Bbls)
    
    
    484
    
    
    
    543
    
    
    
    (59
    )
    
    
    (11
    )%Natural gas (Mcf)
    
    
    5,452
    
    
    
    3,200
    
    
    
    2,252
    
    
    
    70
    %BOE
    
    
    1,393
    
    
    
    1,076
    
    
    
    317
    
    
    
    29
    %BOE/Day
    
    
    7.7
    
    
    
    5.9
    
    
    
    1.8
    
    
    
    31
    %Sales PriceOil (per Bbl)
    
    $
    106.32
    
    
    $
    55.56
    
    
    $
    50.76
    
    
    
    91
    %Natural gas (per Mcf)
    
    $
    8.90
    
    
    $
    6.34
    
    
    $
    2.56
    
    
    
    40
    %BOE price
    
    $
    71.80
    
    
    $
    46.89
    
    
    $
    24.91
    
    
    
    53
    %Operating RevenuesOil
    
    $
    51,491
    
    
    $
    30,167
    
    
    
    21,324
    
    
    
    71
    %Natural gas
    
    
    48,525
    
    
    
    20,303
    
    
    
    28,222
    
    
    
    139
    %Total
    
    $
    100,016
    
    
    $
    50,470
    
    
    $
    49,546
    
    
    
    98
    %
 Oil revenues
  Natural gas revenues
  (26)




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##### Table of Contents



Cost and Expenses
 Six months ended June 30,
    
    
    Increase
    
    
    % Increase2008
    
    
    2007
    
    
    (Decrease)
    
    
    (Decrease)($ in thousands)Lease operating expense
    
    $
    14,233
    
    
    $
    9,975
    
    
    $
    4,258
    
    
    
    43
    %Production taxes
    
    
    5,285
    
    
    
    2,248
    
    
    
    3,037
    
    
    
    135
    %Production tax refund
    
    
    
    
    
    
    (1,209
    )
    
    
    1,209
    
    
    
    (100
    )%General and administrative
    
    
    5,833
    
    
    
    5,245
    
    
    
    588
    
    
    
    11
    %Depreciation, depletion and amortization
    
    
    19,835
    
    
    
    13,859
    
    
    
    5,976
    
    
    
    43
    %Total
    
    $
    45,186
    
    
    $
    30,118
    
    
    $
    15,068
    
    
    
    50
    %
 Lease operating expense
  Production taxes
   General and Administrative
  (27)




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##### Table of Contents



Depreciation, depletion and amortization
  Other income (expense)
 Six months ended June 30,
    
    
    Increase
    
    
    % Increase2008
    
    
    2007
    
    
    (Decrease)
    
    
    (Decrease)($ in thousands)Loss on derivatives not classified as hedges
    
    $
    (93,495
    )
    
    $
    (6,605
    )
    
    $
    (86,890
    )
    
    
    1,316
    %Interest and other income
    
    
    65
    
    
    
    108
    
    
    
    (43
    )
    
    
    (40
    )%Interest expense
    
    
    (10,886
    )
    
    
    (8,020
    )
    
    
    (2,866
    )
    
    
    36
    %Other expense
    
    
    (1
    )
    
    
    (15
    )
    
    
    14
    
    
    
    (93
    )%Equity in gain (loss) of pipelines
and gathering system ventures
    
    
    382
    
    
    
    (594
    )
    
    
    976
    
    
    
    (164
    )%Total
    
    $
    (103,935
    )
    
    $
    (15,126
    )
    
    $
    (88,809
    )
    
    
    587
    %
 Loss on derivatives not classified as hedges
  Interest expense
  Equity in gain (loss) of pipelines and gathering system ventures
   (28)




---



##### Table of Contents



Income taxes
  Basic and diluted net income (loss)
  LIQUIDITY AND CAPITAL RESOURCES
       (29)




---



##### Table of Contents



Bank Borrowings
   Revolving Credit Facility
        (30)




---



##### Table of Contents



Senior Notes
   Interest Accrued
  Commodity Price Risk Management Transactions and Effects of Derivative Instruments
   (31)




---



##### Table of Contents



Contractual Obligations, Commitments and Off-Balance Sheet Arrangements
   Obligation Due in PeriodSix MonthsendingDecember 31,
    
    
    Years ended December 31,
    
    
    AfterContractual Cash Obligations
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    5 years
    
    
    Total($ in thousands)Revolving Credit Facility
(secured)(1)
    
    $
    3,444
    
    
    $
    6,850
    
    
    $
    6,850
    
    
    $
    6,850
    
    
    $
    6,869
    
    
    $
    143,850
    
    
    $
    174,713Senior Notes (unsecured)(2)
    
    
    7,688
    
    
    
    15,375
    
    
    
    15,375
    
    
    
    15,375
    
    
    
    15,375
    
    
    
    180,750
    
    
    
    249,938Office Lease (Dinero Plaza)
    
    
    135
    
    
    
    271
    
    
    
    107
    
    
    
    31
    
    
    
    
    
    
    
    
    
    
    
    544Asset retirement obligations(3)
    
    
    736
    
    
    
    151
    
    
    
    78
    
    
    
    75
    
    
    
    36
    
    
    
    4,530
    
    
    
    5,606Derivative obligations
    
    
    39,445
    
    
    
    44,129
    
    
    
    27,224
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    110,798Put
obligations(4)
    
    
    
    
    
    
    646
    
    
    
    1,378
    
    
    
    1,689
    
    
    
    
    
    
    
    
    
    
    
    3,713Total
    
    $
    51,448
    
    
    $
    67,422
    
    
    $
    51,012
    
    
    $
    24,020
    
    
    $
    22,280
    
    
    $
    329,130
    
    
    $
    545,312
 
 (1)
    
    Outstanding principal of $137.0 million due December 31, 2013 and estimated interest
obligation calculated using the interest rate at June 30, 2008 of 5.0%.(2)
    
    Outstanding principal of $150.0 million due
August 1, 2014 and interest
obligation calculated at an interest rate of 10.25%.(3)
    
    Asset retirement obligations of oil and natural gas assets, excluding salvage
value.(4)
    
    The put obligations above represent the undiscounted
obligation to our counterparty. The will recognize $382,000 of
interest associated with the put obligations over the remaining life of the
contracts. Outlook
  
    
    internally generated cash from operations;
    
    proceeds from bank borrowings; and
    
    proceeds from sales of equity and debt securities.
 (32)




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##### Table of Contents




    
    our proved reserves;
    
    the volumes of oil and natural gas we produce from existing wells;
    
    the prices at which we sell oil and natural gas; and
    
    our ability to acquire, locate and produce new reserves.
  
    
    increased bank borrowings;
    
    additional sales of our debt or equity securities;
    
    sales of non-core properties;
    
    other forms of financing; or
    
    a combination of the above.
  Inflation
  Oil and Natural Gas Price Trends
    Production Trends
  (33)




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##### Table of Contents



Lease Operating Expense Trends
  Interest Expense Trends
  Recent Accounting Pronouncements
 Fair Value Measurements
 The Fair Value Option for Financial Assets and
Financial Liabilities, Including an Amendment of FASB Statement No. 115,
 (34)




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##### Table of Contents



Business Combinations
 Noncontrolling Interests in Consolidated
Financial Statementsan amendment of ARB No. 51
  Critical Accounting Policies
  FORWARD-LOOKING STATEMENTS
 Cautionary Statement Regarding Forward-Looking Statements
  
    
    our future financial and operating performance and results;
    
    our drilling plans and ability to secure drilling rigs to effectuate our plans;
    
    production volumes;
 (35)




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##### Table of Contents




    
    our business strategy;
    
    market prices;
    
    sources of funds necessary to conduct operations and complete acquisitions;
    
    development costs;
    
    number and location of planned wells;
    
    our future commodity price risk management activities; and
    
    our plans and forecasts.
   
    
    fluctuations in prices of oil and natural gas;
    
    dependent on key personnel;
    
    reliance on technological development and technology development programs;
    
    demand for oil and natural gas;
    
    losses due to potential or future litigation;
    
    future capital requirements and availability of financing;
    
    geological concentration of our reserves;
    
    risks associated with drilling and operating wells;
    
    competition;
    
    general economic conditions;
    
    governmental regulations and liability for environmental matters;
    
    receipt of amounts owed to us by purchasers of our production and counterparties to
our hedging contracts;
    
    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.
  (36)




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##### Table of Contents



ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Interest Rate Sensitivity as of June 30, 2008
  2012 and2008
    
    2009
    
    2010
    
    2011
    
    after
    
    Total($ in thousands, except interest rates)Revolving Credit Facility (secured)
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    137,000
    
    
    $
    137,000Average interest rate
    
    
    5.00
    %
    
    
    5.00
    %
    
    
    5.00
    %
    
    
    5.00
    %
    
    
    5.00
    %Senior notes
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    150,000
    
    
    $
    150,000Average interest rate
    
    
    10.25
    %
    
    
    10.25
    %
    
    
    10.25
    %
    
    
    10.25
    %
    
    
    10.25
    %
    (37)




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##### Table of Contents



Notional
    
    
    Weighted Average
    
    
    EstimatedPeriod of Time
    
    Amounts
    
    
    Fixed Interest Rates
    
    
    Fair Market Value($ in millions)
    
    
    
    
    
    
    ($ in thousands)July 1, 2008 through December 31, 2008
    
    $
    100
    
    
    
    4.86
    %
    
    $
    (997
    )January 1, 2009 through December 31, 2009
    
    $
    50
    
    
    
    5.06
    %
    
    
    (774
    )January 1, 2010 through October 31, 2010
    
    $
    50
    
    
    
    5.15
    %
    
    
    (352
    )Total Fair Market Value
    
    
    
    
    
    
    
    
    
    $
    (2,123
    )
 Commodity Price Sensitivity
     (38)




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##### Table of Contents



Put Options.
   EstimatedBarrels of
    
    
    
    
    
    
    Fair MarketPeriod of Time
    
    Oil
    
    
    Floor
    
    
    Value($ in thousands)January 1, 2009 through December 31, 2009
    
    
    109,500
    
    
    $
    100.00
    
    
    $
    505January 1, 2010 through December 31, 2010
    
    
    134,100
    
    
    $
    100.00
    
    
    
    1,087January 1, 2011 through December 31, 2011
    
    
    146,000
    
    
    $
    100.00
    
    
    
    1,308Total Fair Market Value
    
    
    
    
    
    
    
    
    
    $
    2,900
 Collars.
  EstimatedBarrels of
    
    
    NYMEX Oil Prices
    
    
    Fair MarketPeriod of Time
    
    Oil
    
    
    Floor
    
    
    Cap
    
    
    Value($ in thousands)July 1, 2008 through December 31, 2008
    
    
    174,800
    
    
    $
    63.42
    
    
    $
    83.86
    
    
    $
    (9,941
    )January 1, 2009 through December 31, 2009
    
    
    620,500
    
    
    $
    63.53
    
    
    $
    80.21
    
    
    
    (36,970
    )January 1, 2010 through October 31, 2010
    
    
    486,400
    
    
    $
    63.44
    
    
    $
    78.26
    
    
    
    (28,180
    )MMBtu of
    
    
    WAHA Gas PricesNatural Gas
    
    
    Floor
    
    
    CapJuly 1, 2008 through December 31, 2008
    
    
    1,840,000
    
    
    $
    7.38
    
    
    $
    9.28
    
    
    
    (5,455
    )January 1, 2009 through December 31, 2009
    
    
    3,285,000
    
    
    $
    7.06
    
    
    $
    9.93
    
    
    
    (7,472
    )Total Fair Market Value
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (88,018
    )
 (39)




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##### Table of Contents



Commodity Swaps.
  EstimatedBarrels of
    
    
    NYMEX Oil
    
    
    Fair MarketPeriod of Time
    
    Oil
    
    
    Swap Price
    
    
    Value($ in thousands)July 1, 2008 through December 31, 2008
    
    
    220,800
    
    
    $
    33.37
    
    
    $
    (23,557
    )
 
 ITEM 4. CONTROLS AND PROCEDURES
   
 PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
   (40)




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##### Table of Contents



th
    (41)




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##### Table of Contents



ITEM 1A. RISK FACTORS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 th
  (42)




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##### Table of Contents



ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  NAME
    
    VOTES CAST FOR
    
    VOTES WITHHELDEdward A. Nash
    
    
    37,556,042
    
    
    
    544,485Larry C. Oldham
    
    
    37,719,715
    
    
    
    380,812Martin B. Oring
    
    
    37,547,737
    
    
    
    552,790Ray M. Poage
    
    
    37,548,187
    
    
    
    552,340Jeffrey G. Shrader
    
    
    37,545,847
    
    
    
    554,680
  BROKERVOTES FOR
    
    VOTES AGAINST
    
    ABSTENTIONS
    
    NON-VOTES30,677,807
    
    1,250,362
    
    177,501
    
    5,994,857
  VOTES FOR
    
    VOTES AGAINST
    
    ABSTENTIONS37,896,866
    
    120,348
    
    83,313
 
 ITEM 6. EXHIBITS
 (a)
    
    Exhibits
  No.
    
    Description of Exhibit3.1
    
    Certificate of Incorporation of Registrant (Incorporated by reference to Exhibit 3.1 to Form
10-Q of the Registrant for the fiscal quarter ended June 30, 2004)3.2
    
    Bylaws of Registrant (Incorporated by reference to Exhibit 10.1 of the Registrants Current
Report on Form 8-K filed on November 30, 2007)3.3
    
    Certificate of Formation of Parallel, L.L.C. (Incorporated by reference to Exhibit No. 3.3 of
the Registrants Registration Statement on Form S-3, No. 333-119725 filed on October 13, 2004)3.4
    
    Limited Liability Company Agreement of Parallel, L.L.C. (Incorporated by reference to Exhibit
No. 3.4 of the Registrants Statement on Form S-3, No. 333-119725 filed on October 13, 2004)3.5
    
    Certificate of Limited Partnership of Parallel, L.P. (Incorporated by reference to Exhibit
No. 3.5 of the Registrants Registration Statement on Form S-3, No. 333-119725 filed on
October 13, 2004)
 (43)




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##### Table of Contents



No.
    
    Description of Exhibit3.6
    
    Agreement of Limited Partnership of Parallel, L.P. (Incorporated by reference to Exhibit No.
3.6 of the Registrants Registration Statement on Form S-3, No. 333-119725 filed on October
13, 2004)4.1
    
    Certificate of Designations, Preferences and Rights of Serial Preferred Stock  6%
Convertible Preferred Stock (Incorporated by reference to Exhibit 4.1 of Form 10-Q of the
Registrant for the fiscal quarter ended June 30, 2004)4.2
    
    Certificate of Designations, Preferences and Rights of Series A Preferred Stock (Incorporated
by reference to Exhibit 4.2 of Form 10-K of the Registrant for the fiscal year ended December
31, 2000)4.3
    
    Rights Agreement, dated as of October 5, 2000, between the Registrant and Computershare Trust
Company, Inc., as Rights Agent (Incorporated by reference to Exhibit 1 of Form 8-A of the
Registrant filed with the Securities and Exchange Commission on October 10, 2000)4.4
    
    Form of common stock certificate of the Registrant (Incorporated by reference to Exhibit No.
4.6 of the Registrants Registration Statement on Form S-3, No. 333-119725 filed on October
13, 2004)4.5
    
    Warrant Purchase Agreement, dated November 20, 2001, between the Registrant and Stonington
Corporation (Incorporated by reference to Exhibit 4.7 of Form 10-K of the Registrant for the
fiscal year ended December 31, 2004)4.6
    
    Warrant Purchase Agreement, dated December 23, 2003, between the Registrant and Stonington
Corporation (Incorporated by reference to Exhibit 4.8 of Form 10-K of the Registrant for the
fiscal year ended December 31, 2004)4.7
    
    Purchase Warrant Agreement, dated as of October 1, 1980, between the Registrant and American
Stock Transfer, Inc. (Incorporated by reference to Exhibit 4.7 of Form 10-K of the Registrant
for the fiscal year ended December 31, 2006)4.8
    
    First Amendment to Warrant Agreement, dated as of February 22, 2007, among the Registrant,
Computershare Shareholder Services, Inc. and Computershare Trust Company, N.A. (Incorporated
by reference to Exhibit 4.8 of Form 10-K of the Registrant for the fiscal year ended December
31, 2006)4.9
    
    Form of Rule 144A 101/4% Senior Note due 2014 (Incorporated by reference to Exhibit 4.2 to the
Registrants Current Report on Form 8-K filed on August 1, 2007)4.10
    
    Form of IAI 101/4% Senior Note due 2014 (Incorporated by reference to Exhibit 4.3 to the
Registrants Current Report on Form 8-K filed on August 1, 2007)4.11
    
    Form of Regulation S 101/4% Senior Note due 2014 (Incorporated by reference to Exhibit 4.4 to
the Registrants Current Report on Form 8-K filed on August 1, 2007)4.12
    
    Indenture, dated as of July 31, 2007, among the Registrant as Issuer and Wells Fargo Bank,
National Association as Trustee (Incorporated by reference to Exhibit 4.1 to the Registrants
Current Report on Form 8-K filed on August 1, 2007)4.13
    
    Registration Rights Agreement, dated as of July 31, 2007, by and among the Registrant,
Jefferies & Company, Inc., Merrill Lynch, Pierce, Fenner and Smith Incorporated and BNP
Paribas Securities Corp. (Incorporated by reference to Exhibit 10.2 to the Registrants
Current Report on Form 8-K filed on August 1, 2007)
 (44)




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##### Table of Contents



No.
    
    Description of Exhibit4.14
    
    Purchase Agreement, dated as of July 26, 2007, by and among the Registrant, Jefferies &
Company, Inc., Merrill Lynch, Pierce, Fenner and Smith Incorporated and BNP Paribas Securities
Corp. (Incorporated by reference to Exhibit 4.2 to the Registrants Current Report on Form 8-K
filed on August 1, 2007)4.15
    
    Form of 101/4% Unrestricted Senior Note due 2014 (Incorporated by reference to Exhibit 4.13 of
Form S-4 of the Registrant, Registration No. 333-148465)Executive Compensation Plans and Arrangements (Exhibit No.s 10.1 through 10.11):10.1
    
    1992 Stock Option Plan (Incorporated by reference to Exhibit 10.1 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2004)10.2
    
    Merrill Lynch, Pierce, Fenner & Smith Incorporated Prototype Simplified Employee Pension Plan
(Incorporated by reference to Exhibit 10.6 of the Registrants Form 10-K for the fiscal year
ended December 31, 1995)10.3
    
    Non-Employee Directors Stock Option Plan (Incorporated by reference to Exhibit 10.3 of the
Registrants Form 10-Q of the Registrant for the fiscal quarter ended June 30, 2005)10.4
    
    1998 Stock Option Plan (Incorporated by reference to Exhibit 10.4 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2006)10.5
    
    2001 Non-Employee Directors Stock Option Plan (Incorporated by reference to Exhibit 10.7 of
the Registrants Form 10-Q Report for the fiscal quarter ended March 31, 2004)10.6
    
    2004 Non-Employee Director Stock Grant Plan (Incorporated by reference to Exhibit 10.1 of the
Registrants Form 8-K Report dated September 22, 2004)10.7
    
    Incentive and Retention Plan (Incorporated by reference to Exhibit 10.7 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2006)10.8
    
    2008 Long-Term Incentive Plan (Incorporated by reference to Exhibit 10.1 of the Registrants
Form 8-K Report dated March 27, 2008)10.9
    
    Form of Nonqualified Stock Option Agreement for nonqualified stock options granted under the
Registrants 2008 Long-Term Incentive Plan (Incorporated by reference to Exhibit 10.2 of the
Registrants Current Report on Form 8-K filed on June 18, 2008)10.10
    
    Form of Outside Director Stock Award Agreement for stock awards granted under the
Registrants 2008 Long-Term Incentive Plan (Incorporated by reference to Exhibit 10.3 of the
Registrants Current Report on Form 8-K filed on June 18, 2008)10.11
    
    Form of Outside Director Restricted Stock Agreement for restricted stock grants under the
Registrants 2008 Long-Term Incentive Plan (Incorporated by reference to Exhibit 10.4 of the
Registrants Current Report on Form 8-K filed on June 18, 2008)10.12
    
    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)
 (45)




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##### Table of Contents



No.
    
    Description of Exhibit10.13
    
    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)10.14
    
    First Amendment to First Amended and Restated Credit Agreement, dated as of September 12,
2003, by and among Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First
American Bank, SSB, Western National Bank, and BNP Paribas (Incorporated by reference to
Exhibit 10.29 of Form 10-Q of the Registrant for the quarter ended September 30, 2003)10.15
    
    Second Amended and Restated Credit Agreement, dated September 27, 2004, by and among
Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First American Bank, SSB,
BNP Paribas, Citibank, F.S.B. and Western National Bank (Incorporated by reference to Exhibit
10.1 of the Registrants Form 8-K Report dated September 27, 2004 and filed with the
Securities and Exchange Commission on October 1, 2004)10.16
    
    Agreement of Limited Partnership of West Fork Pipeline Company LP (Incorporated by reference
to Exhibit 10.21 of Form 10-K of the Registrant for the fiscal year ended December 31, 2004)10.17
    
    First Amendment to Second Amended and Restated Credit Agreement, dated as of December 27,
2004, by and among Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First
American Bank, SSB, BNP Paribas, Citibank, F.S.B. and Western National Bank (Incorporated by
reference to Exhibit 10.1 of the Registrants Form 8-K Report dated December 30, 2004 and
filed with the Securities and Exchange Commission on December 30, 2004)10.18
    
    Second Amendment to Second Amended and Restated Credit Agreement, dated as of April 1, 2005,
by and among Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First American
Bank, SSB, BNP Paribas, Citibank, F.S.B. and Western National Bank (Incorporated by reference
to Exhibit 10.1 of the Registrants Form 8-K Report dated April 4, 2005 and filed with the
Securities and Exchange Commission on April 8, 2005)10.19
    
    Third Amendment to Second Amended and Restated Credit Agreement (Incorporated by reference
to Exhibit 10.1 of the Registrants Form 8-K Report dated October 4, 2005 and filed with the
Securities and Exchange Commission on October 20, 2005)10.20
    
    Purchase and Sale Agreement, dated as of October 14, 2005, among Parallel, L.P., Lynx
Production Company, Inc., Elton Resources, Inc., Cascade Energy Corporation, Chelsea Energy,
Inc., William P. Sutter, Trustee, William P. Sutter Trust, J. Leroy Bell, E. L. Brahaney,
Brent Beck, Cavic Interests, LLC and Stanley Talbott (Incorporated by reference to Exhibit
10.2 of the Registrants Form 8-K Report dated October 14, 2005 and filed with the Securities
and Exchange Commission on October 20, 2005)10.21
    
    Ancillary Agreement to Purchase and Sale Agreement, dated October 14, 2005, between
Parallel, L.P. and Lynx Production Company, Inc. (Incorporated by reference to Exhibit 10.3 of
the Registrants Form 8-K Report dated October 14, 2005 and filed with the Securities and
Exchange Commission on October 20, 2005)10.22
    
    Guarantee of Parallel, L.P., dated October 13, 2004 (Incorporated by reference to Exhibit
10.4 of the Registrants Form 8-K Report dated October 14, 2005 and filed with the Securities
and Exchange Commission on October 20, 2005)10.23
    
    ISDA Master Agreement, dated as of October 13, 2005, between Parallel, L.P. and Citibank,
N.A. (Incorporated by reference to Exhibit 10.5 of the Registrants Form 8-K Report dated
October 14, 2005 and filed with the Securities and Exchange Commission on October 20, 2005)
 (46)




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##### Table of Contents



No.
    
    Description of Exhibit10.24
    
    Third Amended and Restated Credit Agreement, dated as of December 23, 2005, among Parallel
Petroleum Corporation, Parallel, L.P., Parallel, L.L.C. and Citibank Texas, N.A., BNP Paribas,
CitiBank F.S.B., Western National Bank, Compass Bank, Comerica Bank, Bank of Scotland and
Fortis Capital Corp. (Incorporated by reference to Exhibit No. 10.1 of the Registrants Form
8-K Report, dated December 23, 2005, as filed with the Securities and Exchange Commission on
December 30, 2005)10.25
    
    Second Lien Term Loan Agreement, dated November 15, 2005, among Parallel Petroleum
Corporation, Parallel, L.P., BNP Paribas and Citibank Texas, N.A. (Incorporated by reference
to Exhibit No. 10.4 of the Registrants Form 8-K Report, dated November 15, 2005, as filed
with the Securities and Exchange Commission on November 21, 2005)10.26
    
    Intercreditor and Subordination Agreement, dated November 15, 2005, among Citibank Texas,
N.A., BNP Paribas, Parallel Petroleum Corporation, Parallel, L.P. and Parallel, L.L.C.
(Incorporated by reference to Exhibit No. 10.5 of the Registrants Form 8-K Report, dated
November 15, 2005, as filed with the Securities and Exchange Commission on November 21, 2005)10.27
    
    Guaranty, dated as of December 23, 2005, made by Parallel, L.L.C. to and in favor of
Citibank Texas, N.A. (Incorporated by reference to Exhibit 10.23 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2006)10.28
    
    Third Amended and Restated Pledge Agreement, dated as of December 23, 2005, between
Parallel, L.L.C. and Citibank Texas, N.A. (Incorporated by reference to Exhibit 10.24 of Form
10-K of the Registrant for the fiscal year ended December 31, 2006)10.29
    
    Second Lien Guarantee and Collateral Agreement, dated as of November 15, 2005, made by
Parallel Petroleum Corporation and Parallel, L.P. to and in favor of BNP Paribas (Incorporated
by reference to Exhibit 10.25 of Form 10-K of the Registrant for the fiscal year ended
December 31, 2006)10.30
    
    Third Amendment to Third Amended and Restated Credit Agreement, dated as of July 31, 2007,
among the Registrant, Citibank, N.A., BNP Paribas, Western National Bank, Compass Bank,
Comerica Bank, Bank of Scotland, and Fortis Capital Corp. (Incorporated by reference to
Exhibit 10.3 of the Registrants Current Report on Form 8-K filed on August 1, 2007)10.31
    
    Fourth Amendment to Third Amended and Restated Credit Agreement, dated as of November 30,
2007, among the Registrant, Citibank, N.A., BNP Paribas, Western National Bank, Compass Bank,
Comerica Bank, Bank of Scotland, and Fortis Capital Corp. (Incorporated by reference to
Exhibit 10.27 of Form S-4 of the Registrant, Registration No. 333-148465)10.32
    
    Hagerman Gas Gathering System Joint Venture Agreement, dated as of January 16, 2007, among
the Registrant, Feagan Gathering Company and Capstone Oil and Gas Company, L.P. (Incorporated by reference to Exhibit 10.28 of Form 10-K of the Registrant for the fiscal
year ended December 31, 2007)10.33
    
    Fourth Amended and Restated Credit Agreement, dated as of May 16, 2008, among the
Registrant, Citibank, N.A., BNP Paribas, Western National Bank, Compass Bank, Comerica Bank,
Bank of Scotland plc, and Texas Capital Bank, N.A. (Incorporated by reference to Exhibit 10.1
of the Registrants Current Report on Form 8-K filed on May 22, 2008)
 (47)




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##### Table of Contents



No.
    
    Description of Exhibit14
    
    Code of Ethics (Incorporated by reference to Exhibit No. 14 of the Registrants Form 10-K
Report for the fiscal year ended December 31, 2003 and filed with the Securities and Exchange
Commission on March 22, 2004)*31.1
    
    Certification of Principal Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 302 of the Sarbanes 
Oxley Act of 2002.*31.2
    
    Certification of Principal Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 302 of the Sarbanes 
Oxley Act of 2002.*32.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes 
Oxley Act of 2002.*32.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes 
Oxley Act of 2002.
 
 *
    
    Filed herewith. (48)




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##### Table of Contents



PARALLEL PETROLEUM CORPORATIONBY:
    /s/ Larry C. OldhamDate: August 4, 2008
    
    Larry C. OldhamPresident and Chief Executive OfficerDate: August 4, 2008
    BY:
    /s/ Steven D. FosterSteven D. Foster,Chief Financial Officer




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##### Table of Contents



No.
    
    Description of Exhibit3.1
    
    Certificate of Incorporation of Registrant (Incorporated by reference to Exhibit 3.1 to Form
10-Q of the Registrant for the fiscal quarter ended June 30, 2004)3.2
    
    Bylaws of Registrant (Incorporated by reference to Exhibit 10.1 of the Registrants Current
Report on Form 8-K filed on November 30, 2007)3.3
    
    Certificate of Formation of Parallel, L.L.C. (Incorporated by reference to Exhibit No. 3.3 of
the Registrants Registration Statement on Form S-3, No. 333-119725 filed on October 13, 2004)3.4
    
    Limited Liability Company Agreement of Parallel, L.L.C. (Incorporated by reference to Exhibit
No. 3.4 of the Registrants Statement on Form S-3, No. 333-119725 filed on October 13, 2004)3.5
    
    Certificate of Limited Partnership of Parallel, L.P. (Incorporated by reference to Exhibit
No. 3.5 of the Registrants Registration Statement on Form S-3, No. 333-119725 filed on
October 13, 2004)3.6
    
    Agreement of Limited Partnership of Parallel, L.P. (Incorporated by reference to Exhibit No.
3.6 of the Registrants Registration Statement on Form S-3, No. 333-119725 filed on October
13, 2004)4.1
    
    Certificate of Designations, Preferences and Rights of Serial Preferred Stock  6%
Convertible Preferred Stock (Incorporated by reference to Exhibit 4.1 of Form 10-Q of the
Registrant for the fiscal quarter ended June 30, 2004)4.2
    
    Certificate of Designations, Preferences and Rights of Series A Preferred Stock (Incorporated
by reference to Exhibit 4.2 of Form 10-K of the Registrant for the fiscal year ended December
31, 2000)4.3
    
    Rights Agreement, dated as of October 5, 2000, between the Registrant and Computershare Trust
Company, Inc., as Rights Agent (Incorporated by reference to Exhibit 1 of Form 8-A of the
Registrant filed with the Securities and Exchange Commission on October 10, 2000)4.4
    
    Form of common stock certificate of the Registrant (Incorporated by reference to Exhibit No.
4.6 of the Registrants Registration Statement on Form S-3, No. 333-119725 filed on October
13, 2004)4.5
    
    Warrant Purchase Agreement, dated November 20, 2001, between the Registrant and Stonington
Corporation (Incorporated by reference to Exhibit 4.7 of Form 10-K of the Registrant for the
fiscal year ended December 31, 2004)4.6
    
    Warrant Purchase Agreement, dated December 23, 2003, between the Registrant and Stonington
Corporation (Incorporated by reference to Exhibit 4.8 of Form 10-K of the Registrant for the
fiscal year ended December 31, 2004)4.7
    
    Purchase Warrant Agreement, dated as of October 1, 1980, between the Registrant and American
Stock Transfer, Inc. (Incorporated by reference to Exhibit 4.7 of Form 10-K of the Registrant
for the fiscal year ended December 31, 2006)4.8
    
    First Amendment to Warrant Agreement, dated as of February 22, 2007, among the Registrant,
Computershare Shareholder Services, Inc. and Computershare Trust Company, N.A.




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##### Table of Contents



No.
    
    Description of Exhibit(Incorporated by reference to Exhibit 4.8 of Form 10-K of the Registrant for the fiscal year
ended December 31, 2006)4.9
    
    Form of Rule 144A 101/4% Senior Note due 2014 (Incorporated by reference to Exhibit 4.2 to the
Registrants Current Report on Form 8-K filed on August 1, 2007)4.10
    
    Form of IAI 101/4% Senior Note due 2014 (Incorporated by reference to Exhibit 4.3 to the
Registrants Current Report on Form 8-K filed on August 1, 2007)4.11
    
    Form of Regulation S 101/4% Senior Note due 2014 (Incorporated by reference to Exhibit 4.4 to
the Registrants Current Report on Form 8-K filed on August 1, 2007)4.12
    
    Indenture, dated as of July 31, 2007, among the Registrant as Issuer and Wells Fargo Bank,
National Association as Trustee (Incorporated by reference to Exhibit 4.1 to the Registrants
Current Report on Form 8-K filed on August 1, 2007)4.13
    
    Registration Rights Agreement, dated as of July 31, 2007, by and among the Registrant,
Jefferies & Company, Inc., Merrill Lynch, Pierce, Fenner and Smith Incorporated and BNP
Paribas Securities Corp. (Incorporated by reference to Exhibit 10.2 to the Registrants
Current Report on Form 8-K filed on August 1, 2007)4.14
    
    Purchase Agreement, dated as of July 26, 2007, by and among the Registrant, Jefferies &
Company, Inc., Merrill Lynch, Pierce, Fenner and Smith Incorporated and BNP Paribas Securities
Corp. (Incorporated by reference to Exhibit 4.2 to the Registrants Current Report on Form 8-K
filed on August 1, 2007)4.15
    
    Form of 101/4% Unrestricted Senior Note due 2014 (Incorporated by reference to Exhibit 4.13 of
Form S-4 of the Registrant, Registration No. 333-148465)Executive Compensation Plans and Arrangements (Exhibit No.s 10.1 through 10.11):10.1
    
    1992 Stock Option Plan (Incorporated by reference to Exhibit 10.1 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2004)10.2
    
    Merrill Lynch, Pierce, Fenner & Smith Incorporated Prototype Simplified Employee Pension Plan
(Incorporated by reference to Exhibit 10.6 of the Registrants Form 10-K for the fiscal year
ended December 31, 1995)10.3
    
    Non-Employee Directors Stock Option Plan (Incorporated by reference to Exhibit 10.3 of the
Registrants Form 10-Q of the Registrant for the fiscal quarter ended June 30, 2005)10.4
    
    1998 Stock Option Plan (Incorporated by reference to Exhibit 10.4 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2006)10.5
    
    2001 Non-Employee Directors Stock Option Plan (Incorporated by reference to Exhibit 10.7 of
the Registrants Form 10-Q Report for the fiscal quarter ended March 31, 2004)10.6
    
    2004 Non-Employee Director Stock Grant Plan (Incorporated by reference to Exhibit 10.1 of the
Registrants Form 8-K Report dated September 22, 2004)10.7
    
    Incentive and Retention Plan (Incorporated by reference to Exhibit 10.7 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2006)




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##### Table of Contents



No.
    
    Description of Exhibit10.8
    
    2008 Long-Term Incentive Plan (Incorporated by reference to Exhibit 10.1 of the Registrants
Form 8-K Report dated March 27, 2008)10.9
    
    Form of Nonqualified Stock Option Agreement for nonqualified stock options granted under the
Registrants 2008 Long-Term Incentive Plan (Incorporated by reference to Exhibit 10.2 of the
Registrants Current Report on Form 8-K filed on June 18, 2008)10.10
    
    Form of Outside Director Stock Award Agreement for stock awards granted under the
Registrants 2008 Long-Term Incentive Plan (Incorporated by reference to Exhibit 10.3 of the
Registrants Current Report on Form 8-K filed on June 18, 2008)10.11
    
    Form of Outside Director Restricted Stock Agreement for restricted stock grants under the
Registrants 2008 Long-Term Incentive Plan (Incorporated by reference to Exhibit 10.4 of the
Registrants Current Report on Form 8-K filed on June 18, 2008)10.12
    
    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)10.13
    
    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)10.14
    
    First Amendment to First Amended and Restated Credit Agreement, dated as of September 12,
2003, by and among Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First
American Bank, SSB, Western National Bank, and BNP Paribas (Incorporated by reference to
Exhibit 10.29 of Form 10-Q of the Registrant for the quarter ended September 30, 2003)10.15
    
    Second Amended and Restated Credit Agreement, dated September 27, 2004, by and among
Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First American Bank, SSB,
BNP Paribas, Citibank, F.S.B. and Western National Bank (Incorporated by reference to Exhibit
10.1 of the Registrants Form 8-K Report dated September 27, 2004 and filed with the
Securities and Exchange Commission on October 1, 2004)10.16
    
    Agreement of Limited Partnership of West Fork Pipeline Company LP (Incorporated by reference
to Exhibit 10.21 of Form 10-K of the Registrant for the fiscal year ended December 31, 2004)10.17
    
    First Amendment to Second Amended and Restated Credit Agreement, dated as of December 27,
2004, by and among Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First
American Bank, SSB, BNP Paribas, Citibank, F.S.B. and Western National Bank (Incorporated by
reference to Exhibit 10.1 of the Registrants Form 8-K Report dated December 30, 2004 and
filed with the Securities and Exchange Commission on December 30, 2004)10.18
    
    Second Amendment to Second Amended and Restated Credit Agreement, dated as of April 1, 2005,
by and among Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First American
Bank, SSB, BNP Paribas, Citibank, F.S.B. and Western National Bank (Incorporated by reference
to Exhibit 10.1 of the Registrants Form 8-K Report dated April 4, 2005 and filed with the
Securities and Exchange Commission on April 8, 2005)10.19
    
    Third Amendment to Second Amended and Restated Credit Agreement (Incorporated by reference
to Exhibit 10.1 of the Registrants Form 8-K Report dated October 4, 2005 and filed with the
Securities and Exchange Commission on October 20, 2005)




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##### Table of Contents



No.
    
    Description of Exhibit10.20
    
    Purchase and Sale Agreement, dated as of October 14, 2005, among Parallel, L.P., Lynx
Production Company, Inc., Elton Resources, Inc., Cascade Energy Corporation, Chelsea Energy,
Inc., William P. Sutter, Trustee, William P. Sutter Trust, J. Leroy Bell, E. L. Brahaney,
Brent Beck, Cavic Interests, LLC and Stanley Talbott (Incorporated by reference to Exhibit
10.2 of the Registrants Form 8-K Report dated October 14, 2005 and filed with the Securities
and Exchange Commission on October 20, 2005)10.21
    
    Ancillary Agreement to Purchase and Sale Agreement, dated October 14, 2005, between
Parallel, L.P. and Lynx Production Company, Inc. (Incorporated by reference to Exhibit 10.3 of
the Registrants Form 8-K Report dated October 14, 2005 and filed with the Securities and
Exchange Commission on October 20, 2005)10.22
    
    Guarantee of Parallel, L.P., dated October 13, 2004 (Incorporated by reference to Exhibit
10.4 of the Registrants Form 8-K Report dated October 14, 2005 and filed with the Securities
and Exchange Commission on October 20, 2005)10.23
    
    ISDA Master Agreement, dated as of October 13, 2005, between Parallel, L.P. and Citibank,
N.A. (Incorporated by reference to Exhibit 10.5 of the Registrants Form 8-K Report dated
October 14, 2005 and filed with the Securities and Exchange Commission on October 20, 2005)10.24
    
    Third Amended and Restated Credit Agreement, dated as of December 23, 2005, among Parallel
Petroleum Corporation, Parallel, L.P., Parallel, L.L.C. and Citibank Texas, N.A., BNP Paribas,
CitiBank F.S.B., Western National Bank, Compass Bank, Comerica Bank, Bank of Scotland and
Fortis Capital Corp. (Incorporated by reference to Exhibit No. 10.1 of the Registrants Form
8-K Report, dated December 23, 2005, as filed with the Securities and Exchange Commission on
December 30, 2005)10.25
    
    Second Lien Term Loan Agreement, dated November 15, 2005, among Parallel Petroleum
Corporation, Parallel, L.P., BNP Paribas and Citibank Texas, N.A. (Incorporated by reference
to Exhibit No. 10.4 of the Registrants Form 8-K Report, dated November 15, 2005, as filed
with the Securities and Exchange Commission on November 21, 2005)10.26
    
    Intercreditor and Subordination Agreement, dated November 15, 2005, among Citibank Texas,
N.A., BNP Paribas, Parallel Petroleum Corporation, Parallel, L.P. and Parallel, L.L.C.
(Incorporated by reference to Exhibit No. 10.5 of the Registrants Form 8-K Report, dated
November 15, 2005, as filed with the Securities and Exchange Commission on November 21, 2005)10.27
    
    Guaranty, dated as of December 23, 2005, made by Parallel, L.L.C. to and in favor of
Citibank Texas, N.A. (Incorporated by reference to Exhibit 10.23 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2006)10.28
    
    Third Amended and Restated Pledge Agreement, dated as of December 23, 2005, between
Parallel, L.L.C. and Citibank Texas, N.A. (Incorporated by reference to Exhibit 10.24 of Form
10-K of the Registrant for the fiscal year ended December 31, 2006)10.29
    
    Second Lien Guarantee and Collateral Agreement, dated as of November 15, 2005, made by
Parallel Petroleum Corporation and Parallel, L.P. to and in favor of BNP Paribas (Incorporated
by reference to Exhibit 10.25 of Form 10-K of the Registrant for the fiscal year ended
December 31, 2006)10.30
    
    Third Amendment to Third Amended and Restated Credit Agreement, dated as of July 31, 2007,
among the Registrant, Citibank, N.A., BNP Paribas, Western National Bank, Compass Bank,




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##### Table of Contents



No.
    
    Description of ExhibitComerica Bank, Bank of Scotland, and Fortis Capital Corp. (Incorporated by reference to
Exhibit 10.3 of the Registrants Current Report on Form 8-K filed on August 1, 2007)10.31
    
    Fourth Amendment to Third Amended and Restated Credit Agreement, dated as of November 30,
2007, among the Registrant, Citibank, N.A., BNP Paribas, Western National Bank, Compass Bank,
Comerica Bank, Bank of Scotland, and Fortis Capital Corp. (Incorporated by reference to
Exhibit 10.27 of Form S-4 of the Registrant, Registration No. 333-148465)10.32
    
    Hagerman Gas Gathering System Joint Venture Agreement, dated as of January 16, 2007, among
the Registrant, Feagan Gathering Company and Capstone Oil and Gas Company, L.P. (Incorporated
by reference to Exhibit 10.28 of Form 10-K of the Registrant for the fiscal year ended
December 31, 2007)10.33
    
    Fourth Amended and Restated Credit Agreement, dated as of May 16, 2008, among the
Registrant, Citibank, N.A., BNP Paribas, Western National Bank, Compass Bank, Comerica Bank,
Bank of Scotland plc, and Texas Capital Bank, N.A. (Incorporated by reference to Exhibit 10.1
of the Registrants Current Report on Form 8-K filed on May 22, 2008)14
    
    Code of Ethics (Incorporated by reference to Exhibit No. 14 of the Registrants Form 10-K
Report for the fiscal year ended December 31, 2003 and filed with the Securities and Exchange
Commission on March 22, 2004)*31.1
    
    Certification of Principal Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 302 of the Sarbanes 
Oxley Act of 2002.*31.2
    
    Certification of Principal Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 302 of the Sarbanes 
Oxley Act of 2002.*32.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes 
Oxley Act of 2002.*32.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes 
Oxley Act of 2002.
 
 *
    
    Filed herewith.