##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D. C. 20549
 FORM 10-Q
  þ
    
    Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended June 30, 2006 or
 o
    
    Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For
the Transition period from

to
 Commission File Number 0-13305
 PARALLEL PETROLEUM CORPORATION
  DELAWARE
    
    75-1971716(State of other jurisdiction
    
    (I.R.S. Employer Identificationof incorporation or organization)
    
    Number)1004 N. Big Spring, Suite 400Midland, Texas
    
    79701(Address of principal executive offices)
    
    (Zip Code)
 
 
  þ o
  þ o o
 o þ




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##### 



Page No.PART I.  FINANCIAL INFORMATIONITEM 1.
    
    
    
    FINANCIAL STATEMENTSReference is made to the succeeding pages for the following consolidated financial statements:-
    
    Consolidated Balance Sheets as of June 30, 2006 (unaudited) and December 31, 2005
    
    
    1-
    
    Unaudited Consolidated Statements of Operations for the three months and six months
ended June 30, 2006 and 2005
    
    
    2-
    
    Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2006 and 2005
    
    
    3-
    
    Unaudited Consolidated Statements of Comprehensive Income (Loss) for the three months
and six months ended June 30, 2006 and 2005
    
    
    4-
    
    Notes to Consolidated Financial Statements
    
    
    5ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
    
    
    15ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    30ITEM 4. CONTROLS AND PROCEDURES
    
    
    33PART II.  OTHER INFORMATIONITEM 1. LEGAL PROCEEDINGS
    
    
    33ITEM 1A. RISK FACTORS
    
    
    34ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    34ITEM 6. EXHIBITS
    
    
    34SIGNATURESCertification Pursuant to Section 302Certification Pursuant to Section 302Certification Pursuant to Section 906Certification Pursuant to Section 906




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##### Table of Contents



PARALLEL PETROLEUM CORPORATION
 
 Consolidated Balance Sheets
 (dollars in thousands, except per share amounts)
 June 30,
    
    
    December 31,2006
    
    
    2005(unaudited)AssetsCurrent assets:Cash and cash equivalents
    
    $
    6,333
    
    
    $
    6,418Accounts receivable:Oil and natural gas
    
    
    13,048
    
    
    
    13,183Other, net of allowance for
doubtful account of $9
    
    
    3,684
    
    
    
    877Affiliates
    
    
    36
    
    
    
    1216,768
    
    
    
    14,072Other current assets
    
    
    4,278
    
    
    
    2,364Deferred tax asset
    
    
    6,393
    
    
    
    5,241Total current assets
    
    
    33,772
    
    
    
    28,095Property and equipment, at cost:Oil and natural gas properties, full cost method (including $36,273 and $19,869 not
subject to depletion)
    
    
    412,762
    
    
    
    303,819Other
    
    
    3,188
    
    
    
    2,404415,950
    
    
    
    306,223Less accumulated depreciation, depletion and amortization
    
    
    (101,254
    )
    
    
    (90,826
    )Net property and
equipment
    
    
    314,696
    
    
    
    215,397Restricted cash
    
    
    274
    
    
    
    2,640Investment in pipelines and gathering
system ventures
    
    
    9,506
    
    
    
    3,326Other assets, net of accumulated amortization of $1,107 and $901
    
    
    3,482
    
    
    
    3,550$
    361,730
    
    
    $
    253,008Liabilities and Stockholders EquityCurrent liabilities:Accounts payable and accrued
liabilities
    
    $
    26,349
    
    
    $
    10,841Asset retirement obligations
    
    
    355
    
    
    
    214Derivative obligations
    
    
    21,258
    
    
    
    16,607Total current liabilities
    
    
    47,962
    
    
    
    27,662Revolving credit facility
    
    
    123,500
    
    
    
    50,000Term Loan
    
    
    50,000
    
    
    
    50,000Asset retirement obligations
    
    
    4,065
    
    
    
    2,281Derivative obligations
    
    
    26,721
    
    
    
    25,527Deferred tax liability
    
    
    12,491
    
    
    
    8,036Total long-term
liabilities
    
    
    216,777
    
    
    
    135,844Commitments and contingenciesStockholders equity:Series A preferred stock  par value $0.10 per share, authorized 50,000 shares
    
    
    
    
    
    
    Preferred stock  6% convertible preferred stock  par value of $0.10 per share
(liquidation preference of $10 per share), authorized 10,000,000 shares,
    
    
    
    
    
    
    Common stock  par value $0.01 per share, authorized 60,000,000 shares, issued and
outstanding 34,960,295 and 34,748,916
    
    
    350
    
    
    
    347Additional paid-in capital
    
    
    79,755
    
    
    
    78,699Retained earnings
    
    
    20,974
    
    
    
    16,899Accumulated other comprehensive loss
    
    
    (4,088
    )
    
    
    (6,443
    )Total stockholders
equity
    
    
    96,991
    
    
    
    89,502$
    361,730
    
    
    $
    253,008
  (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 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Oil and natural gas revenues:Oil and natural gas sales
    
    $
    29,594
    
    
    $
    15,004
    
    
    $
    52,870
    
    
    $
    27,973Loss on hedging
    
    
    (3,252
    )
    
    
    (2,741
    )
    
    
    (5,985
    )
    
    
    (5,296
    )Total revenues
    
    
    26,342
    
    
    
    12,263
    
    
    
    46,885
    
    
    
    22,677Cost and expenses:Lease operating expense
    
    
    3,741
    
    
    
    2,178
    
    
    
    7,316
    
    
    
    4,736Production taxes
    
    
    1,468
    
    
    
    701
    
    
    
    2,578
    
    
    
    1,281General and administrative
    
    
    2,613
    
    
    
    1,408
    
    
    
    4,742
    
    
    
    3,036Depreciation, depletion and amortization
    
    
    6,140
    
    
    
    2,773
    
    
    
    10,428
    
    
    
    5,055Total costs and expenses
    
    
    13,962
    
    
    
    7,060
    
    
    
    25,064
    
    
    
    14,108Operating income
    
    
    12,380
    
    
    
    5,203
    
    
    
    21,821
    
    
    
    8,569Other income
(expense), net:Change in fair market value of derivative instruments
    
    
    (5,493
    )
    
    
    (6,063
    )
    
    
    (10,207
    )
    
    
    (23,696
    )Gain (loss) on ineffective portion of hedges
    
    
    52
    
    
    
    (150
    )
    
    
    195
    
    
    
    (860
    )Interest and other income
    
    
    25
    
    
    
    20
    
    
    
    93
    
    
    
    39Interest expense
    
    
    (3,158
    )
    
    
    (868
    )
    
    
    (5,599
    )
    
    
    (2,041
    )Other expense
    
    
    (39
    )
    
    
    (1
    )
    
    
    (68
    )
    
    
    (2
    )Equity in loss of pipelines and gathering system ventures
    
    
    (10
    )
    
    
    (15
    )
    
    
    (29
    )
    
    
    (94
    )Total other
income (expense), net
    
    
    (8,623
    )
    
    
    (7,077
    )
    
    
    (15,615
    )
    
    
    (26,654
    )Income (loss) before income taxes
    
    
    3,757
    
    
    
    (1,874
    )
    
    
    6,206
    
    
    
    (18,085
    )Income tax benefit (expense), deferred
    
    
    (1,293
    )
    
    
    628
    
    
    
    (2,131
    )
    
    
    6,135Net income (loss)
    
    
    2,464
    
    
    
    (1,246
    )
    
    
    4,075
    
    
    
    (11,950
    )Cumulative preferred stock dividend
    
    
    
    
    
    
    (128
    )
    
    
    
    
    
    
    (271
    )Net income (loss) available to common stockholders
    
    $
    2,464
    
    
    $
    (1,374
    )
    
    $
    4,075
    
    
    $
    (12,221
    )Net income (loss) per common share:Basic
    
    $
    0.07
    
    
    $
    (0.04
    )
    
    $
    0.12
    
    
    $
    (0.40
    )Diluted
    
    $
    0.07
    
    
    $
    (0.04
    )
    
    $
    0.11
    
    
    $
    (0.40
    )Weighted average common share outstanding:Basic
    
    
    34,940
    
    
    
    31,967
    
    
    
    34,896
    
    
    
    30,341Diluted
    
    
    35,638
    
    
    
    31,967
    
    
    
    35,572
    
    
    
    30,341
  (2)




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##### Table of Contents



PARALLEL PETROLEUM CORPORATION
 
 Consolidated Statements of Cash Flows
 Six Months Ended June 30, 2006 and 2005
 (unaudited)
 (dollars in thousands)
 2006
    
    
    2005Cash flows from operating activities:Net income (loss)
    
    $
    4,075
    
    
    $
    (11,950
    )Adjustments to reconcile net income (loss) to net cash
provided by operating activities:Depreciation, depletion and amortization
    
    
    10,428
    
    
    
    5,055Accretion of asset retirement obligation
    
    
    101
    
    
    
    54Deferred income tax
    
    
    2,131
    
    
    
    (6,135
    )Change in fair value of derivatives instruments
    
    
    10,207
    
    
    
    23,696(Gain) loss on ineffective portion of hedges
    
    
    (195
    )
    
    
    860Stock option expense
    
    
    292
    
    
    
    70Equity in
loss of pipelines and gathering system ventures
    
    
    29
    
    
    
    94Changes in assets and liabilities:Other assets, net
    
    
    718
    
    
    
    123Restricted cash
    
    
    
    
    
    
    (149
    )Increase in accounts receivable
    
    
    (2,696
    )
    
    
    (2,091
    )Increase in other current assets
    
    
    (457
    )
    
    
    (11
    )Increase in accounts payable and accrued liabilities
    
    
    15,508
    
    
    
    1,800Federal tax deposit
    
    
    (40
    )
    
    
    Net cash provided by operating activities
    
    
    40,101
    
    
    
    11,416Cash flows from investing activities:Additions to oil and natural gas properties
    
    
    (107,159
    )
    
    
    (25,431
    )Use of restricted cash for acquisition of oil and natural gas properties
    
    
    2,366
    
    
    
    2,287Proceeds from disposition of oil and natural gas properties
    
    
    41
    
    
    
    2,828Additions to other property and equipment
    
    
    (784
    )
    
    
    (299
    )Settlements on derivative instruments
    
    
    (2,651
    )
    
    
    (1,570
    )Purchase of derivative instruments
    
    
    
    
    
    
    (35
    )Investment in pipelines and gathering system ventures
    
    
    (6,209
    )
    
    
    (1,071
    )Net cash used in investing activities
    
    
    (114,396
    )
    
    
    (23,291
    )Cash flows from financing activities:Net borrowings (payments) on revolving line of credit
    
    
    73,500
    
    
    
    (17,000
    )Deferred financing cost
    
    
    (56
    )
    
    
    Proceeds (net) from common stock issued
    
    
    
    
    
    
    27,743Proceeds from exercise of stock options
    
    
    766
    
    
    
    378Payment of preferred stock dividend
    
    
    
    
    
    
    (271
    )Net cash provided by financing activities
    
    
    74,210
    
    
    
    10,850Net decrease in cash and cash equivalents
    
    
    (85
    )
    
    
    (1,025
    )Cash and cash equivalents at beginning of period
    
    
    6,418
    
    
    
    4,781Cash and cash equivalents at end of period
    
    $
    6,333
    
    
    $
    3,756Non-cash financing and investing activities:Oil and natural gas properties asset retirement obligations
    
    $
    1,825
    
    
    $
    65Conversion of preferred stock
    
    $
    
    
    
    $
    95Other transactions:Interest paid
    
    $
    5,026
    
    
    $
    2,290
  (3)




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##### Table of Contents



PARALLEL PETROLEUM CORPORATION
 
 Consolidated Statements of Comprehensive Income (Loss)
 (unaudited)
 (dollars in thousands)
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net income (loss)
    
    $
    2,464
    
    
    $
    (1,246
    )
    
    $
    4,075
    
    
    $
    (11,950
    )Other comprehensive loss:Unrealized losses on derivatives
    
    
    (1,084
    )
    
    
    (1,060
    )
    
    
    (2,384
    )
    
    
    (8,473
    )Reclassification adjustments for losses
on derivatives included in net income (loss)
    
    
    3,230
    
    
    
    2,788
    
    
    
    5,951
    
    
    
    5,418Change in fair value of derivatives
    
    
    2,146
    
    
    
    1,728
    
    
    
    3,567
    
    
    
    (3,055
    )Income tax benefit (expense)
    
    
    (730
    )
    
    
    (588
    )
    
    
    (1,213
    )
    
    
    1,038Total other comprehensive income (loss)
    
    
    1,416
    
    
    
    1,140
    
    
    
    2,354
    
    
    
    (2,017
    )Total comprehensive income (loss)
    
    $
    3,880
    
    
    $
    (106
    )
    
    $
    6,429
    
    
    $
    (13,967
    )
  (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
      NOTE 2. STOCKHOLDERS EQUITY
 Options
 Accounting for Stock-Based Compensation  Transition and Disclosure,
 Share-Based Payment
  (5)




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##### Table of Contents



(in thousands)Third quarter 2006
    
    $
    143Fourth quarter 2006
    
    
    962007
    
    
    3242008 through 2011
    
    
    338Total
    
    $
    901
   2001
    
    2005Expected volatility
    
    
    57.95
    %
    
    
    54.20
    %Expected dividends
    
    
    0.00
    
    
    
    0.00Expected term (in years)
    
    
    8
    
    
    
    7Risk-free rate
    
    
    5.050
    %
    
    
    4.200
    %
  Wtd Avg.RemainingWtd. Avg.
    
    
    Contractual
    
    
    AggregateOptions
    
    
    Exercise Price
    
    
    Term
    
    
    Intrinsic Value(in thousands)
    
    
    
    
    
    
    (years)
    
    
    (in thousands)Outstanding December 31, 2005
    
    
    1,405
    
    
    $
    5.22Granted
    
    
    
    
    
    $
    Exercised
    
    
    (176
    )
    
    $
    4.35Surrendered
    
    
    (30
    )
    
    $
    3.09Outstanding June 30, 2006
    
    
    1,199
    
    
    $
    5.40
    
    
    
    5.9
    
    
    $
    3,729Exercisable at June 30, 2006
    
    
    961
    
    
    $
    3.99
    
    
    
    4.5
    
    
    $
    2,185
  (6)




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30, 2005
    
    
    June 30, 2005(in thousands, except per
share data)Net income, as reported
    
    $
    (1,246
    )
    
    $
    (11,950
    )Add:Expense recorded in 2005, net of related tax effects
    
    
    28
    
    
    
    70Deduct:Total stock-based employee compensation expense
determined under fair value based method for all awards,
net of related tax effects
    
    
    (23
    )
    
    
    (71
    )Pro forma net loss
    
    $
    (1,241
    )
    
    $
    (11,951
    )Loss per share:Basic  as reported
    
    $
    (0.04
    )
    
    $
    (0.40
    )Basic  proforma
    
    $
    (0.04
    )
    
    $
    (0.40
    )Diluted  as reported
    
    $
    (0.04
    )
    
    $
    (0.40
    )Diluted  proforma
    
    $
    (0.04
    )
    
    $
    (0.40
    )
  Sale of Equity Securities
  Preferred Stock
  NOTE 3. CREDIT FACILITIES
  (7)




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##### Table of Contents



Revolving Credit Facility
          Second Lien Term Loan Facility
 1 2
    (8)




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##### Table of Contents



NOTE 4. ACQUISITIONS
     Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,Pro Forma
    
    Pro Forma
    
    Pro Forma
    
    Pro Forma2006
    
    2005
    
    2006
    
    2005(in thousands, except per share data)Oil and natural gas sales, net of hedge losses
    
    $
    26,342
    
    
    $
    13,968
    
    
    $
    47,441
    
    
    $
    26,120Operating income
    
    $
    12,380
    
    
    $
    6,412
    
    
    $
    22,141
    
    
    $
    10,991Net income (loss) available to common stockholder
    
    $
    2,464
    
    
    $
    (1,238
    )
    
    $
    4,211
    
    
    $
    (11,938
    )Net income
(loss) per common share:Basic
    
    $
    0.07
    
    
    $
    (0.04
    )
    
    $
    0.12
    
    
    $
    (0.39
    )Diluted
    
    $
    0.07
    
    
    $
    (0.04
    )
    
    $
    0.12
    
    
    $
    (0.39
    )
 NOTE 5. PREFERRED STOCK
   (9)




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##### Table of Contents



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




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##### Table of Contents



Interest Rate Sensitivity
    Notional
    
    
    
    
    
    
    FairPeriod of Time
    
    Amounts
    
    
    Fixed Interest Rates
    
    
    Market Value($ in millions)
    
    
    
    
    
    
    ($ in thousands)July 1, 2006 thru December 31, 2006(1)
    
    $
    10
    
    
    
    4.05
    %
    
    $
    70July 1, 2006 thru December 31, 2006
    
    $
    90
    
    
    
    4.41
    %
    
    
    486January 1, 2007 thru December 31, 2007
    
    $
    100
    
    
    
    4.62
    %
    
    
    850January 1, 2008 thru December 31, 2008
    
    $
    100
    
    
    
    4.86
    %
    
    
    572January 1, 2009 thru December 31, 2009
    
    $
    50
    
    
    
    5.06
    %
    
    
    195January 1, 2010 thru October 31, 2010
    
    $
    50
    
    
    
    5.15
    %
    
    
    141Total Fair Market Value
    
    
    
    
    
    
    
    
    
    $
    2,314
 
 (1)
    
    Designated as cash flow hedge. Commodity Price Sensitivity
  Put Options.
 Collars.
 (11)




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##### Table of Contents



Houston ShipNyMex Oil Prices
    
    
    
    
    
    
    Channel Gas Prices
    
    
    WAHA Gas PricesBarrels of
    
    
    
    
    
    
    
    
    
    
    MM Btu of
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Fair MarketPeriod of Time
    
    Oil
    
    
    Floor
    
    
    Cap
    
    
    Natural Gas
    
    
    Floor
    
    
    Cap
    
    
    Floor
    
    
    Cap
    
    
    Value($ in thousands)July 1, 2006 thru December 31, 2006
    
    
    145,000
    
    
    $
    48.32
    
    
    $
    76.07
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (1,186
    )July 1, 2006 thru October 31, 2006
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    246,000
    
    
    $
    7.50
    
    
    $
    13.90
    
    
    $
    
    
    
    $
    
    
    
    
    464July 1, 2006 thru October 31, 2006
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    123,000
    
    
    $
    
    
    
    $
    
    
    
    $
    9.00
    
    
    $
    14.55
    
    
    
    425January 1, 2007 thru December 31, 2007
    
    
    219,000
    
    
    $
    52.50
    
    
    $
    83.00
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    (785
    )April 1, 2007 thru October 31, 2007
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    214,000
    
    
    $
    6.00
    
    
    $
    11.05
    
    
    $
    
    
    
    $
    
    
    
    
    (48
    )January 1, 2008 thru December 31, 2008
    
    
    109,800
    
    
    $
    55.00
    
    
    $
    76.50
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    (510
    )January 1, 2009 thru December 31, 2009
    
    
    91,250
    
    
    $
    55.00
    
    
    $
    73.00
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    (436
    )January 1, 2010 thru October 31, 2010
    
    
    76,000
    
    
    $
    55.00
    
    
    $
    71.00
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    (338
    )Total Fair Market Value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (2,414
    )
 Commodity Swaps.
  Nymex Oil
    
    
    Fair MarketPeriod of Time
    
    Barrels of Oil
    
    
    Swap Price
    
    
    Value($ in thousands)July 1, 2006 thru December 20, 2006(1)
    
    
    129,750
    
    
    $
    23.04
    
    
    $
    (6,694
    )July 1, 2006 thru December 31, 2006
    
    
    92,000
    
    
    $
    36.35
    
    
    
    (3,544
    )January 1, 2007 thru December 31, 2007
    
    
    474,500
    
    
    $
    34.36
    
    
    
    (18,620
    )January 1, 2008 thru December 31, 2008
    
    
    439,200
    
    
    $
    33.37
    
    
    
    (15,829
    )Total fair market value
    
    
    
    
    
    
    
    
    
    $
    (44,687
    )
 
 (1)
    
    Designated as a cash flow hedge. NOTE 8. NET INCOME (LOSS) PER COMMON SHARE
  (12)




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(dollars in thousands, except per share data)Basic EPS Computation:Numerator-Income (loss)
    
    $
    2,464
    
    
    $
    (1,246
    )
    
    $
    4,075
    
    
    $
    (11,950
    )Preferred stock dividend
    
    
    
    
    
    
    (128
    )
    
    
    
    
    
    
    (271
    )Income (loss) available to common stockholders
    
    $
    2,464
    
    
    $
    (1,374
    )
    
    $
    4,075
    
    
    $
    (12,221
    )Denominator-Weighted average common shares outstanding
    
    
    34,940
    
    
    
    31,967
    
    
    
    34,896
    
    
    
    30,341Basic EPS:Income (loss) per share
    
    $
    0.07
    
    
    $
    (0.04
    )
    
    $
    0.12
    
    
    $
    (0.40
    )Diluted EPS Computation:Numerator-Income (loss)
    
    $
    2,464
    
    
    $
    (1,246
    )
    
    $
    4,075
    
    
    $
    (11,950
    )Preferred stock dividend
    
    
    
    
    
    
    (128
    )
    
    
    
    
    
    
    (271
    )Income (loss) available to common stockholders
    
    $
    2,464
    
    
    $
    (1,374
    )
    
    $
    4,075
    
    
    $
    (12,221
    )Denominator -Weighted average common shares outstanding
    
    
    34,940
    
    
    
    31,967
    
    
    
    34,896
    
    
    
    30,341Employee stock options
    
    
    591
    
    
    
    
    
    
    
    571
    
    
    
    Warrants
    
    
    107
    
    
    
    
    
    
    
    105
    
    
    
    Preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted average common shares for diluted
earnings per share assuming conversion
    
    
    35,638
    
    
    
    31,967
    
    
    
    35,572
    
    
    
    30,341Diluted EPS:Income (loss) per share
    
    $
    0.07
    
    
    $
    (0.04
    )
    
    $
    0.11
    
    
    $
    (0.40
    )
  NOTE 9. ASSET RETIREMENT OBLIGATIONS
  (13)




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(in thousands)Beginning asset retirement obligation
    
    $
    4,279
    
    
    $
    2,112
    
    
    $
    2,495
    
    
    $
    2,132Additions related to new properties
    
    
    83
    
    
    
    109
    
    
    
    191
    
    
    
    128Revisions in estimated cash flows
    
    
    (1
    )
    
    
    4
    
    
    
    1,663
    
    
    
    2Deletions related to property disposals
    
    
    (10
    )
    
    
    (2
    )
    
    
    (30
    )
    
    
    (65
    )Accretion expense
    
    
    69
    
    
    
    28
    
    
    
    101
    
    
    
    54Ending asset retirement obligation
    
    $
    4,420
    
    
    $
    2,251
    
    
    $
    4,420
    
    
    $
    2,251
 NOTE 10. INVESTMENT IN GAS GATHERING SYSTEM
  NOTE 11. COMMITMENTS AND CONTINGENCIES
    (14)




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##### Table of Contents



.
 NOTE 12. SUBSEQUENT EVENTS
  
 ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
  OVERVIEW
 Strategy
   
    
    focuses on projects having less geological risk;
    
    emphasizes exploitation and enhancement activities;
    
    focuses on acquiring producing properties; and
    
    expands the scope of operations by diversifying our exploratory and development
efforts, both in and outside of our current areas of operation.
  (15)




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##### Table of Contents




    
    the prices we receive for the oil and natural gas we produce;
    
    the results of reprocessing and reinterpreting our 3-D seismic data;
    
    the results of our drilling activities;
    
    the costs of obtaining high quality field services;
    
    our ability to find and consummate acquisition opportunities; and
    
    our ability to negotiate and enter into work to earn arrangements, joint venture or
other similar agreements on terms acceptable to us.
  Operating Performance
  
    
    seasonal demand;
    
    weather;
    
    hurricane conditions in the Gulf of Mexico;
    
    availability of pipeline transportation to end users;
    
    proximity of our wells to major transportation pipeline infrastructures; and
    
    to a lesser extent, world oil prices.
  
    
    production expenses;
    
    overhead requirements; and
    
    costs of capital.
  
    
    cash flow from operations;
    
    sales of our equity securities;
    
    bank borrowings; and
    
    industry joint ventures.
 (16)




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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.
 (17)




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##### Table of Contents



Three Months Ended
    
    
    Six Months Ended6/30/2006
    
    
    6/30/2005
    
    
    6/30/2006
    
    
    6/30/2005(in thousands, except per unit data)Production Volumes:Oil (Bbls)
    
    
    298
    
    
    
    218
    
    
    
    566
    
    
    
    425Natural gas (Mcf)
    
    
    1,726
    
    
    
    700
    
    
    
    2,893
    
    
    
    1,302BOE(1)
    
    
    586
    
    
    
    335
    
    
    
    1,048
    
    
    
    642BOE per day
    
    
    6.4
    
    
    
    3.7
    
    
    
    5.8
    
    
    
    3.5Sales Prices:Oil (per Bbl)(2)
    
    $
    63.17
    
    
    $
    46.97
    
    
    $
    60.56
    
    
    $
    46.15Natural gas (per Mcf)(2)
    
    $
    6.25
    
    
    $
    6.78
    
    
    $
    6.42
    
    
    $
    6.42BOE price (2)
    
    $
    50.56
    
    
    $
    44.77
    
    
    $
    50.43
    
    
    $
    43.57BOE price(3)
    
    $
    45.01
    
    
    $
    36.60
    
    
    $
    44.72
    
    
    $
    35.32Operating RevenuesOil
    
    $
    18,802
    
    
    $
    10,259
    
    
    $
    34,284
    
    
    $
    19,618Oil hedge
    
    
    (3,252
    )
    
    
    (2,741
    )
    
    
    (5,985
    )
    
    
    (5,095
    )Natural gas
    
    
    10,792
    
    
    
    4,745
    
    
    
    18,586
    
    
    
    8,355Natural gas hedge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (201
    )$
    26,342
    
    
    $
    12,263
    
    
    $
    46,885
    
    
    $
    22,677Operating Expenses:Lease operating expense
    
    $
    3,741
    
    
    $
    2,178
    
    
    $
    7,316
    
    
    $
    4,736Production taxes
    
    
    1,468
    
    
    
    701
    
    
    
    2,578
    
    
    
    1,281General and administrative:General and administrative
    
    
    1,523
    
    
    
    859
    
    
    
    2,657
    
    
    
    1,828Public reporting
    
    
    1,090
    
    
    
    549
    
    
    
    2,085
    
    
    
    1,208Depreciation, depletion and amortization
    
    
    6,140
    
    
    
    2,773
    
    
    
    10,428
    
    
    
    5,055$
    13,962
    
    
    $
    7,060
    
    
    $
    25,064
    
    
    $
    14,108Operating income
    
    $
    12,380
    
    
    $
    5,203
    
    
    $
    21,821
    
    
    $
    8,569
 
 (1)
    
    A BOE means one barrel of oil equivalent using the ratio of six Mcf of
gas to one barrel of oil.(2)
    
    Unhedged price is the actual price received at the wellhead for our oil
and natural gas.(3)
    
    Hedged price is the actual price received at the wellhead for our oil and natural
gas plus or minus the settlements on our derivatives. (18)




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##### Table of Contents



RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2006 AND 2005:
  Oil and Gas Revenues
 Revenues(1)
    
    Production2006
    
    2005
    
    2006
    
    2005Oil (Bbls)
    
    
    59
    %
    
    
    61
    %
    
    
    51
    %
    
    
    65
    %Natural gas (Mcf)
    
    
    41
    %
    
    
    39
    %
    
    
    49
    %
    
    
    35
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 
 (1)
    
    Includes hedge transactions  Three Months Ended June 30,
    
    
    Increase
    
    
    % Increase2006
    
    
    2005
    
    
    (Decrease)
    
    
    (Decrease)(in thousands except per unit data)Production VolumesOil (Bbls)
    
    
    298
    
    
    
    218
    
    
    
    80
    
    
    
    37
    %Natural gas (Mcf)
    
    
    1,726
    
    
    
    700
    
    
    
    1,026
    
    
    
    147
    %BOE
    
    
    586
    
    
    
    335
    
    
    
    251
    
    
    
    75
    %BOE/Day
    
    
    6.4
    
    
    
    3.7
    
    
    
    2.7
    
    
    
    74
    %Sales PriceOil (per Bbl)(1)
    
    $
    63.17
    
    
    $
    46.97
    
    
    $
    16.20
    
    
    
    34
    %Natural gas (per Mcf)(1)
    
    $
    6.25
    
    
    $
    6.78
    
    
    $
    (0.53
    )
    
    
    (8
    )%BOE price(1)
    
    $
    50.56
    
    
    $
    44.77
    
    
    $
    5.79
    
    
    
    13
    %BOE price(2)
    
    $
    45.01
    
    
    $
    36.60
    
    
    $
    8.41
    
    
    
    23
    %Operating RevenuesOil
    
    $
    18,802
    
    
    $
    10,259
    
    
    $
    8,543
    
    
    
    83
    %Oil hedges
    
    $
    (3,252
    )
    
    $
    (2,741
    )
    
    $
    511
    
    
    
    19
    %Natural gas
    
    $
    10,792
    
    
    $
    4,745
    
    
    $
    6,047
    
    
    
    127
    %Total
    
    $
    26,342
    
    
    $
    12,263
    
    
    $
    14,079
    
    
    
    115
    %
 
 (1)
    
    Excludes hedge transactions.(2)
    
    Includes hedge transactions.   (19)




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##### Table of Contents



Cost and Expenses
 Three months ended June 30,
    
    
    Increase
    
    
    % Increase2006
    
    
    2005
    
    
    (Decrease)
    
    
    (Decrease)(dollars in thousands)Lease operating expense
    
    $
    3,741
    
    
    $
    2,178
    
    
    $
    1,563
    
    
    
    72
    %Production taxes
    
    
    1,468
    
    
    
    701
    
    
    
    767
    
    
    
    109
    %General and administrative:General and administrative
    
    
    1,523
    
    
    
    859
    
    
    
    664
    
    
    
    77
    %Public reporting
    
    
    1,090
    
    
    
    549
    
    
    
    541
    
    
    
    99
    %Total general and administrative
    
    
    2,613
    
    
    
    1,408
    
    
    
    1,205
    
    
    
    86
    %Depreciation, depletion and amortization
    
    
    6,140
    
    
    
    2,773
    
    
    
    3,367
    
    
    
    121
    %Total
    
    $
    13,962
    
    
    $
    7,060
    
    
    $
    6,902
    
    
    
    98
    %
    (20)




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##### Table of Contents



Other income (expense)
 Three months ended June 30,
    
    
    Increase
    
    
    % Increase2006
    
    
    2005
    
    
    (Decrease)
    
    
    (Decrease)(dollars in thousands)Change in fair market value of derivatives
    
    $
    (5,493
    )
    
    $
    (6,063
    )
    
    $
    (570
    )
    
    
    (9
    )%Gain (loss) on ineffective portion of hedges
    
    
    52
    
    
    
    (150
    )
    
    
    202
    
    
    
    135
    %Interest and other income
    
    
    25
    
    
    
    20
    
    
    
    5
    
    
    
    25
    %Interest expense, net
    
    
    (3,158
    )
    
    
    (868
    )
    
    
    2,290
    
    
    
    264
    %Other expense
    
    
    (39
    )
    
    
    (1
    )
    
    
    38
    
    
    
    3,800
    %Equity in
loss of pipelines and gathering system ventures
    
    
    (10
    )
    
    
    (15
    )
    
    
    (5
    )
    
    
    (33
    )%Total
    
    $
    (8,623
    )
    
    $
    (7,077
    )
    
    $
    1,546
    
    
    
    22
    %
     RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2006 AND 2005:
  Oil and Gas Revenues
 Revenues(1)
    
    Production2006
    
    2005
    
    2006
    
    2005Oil (Bbls)
    
    
    60
    %
    
    
    64
    %
    
    
    54
    %
    
    
    66
    %Natural gas (Mcf)
    
    
    40
    %
    
    
    36
    %
    
    
    46
    %
    
    
    34
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 
 (1)
    
    Includes hedge transactions (21)




---



##### Table of Contents



Six Months Ended June 30,
    
    
    Increase
    
    
    % Increase2006
    
    
    2005
    
    
    (Decrease)
    
    
    (Decrease)(in thousands except per unit data)Production VolumesOil (Bbls)
    
    
    566
    
    
    
    425
    
    
    
    141
    
    
    
    33
    %Natural gas (Mcf)
    
    
    2,893
    
    
    
    1,302
    
    
    
    1,591
    
    
    
    122
    %BOE
    
    
    1,048
    
    
    
    642
    
    
    
    406
    
    
    
    63
    %BOE/Day
    
    
    5.8
    
    
    
    3.5
    
    
    
    2.3
    
    
    
    65
    %Sales PriceOil (per Bbl)(1)
    
    $
    60.56
    
    
    $
    46.15
    
    
    $
    14.41
    
    
    
    31
    %Natural gas (per Mcf)(1)
    
    $
    6.42
    
    
    $
    6.42
    
    
    $
    
    
    
    
    0
    %BOE price(1)
    
    $
    50.43
    
    
    $
    43.57
    
    
    $
    6.86
    
    
    
    16
    %BOE price(2)
    
    $
    44.72
    
    
    $
    35.32
    
    
    $
    9.40
    
    
    
    27
    %Operating RevenuesOil
    
    $
    34,284
    
    
    $
    19,618
    
    
    
    14,666
    
    
    
    75
    %Oil hedges
    
    $
    (5,985
    )
    
    $
    (5,095
    )
    
    
    890
    
    
    
    17
    %Natural gas
    
    $
    18,586
    
    
    $
    8,355
    
    
    
    10,231
    
    
    
    122
    %Natural gas hedges
    
    $
    
    
    
    $
    (201
    )
    
    
    (201
    )
    
    
    100
    %Total
    
    $
    46,885
    
    
    $
    22,677
    
    
    
    24,208
    
    
    
    107
    %
 
 (1)
    
    Excludes hedge transactions.(2)
    
    Includes hedge transactions.    (22)




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##### Table of Contents



Cost and Expenses
 Six months ended June 30,
    
    
    Increase
    
    
    % Increase2006
    
    
    2005
    
    
    (Decrease)
    
    
    (Decrease)(dollars in thousands)Lease operating expense
    
    $
    7,316
    
    
    $
    4,736
    
    
    $
    2,580
    
    
    
    54
    %Production taxes
    
    
    2,578
    
    
    
    1,281
    
    
    
    1,297
    
    
    
    101
    %General and administrative:General and administrative
    
    
    2,657
    
    
    
    1,828
    
    
    
    829
    
    
    
    45
    %Public reporting
    
    
    2,085
    
    
    
    1,208
    
    
    
    877
    
    
    
    73
    %Total general and administrative
    
    
    4,742
    
    
    
    3,036
    
    
    
    1,706
    
    
    
    56
    %Depreciation, depletion and amortization
    
    
    10,428
    
    
    
    5,055
    
    
    
    5,373
    
    
    
    106
    %Total
    
    $
    25,064
    
    
    $
    14,108
    
    
    $
    10,956
    
    
    
    78
    %
     (23)




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##### Table of Contents



Other income (expense)
 Six months ended June 30,
    
    
    Increase
    
    
    % Increase2006
    
    
    2005
    
    
    (Decrease)
    
    
    (Decrease)(dollars in thousands)Change in fair market value of derivatives
    
    $
    (10,207
    )
    
    $
    (23,696
    )
    
    $
    (13,489
    )
    
    
    (57
    )%Gain (loss) on ineffective portion of hedges
    
    
    195
    
    
    
    (860
    )
    
    
    1,055
    
    
    
    123
    %Interest and other income
    
    
    93
    
    
    
    39
    
    
    
    54
    
    
    
    138
    %Interest expense, net
    
    
    (5,599
    )
    
    
    (2,041
    )
    
    
    3,558
    
    
    
    174
    %Other expense
    
    
    (68
    )
    
    
    (2
    )
    
    
    66
    
    
    
    3,300
    %Equity in
loss of pipelines and gathering system ventures
    
    
    (29
    )
    
    
    (94
    )
    
    
    (65
    )
    
    
    (69
    )%Total
    
    $
    (15,615
    )
    
    $
    (26,654
    )
    
    $
    (11,039
    )
    
    
    41
    %
     LIQUIDITY AND CAPITAL RESOURCES
    (24)




---



##### Table of Contents



Bank Borrowings
  Revolving Credit Facility
          (25)




---



##### Table of Contents



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




---



##### Table of Contents



Contractual Obligations, Commitments and Off-Balance Sheet Arrangements
   Obligation Due in PeriodSix monthsendingDecember 31,
    
    
    Periods ended December 31,
    
    
    AfterContractual Cash Obligations
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    5 years
    
    
    Total(in thousands)Revolving Credit Facility (secured)(1)
    
    $
    4,856
    
    
    $
    9,633
    
    
    $
    9,659
    
    
    $
    9,633
    
    
    $
    131,523
    
    
    $
    
    
    
    $
    165,304Second Lien Term Loan Agreement(2)
    
    
    2,505
    
    
    
    4,969
    
    
    
    4,982
    
    
    
    4,969
    
    
    
    54,342
    
    
    
    
    
    
    
    71,767Office Lease (Dinero Plaza)
    
    
    97
    
    
    
    204
    
    
    
    210
    
    
    
    216
    
    
    
    36
    
    
    
    
    
    
    
    763Andrews and Snyder Field Offices(3)
    
    
    11
    
    
    
    23
    
    
    
    14
    
    
    
    14
    
    
    
    14
    
    
    
    
    
    
    
    76Asset retirement obligations(4)
    
    
    300
    
    
    
    82
    
    
    
    58
    
    
    
    253
    
    
    
    567
    
    
    
    3,160
    
    
    
    4,420Derivative Obligations
    
    
    11,424
    
    
    
    19,442
    
    
    
    16,339
    
    
    
    436
    
    
    
    338
    
    
    
    
    
    
    
    47,979Drilling Contract
    
    
    515
    
    
    
    764
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,279Total
    
    $
    19,708
    
    
    $
    35,117
    
    
    $
    31,262
    
    
    $
    15,521
    
    
    $
    186,820
    
    
    $
    3,160
    
    
    $
    291,588
 (27)




---



##### Table of Contents



(1)
    
    Outstanding principal of $123.5 million due October 31, 2010 and estimated
interest obligation calculated using the weighted average rate at June 30, 2006 of 7.8%(2)
    
    Outstanding principal of $50.0 million due November 15, 2010 and estimated interest obligation
calculated using the LIBOR rate at June 30, 2006 of 9.9375%(3)
    
    The Snyder field office lease
remains in effect until the termination of our trade agreement with a third party working interest
owner in the Diamond M project. The Andrews field office lease expires in December 2007. The
lease cost for these two office facilities are billed to nonaffiliated third party working interest
owners under our joint operating agreements with these third parties.(4)
    
    Assets retirement obligations of oil and natural gas assets, excluding salvage value and
accretion. Outlook
  
    
    internally generated cash from operations;
    
    proceeds from bank borrowings; and
    
    proceeds from sales of equity securities.
  
    
    our proved reserves;
    
    the volumes of oil and natural gas we produce from existing wells;
    
    the prices at which we sell oil and natural gas; and
    
    our ability to acquire, locate and produce new reserves.
  
    
    increased bank borrowings;
    
    sales of Parallels securities;
    
    sales of non-core properties; or
    
    other forms of financing.
  Inflation
  Critical Accounting Policies
  (28)




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##### Table of Contents



TRENDS AND PRICES
    FORWARD-LOOKING STATEMENTS
 Cautionary Statement Regarding Forward-Looking Statements
  
    
    our future financial and operating performance and results;
    
    the drilling plans and ability to secure drilling rigs to effectuate plans;
    
    production volumes;
    
    our business strategy;
    
    market prices;
    
    sources of funds necessary to conduct operations and complete acquisitions;
    
    development costs;
    
    number and location of planned wells;
    
    our future commodity price risk management activities; and
    
    our plans and forecasts.
   
    
    fluctuations in prices of oil and natural gas;
    
    dependent on key personnel;
    
    reliance on technological development and technology development programs;
    
    demand for oil and natural gas;
 (29)




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##### Table of Contents




    
    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.
   
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Interest Rate Sensitivity as of June 30, 2006
  2006
    
    2007
    
    2008
    
    2009
    
    2010
    
    Total(in thousands, except interest rates)Revolving Facility (secured)
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    123,500
    
    
    $
    123,500Average interest rate
    
    
    7.80
    %
    
    
    7.80
    %
    
    
    7.80
    %
    
    
    7.80
    %
    
    
    7.80
    %Term Loan (Second Lien)
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    50,000
    
    
    $
    50,000Average interest rate
    
    
    9.94
    %
    
    
    9.94
    %
    
    
    9.94
    %
    
    
    9.94
    %
    
    
    9.94
    %
 (30)




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##### Table of Contents



Notional
    
    
    
    
    
    
    FairPeriod of Time
    
    Amounts
    
    
    Fixed Interest Rates
    
    
    Market Value($ in millions)
    
    
    
    
    
    
    ($ in thousands)July 1, 2006 thru December 31, 2006(1)
    
    $
    10
    
    
    
    4.05
    %
    
    $
    70July 1, 2006 thru December 31, 2006
    
    $
    90
    
    
    
    4.41
    %
    
    
    486January 1, 2007 thru December 31, 2007
    
    $
    100
    
    
    
    4.62
    %
    
    
    850January 1, 2008 thru December 31, 2008
    
    $
    100
    
    
    
    4.86
    %
    
    
    572January 1, 2009 thru December 31, 2009
    
    $
    50
    
    
    
    5.06
    %
    
    
    195January 1, 2010 thru October 31, 2010
    
    $
    50
    
    
    
    5.15
    %
    
    
    141Total Fair Market Value
    
    
    
    
    
    
    
    
    
    $
    2,314
 
 (1)
    
    Designated as cash flow hedge. Commodity Price Sensitivity as of June 30, 2006
   (31)




---



##### Table of Contents



Put Options.
 Collars.
  NyMex Oil Prices
    
    
    
    
    
    

Houston
Ship Channel Gas Prices
    
    
    WAHA Gas PricesBarrels of
    
    
    
    
    
    
    
    
    
    
    MM Btu of
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Fair MarketPeriod of Time
    
    Oil
    
    
    Floor
    
    
    Cap
    
    
    Natural Gas
    
    
    Floor
    
    
    Cap
    
    
    Floor
    
    
    Cap
    
    
    Value($ in thousands)July 1, 2006 thru December 31, 2006
    
    
    145,000
    
    
    $
    48.32
    
    
    $
    76.07
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (1,186
    )July 1, 2006 thru October 31, 2006
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    246,000
    
    
    $
    7.50
    
    
    $
    13.90
    
    
    $
    
    
    
    $
    
    
    
    
    464July 1, 2006 thru October 31, 2006
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    123,000
    
    
    $
    
    
    
    $
    
    
    
    $
    9.00
    
    
    $
    14.55
    
    
    
    425January 1, 2007 thru December 31, 2007
    
    
    219,000
    
    
    $
    52.50
    
    
    $
    83.00
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    (785
    )April 1, 2007 thru October 31, 2007
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    214,000
    
    
    $
    6.00
    
    
    $
    11.05
    
    
    $
    
    
    
    $
    
    
    
    
    (48
    )January 1, 2008 thru December 31, 2008
    
    
    109,800
    
    
    $
    55.00
    
    
    $
    76.50
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    (510
    )January 1, 2009 thru December 31, 2009
    
    
    91,250
    
    
    $
    55.00
    
    
    $
    73.00
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    (436
    )January 1, 2010 thru October 31, 2010
    
    
    76,000
    
    
    $
    55.00
    
    
    $
    71.00
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    (338
    )Total Fair Market Value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (2,414
    )
 Commodity Swaps.
 (32)




---



##### Table of Contents



Nymex Oil
    
    
    Fair MarketPeriod of Time
    
    Barrels of Oil
    
    
    Swap Price
    
    
    Value($ in thousands)July 1, 2006 thru December 20, 2006(1)
    
    
    129,750
    
    
    $
    23.04
    
    
    $
    (6,694
    )July 1, 2006 thru December 31, 2006
    
    
    92,000
    
    
    $
    36.35
    
    
    
    (3,544
    )January 1, 2007 thru December 31, 2007
    
    
    474,500
    
    
    $
    34.36
    
    
    
    (18,620
    )January 1, 2008 thru December 31, 2008
    
    
    439,200
    
    
    $
    33.37
    
    
    
    (15,829
    )Total fair market value
    
    
    
    
    
    
    
    
    
    $
    (44,687
    )
 
 (1)
    
    Designated as a cash flow hedge. 
 ITEM 4. CONTROLS AND PROCEDURES
  
 PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
    (33)




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##### Table of Contents



ITEM 1A. RISK FACTORS
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  BROKERNAME
    
    VOTES CAST FOR
    
    VOTES WITHHELD
    
    NON-VOTESThomas R. Cambridge
    
    
    30,406,819
    
    
    
    1,077,002
    
    
    
    Dewayne E. Chitwood
    
    
    29,979,815
    
    
    
    1,504,006
    
    
    
    Larry C. Oldham
    
    
    30,971,637
    
    
    
    512,184
    
    
    
    Martin B. Oring
    
    
    30,646,633
    
    
    
    837,188
    
    
    
    Ray M. Poage
    
    
    30,646,808
    
    
    
    837,013
    
    
    
    Jeffrey G. Shrader
    
    
    30,747,778
    
    
    
    736,043
    
    
    
    
  VOTES FOR
    
    VOTES AGAINST
    
    ABSTENTIONS31,000,006
    
    
    
    466,125
    
    
    
    17,690
 
 ITEM 6. EXHIBITS
  No.
    
    Description of Exhibit3.1
    
    Certificate of Incorporation of Registrant (Incorporated by reference to Exhibit 3.1 to Form
10-Q of the Registrant for the fiscal quarter ended June 30, 2004)3.2
    
    Bylaws of Registrant (Incorporated by reference to Exhibit 3 of the Registrants Form 8-K,
dated October 9, 2000, as filed with the Securities and Exchange Commission on October 10,
2000)3.3
    
    Certificate of Formation of Parallel, L.L.C. (Incorporated by reference to Exhibit No. 3.3 of
the Registrants Registration Statement on Form S-3, No. 333-119725 filed on October 13, 2004)3.4
    
    Limited Liability Company Agreement of Parallel, L.L.C. (Incorporated by reference to Exhibit
No. 3.4 of the Registrants Statement on Form S-3, No. 333-119725 filed on October 13, 2004)3.5
    
    Certificate of Limited Partnership of Parallel, L.P. (Incorporated by reference to Exhibit
No. 3.5 of the Registrants Registration Statement on Form S-3, No. 333-119725 filed on
October 13, 2004)
 (34)




---



##### 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 Designation, Preferences and Rights of Series A Preferred Stock (Incorporated
by reference to Exhibit 4.2 of Form 10-K of the Registrant for the fiscal year ended December
31, 2000)4.3
    
    Rights Agreement, dated as of October 5, 2000, between the Registrant and Computershare Trust
Company, Inc., as Rights Agent (Incorporated by reference to Exhibit 4.3 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2000)4.4
    
    Form of Indenture relating to senior debt securities of the Registrant (Incorporated by
reference to Exhibit No. 4.4 of the Registrants Statement on Form S-3, No. 333-119725 filed
on October 13, 2004)4.5
    
    Form of Indenture relating to subordinated debt securities of the Registrant (Incorporated by
reference to Exhibit No. 4.5 of the Registrants Registration Statement on Form S-3, No.
333-119725 filed on October 13, 2004)4.6
    
    Form of common stock certificate of the Registrant (Incorporated by reference to Exhibit No.
4.6 of the Registrants Registration Statement on Form S-3, No. 333-119725 filed on October
13, 2004)4.7
    
    Warrant Purchase Agreement, dated November 20, 2001, between the Registrant and Stonington
Corporation (Incorporated by reference to Exhibit 4.7 of Form 10-K of the Registrant for the
fiscal year ended December 31, 2004)4.8
    
    Warrant Purchase Agreement, dated December 23, 2003, between the Registrant and Stonington
Corporation (Incorporated by reference to Exhibit 4.8 of Form 10-K of the Registrant for the
fiscal year ended December 31, 2004)Executive Compensation Plans and Arrangements (Exhibit No.s 10.1 through 10.8):10.1
    
    1992 Stock Option Plan (Incorporated by reference to Exhibit 10.1 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2004)10.2
    
    Merrill Lynch, Pierce, Fenner & Smith Incorporated Prototype Simplified Employee Pension Plan
(Incorporated by reference to Exhibit 10.6 of the Registrants Form 10-K for the fiscal year
ended December 31, 1995)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 10.7 of Form 10-K of the
Registrant for the fiscal year ended December 31, 1998)10.5
    
    Form of Incentive Award Agreements, dated December 12, 2001, between the Registrant and
Thomas R. Cambridge, Larry C. Oldham, Eric A. Bayley and John S. Rutherford granting 2,394
Unit Equivalent Rights to Mr. Cambridge; 9,564 Unit Equivalent Rights to Mr. Oldham; 2,869
Unit Equivalent Rights to Mr. Bayley; and 7,173 Unit Equivalent Rights to Mr. Rutherford
(Incorporated by reference to Exhibit 10.8 of Form 10-K of the Registrant for the fiscal year
ended December 31, 2001)10.6
    
    2001 Non-Employee Directors Stock Option Plan (Incorporated by reference to Exhibit 10.7 of
the Registrants Form 10-Q Report for the fiscal quarter ended March 31, 2004)10.7
    
    2004 Non-Employee Director Stock Grant Plan (Incorporated by reference to Exhibit 10.1 of the
Registrants Form 8-K Report dated September 22, 2004)
 (35)




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##### Table of Contents



No.
    
    Description of Exhibit10.8
    
    Incentive and Retention Plan (Incorporated by reference to Exhibit 10.1 of the Registrants
Form 8-K Report dated September 23, 2004 and filed with the Securities and Exchange Commission
on September 29, 2004)10.9
    
    Certificate of Formation of First Permian, L.L.C. (Incorporated by reference to Exhibit 10.1
of the Registrants Form 8-K Report dated June 30, 1999)10.10
    
    Limited Liability Company Agreement of First Permian, L.L.C. (Incorporated by reference to
Exhibit 10.2 of the Registrants Form 8-K Report dated June 30, 1999)10.11
    
    Amended and Restated Limited Liability Company Agreement of First Permian, L.L.C. dated as
of May 31, 2000 (Incorporated by reference to Exhibit 10.16 of Form 10-K of the Registrant for
the fiscal year ended December 31, 2000)10.12
    
    Credit Agreement, dated June 30, 1999, by and among First Permian, L.L.C., Parallel
Petroleum Corporation, Baytech, Inc., and Bank One, Texas, N.A. (Incorporated by reference to
Exhibit 10.6 of the Registrants Form 8-K Report dated June 30, 1999)10.13
    
    Limited Guaranty, dated June 30, 1999, by and among First Permian, L.L.C., parallel
Petroleum Corporation and Bank One, Texas, N.A. (Incorporated by reference to Exhibit 10.7 of
the Registrants Form 8-K Report dated June 30, 1999)10.14
    
    Second Restated Credit Agreement, dated October 25, 2000, among First Permian, L.L.C., Bank
One, Texas, N.A., and Bank One Capital Markets, Inc. (Incorporated by reference to Exhibit
10.22 of Form 10-K of the Registrant for the fiscal year ended December 31, 2000)10.15
    
    Loan Agreement, dated as of January 25, 2002, between the Registrant and First American
Bank, SSB (Incorporated by reference to Exhibit 10.25 of Form 10-K of the Registrant for the
fiscal year ended December 31, 2001)10.16
    
    Purchase and Sale Agreement, dated as of November 27, 2002, among JMC Exploration, Inc.,
Arkoma Star L.L.C., Parallel, L.P. and Texland Petroleum, Inc. (Incorporated by reference to
Exhibit 10.1 of Form 8-K of the Registrant, dated December 20, 2002)10.17
    
    First Amended and Restated Credit Agreement, dated December 20, 2002, by and among Parallel
Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First American Bank, SSB, Western
National Bank and BNP Paribas (Incorporated by reference to Exhibit 10.2 of Form 8-K of the
Registrant, dated December 20, 2002)10.18
    
    Guaranty dated December 20, 2002, between Parallel, L.L.C. and First American Bank, SSB, as
Agent (Incorporated by reference to Exhibit 10.3 of Form 8-K of the Registrant, dated December
20, 2002)10.19
    
    First Amendment to First Amended and Restated Credit Agreement, dated as of September 12,
2003, by and among Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First
American Bank, SSB, Western National Bank, and BNP Paribas (Incorporated by reference to
Exhibit 10.29 of Form 10-Q of the Registrant for the quarter ended September 30, 2003)10.20
    
    Second Amendment and Restated Credit Agreement, dated September 27, 2004, by and among
Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First American Bank, SSB,
BNP Paribas, Citibank, F.S.B. and Western National Bank (Incorporated by reference to Exhibit
10.1 of the Registrants Form 8-K Report dated September 27, 2004 and filed with the
Securities and Exchange Commission on October 1, 2004)10.21
    
    Agreement of Limited Partnership of West Fork Pipeline Company LP (Incorporated by reference
to Exhibit 10.21 of Form 10-K of the Registrant for the fiscal year ended December 31, 2004)10.22
    
    First Amendment to Second Amended and Restated Credit Agreement, dated as of December 27,
2004, by and among Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First
American Bank, SSB, BNP Paribas, Citibank, F.S.B. and Western National Bank (Incorporated by
reference to Exhibit 10.1 of the
 (36)




---



##### Table of Contents



No.
    
    Description of ExhibitRegistrants Form 8-K Report dated December 30, 2004 and
filed with the Securities and Exchange Commission on December 30, 2004)10.23
    
    Second Amendment to Second Amended and Restated Credit Agreement, dated as of April 1, 2005,
by and among Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First American
Bank, SSB, BNP Paribas, Citibank, F.S.B. and Western National Bank (Incorporated by reference
to Exhibit 10.1 of the Registrants Form 8-K Report dated April 4, 2005 and filed with the
Securities and Exchange Commission on April 8, 2005)10.24
    
    Third Amendment to Second Amended and Restated Credit Agreement (Incorporated by reference
to Exhibit 10.1 of the Registrants Form 8-K Report dated October 4, 2005 and filed with the
Securities and Exchange Commission on October 20, 2005)10.25
    
    Purchase and Sale Agreement, dated as of October 14, 1005, among Parallel, L.P., Lynx
Production Company, Inc., Elton Resources, Inc., Cascade Energy Corporation, Chelsea Energy,
Inc., William P. Sutter, Trustee, William P. Sutter Trust, J. Leroy Bell, E. L. Brahaney,
Brent Beck, Cavic Interests, LLC and Stanley Talbott (Incorporated by reference to Exhibit
10.2 of the Registrants Form 8-K Report dated October 14, 2005 and filed with the Securities
and Exchange Commission on October 20, 2005)10.26
    
    Ancillary Agreement to Purchase and Sale Agreement, dated October 14, 2005, between
Parallel, L.P. and Lynx Production Company, Inc. (Incorporated by reference to Exhibit 10.3 of
the Registrants Form 8-K Report dated October 14, 2005 and filed with the Securities and
Exchange Commission on October 20, 2005)10.27
    
    Guarantee of Parallel, L.P., dated October 13, 2004 (Incorporated by reference to Exhibit
10.4 of the Registrants Form 8-K Report dated October 14, 2005 and filed with the Securities
and Exchange Commission on October 20, 2005)10.28
    
    ISDA Master Agreement, dated as of October 13, 2005, between Parallel, L.P. and Citibank,
N.A. (Incorporated by reference to Exhibit 10.5 of the Registrants Form 8-K Report dated
October 14, 2005 and filed with the Securities and Exchange Commission on October 20, 2005)10.29
    
    Third Amended and Restated Credit Agreement, dated as of December 23, 2005, among Parallel
Petroleum Corporation, Parallel, L.P., Parallel, L.L.C. and Citibank Texas, N.A., BNP Paribas,
CitiBank F.S.B., Western National Bank, Compass Bank, Comerica Bank, Bank of Scotland and
Fortis Capital Corp. (Incorporated by reference to Exhibit No. 10.1 of the Registrants Form
8-K Report, dated December 23, 2005, as filed with the Securities and Exchange Commission on
December 30, 2005)10.30
    
    Second Lien Term Loan Agreement, dated November 15, 2005, among Parallel Petroleum
Corporation, Parallel, L.P., BNP Paribas and Citibank Texas, N.A. (Incorporated by reference
to Exhibit No. 10.4 of the Registrants Form 8-K Report, dated November 15, 2005, as filed
with the Securities and Exchange Commission on November 21, 2005)10.31
    
    Intercreditor and Subordination Agreement, dated November 15, 2005, among Citibank Texas,
N.A., BNP Paribas, Parallel Petroleum Corporation, Parallel, L.P. and Parallel, L.L.C.
(Incorporated by reference to Exhibit No. 10.5 of the Registrants Form 8-K Report, dated
November 15, 2005, as filed with the Securities and Exchange Commission on November 21, 2005)14
    
    Code of Ethics (Incorporated by reference to Exhibit No. 14 of the Registrants Form 10-K
Report for the fiscal year ended December 31, 2003 and filed with the Securities and Exchange
Commission on March 22, 2004)21
    
    Subsidiaries (Incorporated by reference to Exhibit No. 21 of the Registrants Form 10-K
Report for the fiscal year ended December 31, 2003 and filed with the Securities and Exchange
Commission on March 22, 2004)*31.1
    
    Certification of Principal Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 302 of the
Sarbanes  Oxley Act of 2002.
 (37)




---



##### Table of Contents



No.
    
    Description of Exhibit*31.2
    
    Certification of Principal Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 302 of the
Sarbanes  Oxley Act of 2002.*32.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes
 Oxley Act of 2002.*32.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes
 Oxley Act of 2002.
 
 *
    
    Filed herewith. (38)




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PARALLEL PETROLEUM CORPORATIONDate: August 8, 2006
    BY:
    
    /s/ Larry C. OldhamLarry C. OldhamPresident and Chief Executive OfficerDate: August 8, 2006
    BY:
    
    /s/ Steven D. FosterSteven D. Foster,Chief Financial Officer




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




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##### Table of Contents



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




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##### Table of Contents



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




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##### Table of Contents



No.
    
    Description of ExhibitRegistrants Form 8-K Report, dated November 15, 2005, as filed with the Securities and
Exchange Commission on November 21, 2005)10.31
    
    Intercreditor and Subordination Agreement, dated November 15, 2005, among Citibank Texas,
N.A., BNP Paribas, Parallel Petroleum Corporation, Parallel, L.P. and Parallel, L.L.C.
(Incorporated by reference to Exhibit No. 10.5 of the Registrants Form 8-K Report, dated
November 15, 2005, as filed with the Securities and Exchange Commission on November 21, 2005)14
    
    Code of Ethics (Incorporated by reference to Exhibit No. 14 of the Registrants Form 10-K
Report for the fiscal year ended December 31, 2003 and filed with the Securities and Exchange
Commission on March 22, 2004)21
    
    Subsidiaries (Incorporated by reference to Exhibit No. 21 of the Registrants Form 10-K
Report for the fiscal year ended December 31, 2003 and filed with the Securities and Exchange
Commission on March 22, 2004)*31.1
    
    Certification of Principal Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 302 of the
Sarbanes  Oxley Act of 2002.*31.2
    
    Certification of Principal Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 302 of the
Sarbanes  Oxley Act of 2002.*32.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes
 Oxley Act of 2002.*32.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes
 Oxley Act of 2002.
 
 *
    
    Filed herewith.