##### 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) OR THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 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 of
    
    (I.R.S. Employer Identification No.)incorporation or organization)1004 N. Big Spring, Suite 400,Midland, Texas
    
    79701(Address of principal executive offices)
    
    (Zip Code)
 (Registrants telephone number, including area code)
 (Former name, former address and former fiscal year,
   þ o
  o þ 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 March 31, 2006 (unaudited) and
December 31, 2005
    
    
    1
    
    Unaudited Consolidated Statements of Operations for the three
months ended March 31, 2006 and 2005
    
    
    2
    
    Unaudited Consolidated Statements of Cash Flows for the three months
ended March 31, 2006 and 2005
    
    
    3
    
    Unaudited Consolidated Statements of Comprehensive Income (Loss)
for the three months and ended March 31, 2006 and 2005
    
    
    4
    
    Notes to Consolidated Financial Statements
    
    
    5ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    16ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    30ITEM 4.
    
    CONTROLS AND PROCEDURES
    
    
    33PART II  OTHER INFORMATIONITEM 1.
    
    LEGAL PROCEEDINGS
    
    
    34ITEM 1A.
    
    RISK FACTORS
    
    
    34ITEM 2.
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    34ITEM 6.
    
    EXHIBITS
    
    
    35SIGNATURESCertification of Principal Executive Officer - Section 302Certification of Principal Financial Officer - Section 302Certification of Chief Executive Officer - Section 906Certification of Chief Financial Officer - Section 906
  (ii)




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PARALLEL PETROLEUM CORPORATION
 
 Consolidated Balance Sheets
 (dollars in thousands, except per share amounts)
 March 31,
    
    
    December 31,2006
    
    
    2005(unaudited)AssetsCurrent assets:Cash and cash equivalents
    
    $
    4,895
    
    
    $
    6,418Accounts receivable:Oil and natural gas
    
    
    11,481
    
    
    
    13,183Other, net of allowance for doubtful account of $9
    
    
    2,155
    
    
    
    877Affiliates
    
    
    9
    
    
    
    1213,645
    
    
    
    14,072Other current assets
    
    
    3,467
    
    
    
    2,364Deferred tax asset
    
    
    5,592
    
    
    
    5,241Total current assets
    
    
    27,599
    
    
    
    28,095Property and equipment, at cost:Oil and natural gas properties, full cost method (including $22,953 and $19,869 not
subject to depletion)
    
    
    360,565
    
    
    
    303,819Other
    
    
    3,865
    
    
    
    2,404364,430
    
    
    
    306,223Less accumulated depreciation, depletion and amortization
    
    
    (95,114
    )
    
    
    (90,826
    )Net property and equipment
    
    
    269,316
    
    
    
    215,397Restricted cash
    
    
    274
    
    
    
    2,640Investment in Westfork Pipeline Companies
    
    
    5,331
    
    
    
    3,326Other assets, net of accumulated amortization of $1,026 and $901
    
    
    3,252
    
    
    
    3,550$
    305,772
    
    
    $
    253,008Liabilities and Stockholders EquityCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    12,512
    
    
    $
    10,841Asset retirement obligations
    
    
    332
    
    
    
    214Derivative obligations
    
    
    18,655
    
    
    
    16,607Total current liabilities
    
    
    31,499
    
    
    
    27,662Revolving credit facility
    
    
    91,500
    
    
    
    50,000Term Loan
    
    
    50,000
    
    
    
    50,000Asset retirement obligations
    
    
    3,947
    
    
    
    2,281Derivative obligations
    
    
    26,304
    
    
    
    25,527Deferred tax liability
    
    
    9,667
    
    
    
    8,036Total long-term liabilities
    
    
    181,418
    
    
    
    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 34,891,545 and 34,748,916
    
    
    348
    
    
    
    347Additional paid-in capital
    
    
    79,502
    
    
    
    78,699Retained earnings
    
    
    18,510
    
    
    
    16,899Accumulated other comprehensive loss
    
    
    (5,505
    )
    
    
    (6,443
    )Total stockholders equity
    
    
    92,855
    
    
    
    89,502$
    305,772
    
    
    $
    253,008
  (1)




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PARALLEL PETROLEUM CORPORATION
 
 Consolidated Statements of Operations
 For three months ended March 31, 2006 and 2005
 (unaudited)
 (dollars in thousands, except per share data)
 2006
    
    
    2005Oil and natural gas revenues:Oil and natural gas sales
    
    $
    23,276
    
    
    $
    12,969Loss on hedging
    
    
    (2,733
    )
    
    
    (2,555
    )Total revenues
    
    
    20,543
    
    
    
    10,414Cost and expenses:Lease operating expense
    
    
    3,575
    
    
    
    2,558Production taxes
    
    
    1,110
    
    
    
    580General and administrative
    
    
    2,129
    
    
    
    1,628Depreciation, depletion and amortization
    
    
    4,288
    
    
    
    2,282Total costs and expenses
    
    
    11,102
    
    
    
    7,048Operating income
    
    
    9,441
    
    
    
    3,366Other income (expense), net:Change in fair market value of derivative instruments
    
    
    (4,714
    )
    
    
    (17,633
    )Gain (loss) on ineffective portion of hedges
    
    
    143
    
    
    
    (710
    )Interest and other income
    
    
    68
    
    
    
    19Interest expense
    
    
    (2,441
    )
    
    
    (1,173
    )Other expense
    
    
    (29
    )
    
    
    (1
    )Equity in loss of Westfork Pipeline Companies
    
    
    (19
    )
    
    
    (79
    )Total other income (expense), net
    
    
    (6,992
    )
    
    
    (19,577
    )Income (loss) before income taxes
    
    
    2,449
    
    
    
    (16,211
    )Income tax benefit (expense), deferred
    
    
    (838
    )
    
    
    5,507Net income (loss)
    
    
    1,611
    
    
    
    (10,704
    )Cumulative preferred stock dividend
    
    
    
    
    
    
    (143
    )Net income (loss) available to common stockholders
    
    $
    1,611
    
    
    $
    (10,847
    )Net income (loss) per common share:Basic
    
    $
    0.05
    
    
    $
    (0.38
    )Diluted
    
    $
    0.05
    
    
    $
    (0.38
    )Weighted average common share outstanding:Basic
    
    
    34,850
    
    
    
    28,698Diluted
    
    
    35,547
    
    
    
    28,698
  (2)




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PARALLEL PETROLEUM CORPORATION
 
 Consolidated Statements of Cash Flows
 Three Months Ended March 31, 2006 and 2005
 (unaudited)
 (dollars in thousands)
 2006
    
    
    2005Cash flows from operating activities:Net income (loss)
    
    $
    1,611
    
    
    $
    (10,704
    )Adjustments to reconcile net income (loss) to net cash
provided by operating activities:Depreciation, depletion and amortization
    
    
    4,288
    
    
    
    2,282Accretion of asset retirement obligation
    
    
    31
    
    
    
    26Deferred income tax
    
    
    838
    
    
    
    (5,507
    )Change in fair value of derivative instruments
    
    
    4,714
    
    
    
    17,633(Gain) loss on ineffective portion of hedges
    
    
    (143
    )
    
    
    710Stock option expense
    
    
    388
    
    
    
    42Equity in loss of Westfork Pipeline Companies
    
    
    19
    
    
    
    79Changes in assets and liabilities:Other assets, net
    
    
    311
    
    
    
    48Decrease (increase) in accounts receivable
    
    
    427
    
    
    
    (504
    )Decrease in other current assets
    
    
    107
    
    
    
    75Increase in accounts payable and accrued liabilities
    
    
    1,671
    
    
    
    277Federal tax deposit
    
    
    (40
    )
    
    
    Net cash provided by operating activities
    
    
    14,222
    
    
    
    4,457Cash flows from investing activities:Additions to oil and natural gas properties
    
    
    (55,035
    )
    
    
    (8,596
    )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
    
    
    
    2,539Additions to other property and equipment
    
    
    (1,461
    )
    
    
    (383
    )Settlements on derivative instruments
    
    
    (1,548
    )
    
    
    (682
    )Investment in Westfork Pipeline Companies
    
    
    (2,024
    )
    
    
    (245
    )Net cash used in investing activities
    
    
    (57,661
    )
    
    
    (5,080
    )Cash flows from financing activities:Net borrowing (payments) on revolving line of credit
    
    
    41,500
    
    
    
    (29,000
    )Proceeds (net) from common stock issued
    
    
    
    
    
    
    27,994Proceeds from exercise of stock options
    
    
    416
    
    
    
    Net cash provided by (used in) financing activities
    
    
    41,916
    
    
    
    (1,006
    )Net decrease in cash and cash equivalents
    
    
    (1,523
    )
    
    
    (1,629
    )Cash and cash equivalents at beginning of period
    
    
    6,418
    
    
    
    4,781Cash and cash equivalents at end of period
    
    $
    4,895
    
    
    $
    3,152Non-cash financing and investing activities:Oil and natural gas properties asset retirement obligation
    
    $
    1,752
    
    
    $
    (46
    )Accrued preferred stock dividend
    
    $
    
    
    
    $
    143Other transactions:Interest paid
    
    $
    2,082
    
    
    $
    1,589
  (3)




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PARALLEL PETROLEUM CORPORATION
 
 Consolidated Statements of Comprehensive Income (Loss)
 Three Months Ended March 31, 2006 and 2005
 (unaudited)
 (dollars in thousands)
 2006
    
    
    2005Net income (loss)
    
    $
    1,611
    
    
    $
    (10,704
    )Other comprehensive loss:Unrealized gains (losses) on derivatives
    
    
    4,142
    
    
    
    (7,413
    )Reclassification adjustments for (gains) lossesChange in fair value of derivatives
    
    
    (2,721
    )
    
    
    2,630Change in fair value of derivatives
    
    
    1,421
    
    
    
    (4,783
    )Income tax benefit (expense)
    
    
    (483
    )
    
    
    1,626Total other comprehensive income (loss)
    
    
    938
    
    
    
    (3,157
    )Total comprehensive income (loss)
    
    $
    2,549
    
    
    $
    (13,861
    )
  (4)




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




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(in thousands)Second quarter 2006
    
    $
    196Third quarter 2006
    
    
    159Fourth quarter 2006
    
    
    1052007
    
    
    3572008 through 2011
    
    
    371Total
    
    $
    1,188
   2001
    
    2005Expected volatility
    
    
    57.95
    %
    
    
    54.20
    %Expected dividends
    
    
    0.00
    
    
    
    0.00Expected term (in years)
    
    
    8
    
    
    
    8Risk-free rate
    
    
    5.050
    %
    
    
    4.200
    %
 (6)




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##### Table of Contents



Three Months EndedMarch 31,2005Net loss, as reported
    
    $
    (10,704
    )Add:Expense recorded in 2005, net of related tax effects
    
    
    28Deduct:Total stock-based employee compensation expense
determined under fair value based method for all awards,
net of related tax effects
    
    
    (48
    )Pro forma net loss
    
    $
    (10,724
    )Loss per share:Basic  as reported
    
    $
    (0.38
    )Basic  pro forma
    
    $
    (0.38
    )Diluted  as reported
    
    $
    (0.38
    )Diluted  pro forma
    
    $
    (0.38
    )
  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
  (8)




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##### Table of Contents



1 2
        NOTE 4. ACQUISITIONS
     (9)




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##### Table of Contents



Three Months EndedMarch 31,Pro Forma
    
    
    Pro Forma2006
    
    
    2005(in thousands, except per share data)Oil and natural gas sales, net of hedge losses
    
    $
    21,056
    
    
    $
    12,152Operating income
    
    $
    9,764
    
    
    $
    4,579Net income (loss) available to common stockholder
    
    $
    1,743
    
    
    $
    (10,633
    )Net income (loss) per common share:Basic
    
    $
    0.05
    
    
    $
    (0.37
    )Diluted
    
    $
    0.05
    
    
    $
    (0.37
    )
 NOTE 5. PREFERRED STOCK
   NOTE 6. FULL COST CEILING TEST
  (10)




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NOTE 7. DERIVATIVE INSTRUMENTS
 General
      Interest Rate Sensitivity
  (11)




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##### Table of Contents



Notional
    
    
    
    
    
    
    FairPeriod of Time
    
    Amounts
    
    
    Fixed Interest Rates
    
    
    Market Value($ in millions)
    
    
    
    
    
    
    ($ in thousands)April 1, 2006 thru December 31, 2006(1)
    
    $
    10
    
    
    
    4.05
    %
    
    
    78April 1, 2006 thru December 31, 2006
    
    $
    90
    
    
    
    4.41
    %
    
    
    480January 1, 2007 thru December 31, 2007
    
    $
    100
    
    
    
    4.62
    %
    
    
    534January 1, 2008 thru December 31, 2008
    
    $
    100
    
    
    
    4.86
    %
    
    
    264January 1, 2009 thru December 31, 2009
    
    $
    50
    
    
    
    5.06
    %
    
    
    64January 1, 2010 thru October 31, 2010
    
    $
    50
    
    
    
    5.15
    %
    
    
    38Total Fair Market Value
    
    
    
    
    
    
    
    
    
    $
    1,458
 
 (1)
    
    Designated as cash flow hedge. Commodity Price Sensitivity
  Put Options.
 Collars.
 (12)




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Houston ShipChannel GasNyMex Oil Prices
    
    
    
    
    
    
    Prices
    
    
    WAHA Gas Prices
    
    
    FairBarrels of
    
    
    
    
    
    
    
    
    
    
    MMBtu of
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    MarketPeriod of Time
    
    Oil
    
    
    Floor
    
    
    Cap
    
    
    Natural Gas
    
    
    Floor
    
    
    Cap
    
    
    Floor
    
    
    Cap
    
    
    Value($ in thousands)April 1, 2006 thru December 31, 2006
    
    
    217,800
    
    
    $
    48.26
    
    
    $
    75.91
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (1,342
    )April 1, 2006 thru October 31, 2006
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    428,000
    
    
    $
    7.50
    
    
    $
    13.90
    
    
    $
    
    
    
    $
    
    
    
    
    442April 1, 2006 thru October 31, 2006
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    214,000
    
    
    $
    
    
    
    $
    
    
    
    $
    9.00
    
    
    $
    14.55
    
    
    
    546January 1, 2007 thru December 31, 2007
    
    
    219,000
    
    
    $
    52.50
    
    
    $
    83.00
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    (276
    )April 1, 2007 thru October 31, 2007
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    214,000
    
    
    $
    6.00
    
    
    $
    11.05
    
    
    $
    
    
    
    $
    
    
    
    
    (100
    )January 1, 2008 thru December 31, 2008
    
    
    109,800
    
    
    $
    55.00
    
    
    $
    76.50
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    (196
    )January 1, 2009 thru December 31, 2009
    
    
    91,250
    
    
    $
    55.00
    
    
    $
    73.00
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    (207
    )January 1, 2010 thru December 31, 2010
    
    
    76,000
    
    
    $
    55.00
    
    
    $
    71.00
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    (176
    )Total Fair Market Value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (1,309
    )
 Commodity Swaps.
  Nymex Oil
    
    
    Fair MarketPeriod of Time
    
    Barrels of Oil
    
    
    Swap Price
    
    
    Value($ in thousands)April 1, 2006 thru December 20, 2006(1)
    
    
    198,000
    
    
    $
    23.04
    
    
    $
    (8,903
    )April 1, 2006 thru December 31, 2006
    
    
    137,500
    
    
    $
    36.35
    
    
    
    (4,391
    )January 1, 2007 thru December 31, 2007
    
    
    474,500
    
    
    $
    34.36
    
    
    
    (15,645
    )January 1, 2008 thru December 31, 2008
    
    
    439,200
    
    
    $
    33.37
    
    
    
    (13,723
    )Total fair market value
    
    
    
    
    
    
    
    
    
    $
    (42,662
    )
 
 (1)
    
    Designated as a cash flow hedge. (13)




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NOTE 8. NET INCOME (LOSS) PER COMMON SHARE
   Three Months EndedMarch 31,2006
    
    
    2005(in thousands except per share data)Basic EPS Computation:Numerator-Income (loss)
    
    $
    1,611
    
    
    $
    (10,704
    )Preferred stock dividend
    
    
    
    
    
    
    (143
    )Income (loss) available to common stockholders
    
    $
    1,611
    
    
    $
    (10,847
    )Denominator-Weighted average common shares outstanding
    
    
    34,850
    
    
    
    28,698Basic EPS:Income (loss) per share
    
    $
    0.05
    
    
    $
    (0.38
    )Diluted EPS Computation:Numerator-Income (loss)
    
    $
    1,611
    
    
    $
    (10,704
    )Preferred stock dividend
    
    
    
    
    
    
    (143
    )Income (loss) available to common stockholders
    
    $
    1,611
    
    
    $
    (10,847
    )Denominator -Weighted average common shares outstanding
    
    
    34,850
    
    
    
    28,698Employee stock options
    
    
    594
    
    
    
    Warrants
    
    
    103
    
    
    
    Weighted average common shares for diluted earnings
per share assuming conversion
    
    
    35,547
    
    
    
    28,698Diluted EPS:Income (loss) per share
    
    $
    0.05
    
    
    $
    (0.38
    )
  (14)




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NOTE 9. ASSET RETIREMENT OBLIGATIONS
   Three Months Ended March 31,2006
    
    
    2005(dollars in thousands)Beginning asset retirement obligation
    
    $
    2,495
    
    
    $
    2,132Additions related to new properties
    
    
    107
    
    
    
    19Revisions in estimated cash flows
    
    
    1,665
    
    
    
    (2
    )Deletions related to property disposals
    
    
    (20
    )
    
    
    (63
    )Accretion expense
    
    
    32
    
    
    
    26Ending asset retirement obligation
    
    $
    4,279
    
    
    $
    2,112
 NOTE 10. COMMITMENTS AND CONTINGENCIES
    (15)




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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.
 (16)




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
    
    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.
 (17)




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##### Table of Contents




    
    production expenses;
    
    overhead requirements; and
    
    costs of capital.
  
    
    cash flow from operations;
    
    sales of our equity securities;
    
    bank borrowings; and
    
    industry joint ventures.
    (18)




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##### Table of Contents



Results of Operations
  
    
    reserve base;
    
    sources of production;
    
    product mix (gas versus oil volumes); and
    
    the prices we receive for our oil and natural gas production.
  Three Months Ended3/31/2006
    
    
    12/31/2005
    
    
    3/31/2005(in thousands, except per unit data)Production Volumes:Oil (Bbls)
    
    
    268
    
    
    
    251
    
    
    
    207Natural gas (Mcf)
    
    
    1,167
    
    
    
    1,181
    
    
    
    602BOE(1)
    
    
    463
    
    
    
    448
    
    
    
    307BOE per day
    
    
    5.1
    
    
    
    4.9
    
    
    
    3.4Sales Prices:Oil (per Bbl)(2)
    
    $
    57.66
    
    
    $
    54.31
    
    
    $
    45.29Natural gas (per Mcf)(2)
    
    $
    6.68
    
    
    $
    9.64
    
    
    $
    6.00BOE price(2)
    
    $
    50.27
    
    
    $
    55.86
    
    
    $
    42.25BOE price(3)
    
    $
    44.37
    
    
    $
    48.31
    
    
    $
    33.93Operating Revenues:Oil
    
    $
    15,482
    
    
    $
    13,632
    
    
    $
    9,359Oil hedge
    
    
    (2,733
    )
    
    
    (3,380
    )
    
    
    (2,354
    )Natural gas
    
    
    7,794
    
    
    
    11,384
    
    
    
    3,610Natural gas hedge
    
    
    
    
    
    
    
    
    
    
    (201
    )$
    20,543
    
    
    $
    21,636
    
    
    $
    10,414Operating Expenses:Lease operating expense
    
    $
    3,575
    
    
    $
    2,548
    
    
    $
    2,558Production taxes
    
    
    1,110
    
    
    
    1,487
    
    
    
    580General and administrative:General and administrative
    
    
    1,134
    
    
    
    1,348
    
    
    
    969Public reporting
    
    
    995
    
    
    
    593
    
    
    
    659Depreciation, depletion and amortization
    
    
    4,288
    
    
    
    3,885
    
    
    
    2,282$
    11,102
    
    
    $
    9,861
    
    
    $
    7,048Operating income
    
    $
    9,441
    
    
    $
    11,775
    
    
    $
    3,366
 
 (1)
    
    A BOE means one barrel of oil equivalent using the ratio of six Mcf of gas
to one barrel of oil.(2)
    
    Excludes hedge transactions.(3)
    
    Includes hedge transactions. (19)




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##### Table of Contents



RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND 2005:
  Oil and Gas Revenues
 Revenues (1)
    
    Production2006
    
    2005
    
    2006
    
    2005Oil (Bbls)
    
    
    62
    %
    
    
    67
    %
    
    
    58
    %
    
    
    67
    %Natural gas (Mcf)
    
    
    38
    %
    
    
    33
    %
    
    
    42
    %
    
    
    33
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 
 (1)
    
    Includes hedge transactions  Three Months Ended March 31,
    
    
    Increase
    
    
    % Increase2006
    
    
    2005
    
    
    (Decrease)
    
    
    (Decrease)(in thousands except per unit data)Production VolumesOil (Bbls)
    
    
    268
    
    
    
    207
    
    
    
    61
    
    
    
    29
    %Natural gas (Mcf)
    
    
    1,167
    
    
    
    602
    
    
    
    565
    
    
    
    94
    %BOE
    
    
    463
    
    
    
    307
    
    
    
    156
    
    
    
    51
    %Sales PriceOil (per Bbl)(1)
    
    $
    57.66
    
    
    $
    45.29
    
    
    $
    12.37
    
    
    
    27
    %Natural gas (per Mcf)(1)
    
    $
    6.68
    
    
    $
    6.00
    
    
    $
    0.68
    
    
    
    11
    %BOE price(1)
    
    $
    50.27
    
    
    $
    42.25
    
    
    $
    8.02
    
    
    
    19
    %BOE price(2)
    
    $
    44.37
    
    
    $
    33.93
    
    
    $
    10.44
    
    
    
    31
    %Operating RevenuesOil
    
    $
    15,482
    
    
    $
    9,359
    
    
    
    6,123
    
    
    
    65
    %Oil hedges
    
    $
    (2,733
    )
    
    $
    (2,354
    )
    
    
    379
    
    
    
    16
    %Natural gas
    
    $
    7,794
    
    
    $
    3,610
    
    
    
    4,184
    
    
    
    116
    %Natural gas hedges
    
    $
    
    
    
    $
    (201
    )
    
    
    201
    
    
    
    100
    %Total
    
    $
    20,543
    
    
    $
    10,414
    
    
    
    10,129
    
    
    
    97
    %
 
 (1)
    
    Excludes hedge transactions.(2)
    
    Includes hedge transactions.  (20)




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##### Table of Contents



Cost and Expenses
 Three months ended March 31,
    
    
    Increase
    
    
    % Increase2006
    
    
    2005
    
    
    (Decrease)
    
    
    (Decrease)(dollars in thousands)Lease operating expense
    
    $
    3,575
    
    
    $
    2,558
    
    
    $
    1,017
    
    
    
    40
    %Production taxes
    
    
    1,110
    
    
    
    580
    
    
    
    530
    
    
    
    91
    %General and administrative:General and administrative
    
    
    1,134
    
    
    
    969
    
    
    
    165
    
    
    
    17
    %Public reporting
    
    
    995
    
    
    
    659
    
    
    
    336
    
    
    
    51
    %Total general and administrative
    
    
    2,129
    
    
    
    1,628
    
    
    
    501
    
    
    
    31
    %Depreciation, depletion and amortization
    
    
    4,288
    
    
    
    2,282
    
    
    
    2,006
    
    
    
    88
    %Total
    
    $
    11,102
    
    
    $
    7,048
    
    
    $
    4,054
    
    
    
    58
    %
    (21)




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##### Table of Contents



Other income (expense)
 Three months ended March 31,
    
    
    Increase
    
    
    % Increase2006
    
    
    2005
    
    
    (Decrease)
    
    
    (Decrease)(dollars in thousands)Change in fair market value of derivatives
    
    $
    (4,714
    )
    
    $
    (17,633
    )
    
    $
    (12,919
    )
    
    
    (73
    )%Gain (loss) on ineffective portion of hedges
    
    
    143
    
    
    
    (710
    )
    
    
    853
    
    
    
    120
    %Interest and other income
    
    
    68
    
    
    
    19
    
    
    
    49
    
    
    
    258
    %Interest expense
    
    
    (2,441
    )
    
    
    (1,173
    )
    
    
    1,268
    
    
    
    108
    %Other expense
    
    
    (29
    )
    
    
    (1
    )
    
    
    28
    
    
    
    2800
    %Equity loss in Westfork Pipeline Company LP
    
    
    (19
    )
    
    
    (79
    )
    
    
    (60
    )
    
    
    (76
    )%Total
    
    $
    (6,992
    )
    
    $
    (19,577
    )
    
    
    (12,585
    )
    
    
    (64
    )%
    (22)




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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
      Bank Borrowings
  Revolving Credit Facility
  (23)




---



##### Table of Contents



Second Lien Term Loan Facility
 1 2
    (24)




---



##### Table of Contents



Preferred Stock
  Sale of Equity Securities
  Commodity Price Risk Management Transactions and Effects of Derivative Instruments
   (25)




---



##### Table of Contents



Contractual Obligations, Commitments and Off-Balance Sheet Arrangements
   Obligation Due in PeriodPeriods ended December 31,
    
    
    AfterContractual Cash Obligations
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    5 years
    
    
    Total(in thousands)Revolving Credit Facility (secured)(1)
    
    $
    4,557
    
    
    $
    6,048
    
    
    $
    6,065
    
    
    $
    6,048
    
    
    $
    96,537
    
    
    $
    
    
    
    $
    119,255Second Lien Term Loan Agreement(2)
    
    
    3,579
    
    
    
    4,750
    
    
    
    4,763
    
    
    
    4,750
    
    
    
    54,151
    
    
    
    
    
    
    
    71,993Office Lease (Dinero Plaza)
    
    
    145
    
    
    
    204
    
    
    
    210
    
    
    
    216
    
    
    
    36
    
    
    
    
    
    
    
    811Andrews and Snyder Field Offices(3)
    
    
    17
    
    
    
    23
    
    
    
    14
    
    
    
    14
    
    
    
    14
    
    
    
    
    
    
    
    82Asset retirement obligations(4)
    
    
    305
    
    
    
    80
    
    
    
    58
    
    
    
    246
    
    
    
    555
    
    
    
    3,035
    
    
    
    4,279Derivative Obligations
    
    
    14,736
    
    
    
    15,921
    
    
    
    13,920
    
    
    
    207
    
    
    
    175
    
    
    
    
    
    
    
    44,959Drilling Contract
    
    
    672
    
    
    
    613
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,285Total
    
    $
    24,011
    
    
    $
    27,639
    
    
    $
    25,030
    
    
    $
    11,481
    
    
    $
    151,468
    
    
    $
    3,035
    
    
    $
    242,664
 
 (1)
    
    Outstanding principal of $91.5 million due October 31, 2010 and estimated interest obligation calculated using the
weighted average rate at March 31, 2006 of 6.61%(2)
    
    Outstanding principal of $50.0 million due November 15, 2010 and estimated interest obligation calculated using the
rate at March 31, 2006 of 9.50%(3)
    
    The Snyder field office lease remains in effect until the termination of our trade agreement with a third party working
owner in the Diamond M project. The Andrews field office lease expires in December 2007. The lease cost for these
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. (26)




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##### Table of Contents



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
  (27)




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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.
  (28)




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##### Table of Contents




    
    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.
  (29)




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Interest Rate Sensitivity as of March 31, 2006
  2006
    
    2007
    
    2008
    
    2009
    
    2010
    
    Total(in thousands, except interest rates)Revolving Facility (secured)
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    91,500
    
    
    $
    91,500Average interest rate
    
    
    6.61
    %
    
    
    6.61
    %
    
    
    6.61
    %
    
    
    6.61
    %
    
    
    6.61
    %Term Loan (Second Lien)
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    50,000
    
    
    $
    50,000Average interest rate
    
    
    9.50
    %
    
    
    9.50
    %
    
    
    9.50
    %
    
    
    9.50
    %
    
    
    9.50
    %
    (30)




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##### Table of Contents



Notional
    
    
    
    
    
    FairPeriod of Time
    
    
    Amounts
    
    Fixed Interest Rates
    
    Market Value($ in millions)
    
    
    
    
    
    ($ in thousands)April 1, 2006 thru December 31, 2006(1)
    
    
    $
    10
    
    
    
    4.05
    %
    
    
    78April 1, 2006 thru December 31, 2006
    
    
    $
    90
    
    
    
    4.41
    %
    
    
    480January 1, 2007 thru December 31, 2007
    
    
    $
    100
    
    
    
    4.62
    %
    
    
    534January 1, 2008 thru December 31, 2008
    
    
    $
    100
    
    
    
    4.86
    %
    
    
    264January 1, 2009 thru December 31, 2009
    
    
    $
    50
    
    
    
    5.06
    %
    
    
    64January 1, 2010 thru October 31, 2010
    
    
    $
    50
    
    
    
    5.15
    %
    
    
    38Total Fair Market Value
    
    
    
    
    
    
    
    
    
    
    $
    1,458
 
 (1)
    
    Designated as cash flow hedge. Commodity Price Sensitivity as of March 31, 2006
     Put Options.
 (31)




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##### Table of Contents



Collars.
  Houston ShipChannel GasNy Mex Oil Prices
    
    
    
    
    
    
    Prices
    
    
    WAHA Gas Prices
    
    
    FairBarrels of
    
    
    
    
    
    
    
    
    
    
    M M Btu of
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    MarketPeriod of Time
    
    Oil
    
    
    Floor
    
    
    Cap
    
    
    Natural Gas
    
    
    Floor
    
    
    Cap
    
    
    Floor
    
    
    Cap
    
    
    Value($ in thousands)April 1,
2006 thru
December 31,
2006
    
    
    217,800
    
    
    $
    48.26
    
    
    $
    75.91
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (1,342
    )April 1,
2006 thru
October 31,
2006
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    428,000
    
    
    $
    7.50
    
    
    $
    13.90
    
    
    $
    
    
    
    $
    
    
    
    
    442April 1,
2006 thru
October 31,
2006
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    214,000
    
    
    $
    
    
    
    $
    
    
    
    $
    9.00
    
    
    $
    14.55
    
    
    
    546January 1,
2007 thru
December 31,
2007
    
    
    219,000
    
    
    $
    52.50
    
    
    $
    83.00
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    (276
    )April 1,
2007 thru
October 31,
2007
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    214,000
    
    
    $
    6.00
    
    
    $
    11.05
    
    
    $
    
    
    
    $
    
    
    
    
    (100
    )January 1,
2008 thru
December 31,
2008
    
    
    109,800
    
    
    $
    55.00
    
    
    $
    76.50
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    (196
    )January 1,
2009 thru
December 31,
2009
    
    
    91,250
    
    
    $
    55.00
    
    
    $
    73.00
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    (207
    )January 1,
2010 thru
December 31,
2010
    
    
    76,000
    
    
    $
    55.00
    
    
    $
    71.00
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    (176
    )Total Fair Market Value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (1,309
    )
 Commodity Swaps.
  Nymex Oil
    
    
    Fair MarketPeriod of Time
    
    
    Barrels of Oil
    
    
    Swap Price
    
    
    Value($ in thousands)April 1, 2006 thru December 20, 2006(1)
    
    
    
    198,000
    
    
    $
    23.04
    
    
    $
    (8,903
    )April 1, 2006 thru December 31, 2006
    
    
    
    137,500
    
    
    $
    36.35
    
    
    
    (4,391
    )January 1, 2007 thru December 31, 2007
    
    
    
    474,500
    
    
    $
    34.36
    
    
    
    (15,645
    )January 1, 2008 thru December 31, 2008
    
    
    
    439,200
    
    
    $
    33.37
    
    
    
    (13,723
    )Total fair market value
    
    
    
    
    
    
    
    
    
    
    $
    (42,662
    )
 
 (1)
    
    Designated as a cash flow hedge. (32)




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##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
 Accounting for Derivative Instruments and Hedging Activities
    (33)




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##### Table of Contents



PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
     
 ITEM 1A. RISK FACTORS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  (34)




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##### Table of Contents



ITEM 6. EXHIBITS
   No.
    
    Description of Exhibit3.1
    
    Certificate of Incorporation of Registrant (Incorporated by reference to Exhibit 3.1 to Form
10-Q of the Registrant for the fiscal quarter ended June 30, 2004)3.2
    
    Bylaws of Registrant (Incorporated by reference to Exhibit 3 of the Registrants Form 8-K,
dated October 9, 2000, as filed with the Securities and Exchange Commission on October 10,
2000)3.3
    
    Certificate of Formation of Parallel, L.L.C. (Incorporated by reference to Exhibit No. 3.3 of
the Registrants Registration Statement on Form S-3, No. 333-119725 filed on October 13, 2004)3.4
    
    Limited Liability Company Agreement of Parallel, L.L.C. (Incorporated by reference to Exhibit
No. 3.4 of the Registrants Statement on Form S-3, No. 333-119725 filed on October 13, 2004)3.5
    
    Certificate of Limited Partnership of Parallel, L.P. (Incorporated by reference to Exhibit
No. 3.5 of the Registrants Registration Statement on Form S-3, No. 333-119725 filed on
October 13, 2004)3.6
    
    Agreement of Limited Partnership of Parallel, L.P. (Incorporated by reference to Exhibit No.
3.6 of the Registrants Registration Statement on Form S-3, No. 333-119725 filed on October
13, 2004)
 (35)




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##### Table of Contents



No.
    
    Description of Exhibit4.1
    
    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)
 (36)




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##### Table of Contents



No.
    
    Description of Exhibit10.6
    
    2001 Non-Employee Directors Stock Option Plan (Incorporated by reference to Exhibit 10.7 of
the Registrants Form 10-Q Report for the fiscal quarter ended March 31, 2004)10.7
    
    2004 Non-Employee Director Stock Grant Plan (Incorporated by reference to Exhibit 10.1 of the
Registrants Form 8-K Report dated September 22, 2004)10.8
    
    Incentive and Retention Plan (Incorporated by reference to Exhibit 10.1 of the Registrants
Form 8-K Report dated September 23, 2004 and filed with the Securities and Exchange Commission
on September 29, 2004)10.9
    
    Certificate of Formation of First Permian, L.L.C. (Incorporated by reference to Exhibit 10.1
of the Registrants Form 8-K Report dated June 30, 1999)10.10
    
    Limited Liability Company Agreement of First Permian, L.L.C. (Incorporated by reference to
Exhibit 10.2 of the Registrants Form 8-K Report dated June 30, 1999)10.11
    
    Amended and Restated Limited Liability Company Agreement of First Permian, L.L.C. dated as
of May 31, 2000 (Incorporated by reference to Exhibit 10.16 of Form 10-K of the Registrant for
the fiscal year ended December 31, 2000)10.12
    
    Credit Agreement, dated June 30, 1999, by and among First Permian, L.L.C., Parallel
Petroleum Corporation, Baytech, Inc., and Bank One, Texas, N.A. (Incorporated by reference to
Exhibit 10.6 of the Registrants Form 8-K Report dated June 30, 1999)10.13
    
    Limited Guaranty, dated June 30, 1999, by and among First Permian, L.L.C., parallel
Petroleum Corporation and Bank One, Texas, N.A. (Incorporated by reference to Exhibit 10.7 of
the Registrants Form 8-K Report dated June 30, 1999)10.14
    
    Second Restated Credit Agreement, dated October 25, 2000, among First Permian, L.L.C., Bank
One, Texas, N.A., and Bank One Capital Markets, Inc. (Incorporated by reference to Exhibit
10.22 of Form 10-K of the Registrant for the fiscal year ended December 31, 2000)10.15
    
    Loan Agreement, dated as of January 25, 2002, between the Registrant and First American
Bank, SSB (Incorporated by reference to Exhibit 10.25 of Form 10-K of the Registrant for the
fiscal year ended December 31, 2001)10.16
    
    Purchase and Sale Agreement, dated as of November 27, 2002, among JMC Exploration, Inc.,
Arkoma Star L.L.C., Parallel, L.P. and Texland Petroleum, Inc. (Incorporated by reference to
Exhibit 10.1 of Form 8-K of the Registrant, dated December 20, 2002)10.17
    
    First Amended and Restated Credit Agreement, dated December 20, 2002, by and among Parallel
Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First American Bank, SSB, Western
National Bank and BNP Paribas (Incorporated by reference to Exhibit 10.2 of Form 8-K of the
Registrant, dated December 20, 2002)10.18
    
    Guaranty dated December 20, 2002, between Parallel, L.L.C. and First American Bank, SSB, as
Agent (Incorporated by reference to Exhibit 10.3 of Form 8-K of the Registrant, dated December
20, 2002)10.19
    
    First Amendment to First Amended and Restated Credit Agreement, dated as of September 12,
2003, by and among Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First
American Bank, SSB, Western National Bank, and BNP Paribas (Incorporated by reference to
Exhibit 10.29 of Form 10-Q of the Registrant for the quarter ended September 30, 2003)
 (37)




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##### Table of Contents



No.
    
    Description of Exhibit10.20
    
    Second Amendment and Restated Credit Agreement, dated September 27, 2004, by and among
Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First American Bank, SSB,
BNP Paribas, Citibank, F.S.B. and Western National Bank (Incorporated by reference to Exhibit
10.1 of the Registrants Form 8-K Report dated September 27, 2004 and filed with the
Securities and Exchange Commission on October 1, 2004)10.21
    
    Agreement of Limited Partnership of West Fork Pipeline Company LP (Incorporated by reference
to Exhibit 10.21 of Form 10-K of the Registrant for the fiscal year ended December 31, 2004)10.22
    
    First Amendment to Second Amended and Restated Credit Agreement, dated as of December 27,
2004, by and among Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First
American Bank, SSB, BNP Paribas, Citibank, F.S.B. and Western National Bank (Incorporated by
reference to Exhibit 10.1 of the Registrants Form 8-K Report dated December 30, 2004 and
filed with the Securities and Exchange Commission on December 30, 2004)10.23
    
    Second Amendment to Second Amended and Restated Credit Agreement, dated as of April 1, 2005,
by and among Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First American
Bank, SSB, BNP Paribas, Citibank, F.S.B. and Western National Bank (Incorporated by reference
to Exhibit 10.1 of the Registrants Form 8-K Report dated April 4, 2005 and filed with the
Securities and Exchange Commission on April 8, 2005)10.24
    
    Third Amendment to Second Amended and Restated Credit Agreement (Incorporated by reference
to Exhibit 10.1 of the Registrants Form 8-K Report dated October 4, 2005 and filed with the
Securities and Exchange Commission on October 20, 2005)10.25
    
    Purchase and Sale Agreement, dated as of October 14, 1005, among Parallel, L.P., Lynx
Production Company, Inc., Elton Resources, Inc., Cascade Energy Corporation, Chelsea Energy,
Inc., William P. Sutter, Trustee, William P. Sutter Trust, J. Leroy Bell, E. L. Brahaney,
Brent Beck, Cavic Interests, LLC and Stanley Talbott (Incorporated by reference to Exhibit
10.2 of the Registrants Form 8-K Report dated October 14, 2005 and filed with the Securities
and Exchange Commission on October 20, 2005)10.26
    
    Ancillary Agreement to Purchase and Sale Agreement, dated October 14, 2005, between
Parallel, L.P. and Lynx Production Company, Inc. (Incorporated by reference to Exhibit 10.3 of
the Registrants Form 8-K Report dated October 14, 2005 and filed with the Securities and
Exchange Commission on October 20, 2005)10.27
    
    Guarantee of Parallel, L.P., dated October 13, 2004 (Incorporated by reference to Exhibit
10.4 of the Registrants Form 8-K Report dated October 14, 2005 and filed with the Securities
and Exchange Commission on October 20, 2005)10.28
    
    ISDA Master Agreement, dated as of October 13, 2005, between Parallel, L.P. and Citibank,
N.A. (Incorporated by reference to Exhibit 10.5 of the Registrants Form 8-K Report dated
October 14, 2005 and filed with the Securities and Exchange Commission on October 20, 2005)10.29
    
    Third Amended and Restated Credit Agreement, dated as of December 23, 2005, among Parallel
Petroleum Corporation, Parallel, L.P., Parallel, L.L.C. and Citibank Texas, N.A., BNP Paribas,
CitiBank F.S.B., Western National Bank, Compass Bank, Comerica Bank, Bank of Scotland and
Fortis Capital Corp. (Incorporated by reference to Exhibit No. 10.1 of the Registrants Form
8-K Report, dated December 23, 2005, as filed with the Securities and Exchange Commission on
December 30, 2005)
 (38)




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##### Table of Contents



No.
    
    Description of Exhibit10.30
    
    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.*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. (39)




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##### Table of Contents



PARALLEL PETROLEUM CORPORATIONBY: /s/ Larry C. OldhamDate: May 10, 2006
    
    Larry C. OldhamPresident and Chief Executive OfficerDate: May 10, 2006
    
    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 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)




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##### Table of Contents



No.
    
    Description of ExhibitExecutive 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)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)




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##### Table of Contents



No.
    
    Description of Exhibit10.16
    
    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 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)




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##### Table of Contents



No.
    
    Description of Exhibit10.27
    
    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.*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.