##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2007 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Transition period from  to
 Commission File Number 000-13305
 PARALLEL PETROLEUM CORPORATION
  Delaware
    
    75-1971716(State of other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)1004 N. Big Spring, Suite 400,Midland, Texas
    
    79701(Address of Principal Executive Offices)
    
    (Zip Code)
  (Registrants telephone number, including area code)
  (Former name, former address and former fiscal year,
 þ o
  þ o o
 o þ




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##### 



Page No.PART I.  FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTSReference is made to the succeeding pages for the following consolidated
financial statements:- Consolidated Balance Sheets as of March 31, 2007 (unaudited) and
December 31, 2006
    
    
    1- Unaudited Consolidated Statements of Operations for the three
months ended March 31, 2007 and 2006
    
    
    2- Unaudited Consolidated Statements of Cash Flows for the three months
ended March 31, 2007 and 2006
    
    
    3- Unaudited Consolidated Statements of Comprehensive Income (Loss)
for the three months ended March 31, 2007 and 2006
    
    
    4- Notes to Consolidated Financial Statements
    
    
    5ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
    
    
    16ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    30ITEM 4. CONTROLS AND PROCEDURES
    
    
    33PART II.  OTHER INFORMATIONITEM 1. LEGAL PROCEEDINGS
    
    
    33ITEM 1A. RISK FACTORS
    
    
    33ITEM 6. EXHIBITS
    
    
    33SIGNATURESCertification of Principal Executive Officer Pursuant to Section 302Certification of Principal Financial Officer Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906
  (i)




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##### Table of Contents



PART I.  FINANCIAL INFORMATION
 
  PARALLEL
PETROLEUM CORPORATION
 
 Consolidated Balance Sheets  (dollars in thousands)
 March 31,
    
    
    December 31,2007
    
    
    2006(unaudited)AssetsCurrent assets:Cash and cash equivalents
    
    $
    13,925
    
    
    $
    5,910Accounts receivable:Oil and natural gas sales
    
    
    15,980
    
    
    
    18,605Joint interest owners and other, net of allowance for doubtful account of $80
    
    
    6,050
    
    
    
    7,209Affiliates and joint ventures
    
    
    2,585
    
    
    
    3,33824,615
    
    
    
    29,152Other current assets
    
    
    1,928
    
    
    
    2,863Deferred tax asset
    
    
    5,375
    
    
    
    4,340Total current assets
    
    
    45,843
    
    
    
    42,265Property and equipment, at cost:Oil and natural gas properties, full cost method (including $66,656 and $50,375 not
subject to depletion)
    
    
    545,724
    
    
    
    501,405Other
    
    
    2,646
    
    
    
    2,614548,370
    
    
    
    504,019Less accumulated depreciation, depletion and amortization
    
    
    (122,222
    )
    
    
    (115,513
    )Net property and
equipment
    
    
    426,148
    
    
    
    388,506Restricted cash
    
    
    51
    
    
    
    325Investment in pipelines and gathering system ventures
    
    
    7,808
    
    
    
    6,454Other assets, net of accumulated amortization of $1,289 and $760
    
    
    4,429
    
    
    
    5,268$
    484,279
    
    
    $
    442,818Liabilities and Stockholders EquityCurrent liabilities:Accounts payable and accrued
liabilities
    
    $
    37,390
    
    
    $
    36,171Asset retirement obligations
    
    
    713
    
    
    
    701Derivative obligations
    
    
    16,509
    
    
    
    14,109Total current liabilities
    
    
    54,612
    
    
    
    50,981Revolving credit facility
    
    
    154,000
    
    
    
    115,000Term loan
    
    
    50,000
    
    
    
    50,000Asset retirement obligations
    
    
    4,321
    
    
    
    4,362Derivative obligations
    
    
    12,273
    
    
    
    14,386Deferred tax liability
    
    
    25,295
    
    
    
    24,307Total long-term
liabilities
    
    
    245,889
    
    
    
    208,055Commitments and contingenciesStockholders equity:Series A preferred stock  par value $0.10 per share, authorized 50,000 shares
    
    
    
    
    
    
    Common stock  par value $0.01 per share, authorized 60,000,000 shares,
issued and outstanding 37,547,010
    
    
    375
    
    
    
    375Additional paid-in capital
    
    
    140,445
    
    
    
    140,353Retained earnings
    
    
    42,958
    
    
    
    43,054Total stockholders
equity
    
    
    183,778
    
    
    
    183,782$
    484,279
    
    
    $
    442,818
  (1)




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PARALLEL
PETROLEUM CORPORATION
 
 Consolidated Statements of Operations
For three months ended March 31, 2007 and 2006  (unaudited)
(dollars in thousands, except per share data)
 2007
    
    
    2006Oil and natural gas revenues:Oil and natural gas sales
    
    $
    23,116
    
    
    $
    23,276Loss on hedging
    
    
    
    
    
    
    (2,733
    )Total revenues
    
    
    23,116
    
    
    
    20,543Cost and expenses:Lease operating expense
    
    
    4,399
    
    
    
    3,575Production taxes
    
    
    1,054
    
    
    
    1,110General and administrative
    
    
    2,665
    
    
    
    2,129Depreciation, depletion and amortization
    
    
    6,709
    
    
    
    4,288Total costs and expenses
    
    
    14,827
    
    
    
    11,102Operating income
    
    
    8,289
    
    
    
    9,441Other income (expense), net:Loss on derivatives not classified as hedges
    
    
    (4,435
    )
    
    
    (4,714
    )Gain on ineffective portion of hedges
    
    
    
    
    
    
    143Interest and other income
    
    
    52
    
    
    
    68Interest expense
    
    
    (3,708
    )
    
    
    (2,441
    )Other expense
    
    
    (36
    )
    
    
    (29
    )Equity in loss of pipelines and gathering system ventures
    
    
    (305
    )
    
    
    (19
    )Total other income (expense), net
    
    
    (8,432
    )
    
    
    (6,992
    )Income (loss) before income taxes
    
    
    (143
    )
    
    
    2,449Income tax benefit (expense), deferred
    
    
    47
    
    
    
    (838
    )Net income (loss)
    
    $
    (96
    )
    
    $
    1,611Net income (loss) per common share:Basic
    
    $
    
    
    
    $
    0.05Diluted
    
    $
    
    
    
    $
    0.05Weighted average common share outstanding:Basic
    
    
    37,547
    
    
    
    34,850Diluted
    
    
    37,547
    
    
    
    35,547
  (2)




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PARALLEL
PETROLEUM CORPORATION
 
 Consolidated Statements of Cash Flows
Three Months Ended March 31, 2007 and 2006  (unaudited)
(dollars in thousands)
 2007
    
    
    2006Cash flows from operating activities:Net income (loss)
    
    $
    (96
    )
    
    $
    1,611Adjustments to reconcile net income (loss) to net cash
provided by operating activities:Depreciation, depletion and amortization
    
    
    6,709
    
    
    
    4,288Accretion of asset retirement obligation
    
    
    84
    
    
    
    31Deferred income tax
    
    
    (47
    )
    
    
    838Loss on derivatives not classified as hedges
    
    
    4,435
    
    
    
    4,714Gain on ineffective portion of hedges
    
    
    
    
    
    
    (143
    )Stock option expense
    
    
    92
    
    
    
    388Equity in loss in pipelines and gathering system ventures
    
    
    305
    
    
    
    19Changes in assets and liabilities:Other assets, net
    
    
    (12
    )
    
    
    311Restricted cash
    
    
    274
    
    
    
    Decrease in accounts receivable
    
    
    4,537
    
    
    
    427Decrease in other current assets
    
    
    292
    
    
    
    107Increase in accounts payable and accrued liabilities
    
    
    1,219
    
    
    
    1,671Federal tax deposit
    
    
    
    
    
    
    (40
    )Net cash provided by operating activities
    
    
    17,792
    
    
    
    14,222Cash flows from investing activities:Additions to oil and natural gas properties
    
    
    (44,584
    )
    
    
    (55,035
    )Restricted cash
    
    
    
    
    
    
    2,366Proceeds from disposition of oil and natural gas properties
    
    
    152
    
    
    
    41Additions to other property and equipment
    
    
    (32
    )
    
    
    (1,461
    )Settlements on derivative instruments
    
    
    (2,479
    )
    
    
    (1,548
    )Investment in pipelines and gathering system ventures
    
    
    (1,659
    )
    
    
    (2,024
    )Net cash used in investing activities
    
    
    (48,602
    )
    
    
    (57,661
    )Cash flows from financing activities:Borrowings from bank line of credit
    
    
    39,000
    
    
    
    41,500Deferred financing costs
    
    
    (175
    )
    
    
    Proceeds from exercise of stock options
    
    
    
    
    
    
    416Net cash provided by financing activities
    
    
    38,825
    
    
    
    41,916Net increase (decrease) in cash and cash equivalents
    
    
    8,015
    
    
    
    (1,523
    )Cash and cash equivalents at beginning of period
    
    
    5,910
    
    
    
    6,418Cash and cash equivalents at end of period
    
    $
    13,925
    
    
    $
    4,895Non-cash financing and investing activities:Oil and natural gas properties asset retirement obligation
    
    $
    (113
    )
    
    $
    1,752Non-cash exchange of oil and natural gas properties:Properties received in exchange
    
    $
    (6,463
    )
    
    $
    Properties delivered in exchange
    
    $
    5,495
    
    
    $
    Other transactions:Interest paid
    
    $
    3,875
    
    
    $
    2,082
  (3)




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PARALLEL
PETROLEUM CORPORATION
 
 Consolidated Statements of Comprehensive Income (Loss)
Three Months Ended March 31, 2007 and 2006  (unaudited)
(dollars in thousands)
 2007
    
    
    2006Net income (loss)
    
    $
    (96
    )
    
    $
    1,611Other comprehensive loss:Unrealized losses on derivatives
    
    
    
    
    
    
    4,142Reclassification adjustments for losses
on derivatives included in net income (loss)
    
    
    
    
    
    
    (2,721
    )Change in fair value of derivatives
    
    
    
    
    
    
    1,421Income tax benefit (expense)
    
    
    
    
    
    
    (483
    )Total other comprehensive income
    
    
    
    
    
    
    938Total comprehensive income (loss)
    
    $
    (96
    )
    
    $
    2,549
  (4)




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




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($ in thousands)Second quarter 2007
    
    $
    137Third quarter 2007
    
    
    120Fourth quarter 2007
    
    
    992008
    
    
    2742009 through 2011
    
    
    156Total
    
    $
    786
   2007
    
    2005
    
    2001Expected volatility
    
    
    52.52
    %
    
    
    54.20
    %
    
    
    57.95
    %Expected dividends
    
    
    0.00
    
    
    
    0.00
    
    
    
    0.00Expected term (in years)
    
    
    6
    
    
    
    7
    
    
    
    8Risk-free rate
    
    
    4.89
    %
    
    
    4.20
    %
    
    
    5.05
    %
  WeightedAverageWeighted
    
    RemainingAverage
    
    Contractual
    
    AggregateOptions
    
    Exercise Price
    
    Term
    
    Intrinsic Value(in thousands)
    
    
    
    
    
    (years)
    
    (in thousands)Outstanding December 31, 2006
    
    
    1,199
    
    
    $
    5.40Granted
    
    
    17
    
    
    $
    22.89Exercised
    
    
    
    
    
    $
    Surrendered
    
    
    
    
    
    $
    Outstanding March 31, 2007
    
    
    1,216
    
    
    $
    5.65
    
    
    
    4.6
    
    
    $
    21,036Exercisable at March 31, 2007
    
    
    1,008
    
    
    $
    4.32
    
    
    
    3.6
    
    
    $
    18,787
 (6)




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(in thousands)Intrinsic Value of Options Exercised Three Months Ended March 31, 2007
    
    $
    Intrinsic Value of Options Exercised Three Months Ended March 31, 2006
    
    $
    1,552Fair Market Value of Options Granted Three Months Ended March 31, 2007
    
    $
    218Fair Market Value of Options Granted Three Months Ended March 31, 2006
    
    $
    
  NOTE 3. CREDIT FACILITIES
  Revolving Credit Facility
     (7)




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##### Table of Contents



Second Lien Term Loan Facility
 1 2
      (8)




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##### Table of Contents



NOTE 4. PROPERTY EXCHANGE
  NOTE 5. EQUITY INVESTMENT AND PROPERTY ACQUISITIONS
     Three Months EndedMarch 31,Actual
    
    Pro Forma2007
    
    2006($ in thousands, except per share dataOil and natural gas sales, net of hedge losses
    
    $
    23,116
    
    
    $
    21,056Operating income
    
    $
    8,289
    
    
    $
    9,764Net income (loss)
    
    $
    (96
    )
    
    $
    1,743Net income (loss) per common share:Basic
    
    $
    
    
    
    $
    0.05Diluted
    
    $
    
    
    
    $
    0.05
 (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
    
    
    Weighted Average
    
    
    EstimatedPeriod of Time
    
    Amounts
    
    
    Fixed Interest Rates
    
    
    Fair Market Value($ in millions)
    
    
    
    
    
    
    ($ in thousands)April 1, 2007 thru December 31, 2007
    
    $
    100
    
    
    
    4.62
    %
    
    $
    487January 1, 2008 thru December 31, 2008
    
    $
    100
    
    
    
    4.86
    %
    
    
    (137
    )January 1, 2009 thru December 31, 2009
    
    $
    50
    
    
    
    5.06
    %
    
    
    (162
    )January 1, 2010 thru October 31, 2010
    
    $
    50
    
    
    
    5.15
    %
    
    
    (105
    )Total Fair Market Value
    
    
    
    
    
    
    
    
    
    $
    83
 Commodity Price Sensitivity
  Collars.
 (11)




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Houston Ship
    
    
    WAHA GasBarrels of
    
    
    NyMex Oil Prices
    
    
    MMBtu of
    
    
    Channel Gas Prices
    
    
    Prices
    
    
    Fair MarketPeriod of Time
    
    Oil
    
    
    Floor
    
    
    Cap
    
    
    Natural Gas
    
    
    Floor
    
    
    Cap
    
    
    Floor
    
    
    Cap
    
    
    Value($ inthousands)April 1, 2007
thru December 31, 2007
    
    
    220,000
    
    
    $
    55.63
    
    
    $
    84.88
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    45April 1, 2007
thru October 31, 2007
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    214,000
    
    
    $
    6.00
    
    
    $
    11.05
    
    
    $
    
    
    
    $
    
    
    
    
    (7
    )April 1, 2007
thru October 31, 2007
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    642,000
    
    
    $
    
    
    
    $
    
    
    
    $
    6.25
    
    
    $
    8.90
    
    
    
    (57
    )April 1, 2007
thru March 31, 2008
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    2,196,000
    
    
    $
    
    
    
    $
    
    
    
    $
    6.50
    
    
    $
    9.50
    
    
    
    (440
    )January 1, 2008
thru December 31, 2008
    
    
    237,900
    
    
    $
    60.38
    
    
    $
    81.08
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    89January 1, 2009
thru December 31, 2009
    
    
    620,500
    
    
    $
    63.53
    
    
    $
    80.21
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    1,092January 1, 2010
thru October 31, 2010
    
    
    486,400
    
    
    $
    63.44
    
    
    $
    78.26
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    987Total Fair Market Value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,709
 Commodity Swaps.
  Nymex Oil
    
    
    Fair MarketPeriod of Time
    
    Barrels of Oil
    
    
    Swap Price
    
    
    Value($ in thousands)April 1, 2007 thru December 31, 2007
    
    
    357,500
    
    
    $
    34.36
    
    
    $
    (12,020
    )January 1, 2008 thru December 31, 2008
    
    
    439,200
    
    
    $
    33.37
    
    
    
    (15,034
    )Total fair market value
    
    
    
    
    
    
    
    
    
    $
    (27,054
    )
 NOTE 8. NET INCOME (LOSS) PER COMMON SHARE
  (12)




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##### Table of Contents



Three Months Ended March 31,2007
    
    
    2006($ in thousands, except pershare data)Basic EPS Computation:Numerator-Net income (loss)
    
    $
    (96
    )
    
    $
    1,611Denominator-Weighted average common shares outstanding
    
    
    37,547
    
    
    
    34,850Basic EPS:Net income (loss) per share
    
    $
    
    
    
    $
    0.05Diluted EPS Computation:Numerator-Net income (loss)
    
    $
    (96
    )
    
    $
    1,611Denominator -Weighted average common shares outstanding
    
    
    37,547
    
    
    
    34,850Employee stock options
    
    
    
    
    
    
    594Warrants
    
    
    
    
    
    
    103Weighted average common shares for diluted earnings
per share assuming conversion
    
    
    37,547
    
    
    
    35,547Diluted EPS:Net income (loss) per share
    
    $
    
    
    
    $
    0.05
  NOTE 9. ASSET RETIREMENT OBLIGATIONS
  (13)




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Three Months Ended March 31,2007
    
    
    2006($ in thousands)Beginning asset retirement obligation
    
    $
    5,063
    
    
    $
    2,495Additions related to new properties
    
    
    18
    
    
    
    107Revisions in estimated cash flows
    
    
    (112
    )
    
    
    1,665Deletions related to property disposals
    
    
    (19
    )
    
    
    (20
    )Accretion expense
    
    
    84
    
    
    
    32Ending asset retirement obligation
    
    $
    5,034
    
    
    $
    4,279
 NOTE 10. RECENTLY ANNOUNCED ACCOUNTING PRONOUNCEMENTS
     NOTE 11. INVESTMENT IN GAS GATHERING SYSTEM
  (14)




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##### Table of Contents



West Fork Pipeline Company II, L.P.
    
    
    35.8750
    %Hagerman Gas Gathering System
    
    
    76.5000
    %
   March 31,
    
    

December 31,2007
    
    
    2006($ in thousands)West Fork Pipeline Company II, L.P.
    
    
    290
    
    
    
    280Hagerman Gas Gathering System
    
    
    7,518
    
    
    
    6,174$
    7,808
    
    
    $
    6,454
  Three Months Ended March 31,2007
    
    
    2006($ in thousands)West Fork Pipeline Company I, L.P.
    
    $
    
    
    
    $
    (2
    )West Fork Pipeline Company II, L.P.
    
    
    3
    
    
    
    (5
    )West Fork Pipeline Company V, L.P.
    
    
    
    
    
    
    (12
    )Hagerman Gas Gathering System
    
    
    (308
    )
    
    
    $
    (305
    )
    
    $
    (19
    )
 (15)




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##### Table of Contents



March 31,
    
    December 31,2007
    
    2006($ in thousands)Balance SheetCurrent assets
    
    $
    400
    
    
    $
    1,408Non-current assets
    
    
    10,010
    
    
    
    8,361Current liabilities
    
    
    349
    
    
    
    1,338Owners equity
    
    
    10,061
    
    
    
    8,431
 Three Months Ended March 31,2007
    
    
    2006($ in thousands)Income StatementRevenues
    
    $
    41
    
    
    $
    401Costs and expenses
    
    
    (430
    )
    
    
    (372
    )Net income (loss)
    
    $
    (389
    )
    
    $
    29
 NOTE 12. COMMITMENTS AND CONTINGENCIES
   
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
  OVERVIEW
 Strategy
  (16)




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##### Table of Contents




    
    focuses on projects having less geological risk;
    
    emphasizes acquisition, exploitation, development and enhancement activities;
    
    includes the utilization of horizontal and fracture stimulation technologies on
certain types of reservoirs;
    
    focuses on acquiring producing properties; and
    
    expands the scope of operations by diversifying our exploratory and development
efforts, both in and outside of our current areas of operation.
   
    
    the prices we receive for the oil and natural gas we produce;
    
    the results of reprocessing and reinterpreting our 3-D seismic data;
    
    the results of our drilling activities;
    
    the costs of obtaining high quality field services;
    
    our ability to find and consummate acquisition opportunities; and
    
    our ability to negotiate and enter into work to earn arrangements, joint venture or
other similar agreements on terms acceptable to us.
  (17)




---



##### Table of Contents



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




---



##### Table of Contents



Results of Operations
  
    
    reserve base;
    
    sources of production;
    
    product mix (gas versus oil volumes); and
    
    the prices we receive for our oil and natural gas production.
  (19)




---



##### Table of Contents



Three Months Ended3/31/2007
    
    
    12/31/2006
    
    
    3/31/2006(in thousands, except per unit data)Production
Volumes:Oil (Bbls)
    
    
    273
    
    
    
    289
    
    
    
    268Natural gas (Mcf)
    
    
    1,521
    
    
    
    1,645
    
    
    
    1,167BOE(1)
    
    
    527
    
    
    
    563
    
    
    
    463BOE per day
    
    
    5.9
    
    
    
    6.1
    
    
    
    5.1Sales
Prices:Oil (per Bbl)(2)
    
    $
    51.93
    
    
    $
    53.93
    
    
    $
    57.66Natural gas (per Mcf)(2)
    
    $
    5.86
    
    
    $
    6.43
    
    
    $
    6.68BOE price(2)
    
    $
    43.85
    
    
    $
    46.46
    
    
    $
    50.27BOE price(3)
    
    $
    43.85
    
    
    $
    42.47
    
    
    $
    44.37Operating
Revenues:Oil
    
    $
    14,211
    
    
    $
    15,598
    
    
    $
    15,482Oil hedge
    
    
    
    
    
    
    (2,248
    )
    
    
    (2,733
    )Natural gas
    
    
    8,905
    
    
    
    10,579
    
    
    
    7,794$
    23,116
    
    
    $
    23,929
    
    
    $
    20,543Operating
Expenses:Lease operating expense
    
    $
    4,399
    
    
    $
    4,180
    
    
    $
    3,575Production taxes
    
    
    1,054
    
    
    
    1,461
    
    
    
    1,110General and administrative:General and administrative
    
    
    1,644
    
    
    
    1,649
    
    
    
    1,134Public reporting
    
    
    1,021
    
    
    
    727
    
    
    
    995Depreciation, depletion and amortization
    
    
    6,709
    
    
    
    6,839
    
    
    
    4,288$
    14,827
    
    
    $
    14,856
    
    
    $
    11,102Operating income
    
    $
    8,289
    
    
    $
    9,073
    
    
    $
    9,441
 
    RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006:
  Oil and Gas Revenues
 Revenues
    
    
    Production2007
    
    
    2006
    
    
    2007
    
    
    2006Oil (Bbls)
    
    
    61
    %
    
    
    62
    %
    
    
    52
    %
    
    
    58
    %Natural gas (Mcf)
    
    
    39
    %
    
    
    38
    %
    
    
    48
    %
    
    
    42
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 (20)




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##### Table of Contents



Three Months Ended March 31,
    
    
    Increase
    
    
    % Increase2007
    
    
    2006
    
    
    (Decrease)
    
    
    (Decrease)(in thousands except per unit data)Production
VolumesOil (Bbls)
    
    
    273
    
    
    
    268
    
    
    
    5
    
    
    
    2
    %Natural gas (Mcf)
    
    
    1,521
    
    
    
    1,167
    
    
    
    354
    
    
    
    30
    %BOE
    
    
    527
    
    
    
    463
    
    
    
    64
    
    
    
    14
    %Sales
PriceOil (per Bbl)(1)
    
    $
    51.93
    
    
    $
    57.66
    
    
    $
    (5.73
    )
    
    
    (10
    )%Natural gas (per Mcf)(1)
    
    $
    5.86
    
    
    $
    6.68
    
    
    $
    (0.82
    )
    
    
    (12
    )%BOE price(1)
    
    $
    43.85
    
    
    $
    50.27
    
    
    $
    (6.42
    )
    
    
    (13
    )%BOE price(2)
    
    $
    43.85
    
    
    $
    44.37
    
    
    $
    (0.52
    )
    
    
    (1
    )%Operating
RevenuesOil
    
    $
    14,211
    
    
    $
    15,482
    
    
    $
    (1,271
    )
    
    
    (8
    )%Oil hedges
    
    
    
    
    
    
    (2,733
    )
    
    
    2,733
    
    
    
    100
    %Natural gas
    
    
    8,905
    
    
    
    7,794
    
    
    
    1,111
    
    
    
    14
    %Total
    
    $
    23,116
    
    
    $
    20,543
    
    
    $
    2,573
    
    
    
    13
    %
 
 (1)
    
    Excludes hedge transactions.(2)
    
    Includes hedge transactions.    (21)




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##### Table of Contents



Cost and Expenses
 Three months ended March 31,
    
    Increase
    
    
    % Increase2007
    
    
    2006
    
    (Decrease)
    
    
    (Decrease)($ in thousands)Lease operating expense
    
    $
    4,399
    
    
    $
    3,575
    
    
    $
    824
    
    
    
    23
    %Production taxes
    
    
    1,054
    
    
    
    1,110
    
    
    
    (56
    )
    
    
    (5
    )%General and administrative:General and administrative
    
    
    1,644
    
    
    
    1,134
    
    
    
    510
    
    
    
    45
    %Public reporting
    
    
    1,021
    
    
    
    995
    
    
    
    26
    
    
    
    3
    %Total general and administrative
    
    
    2,665
    
    
    
    2,129
    
    
    
    536
    
    
    
    25
    %Depreciation, depletion and amortization
    
    
    6,709
    
    
    
    4,288
    
    
    
    2,421
    
    
    
    56
    %Total
    
    $
    14,827
    
    
    $
    11,102
    
    
    $
    3,725
    
    
    
    34
    %
    (22)




---



##### Table of Contents



Other income (expense)
 Three months ended March 31,
    
    
    Increase
    
    
    % Increase2007
    
    
    2006
    
    
    (Decrease)
    
    
    (Decrease)($ in thousands)Loss on derivatives not classified as hedges
    
    $
    (4,435
    )
    
    $
    (4,714
    )
    
    $
    279
    
    
    
    6
    %Gain on ineffective portion of hedges
    
    
    
    
    
    
    143
    
    
    
    (143
    )
    
    
    (100
    )%Interest and other income
    
    
    52
    
    
    
    68
    
    
    
    (16
    )
    
    
    (24
    )%Interest expense
    
    
    (3,708
    )
    
    
    (2,441
    )
    
    
    (1,267
    )
    
    
    52
    %Other expense
    
    
    (36
    )
    
    
    (29
    )
    
    
    (7
    )
    
    
    24
    %Equity in
loss of pipelines and
gathering system ventures
    
    
    (305
    )
    
    
    (19
    )
    
    
    (286
    )
    
    
    1505
    %Total
    
    $
    (8,432
    )
    
    $
    (6,992
    )
    
    $
    (1,440
    )
    
    
    21
    %
       LIQUIDITY AND CAPITAL RESOURCES
  (23)




---



##### Table of Contents



Bank Borrowings
  Revolving Credit Facility
   (24)




---



##### Table of Contents



Second Lien Term Loan Facility
 1 2
   (25)




---



##### Table of Contents



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 PeriodPeriods ended December 31,
    
    
    AfterContractual Cash Obligations
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    5 years
    
    
    Total($ in thousands)Revolving Credit Facility (secured)(1)
    
    $
    9,141
    
    
    $
    11,182
    
    
    $
    12,133
    
    
    $
    164,105
    
    
    $
    
    
    
    $
    
    
    
    $
    196,561Term Loan Facility (secured)(2)
    
    
    3,711
    
    
    
    4,925
    
    
    
    4,925
    
    
    
    54,304
    
    
    
    
    
    
    
    
    
    
    
    67,865Office Lease (Dinero Plaza)
    
    
    154
    
    
    
    210
    
    
    
    216
    
    
    
    36
    
    
    
    
    
    
    
    
    
    
    
    616Andrews and Snyder Field Offices(3)
    
    
    17
    
    
    
    14
    
    
    
    14
    
    
    
    14
    
    
    
    14
    
    
    
    539
    
    
    
    612Asset retirement obligations(4)
    
    
    556
    
    
    
    201
    
    
    
    118
    
    
    
    40
    
    
    
    54
    
    
    
    4,065
    
    
    
    5,034Derivative Obligations
    
    
    12,170
    
    
    
    15,862
    
    
    
    432
    
    
    
    317
    
    
    
    
    
    
    
    
    
    
    
    28,781Drilling Contract
    
    
    542
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    542Total
    
    $
    26,291
    
    
    $
    32,394
    
    
    $
    17,838
    
    
    $
    218,816
    
    
    $
    68
    
    
    $
    4,604
    
    
    $
    300,011
 
 (1)
    
    Outstanding principal of $154.0 million due October 31, 2010 and estimated interest
obligation calculated using the weighted average rate at March 31, 2007 of 7.9%(2)
    
    Outstanding principal of $50.0 million due November 15, 2010 and estimated interest
obligation calculated using the LIBO rate at M arch 31, 2007 of 9.85%(3)
    
    The Snyder office lease expires upon the cessation of production from the Diamond M  area wells.
The Andrews office lease expires in December 2007. The lease cost for these two office facilities are
billed to nonaffiliated third party working interest owners under our joint operating agreements with these third parties.(4)
    
    Asset 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.
  (27)




---



##### Table of Contents




    
    our proved reserves;
    
    the volumes of oil and natural gas we produce from existing wells;
    
    the prices at which we sell oil and natural gas; and
    
    our ability to acquire, locate and produce new reserves.
  
    
    increased bank borrowings;
    
    sales of our debt or equity securities;
    
    sales of non-core properties; or
    
    other forms of financing.
  Inflation
  Critical Accounting Policies
  TRENDS AND PRICES
    (28)




---



##### Table of Contents



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




---



##### Table of Contents




    
    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 March 31, 2007
  (30)




---



##### Table of Contents



2007
    
    2008
    
    2009
    
    2010
    
    2011
    
    Total($ in thousands, except interest rates)Revolving Credit Facility (secured)
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    154,000
    
    
    $
    154,000Weighted average interest rate
    
    
    7.90
    %
    
    
    7.90
    %
    
    
    7.90
    %
    
    
    7.90
    %
    
    
    7.90
    %Second Lien Term Loan Facility (secured)
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    50,000
    
    
    $
    50,000Average interest rate
    
    
    9.85
    %
    
    
    9.85
    %
    
    
    9.85
    %
    
    
    9.85
    %
    
    
    9.85
    %
     Notional
    
    
    Weighted Average
    
    
    EstimatedPeriod of Time
    
    Amounts
    
    
    Fixed Interest Rates
    
    
    Fair Market Value($ in millions)
    
    
    
    
    
    
    ($ in thousands)April 1, 2007 thru December 31, 2007
    
    $
    100
    
    
    
    4.62
    %
    
    $
    487January 1, 2008 thru December 31, 2008
    
    $
    100
    
    
    
    4.86
    %
    
    
    (137
    )January 1, 2009 thru December 31, 2009
    
    $
    50
    
    
    
    5.06
    %
    
    
    (162
    )January 1, 2010 thru October 31, 2010
    
    $
    50
    
    
    
    5.15
    %
    
    
    (105
    )Total Fair Market Value
    
    
    
    
    
    
    
    
    
    $
    83
 Commodity Price Sensitivity as of March 31, 2007
  (31)




---



##### Table of Contents



Collars.
  Houston Ship
    
    
    WAHA GasBarrels of
    
    
    NyMex Oil Prices
    
    
    MMBtu of
    
    
    Channel Gas Prices
    
    
    Prices
    
    
    Fair MarketPeriod of Time
    
    Oil
    
    
    Floor
    
    
    Cap
    
    
    Natural Gas
    
    
    Floor
    
    
    Cap
    
    
    Floor
    
    
    Cap
    
    
    Value($ inthousands)April 1, 2007
thru December 31, 2007
    
    
    220,000
    
    
    $
    55.63
    
    
    $
    84.88
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    45April 1, 2007
thru October 31, 2007
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    214,000
    
    
    $
    6.00
    
    
    $
    11.05
    
    
    $
    
    
    
    $
    
    
    
    
    (7
    )April 1, 2007
thru October 31, 2007
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    642,000
    
    
    $
    
    
    
    $
    
    
    
    $
    6.25
    
    
    $
    8.90
    
    
    
    (57
    )April 1, 2007
thru March 31, 2008
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    2,196,000
    
    
    $
    
    
    
    $
    
    
    
    $
    6.50
    
    
    $
    9.50
    
    
    
    (440
    )January 1, 2008
thru December 31, 2008
    
    
    237,900
    
    
    $
    60.38
    
    
    $
    81.08
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    89January 1, 2009
thru December 31, 2009
    
    
    620,500
    
    
    $
    63.53
    
    
    $
    80.21
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    1,092January 1, 2010
thru October 31, 2010
    
    
    486,400
    
    
    $
    63.44
    
    
    $
    78.26
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    987Total Fair Market Value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,709
 Commodity Swaps.
 (32)




---



##### Table of Contents



Nymex Oil
    
    
    Fair MarketPeriod of Time
    
    Barrels of Oil
    
    
    Swap Price
    
    
    Value($ in thousands)April 1, 2007 thru December 31, 2007
    
    
    357,500
    
    
    $
    34.36
    
    
    $
    (12,020
    )January 1, 2008 thru December 31, 2008
    
    
    439,200
    
    
    $
    33.37
    
    
    
    (15,034
    )Total fair market value
    
    
    
    
    
    
    
    
    
    $
    (27,054
    )
 
 ITEM 4. CONTROLS AND PROCEDURES
   
 PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  
 ITEM 6. EXHIBITS
 (a)
    
    ExhibitsThe following exhibits are filed herewith or incorporated by reference, as indicated:
 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)
 (33)




---



##### Table of Contents



3.2
    
    Bylaws of Registrant (Incorporated by reference to Exhibit No. 3.2 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2006)3.3
    
    Certificate of Formation of Parallel, L.L.C. (Incorporated by reference to Exhibit No. 3.3 of
the Registrants Registration Statement on Form S-3, No. 333-119725 filed on October 13, 2004)3.4
    
    Limited Liability Company Agreement of Parallel, L.L.C. (Incorporated by reference to Exhibit
No. 3.4 of the Registrants Statement on Form S-3, No. 333-119725 filed on October 13, 2004)3.5
    
    Certificate of Limited Partnership of Parallel, L.P. (Incorporated by reference to Exhibit
No. 3.5 of the Registrants Registration Statement on Form S-3, No. 333-119725 filed on
October 13, 2004)3.6
    
    Agreement of Limited Partnership of Parallel, L.P. (Incorporated by reference to Exhibit No.
3.6 of the Registrants Registration Statement on Form S-3, No. 333-119725 filed on October
13, 2004)4.1
    
    Certificate of Designations, Preferences and Rights of Serial Preferred Stock  6%
Convertible Preferred Stock (Incorporated by reference to Exhibit 4.1 of Form 10-Q of the
Registrant for the fiscal quarter ended June 30, 2004)4.2
    
    Certificate of Designation, Preferences and Rights of Series A Preferred Stock (Incorporated
by reference to Exhibit 4.2 of Form 10-K of the Registrant for the fiscal year ended December
31, 2000)4.3
    
    Rights Agreement, dated as of October 5, 2000, between the Registrant and Computershare Trust
Company, Inc., as Rights Agent (Incorporated by reference to Exhibit 1 of Form 8-A of the
Registrant filed with the Securities and Exchange Commission on October 10, 2000)4.4
    
    Form of common stock certificate of the Registrant (Incorporated by reference to Exhibit No.
4.6 of the Registrants Registration Statement on Form S-3, No. 333-119725 filed on October
13, 2004)4.5
    
    Warrant Purchase Agreement, dated November 20, 2001, between the Registrant and Stonington
Corporation (Incorporated by reference to Exhibit 4.7 of Form 10-K of the Registrant for the
fiscal year ended December 31, 2004)4.6
    
    Warrant Purchase Agreement, dated December 23, 2003, between the Registrant and Stonington
Corporation (Incorporated by reference to Exhibit 4.8 of Form 10-K of the Registrant for the
fiscal year ended December 31, 2004)4.7
    
    Purchase Warrant Agreement, dated as of October 1, 1980, between the Registrant and American
Stock Transfer, Inc. (Incorporated by reference to Exhibit No. 4.7 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2006)4.8
    
    First Amendment to Warrant Agreement, dated as of February 22, 2007, among the Registrant,
Computershare Shareholder Services, Inc. and Computershare Trust Company, N.A. (Incorporated
by reference to Exhibit No. 4.8 of Form 10-K of the Registrant for the fiscal year ended
December 31, 2006)Executive Compensation Plans and Arrangements (Exhibit No.s 10.1 through 10.7):10.1
    
    1992 Stock Option Plan (Incorporated by reference to Exhibit 10.1 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2004)
 (34)




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##### Table of Contents



10.2
    
    Merrill Lynch, Pierce, Fenner & Smith Incorporated Prototype Simplified Employee Pension Plan
(Incorporated by reference to Exhibit 10.6 of the Registrants Form 10-K for the fiscal year
ended December 31, 1995)10.3
    
    Non-Employee Directors Stock Option Plan (Incorporated by reference to Exhibit 10.3 of the
Registrants Form 10-Q of the Registrant for the fiscal quarter ended June 30, 2005)10.4
    
    1998 Stock Option Plan (Incorporated by reference to Exhibit No. 10.4 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2006)10.5
    
    2001 Non-Employee Directors Stock Option Plan (Incorporated by reference to Exhibit 10.7 of
the Registrants Form 10-Q Report for the fiscal quarter ended March 31, 2004)10.6
    
    2004 Non-Employee Director Stock Grant Plan (Incorporated by reference to Exhibit 10.1 of the
Registrants Form 8-K Report dated September 22, 2004)10.7
    
    Incentive and Retention Plan (Incorporated by reference to Exhibit No. 10.7 of the Registrant
for the fiscal year ended December 31, 2006)10.8
    
    First Amended and Restated Credit Agreement, dated December 20, 2002, by and among Parallel
Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First American Bank, SSB, Western
National Bank and BNP Paribas (Incorporated by reference to Exhibit 10.2 of Form 8-K of the
Registrant, dated December 20, 2002)10.9
    
    Guaranty dated December 20, 2002, between Parallel, L.L.C. and First American Bank, SSB, as
Agent (Incorporated by reference to Exhibit 10.3 of Form 8-K of the Registrant, dated December
20, 2002)10.10
    
    First Amendment to First Amended and Restated Credit Agreement, dated as of September 12,
2003, by and among Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First
American Bank, SSB, Western National Bank, and BNP Paribas (Incorporated by reference to
Exhibit 10.29 of Form 10-Q of the Registrant for the quarter ended September 30, 2003)10.11
    
    Second Amended and Restated Credit Agreement, dated September 27, 2004, by and among
Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First American Bank, SSB,
BNP Paribas, Citibank, F.S.B. and Western National Bank (Incorporated by reference to Exhibit
10.1 of the Registrants Form 8-K Report dated September 27, 2004 and filed with the
Securities and Exchange Commission on October 1, 2004)10.12
    
    Agreement of Limited Partnership of West Fork Pipeline Company LP (Incorporated by reference
to Exhibit 10.21 of Form 10-K of the Registrant for the fiscal year ended December 31, 2004)10.13
    
    First Amendment to Second Amended and Restated Credit Agreement, dated as of December 27,
2004, by and among Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First
American Bank, SSB, BNP Paribas, Citibank, F.S.B. and Western National Bank (Incorporated by
reference to Exhibit 10.1 of the Registrants Form 8-K Report dated December 30, 2004 and
filed with the Securities and Exchange Commission on December 30, 2004)10.14
    
    Second Amendment to Second Amended and Restated Credit Agreement, dated as of April 1, 2005,
by and among Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First American
Bank, SSB, BNP Paribas, Citibank, F.S.B. and Western National Bank (Incorporated by reference
to Exhibit 10.1 of the Registrants Form 8-K Report dated April 4, 2005 and filed with the
Securities and Exchange Commission on April 8, 2005)
 (35)




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10.15
    
    Third Amendment to Second Amended and Restated Credit Agreement (Incorporated by reference
to Exhibit 10.1 of the Registrants Form 8-K Report dated October 4, 2005 and filed with the
Securities and Exchange Commission on October 20, 2005)10.16
    
    Purchase and Sale Agreement, dated as of October 14, 1005, among Parallel, L.P., Lynx
Production Company, Inc., Elton Resources, Inc., Cascade Energy Corporation, Chelsea Energy,
Inc., William P. Sutter, Trustee, William P. Sutter Trust, J. Leroy Bell, E. L. Brahaney,
Brent Beck, Cavic Interests, LLC and Stanley Talbott (Incorporated by reference to Exhibit
10.2 of the Registrants Form 8-K Report dated October 14, 2005 and filed with the Securities
and Exchange Commission on October 20, 2005)10.17
    
    Ancillary Agreement to Purchase and Sale Agreement, dated October 14, 2005, between
Parallel, L.P. and Lynx Production Company, Inc. (Incorporated by reference to Exhibit 10.3 of
the Registrants Form 8-K Report dated October 14, 2005 and filed with the Securities and
Exchange Commission on October 20, 2005)10.18
    
    Guarantee of Parallel, L.P., dated October 13, 2004 (Incorporated by reference to Exhibit
10.4 of the Registrants Form 8-K Report dated October 14, 2005 and filed with the Securities
and Exchange Commission on October 20, 2005)10.19
    
    ISDA Master Agreement, dated as of October 13, 2005, between Parallel, L.P. and Citibank,
N.A. (Incorporated by reference to Exhibit 10.5 of the Registrants Form 8-K Report dated
October 14, 2005 and filed with the Securities and Exchange Commission on October 20, 2005)10.20
    
    Third Amended and Restated Credit Agreement, dated as of December 23, 2005, among Parallel
Petroleum Corporation, Parallel, L.P., Parallel, L.L.C. and Citibank Texas, N.A., BNP Paribas,
CitiBank F.S.B., Western National Bank, Compass Bank, Comerica Bank, Bank of Scotland and
Fortis Capital Corp. (Incorporated by reference to Exhibit No. 10.1 of the Registrants Form
8-K Report, dated December 23, 2005, as filed with the Securities and Exchange Commission on
December 30, 2005)10.21
    
    Second Lien Term Loan Agreement, dated November 15, 2005, among Parallel Petroleum
Corporation, Parallel, L.P., BNP Paribas and Citibank Texas, N.A. (Incorporated by reference
to Exhibit No. 10.4 of the Registrants Form 8-K Report, dated November 15, 2005, as filed
with the Securities and Exchange Commission on November 21, 2005)10.22
    
    Intercreditor and Subordination Agreement, dated November 15, 2005, among Citibank Texas,
N.A., BNP Paribas, Parallel Petroleum Corporation, Parallel, L.P. and Parallel, L.L.C.
(Incorporated by reference to Exhibit No. 10.5 of the Registrants Form 8-K Report, dated
November 15, 2005, as filed with the Securities and Exchange Commission on November 21, 2005)10.23
    
    Guaranty, dated as of December 23, 2005, made by Parallel, L.L.C. to and in favor of
Citibank Texas, N.A. (Incorporated by reference to Exhibit No. 10.23 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2006)10.24
    
    Third Amended and Restated Pledge Agreement, dated as of December 23, 2005, between
Parallel, L.L.C. and Citibank Texas, N.A. (Incorporated by reference to Exhibit No. 10.24 of
Form 10-K of the Registrant for the fiscal year ended December 31, 2006)
 (36)




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10.25
    
    Second Lien Guarantee and Collateral Agreement, dated as of November 15, 2005, made by
Parallel Petroleum Corporation and Parallel, L.P. to and in favor of BNP Paribas (Incorporated
by reference to Exhibit No. 10.25 of Form 10-K of the Registrant for the fiscal year ended
December 31, 2006)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. (37)




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PARALLEL PETROLEUM CORPORATIONBY:   /s/ Larry C. OldhamDate: May 9, 2007
    Larry C. OldhamPresident and Chief Executive Officer Date: May 9, 2007
    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 No. 3.2 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2006)3.3
    
    Certificate of Formation of Parallel, L.L.C. (Incorporated by reference to Exhibit No. 3.3 of
the Registrants Registration Statement on Form S-3, No. 333-119725 filed on October 13, 2004)3.4
    
    Limited Liability Company Agreement of Parallel, L.L.C. (Incorporated by reference to Exhibit
No. 3.4 of the Registrants Statement on Form S-3, No. 333-119725 filed on October 13, 2004)3.5
    
    Certificate of Limited Partnership of Parallel, L.P. (Incorporated by reference to Exhibit
No. 3.5 of the Registrants Registration Statement on Form S-3, No. 333-119725 filed on
October 13, 2004)3.6
    
    Agreement of Limited Partnership of Parallel, L.P. (Incorporated by reference to Exhibit No.
3.6 of the Registrants Registration Statement on Form S-3, No. 333-119725 filed on October
13, 2004)4.1
    
    Certificate of Designations, Preferences and Rights of Serial Preferred Stock  6%
Convertible Preferred Stock (Incorporated by reference to Exhibit 4.1 of Form 10-Q of the
Registrant for the fiscal quarter ended June 30, 2004)4.2
    
    Certificate of Designation, Preferences and Rights of Series A Preferred Stock (Incorporated
by reference to Exhibit 4.2 of Form 10-K of the Registrant for the fiscal year ended December
31, 2000)4.3
    
    Rights Agreement, dated as of October 5, 2000, between the Registrant and Computershare Trust
Company, Inc., as Rights Agent (Incorporated by reference to Exhibit 1 of Form 8-A of the
Registrant filed with the Securities and Exchange Commission on October 10, 2000)4.4
    
    Form of common stock certificate of the Registrant (Incorporated by reference to Exhibit No.
4.6 of the Registrants Registration Statement on Form S-3, No. 333-119725 filed on October
13, 2004)4.5
    
    Warrant Purchase Agreement, dated November 20, 2001, between the Registrant and Stonington
Corporation (Incorporated by reference to Exhibit 4.7 of Form 10-K of the Registrant for the
fiscal year ended December 31, 2004)4.6
    
    Warrant Purchase Agreement, dated December 23, 2003, between the Registrant and Stonington
Corporation (Incorporated by reference to Exhibit 4.8 of Form 10-K of the Registrant for the
fiscal year ended December 31, 2004)4.7
    
    Purchase Warrant Agreement, dated as of October 1, 1980, between the Registrant and American
Stock Transfer, Inc. (Incorporated by reference to Exhibit No. 4.7 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2006)4.8
    
    First Amendment to Warrant Agreement, dated as of February 22, 2007, among the Registrant,
Computershare Shareholder Services, Inc. and Computershare Trust Company, N.A. (Incorporated
by reference to Exhibit No. 4.8 of Form 10-K of the Registrant for the fiscal year ended
December 31, 2006)




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Executive Compensation Plans and Arrangements (Exhibit No.s 10.1 through 10.7):10.1
    
    1992 Stock Option Plan (Incorporated by reference to Exhibit 10.1 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2004)10.2
    
    Merrill Lynch, Pierce, Fenner & Smith Incorporated Prototype Simplified Employee Pension Plan
(Incorporated by reference to Exhibit 10.6 of the Registrants Form 10-K for the fiscal year
ended December 31, 1995)10.3
    
    Non-Employee Directors Stock Option Plan (Incorporated by reference to Exhibit 10.3 of the
Registrants Form 10-Q of the Registrant for the fiscal quarter ended June 30, 2005)10.4
    
    1998 Stock Option Plan (Incorporated by reference to Exhibit No.10.4 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2006)10.5
    
    2001 Non-Employee Directors Stock Option Plan (Incorporated by reference to Exhibit 10.7 of
the Registrants Form 10-Q Report for the fiscal quarter ended March 31, 2004)10.6
    
    2004 Non-Employee Director Stock Grant Plan (Incorporated by reference to Exhibit 10.1 of the
Registrants Form 8-K Report dated September 22, 2004)10.7
    
    Incentive and Retention Plan (Incorporated by reference to Exhibit No. 10.7 of Form 10-K of
the Registrant for the fiscal year ended December 31, 2006)10.8
    
    First Amended and Restated Credit Agreement, dated December 20, 2002, by and among Parallel
Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First American Bank, SSB, Western
National Bank and BNP Paribas (Incorporated by reference to Exhibit 10.2 of Form 8-K of the
Registrant, dated December 20, 2002)10.9
    
    Guaranty dated December 20, 2002, between Parallel, L.L.C. and First American Bank, SSB, as
Agent (Incorporated by reference to Exhibit 10.3 of Form 8-K of the Registrant, dated December
20, 2002)10.10
    
    First Amendment to First Amended and Restated Credit Agreement, dated as of September 12,
2003, by and among Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First
American Bank, SSB, Western National Bank, and BNP Paribas (Incorporated by reference to
Exhibit 10.29 of Form 10-Q of the Registrant for the quarter ended September 30, 2003)10.11
    
    Second Amended and Restated Credit Agreement, dated September 27, 2004, by and among
Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First American Bank, SSB,
BNP Paribas, Citibank, F.S.B. and Western National Bank (Incorporated by reference to Exhibit
10.1 of the Registrants Form 8-K Report dated September 27, 2004 and filed with the
Securities and Exchange Commission on October 1, 2004)10.12
    
    Agreement of Limited Partnership of West Fork Pipeline Company LP (Incorporated by reference
to Exhibit 10.21 of Form 10-K of the Registrant for the fiscal year ended December 31, 2004)10.13
    
    First Amendment to Second Amended and Restated Credit Agreement, dated as of December 27,
2004, by and among Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First
American Bank, SSB, BNP Paribas, Citibank, F.S.B. and Western National Bank (Incorporated by
reference to Exhibit 10.1 of the Registrants Form 8-K Report dated December 30, 2004 and
filed with the Securities and Exchange Commission on December 30, 2004)10.14
    
    Second Amendment to Second Amended and Restated Credit Agreement, dated as of April 1, 2005,
by and among Parallel Petroleum Corporation, Parallel, L.P., Parallel, L.L.C., First




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American Bank, SSB, BNP Paribas, Citibank, F.S.B. and Western National Bank (Incorporated by
reference to Exhibit 10.1 of the Registrants Form 8-K Report dated April 4, 2005 and filed
with the Securities and Exchange Commission on April 8, 2005)10.15
    
    Third Amendment to Second Amended and Restated Credit Agreement (Incorporated by reference
to Exhibit 10.1 of the Registrants Form 8-K Report dated October 4, 2005 and filed with the
Securities and Exchange Commission on October 20, 2005)10.16
    
    Purchase and Sale Agreement, dated as of October 14, 1005, among Parallel, L.P., Lynx
Production Company, Inc., Elton Resources, Inc., Cascade Energy Corporation, Chelsea Energy,
Inc., William P. Sutter, Trustee, William P. Sutter Trust, J. Leroy Bell, E. L. Brahaney,
Brent Beck, Cavic Interests, LLC and Stanley Talbott (Incorporated by reference to Exhibit
10.2 of the Registrants Form 8-K Report dated October 14, 2005 and filed with the Securities
and Exchange Commission on October 20, 2005)10.17
    
    Ancillary Agreement to Purchase and Sale Agreement, dated October 14, 2005, between
Parallel, L.P. and Lynx Production Company, Inc. (Incorporated by reference to Exhibit 10.3 of
the Registrants Form 8-K Report dated October 14, 2005 and filed with the Securities and
Exchange Commission on October 20, 2005)10.18
    
    Guarantee of Parallel, L.P., dated October 13, 2004 (Incorporated by reference to Exhibit
10.4 of the Registrants Form 8-K Report dated October 14, 2005 and filed with the Securities
and Exchange Commission on October 20, 2005)10.19
    
    ISDA Master Agreement, dated as of October 13, 2005, between Parallel, L.P. and Citibank,
N.A. (Incorporated by reference to Exhibit 10.5 of the Registrants Form 8-K Report dated
October 14, 2005 and filed with the Securities and Exchange Commission on October 20, 2005)10.20
    
    Third Amended and Restated Credit Agreement, dated as of December 23, 2005, among Parallel
Petroleum Corporation, Parallel, L.P., Parallel, L.L.C. and Citibank Texas, N.A., BNP Paribas,
CitiBank F.S.B., Western National Bank, Compass Bank, Comerica Bank, Bank of Scotland and
Fortis Capital Corp. (Incorporated by reference to Exhibit No. 10.1 of the Registrants Form
8-K Report, dated December 23, 2005, as filed with the Securities and Exchange Commission on
December 30, 2005)10.21
    
    Second Lien Term Loan Agreement, dated November 15, 2005, among Parallel Petroleum
Corporation, Parallel, L.P., BNP Paribas and Citibank Texas, N.A. (Incorporated by reference
to Exhibit No. 10.4 of the Registrants Form 8-K Report, dated November 15, 2005, as filed
with the Securities and Exchange Commission on November 21, 2005)10.22
    
    Intercreditor and Subordination Agreement, dated November 15, 2005, among Citibank Texas,
N.A., BNP Paribas, Parallel Petroleum Corporation, Parallel, L.P. and Parallel, L.L.C.
(Incorporated by reference to Exhibit No. 10.5 of the Registrants Form 8-K Report, dated
November 15, 2005, as filed with the Securities and Exchange Commission on November 21, 2005)10.23
    
    Guaranty, dated as of December 23, 2005, made by Parallel, L.L.C. to and in favor of
Citibank Texas, N.A. (Incorporated by reference to Exhibit No. 10.23 of Form 10-K of the
Registrant for the fiscal year ended December 31, 2006)10.24
    
    Third Amended and Restated Pledge Agreement, dated as of December 23, 2005, between
Parallel, L.L.C. and Citibank Texas, N.A. (Incorporated by reference to Exhibit No. 10.24 of
Form 10-K of the Registrant for the fiscal year ended December 31, 2006)




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##### Table of Contents



10.25
    
    Second Lien Guarantee and Collateral Agreement, dated as of November 15, 2005, made by
Parallel Petroleum Corporation and Parallel, L.P. to and in favor of BNP Paribas (Incorporated
by reference to Exhibit No. 10.25 of Form 10-K of the Registrant for the fiscal year ended
December 31, 2006)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.