<PAGE>
                                       1




                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D. C. 20549

                                    FORM 10-Q

                          ----------------------------
(Mark One)

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

                 For the quarterly period ended June 30, 1999 or

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

                           --------------------------

                         COMMISSION FILE NUMBER 0-13305

                           --------------------------


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

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

One Marienfeld Place, Suite 465,
        Midland, Texas                                       79701
(Address of principal executive offices)                   (Zip Code)

                                 (915) 684-3727
              (Registrant's telephone number, including area code)

                                 NOT APPLICABLE
              (Former name, former address and former fiscal year,
                          if changed since last report)

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

                                   Yes 'X' No

     At August 1, 1999, there were 18,331,858 shares of the Registrant's  Common
Stock, $0.01 par value, outstanding.


===============================================================================
<PAGE>
                                       2


                                      INDEX



                         PART I. - FINANCIAL INFORMATION
                                                                       Page  No.

ITEM  1.  CONSOLIDATED FINANCIAL STATEMENTS

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

     -  Consolidated  Balance  Sheet as of  December  31, 1998 and
        June 30, 1999 (unaudited)                                         3

     - Unaudited  Consolidated  Statements  of  Operations  for the
       three months ended June 30, 1998 and 1999 and six months ended
       June 30, 1998 and 1999                                             5

     - Unaudited Consolidated  Statements of Cash Flows for the six
       months ended June 30, 1998 and 1999                                6

     - Notes to Consolidated Financial Statements                         7

ITEM 2. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
        AND RESULTS OF OPERATIONS                                        11

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK       19



                          PART II. - OTHER INFORMATION


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS              20

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                 21

<PAGE>
                                       3



                         PARALLEL PETROLEUM CORPORATION

                           CONSOLIDATED BALANCE SHEETS

<TABLE>


                                                                                       December 31,         June 30, 1999
ASSETS                                                                                     1998*               (Unaudited)
-------------                                                                          ------------         --------------
<S>                                                                                    <C>                  <C>

Current assets:
   Cash and cash equivalents                                                            $ 1,178,819           $ 1,218,599
   Accounts receivable:
      Oil and gas                                                                         1,432,659             1,366,385
      Others, net of allowance for doubtful accounts
         of $71,358 in 1998 and 1999                                                        247,740               405,776
      Affiliate                                                                              11,844                    --
                                                                                       ------------          ------------
                                                                                          1,692,243             1,772,161
   Other assets                                                                              61,504                28,012
                                                                                       ------------          ------------
      Total current assets                                                                2,932,566             3,018,772
                                                                                       ------------          ------------
Property and equipment, at cost:
   Oil and gas properties, full cost method                                              65,565,466            87,117,125
   Other                                                                                    287,586               496,463
                                                                                       ------------          ------------
                                                                                         65,853,052            87,613,588
   Less accumulated depreciation and depletion                                           22,279,355            24,140,149
                                                                                       ------------          ------------
      Net property and equipment                                                         43,573,697            63,473,439
                                                                                       ------------          ------------
Other assets, net of accumulated amortization of
      $86,917 in 1998 and $95,248 in 1999                                                    58,519                68,289
                                                                                       ------------          ------------
                                                                                       $ 46,564,782          $ 66,560,500
                                                                                       ============          ============
</TABLE>

<PAGE>
                                       4

                         PARALLEL PETROLEUM CORPORATION

                           CONSOLIDATED BALANCE SHEETS
                                   (Continued)
<TABLE>


                                                                                       December 31,         June 30, 1999
LIABILITIES AND STOCKHOLDERS' EQUITY                                                       1998*             (Unaudited)
------------------------------------                                                   ------------         -------------
<S>                                                                                    <C>                  <C>

Current liabilities:
   Accounts payable and accrued liabilities:
      Current portion of affiliate's long-term
        debt (Note 3)                                                                  $         --            $  506,250
    Subordinated notes payable (Note 4)                                                          --             3,600,000
      Trade                                                                               2,803,539             2,142,738
      Affiliate                                                                                 214                 6,423
      Preferred stock dividend                                                                   --                24,362
                                                                                       ------------          ------------
      Total current liabilities                                                           2,803,753             6,279,773
                                                                                       ------------          ------------
  Long-term debt:
      Bank credit facility (Note 3)                                                      18,035,889            18,815,889
      Proportionate share of affiliate's long-
      term debt, net of current portion(Note 3)                                                  --            16,143,750
                                                                                       ------------          ------------
      Total long-term debt                                                               18,035,889            34,959,639

   Deferred income taxes                                                                         --                    --

Stockholders' equity:

  Preferred stock - 6% convertible preferred stock -
      par value $.10 per share(aggregate liquidation
      preference of $10) authorized 10,000,000 shares,
      issued and outstanding 974,500 in 1998 and 1999                                        97,450                97,450
 Common stock - par value $.01 per share, authorized
      60,000,000 shares, issued and outstanding
      18,306,858 in 1998 and 18,331,858 in 1999                                             183,069               183,319
   Additional paid-in surplus                                                            32,341,971            32,042,197
   Retained deficit                                                                      (6,897,350)           (7,001,878)
                                                                                       ------------          ------------
      Total stockholders' equity                                                         25,725,140            25,321,088

Contingencies
                                                                                       ------------          ------------
                                                                                       $ 46,564,782          $ 66,560,500
                                                                                       ============          ============
</TABLE>




*The balance  sheet as of December  31, 1998 has been  derived  from  Parallel's
audited  financial  statements.  The accompanying  notes are an integral part of
these financial statements.

<PAGE>
                                       5


                         PARALLEL PETROLEUM CORPORATION

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                   (Unaudited)

<TABLE>

                                                                Three Months Ended                     Six Months Ended
                                                              ----------------------               -----------------------
                                                                     June 30,                               June 30,
                                                              ----------------------               -----------------------
                                                                 1998        1999                      1998       1999
                                                              ----------  ----------               ----------   ----------
<S>                                                           <C>         <C>                      <C>          <C>

Oil and gas revenues                                         $2,453,140       $1,991,727        $4,565,703     $3,954,816
                                                             ----------        ---------        ----------      ----------
Cost and expenses:
  Lease operating expense                                       613,053          551,142         1,170,691      1,064,964
  General and administrative                                    199,117          220,911           419,505        424,148
  Depreciation, depletion
     and amortization                                         1,063,466          956,958         1,994,283      1,860,794
                                                             ----------        ---------         ---------      ---------
                                                              1,875,636        1,729,011         3,584,479      3,349,906
                                                             ----------        ---------         ---------      ---------
          Operating income                                      577,504          262,716           981,224        604,910
                                                             ----------        ---------         ---------      ---------
Other income (expense), net:
   Interest income                                                  395           13,695               470         26,971
   Other income                                                  37,552            6,606            51,111         13,229
   Interest expense                                            (341,817)        (376,057)         (646,095)      (747,128)
   Other expense                                                 (4,195)          (1,204)           (8,577)        (2,509)
                                                             ----------        ---------        ----------      ---------
          Total other expense, net                             (308,065)        (356,960)         (603,091)      (709,437)
                                                             ----------        ---------        ----------      ---------
Income (loss) before income taxes                               269,439          (94,244)          378,133       (104,527)

Income tax expense -deferred                                     88,826               --           124,695             --
                                                             ----------        ---------        ----------      ---------
          Net income (loss)                                  $  180,613        $ (94,244)       $  253,438     $ (104,527)
                                                             ==========        =========        ==========      =========
Cumulative preferred stock dividend                          $   68,000        $ 146,175        $   68,000      $ 316,713
                                                             ==========        =========        ==========      =========
          Net income (loss) available
             to common stockholders                          $  112,613        $(240,419)       $  185,438      $(421,240)
                                                             ==========        =========        ==========      =========
Net income (loss) per common share
          Basic                                              $     .006        $   (.013)       $     .010      $   (.023)
                                                             ==========        =========        ==========      =========
          Diluted                                            $     .009        $   (.013)       $     .013      $   (.023)
                                                             ==========        =========        ==========      =========
Weighted average common shares
   Outstanding - diluted                                     19,531,844       18,331,858        19,161,431     18,120,194
                                                             ==========        =========        ==========      =========
</TABLE>


The accompanying notes are an integral part of these financial statements.

<PAGE>
                                       6


                         PARALLEL PETROLEUM CORPORATION

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                   (Unaudited)

<TABLE>

                                                                                            Six Months Ended June 30,
                                                                                      ---------------------------------
                                                                                          1998                  1999
                                                                                       ----------            ----------
<S>                                                                                     <C>                   <C>

Cash flows from operating activities:
     Net income (loss)                                                                 $  253,438          $  (104,527)
     Adjustments to reconcile net income (loss) to
       net cash provided by (used in) operating
        activities:
         Depreciation, depletion and amortization                                       1,994,283             1,860,794
     Incomes taxes                                                                        124,695                    --
     Other, net                                                                            (5,702)               (9,770)

     Changes in assets and liabilities:
         Decrease in trade receivables                                                    (53,602)              (79,918)
         (Increase) decrease in prepaid expenses
              and other                                                                   (73,701)               33,492
         Decrease in accounts payable
           and accrued liabilities                                                     (1,419,721)             (630,230)
         Increase in current portion of affiliate
           long-term debt                                                                      --               506,250
         Increase in subordinated notes payable                                                --             3,600,000
                                                                                      -----------           -----------
     Net cash provided by operating
                 activities                                                               819,690             5,176,091
                                                                                      -----------           -----------
Cash flows from investing activities:
     Additions to property and equipment                                              (12,953,814)          (22,015,776)
     Proceeds from disposition of property and equipment                                       --               255,240
                                                                                      -----------           -----------
              Net cash used in investing
                 activities                                                           (12,953,814)          (21,760,536)
                                                                                       -----------          -----------
Cash flows from financing activities:
     Proceeds from the issuance of long-term debt                                      13,343,000            16,923,750
   Payment of long-term debt                                                           (7,234,000)                   --
   Proceeds from exercise of options and warrants                                          53,438                17,188
     Stock offering costs                                                                (80,851)                    --
   Proceeds from preferred stock issuance                                              6,000,000                     --
     Payment of preferred stock dividend                                                  (68,000)             (316,713)
                                                                                      -----------           -----------
              Net cash provided by financing
                 activities                                                            12,013,587            16,624,225
                                                                                      -----------           -----------
              Net increase (decrease) in cash
                  and cash equivalents                                                  (120,537)                39,780
Beginning cash and cash equivalents                                                       597,149             1,178,819
                                                                                      -----------           -----------
Ending cash and cash equivalents                                                      $   476,612           $ 1,218,599
                                                                                      ===========           ===========

Non-cash financing activities:
     Accrued preferred stock dividend                                                 $        --           $    24,362
                                                                                      ===========           ===========

The accompanying notes are an integral part of these financials.

</TABLE>

<PAGE>
                                       7


                         PARALLEL PETROLEUM CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Basis of Presentation

     The accompanying  consolidated financial statements include the accounts of
Parallel  and,  with respect to our  consolidated  balance  sheet as of June 30,
1999, our pro rata share of the assets and liabilities associated with our 22.5%
membership  interest in First Permian,  LLC. First Permian is a Delaware limited
liability  company formed on June 25, 1999 for the purpose of acquiring a wholly
owned,  indirect  subsidiary  of Fina Oil and  Chemical  Company.  See Note 2 to
Consolidated Financial Statements.

     There is no reportable  income or expense  associated  with our interest in
First Permian for the current reporting period. In subsequent reporting periods,
our statements of operations and cash flows will be  consolidated to reflect our
pro rata share of the income and expenses of First Permian.

     The  financial  information  included  herein,  with the  exception  of the
balance sheet as of December 31, 1998, is unaudited.  However,  such information
includes all adjustments  (consisting  solely of normal  recurring  adjustments)
which are, in the opinion of  management,  necessary for a fair statement of the
results of operations for the interim periods. The results of operations for the
interim period are not necessarily  indicative of the results to be expected for
an entire year.

     Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting  principles
have been  condensed  or omitted in this Form 10-Q  Report  pursuant  to certain
rules and regulations of the Securities and Exchange Commission. These financial
statements should be read in conjunction with the financial statements and notes
included in Parallel's 1998 Annual Report and 1998 Form 10-K.

NOTE 2. RECENT EVENTS

     On June 30, 1999, First Permian and a wholly owned,  indirect subsidiary of
Fina Oil and Chemical Company  consummated a cash merger.  First Permian was the
surviving  entity.  The transaction was accounted for as a purchase.  The assets
acquired consisted  primarily of producing oil and gas properties located in the
Permian Basin of west Texas.  After giving effect to purchase price adjustments,
First Permian paid to Fina cash in the aggregate amount of  approximately  $92.0
million.  Our  proportionate  share of the book  value  of the  assets  acquired
through the cash merger is  approximately  $20.0 million and is reflected in the
June 30, 1999 consolidated balance sheet.

     First  Permian  is owned by  Parallel,  Baytech,  Inc.,  Tejon  Exploration
Company and Mansefeldt Investment Corporation. Baytech, Tejon and Mansefeldt are
privately held oil and gas  companies.  Parallel and Baytech are the managers of
First Permian and each owns a 22.5% membership  interest.  Tejon Exploration and
Mansefeldt  Investment  each own a 27.5% interest in First  Permian.  If certain
conditions are met regarding the prepayment of $16.0 million aggregate principal
amount of  subordinated  unsecured  notes made by First  Permian  and payable to
Tejon and  Mansefeldt,  the  proceeds  of which  were used to help  finance  the
acquisition,  Parallel's interest in First Permian could increase to 37.5% for a
nominal fee per membership unit.

     The  purchase was  financed,  in part,  with the proceeds of the  revolving
credit facility provided by Bank One, Texas, N.A. to First Permian.  On June 30,
1999, Parallel and Baytech entered into a credit agreement with Bank One, Texas,
N.A.  that  established  the  $110.0  million  revolving  credit  facility.  The
principal amount of the initial loan from Bank One is $74.0 million.  Parallel's
obligation is limited to a guaranty of $10.0 million of the bank borrowings. See
Note 3 to Consolidated Financial Statements for further discussion of the credit
facility.

     Additional  financing for the cash merger was obtained through subordinated
debt  borrowings,  which included $8.0 million  borrowed from Tejon  Exploration
Company and $8.0 million borrowed from Mansefeldt  Investment.  The terms of the
subordinated  debt and the effect on  Parallel's  balance sheet are discussed in
Note 4 to Consolidated Financial Statements.


<PAGE>
                                       8


NOTE 3. LONG TERM DEBT

     Our long term debt at June 30, 1999 consisted of the following:

     Revolving  credit  facility note payable to bank at the bank's
       base lending rate plus .25% (8.0% at June 30, 1999)           $18,815,889

     Affiliate  debt:  Parallel's  proportionate  share  (22.5%)
       of  the  First Permian,  LLC  revolving  credit  facility
       note  payable to bank at bank's base lending rate plus
       1.5% (9.25% at June 30, 1999)                                  16,650,000
                                                                     -----------
                                                                     $35,465,889

     Less:  Parallel's  proportionate  share of current
       maturities of affiliate debt                                      506,250
                                                                     -----------
     Total long term debt                                            $34,959,639
                                                                     ===========
     Scheduled maturities of Parallel's debt and our proportionate
       share of affiliate's debt at June 30, 1999 are as follows:

         2000                                                        $   506,250
         2001                                                         19,490,889
         2002                                                         15,468,750
                                                                     -----------
                                                                     $35,465,889
                                                                     ===========

     Revolving Credit Facility. At June 30, 1999, Parallel was a party to a loan
agreement with Bank One, Texas,  N.A. Under terms of the loan agreement,  we may
borrow up to the lesser of $30,000,000  or the "borrowing  base" then in effect.
The borrowing  base in effect at June 30, 1999 was  $18,815,889  (the  Revolving
Facility).  The borrowing base was subject to reduction by a monthly  commitment
reduction of $380,000. However, effective March 23, 1999, the monthly commitment
reduction  was  suspended  by the  bank  until  May 1,  1999 at  which  time the
borrowing   base  and  monthly   commitment   reduction   were   scheduled   for
redetermination.  The  loan  agreement  provides  for a  redetermination  of the
borrowing base and monthly commitment  reduction every six months on April 1 and
October 1 of each year or at such other times as the bank elects. As of the date
of this  Form  10-Q  Report,  we had not  received  notice  from the bank of the
redetermined  borrowing base or monthly  reduction  amount. At June 30, 1999, we
had borrowed all the funds currently available under the Revolving Facility. All
indebtedness  under the  Revolving  Facility  matures July 1, 2001.  The loan is
secured by substantially  all of our oil and gas properties.  Commitment fees of
 .25% per annum on the  difference  between the  commitment and the average daily
amount outstanding are due quarterly.

     The unpaid  principal  balance of the Revolving  Facility bears interest at
our  election at a rate equal to (i) the bank's base  lending  rate plus .25% or
(ii) the  bank's  Eurodollar  rate  plus a margin  of 2.5%.  Interest  under the
Revolving  Facility is due and payable  monthly.  At June 30, 1999, the interest
rate was the bank's base rate plus .25% or 8.0%.

     The loan agreement  contains various  restrictive  covenants and compliance
requirements,  which include (1) maintenance of certain  financial  ratios,  (2)
limiting the incurrence of additional  indebtedness,  (3) prohibiting payment of
dividends  on common  stock,  and (4)  prohibiting  the payment of  dividends on
preferred  stock  when an event  of  default  under  the  loan  agreement  is in
existence.

     At June 30, 1999 we were in default under our loan  agreement for events of
noncompliance  with certain covenants of the loan agreement.  We have obtained a
waiver of the default from our bank lender.

     Long Term Debt of Affiliate. On June 30, 1999, Parallel,  Baytech and First
Permian  entered  into a credit  agreement  with  Bank  One,  Texas,  N.A.  that
established a $110.0 million revolving credit facility to finance,  in part, the
merger of a wholly owned,  indirect  subsidiary of Fina Oil and Chemical Company
into First Permian.  The principal  amount of the initial loan from Bank One was
$74.0 million.  Under terms of the credit agreement,  dated June 30, 1999, as of

<PAGE>
                                       9


August 12, 1999, the principal  amount  outstanding  under the revolving  credit
facility bears interest,  at First Permian's  election,  at Bank One's base rate
plus 1.50% or the Eurodollar  rate plus 4.50% until such time that  subordinated
debt in the principal  amount of $16.0 million has been paid in full. See Note 4
to Consolidated  Financial Statements.  When these subordinated  unsecured loans
have been paid in full, the revolving credit facility will bear interest at Bank
One's base rate or the Eurodollar rate plus 2.50%.

     The credit  facility  provides for  revolving  loans subject to a borrowing
base and a monthly  commitment  reduction.  The initial  borrowing base is $74.0
million and the initial monthly  commitment  reduction  amount is $250,000.  The
monthly commitment  reduction  commences on October 1, 1999 and continues with a
like reduction on the first day of each following  month. The borrowing base and
the  monthly  commitment  reduction  amount may be  redetermined  by the bank on
January 1 and July 1 of each year or at other times  requested by First Permian.
All outstanding principal under the revolving credit facility is due and payable
on July 1, 2002.  Interest is payable on the last day of each month. The loan is
secured  by  substantially  all of the  oil  and gas  properties  First  Permian
acquired  from  Fina  Oil  and  Chemical  Company.  Parallel  and  Baytech  each
guaranteed $10.0 million of the loans from Bank One. Our proportionate  share of
First Permian's long term debt is $16,650,000.

NOTE 4. AFFILIATE SUBORDINATED UNSECURED LOANS

     In addition to the $74.0 million loan from Bank One, First Permian borrowed
$8.0 million  from Tejon  Exploration  Company and $8.0 million from  Mansefeldt
Investment Corporation to help finance the acquisition of oil and gas properties
from Fina Oil and Chemical Company.  Under terms of an Intercreditor  Agreement,
dated June 30, 1999,  the loans made by Tejon and  Mansefeldt  are unsecured and
subordinate in all respects to the senior loans made by Bank One.

     Each loan requires a principal payment of $2.5 million on December 31, 1999
and $5.5 million on June 30, 2000.  Principal payments on the subordinated loans
are subject to certain restrictions. Our proportionate share of the subordinated
debt is $3.6  million and is  reflected  on our June 30, 1999  balance  sheet as
subordinated notes payable.

NOTE 5. PREFERRED STOCK

     We have outstanding 974,500 shares of 6% Convertible Preferred Stock, $0.10
par value per share.  Cumulative annual dividends of $0.60 per share are payable
semi-annually  on June 15 and December 15 of each year.  Each share of Preferred
Stock may be  converted,  at the option of the  holder,  into  2.8571  shares of
common  stock at an  initial  conversion  price of $3.50 per  share,  subject to
adjustment in certain events.  The preferred stock has a liquidation  preference
of $10 per share and has no voting rights, except as required by law.

     We may redeem the  preferred  stock,  in whole or part,  after  October 20,
1999, for $10 per share plus accrued and unpaid dividends.

NOTE 6: FULL COST CEILING TEST

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

     During the fourth  quarter of 1998,  we  recognized  a non-cash  impairment
charge of $15.0 million, or $12.0 million net of tax, related to our oil and gas
reserves  and  unproved  properties.  The  impairment  of oil and gas assets was
primarily  the result of the effect of  significantly  lower oil and natural gas
prices on both proved and unproved oil and gas properties. At June 30, 1999, our
net book value of oil and gas, less related deferred income taxes, was below the
calculated  ceiling.  As a result, we were not required to record a reduction of
our oil and gas properties under the full cost method of accounting.



<PAGE>
                                       10

NOTE 7. NET INCOME PER COMMON SHARE

     In 1997,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting  Standards No. 128,  "Earnings per Share" ("FAS 128"). FAS
128 replaced the  calculation  of primary and fully  diluted  earnings per share
with basic and diluted  earnings per share.  Unlike primary  earnings per share,
basic earnings per share excludes any dilutive effects of options,  warrants and
convertible  securities and is computed by dividing  income  available to common
stockholders by the weighted average number of common shares outstanding for the
period.  Diluted  earnings  per share is computed  similarly  to the  previously
reported fully diluted earnings per share and reflects the assumed conversion of
all potentially dilutive securities.

<TABLE>
                                                                                                SIX MONTHS ENDED
                                                                                                        JUNE 30,
                                                                                    -----------------------------------
                                                                                          1998                  1999
                                                                                     ------------          ------------
<S>                                                                                 <C>                    <C>

Basic EPS Computation:
     Numerator -
         Net income (loss)                                                            $ 253,438            $ (104,527)
         Preferred stock dividend                                                       (68,000)             (316,713)
                                                                                     ----------            ----------
         Net income (loss)available to common stockholders                              185,438              (421,240)
                                                                                     ==========            ==========
     Denominator -
         Weighted average common shares outstanding                                  18,121,533            18,120,194
                                                                                     ----------            ----------
Basic EPS                                                                                $ .010               $ (.023)
                                                                                     ==========            ==========

Diluted EPS Computation
     Numerator -
         Net income (loss)                                                            $ 253,438            $ (104,527)
         Preferred stock dividends                                                           --              (316,713)
                                                                                     ----------            ----------
         Net income (loss) available to common stockholders                             253,438              (421,240)
                                                                                     ==========            ==========
     Denominator -
         Weighted average common shares outstanding                                  18,121,533            18,120,194
         Employee stock options                                                         595,283                    --
         Warrants                                                                        14,712                    --
         Convertible preferred stock                                                    429,903                    --
                                                                                     ----------            ----------
                                                                                     19,161,431            18,120,194
                                                                                     ----------            ----------
Diluted EPS                                                                              $ .013               $ (.023)
                                                                                     ==========            ==========
</TABLE>


     Employee stock options to purchase  shares of common stock and  convertible
preferred stock were outstanding during the six-month period ended June 30, 1999
but were not included in the  computation  of diluted net loss per share because
either (i) the  employee  stock  options'  exercise  price was greater  than the
average  market price of the common  stock of  Parallel,  (ii) the effect of the
assumed  conversion  of  Parallel's  preferred  stock to common  stock  would be
antidilutive,  or (iii) Parallel had a net loss from continuing  operations and,
therefore, the effect would be antidilutive.

<PAGE>
                                       11


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

     In addition to  historical  information  contained  herein,  this Form 10-Q
Report  contains  forward-looking   statements  subject  to  various  risks  and
uncertainties  that could  cause our actual  results to differ  materially  from
those  in the  forward-looking  statements.  Forward-looking  statements  can be
identified  by the use of  forward-looking  terminology  such as "may,"  "will,"
"expect,"  "intend,"  "anticipate,"  "estimate,"  "continue,"  "present  value,"
"future,"  "reserves" or other  variations  thereof or  comparable  terminology.
Factors,  that could cause or contribute to such differences could include,  but
are  not  limited  to,  those  relating  to  our  growth  strategy,  outstanding
indebtedness,  changes in  interest  rates,  dependence  on weather  conditions,
seasonality,  expansion and other activities of competitors,  changes in federal
or state environmental laws and the administration of such laws, and the general
condition  of the  economy  and its effect on the  securities  market.  While we
believe our  forward-looking  statements are based upon reasonable  assumptions,
there are  factors  that are  difficult  to predict and that are  influenced  by
economic  and other  conditions  beyond our control.  Investors  are directed to
consider  such risks and other  uncertainties  discussed in  documents  filed by
Parallel with the Securities and Exchange Commission.


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


OVERVIEW

     Our long term business strategy is to increase our reserve base by

     . using  3-D  seismic  and  other  advanced  technologies  to  conduct  our
       exploratory  activities,
     . acquiring  properties  we believe can be enhanced by developing reserves
       not previously produced,
     . exploiting our existing producing properties, and
     . maximizing the present value of our properties by accelerating
       production of reserves consistent with prudent reservoir management.

     As part of this business strategy,  we have discovered oil and gas reserves
using 3-D seismic technology in the Horseshoe Atoll Reef Trend of West Texas and
the Yegua/Frio Gas Trend onshore the Gulf Coast of Texas. Additionally,  we have
acquired oil and gas  producing  properties  in the Permian Basin of West Texas.
Capital utilized to acquire such reserves has been provided primarily by secured
bank financing, sales of our equity securities and cash flow from operations.

     Property  Acquisitions.  Our most recent property  acquisition  occurred on
June 30, 1999. As described in Note 3 to Consolidated  Financial Statements,  we
joined with three  privately  held oil and gas  companies to acquire oil and gas
properties  from Fina Oil and Chemical  Company.  The  acquisition  was effected
through the  formation of First  Permian which entered into a cash merger with a
wholly owned,  indirect subsidiary of Fina Oil and Chemical Company. The primary
assets of the acquired subsidiary are oil and gas reserves and associated assets
in producing  fields  located in the Permian  Basin of west Texas.  After giving
effect  to  purchase  price  adjustments,  First  Permian  paid to Fina  Oil and
Chemical Company cash in the aggregate  amount of  approximately  $92.0 million.
Our pro rata  share of the book value of the assets  acquired  through  the cash
merger is  approximately  $20.0  million and is  reflected  in the June 30, 1999
consolidated balance sheet.

     First  Permian  is owned by  Parallel,  Baytech,  Inc.,  Tejon  Exploration
Company and Mansefeldt Investment Corporation. Baytech, Tejon and Mansefeldt are
privately held oil and gas  companies.  Parallel and Baytech are the managers of
First Permian and each owns a 22.5% membership  interest.  Tejon Exploration and
Mansefeldt  Investment  each own a 27.5% interest in First  Permian.  If certain
conditions are met regarding the prepayment of $16.0 million aggregate principal
amount of  subordinated  unsecured  notes made by First  Permian  and payable to
Tejon and  Mansefeldt,  the  proceeds  of which  were used to help  finance  the
acquisition,  Parallel's interest in First Permian could increase to 37.5% for a
nominal fee per membership unit.

     The purchase was financed,  in part,  with the proceeds of a $110.0 million
revolving  credit facility  provided by Bank One, Texas,  N.A. to First Permian.
The principal  amount of the initial loan was $74.0 million.  The terms of First
Permian's  revolving  credit  facility are  discussed in Note 3 to  Consolidated
Financial Statements. In addition, First Permian also borrowed $8.0 million from
Tejon   Exploration   Company  and  $8.0  million  from  Mansefeldt   Investment


<PAGE>
                                       12

Corporation  to  help  finance  the  purchase.  The  terms  of  First  Permian's
subordinated unsecured loans are discussed in Note 4 to Consolidated Corporation
to help  finance  the  purchase.  The  terms  of  First  Permian's  subordinated
unsecured loans are discussed in Note 4 to Consolidated Financial Statements.

     Operating  Performance.  Our operating performance is influenced by several
factors, the most significant of which are the prices we receive for our oil and
gas  production  volumes.  The world price for oil has overall  influence on the
prices we receive for our oil  production.  The prices  received  for  different
grades of oil are based  upon the world  price for oil,  which is then  adjusted
based  upon the  particular  grade.  Typically,  light oil is sold at a premium,
while heavy grades of crude are discounted.  Gas prices we receive are primarily
influenced  by seasonal  demand,  weather,  hurricane  conditions in the Gulf of
Mexico,  availability of pipeline  transportation  to end users and proximity of
our  wells to major  transportation  pipeline  infrastructure  and,  to a lesser
extent,   world  oil  prices.   Additional  factors  influencing  our  operating
performance  include production  expenses,  overhead  requirements,  and cost of
capital.

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

         .  cash flow from operations,
         .  sales of our equity securities, and
         .  bank borrowings.

     Because of the sustained deterioration in prices we receive for the oil and
gas we produce, the capital normally available to us from our cash flow and bank
borrowings has been  significantly  reduced.  In January 1998, we were receiving
approximately  $17.00 per barrel of oil and $2.70 per Mcf of gas for the oil and
gas we produced.  Since then,  oil prices have been as low as $10.00 per barrel.
At January 1, 1999, we were receiving approximately $10.50 per barrel of oil and
$2.00 per Mcf of gas.

     For the six months ended June 30, 1999, the average sales price we received
for our crude oil production averaged $12.68 per barrel compared with $13.86 per
barrel at June 30, 1998 and $12.49 per barrel at December 31, 1998.  The average
sales price for  natural gas during this same period was $1.94 per mcf  compared
with $2.18 per mcf at June 30, 1998 and $2.04 per mcf at December 31, 1998.

     Primarily  because of  sustained  low oil and gas prices,  which  adversely
affected the value of our proved oil and gas reserves,  our available  borrowing
capacity  under our revolving  credit  facility was reduced from  $21,000,000 to
$18,815,889. This means we have borrowed all the funds currently available under
our revolving  credit  agreement.  We have also reduced our drilling  activities
during this  period of low oil and gas prices.  If the prices we receive for oil
and gas  production  continue to  improve,  increasing  cash flow,  or if we are
successful in raising additional capital,  1999 planned drilling activity may be
accelerated.

     Our oil and gas producing  activities are accounted for using the full cost
method  of  accounting.   Accordingly,  we  capitalize  all  costs  incurred  in
connection  with the  acquisition of oil and gas properties and the  exploration
for  and  development  of oil  and  gas  reserves.  See  Note 6 to  Consolidated
Financial  Statements.  These costs include lease acquisition costs,  geological
and   geophysical   expenditures,   costs  of  drilling  both   productive   and
non-productive wells, and overhead expenses directly related to land acquisition
and exploration and development activities. Proceeds from the disposition of oil
and gas properties are accounted for as a reduction in capitalized  costs,  with
no gain or loss recognized unless such disposition involves a material change in
reserves, in which case the gain or loss is recognized.

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

     Our production and results of operations  vary from quarter to quarter.  We
do not currently  anticipate  that our production  volumes in 1999 will increase
significantly  compared to our production  volumes in the prior year as a result
of  our  drilling   activities.   However,   because  we  will  consolidate  our
proportionate  share of the production  volumes from our membership  interest in
First Permian,  we anticipate  this will have a material  positive effect on our
production volumes for the remainder of 1999.


<PAGE>
                                       13


RESULTS OF OPERATIONS

     We acquired our membership interest in First Permian, LLC on June 28, 1999.
First  Permian  had no assets  until  consummating  the cash  merger with Fina's
subsidiary on June 30, 1999. Accordingly,  the results of our operations for the
three  and  six  months   periods  ended  June  30,  1999  do  not  include  any
proportionate share of the operations of First Permian.

     Because of our ever-changing  reserve base and sources of production,  year
to year or quarter to quarter  comparisons  of our results of operations  can be
difficult.  This  situation is further  complicated  by  significant  changes in
product mix (oil vs. gas volumes) and related  price  fluctuations  for both oil
and gas. For these  reasons,  the table below compares the results of operations
on the basis of equivalent  barrels of oil ("EBO") for the period indicated.  An
EBO means one barrel of oil equivalent  using the ratio of six Mcf of gas to one
barrel of oil.

<TABLE>

                                                            THREE MONTHS ENDED                    THREE MONTHS ENDED
                                                   -------------------------------------       ------------------------
                                                   12-31-98        3-31-99      6-30-99         6-30-98        6-30-99
                                                   --------       ---------     --------       ---------      ---------
<S>                                                <C>            <C>           <C>            <C>            <C>

Production and prices:

  Oil (Bbls)                                             49,294        44,619       45,908          44,484         45,908
  Natural gas (Mcf)                                     868,131       697,593      749,856         818,631        749,856
  Equivalent barrels of oil(EBO)                        193,982       160,884      170,884         180,923        170,884

  Oil price (per Bbl)                                   $10.36        $12.18        $13.17          $13.64         $13.17
  Gas price (per Mcf)                                   $ 1.59        $ 2.03        $ 1.85          $ 2.26         $ 1.85
  Price per EBO                                         $ 9.77        $12.20        $11.66          $13.56         $11.66

Results of operations per EBO

Oil and gas revenues                                    $ 9.77        $12.20        $11.66          $13.56         $11.66
Costs and expenses:
  Lease operating expense                                 3.31          3.19          3.23            3.39           3.23
  General and administrative                              1.30          1.26          1.29            1.10           1.29
  Depreciation and depletion                             14.73          5.62          5.60            5.88           5.60
    Impairment of oil and
         gas properties                                  76.07           .00           .00             .00            .00
                                                        -------        ------       ------          ------         ------
     Total costs and expenses                            95.41         10.07         10.12           10.37          10.12
                                                        -------        ------       ------          ------         ------
Operating income (loss)                                 (85.64)         2.13          1.54            3.19           1.54

Interest expense, net                                    (1.73)        (2.22)        (2.12)          (1.89)         (2.12)
Other income, net                                         1.49           .03           .03             .18            .03
                                                        -------        ------       ------          ------         ------
Pretax income (loss)                                    (85.88)         (.06)         (.55)           1.48           (.55)
Income tax (expense) benefit                             16.94           .00           .00            (.49)           .00
                                                        -------        ------       ------          ------         ------
Net income (loss)                                      $(68.94)       $ (.06)       $ (.55)         $  .99         $ (.55)
                                                        -------        ------       ------          ------         ------
Income before working
  capital adjustments                                  $  4.92        $ 5.56        $ 5.05          $ 7.36         $ 5.05
                                                        =======        ======       ======          ======         ======

</TABLE>

     The following table sets forth for the periods  indicated the percentage of
total  revenues  represented  by  each  item  reflected  on  our  statements  of
operations.


<PAGE>
                                       14

<TABLE>

                                                                               SIX MONTHS ENDED
                                                                -----------------------------------------------
                                                                   6-30-97           6-30-98          6-30-99
                                                                ------------     -------------     ------------
<S>                                                             <C>              <C>               <C>

Production and prices:

   Oil (Bbls)                                                       98,707            87,859            90,527

   Natural gas (Mcf)                                             1,838,800         1,538,536         1,447,449
   Equivalent barrels of oil (EBO)                                 405,174           344,281           331,768

   Oil price (per Bbl)                                              $20.05            $13.86            $12.68
   Gas price (per Mcf)                                              $ 2.56            $ 2.18            $ 1.94

   Price per EBO                                                    $16.52            $13.26            $11.92

Results of operations per EBO

Oil and gas revenues                                                $16.52            $13.26            $11.92
Costs and expenses:
   Lease operating expense                                            3.80              3.40              3.21
   General and administrative                                          .73              1.22              1.28
   Depreciation and depletion                                         4.48              5.79              5.61
                                                                    ------            ------            ------
Total costs and expenses                                              9.01             10.41             10.10
                                                                    ------            ------            ------
Operating income                                                      7.51              2.85              1.82
                                                                    ------            ------            ------

Interest expense, net                                                 (.92)            (1.88)            (2.17)
Other expense                                                          .03               .12               .03
                                                                    ------            ------            ------
Pretax income (loss)                                                  6.62              1.09              (.32)
Income tax expense - deferred                                         2.19               .36               .00
                                                                    ------            ------            ------
     Net income (loss)                                              $ 4.43            $  .73            $ (.32)
                                                                    ======            ======            ======
Net cash flow before working
capital adjustments                                                 $11.10            $ 6.88            $ 5.29
                                                                    ======            ======            ======

</TABLE>

The following table sets forth for the periods indicated the percentage of total
revenues represented by each item reflected on our statements of operations.

<TABLE>


                                                              THREE MONTHS ENDED                      SIX MONTHS ENDED
                                                     --------------------------------------      -------------------------
                                                      12-31-98      3-31-99        6-30-99        6-30-98        6-30-99
                                                      --------      --------      --------        --------       --------
<S>                                                   <C>           <C>           <C>             <C>


Oil and gas revenues                                   100.0%         100.0%       100.0%         100.0%          100.0%
Costs and expenses:
  Production costs                                      33.9           26.1         27.7           25.6            26.9
  General and administrative                            13.3           10.3         11.1            9.2            10.7
  Depreciation, depletion and
     amortization                                      150.8           46.0         48.0           43.7            47.1
  Impairment of oil and gas
     properties                                        778.6             .0           .0             .0              .0
                                                      ------         ------       ------          ------         ------
      Total costs and expenses                         976.6           82.4         86.8           78.5            84.7
                                                      ------         ------       ------          ------         ------
Operating income (loss)                               (876.6)          17.6         13.2           21.5            15.3
                                                      ------         ------       ------          ------         ------
Interest expense, net                                  (17.7)         (18.2)       (18.2)         (14.1)          (18.2)
Other income, net                                       15.3             .2           .2             .9              .3
                                                      ------         ------       ------          ------         ------
Pretax income (loss)                                  (879.0)           (.4)        (4.8)           8.3            (2.6)
Income tax (expense) benefit                           173.4             .0           .0            2.7              .0
                                                      ------         ------       ------          ------         ------
Net income (loss)                                     (705.6)%          (.4)%       (4.8)%          5.6%           (2.6)%
                                                      ======         ======       ======          ======         ======

</TABLE>

<PAGE>
                                       15


RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1999:

     Oil and Gas Revenues.  Oil and gas revenues decreased $461,413,  or 19%, to
$1,991,727  for the three months ended June 30, 1999,  from  $2,453,140  for the
same period of 1998.  The decrease was primarily the result of a 14% decrease in
the average sales price per EBO. We received  $11.66 per EBO in the three months
ended June 30, 1999 compared with $13.56 per EBO for the same period of 1998. In
addition,  oil and gas production decreased 10,039 EBO, or 6%. Approximately 75%
of the  decrease in revenues  was  attributable  to the  decrease in the average
sales price and approximately 25% of the decrease was attributable to a decrease
in oil and gas production volumes.  Oil and gas production declined primarily as
a result of decreased drilling activity.

     Production Costs.  Production costs decreased $61,911,  or 10%, to $551,142
during the second  three  months of 1999,  compared  with  $613,053 for the same
period of 1998.  Average production costs per EBO decreased 5%, to $3.23 for the
second  three  months in 1999  compared  to $3.39  for the same  period in 1998,
primarily a result of adding lower cost oil and gas production.

     General and Administrative  Expenses.  General and administrative  expenses
increased  by $21,794 or 11%, to $220,911  for the second  three months of 1999,
from  $199,117 for the same period of 1998.  The increase was  primarily  due to
accounting  adjustments  made in the  prior  year.  General  and  administrative
expenses were $1.29 per EBO in the second three months of 1999 compared to $1.10
per EBO in the second three months of 1998.  Future  general and  administrative
costs are expected to remain fairly stable with no material  increases  expected
in any particular category.

     Depreciation,  Depletion and Amortization Expense. Depreciation,  depletion
and amortization expense ("DD&A") decreased by $106,508, or 10%, to $956,958 for
the second three months of 1999 compared with  $1,063,466 for the same period of
1998. As a percentage of revenues,  the DD&A rate increased by 11% when compared
with the prior year three months, a result of decreased  production  volumes,  a
decrease  in the average  sales price per EBO we received  and a decrease in the
DD&A rate per EBO. The DD&A rate per EBO decreased to $5.60 for the three months
ended June 30, 1999  compared  with $5.88 per EBO for the second three months of
1998. The decrease in the DD&A rate per EBO is attributable to a revision in our
proven  reserve  estimates,  primarily the result of lower oil and gas prices in
effect at December 31, 1998 compared with prices in effect at December 31, 1997,
and a non-cash  impairment  charge  incurred in the fourth  quarter of 1998 that
reduced our full cost pool.

     Historically,  we have reviewed our estimates of proven reserve  quantities
on an annual  basis.  However,  due to the  current  uncertainty  of oil and gas
prices,  we conduct  internal reviews of our estimated proven reserves on a more
frequent basis and make necessary  adjustment to our DD&A rate  accordingly.  We
believe periodic reviews and  adjustments,  if necessary,  will result in a more
accurate  reflection  of its DD&A rate  during  the year and  minimize  possible
year-end adjustments.

     Net Interest  Expense.  Net interest expense increased  $20,940,  or 6%, to
$362,362 for the three months ended June 30, 1999 compared with $341,422 for the
same period of 1998, due principally to borrowings against our revolving line of
credit  during  1998,  when  substantially  lower oil and gas  prices  adversely
affected cash flow.

     Net Income and Operating Cash Flow. Net income decreased $274,857, or 152%,
to $(94,244) for the three months ended June 30, 1999,  compared to $180,613 for
the three months ended June 30, 1998. Operating cash flow decreased $470,191, or
35%, to $862,714 for the three months ended June 30, 1999 compared to $1,332,905
for the three  months  ended  June 30,  1998.  The  decrease  in net  income and
operating  cash flow  resulted from a 19% decrease in oil and gas revenues and a
10% increase in interest expense. These increases were partially offset by a 10%
decrease in production costs and a 10% decrease in DD&A.

RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999:

     Oil and Gas Revenues.  Oil and gas revenues decreased $610,887,  or 13%, to
$3,954,816 for the six months ended June 30, 1999,  from $4,565,703 for the same
period of 1998.  The decrease was  primarily the result of a 10% decrease in the
average sales price per EBO.  Parallel received $11.92 per EBO in the six months
ended June 30, 1999 compared with $13.26 per EBO for the same period of 1998. In
addition,  oil and gas production decreased 12,513 EBO, or 4%. Approximately 76%
of the  decrease in revenues  was  attributable  to the  decrease in the average
sales price and approximately 24% of the decrease was attributable to a decrease
in oil and gas production volumes.

<PAGE>
                                       16


     Production Costs. Production costs decreased $105,727, or 9%, to $1,064,964
during  the first six  months of 1999,  compared  with  $1,170,691  for the same
period of 1998.  Average production costs per EBO decreased 6%, to $3.21 for the
first  six  months  in 1999  compared  to  $3.40  for the same  period  in 1998,
primarily a result of adding lower cost oil and gas production.

     General and Administrative  Expenses.  General and administrative  expenses
increased by $4,643,  or 1%, to $424,148 for the first six months of 1999,  from
$419,505 for the same period of 1998. General and  administrative  expenses were
$1.28 per EBO in the first six months of 1999  compared  to $1.22 per EBO in the
first six months of 1998. Future general and  administrative  costs are expected
to remain fairly stable with no material  increases  expected in any  particular
category.

     Depreciation,  Depletion and Amortization Expense. Depreciation,  depletion
and amortization  expense ("DD&A")  decreased by $133,489,  or 7%, to $1,860,794
for the first six months of 1999 compared with $1,994,283 for the same period of
1998. As a percentage of revenues,  the DD&A rate  increased by 3% when compared
with the prior year six months,  a result of  decreased  production  volumes,  a
decrease in the average  sales price per EBO received by Parallel and a decrease
in the DD&A rate per EBO.  The DD&A rate per EBO  decreased to $5.61 for the six
months ended June 30, 1999  compared with $5.79 per EBO for the first six months
of 1998. The decrease in the DD&A rate per EBO is  attributable to a revision in
our proven reserve  estimates,  primarily the result of lower oil and gas prices
in effect at December  31, 1998  compared  with prices in effect at December 31,
1997, and a non-cash  impairment  charge  incurred in the fourth quarter of 1998
that reduced our full cost pool.

     Net Interest Expense.  Net interest expense increased  $74,532,  or 11%, to
$720,157 for the six months ended June 30, 1999  compared  with $645,625 for the
same period of 1998; due principally to borrowings against our revolving line of
credit  during  1998,  when  substantially  lower oil and gas  prices  adversely
affected cash flow.

     Net Income and Operating Cash Flow. Net income decreased  $357,965 or 141%,
to $(104,527)  for the six months ended June 30, 1999,  compared to $253,438 for
the six months ended June 30, 1998.  Operating cash flow decreased $616,149,  or
26%, to $1,756,267 for the six months ended June 30, 1999 compared to $2,372,416
for the six months ended June 30, 1998. The decrease in net income and operating
cash  flow  resulted  from a 13%  decrease  in oil and gas  revenues,  and a 16%
increase in interest  expense.  These  increases were  partially  offset by a 9%
decrease in production costs and a 3% decrease in DD&A.

LIQUIDITY AND CAPITAL RESOURCES

     Our cash flow is highly  dependent on oil and gas prices.  Decreases in the
market  price of oil and gas have  reduced  cash flow and also  resulted  in the
reduction of our borrowing  base under our bank credit  facility.  These factors
have decreased the funds available to us for capital expenditures.

     As described in Note 3 to Consolidated Financial Statements,  we acquired a
22.5% membership interest in First Permian, LLC. On June 30, 1999, First Permian
acquired by cash  merger a  subsidiary  of Fina Oil and  Chemical  Company.  The
primary assets of the acquired  subsidiary consist of oil and gas properties and
related assets in the Permian Basin of west Texas. We have elected to report our
interest  in  this  entity  using  the  proportional   consolidated   method  of
accounting.  As a result,  our  working  capital  decreased  as of June 30, 1999
compared with December 31, 1998. Current liabilities  exceeded current assets by
$3,261,001  at June 30,  1999  compared  with  working  capital of  $128,813  at
December  31,  1998.  Current  liabilities  increased  primarily  because of the
consolidation  of our  proportionate  share of the liabilities of First Permian,
which reflects the current portion of First Permian's long term debt of $506,250
and  subordinated  notes payable of $3,600,000.  An increase of $653,336 in cash
and an increase in prepaid expenses of $37,679  partially offset the increase in
current liabilities.

     We incurred net property costs of $21,760,536 for the six months ended June
30, 1999. Of this amount,  $19,982,856  was  associated  with our  proportionate
interest in First  Permian.  Funding of such amount was  provided by  borrowings
discussed in Notes 3 and 4 to Consolidated  Financial Statements.  The remaining
amount,  $1,777,680,  was  expended on  Parallel's  3-D seismic  interpretation,
leasehold costs and drilling and completion  activities.  These  activities were
financed by the  utilization of our cash provided by  operations,  proceeds from
the sale of certain properties and cash provided by credit lines.

<PAGE>
                                       17


     At the  present  time,  our cash flow from  operations  is adequate to meet
normal  operating  expenses,  the interest expense under our credit facility and
preferred  stock  dividends.   However,  during  a  period  of  sustained  price
downturns,  we reduced exploration activities to match internally generated cash
flows.  Therefore,  without  additional  capital  or an  increase  in our credit
facility  borrowing  base, our capital  expenditure  budget for the remainder of
1999 remains  highly  dependent  on future oil and gas prices.  If the prices we
receive for oil and gas production continue to improve, increasing cash flow, or
if we are  successful  in raising  additional  capital,  1999  planned  drilling
activity may be accelerated.

TRENDS AND PRICES

     Industry conditions  deteriorated  significantly  during 1998 and the first
three  months of 1999 as a result of  declining  oil  prices and  weakening  gas
prices.  While  prices  recovered  somewhat  during the second  quarter of 1999,
prices  for the  first  six  months  of 1999 are  significantly  lower  than the
comparable period in 1998. There is substantial uncertainty regarding future oil
and gas prices and there can be no  assurance  that oil and gas prices  will not
decline in the future.

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

     Historically,  we have not  entered  into  transactions  to  hedge  against
changes in oil and gas prices. However, effective July 1, 1999, a portion of the
future crude oil production  associated  with our  membership  interest in First
Permian was hedged  against price risks through the use of swap  contracts.  The
gains and losses on these  instruments  will be included as an adjustment to oil
and gas revenues.  See "Item 3 - Quantitative and Qualitative  Disclosures about
Market Risk" for a description of our hedging activities.

 INFORMATION SYSTEMS FOR THE YEAR 2000

     We place a high  priority  on  resolving  the  computer  or  embedded  chip
problems related to the Year 2000 that might cause operational disruptions.  Our
Year 2000 project  addresses  the  inability of computer  software;  hardware or
equipment  with  embedded  microprocessors  that are time  sensitive  to process
correctly  dates data  beginning on January 1, 2000.  This problem  results from
computer  programs  using two digits  rather  than four to define an  applicable
year.

     In planning and developing the project,  we considered both our information
technology,  or IT, systems and non-IT  systems.  IT systems  generally  include
computer equipment and software. Alarm systems, fax machines, monitors for field
operations  and  other  miscellaneous   systems,   which  may  contain  embedded
technology,  are  considered  non-IT  systems.  These  types of systems are more
difficult to assess and repair than IT systems.

     The scope of the project includes:

     .  conducting  an  inventory of  software,  hardware  and embedded  systems
        equipment;
     .  assessing  the potential  for failure and the  associated  risk;
     .  prioritizing  the need  for  remediation,  repairing  or  replacing
        significant non-compliant  items;  and
     .  testing  any  modifications  to  ensure  Year 2000 compliance.

     Additionally,  the project assesses the risks associated with the Year 2000
compliance of material business partners.

     The  assessment  phase of our Year 2000  project  is at  varying  stages of
completion  as it pertains to IT and non-IT  systems and  applications.  We have
begun a comprehensive  analysis of the operational problems and costs that would
be  reasonably  likely to result  from the failure by us and  significant  third
parties to complete  efforts  necessary  to achieve  Year 2000  compliance  on a
timely basis.

<PAGE>
                                       18


     We believe our most significant risks will be in two areas:

     . measuring the quantities of oil and natural gas produced; and
     . receiving timely payment from the purchasers of its gas and oil.

     We  also  depend  upon  third  parties  for  most  of  our  non-information
technology systems such as:

     . telephones;
     . facsimile machines;
     . air conditioning;
     . heating;
     . elevators in the office building; and
     . other   equipment   which   may  have   embedded   technology   such  as
       microprocessors.

     Many systems  owned or  controlled  by third  parties that we are dependent
upon, including non-information  technology systems, may or may not be Year 2000
compliant.  Written inquiries have been sent to these third parties, but most of
this  technology  is outside of our  control  and it is  difficult  to assess or
remedy any  non-compliance  that could  adversely  affect our ability to conduct
business.

     In December  1998,  letters  were mailed to  significant  vendors,  service
providers and business partners to determine the extent to which interfaces with
such  entities are  vulnerable  to Year 2000 issues and whether the products and
services  purchased  from or provided by such entities are Year 2000  compliant.
Written assurances have been obtained from our bank lender, our major purchasers
of production,  with the exception of one, and our accounting  software provider
indicating  that  they  are or will  be Y2K  compliant  by the end of the  year.
Efforts are being made to locate the Y2K  coordinator  of the one  purchaser  to
determine their Y2K  compliance.  We are mindful that our own level of readiness
is  partially  dependent  on the ability of these and other third  parties to be
fully  compliant.  The  failure  of third  parties to be Y2K  compliant  creates
likelihood  that we will also  experience  Y2K  interruptions  through a "ripple
effect" stemming from external forces.

     The remedial  phase of the project is also at varying stages of completion.
The  remedial  phase  includes  the  upgrade  and/or   replacement  of  software
applications and hardware systems. Most of the software providers for Parallel's
personal  computers  have  confirmed  their  readiness for the Year 2000 or have
provided  updates to correct most identified Year 2000 problems.  Testing of our
local area network and a check for embedded  systems have been completed.  Minor
corrections to the local computers have been identified and will be corrected by
September 30, 1999.

     It is impossible  to accurately  predict all potential Y2K problems and the
magnitude of any adverse effects on Parallel. Because of these uncertainties, we
are developing a contingency plan to minimize potential business  interruptions.
In preparing contingency plans, we have assumed that many third parties will not
be Y2K compliant.  Our remediation efforts are expected to reduce  significantly
our level of  uncertainty  about Year 2000  compliance  and the  possibility  of
interruptions of normal business  operations.  After completion of the Year 2000
review and  testing,  which is  currently  expected to be  completed by June 30,
1999,  we will further  develop a  contingency  plan as  required.  This plan is
expected to be completed by September 30, 1999.

     The following  table  summarizes the current  overall status of our project
and lists anticipated completion dates for each phase of the project.

<TABLE>

                                                             Phase
--------------------------------------------------------------------------------------------------------------------
         Component                          Inventory                  Assessment                Remediation
--------------------------------------------------------------------------------------------------------------------
<S>                                     <C>                           <C>                        <C>

Business Partners                       January 31, 1999               August 31, 1999           September 15, 1999
Software                                April 30, 1999                 May 31, 1999              Completed
Hardware                                April 30, 1999                 September 15,1999         September 30, 1999
Embedded Systems                        April 30, 1999                 May 31, 1999              Completed

</TABLE>

<PAGE>
                                       19


     To date,  only  minor  costs  have  been  incurred  for  project  planning.
Substantially all of the personnel  working on the project to identify,  assess,
remediate  and test Year 2000 issues are existing  employees.  Therefore,  labor
costs incurred in connection with the project are expected to be minimal.  Based
on current information,  we do not anticipate that the costs associated with any
necessary in-house modifications will be material to its operations or financial
condition.  The total cost of the project is  expected to range from  $10,000 to
$20,000.

     The  failure to correct a material  Year 2000  problem  could  result in an
interruption  in,  or a  failure  of,  certain  normal  business  activities  or
operations that could  materially and adversely  affect  Parallel's  operations,
liquidity and financial condition.  Because of the uncertainty  surrounding Year
2000 issues,  primarily those associated with third party suppliers and material
business  partners;  we are unable to  determine  at this time whether Year 2000
failures will have a material impact on its operations.  However, the project is
expected  to reduce  the risk of Year 2000  issues  significantly,  particularly
regarding the  compliance and readiness of our material  vendors,  suppliers and
business  partners.  We believe that the timely  completion of this project will
reduce  the  possibility  of  significant   interruptions   of  normal  business
operations.

     This is a flexible plan that will change to address  additional  Y2K issues
as new problems are  identified.  As a result,  any time and costs estimates and
the  assessment of risks  associated  with Y2K issues are subject to revision as
needed to meet our goal to be Y2K compliant.


ITEM 3. QUANTITATIVE AND QUALITIVE DISCLOSURES ABOUT MARKET RISK

     Our major market risk exposure is in the pricing  applicable to our oil and
natural gas production.  Realized  pricing is primarily driven by the prevailing
domestic  price for crude oil and spot prices  applicable to the region in which
we produce natural gas. Historically, prices received for oil and gas production
have been volatile and unpredictable.

     Effective  July 1,  1999,  a portion  of the  future  crude oil  production
associated  with our  membership  interest in First  Permian was hedged  against
price risks through the use of swap  contracts.  Settlements of gains and losses
on  price  swap  contracts  are  realized  monthly,  generally  based  upon  the
difference  between the contract  price and the average  closing NYMEX price and
are reported as a component of oil and gas revenues and operating  cash flows in
the period realized. There were no gains or losses at June 30, 1999.

     While  the use of these  price  risk  management  arrangements  limits  the
downside risk of adverse price movements, it may also limit future revenues from
favorable price movements. These hedging activities will be conducted with major
financial or commodities  trading  institutions that management  believes entail
acceptable levels of market and credit risks.

     The  following  table  sets  forth  our pro rata  share of First  Permian's
outstanding oil hedge  contracts,  which were effective at July 1, 1999. At June
30, 1999, we did not have any hedging contracts in place.


<TABLE>

Type                         Volume/Month                     Term              Price            Commodity
----                         ------------                     ----              -----            ---------
<S>                          <C>                        <C>                     <C>              <C>
Swap                         22,700 barrels             7/1/99 - 12/31/99       $19.02           WTI NYMEX
Swap                         21,600 barrels             1/1/00 - 12/31/00       $18.07           WTI NYMEX
Swap                         20,475 barrels             1/1/01 - 6/30/01        $17.70           WTI NYMEX
Commodity Swap               11,250 barrels             8/1/99 - 12/31/99       $1.28            Differential between
                                                                                                 Platts WTI /Platts WTS
Commodity Swap               11,250 barrels             8/1/99 - 12/31/99       $1.24            Differential between
                                                                                                 Platts WTI /Platts WTS
</TABLE>


     Our only  financial  instrument  sensitive to changes in interest  rates is
bank debt. Our annual  interest costs in 1999 will fluctuate based on short-term
interest  rates.  As the interest rate is variable and reflects  current  market
conditions,  the carrying value approximates the fair value. The following table
shows  principal  cash flows and  related  weighted  average  interest  rates by
expected  maturity  dates.  Weighted  average  interest  rates  for the  secured
revolving  facility were  determined  using weighted  average  interest paid and
accrued in December 1998.  Weighted  average interest rates for the non-recourse
affiliate  debt were  determined  using the interest  rate in effect on June 30,
1999, the date of the Fina property acquisition.

<PAGE>
                                       20

<TABLE>
                                                                                                                        Fair
                           Value                                 1999       2000       2001       2002       Total      Value
------------------------------------------------------------- ----------- ---------- ---------- ---------- ---------- ----------
                                                                              (in 000's, except interest rates)
<S>                                                            <C>        <C>         <C>        <C>       <C>         <C>

Variable rate debt
     Revolving Facility (secured)                                 -           -        $18,036      -        $18,036  $18,036
              Average interest rate                             7.50%       7.50%        7.50%
      Non-recourse affiliate debt                                 -         $506          $675  $15,469      $16,650  $16,650
              Average interest rate                             9.25%       9.25%        9.25%


</TABLE>

                           PART II - OTHER INFORMATION


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     Parallel's annual meeting of stockholders was held on June 23, 1999. At the
meeting,  the  following  persons were elected to serve as Directors of Parallel
for a term of one year  expiring in 2000 and until their  respective  successors
are duly qualified and elected: (1) Thomas R. Cambridge, (2) Ernest R. Duke, (3)
Myrle  Greathouse,  (4) Larry C.  Oldham and (5) Charles R.  Pannill.  Set forth
below is a tabulation of votes with respect to each nominee for Director:

<TABLE>

            NAME                        VOTES CAST FOR         VOTES WITHHELD     BROKER NON-VOTES
            ----                        --------------         --------------     ---------------
    <S>                                  <C>                   <C>                <C>

     Thomas R. Cambridge                   13,717,018              67,580                    --
     Ernest R. Duke                        13,712,048              72,550                    --
     Myrle Greathouse                      13,715,948              68,650                    --
     Larry C. Oldham                       13,634,625             149,973                    --
     Charles R. Pannill                    13,710,248              74,350                    --

</TABLE>


     In addition to electing Directors, our stockholders voted upon and ratified
the  issuance  and sale of up to  5,000,000  shares of common stock in privately
negotiated  transactions.  Set forth below is a tabulation of votes with respect
to the proposal  for the  issuance and sale of up to 5,000,000  shares of common
stock:

<TABLE>

              VOTES CAST FOR            VOTES CAST AGAINST        ABSTENTIONS         BROKER NON-VOTES
              --------------            ------------------        -----------         ----------------
             <S>                        <C>                       <C>                 <C>

                 7,625,906                  757,136                   44,224              5,357,332
</TABLE>

     In addition to electing  Directors,  the  stockholders  also voted upon and
ratified  the  appointment  of  KPMG  LLP to  serve  as our  independent  public
accountants  for 1999.  Set forth below is a tabulation of votes with respect to
the  proposal  to  ratify  the  appointment  of  Parallel's  independent  public
accountants:

<TABLE>

          VOTES CAST FOR            VOTES CAST AGAINST            ABSTENTIONS             BROKER NON-VOTES
          --------------            ------------------            -----------             ----------------

          <S>                       <C>                           <C>

             13,742,218                   22,380                   20,000                     --
</TABLE>




<PAGE>
                                       21


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

                    (a)    Exhibits

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

3.2  Bylaws of Registrant (Incorporated by reference to Exhibit 3.2 to Form 10-K
     of the Registrant for the fiscal year ended December 31, 1995)

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

10.1 Certificate  of Formation  of First  Permian,  L.L.C.,  dated June 24, 1999
     (Incorporated  by reference  to Exhibit 10.1 to Form 8-K of the  Registrant
     dated July 14, 1999 and filed with the Securities  and Exchange  Commission
     on July 15, 1999)

10.2 Limited Liability Company  Agreement of First Permian,  L.L.C.,  dated June
     25, 1999  (Incorporated  by  reference  to Exhibit  10.2 to Form 8-K of the
     Registrant  dated July 14, 1999 and filed with the  Securities and Exchange
     Commission on July 15, 1999)

10.3 Merger Agreement, dated June 25, 1999 (Incorporated by reference to Exhibit
     10.3 to Form 8-K of the  Registrant  dated July 14, 1999 and filed with the
     Securities and Exchange Commission on July 15, 1999)

10.4 Agreement and Plan of merger, dated June 30, 1999, of First Permian, L.L.C.
     and Nash Oil Company, L.L.C.  (Incorporated by reference to Exhibit 10.4 to
     Form  8-K of the  Registrant  dated  July  14,  1999  and  filed  with  the
     Securities and Exchange Commission on July 15, 1999)

10.5 Certificate of Merger of First Permian L.L.C.  and Nash Oil Company,  dated
     June 30, 1999 (Incorporated by reference to Exhibit 10.5 to Form 8-K of the
     Registrant  dated July 14, 1999 and filed with the  Securities and Exchange
     Commission on July 15, 1999)

10.6 Credit  Agreement,  dated June 30, 1999,  among First Permian,  L.L.C.,  as
     Borrower,   and  Parallel  Petroleum   Corporation  and  Baytech,  Inc.  as
     Guarantors and Bank One, Texas,  N.A. and the Institutions  named Herein as
     Banks and Bank One,  Texas,  N.A., as Agent  (Incorporated  by reference to
     Exhibit  10.6 to Form 8-K of the  Registrant  dated July 14, 1999 and filed
     with the Securities and Exchange Commission on July 15, 1999)

10.7 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 to Form 8-K of the Registrant dated July 14, 1999
     and filed with the Securities and Exchange Commission on July 15, 1999)

10.8 Intercreditor  Agreement,  dated as of June 30, 1999,  among First Permian,
     L.L.C.,  Bank One, Texas,  N.A., Tejon  Exploration  Company and Mansefeldt
     Investment Corporation.  (Incorporated by reference to Exhibit 10.8 to Form
     8-K of the Registrant dated July 14, 1999 and filed with the Securities and
     Exchange Commission on July 15, 1999)

10.9 Subordinated  Promissory  Note,  dated June 30, 1999,  among First Permian,
     L.L.C. and Tejon Exploration Company  (Incorporated by reference to Exhibit
     10.9 to Form 8-K of the  Registrant  dated July 14, 1999 and filed with the
     Securities and Exchange Commission on July 15, 1999)

<PAGE>
                                       22


10.10Subordinated  Promissory  Note,  dated June 30, 1999,  among First Permian,
     L.L.C.  and Mansefeldt  Investment  Company  (Incorporated  by reference to
     Exhibit 10.10 to Form 8-K of the  Registrant  dated July 14, 1999 and filed
     with the Securities and Exchange Commission on July 15, 1999)

*27  Financial Data Schedule

     (b)  Reports on Form 8-K

          No reports  were filed on Form 8-K during the  quarter  ended June 30,
          1999.  On July 15,  1999,  We filed a report on Form 8-K to report the
          formation of First Permian, LLC and First Permian's acquisition of oil
          and   gas   properties   from   Fina   Oil   and   Chemical   Company.


-----------------------
* Filed herewith.


<PAGE>
                                       23

                                   SIGNATURES



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

                                          PARALLEL PETROLEUM CORPORATION


                                          BY:  /s/ THOMAS R. CAMBRIDGE
Date:   August 16, 1999                   ------------------------------------
                                          Thomas R. Cambridge
                                          Chairman of the Board of Directors
                                          and Chief Executive Officer



Date:   August 16, 1999                   BY:  /s/ LARRY C. OLDHAM
                                          ------------------------------------
                                          Larry C. Oldham,
                                          President(Principal Financial Officer)