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 September 30, 2002 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
(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 October 23, 2002, 20,663,861 shares of the Registrant's Common
Stock, $0.01 par value, were outstanding.

<PAGE>


                                      INDEX

                         PART I. - FINANCIAL INFORMATION

                                                                       Page
                                                                        No.
ITEM 1.       FINANCIAL STATEMENTS

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

              -   Balance Sheets as of December 31, 2001 and
                  September 30, 2002 (unaudited)                          3

              -   Unaudited Statements of Operations for the three
                  months and nine months ended September 30,
                  2001 and 2002                                           5

              -   Unaudited Statements of Cash Flows for the nine
                  months ended September 30, 2001 and 2002                6

              -   Notes to Financial Statements                           7

ITEM 2.       MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
              CONDITION AND RESULTS OF OPERATIONS                        12

ITEM 3.       QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
              MARKET RISK                                                22

ITEM 4.       CONTROLS AND PROCEDURES                                    23

                          PART II. - OTHER INFORMATION

ITEM 1.       LEGAL PROCEEDINGS                                          24

ITEM 5.       OTHER INFORMATION                                          24

ITEM 6.       EXHIBITS AND REPORTS ON FORM 8-K                           24


                                       2


<PAGE>

                       PARALLEL PETROLEUM CORPORATION

                               BALANCE SHEETS
<TABLE>

                                                                                   (audited)           (unaudited)
                                                                                  December 31,        September 30,
                                                                                     2001*                 2002
                                                                              --------------------- -------------------
<S>                                                                           <C>                   <C>

ASSETS
Current assets:
  Cash and cash equivalents                                                            $ 3,351,044         $ 2,058,537
  Accounts receivable:
    Oil and gas                                                                          1,420,859           1,726,881
    Others, net of allowance for doubtful account of $0 in
     2001 and $13,660 in 2002                                                              263,819             108,242
  Affiliate                                                                                 16,687               1,351
                                                                              --------------------- -------------------
                                                                                         1,701,365           1,836,474
Fair value of derivative instruments (Note 8)                                                    -              73,184
Other assets                                                                               207,120             838,511
Investment in Energen common stock-held for sale                                                 -          11,166,494
                                                                              --------------------- -------------------
           Total current assets                                                          5,259,529          15,973,200
                                                                              --------------------- -------------------
Property and equipment, at cost:
  Oil and gas properties, full cost method                                              85,132,345          94,620,694
  Other                                                                                    552,219             930,409
                                                                              --------------------- -------------------
                                                                                        85,684,564          95,551,103
  Less accumulated depreciation and depletion                                          (55,854,378)        (59,865,281)
                                                                              --------------------- -------------------

         Net property and equipment                                                     29,830,186          35,685,822
                                                                              --------------------- -------------------

Other assets, net of accumulated amortization of $55,984 in
  2001 and $56,423 in 2002                                                                  58,754             102,987
Net deferred tax asset                                                                   6,137,670                   -
Investment in First Permian, L.P. (Note 7)                                                 473,764              57,542
                                                                              --------------------- -------------------
                                                                                      $ 41,759,903        $ 51,819,551
                                                                              ===================== ===================
</TABLE>

*The balance  sheet as of December  31, 2001 has been  derived  from  Parallel's
audited financial statements. See accompanying notes to Financial Statements.

                                       3

<PAGE>

                             PARALLEL PETROLEUM CORPORATION

                                     BALANCE SHEETS
                                      (Continued)
<TABLE>

                                                                                             (audited)       (unaudited)
                                                                                           December 31,     September 30,
                                                                                               2001*             2002
                                                                                          ----------------  ---------------
<S>                                                                                       <C>               <C>
LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Current maturities of long-term debt                                                         $2,400,000       $   165,000
  Accounts payable and accrued liabilities:
  Trade                                                                                         3,446,370         2,161,847
    Affiliate                                                                                           -             3,575
    Taxes payable                                                                                       -                 -
    Accrued bonus payable                                                                               -           130,043
                                                                                          ----------------  ---------------
         Total current liabilities                                                               5,846,370        2,460,465
                                                                                          ----------------  ---------------

Long-term debt, excluding current maturities (Note 3)                                            9,600,000        2,795,000
Net deferred tax liability (Note 5)                                                                      -        2,802,818

Stockholders' equity:
  Series A preferred stock -- par value $.10 per share (aggregate liquidation
    preference of $26) authorized 50,000 shares                                                          -                -
  Preferred stock -- 6% convertible preferred stock -- par value
    of $.10 per share (aggregate liquidation preference of $10) authorized
    10,000,000 shares, issued and outstanding 974,500 in 2001 and 2002 (Note 4)                     97,450           97,450
  Common stock -- par value $.01 per share, authorized 60,000,000 shares,
    issued and outstanding 20,663,861 in 2001 and 2002                                             206,639          206,639
  Additional paid-in capital                                                                    34,087,498       33,648,973
  Comprehensive income (loss) net of tax (Note 10)                                                       -         (608,576)
  Retained earnings (deficit)                                                                   (8,078,054)      10,416,782
                                                                                          ----------------  ---------------
Total stockholders' equity                                                                      26,313,533       43,761,268

Commitments and contingencies (Note 11 and 12)                                                          -                -
                                                                                          ----------------  ---------------
                                                                                              $ 41,759,903      $51,819,551
                                                                                          ================  ===============

</TABLE>

*The balance  sheet as of December  31, 2001 has been  derived  from  Parallel's
audited financial statements. See accompanying notes to Financial Statements.

                                       4
<PAGE>

           PARALLEL PETROLEUM CORPORATION

              STATEMENTS OF OPERATIONS

                    (Unaudited)

<TABLE>

                                                     Three Months Ended September 30, Nine Months Ended September 30,
                                                     ---------------------------------------------------------------
                                                           2001             2002           2001           2002
                                                     ------------------ ------------- --------------- --------------
<S>                                                  <C>                <C>           <C>              <C>

Oil and gas revenues                                       $ 3,811,963   $ 2,709,985    $ 15,891,228    $ 7,489,983
                                                     ------------------ ------------- --------------- --------------
Cost and expenses:
  Lease operating expense                                      856,472       648,001       3,023,065      1,918,991
  General and administrative, includes $1,386,429
    for incentive awards in 2002                               363,758       347,827         965,847      2,672,277
  Depreciation, depletion and amortization                   1,527,252     1,323,107       4,822,819      4,010,903
  Impairment of oil and gas properties                       2,177,128             -       2,177,128              -
                                                     ------------------ ------------- ---------------- -------------
                                                             4,924,610     2,318,935      10,988,859      8,602,171
                                                     ------------------ ------------- ---------------- -------------
 Operating income (loss)                                    (1,112,647)      391,050       4,902,369     (1,112,188)
                                                     ------------------ ------------- ---------------- -------------
Other income (expense), net:
  Equity in income (loss) of First Permian, L.P.,
    includes a $31,082,041 gain on sale of
    substantially all net assets                               442,032       (99,928)        442,032     30,665,820
  Change in fair value of derivatives                                -       (62,589)              -       (457,421)
  Interest income                                               31,803         7,575         114,591         34,239
  Other income                                                  19,140        25,963          69,553         36,740
  Dividend income                                                    -       143,494               -        306,872
  Interest expense                                            (167,064)     (178,417)       (641,575)      (489,681)
  Other expense                                                    590       (27,360)       (132,020)      (307,008)
  Loss in marketable securities                                      -      (928,540)              -       (928,540)
                                                     ------------------ ------------- ---------------   ------------
        Total other income (expense), net                      326,501    (1,119,802)       (147,419)    28,861,021
                                                     ------------------ ------------- ---------------   ------------
Income (loss) before income taxes                             (786,146)     (728,752)      4,754,950     27,748,833
Income tax expense (benefit), net                             (294,321)     (330,836)       (603,820)     9,253,997
                                                     ------------------ ------------- ---------------   ------------
        Net income (loss)                                   $ (491,825)   $ (397,916)    $ 5,358,770    $18,494,836
                                                     ================== ============= ===============   ============
Cumulative preferred stock dividend                         $  146,175    $  146,175     $   438,525    $   438,525
                                                     ================== ============= ===============   ============
Net income (loss) available to common stockholders          $ (638,000)   $ (544,091)    $ 4,920,245    $18,056,311
                                                     ================== ============= ===============   ============
Net income (loss) per common share: (Note 9)

  Basic                                                        $ (0.03)      $ (0.03)         $ 0.24         $ 0.87
                                                     ================== ============= ===============   ===========
  Diluted                                                      $ (0.03)      $ (0.03)         $ 0.23         $ 0.79
                                                     ================== ============= ===============   ============
Weighted average common shares outstanding

  Basic                                                     20,453,902    20,663,861      20,436,461     20,663,861
                                                     ================== ============= ===============   ============
  Diluted                                                   20,453,902    20,663,861      23,722,688     23,536,079
                                                     ================== ============= ===============   ============

</TABLE>

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

                                       5
<PAGE>

                    PARALLEL PETROLEUM CORPORATION

                       STATEMENTS OF CASH FLOWS

                             (Unaudited)
<TABLE>

                                                                         Nine Months Ended September 30,
                                                                        -----------------------------------
                                                                              2001              2002
                                                                        ----------------- -----------------
<S>                                                                      <C>              <C>

Cash flows from operating activities:
  Net income                                                                 $ 5,358,770      $ 18,494,836

  Adjustments to reconcile net income to net cash
    provided by operating activities:
      Depreciation and depletion                                               4,822,819         4,010,903
      Impairment of oil and gas properties                                     2,177,128                 -
      Equity in income of First Permian, L.P., net of
        cash distributions of $5,501,703                                        (442,032)      (25,164,117)
      Loss in marketable securities                                                    -           928,540
      Change in fair value of derivative instruments                                   -           457,421
      Income tax expense (benefit)                                              (603,820)        9,253,997
      Other, net                                                                (223,924)          (44,233)
  Changes in assets and liabilties:
      Decrease (increase) in accounts receivables                              2,012,075          (135,109)
      Increase in prepaid expenses and other                                    (199,331)         (631,391)
      Increase (decrease) in accounts payable and accrued liabilities            339,660        (1,427,123)
      Accrued bonus payable                                                            -           130,043
      Change in fair value of derivative instruments                                   -          (530,605)
                                                                        ----------------- -----------------
         Net cash provided by operating activities                            13,241,345         5,343,162
                                                                        ----------------- -----------------
 Cash flows from investing activities:
  Additions to property and equipment                                        (10,627,368)      (10,558,989)
  Proceeds from disposition of Energen Stock                                           -        12,563,220
  Proceeds from disposition of property and equipment                          1,472,363           692,450
                                                                        ----------------- -----------------
         Net cash used in investing activities                                (9,155,005)        2,696,681
                                                                        ----------------- -----------------
 Cash flows from financing activities:
  Borrowings from bank line of credit                                                  -         2,865,589
  Payments on bank line of credit                                             (2,427,531)      (11,905,589)
  Proceeds from exercise of options and warrants                                 145,410                 -
  Payment of preferred stock dividend                                           (292,350)         (292,350)
                                                                        ----------------- -----------------
         Net cash used in financing activities                                (2,574,471)       (9,332,350)
                                                                        ----------------- -----------------
Net increase (decrease) in cash and cash equivalents                           1,511,869        (1,292,507)

Beginning cash and cash equivalents                                            2,000,826         3,351,044
                                                                        ----------------- -----------------
Ending cash and cash equivalents                                             $ 3,512,695       $ 2,058,537
                                                                        ================= =================
Non-cash financing activities:
  (Non-cash) proceeds from sale of investment of First Permian, L.P.                   -       (25,580,339)
  Unrealized loss (gain) on investment in securities                                   -           922,085
  Accrued stock dividend                                                         170,537           170,537

</TABLE>

The accompanying notes are an integral part of these financials

                                       6
<PAGE>

                         PARALLEL PETROLEUM CORPORATION

                          NOTES TO FINANCIAL STATEMENTS


NOTE 1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

              The financial information included herein, except the balance
sheet as of December 31, 2001, 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 with the financial statements and notes
included in Parallel's 2001 Form 10-K Report.

              We account for our 30.675% interest in First Permian using the
equity method of accounting. Under the equity method of accounting, we record
our investment in First Permian at cost on the balance sheet. This is increased
or reduced by our proportionate share of First Permian's income or loss, which
is presented as one amount in the statements of operations.

Reclassifications

         Certain reclassifications related to accrued preferred stock dividends
have been made to the 2001 amounts to conform to the 2002 presentation.

NOTE 2.       MARKETABLE SECURITIES

              Under SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities", marketable securities, such as those owned by Parallel,
are classified as held-for-sale securities and are to be reported at market
value, with unrealized gains and losses, net of income taxes, excluded from
earnings and reported as a separate component of stockholders' equity. The
market value of these securities at September 30, 2002 was approximately
$11,166,494. A realized loss of $928,540 was recognized from the sale of 492,400
shares of Energen Stock and recorded in the Statements of Operations for the
three and nine months ended September 30, 2002. An unrealized loss of
approximately $922,085 for 441,189 shares of Energen Stock remaining was
included as a comprehensive loss in stockholders' equity (see Note 10). This
represents the remaining balance of 441,189 shares of our original 933,589
shares of Energen Stock received in the First Permian sale.

                                       7

<PAGE>



NOTE 3.       LONG TERM DEBT
<TABLE>
              <S>                                                                <C>

              Long-term debt consists of the following at September 30, 2002:

                   Revolving Note payable to bank, at bank's base lending
                   rate (4.75% at September 30, 2002)                                $ 2,960,000

                   Less:  current maturities                                             165,000
                                                                                  --------------
                                                                                     $ 2,795,000
                                                                                  ==============

              Scheduled maturities of long-term debt at September 30, 2002 are as follows:

                    September 30, 2003                                               $   987,000
                    September 30, 2004                                                   987,000
                    September 30, 2005                                                   821,000
                                                                                  --------------
                                                                                     $ 2,795,000
                                                                                  ==============

</TABLE>

Revolving Credit Facility

                On July 19, 2002, Parallel entered into a loan agreement with
First American Bank, SSB ("New Revolving Facility") to refinance its outstanding
indebtedness. Under the New Revolving Facility, Parallel may borrow the lesser
of $100,000,000 or the "borrowing base" then in effect. The borrowing base at
October 1, 2002 was $15,454,273 which at that date was collateralized with
Parallel's oil and gas reserves and 441,189 shares of Energen common stock. The
total outstanding principal amount of our bank indebtedness was $12,000,000 at
December 31, 2001 and $2,960,000 at September 30, 2002. Borrowings attributable
to the oil and gas reserves are subject to redetermination semi-annually, on or
about May 1 and November 1 of each year, beginning November 1, 2002. The
borrowing base attributable to the Energen stock is redetermined monthly on or
about the last day of the month. The bank may require a redetermination of the
borrowing base and monthly commitment reduction at any time in its sole
discretion. All indebtedness under the New Revolving Facility matures July 17,
2006.

              The unpaid principal balance for the New Revolving Facility bears
interest at Parallel's election at a rate equal to (i) the bank's base lending
rate, or (ii) the libor rate plus a libor margin of:

               .    2.75% per annum  whenever the Borrowing  Base Usage is equal
                    to or  greater  than 75%;

               .    2.50% per annum  whenever the Borrowing  Base Usage is equal
                    to or greater  than 50%;  but less than 75%;  or

               .    2.25% per annum  whenever the  Borrowing  Base Usage is less
                    than 50%.

                However, the interest rate may never be less than 4.75%.
Interest is due and payable on the day which the related libor interest period
ends.

              In addition to customary affirmative covenants, the loan agreement
contains various restrictive covenants and compliance requirements, including:

               .    Maintaining certain financial requirements;

               .    Limitations on additional indebtedness;

               .    Prohibiting the payment of dividends on our common stock;

               .    Limitations on the disposition of assets;

               .    Prohibiting liens (other than in favor of the bank) to exist
                    on any of our properties;

                                       8
<PAGE>

               .    Limitations on investments,  mergers,  forming subsidiaries,
                    affiliate  transactions,   changes  in  accounting  methods,
                    rental and lease payments and derivative transactions; and

               .    Limitations  on the  purchase,  redemption  or retirement of
                    stock.

NOTE 4.       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
Convertible 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 Convertible 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, for $10
per share plus accrued and unpaid dividends.

NOTE 5.       INCOME TAX LIABILITY

                For the nine months ended September 30, 2002, we recorded income
tax expense of $9,253,997 resulting in a net deferred tax liability of
$2,802,818. The income tax expense was largely due to the approximate
$33,917,000 of taxable gain realized on the sale of oil and gas assets of First
Permian, L.P. which used approximately $18,266,000 of $18,670,000 available net
operating loss carryforwards. Our effective tax rate was 34%.

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.

              At September 30, 2002 our net book value of oil and gas
properties, 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 at that time.

              Parallel accounts for its oil and natural gas exploration and
development activities using the full cost method of accounting. Under this
method, all costs incurred in the acquisition, exploration and development of
oil and natural gas properties, including a portion of our overhead, are
capitalized. In the nine month period ended September 30, 2002 overhead costs
capitalized were $1,073,436.

NOTE 7.       INVESTMENT IN FIRST PERMIAN, L.P.

              For the nine months ended September 30, 2002, First Permian, L.P.
had net income of $97,050,344, which includes a gain of $107,662,000 on the sale
of its entire oil and gas properties. Our 30.675% share of the net income and
distributions for the nine months ended September 30, 2002, was $30,665,820. At
December 31, 2001, we had recorded cumulative earnings of $840,529 in our
investment in First Permian, L.P. Using the equity method of accounting, our
investment is increased or decreased by our proportionate share of First
Permian's net income or loss.

                                       9
<PAGE>


              On March 7, 2002, First Permian entered into an Agreement of Sale
and Purchase with Energen Resources Corporation, a wholly owned subsidiary of
Energen Corporation (Energen), to sell all of First Permian's oil and gas
properties for $120 million in cash and 3,043,479 shares in Energen stock
approximating $70 million in value. Energen is a publicly traded company listed
on the NYSE. The transaction closed on April 8, 2002. As a 30.675% interest
owner in First Permian, Parallel received its prorata share of the net proceeds,
$5.5 million in cash and 933,589 shares of Energen common stock. (See Note 2).
We still have an investment of $57,542 in First Permian which we expect to be
dissolved during the second quarter of 2003.

NOTE 8.       DERIVATIVE INSTRUMENTS

              In January and February, 2002, we purchased put floors with a
counterparty to sell notional volumes of 210,000 Mcf of gas per month for the
seven-month period April, 2002 through October, 2002, at a floor price of $2.40
per Mcf based on NYMEX pricing for a total cost of approximately $391,105. On
May 24, 2002 we purchased additional put floors on volumes of 100,000 Mcf gas
per month for the seven month period from April 2003 through October 2003 at a
floor price of $3.00 per Mcf for a total consideration of approximately
$139,500. These derivatives are not held for trading purposes.

              The fair value of the put floors as of September 30, 2002 was
$73,184; therefore, a $457,421 decrease in fair value was recognized for the
nine months ended September 30, 2002 in the Statements of Operations.

NOTE 9.       NET INCOME PER COMMON SHARE

              Basic income per share is computed by dividing income available to
common stockholders by the weighted average number of common shares outstanding
for the period. Diluted income per share reflects the assumed conversion of all
potentially dilutive securities.

<TABLE>

                                                           Three Months Ended September 30,    Nine Months Ended September 30,
                                                          ---------------------------------  -----------------------------------
                                                               2001              2002              2001              2002
                                                          ---------------- ----------------- ----------------- -----------------
<S>                                                       <C>              <C>               <C>               <C>
Basic EPS Computation:
  Numerator-
    Net income                                                 $ (491,825)       $ (397,916)      $ 5,358,770      $ 18,494,836
    Preferred stock dividend                                     (146,175)         (146,175)         (438,525)         (438,525)
                                                          ---------------- ----------------- ----------------- -----------------
    Net income (loss) available to common stockholders         $ (638,000)       $ (544,091)      $ 4,920,245      $ 18,056,311
                                                          ================ ================= ================= =================
  Denominator-
  Weighted average common shares outstanding                   20,453,902        20,663,861        20,436,461        20,663,861
                                                          ================ ================= ================= =================
Basic earnings (loss) per share                                   $ (0.03)          $ (0.03)           $ 0.24            $ 0.87
                                                          ================ ================= ================= =================
Diluted EPS Computation:
  Numerator-
    Net income                                                 $ (491,825)       $ (397,916)      $ 5,358,770      $ 18,494,836
    Preferred stock dividend                                     (146,175)         (146,175)                -                 -
                                                          ---------------- ----------------- ----------------- -----------------
    Net income (loss) available to common stockholders         $ (638,000)       $ (544,091)      $ 5,358,770      $ 18,494,836
                                                          ================ ================= ================= =================
  Denominator-
  Weighted average common shares outstanding                   20,453,902        20,663,861        20,436,461        20,663,861
  Employee stock options                                                -                 -           500,559            87,974
  Warrants                                                              -                 -             1,424
  Preferred stock                                                       -                 -         2,784,244         2,784,244
                                                          ---------------- ----------------- ----------------- -----------------
                                                               20,453,902        20,663,861        23,722,688        23,536,079
                                                          ================ ================= ================= =================
Diluted earnings (loss) per share                                 $ (0.03)          $ (0.03)           $ 0.23            $ 0.79
                                                          ================ ================= ================= =================

</TABLE>

              Convertible preferred stock equivalent shares for the three-month
period ended September 30, 2002 that could potentially dilute basic earnings per
share in the future were not included in the computation of diluted earnings per
share because to do so would have been anti-dilutive.

                                       10

<PAGE>

NOTE 10.      COMPREHENSIVE INCOME

              Comprehensive income consists of net income and other gains and
losses affecting stockholders' equity that, under generally accepted accounting
principles are excluded from net income. For Parallel, such items consist
primarily of unrealized losses net of tax on its investment in 441,189 shares of
Energen Common Stock with a per share price of $25.31 as of September 30, 2002.

              As of September 30, 2002 we had sold 492,400 shares of Energen
common stock at a weighted average price of $25.51 per share. This gives
Parallel cash proceeds realized of $12,563,220 and a book loss of $928,540 in
relationship to the April 8, 2002 market price of the Energen stock. To the
extent that we sell Energen stock at a price above or below $27.40 per share
(price of the stock as of April 8, 2002 for the First Permian sale), we will
incur a book gain or loss equal to the difference between $27.40 and the sales
price.

NOTE 11.      RECENTLY ANNOUNCED ACCOUNTING PRONOUNCEMENTS

              In July 2001 the Financial Accounting Standards Board ("FASB")
issued Statements of Financial Accounting Standards No. 141 "Business
Combinations" and No. 142 "Goodwill and Other Intangible Assets." Statement 141
requires that all business combinations initiated after September 30, 2002 be
accounted for under the purchase method and Statement 142 requires that goodwill
no longer be amortized to earnings, but instead be reviewed for impairment. As
of September 30, 2002 there was no impact on Parallel's financial statements as
we have not entered into any business combination and have not acquired
goodwill.

              Also, the FASB had voted to issue Statement No. 143 "Accounting
for Asset Retirement Obligations" which establishes requirements for the
accounting of removal-type costs associated with asset retirements. The standard
is effective for fiscal years beginning after September 15, 2002, with earlier
application encouraged. Parallel is currently assessing the impact on its
financial statements.

              On October 3, 2001, the FASB issued Statement No. 144 "Accounting
for the Impairment or Disposal of Long-Lived Assets". This pronouncement
supersedes FAS 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" and eliminates the requirement of Statement
121 to allocate goodwill to long-lived assets to be tested for impairment
Statement 144 also describes a probability-weighted cash flow estimation
approach to deal with situations in which alternative courses of action to
recover the carrying amount of long-lived assets are under consideration or a
range is estimated for the amount of possible future cash flows. The statement
also establishes a "primary-asset" approach to determine the cash flow
estimation period for a group of assets and liabilities that represents the unit
of accounting for a long-lived asset to be held and used. The provisions of this
statement were adopted with no impact on the financial statements issued for
fiscal years beginning after December 15, 2001, and interim periods within those
fiscal years.

              In April, 2002, the FASB issued Statement No. 145 "Rescission of
FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections." Most significantly, this Statement eliminates the
requirement under Statement 4 to aggregate all gains and losses from
extinguishment of debt, and if material, be classified as an extraordinary item.
As a result, gains and losses from extinguishment of debt should be classified
as extraordinary items only if they meet the criteria in Opinion 30. Applying
the provisions of Opinion 30 will distinguish transactions that are part of an
entity's recurring operations from those that are unusual or infrequent or that
meet the criteria for classification as an extraordinary item. There is no
current impact to Parallel as there has been no early extinguishment of debt
which meets the criteria for an extraordinary item.

        In July 2002, the FASB issued  Statement No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. The standard requires companies to
recognize costs associated with exit or

                                       11
<PAGE>

disposal activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan. Statement 146 is to be applied
prospectively to exit or disposal activities initiated after December 31, 2002.
Parallel expects no impact to our financial statements as we do not anticipate
exiting or disposing of any of our activities.

NOTE 12.      LEGAL PROCEEDINGS

              At September 30, 2002, we were involved in one lawsuit incidental
to our business. In the opinion of management, the ultimate outcome of this
lawsuit will not have a material adverse effect on Parallel's financial position
or results of operations. We are not aware of any other threatened litigation.
We have not been a party to any bankruptcy, receivership, reorganization,
adjustment or similar proceeding.

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

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

OVERVIEW

Strategy

              As reported in Parallel's Form 8-K that was filed June 14, 2002,
for the foreseeable future, Parallel's primary objective will be to increase the
per share net asset value of its common stock through increasing reserves,
production, cash flow and earnings. Parallel intends to pursue these objectives
in a different manner than in the past. Parallel will attempt to shift the
balance of its investments from properties having high rates of production in
early years to properties with more consistent production over a longer term.
Parallel will reduce its drilling risks by dedicating a smaller portion of its
capital to high risk projects, while reserving the majority of its available
capital for exploitation and development drilling opportunities. Obtaining
positions in long-lived oil and gas reserves will be given priority over
properties that might provide more cash flow in the early years of production,
but which have shorter reserve lives. Parallel will also reduce risk by
emphasizing acquisition possibilities over high risk exploration projects.

              So Parallel can more effectively implement and pursue its new
business plan, it has added six new employees, almost doubling the size of its
staff. Parallel will systematically decrease its high risk exploration efforts
and focus on established geologic trends where it can utilize the engineering,
operational, financial and technical expertise of its entire staff. Reducing
financial, reservoir, drilling and geological risks and diversifying its
property portfolio will be the principal criteria in the execution of Parallel's
business plan. Although Parallel has concentrated its activities during the last
eight years in South Texas, it intends to diversify the geographical
concentration of its asset base and will consider expanding its operations into
other parts of the United States if favorable opportunities arise. In summary,
Parallel's new business plan will:

               .    focus on projects having less geological risk;

               .    emphasize exploitation and enhancement activities;

               .    focus on acquiring producing properties; and

               .    expand  the  scope of its  operations  by  diversifying  its
                    exploratory and development efforts,  both in and outside of
                    its current areas of operation.

              Although the direction of Parallel's exploration and development
activities will shift from high risk exploratory activities to lower risk
development opportunities, Parallel will continue its efforts, as it has in the
past, to maintain low general and administrative expenses relative to the size
of its overall

                                       12
<PAGE>

operations, utilize advanced technologies, serve as operator in appropriate
circumstances, and reduce operating costs.

              The extent to which Parallel is able to implement and follow
through with its business plan will be influenced by:

               .    the prices it receives for the oil and gas it produces;

               .    the  results  of  reprocessing  and  reinterpreting  its 3-D
                    seismic data;

               .    the results of its drilling activities;

               .    the costs of obtaining high quality field services;

               .    its   ability   to   find   and    consummate    acquisition
                    opportunities; and

               .    its  ability  to  negotiate  and  enter  into  work  to earn
                    arrangements,  joint venture or other similar  agreements on
                    terms acceptable to Parallel.

              Significant changes in the prices Parallel receives for its oil
and gas, drilling results, or the occurrence of unanticipated events beyond
Parallel's control may cause it to defer or deviate from its business plan,
including the amounts it has budgeted for its activities.

              Investment in First Permian, L.P. In September 1999, 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 subsidiary of Fina Oil and Chemical Company. The primary assets
acquired by First Permian in the merger 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.
The purchase was financed primarily with senior secured bank borrowings in the
amount of $74 million, proceeds of subordinated notes in the principal amount of
$16 million and the remainder with proceeds from a simultaneous sale of
minerals.

              First Permian is owned by Parallel and other privately held oil
and gas companies and individuals. As of September 30, 2002, Parallel owned a
30.675% common membership interest in First Permian. We account for our interest
in First Permian using the equity method of accounting, under this accounting
method, our investment is increased or decreased by our proportionate share of
First Permian's net income or loss.

              On March 7, 2002, First Permian entered into an Agreement of Sale
and Purchase with an affiliate of Energen Corporation (Energen), to sell all of
its oil and gas properties for $120 million in cash and 3,043,479 shares in
Energen stock approximating $70 million in value. Energen is a publicly traded
company listed on the NYSE. The transaction closed on April 8, 2002. As a
30.675% interest owner in First Permian, Parallel received its prorata share of
the net proceeds, approximately $5.5 million in cash and 933,589 shares of
Energen stock. We still have an investment of $57,542 in First Permian which was
reduced by $99,929 representing our share of ongoing general and administrative
and wind down costs. As of September 30, 2002 we had sold 492,400 shares of
Energen stock recognizing a book loss of $928,540. We presently plan to
periodically divest our Energen stock subject to market conditions in accordance
with the stock sale agreement and certain other matters as Parallel may consider
from time to time. We expect to dissolve First Permian during the second quarter
2003.

              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 and production. 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

                                       13
<PAGE>

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 have
included:

               .    cash flow from operations,

               .    sales of our equity securities,

               .    bank borrowings, and

               .    industry joint ventures

              For the three months ended September 30, 2002, the sales price we
received for our crude oil production averaged $28.01 per barrel compared with
$21.20 per barrel for the three months ended March 31, 2002 and $22.29 per
barrel for the three months ended June 30, 2002. The average sales price we
received for natural gas for the three months ended September 30, 2002, was
$3.10 per mcf compared with $2.25 per mcf for the three months ended March 31,
2002 and $3.39 per mcf for the three months ended June 30, 2002. For the three
months ended September 30, 2001, the average sales price we received for our
crude oil was $23.91 and for our natural gas was $4.02 per mcf.

              Our oil and gas producing activities are accounted for using the
full cost method of accounting. Under this method, 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 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 and property 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 the 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.

RESULTS OF OPERATIONS

              Our  business  activities  are  characterized  by frequent,  and
sometimes significant, changes in our:

               .    sources of production;

               .    product mix (oil vs. gas volumes); and

               .    the prices we receive for our oil and gas production.

                                       14

<PAGE>

              Year-to-year or other periodic comparisons of the results of our
operations can be difficult and may not accurately describe our condition. The
following table 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
                                             -------------------------------------------
                                              9-30-01    3-31-02    6-30-02    9-30-02
                                             ---------- ---------- ---------- ----------
<S>                                          <C>        <C>         <C>       <C>

Production and prices:
  Oil (Bbls)                                    36,211     30,161     33,126     28,452
  Natural gas (Mcf)                            732,604    590,650    609,812    616,447
  Equivalent barrels of oil (EBO)              158,312    128,603    134,761    131,193

  Oil price (per Bbl)                          $ 23.91    $ 21.20    $ 22.29    $ 28.01
  Gas price (per Mcf)                          $  4.02    $  2.25    $  3.39    $  3.10
  Price per EBO                                $ 24.08    $ 15.33    $ 20.84    $ 20.66

Results of operations per EBO:
Oil and gas revenues                           $ 24.08    $ 15.33    $ 20.84    $ 20.66
Costs and expenses:
  Lease operating expense                         5.41       4.27       5.35       4.94
  General and administrative                      2.30       2.72      14.65       2.65
  Depreciation and depletion                      9.65      10.53       9.89      10.09
  Impairment of oil and gas properties           13.75          -          -          -
                                            ---------- ---------- ---------- ----------
     Total costs and expense                     31.11      17.52      29.89      17.68
                                            ---------- ---------- ---------- ----------
Operating income (loss)                          (7.03)     (2.19)     (9.05)      2.98
                                            ---------- ---------- ---------- ----------
Interest expense, net                            (0.85)     (1.11)     (1.05)     (1.30)
Other income (expense), net                       0.12      (1.29)     (0.76)     (0.01)
Dividend income                                      -          -       1.21       1.09
                                            ---------- ---------- ---------- ----------
                                                 (0.73)     (2.40)     (0.60)     (0.22)
                                            ---------- ---------- ---------- ----------
Equity in income (loss) of First Permian,L.P.     2.79      (2.46)    230.65      (0.76)
Change in fair market value of put option            -      (2.64)     (0.41)     (0.48)
Loss in marketable securities                        -          -          -      (7.08)
                                            ---------- ---------- ---------- ----------
                                                  2.79      (5.10)    230.24      (8.32)
                                            ---------- ---------- ---------- ----------
     Pretax income per EBO                       (4.97)     (9.69)    220.59      (5.56)
Income tax expense (benefit)                     (1.86)     (3.72)     74.68      (2.52)
                                            ---------- ---------- ---------- ----------
     Net income (loss) per EBO                 $ (3.11)   $ (5.97)  $ 145.91    $ (3.04)
                                            ========== ========== ========== ==========

</TABLE>

                                       15

<PAGE>

<TABLE>
                                                         Nine Months Ended
                                            ---------------------------------------------
                                                9-30-00       9-30-01         9-30-02
                                            -------------  -------------  ---------------
<S>                                         <C>            <C>            <C>

Production and prices:
  Oil (Bbls)                                    126,353        110,222           91,739
  Natural gas (Mcf)                           1,961,164      2,677,087        1,816,909
  Equivalent barrels of oil (EBO)               453,214        556,403          394,557

  Oil price (per Bbl)                           $ 27.80        $ 26.07          $ 23.71
  Gas price (per Mcf)                           $  3.37        $  4.86          $  2.93
  Price per EBO                                 $ 22.36        $ 28.56          $ 18.98

Results of operations per EBO:
Oil and gas revenues                            $ 22.36        $ 28.56          $ 18.98
Costs and expenses:
  Lease operating expense                          4.35           5.43             4.86
  General and administrative                       1.41           1.74             6.77
  Depreciation and depletion                       7.90           8.67            10.17
  Impairment of oil and gas properties                -           3.91                -
                                             -------------  -------------  ---------------
        Total costs and expense                   13.66          19.75            21.80
                                             -------------  -------------  ---------------

Operating income (loss)                            8.70           8.81            (2.82)
                                             -------------  -------------  ---------------

Interest expense, net                             (2.06)         (0.95)           (1.15)
Other income (expense), net                        0.18          (0.11)           (0.68)
Dividend income                                       -              -             0.78
                                             -------------  -------------  ---------------
                                                  (1.88)         (1.06)           (1.05)
                                             -------------  -------------  ---------------

Equity in income (loss) of First Permian, L.P.    (1.10)          0.79            77.72
Change in fair market value of put option             -              -            (1.16)
Loss in marktable securities                          -              -            (2.35)
                                             -------------  -------------  ---------------
                                                  (1.10)          0.79            74.21
                                             -------------  -------------  ---------------

        Pretax income per EBO                      5.72           8.54            70.34
Income tax expense (benefit)                          -          (1.09)           23.45
                                             -------------  -------------  ---------------

        Net income per EBO                       $ 5.72         $ 9.63          $ 46.89
                                            =============  =============  ===============

</TABLE>

                                       16

<PAGE>

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                   Nine Months Ended
                                                    ------------------------------------ -----------------------
                                                     3-31-02     6-30-02      9-30-02     9-30-01     9-30-02
                                                    ----------- ----------- ------------ ----------- -----------
<S>                                                 <C>         <C>         <C>           <C>        <C>

Oil and gas revenues                                    100.0%      100.0%       100.0%      100.0%      100.0%
Costs and expenses:
  Lease operating expense                                 27.9        25.7         23.9        19.0        25.6
  General and administrative                              17.7        70.3         12.8         6.1        35.7
  Depreciation and depletion                              68.7        47.5         48.8        30.4        53.6
  Impairment of oil and gas properties                       -           -            -        13.7           -
                                                    ----------- ----------- ------------ ----------- -----------
        Total costs and expenses                         114.3       143.5         85.5        69.2       114.9
                                                    ----------- ----------- ------------ ----------- -----------
Operating income (loss)                                  (14.3)      (43.5)        14.5        30.8       (14.9)
                                                    ----------- ----------- ------------ ----------- -----------

Interest expense, net                                     (7.2)       (5.1)        (6.3)       (3.3)       (6.1)
Other expense, net                                        (8.4)       (3.7)        (0.1)       (0.4)       (3.6)
Dividend income                                              -         5.8          5.3           -         4.1
                                                    ----------- ----------- ------------ ----------- -----------
                                                         (15.6)       (3.0)        (1.1)       (3.7)       (5.6)
                                                    ----------- ----------- ------------ ----------- -----------

Equity in earnings (loss) of First Permian, L.P.         (16.0)    1,106.6         (3.7)        2.8       409.4
Change in fair market value of put option                (17.2)       (2.0)        (2.3)          -        (6.1)
Loss in marketable securities                                -           -        (34.3)                  (12.4)
                                                    ----------- ----------- ------------ ----------- -----------
                                                         (33.2)    1,104.6        (40.3)        2.8       390.9
                                                    ----------- ----------- ------------ ----------- -----------
        Pretax income (loss)                             (63.1)    1,058.1        (26.9)       29.9       370.4
Income tax expense (benefit)                             (24.3)      358.3        (12.2)       (3.8)      123.6
                                                    ----------- ----------- ------------ ----------- -----------
        Net income (loss)                                (38.8)      699.8        (14.7)       33.7       246.8
                                                    =========== =========== ============ =========== ===========


</TABLE>

CRITICAL ACCOUNTING POLICIES AND PRACTICES

              Full Cost. Parallel accounts for its oil and natural gas
exploration and development activities using the full cost method of accounting.
Under this method, all costs incurred in the acquisition, exploration and
development of oil and natural gas properties are capitalized. Costs of
nonproducing properties, wells in process of being drilled and significant
development projects are excluded from depletion until such time as the related
project is developed and proved reserves are established or impairment is
determined. At the end of each quarter, the net capitalized costs of our oil and
natural gas properties is limited to the lower of unamortized cost or a ceiling.

              Provision for depletion of oil and gas properties, under the full
cost method, is calculated using the unit of production method based upon
estimates of proved oil and gas reserves with oil and gas production being
converted to a common unit of measure based upon their relative energy content.
Investments in unproved properties and major development projects are not
amortized until proved reserves associated with the projects can be determined
or until impairment occurs. The cost of any impaired property is transferred to
the balance of oil and gas properties being depleted.

                                       17

<PAGE>


              Our discounted present value of proved oil and natural gas
reserves is a major component of the ceiling calculation, and represents the
component that requires the most subjective judgments. Estimates of reserves are
forecasts based on engineering data, projected future rates of production and
the timing of future expenditures. The process of estimating oil and natural gas
reserves requires substantial judgment, resulting in imprecise determinations,
particularly for new discoveries. Different reserve engineers may make different
estimates of reserve quantities based on the same data. Our reserve estimates
are prepared by outside consultants.

              The passage of time provides more qualitative information
regarding estimates of reserves, and revisions are made to prior estimates to
reflect updated information. However, there can be no assurance that more
significant revisions will not be necessary in the future. If future significant
revisions are necessary that reduce previously estimated reserve quantities, it
could result in a full cost property write-down. In addition to the impact of
these estimates of proved reserves on calculation of the ceiling, estimates of
proved reserves are also a significant component of the calculation of
depreciation, depletion and amortization.

              While the quantities of proved reserves require substantial
judgment, the associated prices of oil and natural gas reserves that are
included in the discounted present value of the reserves do not require
judgment. The ceiling calculation dictates that prices and costs in effect as of
the last day of the period are held constant indefinitely. Because the ceiling
calculation dictates that we use prices in effect as of the last day of the
applicable quarter, the resulting value is not indicative of the true fair value
of the reserves. Oil and natural gas prices have historically been cyclical and,
on any particular day at the end of a quarter, can be either substantially
higher or lower than prices we actually receive in the long-term, which are a
barometer for true fair value.

              Impairment of Assets. Under the full cost accounting rules, the
capitalized costs of oil and gas properties may not exceed a "ceiling limit",
which is based on the present value of estimated future net revenues, net of
income tax effects, from proved reserves, discounted at 10%, plus the lower of
cost or fair market value of unproved properties. If the net capitalized costs
of our oil and natural gas properties exceed the ceiling, we are subject to a
ceiling test write-down to the extent of such excess. A ceiling test write-down
is a non-cash charge to earnings. It reduces earnings and impacts stockholders'
equity in the period of occurrence and results in lower depreciation, depletion
and amortization expense in future periods.

              The risk that we will be required to write down the carrying value
of oil and gas properties increases when oil and gas prices decline. If
commodity prices deteriorate, it is possible that we could incur an impairment
in 2002.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2002:

              Oil and Gas Revenues. Oil and gas revenues decreased $1,101,978 or
29%, to $2,709,985 for the three months ended September 30, 2002, from
$3,811,963 for the same period of 2001. The decrease was primarily the result of
a 17% decrease in oil and gas production and a 14% decrease in the average sales
price per EBO. We received $20.66 per EBO in the three months ended September
30, 2002 compared with $24.08 per EBO for the same period of 2001.

              Production Costs. Production costs decreased $208,471, or 24%, to
$648,001 during the three months ended September 30, 2002, compared with
$856,472 for the same period of 2001. The decrease was primarily attributable to
lower production taxes and ad valorem taxes associated with lower prices and
volumes. Average production costs remained relatively flat at $4.94 per EBO.

                                       18

<PAGE>
              General and Administrative Expenses. General and administrative
expenses decreased by $15,931, or 4%, to $347,827 for the three months ended
September 30, 2002 from $363,758 for the same period of 2001. The increase of
general and administrative on a per EBO is a result of a 17% decrease in
production volumes in the three months ending September 30, 2002 compared to the
prior year. General and administrative expense that was capitalized in
accordance with full cost accounting was $504,471 and $216,000 for the three
month periods ending September 30, 2002 and 2001 respectively. The three months
ending September 30, 2002 included three full months of the acquisition team.

              Depreciation, Depletion and Amortization Expense. Depreciation,
depletion and amortization expense ("DD&A") decreased by $204,145, or 13%, to
$1,323,107 for the three months ended September 30, 2002 compared with
$1,527,252 for the same period of 2001 primarily because of a 17% decrease in
production volumes. As a percentage of revenues, DD&A increased to 49% compared
to 51% last year, a result of a decrease in the average sales price per EBO we
received in the third quarter of 2002. The DD&A rate per EBO increased to $10.09
for the third quarter of 2002 compared with $9.65 per EBO for the third quarter
of 2001.

              Equity in Income of First Permian, L.P. As previously discussed in
Note 7, First Permian, L.P. of which Parallel is a 30.675% interest owner sold
all of their oil and gas properties in a transaction closing on April 8, 2002.
Parallel received its prorata share of net proceeds, $5.5 million in cash and
933,589 shares of Energen Stock. Our equity share of the net loss for ongoing
general and administrative and wind down cost in First Permian for the third
quarter was $99,928.

              Dividend Income.  Dividend income was $143,494 associated with the
investment in Energen stock held for sale.

              Net Interest Expense. Net interest expense increased $35,581, or
26%, to $170,842 for the three months ended September 30, 2002 compared with
$135,261 for the same period of 2001 due principally to increased bank
borrowings prior to debt reduction due to the sale of 492,400 shares of Energen
stock.

              Loss in Marketable Securities. The loss of $928,540 recognized in
marketable securities is for the sale of 492,400 shares of Energen stock during
the three months ended September 30, 2002. This is the difference in the April
8, 2002 stock price of $27.40 at the time of the sale of First Permian and the
realized net price of approximately $25.51 received during the third quarter.

              Income  Tax  Benefit.  Our  effective  tax rate for the  three
months  ended  September  30,  2002 is 34%.  For  further discussion see Note 5
 to Financial Statements.

              Net Income. Net income was a loss of $397,916 for the three month
period ended September 2002 mainly due to decreased revenues, equity loss in
First Permian, loss from the sale of marketable securities offset by dividend
income. For the period ended September 2001, although revenues increased and a
gain was recorded for equity in First Permian, these were offset by a non cash
impairment of oil and gas properties.

RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2002:

              Oil and Gas Revenues. Oil and gas revenues decreased $8,401,245,
or 53%, to $7,489,983 for the nine months ended September 30, 2002, from
$15,891,228 for the same period of 2001. The decrease was primarily the result
of a 34% decrease in the average sales price per EBO and a 29% decrease in
production due to normal decline and depletion in certain producing wells. We
received $18.98 per EBO in the nine months ended September 30, 2002 compared
with $28.56 per EBO for the same period of 2001.

                                       19
<PAGE>

              Production Costs. Production costs decreased $1,104,074 or 37%, to
$1,918,991 during the first nine months of 2002, compared with $3,023,065 for
the same period of 2001. Average production costs per EBO decreased 10%, to
$4.86, for the first nine months in 2002 compared to $5.43 for the same period
in 2001, primarily a result of decreased production taxes associated with lower
oil and gas sale prices and a 29% decrease in oil and gas production.

              General and Administrative Expenses. General and administrative
expenses increased by $1,706,430, or 177%, to $2,672,277 for the first nine
months of 2002, from $965,847 for the same period of 2001. The increase was
primarily due to paid and accrued incentive award payments of approximately
$1,386,429 related to the First Permian, L.P. divestiture and additional public
reporting costs. Excluding the incentive award payments, general and
administrative expenses were $3.26 per EBO in the first nine months of 2002
compared to $1.74 per EBO in the first nine months of 2001. The increase in
general and administrative expense per EBO, excluding incentive award payments,
is primarily a result of a 29% decrease in production. General and
administrative expense that was capitalized in accordance with full cost
accounting was $1,073,987 and $593,000 for the nine month periods ending
September 30, 2002 and 2001 respectively. The nine months ending September 30,
2002 included four full months of the acquisition team.

              Depreciation, Depletion and Amortization Expense. Depreciation,
depletion and amortization expense ("DD&A") increased by $811,916, or 17%, to
$4,010,903 for the first nine months of 2002 compared with $4,822,819 for the
same period of 2001. As a percentage of revenues, the DD&A increased to 54% when
compared to 30% for the prior year nine months, a result of a decrease in the
average sales price per EBO we received in the first nine months of 2002. The
DD&A rate per EBO increased to $10.17 for the first nine months of 2002 compared
with $8.67 per EBO for the first nine months of 2001.

              Equity in Income of First Permian, L.P. As previously discussed in
Note 6 to Financial Statements, First Permian, L.P. of which Parallel is a
30.675% interest owner sold all of their oil and gas properties in a transaction
closing on April 8, 2002. Parallel received its prorata share of net proceeds,
$5.5 million in cash and 933,589 shares of Energen Stock. Our share of the net
income and distributions for the first nine months was $30,665,820.

              Dividend Income.  Dividend income was $306,872 associated with
the investment in Energen stock held for sale.

              Net Interest Expense. Net interest expense decreased $71,542, or
14%, to $455,442 for the nine months ended September 30, 2002 compared with
$526,984 for the same period of 2001, due principally to decreased bank
borrowings and a decrease in the bank's prime rate.

              Loss in Marketable Securities. The loss of $928,540 recognized in
marketable securities is for the sale of 492,400 shares of Energen stock during
the nine months ended September 30, 2002. This is the difference in the April 8,
2002 stock price of $27.40 at the time of the sale of First Permian and the
realized net price of approximately $25.51 received during the third quarter.

              Income Tax Expense.  For the nine months ended  September 30, 2002
we recorded a tax expense of  $9,253,997.  For further discussion see Note 5 to
Financial Statements.

              Net Income. We reported net income of $18,494,836 for the nine
months ended September 30, 2002 compared to $5,358,770 for the nine months ended
September 30, 2001. The increase in net income resulted from the equity in
income of First Permian, L.P., dividend from the Energen stock, partially offset
by paid and accrued incentive award payments to the employees, loss on
marketable

                                       20
<PAGE>

securities, change in fair value of derivatives, and declines in production
volumes and prices.

              Cash flow from operations for the nine months ended September 30,
2002 decreased $7,898,183 to $5,343,162 compared with $13,241,345 for the nine
months ended September 30, 2001. This is primarily a result of decreased oil and
gas volumes and prices.

LIQUIDITY AND CAPITAL RESOURCES

              Our capital resources consist primarily of cash flows from our oil
and gas properties, investment in Energen stock and bank borrowings supported by
our oil and gas reserves and remaining Energen stock. Our level of earnings and
cash flows depends on many factors, including the prices we receive for oil and
natural gas we produce and price received for Energen stock.

              Working capital increased $14,099,576 as of September 30, 2002
compared with December 31, 2001. Current assets exceeded current liabilities by
$13,512,735 at September 30, 2002 compared with current liabilities exceeding
current assets by $586,841 at December 31, 2001. Working capital increased due
to an increase in current assets of $10,713,671 and a decrease of $3,385,905 in
current liabilities. Current assets increased primarily due to the $11,166,494
recorded for 441,189 shares of Energen stock. As of September 30, 2002 we had
sold 492,400 shares of Energen common stock. This gives Parallel cash proceeds
realized of $12,563,220 and a book loss of $928,540 in relationship to the April
8, 2002 market price of the Energen stock. To the extent that we sell Energen
stock at a price above or below $27.40 per share (price of the stock as of April
8, 2002 for the First Permian sale), we will incur a book gain or loss equal to
the difference between $27.40 and the sales price. We presently plan to
periodically divest our Energen stock subject to market conditions in accordance
with the stock sales agreement and certain other matters as Parallel may
consider from time to time. We along with the other owners of First Permian have
been released from the stock sales restrictions. Current liabilities declined
with reduced current maturities of our long term debt and a decline in trade
payable.

              We incurred net property costs of $9,866,539, including $1,073,436
of capitalized general and administrative costs for the nine months ended
September 30, 2002, primarily for our oil and gas property acquisition,
development, and enhancement activities. Such costs were financed by the
utilization of cash flows provided by operations and sale of Energen stock. We
anticipate capital expenditures to be approximately $11.0 million for the year.

              Based on our projected oil and gas revenues and related expenses,
available bank borrowings, and the cash and marketable securities we received
from the sale of First Permian's properties, we believe that we will have
sufficient capital resources to fund normal operations, interest expense and
principal reduction payments on bank debt and preferred stock dividends. We
continually review and consider alternative methods of financing.

              The following table is a summary of significant contractual cash
obligations:

<TABLE>

                                                                     Obligation Due in Period
                                                ------------------------------------------------------------------
          Contractual Cash Obligations              2002          2003         2004          2005         2006      Total
----------------------------------------------- --------------------------------------------------------------------------------
<S>                                             <C>               <C>           <C>          <C>          <C>        <C>
                                                                            (000)

Revolving Credit Facility (secured)                    $  -         $ 165        $ 987         $ 987        $ 821       $ 2,960
Office Lease (One Marienfeld Place)                    $ 54         $  54        $  22         $   -        $   -       $   130
Office Lease (Dinero Plaza)                            $ 26         $ 102        $ 102         $ 102        $  68       $   400
Office Equipment and Service Maintenance               $ 13         $  30        $  17         $   -        $  -        $    60


</TABLE>

TRENDS AND PRICES

              Changes in oil and gas prices significantly affect our revenues,
cash flows and borrowing
                                       21
<PAGE>

capacity. 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, seasonal,
political and other factors beyond our control. We are unable to accurately
predict domestic or worldwide political events or the effects of other such
factors on the prices we receive for our oil and gas. As described under Item 3,
in January 2002 we implemented a hedging strategy of purchasing put floors
covering a portion of our natural gas production.

              Our capital expenditure budgets are highly dependent on future oil
and gas prices and will be consistent with internally generated cash flows.

              During fiscal year 2002 the average sales price we received for
our oil was approximately $23.71 per barrel while the average sales prices we
received for natural gas was approximately $2.93 per thousand cubic feet
("Mcf"). For the three months ended September 30, 2002, the average price we
received for our oil production was approximately $28.01 per Bbl, while the
average price received at that same date for our natural gas production was
approximately $3.10 per Mcf.

FORWARD-LOOKING STATEMENTS

              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 Parallel's 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 the results of exploratory drilling
activity, changes in oil and natural gas prices, operating risks, availability
of drilling equipment, 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 our
effect on the securities market. While we believe our forward-looking statements
are based upon reasonable assumptions, these 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.

ITEM 3.       QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

              Our only financial instrument sensitive to changes in interest
rates is our bank debt. Our annual interest costs in 2002 could 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
table below shows principal cash flows and related weighted average interest
rates by expected maturity dates. Weighted average interest rates were
determined using the minimum interest rate to be paid pursuant to Parallel's new
loan entered into on July 19, 2002.

<TABLE>


                                     September     September    September     September                    Fair
                                       2003          2004          2005         2006         Total         Value
                                    ------------  ------------ ------------- ------------ ------------  ------------
                                                           (In 000's, except interest rates)
<S>                                  <C>          <C>          <C>           <C>           <C>           <C>

Variable rate debt:
  Revolving facility (secured)         $165          $987          $987         $821       $2,960        $2,960
    Average interest rate              4.75%         4.75%         4.75%        4.75%

</TABLE>

              At September 30, 2002, we had bank loans in the amount of
$2,960,000 outstanding at an average interest rate of 4.75%. Borrowings under
our new credit facility bear interest, at our election, at (i) the bank's base
rate or (ii) the libor rate, plus a libor margin, but in no event less than
4.75%. As a result, our annual interest costs in 2002 could fluctuate based on
short-term interest rates. Assuming no change in the amount outstanding during
2002, the impact on interest expense of a one-half of one

                                       22
<PAGE>

percent change in the average interest rate above the 4.75% floor would be
approximately $14,800. As the interest rate is variable and is reflective of
current market conditions, the carrying value approximates the fair value.

              Our major market risk exposure is in the pricing applicable to our
oil and natural gas production. Market risk refers to the risk of loss from
adverse changes in oil and natural gas prices. 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. Pricing volatility
is expected to continue. Oil prices ranged from a monthly low of $16.81 per
barrel to a monthly high of $33.95 per barrel during 2001. Natural gas prices we
received during 2001 ranged from a monthly low of $1.08 per Mcf to a monthly
high of $11.81 per Mcf. During the third quarter 2002 oil prices ranged from a
monthly low of $22.93 to a monthly high of $27.07. Natural gas prices we
received during 2002 ranged from a monthly low of $1.35 per Mcf to a monthly
high of $4.18 per Mcf. A significant decline in the prices of natural gas or oil
could have a material adverse effect on our financial condition and results of
operations.

              Historically, we have not entered into hedging arrangements and
have not had any delivery commitments. While hedging arrangements reduce
exposure to losses as a result of unfavourable price changes, they may also
limit the ability to benefit from favourable market price changes. However, in
January, 2002, our Board determined that Parallel should hedge natural gas
prices for one-half of its natural gas production for April 2002 through October
2002. After reviewing alternative strategies, we purchased put options on gas
prices to create a sales price floor for part of our gas production. We believe
put floors provide us with the advantage of no margin requirements,
participating in the upside of potential increases in natural gas prices and
establishing a minimum selling price at a fixed cost. However, put floors can
also be expensive if markets do not change, and in most cases the protection of
a floor will not be immediately realized at current levels. In January and
February, 2002, we purchased put floors with a counterparty to sell notional
volumes of 210,000 Mcf of gas per month for the seven-month period April, 2002
through October, 2002, at a floor price of $2.40 per Mcf based on NYMEX pricing
for a total cost of approximately $391,105. On May 24, 2002 we purchased
additional put floors on volumes of 100,000 Mcf gas per month for the seven
month period from April 2003 through October 2003 at a floor price of $3.00 per
Mcf for a total consideration of approximately $139,500.

              The fair value of the put floors as of September 30, 2002 was
$73,184; therefore, a $457,421 decrease in fair value was recognized as of
September 30, 2002 in the Statements of Operations.

              The following table illustrates our gas hedge as of September 30,
2002.

<TABLE>
                                                               Floor   Cost of       Fair Value
             Period             Commodity       Mcf Volume     Price    Floor       @ 9-30-2002
----------------------------- --------------- --------------- ------   -------      ------------
<S>                            <C>            <C>             <C>      <C>     <C>

April 2002 thru October 2002   natural gas      1,470,000      $ 2.40   $ 391,105    $        -
April 2003 thru October 2003   natural gas        700,000      $ 3.00     139,500        73,184
                                                                        ---------   -----------
                                                                        $ 530,605    $   73,184
                                                                        =========   ===========
</TABLE>

ITEM 4.       CONTROLS AND PROCEDURES

              On October 18, 2002, we supplemented our existing internal
controls with the adoption and implementation of certain disclosure controls and
procedures. The purpose of these additional disclosure controls and procedures
is to help ensure that information we are required to disclose in reports that
we file with the SEC is accumulated and communicated to our management and
recorded, processed, summarized and reported within the time periods prescribed
by the SEC. The effectiveness of these disclosure controls and procedures has
been evaluated by our chief executive officer, Thomas R. Cambridge, and our
chief financial officer, Steven D. Foster. Mr. Cambridge and Mr. Foster have
concluded that our disclosure controls and procedures are effective for their
intended purposes. As part

                                       23
<PAGE>

of their evaluation, Mr. Cambridge and Mr. Foster also determined that there
were no significant changes in internal controls or other factors that could
significantly affect internal controls after the date of their evaluation.
No corrective actions were required to be taken with regard to significant
deficiencies or material weaknesses. Following the signature page
of this report, you will find certifications signed by Mr. Cambridge and Mr.
Foster.

                           PART II - OTHER INFORMATION

ITEM 1.     LEGAL PROCEEDINGS

              At September 30, 2002, we were involved in one lawsuit incidental
to our business. In the opinion of management, the ultimate outcome of this
lawsuit will not have a material adverse effect on Parallel's financial position
or results of operations. We are not aware of any other threatened litigation.
We have not been a party to any bankruptcy, receivership, reorganization,
adjustment or similar proceeding.

ITEM 5.       OTHER INFORMATION

              As of November 18, 2002 Parallel will move its physical office to:

                         Parallel Petroleum Corporation
                                  Dinero Plaza
                      1004 N. Big Spring Street, Suite 400
                              Midland, Texas 79701

ITEM 6.       EXHIBIT AND REPORTS ON FORM 8-K

(a)      Exhibits:

Exhibit
   No.                   Description of 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 to the
     Registrant's  Form 8-K dated October 9, 2000, as filed with the  Securities
     and Exchange Commission on October 10, 2000.)

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.)

4.2  Certificate of  Designation,  Preferences  and Rights of Series A Preferred
     Stock.  (Incorporated  by  reference  to  Exhibit  4.2 of Form 10-K for the
     fiscal year ended December 31, 2000.)

4.3  Rights Agreement,  dated as of October 5, 2000,  between the Registrant and
     Computershare  Trust  Company,  Inc.,  as Rights  Agent.  (Incorporated  by
     reference  to Exhibit 4.3 of Form 10-K for the fiscal  year ended  December
     31, 2000.)


                                       24

<PAGE>

                  Executive Compensation Plans and Arrangements
                       (Exhibit No.'s 10.1 through 10.9):

10.1    1983 Incentive Stock Option Plan  (Incorporated  by reference to Exhibit
        10.2 to Form S-l of the Regis-trant (File No. 2-92397) as filed with the
        Securities  and  Exchange  Commission  on July 26,  1984,  as amended by
        Amendments  No. 1 and 2 on  October  5,  1984,  and  October  25,  1984,
        respectively.)

10.2    1992 Stock  Option Plan  (Incorporated  by  reference to Exhibit 28.1 to
        Form  S-8 of the  Registrant  (File  No.  33-57348)  as  filed  with the
        Securities and Exchange Commission on January 25, 1993.)

10.3    Stock Option  Agreement  between the  Registrant and Thomas R. Cambridge
        dated  December 11, 1991  (Incorporated  by reference to Exhibit 10.4 of
        Form 10-K of the  Registrant  for the  fiscal  year ended  December  31,
        1992.)

10.4    Stock Option  Agreement  between the  Registrant and Thomas R. Cambridge
        dated October 18, 1993  (Incorporated by reference to Exhibit 10.4(e) of
        Form 10-K of the  Registrant  for the  fiscal  year ended  December  31,
        1993.)

10.5    Merrill Lynch, Pierce, Fenner & Smith Incorporated  Prototype Simplified
        Employee Pension Plan  (Incorporated by reference to Exhibit 10.6 of the
        Registrant's Form 10-K for the fiscal year ended December 31, 1995.)

10.6    Non-Employee  Directors Stock Option Plan  (Incorporated by reference to
        Exhibit  10.6 of the  Registrant's  Form 10-K Report for the fiscal year
        ended December 31, 1997).

10.7    1998 Stock  Option Plan  (Incorporated  by  reference to Exhibit 10.7 of
        Form 10-K of the  Registrant  for the  fiscal  year ended  December  31,
        1998.)

10.8    Form of Incentive Award Agreements, dated December 12, 2001, between the
        Registrant and Thomas R. Cambridge,  Larry C. Oldham, Eric A. Bayley and
        John  S.  Rutherford  granting  2,394  Unit  Equivalent  Rights  to  Mr.
        Cambridge;  9,564  Unit  Equivalent  Rights to Mr.  Oldham;  2,869  Unit
        Equivalent Rights to Mr. Bayley; and 7,173 Unit Equivalent Rights to Mr.
        Rutherford.  10.9 Form of Change of  Control  Agreements,  dated June 1,
        2001,  between the Registrant and Thomas R. Cambridge,  Larry C. Oldham,
        Eric A. Bayley and John S. Rutherford.

10.10   Certificate  of  Formation of First  Permian,  L.L.C.  (Incorporated  by
        reference to Exhibit 10.1 of the Registrant's Form 8-K Report dated June
        30, 1999).

10.11   Limited   Liability   Company   Agreement  of  First   Permian,   L.L.C.
        (Incorporated by reference to Exhibit 10.2 of the Registrant's  Form 8-K
        Report dated June 30, 1999.)

10.12   Merger  Agreement,  dated June 25, 1999.  (Incorporated  by reference to
        Exhibit 10.3 of the Registrant's Form 8-K Report dated June 30, 1999.)

10.13   Agreement  and Plan of  Merger  of First  Permian,  L.L.C.  and Nash Oil
        Company,  L.L.C.  (Incorporated  by  reference  to  Exhibit  10.4 of the
        Registrant's Form 8-K Report dated June 30, 1999.)

                                       25

<PAGE>

10.14   Certificate  of Merger of First  Permian,  L.L.C.  and Nash Oil Company,
        L.L.C.  (Incorporated  by reference to Exhibit 10.5 of the  Registrant's
        Form 8-K Report dated June 30, 1999.)

10.15   Amended  and  Restated  Limited  Liability  Company  Agreement  of First
        Permian, L.L.C. dated as of May 31, 2000.  (Incorporated by reference to
        Exhibit  10.16 of the  Registrant's  Form 10-K for the fiscal year ended
        December 31, 2000.)

10.16   Loan Agreement, dated January 25, 2002, between the Registrant and First
        American  Bank, SSB  (Incorporated  by reference to Exhibit 10.25 of the
        Registrant's Form 10-K Report dated March 28, 2002).

10.17   Loan  Agreement,  dated July 19, 2002,  between the Registrant and First
        American  Bank, SSB  (Incorporated  by reference to Exhibit 10.17 of the
        Registrant's  Form 10-Q  Report  for the fiscal  quarter  ended June 30,
        2002).

99.1    Certification of Chief Executive  Officer pursuant to 18 U.S.C.  Section
        1350, as adopted  pursuant to Section 906 of the Sarbanes - Oxley Act of
        2002.

99.2    Certification of Chief Financial  Officer pursuant to 18 U.S.C.  Section
        1350, as adopted  pursuant to Section 906 of the Sarbanes - Oxley Act of
        2002.

(b)     Reports on Form 8-K

           During the fiscal quarter ended September 30, 2002, we furnished one
report on Form 8-K.

           On August 14, 2002, we furnished the SEC with a Form 8-K Report,
dated August 14, 2002. In this Form 8-K, we reported under Item 9, Regulation FD
Disclosure, the certification required by Section 906 of the Sarbanes - Oxley
Act of 2002.


                                       26

<PAGE>


                                   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:   November 12, 2002                    ----------------------------
                                             Thomas R. Cambridge
                                             Chairman of the Board of Directors
                                             and Chief Executive Officer



Date:   November 12, 2002                    BY: /s/ Steven D. Foster
                                             ----------------------------
                                             Steven D. Foster,
                                             Chief Financial Officer







                                      S-1



<PAGE>



                                 CERTIFICATIONS

         I, Steven D. Foster, certify that:

        1. I have  reviewed  this  quarterly  report  on Form  10-Q of  Parallel
Petroleum Corporation;

        2. Based on my  knowledge,  this  quarterly  report does not contain any
untrue  statement of a material fact or omit to state a material fact  necessary
to make the statements made, in light of the circumstances under such statements
were made, not  misleading  with respect to the period covered by this quarterly
report;

        3. Based on my knowledge, the financial statements,  and other financial
information  included in this quarterly  report,  fairly present in all material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

        4. The registrant's other certifying  officers and I are responsible for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

                a) Designed such  disclosure  controls and  procedures to ensure
        that  material  information  relating to the  registrant,  including its
        consolidated  subsidiaries,  is made known to us by others  within those
        entities,  particularly during the period in which this quarterly report
        is being prepared;

                b) Evaluated the  effectiveness of the  registrant's  disclosure
        controls and  procedures as of a date within 90 days prior to the filing
        date of this quarterly report (the "Evaluation Date"); and

                c) Presented in this quarterly report our conclusions  about the
        effectiveness  of the disclosure  controls and  procedures  based on our
        evaluation as of the Evaluation Date:

        5. The  registrant's  other  certifying  officers and I have  disclosed,
based on our most recent evaluation,  to the registrant's auditors and the audit
committee  of  registrant's  board  of  directors  (or  persons  performing  the
equivalent function):

                a) All  significant  deficiencies  in the design or operation of
        internal controls which could adversely affect the registrant's  ability
        to  record,  process,  summarize  and  report  financial  data  and have
        identified  for the  registrant's  auditors any material  weaknesses  in
        internal controls; and

                b) Any fraud, whether or not material,  that involves management
        or other  employees  who  have a  significant  role in the  registrant's
        internal controls; and

        6. The registrant's  other  certifying  officers and I have indicated in
this quarterly report whether or not there were significant  changes in internal
controls or in other factors that could  significantly  affect internal controls
subsequent to the date of our most recent  evaluation,  including any corrective
actions with regard to significant deficiencies and material weaknesses.


Date: November 12, 2002

                                              /s/ Steven D. Foster
                                              ----------------------------------
                                              Steven D. Foster
                                              Chief Financial Officer

<PAGE>



                                 CERTIFICATIONS

         I, Thomas R. Cambridge, certify that:

        1. I have  reviewed  this  quarterly  report  on Form  10-Q of  Parallel
Petroleum Corporation;

        2. Based on my  knowledge,  this  quarterly  report does not contain any
untrue  statement of a material fact or omit to state a material fact  necessary
to make the statements made, in light of the circumstances under such statements
were made, not  misleading  with respect to the period covered by this quarterly
report;

        3. Based on my knowledge, the financial statements,  and other financial
information  included in this quarterly  report,  fairly present in all material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

        4. The registrant's other certifying  officers and I are responsible for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

                a) Designed such  disclosure  controls and  procedures to ensure
        that  material  information  relating to the  registrant,  including its
        consolidated  subsidiaries,  is made known to us by others  within those
        entities,  particularly during the period in which this quarterly report
        is being prepared;

                b) Evaluated the  effectiveness of the  registrant's  disclosure
        controls and  procedures as of a date within 90 days prior to the filing
        date of this quarterly report (the "Evaluation Date"); and

                c) Presented in this quarterly report our conclusions  about the
        effectiveness  of the disclosure  controls and  procedures  based on our
        evaluation as of the Evaluation Date:

        5. The  registrant's  other  certifying  officers and I have  disclosed,
based on our most recent evaluation,  to the registrant's auditors and the audit
committee  of  registrant's  board  of  directors  (or  persons  performing  the
equivalent function):

                a) All  significant  deficiencies  in the design or operation of
        internal controls which could adversely affect the registrant's  ability
        to  record,  process,  summarize  and  report  financial  data  and have
        identified  for the  registrant's  auditors any material  weaknesses  in
        internal controls; and

                b) Any fraud, whether or not material,  that involves management
        or other  employees  who  have a  significant  role in the  registrant's
        internal controls; and

        6. The registrant's  other  certifying  officers and I have indicated in
this quarterly report whether or not there were significant  changes in internal
controls or in other factors that could  significantly  affect internal controls
subsequent to the date of our most recent  evaluation,  including any corrective
actions with regard to significant deficiencies and material weaknesses.


Date: November 12, 2002

                                              /s/ Thomas R. Cambridge
                                              ---------------------------------
                                              Thomas R. Cambridge
                                              Chief Executive Officer


<PAGE>

                                INDEX TO EXHIBITS


Exhibit
  No.                           Description to Exhibit
-------                         ----------------------

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 to the
        Registrant's  Form  8-K  dated  October  9,  2000,  as  filed  with  the
        Securities and Exchange Commission on October 10, 2000.) 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.)

4.2     Certificate of Designation, Preferences and Rights of Series A Preferred
        Stock.  (Incorporated  by  reference to Exhibit 4.2 of Form 10-K for the
        fiscal year ended December 31, 2000.) 4.3 Rights Agreement,  dated as of
        October 5, 2000, between the Registrant and Computershare Trust Company,
        Inc., as Rights Agent. (Incorporated by reference to Exhibit 4.3 of Form
        10-K for the fiscal year ended December 31, 2000.)

                  Executive Compensation Plans and Arrangements
                       (Exhibit No.'s 10.1 through 10.9):

10.1    1983 Incentive Stock Option Plan  (Incorporated  by reference to Exhibit
        10.2 to Form S-l of the Regis-trant (File No. 2-92397) as filed with the
        Securities  and  Exchange  Commission  on July 26,  1984,  as amended by
        Amendments  No. 1 and 2 on  October  5,  1984,  and  October  25,  1984,
        respectively.)

10.2    1992 Stock  Option Plan  (Incorporated  by  reference to Exhibit 28.1 to
        Form  S-8 of the  Registrant  (File  No.  33-57348)  as  filed  with the
        Securities and Exchange Commission on January 25, 1993.)

10.3    Stock Option  Agreement  between the  Registrant and Thomas R. Cambridge
        dated  December 11, 1991  (Incorporated  by reference to Exhibit 10.4 of
        Form 10-K of the  Registrant  for the  fiscal  year ended  December  31,
        1992.)

10.4    Stock Option  Agreement  between the  Registrant and Thomas R. Cambridge
        dated October 18, 1993  (Incorporated by reference to Exhibit 10.4(e) of
        Form 10-K of the  Registrant  for the  fiscal  year ended  December  31,
        1993.)

10.5    Merrill Lynch, Pierce, Fenner & Smith Incorporated  Prototype Simplified
        Employee Pension Plan  (Incorporated by reference to Exhibit 10.6 of the
        Registrant's Form 10-K for the fiscal year ended December 31, 1995.)

10.6    Non-Employee  Directors Stock Option Plan  (Incorporated by reference to
        Exhibit  10.6 of the  Registrant's  Form 10-K Report for the fiscal year
        ended December 31, 1997).

<PAGE>

10.7    1998 Stock  Option Plan  (Incorporated  by  reference to Exhibit 10.7 of
        Form 10-K of the  Registrant  for the  fiscal  year ended  December  31,
        1998.)

10.8    Form of Incentive Award Agreements, dated December 12, 2001, between the
        Registrant and Thomas R. Cambridge,  Larry C. Oldham, Eric A. Bayley and
        John  S.  Rutherford  granting  2,394  Unit  Equivalent  Rights  to  Mr.
        Cambridge;  9,564  Unit  Equivalent  Rights to Mr.  Oldham;  2,869  Unit
        Equivalent Rights to Mr. Bayley; and 7,173 Unit Equivalent Rights to Mr.
        Rutherford.  10.9 Form of Change of  Control  Agreements,  dated June 1,
        2001,  between the Registrant and Thomas R. Cambridge,  Larry C. Oldham,
        Eric A. Bayley and John S. Rutherford.

10.10   Certificate  of  Formation of First  Permian,  L.L.C.  (Incorporated  by
        reference to Exhibit 10.1 of the Registrant's Form 8-K Report dated June
        30, 1999).

10.11   Limited   Liability   Company   Agreement  of  First   Permian,   L.L.C.
        (Incorporated by reference to Exhibit 10.2 of the Registrant's  Form 8-K
        Report dated June 30, 1999.)

10.12   Merger  Agreement,  dated June 25, 1999.  (Incorporated  by reference to
        Exhibit 10.3 of the Registrant's Form 8-K Report dated June 30, 1999.)

10.13   Agreement  and Plan of  Merger  of First  Permian,  L.L.C.  and Nash Oil
        Company,  L.L.C.  (Incorporated  by  reference  to  Exhibit  10.4 of the
        Registrant's Form 8-K Report dated June 30, 1999.)

10.14   Certificate  of Merger of First  Permian,  L.L.C.  and Nash Oil Company,
        L.L.C.  (Incorporated  by reference to Exhibit 10.5 of the  Registrant's
        Form 8-K Report dated June 30, 1999.)

10.15   Amended  and  Restated  Limited  Liability  Company  Agreement  of First
        Permian, L.L.C. dated as of May 31, 2000.  (Incorporated by reference to
        Exhibit 10.16 of Form 10-K of the Registrant's for the fiscal year ended
        December 31, 2000.)

10.16   Loan Agreement, dated January 25, 2002, between the Registrant and First
        American  Bank, SSB  (Incorporated  by reference to Exhibit 10.25 of the
        Registrant's Form 10-K Report dated March 28, 2002).

10.17   Loan  Agreement,  dated July 19, 2002,  between the Registrant and First
        American  Bank, SSB  (Incorporated  by reference to Exhibit 10.17 of the
        Registrant's  Form 10-Q  Report  for the fiscal  quarter  ended June 30,
        2002).

99.1    Certification of Chief Executive  Officer pursuant to 18 U.S.C.  Section
        1350, as adopted  pursuant to Section 906 of the Sarbanes - Oxley Act of
        2002.

99.2    Certification of Chief Financial  Officer pursuant to 18 U.S.C.  Section
        1350, as adopted  pursuant to Section 906 of the Sarbanes - Oxley Act of
        2002.



<PAGE>
                                                                   EXHIBIT 99.1
                                 CERTIFICATION

           (Not filed pursuant to the Securities Exchange Act of 1934)

         Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes - Oxley Act of 2002, the undersigned, Thomas R. Cambridge, the
Chairman of the Board of Directors and Chief Executive Officer of Parallel
Petroleum Corporation ("Parallel"), hereby certifies that the Quarterly Report
on Form 10Q of Parallel for the quarter ended September 30, 2002 fully complies
with the periodic reporting requirements of the Securities Exchange Act of 1934,
as amended, and the information contained in that Form 10Q Report fairly
presents, in all material respects, the financial condition and results of
operations of Parallel.

Dated: November 12, 2002

                                          /s/ Thomas R. Cambridge
                                          --------------------------------------
                                          Thomas R. Cambridge, Chairman
                                          of the Board of Directors and Chief
                                          Executive Officer
<PAGE>

                                  CERTIFICATION

           (Not filed pursuant to the Securities Exchange Act of 1934)

         Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes - Oxley Act of 2002, the undersigned, Thomas R. Cambridge, the
Chairman of the Board of Directors and Chief Executive Officer of Parallel
Petroleum Corporation ("Parallel"), hereby certifies that the Quarterly Report
on Form 10Q of Parallel for the quarter ended September 30, 2002 fully complies
with the periodic reporting requirements of the Securities Exchange Act of 1934,
as amended, and the information contained in that Form 10Q Report fairly
presents, in all material respects, the financial condition and results of
operations of Parallel.

Dated: November 12, 2002


                                        /s/ Steven D. Foster
                                       --------------------------------------
                                       Steven D. Foster, Chief Financial Officer