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                                                                    Exhibit 10.4

GUARANTEE, dated as of October 13, 2005, of Parallel Petroleum Corporation, a
Delaware corporation (the "Guarantor"), in favor of Citibank N.A. (the
"Counterparty").

1. Guarantee. In order to induce the Counterparty to enter into an ISDA Master
Agreement, dated as of the date hereof (the "Agreement"), with the Guarantor's
wholly-owned subsidiary Parallel, LP, ("Primary Obligor"), the Guarantor
absolutely and unconditionally guarantees to the Counterparty, its successors
and permitted assigns, as primary obligor and not as a surety, the prompt
payment of all amounts payable by Primary Obligor under the Agreement, whether
due or to become due, secured or unsecured, joint or several together with any
and all expenses referred to under Section 11 of the Agreement incurred by
Counterparty in enforcing Counterparty's rights under this Guarantee (the
"Obligations") all without regard to any counterclaim, set-off, deduction or
defense of any kind which Primary Obligor or the Guarantor may have or assert,
and without abatement, suspension, deferment or diminution on account of any
event or condition whatsoever; provided however, that Guarantor's obligations
under this Guarantee shall be subject to Primary Obligor's defenses, rights to
set-off, counterclaim or withhold payment as provided in the Agreement. Any
capitalized term used herein and not otherwise defined shall have the meaning
assigned to it in the Agreement.

2. Nature of Guarantee. This Guarantee is a guarantee of payment and not of
collection. The Counterparty shall not be obligated, as a condition precedent to
performance by the Guarantor hereunder, to file any claim relating to the
Obligations in the event that Primary Obligor becomes subject to a bankruptcy,
reorganization or similar proceeding, and the failure of the Counterparty to
file a claim shall not affect the Guarantor's obligations hereunder. This
Guarantee shall continue to be effective or be reinstated if any payment to the
Counterparty by Primary Obligor on account of any Obligation is returned to
Primary Obligor or is rescinded upon the insolvency, bankruptcy or
reorganization of Primary Obligor.

3. Consents, Waivers and Renewals. The Guarantor agrees that the Counterparty
may at any time and from time to time, either before or after the maturity
thereof, without notice to or further consent of the Guarantor, change the time,
manner or place of payment or any other term of, any Obligation, exchange,
release, nonperfection or surrender any collateral for, or renew or change any
term of any of the Obligations owing to it, and may also enter into a written
agreement with Primary Obligor or with any other party to the Agreement or
person liable on any Obligation, or interested therein, for the extension,
renewal, payment, compromise, modification, waiver, discharge or release
thereof, in whole or in part, without impairing or affecting this Guarantee. The
Obligations of the Guarantor under this Guarantee are unconditional,
irrespective of the value, genuineness, validity, or enforceability of the
Obligations, any law regulation or order of any jurisdiction or any other event
affecting the term of any Obligation or of Counterparty's rights with respect
thereto and to the fullest extent permitted by applicable law, any other
circumstance which might constitute a defense available to, or a discharge of,
the Guarantor, including (a) any law rule or policy that is now or hereafter
promulgated by any governmental authority (including any central bank) or
regulatory body that may adversely affect

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Counterparty's ability or obligation to make or receive such payments, (b) any
nationalization, expropriation, war, riot, civil commotion or other similar
event, (c) any inability to convert any currency into the currency of payment of
such obligation, (d) any inability to transfer funds in the currency of payment
of such obligation to the place of payment therefor. The Guarantor agrees that
the Counterparty may have recourse to the Guarantor for payment of any of the
Obligations, whether or not the Counterparty has proceeded against any
collateral security or any obligor principally or secondarily obligated for any
Obligation. The Guarantor waives demands, promptness, diligence and all notices
that may be required by law or to perfect the Counterparty's rights hereunder
except notice to the Guarantor of a default by Primary Obligor under the
Agreement, provided however that any delay in the delivery of notice shall in no
way invalidate the enforceability of this Guarantee. No failure, delay or single
or partial exercise by the Counterparty of its rights or remedies hereunder
shall operate as a waiver of such rights or remedies. All rights and remedies
hereunder or allowed by law shall be cumulative and exercisable from time to
time.

4. Representations and Warranties. The Guarantor hereby represents and warrants
that:

      (i) the Guarantor is duly organized, validly existing and in good standing
under the laws of Delaware;

      (ii) the Guarantor has the requisite corporate power and authority to
issue this Guarantee and to perform its obligations hereunder, and has duly
authorized, executed and delivered this Guarantee;

      (iii) the Guarantor is not required to obtain any authorization, consent,
approval, exemption or license from, or to file any registration with, any
government authority as a condition to the validity of, or to the execution,
delivery or performance of, this Guarantee;

      (iv) as of the date of this Guarantee, there is no action, suit or
proceeding pending or threatened against the Guarantor before any court or
arbitrator or any governmental body, agency or official in which there is a
reasonable possibility of an adverse decision which could affect, in a
materially adverse manner, the ability of the Guarantor to perform any of its
obligations under, or which in any manner questions the validity of, this
Guarantee;

      (v) the execution, delivery and performance of this Guarantee by the
Guarantor does not contravene or constitute a default under any statute,
regulation or rule of any governmental authority or under any provision of the
Guarantor's certificate of incorporation or by-laws or any contractual
restriction binding on the Guarantor; and

      (vi) this Guarantee constitutes the legal, valid and binding obligation of
the Guarantor enforceable in accordance with its terms, subject to the effect of
any bankruptcy, insolvency, reorganization, moratorium or similar law affecting
creditors' rights generally, and to general principles of equity (regardless of
whether such

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enforceability is considered in a proceeding in equity or at law).

5. Subrogation. Upon payment by Guarantor of any sums to Counterparty under this
Guarantee, all rights of Guarantor against Primary Obligor arising as a result
thereof by way of right of subrogation or otherwise shall in all respects be
subordinate and junior in right of payment to the prior indefeasible payment in
full of all the obligations of Primary Obligor under the Agreement, including
all Transactions then in effect between Primary Obligor and Counterparty.

6. Termination. This Guarantee is a continuing guarantee and shall remain in
full force and effect until such time as it may be revoked by the Guarantor by
notice given to the Counterparty, such notice to be deemed effective upon
receipt thereof by the Counterparty or at such later date as may be specified in
such notice; provided, however, that such revocation shall not limit or
terminate this Guarantee in respect of any Transaction effected under the
Agreement which shall have been entered into prior to the effectiveness of such
revocation. Notwithstanding anything to the contrary in this Paragraph 6, this
Guarantee shall terminate, and Guarantor shall be released from all of the
Obligations hereunder with respect to any Transaction(s), immediately upon the
transfer or assignment of such Transaction(s) to an entity which is not an
Affiliate of Primary Obligor (as such term is defined in Section 14 of the
Agreement), if such transfer or assignment is completed in accordance with the
provisions of Section 7 of the Agreement.

7. Notices. Any notice or communication required or permitted to be made
hereunder shall be made to the appropriate addresses set forth below (or to such
other addresses as either party may designate by notice to the other party):

            If to the Counterparty:

            Citibank, N.A.
            250 West Street, 10th Floor
            New York, NY  10013
            Attention:  Director, Derivatives Operations
            Facsimile No.:  212-723-2956

            With a copy to:

            Legal Department
            77 Water Street
            9th Floor
            New York, NY  10004
            Attention:  Department Head
            Facsimile No.:  212-657-1452

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            If to the Guarantor:

            Parallel Petroleum Corporation
            1004 N. Big Spring
            Suite 400
            Midland, TX  79701
            Attention:  Steve Foster
            Facsimile No.:  432-684-3905

8. GOVERNING LAW; JURISDICTION. This Guarantee shall be governed by and
construed in accordance with the laws of the State of New York. The Guarantor
hereby irrevocably consents to, for the purposes of any proceeding arising out
of this Guarantee, the exclusive jurisdiction of the courts of the State of New
York and the United States District Court located in the borough of Manhattan in
New York City.

9. Waiver of Immunity To the extent that the Guarantor has or hereafter may
acquire any immunity from jurisdiction of any court or from any legal process
(whether through service or notice, attachment prior to judgment, attachment in
aid of execution, execution or otherwise) with respect to the Guarantor or the
Guarantor's property, the Guarantor hereby irrevocably waives such immunity in
respect of the Guarantor's obligations under this Guaranty.

10. Waiver of Jury Trial. The Guarantor here by irrevocably waives all right to
trial by jury in any action, proceeding or counterclaim (whether based on
contract, tort or otherwise) arising out of or relating to this Guarantee or the
negotiation, administration or enforcement hereof.

11. Miscellaneous. Each reference herein to the Guarantor, Counterparty or
Primary Obligor shall be deemed to include their respective successors and
assigns. The provisions hereof shall inure in favor of each such successor or
assign. This Guarantee (i) shall supersede any prior or contemporaneous
representations, statements or agreements, oral or written, made by or between
the parties with regard to the subject matter hereof, (ii) may be amended only
by a written instrument executed by the Guarantor and Counterparty and (iii) may
not be assigned by either party without the prior written consent of the other
party.

12. Deposits. If the Guarantor fails to pay any of the Guarantor's obligations
hereunder when the same shall become due and payable Counterparty is hereby
authorized at any time and from time to time, to the fullest extent permitted by
law, to set off and apply any and all deposits (general or special, time or
demand, provisional or final) at any time held and other indebtedness at any
time owing by Counterparty to or for any entity comprising the Guarantor's
credit or account against any and all of the Obligations, whether or not
Counterparty shall have made any demand under this Guarantee. Counterparty
agrees to promptly notify the relevant Guarantor after any such set-off and
application, provided that the failure to give such notice shall not affect the
validity of such set-off and application. Counterparty's rights under this
paragraph are in addition to other rights and remedies (including without
limitation other rights of set off) which Counterparty may have.

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13. Limitation of Liability. Notwithstanding anything to the contrary contained
herein or in the Agreement, whether express or implied, Guarantor shall in no
event be required to pay or be liable to the Counterparty for any consequential,
indirect or punitive damages, opportunity costs or lost profits.

      In Witness Whereof, the undersigned has executed this Guarantee as of the
date first above written.

PARALLEL PETROLEUM CORPORATION

By: /s/ Steven D. Foster
    -----------------------
    Name: Steven D. Foster
    Title:  CFO