Parallel Petroleum Announces First Quarter 2005 Financial Results

    Business Editors/Energy Editors

    MIDLAND, Texas--(BUSINESS WIRE)--May 10, 2005--Parallel Petroleum Corporation (NASDAQ:PLLL) today announced its financial results for the first quarter ended March 31, 2005. In a separate press release dated May 9, 2005, Parallel announced its operations update.

    First Quarter Results

    For the three months ended March 31, 2005, Parallel reported a net loss of $0.6 million, or $.02 per diluted share. Operating income was $2.6 million, after oil and gas hedge payments of $3.2 million. For the three months ended March 31, 2004, Parallel recorded net income of $1.5 million, or $.05 per diluted share, which included $2.7 million of operating income, after oil and gas hedge payments of $1.1 million.
    For the first quarter of 2005, Parallel's sales were 207 MBbls of oil and 602 MMcf of natural gas, or 307 MBOE. During this period, the average prices the Company received for its oil and natural gas on an unhedged/hedged basis, respectively, were $45.29/$30.72 per barrel and $6.00/$5.66 per Mcf, or $42.25/$31.78 per BOE. For the same period of 2004, oil sales were 161 MBbls at an average unhedged/hedged price of $32.93/$25.93 per barrel and natural gas sales were 732 MMcf at an average price of $5.21/$5.24 per Mcf, or 283 MBOE at $32.21/$28.30 per BOE.
    Net cash provided by operating activities for the three-month period ended March 31, 2005, was $3.8 million, compared to $4.0 million for the same period of 2004. The decrease was primarily related to increases in oil hedge payments, lease operating expenses, interest expense and general and administrative expenses. The largest increase in general and administrative expenses was in public reporting costs associated with Sarbanes-Oxley 404 compliance.

    Balance Sheet Review

    At March 31, 2005, current assets were $15.7 million, which included $3.2 million of cash. Current liabilities were $22.0 million, including current derivative obligations of $15.8 million, and long-term debt was $50.0 million. The Company's net capitalized costs associated with its oil and gas properties and other equipment were $156.6 million. Parallel's stockholders' equity as of March 31, 2005 was $74.0 million, which includes $24.1 million of accumulated comprehensive loss that is related to the Company's oil and gas hedges.

    Equity Offering

    Parallel announced on February 9, 2005, that it sold 5,750,000 shares of its common stock pursuant to a public offering at a price of $5.27 per share, resulting in net proceeds of approximately $28.0 million. The common shares were issued under Parallel's universal shelf registration statement on Form S-3. The Company applied the $28.0 million to its line of credit, reducing long-term debt to approximately $50.0 million.

    Non-Strategic Asset Divestiture

    In January 2005, Parallel divested interests in 6 Permian Basin assets, located in Howard County, Texas, to an unaffiliated third party. Net proceeds from the sale were approximately $2.5 million and resulted in a net reduction in the Company's production of approximately 60 BOE per day. These properties represented less than 0.2% of the Company's total proved reserves as of December 31, 2004. Parallel will continue to evaluate all portfolio assets for economic viability and strategic fit.

    First Quarter 2005 Pre-tax, Non-cash Loss on "Ineffective Portion of Oil Hedges"

    The Company recorded a pre-tax, non-cash loss of approximately $2.3 million on "ineffective portion of oil hedges" during the first quarter of 2005. As described in the "Hedging Information" table within this press release, the Company currently has approximately 1.96 million barrels of oil hedged for the next 45 months (through 2008) at NYMEX prices ranging from $28.46 to $49.60 per barrel. These hedges are directly related to the Fullerton acquisitions in December 2002 and September 2004, and the Carm-Ann acquisition in September 2004. The Company's composite average differential between the hedged NYMEX price and the realized wellhead price has historically been approximately $2.50 per barrel; however, the differential has recently increased to approximately $4.34 per barrel, because U. S. refineries are currently paying a premium for West Texas Intermediate, which is the NYMEX benchmark. The majority of the Company's oil is West Texas Sour.

    Redemption of 6% Convertible Preferred Stock

    As the Company announced on May 3, 2005, it gave notice on May 4, 2005, that it will redeem for cash on June 6, 2005, 950,000 shares of its privately held 6% Convertible preferred stock at a redemption price of $10.00 per share. In lieu of redemption, holders of the preferred stock may convert all or any portion of their shares of preferred stock into shares of Parallel common stock at a rate of $10.00 divided by $3.50 (the conversion price), or approximately 2.8571 shares of common stock for each share of preferred stock. For additional information, see the Company's May 3, 2005 press release.
    The preferred stock was issued by Parallel in a private placement in October 1998, when the Company's common stock was trading at a price of approximately $2.50 per share.

    Management Comments

    Larry C. Oldham, Parallel's President, commented, "Although we are disappointed in the financial results of the first quarter of 2005, the Company's year-over-year daily production volumes increased 10%. We invested only $4.4 million, or 10%, of our $43.7 million capital investment budget late in the first quarter of 2005, which had minimal effect on total first quarter daily production volumes. We expect the financial results to improve in future quarters as our accelerated capital investments achieve the results we expect in terms of increases in both production and reserves."

    Today's Earnings Conference Call and Webcast Information

    The Company's management will host a conference call to discuss its financial and operational results for the first quarter ended March 31, 2005, this afternoon, Tuesday, May 10, 2005, at 2:00 p.m. Eastern time (1:00 p.m. Central time). To participate in the call, dial 1-800-573-4752 or 1-617-224-4324, Participant Passcode 69800317, at least five minutes before the scheduled start time. The conference call will also be webcast with slides, and can be accessed live at Parallel's web site, www.plll.com. A replay of the conference call will be available at the Company's web site or by calling 1-888-286-8010 or 1-617-801-6888, Passcode 38645555. A written transcript of the conference call, and the supporting slide presentation, will be available on the Company's web site Presentation page at http://phx.corporate-ir.net/phoenix.zhtml?c=79538&p=irol-presentations

    FINANCIAL STATEMENTS AND SCHEDULES FOLLOW

PARALLEL PETROLEUM CORPORATION Consolidated Balance Sheets (dollars in thousands)

March 31, December 31, Assets 2005 2004 ------------ ------------- (unaudited) Current assets: Cash and cash equivalents $3,152 $4,781 Accounts receivable: Oil and gas 6,747 6,642 Other, net of allowance for doubtful account of $9 790 389 Affiliates 5 7 ------------ ------------- 7,542 7,038 Other current assets 104 179 Deferred tax asset 4,941 2,531 ------------ ------------- Total current assets 15,739 14,529 ------------ ------------- Property and equipment, at cost: Oil and gas properties, full cost method 235,256 229,245 Other 2,445 2,062 ------------ ------------- 237,701 231,307 Less accumulated depreciation, depletion and amortization (81,064) (78,782) ------------ ------------- Net property and equipment 156,637 152,525 Restricted cash - 2,287 Investment in Westfork Pipeline Company LP 761 595 Other assets, net of accumulated amortization of $662 and $581 687 735 ------------ ------------- $173,824 $170,671 ============ =============

Liabilities and Stockholders' Equity

Current liabilities: Accounts payable and accrued liabilities $5,988 $5,568 Asset retirement obligations 135 150 Derivative obligations 15,827 7,965 ------------ ------------- Total current liabilities 21,950 13,683 ------------ ------------- Revolving Credit Facility 50,000 79,000 Asset retirement obligations 1,977 1,982 Derivative obligations 24,107 9,525 Deferred tax liability 1,764 6,487 ------------ ------------- Total long-term liabilities 77,848 96,994 ------------ ------------- Commitments and contingencies Stockholders' equity: Series A preferred stock -- par value $0.10 per share, authorized 50,000 shares - - Preferred stock -- 6% convertible preferred stock -- par value of $0.10 per share (liquidation preference of $10 per share), authorized 10,000,000 shares, issued and outstanding 950,000 95 95 Common stock -- par value $0.01 per share, authorized 60,000,000 shares, issued and outstanding 31,189,292 and 25,439,292 312 254 Additional paid-in capital 76,163 48,328 Retained earnings 21,523 22,073 Accumulated other comprehensive loss (24,067) (10,756) ------------ ------------- Total stockholders' equity 74,026 59,994 ------------ ------------- $173,824 $170,671 ============ =============

PARALLEL PETROLEUM CORPORATION Consolidated Statements of Operations For three months ended March 31, 2005 and 2004 (unaudited) (dollars in thousands, except per share data)

2005 2004 -------- ------- Oil and Natural Gas Revenues: Oil and natural gas sales $12,969 $9,106 Loss on hedging and derivatives (3,212) (1,105) -------- ------- Total revenues 9,757 8,001 -------- -------

Cost and expenses: Lease operating expense 2,558 1,529 Production taxes 580 478 General and administrative 1,688 1,222 Depreciation, depletion and amortization 2,282 2,077 -------- ------- Total costs and expenses 7,108 5,306 -------- ------- Operating income 2,649 2,695 -------- -------

Other income (expense), net: Loss on ineffective portion of hedges (2,276) (10) Interest and other income 19 140 Interest expense (1,138) (468) Other expense (1) (26) Equity loss in Westfork Pipeline Company LP (79) - -------- ------- Total other expense, net (3,475) (364) -------- ------- Income (loss) before income taxes (826) 2,331 Income tax benefit (expense), deferred 276 (849) -------- ------- Net income (loss) (550) 1,482 Cumulative preferred stock dividend (143) (143) -------- ------- Net income (loss) available to common stockholders $(693) $1,339 ======== =======

Net income (loss) per common share: Basic $(0.02) $0.05 ======== ======= Diluted $(0.02) $0.05 ======== =======

Weighted average common share outstanding: Basic 28,698 25,223 ======== ======= Diluted 28,698 28,267 ======== =======

PARALLEL PETROLEUM CORPORATION Consolidated Statements of Cash Flows Three Months Ended March 31, 2005 and 2004 (unaudited) (dollars in thousands)

2005 2004 -------- -------- Cash flows from operating activities: Net income (loss) $(550) $1,482 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation, depletion and amortization 2,282 2,077 Accretion of asset retirement obligation 26 33 Deferred income tax (276) 849 Loss on ineffective portion of hedges 2,276 10 Stock option expense 42 41 Equity loss in Westfork Pipeline Company LP 79 -

Changes in assets and liabilities: Other, net 48 (67) Increase in accounts receivable (504) (144) Decrease (increase) in other current assets 75 (11) Increase (decrease) in accounts payable and accrued liabilities 277 (298) -------- -------- Net cash provided by operating activities 3,775 3,972 -------- -------- Cash flows from investing activities: Additions to oil and gas property (8,596) (7,626) Use of restricted cash for acquisition of oil and gas properties 2,287 - Proceeds from disposition of oil and gas properties 2,539 25 Additions to other property and equipment (383) (360) Investment in Westfork Pipeline Company LP (245) - -------- -------- Net cash used in investing activities (4,398) (7,961) -------- -------- Cash flows from financing activities: Net borrowing (payments) on revolving line of credit (29,000) (9,750) Proceeds (net) from common stock issued 27,994 - Deferred stock offering costs - (7) -------- -------- Net cash used in financing activities (1,006) (9,757) -------- -------- Net decrease in cash and cash equivalents (1,629) (13,746) Cash and cash equivalents at beginning of period 4,781 17,378 -------- -------- Cash and cash equivalents at end of period $3,152 $3,632 ======== ======== Non-cash financing and investing activities: Oil and gas properties asset retirement obligation $(46) $130 Accrued preferred stock dividend $143 $143

PARALLEL PETROLEUM CORPORATION PRODUCTION VOLUMES AND PRICE DATA

Three Months Ended --------------------------------- 3/31/2005 12/31/2004 3/31/2004 --------------------------------- Production Volumes: Oil (MBbls) 207 234 161 Natural gas (MMcf) 602 695 732 Equivalent barrels of oil (MBOE)(a) 307 349 283 Equivalent barrels of oil (MBOE) per day 3.4 3.8 3.1 Sales Prices: per Bbl (unhedged) (b) $45.29 $44.07 $32.93 per Bbl (hedged) (c) $30.72 $32.68 $25.93 per Mcf (unhedged) (b) $6.00 $6.99 $5.21 per Mcf (hedged) (c) $5.66 $6.56 $5.24 per BOE (unhedged) (b) $42.25 $43.36 $32.21 per BOE (hedged) (c) $31.78 $34.90 $28.30

(a) A BOE means one barrel of oil equivalent using the ratio of six Mcf of gas to one barrel of oil. "MBOE" means one thousand BOE.

(b) Unhedged price is the actual price received at the wellhead for our oil and natural gas.

(c) Hedged price is the actual price received at the wellhead for our oil and natural gas plus or minus the settlements on our derivatives.

PARALLEL PETROLEUM CORPORATION HEDGING INFORMATION (a)

COSTLESS COLLARS: Houston Ship NYMEX Channel ------------------- Barrels Oil Prices Gas Prices of MMBTU of --------------- --------------- Period of Time Oil Floor Cap Natural Floor Cap Gas ------------------- --------- ------- ------- -------- ------- ------- Apr 1, 2005 thru Oct 31, 2005 - - - 428,000 $5.00 $7.26 Apr 1, 2005 thru Dec 31, 2005 55,000 $36.00 $49.60 - - - Jan 1, 2006 thru Dec 31, 2006 70,800 $35.00 $44.00 - - -

SWAPS: Volume NYMEX -------------------- Hedged Oil Period of Time Bbl Oil Swap Price -------------------- -------- -------- Apr 1, 2005 thru Dec 31, 2005 467,500 $30.18 Jan 1, 2006 thru Dec 20, 2006 448,000 $28.46 Jan 1, 2007 thru Dec 31, 2007 474,500 $34.36 Jan 1, 2008 thru Dec 31, 2008 439,200 $33.37

INTEREST RATE SWAPS: Notional Fixed -------------------- Amount Interest Period of Time $MM Rates -------------------- -------- -------- Apr 1, 2005 thru Dec 31, 2005 $50 3.36% Jan 1, 2006 thru Dec 31, 2006 $50 3.82% Jan 1, 2007 thru Dec 31, 2007 $50 4.30% Jan 1, 2008 thru Dec 30, 2008 $50 4.74%

(a) BNP Paribas is the counterparty in Parallel's derivative instruments.

    The Company

    Parallel Petroleum Corporation is headquartered in Midland, Texas and is an independent energy company primarily engaged in the acquisition, development, exploration and production of oil and gas using enhanced oil recovery techniques and 3-D seismic technology. Additional information on Parallel Petroleum Corporation is available at www.plll.com.

    This release contains forward-looking statements subject to various risks and uncertainties that could cause the company's future plans, objectives and performance 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," "subject to," "anticipate," "estimate," "continue," "present value," "future," "reserves", "appears," "prospective," 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, the company's growth strategy, 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 its 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 the company with the Securities and Exchange Commission.
    The foregoing statements regarding Parallel's intentions with respect to the contemplated redemption and other transactions described above are forward-looking statements under the Private Securities Litigation Reform Act of 1995, and actual results could vary materially from the statements made. Parallel's ability to complete the redemption and other transactions described above successfully is subject to various risks, many of which are outside of its control, including prevailing conditions in the capital markets and other risks and uncertainties as detailed from time to time in the reports filed by Parallel with the Securities and Exchange Commission.

--30--CSD/sa*

CONTACT: Parallel Petroleum Corporation, Midland Cindy Thomason, 432-684-3727 cindyt@plll.com

KEYWORD: TEXAS INDUSTRY KEYWORD: OIL/GAS ENERGY EARNINGS CONFERENCE CALLS SOURCE: Parallel Petroleum Corporation

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