Parallel Petroleum Announces Operations Update

    Business Editors/Energy Editors

    MIDLAND, Texas--(BUSINESS WIRE)--May 9, 2005--Parallel Petroleum Corporation (NASDAQ:PLLL) today announced its operations update. Please refer to the Company's recent news releases dated January 11, 2005, and March 15, 2005, for prior information on the Company's operations and its $43.7 million 2005 capital investment budget.

    Current Operations by Area/Property

Permian Basin

The Permian Basin generated approximately 72% of Parallel's first quarter 2005 daily production (2,447 BOE per day) and represented approximately 90% of its reserve value as of December 31, 2004.

Fullerton San Andres Field, Andrews County, Texas - This property generated approximately 47% of the Company's first quarter 2005 daily production (1,583 BOE per day) and represented approximately 48% of its reserve value as of December 31, 2004.

This property was acquired in December 2002 for approximately $46.1 million. During the fourth quarter of 2004, the Company acquired additional interests in the property for approximately $20.9 million. Development since the initial acquisition in 2002 has primarily consisted of the re-stimulation of approximately 80 existing producing wells and the drilling of six new producing wells.

The Company has budgeted approximately $3.7 million to fund 6 re-fracs and the drilling and completion of 13 new infill wells in the field in 2005. Parallel was fortunate to have a rig become available in April to drill 3 of the 13 wells. The first two wells have been drilled and are awaiting completion, and the third well is currently drilling. The Company anticipates getting another rig before the end of June to drill the remaining wells. Parallel's average working interest in the Fullerton properties is approximately 82%.

Carm-Ann San Andres Field/N. Means Queen Unit, Andrews & Gaines Counties, Texas - These properties generated approximately 6% of the Company's first quarter 2005 daily production (215 BOE per day) and represented approximately 11% of its reserve value as of December 31, 2004.

In the fourth quarter 2004 and in the first quarter 2005, Parallel acquired these producing properties for a combined aggregate net purchase price of approximately $18.7 million. The properties include 25 leases covering 5,360 gross contiguous acres, with 67 gross producing oil and natural gas wells. This acquisition established a new core operating area that is located within 50 miles of the Company's Midland, Texas, headquarters.

The Company originally budgeted approximately $4.1 million for the Carm-Ann/N. Means Queen properties in 2005 for 22 workovers and 13 new infill wells. The drilling portion of the capital development program has now been expanded to a total of 16 San Andres in-fill wells, of which eight will be drilled on producing well locations, and eight will be drilled on injection well locations. One Queen formation producing well location is also planned. Presently, the Company is drilling the ninth well of this 17-well program, with four wells completed and on test. One well is currently being completed, and three others are awaiting completion. On average, early results from the first four wells are considerably better than our risked projections. Parallel's average working interest in these properties is approximately 77%.

Diamond M Shallow Leases, Scurry County, Texas - This property generated approximately 3% of the Company's first quarter 2005 daily production (110 BOE per day) and represented approximately 13% of its reserve value as of December 31, 2004.

The company completed a 30-well infill development program during 2004, with one-third of the wells drilled on producing well locations and two-thirds of the wells drilled on injection well locations. All but 2 of the injection wells were initially equipped and allowed to produce prior to their conversion to water injectors for purposes of formation conditioning. At present, eight wells remain to be placed on injection service. The second round of development drilling is scheduled to start late in the year, once the initial waterflood response is evaluated.

The Company has budgeted a total of $5.0 million in 2005 to fund 16 workovers and well conversions in this project throughout the year and for a 15-well development drilling program during the fourth quarter of 2005, pending satisfactory waterflood response. Parallel's average working interest in these properties is approximately 66%.

Diamond M Canyon Reef Unit, Scurry County, Texas - This property generated approximately 4% of the Company's first quarter 2005 daily production (138 BOE per day) and represented approximately 9% of its reserve value as of December 31, 2004.

The Company assumed operations of this project in March 2003. Field activity has primarily consisted of facility upgrades, geophysical testing, and the reactivation (workover) of two existing wells during the fourth quarter of 2004.

A total of $9.4 million has been budgeted in 2005 to fund the workover of 24 wells, the drilling of 3 new wells, associated equipment upgrades, and the acquisition of a new 3-D seismic survey. The Company has initiated activity on its 24-well workover program with activity to date on seven wells, five of which are the reactivation and deepening of abandoned wells, and two of which are deeper pay additions in active wells. Initial testing on the first four wells has resulted in an aggregate production increase of approximately 160 barrels of oil per day (approximately 90 barrels of oil per day, net to Parallel). Activity is currently under way on the deepening and reactivation of three additional previously abandoned wells. Parallel's average working interest in these properties is approximately 66%.

New Mexico Wolfcamp Gas Project - This project generated approximately 1% of the Company's first quarter 2005 daily production (50 BOE per day) and represented less than 1% of its reserve value as of December 31, 2004. Parallel previously referred to this interval as the Abo formation but is now categorizing it as the Wolfcamp formation to be consistent with the naming convention established by the state of New Mexico.

This project consists of three areas in which the primary target is the Wolfcamp formation at a depth of approximately 5,000 feet. The Wolfcamp formation is a known natural gas-producing reservoir but historically has been marginally economic due to low per-well producing rates and low natural gas prices. Parallel believes this project's reservoir can be more efficiently exploited through the application of new horizontal drilling and hydraulic fracture stimulation technologies.

Area 1 - This project consists of approximately 60,000 gross (4,800 net) acres. Parallel's base working interest in this area is approximately 8.5%. Since December 2003, Parallel has participated in the drilling of six Wolfcamp horizontal gas wells operated by Perenco, LLC. Four wells are currently producing to sales. The Thames No. 1, which went to sales in June 2004, is still producing approximately 800 gross Mcf of gas per day, and two of the other wells are each producing approximately 100 gross Mcf of gas per day. The most recent well to go to sales is producing at approximately 200 Mcf of gas per day. The other two wells are awaiting pipeline installation.

As a side note, Perenco, LLC, the designated primary operator in Area 1 has consummated its sale to LCX Energy, LLC. Several meetings relating to the development of the LCX operated acreage have taken place, resulting in LCX submitting its first horizontal well proposal in the area.

The Company also has within Area 1 an approximate 18.1% working interest in the EOG Resources operated Nile No. 22-1H well. The well was drilled horizontally, with a lateral of approximately 4,000 feet, and was multi-stage fracture stimulated and placed on sales during the last week of February. The well is currently flowing to sales at an approximate rate of 2.5 million cubic feet of gas per day, or 417 gross BOE per day (approximately 57 BOE per day, net to Parallel). Though it is very early in the productive history of this well, the Company is encouraged by the performance to date. EOG Resources has recommended the drilling of a direct offset to the Nile No. 22-1H well, in which Parallel will have an approximate 9% working interest.

Area 2 - This project consists of undeveloped leasehold interests in approximately 61,000 gross (28,000 net) acres, is contiguous to Area 1, and will be operated by Parallel. The Company initiated well operations in the second quarter of 2005 with the re-entry of a plugged and abandoned well to determine the economic viability of properly stimulated vertical wells and to collect basic data for utilization in horizontal well design. Additional re-entries and horizontal drilling are expected to follow. The Company owns an 85.0% working interest in this area.

Area 3 - This project consists of undeveloped leasehold interests in approximately 3,080 gross (1,900 net) acres, is contiguous to Area 1, and will be operated by Parallel. The Company expects to initiate well operations in the third quarter of 2005 with the drilling a horizontal well. The Company owns an 85.0% working interest in this area.

Techniques and procedures utilized will continue to be refined, based on all available information derived from Area 1, Area 2 and Area 3. Based upon the results of the initial wells drilled and re-entered, Parallel believes this project has the potential to become a multi-well, long-life gas project that will be developed over the next three to five years.

The Company has budgeted approximately $7.6 million for the New Mexico properties in 2005 for 3 re-entries, 6 new wells, and additional leasehold acquisitions.

Other Permian Basin Projects - Other Permian Basin projects generated approximately 11% of the Company's first quarter 2005 daily production (351 BOE per day) and represented approximately 9% of its reserve value as of December 31, 2004.

The Company has budgeted approximately $2.0 million for other Permian Basin properties in 2005, primarily for lease and well equipment and capitalized overhead.

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.
    Onshore Gulf Coast of South Texas

Yegua/Frio/Wilcox Gas Project, Jackson and Wharton Counties, Texas - This project generated approximately 22% of the Company's first quarter 2005 daily production (745 BOE per day) and represented approximately 9% of its reserve value as of December 31, 2004.

The Company has budgeted approximately $.9 million for the Yegua/Frio gas project in 2005 for the drilling and completion of 3 wells. Two wells are currently drilling. Parallel owns a 10% working interest in one well and a 2.5% working interest in the second well.

Through an acreage contribution, Parallel has participated in the drilling of a 12,000 foot Wilcox well in Jackson County, Texas. The well began flowing to sales on March 13, 2005, and is currently flowing at an approximate rate of 8.0 million cubic feet of gas and 160 barrels of oil per day, or 1,493 BOE per day (approximately 178 BOE per day net to Parallel), on a 16/64-inch choke with flowing tubing pressure of 7,000 pounds per square inch. Parallel's working interest (before payout) in the well is approximately 15.9% and net revenue interest (before payout) is approximately 11.9%. After well payout, the Company's working interest and net revenue interest will increase to approximately 23.8% and 17.5%, respectively. The operator has received permission from the Texas Railroad Commission to commingle the existing producing zone with an upper zone in the well. The operator intends to commingle the two zones during the month of May 2005. Also, the Company has received notice from the operator of the intent to drill two offset wells, the first of which should spud in late May 2005.

Cook Mountain Gas Project, Liberty County, Texas - This project generated approximately 6% of the Company's first quarter 2005 daily production (219 BOE per day) and represented approximately 1% of its reserve value as of December 31, 2004.

The Company has budgeted approximately $.9 million for the Cook Mountain gas project in 2005 for the drilling and completion of 4 wells. Two wells are currently drilling, one well has been drilled and is awaiting completion, and one well was a dry hole. Parallel owns an approximate 5%, or less, working interest in the wells.
    North Texas

Barnett Shale Gas Project, Tarrant County, Texas - This project does not yet contribute to the Company's current daily production or reserve value.

Parallel's Barnett Shale gas project is located east of downtown Ft. Worth, in Tarrant County, Texas, between the Newark East Barnett Shale gas field to the north in Tarrant County and the Cleburne Barnett Shale gas field to the south in Johnson County. The Company's current leasehold position in the project is approximately 5,000 gross (1,400 net) acres.

The partner group, which is led by Dallas based, Dale Operating, LLC and Parallel, is currently completing the first phase of a pipeline system which will form the central point of the field gathering system, linking the initial well pad and a major transmission line. The first Dale operated horizontal well, the Brentwood No. 1, was spudded on March 9, reached total depth on April 2 and is now awaiting completion. The second well, the Carter No. 1, was spudded on April 10, reached total depth on May 1 and is now awaiting completion. One additional well is contracted to be drilled from the same surface location, with completion operations being performed sequentially on the three wells once the drilling rig has been moved to a fourth location to complete its final horizontal well in the 4-well contract. Parallel's working interest in each of the four wells is 40%.

The Company has also participated, through an acreage contribution, in the drilling and completion of the Parrot #1 horizontal well, which is operated by Four Sevens, a Ft. Worth based operator. Openhole logs, stimulation response and flow back results are encouraging. The well is currently waiting on pipeline. This well is located on leasehold contiguous to Parallel's 5,000 gross-acre leasehold position. Parallel's working interest in this well is 20%.

The estimated cost to drill and complete a horizontal well is approximately $2.0 million. Based upon the results of the initial wells drilled, Parallel believes this project has the potential to become a multi-well, long-life gas project that will be developed over the next three to five years.

The Company has budgeted approximately $7.6 million for the Barnett Shale gas project in 2005 for the drilling and completion of 7 new wells, pipeline construction and leasehold acquisition.
    Other Projects

Utah/Colorado CBM (Coal Bed Methane) Gas/Conventional Oil & Gas Projects - This project does not yet contribute to the Company's current daily production or reserve value.

Parallel has increased its leasehold acreage position in this project to approximately 138,000 gross acres. It is a multiple zone project consisting of both oil and gas targets at a depth of less than 6,000 feet. Seismic and geological data evaluation on this project continues. Due to permitting delays, Parallel now expects to drill a test well during the second half of 2005.

The Company has budgeted approximately $1.4 million for this project in 2005 for the drilling and completion of 1 well, seismic and leasehold acquisition, and multiple core test holes for coal-bed methane potential. Parallel owns and operates 100% of this project.

East Texas Cotton Valley Reef Gas Project - This project does not yet contribute to the Company's current daily production or reserve value.

This 3-D seismic gas project is a higher risk profile than the Company's other projects. The objective is the Cotton Valley barrier reef facies found between the depths of 16,000 and 18,000 feet. The project consists of approximately 5,000 gross (650 net) acres.

The first well was drilled to a total depth of 18,100 feet, during 2004, finding a non-porous Cotton Valley Reef interval. A completion attempt was made in the Cotton Valley Sands, which are above the Cotton Valley Reef. A large frac treatment has been performed on the zone. Although the zone has tested gas, it has been deemed to be non-commercial. A completion attempt will now be made in the Travis Peak Sands, which are above the Cotton Valley Sands. A large frac treatment will be performed on the zone.

The operator is also re-evaluating seismic to help determine other drilling locations with optimal porosity potential from all potential pay zones.

The Company has budgeted approximately $1.1 million for the Cotton Valley Reef gas project in 2005 for the drilling of 1 well and additional leasehold acquisition. Parallel owns an approximate 13.125% working interest in this project.

Daily Production - First Quarter 2005, Compared to Fourth Quarter 2004 and First Quarter 2004

1Q 2005 1Q 2005 1Q 2005 4Q 2004 1Q 2004 Compared Compared Actual Actual Actual to to BOE BOE BOE 4Q 2004 1Q 2004 AREA/PROPERTY per day per day per day % Change % Change ---------------------- ------- -------- -------- -------- -------- Permian Basin Fullerton San Andres (a) 1,583 1,731 1,304 -9% 21% Carm-Ann San Andres / N. Means Queen 215 204 -- 5% N/A Diamond M Shallow (b) 110 155 25 -29% 340% Diamond M Canyon Reef (c) 138 163 141 -15% -2% New Mexico 50 24 -- 108% N/A Other Permian Basin (d) 351 415 446 -15% -21% ------- -------- -------- Total 2,447 2,692 1,916 -9% 28% ------- -------- -------- Onshore Gulf Coast of South Texas Yegua/Frio/Wilcox (e) 745 853 881 -13% -15% Cook Mountain (e) 219 246 308 -11% -29% ------- -------- -------- Total 964 1,099 1,189 -12% -19% ------- -------- -------- GRAND TOTAL 3,411 3,791 3,105 -10% 10% ======= ======== ========

--------------------------------- (a) 4Q 2004 - included flush production from 6 new wells, whereas in the 1Q 2005 - no new wells were drilled or completed.

(b) 1Q 2005 - converting producing wells to injectors.

(c) 1Q 2005 - certain producing wells were down due to elective workovers and unexpected downtime.

(d) 1Q 2005 - sold 60 BOE per day, related to certain non-core assets, for $2.5 million

(e) 1Q 2005 - unexpected accelerated quarterly decline rate of approximately 12%, compared to normal decline rate of approximately 7.5% per quarter.
    Management Comments

    Larry C. Oldham, Parallel's President, commented, "The Company's first quarter 2005 daily production volumes were up 10% compared to the first quarter 2004. The 10% increase is due to the 28% increase in daily production volumes associated with the Company's long-life Permian Basin assets offset by the 19% decline in daily production volumes associated with the Company's short-life Gulf Coast assets."
    Oldham further commented, "Recent production additions associated with the Company's 2005 capital investment activities occurred late in the first quarter 2005 and had minimum effect on total first quarter 2005 daily production volumes. As shown in the table above, first quarter 2005 daily production volumes compared to the fourth quarter 2004 daily production volumes were down 10% primarily due to the following reasons: In the Permian Basin, production from the Fullerton San Andres property was down 9% because no new wells were drilled and completed in the first quarter of 2005, compared to the drilling of six wells in the fourth quarter of 2004; production from our Diamond M Shallow property was down 29% because producing wells were converted to injectors, and the Diamond M Canyon Reef production was down 15% due to unexpected downtime and elective workovers on existing producing wells; and production associated with our other Permian Basin properties decreased approximately 60 BOE per day, or 15%, due to our $2.5 million asset divestiture. Also, contributing to our first quarter 2005 decrease in daily production volumes was the unexpected accelerated quarterly decline rate of approximately 12%, compared to the normal decline rate of approximately 7.5% per quarter on our Gulf Coast properties."
    In a final comment, Oldham stated, "As we complete projects funded by our $43.7 million 2005 accelerated capital investment budget, we expect production and reserves to increase in future quarters."

    Earnings Release, Conference Call and Webcast Information

    Parallel's announcement of its financial results for the first quarter ended March 31, 2005, is expected to be released on Tuesday morning, May 10, 2005, prior to the conference call. The Company's management will host a conference call to discuss its financial and operational results for the first quarter ended March 31, 2005, on 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, http://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

    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 http://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.

--30--SW/sa*

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

KEYWORD: TEXAS NEW MEXICO INDUSTRY KEYWORD: OIL/GAS BANKING ENERGY UTILITIES EARNINGS CONFERENCE CALLS SOURCE: Parallel Petroleum Corporation

Copyright Business Wire 2005