<PAGE>
1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q/A
Amendment No. 2
----------------------------
(Mark One)
/X/ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 1999 or
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Transition period from to
--------------------------
COMMISSION FILE NUMBER 0-13305
--------------------------
PARALLEL PETROLEUM CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 75-1971716
(State of other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
One Marienfeld Place, Suite 465,
Midland, Texas 79701
(Address of principal executive offices) (Zip Code)
(915) 684-3727
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes 'X' No
At August 1, 1999, 18,331,858 shares of the Registrant's Common Stock,
$0.01 par value, were outstanding.
================================================================================
<PAGE>
2
INDEX
PART I - FINANCIAL INFORMATION
Page No.
ITEM 1. FINANCIAL STATEMENTS
Reference is made to the succeeding pages for the following
financial statements:
- Balance Sheet as of December 31, 1998 and June 30, 1999
(unaudited) 4
- Unaudited Statements of Operations for the three months
ended June 30, 1998 and 1999 and six months ended
June 30, 1998 and 1999 6
- Unaudited Statements of Cash Flows for the six months ended 7
June 30, 1998 and 1999
- Notes to Financial Statements 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 11
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 19
PART II. - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 20
<PAGE>
3
EXPLANATORY NOTE
This amendment reflects the retroactive exclusion of Parallel's pro rata
share of the assets and liabilities of First Permian, L.L.C. with respect to our
22.5% member interest. First Permian is a Delaware limited liability company
formed on June 25, 1999 to acquire the oil and gas assets of a wholly owned
subsidiary of Fina Oil and Chemical Company.
For the quarter ended June 30, 1999, we accounted for our interest in First
Permian under the pro rata method of consolidation. Under this method of
accounting, our pro rata share of the assets and liabilities of First Permian
were consolidated with the assets and liabilities of Parallel. However, because
of recent SEC interpretations of accounting for consolidated investments,
beginning with the fourth quarter of 1999, we changed our method of accounting
for our interest in First Permian from the pro rata consolidation method to the
equity method of accounting and are restating the June 30, 1999 quarterly
amounts. Under the equity method of accounting, investments are recorded at cost
and are increased or reduced by the company's proportionate share of income or
loss. Therefore, Parallel's restated balance sheet as of June 30, 1999 does not
include our 22.5% pro rata interest in the assets and liabilities of First
Permian. Instead, our 22.5% interest is reported as an investment on the balance
sheet.
<PAGE>
4
PARALLEL PETROLEUM CORPORATION
BALANCE SHEETS
<TABLE>
December 31, June 30, 1999
ASSETS 1998* (Unaudited)
- ------------- ------------ --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,178,819 $ 565,263
Accounts receivable:
Oil and gas 1,432,659 1,366,385
Others, net of allowance for doubtful accounts
of $71,358 in 1998 and 1999 247,740 368,097
Affiliate 11,844 --
------------ ------------
1,692,243 1,734,482
Other assets 61,504 28,012
------------ ------------
Total current assets 2,932,566 2,327,757
------------ ------------
Property and equipment, at cost:
Oil and gas properties, full cost method 65,565,466 67,344,763
Other 287,586 288,338
------------ ------------
65,853,052 67,633,101
Less accumulated depreciation and depletion 22,279,355 24,140,149
------------ ------------
Net property and equipment 43,573,697 43,492,952
------------ ------------
Investment in First Permian, LLC (Note 2) -- 2,250
Other assets, net of accumulated amortization of
$86,917 in 1998 and $95,248 in 1999 58,519 66,039
------------ ------------
$ 46,564,782 $ 45,888,998
============ ============
</TABLE>
<PAGE>
5
PARALLEL PETROLEUM CORPORATION
BALANCE SHEETS
(Continued)
<TABLE>
December 31, June 30, 1999
LIABILITIES AND STOCKHOLDERS' EQUITY 1998* (Unaudited)
- ------------------------------------ ------------ -------------
<S> <C> <C>
Current liabilities:
Accounts payable and accrued liabilities:
Trade $ 2,803,539 $ 1,727,658
Affiliate 214 --
Preferred stock dividend -- 24,363
------------ ------------
Total current liabilities 2,803,753 1,752,021
------------ ------------
Long-term debt:
Bank credit facility (Note 3) 18,035,889 18,815,889
Deferred income taxes -- --
Stockholders' equity:
Preferred stock 6% convertible preferred stock
par value $.10 per share(aggregate liquidation
preference of $10) authorized 10,000,000 shares,
issued and outstanding 974,500 in 1998 and 1999 97,450 97,450
Common stock - par value $.01 per share, authorized
60,000,000 shares, issued and outstanding
18,306,858 in 1998 and 18,331,858 in 1999 183,069 183,319
Additional paid-in surplus 32,341,971 32,042,197
Retained deficit (6,897,350) (7,001,878)
------------ ------------
Total stockholders' equity 25,725,140 25,321,088
Contingencies
------------ ------------
$ 46,564,782 $ 45,888,998
============ ============
</TABLE>
*The balance sheet as of December 31, 1998 has been derived from Parallel's
audited financial statements. The accompanying notes are an integral part of
these financial statements.
<PAGE>
6
PARALLEL PETROLEUM CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
Three Months Ended Six Months Ended
------------------------- -----------------------------
June 30, June 30,
------------------------- -----------------------------
1998 1999 1998 1999
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Oil and gas revenues $2,453,140 $1,991,727 $4,565,703 $3,954,816
---------- ---------- ---------- ----------
Cost and expenses:
Lease operating expense 613,053 551,142 1,170,691 1,064,964
General and administrative 199,117 220,911 419,505 424,148
Depreciation, depletion
and amortization 1,063,466 956,958 1,994,283 1,860,794
---------- ---------- ---------- ----------
1,875,636 1,729,011 3,584,479 3,349,906
---------- ---------- ---------- ----------
Operating income 577,504 262,716 981,224 604,910
---------- ---------- ---------- ----------
Other income (expense), net:
Interest income 395 13,695 470 26,971
Other income 37,552 6,606 51,111 13,229
Interest expense (341,817) (376,057) (646,095) (747,128)
Other expense (4,195) (1,205) (8,577) (2,510)
---------- ---------- ---------- ----------
Total other expense, net (308,065) (356,961) (603,091) (709,438)
---------- ---------- ---------- ----------
Income (loss) before income taxes 269,439 (94,245) 378,133 (104,528)
Income tax expense deferred 88,826 -- 124,695 --
---------- ---------- ---------- ----------
Net income (loss) $ 180,613 $ (94,245) $ 253,438 $ (104,528)
========== ========== ========== ==========
Cumulative preferred stock dividend $ 68,000 $ 146,175 $ 68,000 $ 316,713
========== ========== ========== ==========
Net income (loss) available
to common stockholders $ 112,613 $ (240,420) $ 185,438 $ (421,241)
========== ========== ========== ==========
Net income (loss) per common share
Basic $ .006 $ (.013) $ .010 $ (.023)
========== ========== ========== ==========
Diluted $ .006 $ (.013) $ .010 $ (.023)
========== ========== ========== ==========
Weighted average common shares
Outstanding diluted 18,123,822 18,331,858 18,121,533 18,120,194
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
7
PARALLEL PETROLEUM CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
Six Months Ended June 30,
---------------------------
1998 1999
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 253,438 $ (104,528)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation, depletion and amortization 1,994,283 1,860,794
Income taxes 124,695 --
Other, net (5,702) (7,520)
Changes in assets and liabilities:
Increase in trade receivables (53,602) (42,239)
(Increase) decrease in prepaid expenses
and other (73,701) 33,492
Decrease in accounts payable
and accrued liabilities (1,419,721) (1,051,732)
----------- -----------
Net cash provided by operating
activities 819,690 688,267
----------- -----------
Cash flows from investing activities:
Additions to property and equipment (12,953,814) (2,035,289)
Proceeds from disposition of property and equipment -- 255,240
Investment in First Permian, LLC -- (2,250)
----------- -----------
Net cash used in investing
activities (12,953,814) (1,782,299)
----------- -----------
Cash flows from financing activities:
Proceeds from the issuance of long-term debt 13,343,000 780,000
Payment of long-term debt (7,234,000) --
Proceeds from exercise of options and warrants 53,438 17,189
Stock offering costs (80,851) --
Proceeds from preferred stock issuance 6,000,000 --
Payment of preferred stock dividend (68,000) (316,713)
----------- -----------
Net cash provided by financing
activities 12,013,587 480,476
----------- -----------
Net increase (decrease) in cash
and cash equivalents (120,537) (613,556)
Beginning cash and cash equivalents 597,149 1,178,819
----------- -----------
Ending cash and cash equivalents $ 476,612 $ 565,263
=========== ===========
Non-cash financing activities:
Accrued preferred stock dividend $ -- $ 24,362
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financials.
<PAGE>
8
PARALLEL PETROLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The financial information included herein, with the exception of the
balance sheet as of December 31, 1998, is unaudited. However, such information
includes all adjustments (consisting solely of normal recurring adjustments),
which are, in the opinion of management, necessary for a fair statement of the
results of operations for the interim periods. The results of operations for the
interim period are not necessarily indicative of the results to be expected for
an entire year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted in this Form 10-Q Report pursuant to certain
rules and regulations of the Securities and Exchange Commission. These financial
statements should be read in conjunction with the financial statements and notes
included in Parallel's 1998 Annual Report and 1998 Form 10-K.
NOTE 2. RECENT EVENTS
On June 30, 1999, First Permian and a wholly owned, indirect subsidiary of
Fina Oil and Chemical Company consummated a cash merger. First Permian was the
surviving entity. The transaction was accounted for as a purchase. The assets
acquired consisted primarily of producing oil and gas properties located in the
Permian Basin of west Texas. After giving effect to purchase price adjustments,
First Permian paid to Fina cash in the aggregate amount of approximately $92.0
million.
First Permian is owned by Parallel, Baytech, Inc., Tejon Exploration
Company and Mansefeldt Investment Corporation. Baytech, Tejon and Mansefeldt are
privately held oil and gas companies. Parallel and Baytech are the managers of
First Permian and each owns a 22.5% membership interest. Tejon Exploration and
Mansefeldt Investment each own a 27.5% interest in First Permian. If certain
conditions are met regarding the prepayment of $16.0 million aggregate principal
amount of subordinated unsecured notes made by First Permian and payable to
Tejon and Mansefeldt, the proceeds of which were used to help finance the
acquisition, Parallel's interest in First Permian could increase to 37.5% for a
nominal fee per membership unit.
The purchase was financed, in part, with the proceeds of the revolving
credit facility provided by Bank One, Texas, N.A. to First Permian. On June 30,
1999, Parallel and Baytech entered into a credit agreement with Bank One, Texas,
N.A. that established the $110.0 million revolving credit facility. The
principal amount of the initial loan from Bank One is $74.0 million. Parallel's
obligation is limited to a guaranty of $10.0 million of the bank borrowings.
In addition to the $74.0 million loan from Bank One, First Permian borrowed
$8.0 million from Tejon Exploration Company and $8.0 million from Mansefeldt
Investment Corporation to help finance the acquisition of oil and gas properties
from Fina Oil and Chemical Company. Under terms of an Intercreditor Agreement,
dated June 30, 1999, the loans made by Tejon and Mansefeldt are unsecured and
subordinate in all respects to the senior loans made by Bank One.
Each loan requires a principal payment of $2.5 million on December 31, 1999
and $5.5 million on June 30, 2000. Principal payments on the subordinated loans
are subject to certain restrictions.
NOTE 3. LONG TERM DEBT
Our long term debt at June 30, 1999 consisted of the following:
Revolving credit facility note payable to bank at the bank's
base lending rate plus .25% (8.0% at June 30, 1999) $18,815,889
===========
<PAGE>
9
Revolving Credit Facility. At June 30, 1999, Parallel was a party to a loan
agreement with Bank One, Texas, N.A. Under terms of the loan agreement, we may
borrow up to the lesser of $30,000,000 or the "borrowing base" then in effect.
The borrowing base in effect at June 30, 1999 was $18,815,889 (the Revolving
Facility). The borrowing base was subject to reduction by a monthly commitment
reduction of $380,000. However, effective March 23, 1999, the monthly commitment
reduction was suspended by the bank until May 1, 1999 at which time the
borrowing base and monthly commitment reduction were scheduled for
redetermination. The loan agreement provides for a redetermination of the
borrowing base and monthly commitment reduction every six months on April 1 and
October 1 of each year or at such other times as the bank elects. As of the date
of this Form 10-Q Report, we had not received notice from the bank of the
redetermined borrowing base or monthly reduction amount. At June 30, 1999, we
had borrowed all the funds currently available under the Revolving Facility. All
indebtedness under the Revolving Facility matures July 1, 2001. The loan is
secured by substantially all of our oil and gas properties. Commitment fees of
.25% per annum on the difference between the commitment and the average daily
amount outstanding are due quarterly.
The unpaid principal balance of the Revolving Facility bears interest at
our election at a rate equal to (i) the bank's base lending rate plus .25% or
(ii) the bank's Eurodollar rate plus a margin of 2.5%. Interest under the
Revolving Facility is due and payable monthly. At June 30, 1999, the interest
rate was the bank's base rate plus .25% or 8.0%.
The loan agreement contains various restrictive covenants and compliance
requirements, which include (1) maintenance of certain financial ratios, (2)
limiting the incurrence of additional indebtedness, (3) prohibiting payment of
dividends on common stock, and (4) prohibiting the payment of dividends on
preferred stock when an event of default under the loan agreement is in
existence.
At June 30, 1999 we were in default under our loan agreement for events of
noncompliance with certain covenants of the loan agreement. We have obtained a
waiver of the default from our bank lender.
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 Preferred
Stock may be converted, at the option of the holder, into 2.8571 shares of
common stock at an initial conversion price of $3.50 per share, subject to
adjustment in certain events. The preferred stock has a liquidation preference
of $10 per share and has no voting rights, except as required by law.
We may redeem the preferred stock, in whole or part, after October 20,
1999, for $10 per share plus accrued and unpaid dividends.
NOTE 5: 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 relate deferred income taxes, is compared
to the ceiling on a quarterly and annual basis. Any excess of the net book
value, less related deferred income taxes, is generally written off as an
expense. Under rules and regulations of the SEC, the excess above the ceiling is
not written off if, subsequent to the end of the quarter or year but prior to
the release of the financial results, prices increased sufficiently such that an
excess above the ceiling would not have existed if the increased prices were
used in the calculations.
During the fourth quarter of 1998, we recognized a non-cash impairment
charge of $15.0 million, or $12.0 million net of tax, related to our oil and gas
reserves and unproved properties. The impairment of oil and gas assets was
primarily the result of the effect of significantly lower oil and natural gas
prices on both proved and unproved oil and gas properties. At June 30, 1999, our
net book value of oil and gas, less related deferred income taxes, was below the
calculated ceiling. As a result, we were not required to record a reduction of
our oil and gas properties under the full cost method of accounting.
<PAGE>
10
NOTE 6. NET INCOME PER COMMON SHARE
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("FAS 128"). FAS
128 replaced the calculation of primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of options, warrants and
convertible securities and is computed by dividing income available to common
stockholders by the weighted average number of common shares outstanding for the
period. Diluted earnings per share are computed similarly to the previously
reported fully diluted earnings per share and reflects the assumed conversion of
all potentially dilutive securities.
<TABLE>
THREE MONTHS ENDED SIX MONTHS ENDED
June 30, June 30,
-------------------- ---------------------
1998 1999 1998 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Basic EPS Computation:
Numerator -
Net income (loss) $ 180,613 $ (94,245) $ 253,438 $ (104,528)
Preferred stock dividends (68,000) (146,175) (68,000) (316,713)
---------- ---------- ---------- ----------
Net income (loss) available to common
stockholders 112,613 (240,420) 185,438 (421,241)
========== ========== ========== ==========
Denominator -
Weighted average common shares outstanding 18,123,822 18,331,858 18,121,533 18,120,194
========== ========== ========== ==========
Basic earnings (loss) per share $ .006 $ (.013) $ (.010) $ (0.23)
========== ========== ========== ==========
Diluted EPS Computation:
Numerator -
Net income (loss) $ 180,613 $ (94,245) $ 253,438 $ (104,528)
Preferred stock dividends (68,000) (146,175) (68,000) (131,713)
---------- ---------- ---------- ----------
Net income (loss) available to common
stockholders 112,613 (240,420) 185,438 (421,241)
========== ========== ========== ==========
Denominator -
Weighted average common shares outstanding 18,123,822 18,331,858 18,121,533 18,120,194
========== ========== ========== ==========
Diluted earnings (loss) per share $ .006 $ (.013) $ (.010) $ (.023)
========== ========== ========== ==========
</TABLE>
Employee stock options to purchase shares of common stock and convertible
preferred stock were outstanding during the three-month and six-month periods
ended June 30, 1998 and 1999 but were not included in the computation of diluted
net loss per share because either (i) the employee stock options' exercise price
was greater than the average market price of the common stock of Parallel, (ii)
the effect of the assumed conversion of Parallel's preferred stock to common
stock would be antidilutive, or (iii) Parallel had a net loss from continuing
operations and, therefore, the effect would be antidilutive.
<PAGE>
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
In addition to historical information contained herein, this Form 10-Q
Report contains forward-looking statements subject to various risks and
uncertainties that could cause our actual results to differ materially from
those in the forward-looking statements. Forward-looking statements can be
identified by the use of forward-looking terminology such as "may," "will,"
"expect," "intend," "anticipate," "estimate," "continue," "present value,"
"future," "reserves" or other variations thereof or comparable terminology.
Factors, that could cause or contribute to such differences could include, but
are not limited to, those relating to our growth strategy, outstanding
indebtedness, changes in interest rates, dependence on weather conditions,
seasonality, expansion and other activities of competitors, changes in federal
or state environmental laws and the administration of such laws, and the general
condition of the economy and its effect on the securities market. While we
believe our forward-looking statements are based upon reasonable assumptions,
there are factors that are difficult to predict and that are influenced by
economic and other conditions beyond our control. Investors are directed to
consider such risks and other uncertainties discussed in documents filed by
Parallel with the Securities and Exchange Commission.
The following discussion and analysis should be read in conjunction with
our Financial Statements and the related notes.
OVERVIEW
Our long term business strategy is to increase our reserve base by
. using 3-D seismic and other advanced technologies to conduct our
exploratory activities,
. acquiring properties we believe can be enhanced by developing reserves
not previously produced,
. exploiting our existing producing properties, and
. maximizing the present value of our properties by accelerating
production of reserves consistent with prudent reservoir management.
As part of this business strategy, we have discovered oil and gas reserves
using 3-D seismic technology in the Horseshoe Atoll Reef Trend of West Texas and
the Yegua/Frio Gas Trend onshore the Gulf Coast of Texas. Additionally, we have
acquired oil and gas producing properties in the Permian Basin of West Texas.
Capital utilized to acquire such reserves has been provided primarily by secured
bank financing, sales of our equity securities and cash flow from operations.
Investment in First Permian. As described in Note 2 to Financial
Statements, on June 25, 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, indirect subsidiary of Fina Oil
and Chemical Company. The primary assets of the acquired subsidiary are oil and
gas reserves and associated assets in producing fields located in the Permian
Basin of west Texas. After giving effect to purchase price adjustments, First
Permian paid to Fina Oil and Chemical Company cash in the aggregate amount of
approximately $92.0 million.
First Permian is owned by Parallel, Baytech, Inc., Tejon Exploration
Company and Mansefeldt Investment Corporation. Baytech, Tejon and Mansefeldt are
privately held oil and gas companies. Parallel and Baytech are the managers of
First Permian and each owns a 22.5% membership interest. Tejon Exploration and
Mansefeldt Investment each own a 27.5% interest in First Permian. If certain
conditions are met regarding the prepayment of $16.0 million aggregate principal
amount of subordinated unsecured notes made by First Permian and payable to
Tejon and Mansefeldt, the proceeds of which were used to help finance the
acquisition, Parallel's interest in First Permian could increase to 37.5% for a
nominal fee per membership unit. We account for our interest in First Permian
using the equity method of accounting whereby our investment is increased or
decreased by our proportionate share of First Permian's net income or loss.
The purchase was financed, in part, with the proceeds of a $110.0 million
revolving credit facility provided by Bank One, Texas, N.A. to First Permian.
<PAGE>
12
The principal amount of the initial loan was $74.0 million. In addition, First
Permian also borrowed $8.0 million from Tejon Exploration Company and $8.0
million from Mansefeldt Investment Corporation to help finance the purchase.
Operating Performance. Our operating performance is influenced by several
factors, the most significant of which are the prices we receive for our oil and
gas production volumes. The world price for oil has overall influence on the
prices we receive for our oil production. The prices received for different
grades of oil are based upon the world price for oil, which is then adjusted
based upon the particular grade. Typically, light oil is sold at a premium,
while heavy grades of crude are discounted. Gas prices we receive are primarily
influenced by seasonal demand, weather, hurricane conditions in the Gulf of
Mexico, availability of pipeline transportation to end users and proximity of
our wells to major transportation pipeline infrastructure and, to a lesser
extent, world oil prices. Additional factors influencing our operating
performance include production expenses, overhead requirements, and cost of
capital.
Our oil and gas exploration, development and acquisition activities require
substantial and continuing capital expenditures. Historically, the sources of
financing to fund our capital expenditures included:
. cash flow from operations,
. sales of our equity securities, and
. bank borrowings.
Because of the sustained deterioration in prices we receive for the oil and
gas we produce, the capital normally available to us from our cash flow and bank
borrowings has been significantly reduced. In January 1998, we were receiving
approximately $17.00 per barrel of oil and $2.70 per Mcf of gas for the oil and
gas we produced. Since then, oil prices have been as low as $10.00 per barrel.
At January 1, 1999, we were receiving approximately $10.50 per barrel of oil and
$2.00 per Mcf of gas.
For the six months ended June 30, 1999, the average sales price we received
for our crude oil production averaged $12.68 per barrel compared with $13.86 per
barrel at June 30, 1998 and $12.49 per barrel at December 31, 1998. The average
sales price for natural gas during this same period was $1.94 per mcf compared
with $2.18 per mcf at June 30, 1998 and $2.04 per mcf at December 31, 1998.
Primarily because of sustained low oil and gas prices, which adversely
affected the value of our proved oil and gas reserves, our available borrowing
capacity under our revolving credit facility was reduced from $21,000,000 to
$18,815,889. This means we have borrowed all the funds currently available under
our revolving credit agreement. We have also reduced our drilling activities
during this period of low oil and gas prices. If the prices we receive for oil
and gas production continue to improve, increasing cash flow, or if we are
successful in raising additional capital, 1999 planned drilling activity may be
accelerated.
Our oil and gas producing activities are accounted for using the full cost
method of accounting. Accordingly, we capitalize all costs incurred in
connection with the acquisition of oil and gas properties and the exploration
for and development of oil and gas reserves. See Note 5 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 acquisition and exploration and
development activities. Proceeds from the disposition of oil and gas properties
are accounted for as a reduction in capitalized costs, with no gain or loss
recognized unless such disposition involves a material change in reserves, in
which case the gain or loss is recognized.
Depletion of the capitalized costs of oil and gas properties, including
estimated future development costs, is provided using the equivalent
unit-of-production method based upon estimates of proved oil and gas reserves
and production, which are converted to a common unit of measure based upon their
relative energy content. Unproved oil and gas properties are not amortized, but
are individually assessed for impairment. The cost of any impaired property is
transferred to the balance of oil and gas properties being depleted.
Our production and results of operations vary from quarter to quarter. We
do not currently anticipate that our production volumes in 1999 will increase
significantly compared to our production volumes in the prior year as a result
of our drilling activities.
<PAGE>
13
RESULTS OF OPERATIONS
Because of our ever-changing reserve base and sources of production, year
to year or quarter to quarter comparisons of our results of operations can be
difficult. This situation is further complicated by significant changes in
product mix (oil vs. gas volumes) and related price fluctuations for both oil
and gas. For these reasons, the table below compares the results of operations
on the basis of equivalent barrels of oil ("EBO") for the period indicated. An
EBO means one barrel of oil equivalent using the ratio of six Mcf of gas to one
barrel of oil.
<TABLE>
THREE MONTHS ENDED THREE MONTHS ENDED
------------------------------ --------------------
12-31-98 3-31-99 6-30-99 6-30-98 6-30-99
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Production and prices:
Oil (Bbls) 49,294 44,619 45,908 44,484 45,908
Natural gas (Mcf) 868,131 697,593 749,856 818,631 749,856
Equivalent barrels of oil(EBO) 193,982 160,884 170,884 180,923 170,884
Oil price (per Bbl) $10.36 $12.18 $13.17 $13.64 $13.17
Gas price (per Mcf) $ 1.59 $ 2.03 $ 1.85 $ 2.26 $ 1.85
Price per EBO $ 9.77 $12.20 $11.66 $13.56 $11.66
Results of operations per EBO
Oil and gas revenues $ 9.77 $12.20 $11.66 $13.56 $11.66
Costs and expenses:
Lease operating expense 3.31 3.19 3.23 3.39 3.23
General and administrative 1.30 1.26 1.29 1.10 1.29
Depreciation and depletion 14.73 5.62 5.60 5.88 5.60
Impairment of oil and
gas properties 76.07 .00 .00 .00 .00
------- ------ ------ ------ ------
Total costs and expenses 95.41 10.07 10.12 10.37 10.12
------- ------ ------ ------ ------
Operating income (loss) (85.64) 2.13 1.54 3.19 1.54
Interest expense, net (1.73) (2.22) (2.12) (1.89) (2.12)
Other income, net 1.49 .03 .03 .18 .03
------- ------ ------ ------ ------
Pretax income (loss) (85.88) (.06) (.55) 1.48 (.55)
Income tax (expense) benefit 16.94 .00 .00 (.49) .00
------- ------ ------ ------ ------
Net income (loss) $(68.94) $ (.06) $ (.55) $ .99 $ (.55)
------- ------ ------ ------ ------
Income before working
capital adjustments $ 4.92 $ 5.56 $ 5.05 $ 7.36 $ 5.05
======= ====== ====== ====== ======
</TABLE>
The following table sets forth for the periods indicated the percentage of
total revenues represented by each item reflected on our statements of
operations.
<PAGE>
14
<TABLE>
SIX MONTHS ENDED
---------------------------------
6-30-97 6-30-98 6-30-99
------- ------- -------
<S> <C> <C> <C>
Production and prices:
Oil (Bbls) 98,707 87,859 90,527
Natural gas (Mcf) 1,838,800 1,538,536 1,447,449
Equivalent barrels of oil (EBO) 405,174 344,281 331,768
Oil price (per Bbl) $20.05 $13.86 $12.68
Gas price (per Mcf) $ 2.56 $ 2.18 $ 1.94
Price per EBO $16.52 $13.26 $11.92
Results of operations per EBO
Oil and gas revenues $16.52 $13.26 $11.92
Costs and expenses:
Lease operating expense 3.80 3.40 3.21
General and administrative .73 1.22 1.28
Depreciation and depletion 4.48 5.79 5.61
------ ------ ------
Total costs and expenses 9.01 10.41 10.10
------ ------ ------
Operating income 7.51 2.85 1.82
------ ------ ------
Interest expense, net (.92) (1.88) (2.17)
Other expense .03 .12 .03
------ ------ ------
Pretax income (loss) 6.62 1.09 (.32)
Income tax expense deferred 2.19 .36 .00
------ ------ ------
Net income (loss) $ 4.43 $ .73 $ (.32)
====== ====== ======
Net cash flow before working
capital adjustments $11.10 $ 6.88 $ 5.29
====== ====== ======
</TABLE>
The following table sets forth for the periods indicated the percentage of total
revenues represented by each item reflected on our statements of operations.
<TABLE>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------ ------------------
12-31-98 3-31-99 6-30-99 6-30-98 6-30-99
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Oil and gas revenues 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Production costs 33.9 26.1 27.7 25.6 26.9
General and administrative 13.3 10.3 11.1 9.2 10.7
Depreciation, depletion and
amortization 150.8 46.0 48.0 43.7 47.1
Impairment of oil and gas
properties 778.6 .0 .0 .0 .0
------ ------ ------ ------ ------
Total costs and expenses 976.6 82.4 86.8 78.5 84.7
------ ------ ------ ------ ------
Operating income (loss) (876.6) 17.6 13.2 21.5 15.3
------ ------ ------ ------ ------
Interest expense, net (17.7) (18.2) (18.2) (14.1) (18.2)
Other income, net 15.3 .2 .2 .9 .3
------ ------ ------ ------ ------
Pretax income (loss) (879.0) (.4) (4.8) 8.3 (2.6)
Income tax (expense) benefit 173.4 .0 .0 2.7 .0
------ ------ ------ ------ ------
Net income (loss) (705.6)% (.4)% (4.8)% 5.6% (2.6)%
====== ====== ====== ====== ======
</TABLE>
<PAGE>
15
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1999:
Oil and Gas Revenues. Oil and gas revenues decreased $461,413, or 19%, to
$1,991,727 for the three months ended June 30, 1999, from $2,453,140 for the
same period of 1998. The decrease was primarily the result of a 14% decrease in
the average sales price per EBO. We received $11.66 per EBO in the three months
ended June 30, 1999 compared with $13.56 per EBO for the same period of 1998. In
addition, oil and gas production decreased 10,039 EBO, or 6%. Approximately 75%
of the decrease in revenues was attributable to the decrease in the average
sales price and approximately 25% of the decrease was attributable to a decrease
in oil and gas production volumes. Oil and gas production declined primarily as
a result of decreased drilling activity.
Production Costs. Production costs decreased $61,911, or 10%, to $551,142
during the second three months of 1999, compared with $613,053 for the same
period of 1998. Average production costs per EBO decreased 5%, to $3.23 for the
second three months in 1999 compared to $3.39 for the same period in 1998,
primarily a result of adding lower cost oil and gas production.
General and Administrative Expenses. General and administrative expenses
increased by $21,794 or 11%, to $220,911 for the second three months of 1999,
from $199,117 for the same period of 1998. The increase was primarily due to
accounting adjustments made in the prior year. General and administrative
expenses were $1.29 per EBO in the second three months of 1999 compared to $1.10
per EBO in the second three months of 1998. Future general and administrative
costs are expected to remain fairly stable with no material increases expected
in any particular category.
Depreciation, Depletion and Amortization Expense. Depreciation, depletion
and amortization expense ("DD&A") decreased by $106,508, or 10%, to $956,958 for
the second three months of 1999 compared with $1,063,466 for the same period of
1998. As a percentage of revenues, the DD&A rate increased by 11% when compared
with the prior year three months, a result of decreased production volumes, a
decrease in the average sales price per EBO we received and a decrease in the
DD&A rate per EBO. The DD&A rate per EBO decreased to $5.60 for the three months
ended June 30, 1999 compared with $5.88 per EBO for the second three months of
1998. The decrease in the DD&A rate per EBO is attributable to a revision in our
proven reserve estimates, primarily the result of lower oil and gas prices in
effect at December 31, 1998 compared with prices in effect at December 31, 1997,
and a non-cash impairment charge incurred in the fourth quarter of 1998 that
reduced our full cost pool.
Historically, we have reviewed our estimates of proven reserve quantities
on an annual basis. However, due to the current uncertainty of oil and gas
prices, we conduct internal reviews of our estimated proven reserves on a more
frequent basis and make necessary adjustment to our DD&A rate accordingly. We
believe periodic reviews and adjustments, if necessary, will result in a more
accurate reflection of its DD&A rate during the year and minimize possible
year-end adjustments.
Net Interest Expense. Net interest expense increased $20,940, or 6%, to
$362,362 for the three months ended June 30, 1999 compared with $341,422 for the
same period of 1998, due principally to borrowings against our revolving line of
credit during 1998, when substantially lower oil and gas prices adversely
affected cash flow.
Net Income and Operating Cash Flow. Net income decreased $274,858, or 152%,
to $(94,245) for the three months ended June 30, 1999, compared to $180,613 for
the three months ended June 30, 1998. Operating cash flow decreased $470,191, or
35%, to $862,713 for the three months ended June 30, 1999 compared to $1,332,905
for the three months ended June 30, 1998. The decrease in net income and
operating cash flow resulted from a 19% decrease in oil and gas revenues and a
10% increase in intere expense. These increases were partially offset by a 10%
decrease in production costs and a 10% decrease in DD&A.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999:
Oil and Gas Revenues. Oil and gas revenues decreased $610,887, or 13%, to
$3,954,816 for the six months ended June 30, 1999, from $4,565,703 for the same
period of 1998. The decrease was primarily the result of a 10% decrease in the
average sales price per EBO. Parallel received $11.92 per EBO in the six months
ended June 30, 1999 compared with $13.26 per EBO for the same period of 1998. In
addition, oil and gas production decreased 12,513 EBO, or 4%.
<PAGE>
16
Approximately 76% of the decrease in revenues was attributable to the decrease
in the average sales price and approximately 24% of the decrease was
attributable to a decrease in oil and gas production volumes.
Production Costs. Production costs decreased $105,727, or 9%, to $1,064,964
during the first six months of 1999, compared with $1,170,691 for the same
period of 1998. Average production costs per EBO decreased 6%, to $3.21 for the
first six months in 1999 compared to $3.40 for the same period in 1998,
primarily a result of adding lower cost oil and gas production.
General and Administrative Expenses. General and administrative expenses
increased by $4,643, or 1%, to $424,148 for the first six months of 1999, from
$419,505 for the same period of 1998. General and administrative expenses were
$1.28 per EBO in the first six months of 1999 compared to $1.22 per EBO in the
first six months of 1998. Future general and administrative costs are expected
to remain fairly stable with no material increases expected in any particular
category.
Depreciation, Depletion and Amortization Expense. Depreciation, depletion
and amortization expense ("DD&A") decreased by $133,489, or 7%, to $1,860,794
for the first six months of 1999 compared with $1,994,283 for the same period of
1998. As a percentage of revenues, the DD&A rate increased by 3% when compared
with the prior year six months, a result of decreased production volumes, a
decrease in the average sales price per EBO received by Parallel and a decrease
in the DD&A rate per EBO. The DD&A rate per EBO decreased to $5.61 for the six
months ended June 30, 1999 compared with $5.79 per EBO for the first six months
of 1998. The decrease in the DD&A rate per EBO is attributable to a revision in
our proven reserve estimates, primarily the result of lower oil and gas prices
in effect at December 31, 1998 compared with prices in effect at December 31,
1997, and a non-cash impairment charge incurred in the fourth quarter of 1998
that reduced our full cost pool.
Net Interest Expense. Net interest expense increased $74,532, or 11%, to
$720,157 for the six months ended June 30, 1999 compared with $645,625 for the
same period of 1998; due principally to borrowings against our revolving line of
credit during 1998, when substantially lower oil and gas prices adversely
affected cash flow.
Net Income and Operating Cash Flow. Net income decreased $357,966 or 141%,
to $(104,528) for the six months ended June 30, 1999, compared to $253,438 for
the six months ended June 30, 1998. Operating cash flow decreased $616,150, or
26%, to $1,756,266 for the six months ended June 30, 1999 compared to $2,372,416
for the six months ended June 30, 1998. The decrease in net income and operating
cash flow resulted from a 13% decrease in oil and gas revenues, and a 16%
increase in interest expense. These increases were partially offset by a 9%
decrease in production costs and a 3% decrease in DD&A.
LIQUIDITY AND CAPITAL RESOURCES
Our cash flow is highly dependent on oil and gas prices. Decreases in the
market price of oil and gas have reduced cash flow and also resulted in the
reduction of our borrowing base under our bank credit facility. These factors
have decreased the funds available to us for capital expenditures.
Our working capital increased as of June 30, 1999 compared with December
31, 1998. Current assets exceeded current liabilities by $575,736 at June 30,
1999 compared with working capital of $128,813 at December 31, 1998
We incurred net property costs of $1,780,589 for the six months ended June
30, 1999 for our 3-D seismic interpretation, leasehold costs and drilling and
completion activities. These activities were financed by the utilization of our
cash provided by operations, proceeds from the sale of certain properties and
cash provided by credit lines.
At the present time, our cash flow from operations is adequate to meet
normal operating expenses, the interest expense under our credit facility and
preferred stock dividends. However, during a period of sustained price
downturns, we reduced exploration activities to match internally generated cash
flows. Therefore, without additional capital or an increase in our credit
facility borrowing base, our capital expenditure budget for the remainder of
1999 remains highly dependent on future oil and gas prices. If the prices we
receive for oil and gas production continue to improve, increasing cash flow, or
if we are successful in raising additional capital, 1999 planned drilling
activity may be accelerated.
<PAGE>
17
TRENDS AND PRICES
Industry conditions deteriorated significantly during 1998 and the first
three months of 1999 as a result of declining oil prices and weakening gas
prices. While prices recovered somewhat during the second quarter of 1999,
prices for the first six months of 1999 are significantly lower than the
comparable period in 1998. There is substantial uncertainty regarding future oil
and gas prices and there can be no assurance that oil and gas prices will not
decline in the future.
Our revenues, cash flows and borrowing capacity are affected by changes in
oil and gas prices. The markets for oil and gas have historically been, and will
continue to be, volatile. Prices for oil and gas typically fluctuate in response
to relatively minor changes in supply and demand, market uncertainty, and
seasonal, political and other factors beyond our control. We are unable to
accurately predict domestic or worldwide political events or the effects of such
other factors on the prices we receive for oil and gas.
INFORMATION SYSTEMS FOR THE YEAR 2000
We place a high priority on resolving the computer or embedded chip
problems related to the Year 2000 that might cause operational disruptions. Our
Year 2000 project addresses the inability of computer software; hardware or
equipment with embedded microprocessors that are time sensitive to process
correctly dates data beginning on January 1, 2000. This problem results from
computer programs using two digits rather than four to define an applicable
year.
In planning and developing the project, we considered both our information
technology, or IT, systems and non-IT systems. IT systems generally include
computer equipment and software. Alarm systems, fax machines, monitors for field
operations and other miscellaneous systems, which may contain embedded
technology, are considered non-IT systems. These types of systems are more
difficult to assess and repair than IT systems.
The scope of the project includes:
. conducting an inventory of software, hardware and embedded
systems equipment;
. assessing the potential for failure and the associated risk;
. prioritizing the need for remediation, repairing or replacing
significant non-compliant items; and
. testing any modifications to ensure Year 2000 compliance.
Additionally, the project assesses the risks associated with the Year 2000
compliance of material business partners.
The assessment phase of our Year 2000 project is at varying stages of
completion as it pertains to IT and non-IT systems and applications. We have
begun a comprehensive analysis of the operational problems and costs that would
be reasonably likely to result from the failure by us and significant third
parties to complete efforts necessary to achieve Year 2000 compliance on a
timely basis.
We believe our most significant risks will be in two areas:
. measuring the quantities of oil and natural gas produced; and
. receiving timely payment from the purchasers of its gas and oil.
We also depend upon third parties for most of our non-information
technology systems such as:
. telephones;
. facsimile machines;
. air conditioning;
. heating;
. elevators in the office building; and
. other equipment which may have embedded technology such as
microprocessors.
<PAGE>
18
Many systems owned or controlled by third parties that we are dependent
upon, including non-information technology systems, may or may not be Year 2000
compliant. Written inquiries have been sent to these third parties, but most of
this technology is outside of our control and it is difficult to assess or
remedy any non-compliance that could adversely affect our ability to conduct
business.
In December 1998, letters were mailed to significant vendors, service
providers and business partners to determine the extent to which interfaces with
such entities are vulnerable to Year 2000 issues and whether the products and
services purchased from or provided by such entities are Year 2000 compliant.
Written assurances have been obtained from our bank lender, our major purchasers
of production, with the exception of one, and our accounting software provider
indicating that they are or will be Y2K compliant by the end of the year.
Efforts are being made to locate the Y2K coordinator of the one purchaser to
determine their Y2K compliance. We are mindful that our own level of readiness
is partially dependent on the ability of these and other third parties to be
fully compliant. The failure of third parties to be Y2K compliant creates
likelihood that we will also experience Y2K interruptions through a "ripple
effect" stemming from external forces.
The remedial phase of the project is also at varying stages of completion.
The remedial phase includes the upgrade and/or replacement of software
applications and hardware systems. Most of the software providers for Parallel's
personal computers have confirmed their readiness for the Year 2000 or have
provided updates to correct most identified Year 2000 problems. Testing of our
local area network and a check for embedded systems have been completed. Minor
corrections to the local computers have been identified and will be corrected by
September 30, 1999.
It is impossible to accurately predict all potential Y2K problems and the
magnitude of any adverse effects on Parallel. Because of these uncertainties, we
are developing a contingency plan to minimize potential business interruptions.
In preparing contingency plans, we have assumed that many third parties will not
be Y2K compliant. Our remediation efforts are expected to reduce significantly
our level of uncertainty about Year 2000 compliance and the possibility of
interruptions of normal business operations. After completion of the Year 2000
review and testing, which is currently expected to be completed by June 30,
1999, we will further develop a contingency plan as required. This plan is
expected to be completed by September 30, 1999.
The following table summarizes the current overall status of our project
and lists anticipated completion dates for each phase of the project.
<TABLE>
Phase
- ---------------------------------------------------------------------------------------
Component Inventory Assessment Remediation
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Business Partners January 31, 1999 August 31, 1999 September 15, 1999
Software April 30, 1999 May 31, 1999 Completed
Hardware April 30, 1999 September 15,1999 September 30, 1999
Embedded Systems April 30, 1999 May 31, 1999 Completed
</TABLE>
To date, only minor costs have been incurred for project planning.
Substantially all of the personnel working on the project to identify, assess,
remediate and test Year 2000 issues are existing employees. Therefore, labor
costs incurred in connection with the project are expected to be minimal. Based
on current information, we do not anticipate that the costs associated with any
necessary in-house modifications will be material to its operations or financial
condition. The total cost of the project is expected to range from $10,000 to
$20,000.
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations that could materially and adversely affect Parallel's operations,
liquidity and financial condition. Because of the uncertainty surrounding Year
2000 issues, primarily those associated with third party suppliers and material
business partners; we are unable to determine at this time whether Year 2000
failures will have a material impact on its operations. However, the project is
expected to reduce the risk of Year 2000 issues significantly, particularly
regarding the compliance and readiness of our material vendors, suppliers and
business partners. We believe that the timely completion of this project will
reduce the possibility of significant interruptions of normal business
operations.
<PAGE>
19
This is a flexible plan that will change to address additional Y2K issues
as new problems are identified. As a result, any time and costs estimates and
the assessment of risks associated with Y2K issues are subject to revision as
needed to meet our goal to be Y2K compliant.
ITEM 3. QUANTITATIVE AND QUALITIVE DISCLOSURES ABOUT MARKET RISK
Our major market risk exposure is in the pricing applicable to our oil and
natural gas production. Realized pricing is primarily driven by the prevailing
domestic price for crude oil and spot prices applicable to the region in which
we produce natural gas. Historically, prices received for oil and gas production
have been volatile and unpredictable.
While the use of these price risk management arrangements limits the
downside risk of adverse price movements, it may also limit future revenues from
favorable price movements. At June 30, 1999, we did not have any hedging
contracts in place.
Our only financial instrument sensitive to changes in interest rates is
bank debt. Our annual interest costs in 1999 will fluctuate based on short-term
interest rates. As the interest rate is variable and reflects current market
conditions, the carrying value approximates the fair value. The following table
shows principal cash flows and related weighted average interest rates by
expected maturity dates. Weighted average interest rates for the secured
revolving facility were determined using weighted average interest paid and
accrued in December 1998.
<TABLE>
Value 1999 2000 2001 2002 Total Fair Value
- -------------------------------------------------------------------------------------------------
(in 000's, except interest rates)
<S> <C> <C> <C> <C> <C> <C>
Variable rate debt
Revolving Facility (secured) - - $18,816 - $18,816 $18,816
Average interest rate 7.50% 7.50% 7.50%
</TABLE>
<PAGE>
20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Certificate of Incorporation of Registrant. (Incorporated
by reference to Exhibit 3.1 to Form 10-K of the Registrant
for the fiscal year ended December 31, 1998)
3.2 Bylaws of Registrant (Incorporated by reference to Exhibit
3.2 to Form 10-K of the Registrant for the fiscal year
ended December 31, 1995)
4.1 Certificate of Designations, Preferences and Rights of
Serial Preferred Stock - 6% Convertible Preferred Stock
(Incorporated by reference to Exhibit 4.1 to Form 10-Q of
the Registrant for the fiscal quarter ended September 30,
1998)
10.1 Certificate of Formation of First Permian, L.L.C., dated
June 24, 1999 (Incorporated by reference to Exhibit 10.1 to
Form 8-K of the Registrant dated July 14, 1999 and filed
with the Securities and Exchange Commission on July 15,
1999)
10.2 Limited Liability Company Agreement of First Permian,
L.L.C., dated June 25, 1999 (Incorporated by reference to
Exhibit 10.2 to Form 8-K of the Registrant dated July 14,
1999 and filed with the Securities and Exchange Commission
on July 15, 1999)
10.3 Merger Agreement, dated June 25, 1999 (Incorporated by
reference to Exhibit 10.3 to Form 8-K of the Registrant
dated July 14, 1999 and filed with the Securities and
Exchange Commission on July 15, 1999)
10.4 Agreement and Plan of merger, dated June 30, 1999, of First
Permian, L.L.C. and Nash Oil Company, L.L.C. (Incorporated
by reference to Exhibit 10.4 to Form 8-K of the Registrant
dated July 14, 1999 and filed with the Securities and
Exchange Commission on July 15, 1999)
10.5 Certificate of Merger of First Permian L.L.C. and Nash Oil
Company, dated June 30, 1999 (Incorporated by reference to
Exhibit 10.5 to Form 8-K of the Registrant dated July 14,
1999 and filed with the Securities and Exchange Commission
on July 15, 1999)
10.6 Credit Agreement, dated June 30, 1999, among First Permian,
L.L.C., as Borrower, and Parallel Petroleum Corporation and
Baytech, Inc. as Guarantors and Bank One, Texas, N.A. and
the Institutions named Herein as Banks and Bank One, Texas,
N.A., as Agent (Incorporated by reference to Exhibit 10.6
to Form 8-K of the Registrant dated July 14, 1999 and filed
with the Securities and Exchange Commission on July 15,
1999)
10.7 Limited Guaranty, dated June 30, 1999, by and among First
Permian, L.L.C., Parallel Petroleum Corporation and Bank
One, Texas N.A. (Incorporated by reference to Exhibit 10.7
to Form 8-K of the Registrant dated July 14, 1999 and filed
with the Securities and Exchange Commission on July 15,
1999)
10.8 Intercreditor Agreement, dated as of June 30, 1999, among
First Permian, L.L.C., Bank One, Texas, N.A., Tejon
Exploration Company and Mansefeldt Investment Corporation.
(Incorporated by reference to Exhibit 10.8 to Form 8-K of
the Registrant dated July 14, 1999 and filed with the
Securities and Exchange Commission on July 15, 1999)
10.9 Subordinated Promissory Note, dated June 30, 1999, among
First Permian, L.L.C. and Tejon Exploration Company
(Incorporated by reference to Exhibit 10.9 to Form 8-K of
the Registrant dated July 14, 1999 and filed with the
Securities and Exchange Commission on July 15, 1999)
<PAGE>
21
10.10 Subordinated Promissory Note, dated June 30, 1999, among
First Permian, L.L.C. and Mansefeldt Investment Company
(Incorporated by reference to Exhibit 10.10 to Form 8-K of
the Registrant dated July 14, 1999 and filed with the
Securities and Exchange Commission on July 15, 1999)
*27 Financial Data Schedule
(b) Reports on Form 8-K
No reports were filed on Form 8-K during the quarter ended
June 30, 1999. On July 15, 1999, We filed a report on Form
8-K to report the formation of First Permian, LLC and First
Permian's acquisition of oil and gas properties from Fina
Oil and Chemical Company.
-----------------------
* Filed herewith.
<PAGE>
22
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: May 4, 2000 -------------------------------------
Thomas R. Cambridge
Chairman of the Board of Directors
and Chief Executive Officer
Date: May 4, 2000 BY: /s/ LARRY C. OLDHAM
-------------------------------------
Larry C. Oldham,
President (Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 565,263
<SECURITIES> 0
<RECEIVABLES> 1,805,840
<ALLOWANCES> 71,358
<INVENTORY> 0
<CURRENT-ASSETS> 2,327,757
<PP&E> 67,633,101
<DEPRECIATION> 24,140,149
<TOTAL-ASSETS> 45,888,998
<CURRENT-LIABILITIES> 1,752,021
<BONDS> 18,815,889
0
97,450
<COMMON> 183,319
<OTHER-SE> 25,040,319
<TOTAL-LIABILITY-AND-EQUITY> 45,888,998
<SALES> 0
<TOTAL-REVENUES> 3,954,816
<CGS> 0
<TOTAL-COSTS> 3,349,906
<OTHER-EXPENSES> (10,719)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 720,157
<INCOME-PRETAX> (104,528)
<INCOME-TAX> 0
<INCOME-CONTINUING> (104,528)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (104,528)
<EPS-BASIC> (.023)
<EPS-DILUTED> (.023)
</TABLE>
