Parallel Petroleum

Capex

Parallel's 2008 capital investment budget is approximately $127.2 million, which includes approximately $108.8 million for the drilling and completion of approximately 108 gross (63.6 net) new wells and the workover or conversion-to-injection of 67 gross (49.4 net) existing wells and approximately $18.4 million for the purchase of leasehold and seismic data. On a project basis, approximately $100.0 million, or 79%, of the 2008 capital investment budget is expected to be invested in the Company's two horizontal drilling gas projects. Parallel has budgeted approximately $60.0 million for its Barnett Shale Gas project and approximately $40.0 million for its New Mexico Wolfcamp Gas project. Additionally, the Company expects to invest approximately $24.5 million, or 19%, of the 2008 budget in its long-life, shallow oil properties located in the Permian Basin of West Texas. The remainder of the 2008 budget will be allocated to the Company's other projects. Parallel anticipates that the $127.2 million 2008 capital investment budget will be funded from its operating cash flow and revolving credit facility. At December 31, 2007, approximately $140.0 million was available under the Company's revolving credit facility.

Revised 2008 Capital Investment Budget

August 2008 - Parallel has increased its 2008 capital investment budget approximately 35% from $127.2 million to approximately $171.6 million, excluding approximately $43.2 million for property acquisitions made during the second quarter of 2008. Of the $44.4 million increase, $14.0 million is for leasehold costs in the Barnett Shale; $24.2 million for leasehold costs and 9 additional wells in the New Mexico Wolfcamp Northern and Southern Areas and additional interests acquired in the Northern Area, as is discussed in the New Mexico property information below; $2.2 million for drilling and completion activities associated with the Company's increased interests in its Diamond M project related to a recent acquisition, as was announced on June 26, 2008; $1.7 million for the drilling of 3 additional wells in the Harris San Andres project; and $2.3 million for leasehold and the drilling of 1 new well in the Company's East Texas Cotton Valley Reef project.

The revised budget provides for approximately $133.8 million for the drilling and completion of approximately 121 gross (77.8 net) new wells: the workover of 53 gross (44.2 net) existing wells; and the conversion-to-injection of 14 gross (12.1 net) producing wells; and approximately $37.8 million for the purchase of leasehold and seismic data. As of June 30, 2008, Parallel had invested approximately $82.6 million of the $171.6 million budget in the drilling of approximately 59 gross (30.57 net) wells, including 33 gross (15.19 net) wells that were in progress as of June 30, 2008, and leasehold, seismic, workovers, and conversions-to-injection.

On a project basis, approximately $138.2 million, or 81%, of the 2008 capital investment budget is expected to be invested in the Company's two horizontal drilling gas projects. Parallel has budgeted approximately $74.0 million for its Barnett Shale Gas project and approximately $64.2 million for its New Mexico Wolfcamp Gas project. Additionally, the Company expects to invest approximately $28.4 million, or 17%, of the 2008 budget in its long-life, shallow oil properties located in the Permian Basin of West Texas. The remainder of the 2008 budget will be allocated to the Company's other projects.

Parallel anticipates that the $171.6 million 2008 capital investment budget will be funded from its operating cash flow and revolving credit facility. At June 30, 2008, approximately $93.0 million was available under the Company's revolving credit facility.

Production

The Company's net daily production for the fourth quarter ended December 31, 2007 averaged 6,707 equivalent barrels of oil per day (BOEPD), an increase of 4% when compared to an average of 6,460 BOEPD during the third quarter ended September 30, 2007. Parallel estimates that its net daily production was approximately 7,400 BOEPD as of February 1, 2008, which is a 10% increase over fourth quarter 2007 average net daily production. During the fourth quarter 2007, production from the Company's New Mexico Wolfcamp gas project increased 24% from 1,251 to 1,551 BOEPD, due to better, and more consistent, well results and timing of completions, and as of February 1, 2008, the Company estimates that its Wolfcamp production has increased an additional 10% to approximately 1,700 BOE per day due to new wells. Production from the Barnett Shale gas project increased only 1%, from 1,669 to 1,678 BOEPD, during the fourth quarter 2007 due to limited take-away capacity; however, as of February 1, 2008, the Company estimates that its Barnett Shale production has increased an additional 37% to approximately 2,300 BOE per day due to the completion of new wells and increased take-away capacity related to pipeline expansion and additional compression. The fourth quarter 2007 increases were partially offset by a 1% decrease in the Company's long-life Permian Basin oil projects, from 3,014 to 2,995 BOEPD, due to normal decline on base production, and an 8% decrease in its South Texas gas properties from 526 to 483 BOEPD due to normal decline. Due to uncertainties associated with initial decline rates of new wells and uncertainties associated with timing of take-away capacity and related pipeline expansion and compression, management cautions investors not to place undue reliance on February 1, 2008 estimated net daily production for the purpose of estimating the Company's future net daily production.

Parallel's net daily production for the fourth quarter ended December 31, 2006 averaged 6,124 equivalent barrels of oil (BOE) per day, an increase of 26% when compared to an average of 4,873 BOE per day during the fourth quarter ended December 31, 2005, and a decrease of 8% when compared to an average of 6,689 BOE per day during the third quarter ended September 30, 2006. The 8% decrease in fourth quarter 2006 production compared to the third quarter 2006 was primarily the net result of a 697 BOE per day decrease in the Company's Barnett Shale gas project and a 455 BOE per day decrease in the south Texas gas properties, partially offset by a 539 BOE per day increase in its New Mexico Wolfcamp gas project.

Parallel Petroleum's production for the year ended December 31, 2005 was 1.5 million BOE, a 29% increase from the previous year. Production for 2005 was 61% oil and 39% natural gas. Production in the fourth quarter of 2005 was 450,000 BOE, or 4,873 BOE per day, a 29% increase over the fourth quarter of 2004 and a 4% increase over the third quarter of 2005.

Reserves

As estimated by its independent engineers as of December 31, 2007, Parallel's proved developed producing (PDP) reserves were approximately 20.5 million equivalent barrels of oil (MMBOE). This is a 12% increase of approximately 2.2 MMBOE when compared to PDP reserves as of December 31, 2006, and includes PDP reserve additions of approximately 4.5 MMBOE, less production run-off of approximately 2.3 MMBOE. Proved developed non-producing (PDNP) reserves decreased approximately 0.6 MMBOE to approximately 0.8 MMBOE during 2007 primarily due to transfers to PDP reserves. Proved undeveloped (PUD) reserves decreased approximately 2.1 MMBOE to approximately 16.7 MMBOE during 2007.

The 11% decrease in PUD reserves was due to three factors: 1) transfers to PDP reserves due to development during 2007; 2) PUD reserves revisions resulting primarily from the Company's change in its method of recognizing proved undeveloped reserves related to its horizontal drilling gas projects, as was announced in its July 18, 2007 press release; and 3) a decrease in new PUD bookings because of the horizontal PUD methodology adopted by the Company at mid-year 2007. As of December 31, 2007, PUD reserves consisted of 198 locations, of which 5 were Barnett Shale locations, 11 were New Mexico Wolfcamp locations, and 182 were West Texas Permian Basin locations. Comparatively, as of December 31, 2006, PUD reserves consisted of 213 locations, of which 15 were Barnett Shale locations, 31 were New Mexico Wolfcamp locations, and 167 were West Texas Permian Basin locations. Parallel anticipates that development of these PUD reserves will require, over the next three years, approximately $111.4 million of capital investment.

The Company's total proved reserves as of December 31, 2007 decreased 1% to 38.0 MMBOE, as compared to 38.5 MMBOE as of December 31, 2006. The 2007 year-end proved reserves were 54% PDP, 2% PDNP, and 44% PUD, compared to 2006 year-end proved reserves, which were 47% PDP, 4% PDNP, and 49% PUD. The 2007 year-end proved reserves by volume were 75% oil and 25% natural gas.

As estimated by its independent engineers, Parallel's proved reserves as of December 31, 2006 increased approximately 52% to 38.5 million equivalent barrels of oil (MMBOE), as compared to 25.4 MMBOE as of December 31, 2005.

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