Parallel Petroleum Updates Texas Operations



Parallel Petroleum provides the following update on its Texas operations:

Permian Basin of West Texas

The Permian Basin of West Texas generated approximately 65% of Parallel's second quarter 2004 production and represented approximately 87% of its reserve value as of June 30, 2004.

Fullerton Field, Andrews County - This property was acquired in December 2002 and represented approximately 46% of the Company's second quarter 2004 production and approximately 53% of its reserve value as of June 30, 2004.

A total of 89 water-frac re-stimulations were performed during the period from mid-February 2003 through the end of June 2004. Parallel's June 2004 estimated net daily production from the Fullerton properties increased to approximately 1,375 BOE per day, which is approximately 32% above the extrapolated base production trend of 1,035 BOE per day. The Company will continue the accelerated re-frac pace established in January of this year and should complete the re-frac program during the third quarter of this year. This will allow Parallel to re-stimulate as many as 15 additional wells and to complete the program prior to year-end.

The Company announced earlier that it would drill 6 infill San Andres wells at 4,500 feet starting in June 2004. Four of those infill wells have been drilled to date and are in the process of being completed. Pending satisfactory results of the 6 infill wells, the Company anticipates drilling additional wells in 2005.

Parallel's working interest in these properties ranges from 25% to 85%. The Company has budgeted approximately $3.2 million, net to its interest, for this project in 2004.

Diamond M Shallow Leases, Scurry County - This property represented approximately 2% of Parallel's second quarter 2004 production and approximately 12% of its reserve value as of June 30, 2004. Based on current performance and offset analogies, Parallel expects this property to contribute significantly to its future production and reserve value as development continues over the next three years.

In January 2004, Parallel commenced a 30-well infill drilling program that it expects to be completed during the fourth quarter of 2004. Of the 30 wells, 18 are being drilled as injection wells and 12 as producing wells. The program is designed to recover reserves trapped in 10-acre locations and to provide secondary production and reserve response by increasing reservoir pressure through water injection. As of today, 26 wells have been drilled. The Company anticipated and has seen a production decline from each producing well's initial rate due to the pressure depleted nature of the reservoir. The Company expects these declines to be arrested, with production stabilizing and beginning to incline as pressure support from the injection wells begins to build sometime in the third and fourth quarters. Current incremental production is approximately 250 gross (140 net) BOE per day. The Company presently anticipates drilling approximately 60 additional wells prior to the end of 2005. Capital expenditures on this project, net to the Company's 66% working interest, are budgeted at $7.2 million for 2004 and are expected to be approximately $21.0 million over the next three years.

Lion Diamond M Canyon Unit, Scurry County - This property includes the same surface acreage as the Diamond M Shallow property and is in its early stage of re-development. It generated approximately 4% of Parallel's second quarter 2004 production and represented approximately 4% of its reserve value as of June 30, 2004.

Parallel has identified at least 42 mechanically viable Canyon Reef wells as deepening candidates. The Company is currently finalizing the expansion of the field's injection and produced fluid capacity to accommodate increased volumes from future workovers. Construction of the new injection facility and distribution system began in June and is scheduled to be completed in mid-September. The Company anticipates 6 to 8 workovers will be completed by year end.

Parallel has completed a 2-D shear wave test line and is in process of finalizing the design of a 3-D seismic survey utilizing both compressional and shear wave technology. This 3-D seismic survey will better define reservoir compartmentalization and help high-grade the Canyon Reef opportunities that have been identified by the Company's geological and reservoir engineering studies. The survey is primarily designed for the Canyon Reef, but the Company expects it to also be helpful in the development of the Diamond M Shallow intervals.

Parallel anticipates that it will spend on this project, net to its 66% working interest, approximately $8.0 million over the next three years, of which $1.9 million is budgeted for 2004. However, this program and its expenditures could be accelerated if future deepenings exceed the Company's current economic model.

Other Permian Basin Projects - The Company has also budgeted approximately $1.5 million in 2004, which it plans to spend on its other existing projects in the Permian Basin of West Texas.

Onshore Gulf Coast of South Texas

This area contributed approximately 26% of Parallel's production during the second quarter 2004 and represented approximately 11% of its reserve value as of June 30, 2004. From 1993 to June 2002, this area had been the Company's primary focus. However, Parallel is decreasing its investment in this area and continues to re-deploy a majority of the cash flow from this area to the acquisition, development and exploitation of longer life oil and gas reserves in other areas.

Yegua/Frio Gas Project, Jackson and Wharton Counties - As the Company announced on May 7, 2004, a Yegua well, the Overpass No. 1, Jackson County, Texas, was drilled to a total depth of 11,200 feet and is producing from the Yegua formation from perforations between 10,692 and 10,784 feet. This well went to sales on July 30, 2004, at a rate of 1.8 million cubic feet of gas per day plus an estimated 240 barrels of condensate per day, which is approximately 700 Mcfe of gas per day, or 115 barrels of oil equivalent, net to the Company's interest. Parallel owns a 30% working interest (22.5% net revenue interest) in the well.

The Thunderbird No. 1 Yegua well was drilled to a total depth of 12,600 feet. The Company expects the well to be completed and producing in the fourth quarter of this year. Parallel owns a 38% working interest (28.5% net revenue interest) in the well.

The Company has budgeted approximately $2.2 million, net to its interest, for this project in 2004.

East Texas

Cook Mountain Gas Project, Liberty County - This project commenced in 2002 and contributed approximately 9% of Parallel's second quarter 2004 production and represented approximately 2% of its reserve value as of June 30, 2004.

During 2004, the Company has participated in the drilling of 7 Cook Mountain wells with working interests ranging from 2.0% to 8.6%. Two wells are currently drilling, 1 well was a dry hole, and 4 wells are on production making a combined rate of approximately 35,700 Mcfe per day, or approximately 800 Mcfe per day net to Parallel.

The Company has budgeted approximately $0.5 million, net to its interest, for this project in 2004.

New Projects

All four of the following new projects have been acquired since June 2002.

Developmental Projects:

North Texas Barnett Shale Gas Project, Tarrant County - Parallel's Barnett Shale gas project is located 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 Newark East Barnett Shale gas field produced 895 MMcf of gas per day from approximately 2,900 wells during the month of April 2004. The Cleburne Barnett Shale gas field produced 11.5 MMcf of gas per day from approximately 25 wells during the month of April 2004. Significant development drilling activity is currently taking place in each of these fields. Since January 1, 2004, through the first week of August 2004, operators have filed 250 drilling permits in the Newark East Barnett Shale gas field and 6 drilling permits in the Cleburne Barnett Shale gas field. The estimated cost to drill a horizontal well is approximately $1.3 million and industry reserve estimates are in the range of 1.0 to 2.5 Bcfg per well.

The Company and its partners have assembled pipeline right-of-way and permits necessary to complete a gas gathering infrastructure. Cooperative agreements are being finalized, which will result in the Company's initial leasehold position representing approximately 8,000 gross (1,120 net) acres. The Company's average working interest in the project is approximately 14%. Leasehold continues to be acquired.

To date, the Company has drilled one vertical well that is waiting on completion and pipeline connection. Parallel anticipates additional drilling activity on this project during the fourth quarter of 2004. Parallel expects this project to become a multi-well, long-life gas project that will be developed over the next three years. The Company has budgeted approximately $2.0 million, net to its 14% working interest, on this project in 2004.

New Mexico Gas Project - This project consists of approximately 50,000 gross (4,250 net) acres with the primary target being the Abo formation at a depth of approximately 5,000 feet. The Abo 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.

Since December 2003, Parallel has participated in the horizontal drilling of four Abo gas wells. One well is currently producing approximately 2,200 Mcf gross (187 Mcf net) of gas per day. The other three wells are each producing less than 200 Mcf gross of gas per day. The Company is currently evaluating these wells to determine how to refine the completion process.

Parallel expects to drill 4 more wells in the fourth quarter of 2004. Leasehold continues to be acquired. Parallel's working interest in the project is approximately 8.5%. The Company's current budget on this project for 2004 is approximately $0.8 million.

Parallel has recently expanded its leasehold position outside the boundaries of the original 50,000 gross (4,250 net) acre project area. In this new project area, the Company has acquired approximately 25,000 gross (21,250 net) acres. The Company has budgeted approximately $3.6 million, net to its interest, for this project in 2004.

Exploratory Projects:

Cotton Valley Reef Gas Project - Parallel owns an approximate 13.125% working interest in this 3-D seismic gas project which can be characterized by a higher risk profile than the Company's other projects it is currently involved in. The objective is the Cotton Valley barrier reef facies found between the depths of 16,000 and 18,000 feet on the flank of the East Texas Basin as it existed in the Jurassic time. The project consists of approximately 5,000 gross (650 net) acres. The first well is currently drilling below 16,500 feet. The Company has budgeted approximately $1.4 million in 2004, net to its working interest, for the drilling of the first prospect within the 5,000-acre project.

Utah Oil and Gas Project - Parallel has increased its acreage position in this project to approximately 125,000 gross acres. It is a multiple zone project consisting of both oil and gas targets at a depth of less than 6,000 feet. The Company is in the process of evaluating seismic and geological data on this project. Parallel expects to drill a test well during the first half of 2005. Parallel owns and operates 100% of this project and estimates that the cost to drill a well to casing point will be approximately $300,000. The Company's 2004 budget on this project is approximately $1.0 million.

Non-Strategic Asset Divestiture

Parallel divested interests in 41 non-core, short-lived assets in the July 2004 Oil and Gas Asset Clearinghouse auction. Net daily production and net reserves attributable to the assets sold were approximately 78 BOE per day and 114 MBOE, respectively. Gross proceeds from the sale were $1.87 million, yielding approximately $16.45 per BOE of reserves and approximately $24,000 per net daily BOE sold. These assets represented less than 3% of net daily production and less than 1% of reserves as of June 30, 2004. Parallel will continue to evaluate all portfolio assets for economic viability and strategic fit.

Management Comments

Larry C. Oldham, Parallel's President, commented, "As we announced on August 4, 2004, in our news release related to our mid-year reserves evaluation, we increased our proved developed producing (PDP) reserves by 360% of our first six months of production. We achieved this by advancing the development of our long-life, low decline rate projects. We expect that overall production will increase and more than offset the high decline rate in our gulf coast assets as the development of these long-life projects accelerates."
RELATED COMPANIES