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LYNCH, CHAPPELL & ALSUP

A PROFESSIONAL CORPORATION

ATTORNEYS

THE SUMMIT, SUITE 700

300 NORTH MARIENFELD

MIDLAND, TEXAS 79701

(432) 683-3351

TELECOPIER (432) 683-8346

July 20, 2005

Via Edgar and Federal Express

Securities and Exchange Commission

100 F Street, N.E.

Washington, D.C. 20549-7010

    Attention:

    Gary Newberry, Division of Corporation Finance

    Re:

    Parallel Petroleum Corporation

Annual Report on Form 10-K for the fiscal year ended December 31, 2004

Dear Ladies and Gentlemen:

     We write this letter on behalf of Parallel Petroleum Corporation (“Parallel”) to respond to
the comment letter received from the Staff on July 6, 2005 (the “Comment Letter”), relating to
Parallel’s:

    1.

    Annual Report on Form 10-K for the fiscal year ended December 31, 2004 (the
“Parallel 10-K”); and

    2.

    Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2005 (the
“Parallel 10-Q”).

     We have numbered each of the responses to correspond to the numbering of the comments in the
Comment Letter. For your convenience, we have repeated each comment immediately preceding the
corresponding response.

     Please note that Parallel’s responses to the Staff’s comments on the Parallel Form 10-K are
also intended to address the same comments as they apply to the Parallel Form 10-Q. It appears
that comment No. 5 and comment No. 6 in the Staff’s Comment Letter are the comments that are
specifically applicable to both the Parallel 10-K and the Parallel 10-Q.

     Subject to any additional comments or questions the Staff may have, the changes described
below will be made in Form 10-K/A and Form 10-Q/A to be filed by Parallel.

Securities and Exchange Commission

July 20, 2005

Page 2

Form 10-K for the Fiscal Year Ended December 31, 2004

Business, page 1

Proved Reserves as of December 31, 2004, page 3

    1.

    We note that you have disclosed certain financial measures in your filings identified as
non-GAAP measures, including, but without limitation, the following:

    •

    Present value of pretax future net revenues from properties, page 3

    •

    Future net revenues (before income taxes) and present value of future
net revenues (before income taxes), page 35

    •

    Operating cash flow, pages 40 and 41

    Please provide a detailed analysis that identifies each non-GAAP financial measure that you
have disclosed in your reports and explain how you have or intend to comply with the
requirements of Item 10(e) of Regulation S-K and/or Regulation G. Clarify whether the
measure is a liquidity or a performance measure. In instances where you have adjusted GAAP
earnings for recurring items, expand your disclosure to address the guidance in Question 8
of the FAQ Regarding the Use of Non-GAAP Financial Measures located at
http://www.sec.gov/divisions/corpfin/ faqs/nongaapfaq.htm#transition. Refer also to
Release Number 33-8176: Conditions for Use of Non-GAAP Financial Measures, located at
http://www.sec.gov/rules/ final/33-8176.htm for additional guidance.

Response.

     Parallel has identified the following terms used in the Parallel 10-K, which appear in the
report as indicated by each such term:

    Financial Measure

    Location in Parallel 10-K

    Operating cash flow

    Pages 3, 8, 40 and 41

    Future net revenues (before income taxes)

    Page 35

    Present value of future net revenues
(before income taxes)

    Page 35

Securities and Exchange Commission

July 20, 2005

Page 3

    Financial Measure

    Location in Parallel 10-K

    Present value of proved oil and gas reserves
discounted at 10% (before estimated
federal income taxes)

    Page 40

    Present value of pretax future net revenues

    Page 3

     All references to the terms identified above appearing in the Parallel 10-K will be omitted.
The two sentences containing references to “operating cash flow” appearing on pages 3 and 8 of the
Parallel 10-K will be revised to read as follows:

    The budget will be funded from net cash provided by operating activities, bank
borrowings and equity proceeds.

     In addition, the reference to “operating cash flow” in the table on page 40 of the Parallel
10-K and footnote (4) on page 41 of the Parallel 10-K will be deleted.

    The Parallel Form 10-Q does not contain references to any of the terms identified above.

Management Discussion and Analysis, page 41

Results of Operations, page 44

    2.

    We note you disclose a “reserves to production ratio” of approximately 18.3 to 1. Please
disclose the following:

    •

    How the ratio is calculated;

    •

    How management uses this measure;

    •

    The limitations of this measure.

Response.

     In response to this comment, the following disclosure will be added after the third sentence
in the first paragraph appearing under “Results of Operations” on page 44 of the Parallel 10-K:

    As described on page 21 of this report, the failure to replace oil and gas reserves
may negatively affect Parallel’s business. Parallel monitors this risk by comparing
the quantity of Parallel’s oil and gas reserves at the end of each year to
Parallel’s

Securities and Exchange Commission

July 20, 2005

Page 4

    production for that year. This comparison, which is made in the form of a reserves
to production ratio, helps Parallel measure its ability to offset produced volumes
with new reserves that will be produced in the future. The reserves to production
ratio is calculated by dividing the total proved reserves at the end of a year by
the actual production for the same year. The ratio provides us with an indication of
our performance in replenishing annual production volumes. The reserves to
production ratio is a statistical indicator that has limitations. The ratio is
limited because it can vary widely based on the extent and timing of new discoveries
and property acquisitions. In addition, the ratio does not take into account the
cost or timing of future production of new reserves. For that reason, the ratio does
not, and is not intended to, provide a measurement of value.

Overhead Reimbursement – Joint Operations, page 47

    3.

    We note that you reduce general and administrative expense for overhead charged to working
interest owners for properties you operate. We further note that you reduced capital costs for
overhead reimbursements. Please explain how you determine the amounts by which you reduce
general and administrative and capital costs for overhead reimbursement. Please expand your
policy note (1)(d) under oil and gas properties to address your treatment of overhead
reimbursement.

Response.

     Where possible, Parallel seeks to serve as operator of its oil and gas properties. As
operator, Parallel is generally able to control direct operating and drilling costs, as well as
manage the timing and selection of development and exploration activities. The rights of an
operator are contractual in nature. Typically, Parallel and third party working interest owners
will enter into a standard industry form joint operating agreement, or a non-standard operating
agreement prepared specifically for a particular activity. In either case, the operating agreement
will include provisions entitling the operator to be reimbursed for specified direct charges and
overhead charges. The reduction in Parallel’s general and administrative expenses and capital
costs are made on a “dollar-for-dollar” basis equal in amount to the agreed upon amounts set forth
in the operating agreement. When Parallel receives reimbursement from a non-operating working
interest owner, the amount received will then be applied by Parallel as a reduction in capital
costs or general and administrative expense, depending upon whether the reimbursement was made in
connection with a drilling activity or an oil and gas producing activity. If the reimbursement was
made in connection with a drilling activity, then the amount received is applied as a reduction
in Parallel’s capital costs. If the reimbursement was made in connection

 Securities and Exchange Commission

July 20, 2005

Page 5

with an oil and gas producing activity, then the amount received is applied as a reduction in
Parallel’s general and administrative expenses.

     In response to the Staff’s comment regarding expanding policy note (1)(d) under “Oil and gas
properties”, Parallel will make the following marked revisions in the second paragraph of note
(1)(d) as contained on page F-9 of the Parallel 10-K:

    Management and service fees received for contractual arrangements, if any, are
treated as reimbursement of costs, offsetting the costs incurred to provide those
services. Specifically, from time to time, the Company serves as operator of its
oil and gas properties in which it owns an interest. Under operating agreements
naming the Company as operator, the Company is reimbursed for certain specified
direct charges and overhead charges. Amounts received in reimbursement for drilling
activities are applied as a reduction to Parallel’s capital costs, and amounts
received in reimbursement for producing activities are applied to reduce the
Company’s general and administrative expenses.

Incentive and Retention Plan, page

    4.

    You disclose, with respect to your Incentive and Retention Plan, that the (i)
likelihood of a corporate transaction or change in control is possible, (ii) ultimate
liability is not readily determinable, and (iii) terms and conditions of the Plan will be
disclosed in your financial statements. You also state that you will account for the Plan
under SFAS 5. Please disclose, in the notes to your financial statements, the terms and
conditions of the Plan and the likelihood that the Plan will result in the incurrence of a
liability using one of the three terms identified in paragraph 3 of SFAS 5. In addition,
discuss the potential affect this plan could have on your financial condition and results
of operations in your Management’s Discussion and Analysis (MD&A). Note that MD&A mandates
disclosure of specified forward-looking information, and specifies its own standard for
disclosure (i.e. reasonably likely to have material effect). You may refer to Financial
Reporting codification Section 501.02 for further guidance.

Response.

     The last paragraph in Note (14), page F-29, of Parallel’s 10-K will be revised. In this
regard, Parallel notes that its obligations under the Incentive and Retention Plan are presently in
the nature of a commitment. There is no contingent liability since an obligating event under the
plan has not occurred. Parallel believes that assessing the likelihood of the outcome of such an
event should be made if and when a change of control or corporate transaction occurs. The revised
paragraph, which has been marked to show the proposed changes, will read in its entirety as
follows:

    The Company has an Incentive and Retention Plan which provides for the payment to
eligible officers and employees of a one time performance bonus and

Securities and Exchange Commission

July 20, 2005

Page 6

    retention payment upon the occurrence of a change of control or corporate transaction as defined in
the plan. The amount of these bonuses depends on future prices of the Company’s stock which is
undeterminable. In the case of a corporate transaction, the total cash obligation for performance
bonuses is equal to the per share price received by all stockholders minus a base price of $3.73
per share, multiplied by 1,080,362 shares. The $3.73 base price represents the volume weighted
average closing price per share of Parallel’s common stock for the fiscal quarter ended December
31, 2003 and the 1,080,362 shares represents 5% of the weighted average number of
shares of common stock (basic) outstanding for the same period. If a change of
control occurs, the total cash obligation for retention payments to all plan
participants is equal to the per share closing price of Parallel’s common stock on
the day immediately preceding the change of control minus the base price of $3.73
per share, multiplied by 1,080,362. Such liability would be recognized at the time a
change of control or corporate transaction occurs.

     In further response to the Staff’s comments regarding the Incentive and Retention Plan,
additional disclosures concerning the potential effect the plan could have on Parallel’s financial
condition and results of operations will be added under Management’s Discussion and Analysis. The
additional disclosures, as proposed, will be added to the paragraph captioned “Incentive and
Retention Plan,” appearing on page 47 of the Parallel 10-K. This paragraph, which has been
marked to show the proposed changes, will read in its entirety as follows:

    Incentive and Retention Plan. Parallel’s ultimate liability under the Plan is not
readily determinable because of the inability to predict Parallel’s stock price on
the future date of any corporate transaction or change of control. No liability
will be recorded until such time as a corporate transaction or a change of control
occurs. The occurrence of a change of control or a corporate transaction could have
a negative impact on our financial condition and results of operation, depending
upon the price of our stock at the time of a change of control or corporate
transaction.

     Quantitative and Qualitative Disclosures About Market Risk, page 63

    5.

    The guidance in Item 305 of Regulation S-K requires quantitative information about each
market risk exposure category as of the end of the latest fiscal year in

Securities and Exchange Commission

July 20, 2005

Page 7

    accordance with one of the three disclosure alternatives outlined in paragraphs
305(a)(l)(i)(A), (ii)(A) or (iii)(A). Please refer to the “Appendix to Item 305-Tabular
Disclosures” for further guidance and revise your presentation accordingly.

Response.

     The table on page 64 of the Parallel 10-K will be revised as set forth below. The changes to
the table are marked.

    Period of Time

    Notional Amounts

    Fixed Interest Rates

    Fair Market Value

    ($ in millions)

    ($ in millions)

    January 1, 2005 thru December 31, 2005

    $
    50

    3.36
    %

    $
    (0.140
    )

    January 1, 2006 thru December 31, 2006

    $
    50

    3.82
    %

    (0.028
    )

    January 1, 2007 thru December 31, 2007

    $
    50

    4.30
    %

    (0.109
    )

    January 1, 2008 thru December 31, 2008

    $
    50

    4.74
    %

    (0.167
    )

    Total fair market value

    $
    (0.444
    )

     The two tables on page 65 of the Parallel 10-K will be revised to include a new column
called “Fair Market Value”, and add new line items referencing total fair market values. The
changes to the tables are marked.

    Houston Ship

    NyMex Oil

    MMBtu

    Channel Gas

    Fair

    Barrels

    Prices

    of Natural

    Prices

    Market

    Period of Time

    of Oil

    Floor

    Cap

    Gas

    Floor

    Cap

    Value

    ($ in thousands)

    April 1, 2005 thru
October 31, 2005

    —

    $
    —

    $
    —

    428,000

    $
    5.00

    $
    7.26

    $
    (34
    )

    January 1, 2005 thru
December 31, 2005

    73,000

    $
    36.00

    $
    49.60

    —

    $
    —

    $
    —

    (13
    )

    January 1, 2006 thru
December 31, 2006

    70,800

    $
    35.00

    $
    44.00

    —

    $
    —

    $
    —

    (100
    )

    Total fair market
value

    $
    (147
    )

Securities and Exchange Commission

July 20, 2005

Page 8

    Houston Ship

    Fair

    Barrels

    NyMex Oil

    MMBtu of

    Channel

    Market

    Period of Time

    of Oil

    Swap Price

    Natural Gas

    Gas Swap Price

    Value

    ($ in thousands)

    January 1, 2005 thru December
31, 2005

    620,500

    $
    30.19

    —

    $
    —

    $
    (7,583
    )

    January 1, 2