<PAGE>

                                                                    Exhibit 10.2

                                                                  EXECUTION COPY



                             SEPARATION AGREEMENT

                           DATED AS OF JUNE 8, 2001

                                 BY AND AMONG

                            PLAINS RESOURCES INC.,
                          PLAINS ALL AMERICAN, INC.,
                          PLAINS ALL AMERICAN GP LLC,
                               PLAINS AAP, L.P.

AND

                      PLAINS ALL AMERICAN PIPELINE, L.P.
<PAGE>

                               TABLE OF CONTENTS
                               -----------------
<TABLE>
<CAPTION>
                                                                            Page
                                                                            ----
<S>                                                                         <C>
ARTICLE I
CERTAIN DEFINITIONS

1.01.  CERTAIN DEFINITIONS...................................................  1

ARTICLE II
OTHER AGREEMENTS

2.01.  PENSION AND EMPLOYEE BENEFITS ASSUMPTION AND TRANSITION AGREEMENT.....  4
2.02.  OMNIBUS AGREEMENT; MARKETING AGREEMENT................................  4

ARTICLE III
CERTAIN BUSINESS MATTERS

3.01.  EXCHANGE OF INFORMATION...............................................  4
3.02.  COMPENSATION FOR PROVIDING INFORMATION................................  5
3.03.  RECORD RETENTION......................................................  5
3.04.  LIMITATION OF LIABILITY...............................................  5
3.05.  PRODUCTION OF WITNESSES, RECORDS AND COOPERATION......................  5
3.06.  CONFIDENTIALITY.......................................................  5

ARTICLE IV
INDEMNIFICATION

4.01.  INDEMNIFICATION.......................................................  7
4.02.  INDEMNIFICATION PROCEDURES............................................  7
4.03.  CERTAIN LIMITATIONS...................................................  8
4.04.  DIRECTOR AND OFFICER INDEMNIFICATION - PLX............................  9
4.05.  DIRECTOR AND OFFICER INDEMNIFICATION - PAAI........................... 10

ARTICLE V
INSURANCE MATTERS

5.01.  MIDSTREAM INSURANCE COVERAGE DURING THE INSURANCE TRANSITION PERIOD... 11
5.02.  INSURANCE COVERAGE AFTER THE INSURANCE TRANSITION PERIOD.............. 12

ARTICLE VI
FURTHER ASSURANCE AND ADDITIONAL COVENANTS
</TABLE>

                                       i
<PAGE>

<TABLE>
<S>                                                                           <C>
6.01.  FURTHER ASSURANCES...................................................  12
6.02.  DISPUTE RESOLUTION...................................................  13
6.03.  NAMES................................................................  13

ARTICLE VII
MISCELLANEOUS

7.01.  EFFECTIVENESS........................................................  13
7.02.  SUCCESSORS AND ASSIGNS...............................................  13
7.03.  NO THIRD-PARTY BENEFICIARIES.........................................  13
7.04.  ENTIRE AGREEMENT.....................................................  13
7.05.  AMENDMENT............................................................  14
7.06.  WAIVERS..............................................................  14
7.07.  SEVERABILITY.........................................................  14
7.08.  HEADINGS.............................................................  14
7.09.  NOTICES..............................................................  14
7.10.  GOVERNING LAW........................................................  14
7.11.  COUNTERPARTS.........................................................  15
7.12.  REMEDIES.............................................................  15
</TABLE>

                                      ii
<PAGE>

SEPARATION AGREEMENT

          THIS SEPARATION AGREEMENT (this "Agreement") is made and entered into
as of this 8th day of June, 2001 (the "Effective Date") by and among Plains
Resources Inc., a Delaware corporation ("PLX"), Plains All American Inc., a
Delaware corporation ("PAAI"), Plains All American GP LLC, a Delaware limited
liability company ("Newco GP LLC"), Plains AAP LP, a Delaware limited
partnership ("Newco LP") and Plains All American Pipeline, L.P., a Delaware
limited partnership ("PAA").  The parties to this Agreement are collectively
referred to as the "Parties," and singularly as a "Party."

          WHEREAS, PAAI is currently the general partner of PAA;

          WHEREAS, PLX and PAAI have entered into certain Unit Transfer and
Contribution Agreements with the persons named therein (the "Unit Transfer and
Contribution Agreements"), each of which provides that at the Closing (as
defined in the Unit Transfer and Contribution Agreements), Newco GP LLC will
succeed to the management and business activities formerly performed by PAAI and
Newco LP shall be the general partner of PAA; and

          WHEREAS, it is appropriate and desirable to set forth certain
agreements that will govern certain matters relating to the relationship between
the Upstream Parties (as defined below) and the Midstream Parties (as defined
below) after the closing under the Unit Transfer and Contribution Agreements
(the date of such closing, the "Closing Date").

          NOW, THEREFORE, the Parties agree, intending to be legally bound, as
follows:

                                   ARTICLE I
                              CERTAIN DEFINITIONS

          1.01.  CERTAIN DEFINITIONS. (a) As used in this Agreement, in addition
to the terms defined in the Preamble and Recitals hereof, the following terms
shall have the following meanings, applicable to both the singular and plural
forms of the terms described:

          "ACTION" shall mean any demand, action, suit, countersuit,
arbitration, inquiry, proceeding or investigation by or before any federal,
state, local or foreign or international Governmental Authority or any
arbitration or mediation tribunal.

          "AFFILIATE" shall mean with respect to any specified Person, any other
Person that directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with, such specified
Person.

          "AGREEMENT" shall have the meaning ascribed to it in the Preamble.

          "BUSINESS DAY" means any calendar day which is not a Saturday, Sunday
or public holiday under the laws of the State of New York.
<PAGE>

          "GOVERNMENTAL AUTHORITY" shall mean any federal, state, local, foreign
or international court, government, department, commission, board, bureau,
agency, official or other regulatory administrative or governmental authority.

          "HYDROCARBONS" means crude oil, natural gas, casinghead gas,
condensate, sulphur, natural gas liquids, plant products, liquefied petroleum
gas and other liquid or gaseous hydrocarbons produced in association therewith,
including, without limitation, coalbed methane and gas and CO2.

          "INFORMATION" means any information, whether or not patentable or
copyrightable in written, oral or electronic or other tangible or intangible
forms, stored in any medium, including studies, reports, records, books,
contracts, instruments, surveys, discoveries, ideas, concepts, know-how,
techniques, designs, specifications, drawings, blueprints, diagrams, models,
prototype samples, computer data, disks, diskettes, tapes, computer programs or
other software, marketing plans, customer names, communications by or to
attorneys, memos and other materials prepared by attorneys and any other
technical, financial, employee or business information or data.

          "MARKETING AGREEMENT" means that certain Crude Oil Marketing
Agreement, dated November 23, 1998, among PLX, Plains Illinois Inc., Stocker
Resources, L.P., Calumet Florida, Inc. and Plains Marketing, L.P., as amended
from time to time.

          "MIDSTREAM BUSINESS" means all Hydrocarbon gathering, transportation,
terminalling, storage, and marketing and all operations related thereto,
including, without limitation, (a) the acquisition, construction, installation,
maintenance or remediation and operation of pipelines, gathering lines,
compressors, facilities, storage facilities and equipment, and (b) the gathering
of Hydrocarbons from fields, interstate and intrastate transportation by
pipeline, trucks or barges, tank storage of Hydrocarbons, transferring
Hydrocarbons from pipelines and storage tanks to trucks, barges or other
pipelines, acquisitions of Hydrocarbons at the well or bulk purchase at pipeline
and terminal facilities and subsequent resale thereof.

          "MIDSTREAM PARTIES" means Newco LP, Newco GP LLC and PAA and their
respective subsidiaries.

          "OMNIBUS AGREEMENT" means that certain Omnibus Agreement, dated
November 23, 1998, among PLX, PAAI, Plains Marketing, L.P., All American
Pipeline, L.P. and PAA, as amended from time to time.

          "OTHER PARTIES" means the Midstream Parties, in the case of the
Upstream Parties, and the Upstream Parties, in the case of the Midstream
Parties.

          "PERSON" means any individual, corporation, partnership, limited
liability company or partnership, joint venture, association, governmental
entity, or any other entity.

          "SUBSIDIARY" means, with respect to any Person, any corporation,
partnership, association or other business entity of which (i) if a corporation,
a majority of the total voting power of shares of stock entitled (irrespective
of whether, at the time, stock of any other class or classes of such corporation
shall have or might have voting power by reason of the happening of

                                       2
<PAGE>

any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by that
Person or one or more of the other subsidiaries of that Person or a combination
thereof, or (ii) if a partnership, association or other business entity, a
majority of either (x) the partnership or other similar ownership interest
thereof, or (y) the stock or other equity interest of such partnership,
association or other business entity's general partner, managing member or
similar controlling Person is at the time owned or controlled, directly or
indirectly, by such Person or one or more subsidiaries of that Person or a
combination thereof.

          "THIRD-PARTY CLAIM" means any claim, suit, arbitration, inquiry,
proceeding or investigation by or before any court, governmental or other
regulatory or administrative agency or commission, or any arbitration tribunal
asserted by a Person other than the parties hereto or their respective
Affiliates that gives rise to a right of indemnification hereunder.

          "UPSTREAM BUSINESS" means all the business conducted by the Upstream
Parties except the Midstream Business as conducted by the Midstream Parties.

          "UPSTREAM PARTIES" means PLX and PAAI and their respective
Subsidiaries except for the Midstream Parties.

          (b)  Each of the following terms is defined in the section set forth
opposite such term.

<TABLE>
<CAPTION>
Term                                                                     Section
----                                                                     -------
<S>                                                             <C>
Agreement......................................................         Preamble
Closing Date...................................................                1
Covered Parties................................................          5.01(a)
Disputes.......................................................             6.02
Effective Date.................................................         Preamble
Indemnifying Party.............................................          4.02(a)
Indemnitee.....................................................          4.02(a)
Insurance Transition Period....................................          5.01(a)
Listed Policies................................................          5.01(a)
Local Counsel..................................................          4.02(b)
Losses.........................................................          4.04(c)
Maximum Premium................................................ 4.05(b). 4.04(b)
Midstream Indemnitees..........................................          4.01(a)
Newco GP LLC...................................................         Preamble
Newco LP.......................................................         Preamble
PAA............................................................         Preamble
PAAI...........................................................         Preamble
PAAI D&O Indemnified Parties...................................          4.05(c)
Party..........................................................         Preamble
PLX............................................................         Preamble
PLX D&O Indemnified Parties....................................          4.04(c)
Primary Counsel................................................          4.02(b)
Representatives................................................          3.06(a)
</TABLE>

                                       3
<PAGE>

<TABLE>
<S>                                                                     <C>
Separate Counsel......................................................   4.02(b)
Transition Agreement..................................................      2.01
Unit Transfer and Contribution Agreements.............................  Preamble
Upstream Indemnitees..................................................   4.01(b)
</TABLE>

                                  ARTICLE II
                               OTHER AGREEMENTS

          2.01.  PENSION AND EMPLOYEE BENEFITS ASSUMPTION AND TRANSITION
AGREEMENT.  Concurrently with the execution of this Agreement, Parent, PAAI and
Newco GP LLC shall execute that certain Pension and Employee Benefits Assumption
and Transition Agreement, dated as of the date hereof, by and among PLX, PAAI
and Newco GP LLC (the "Transition Agreement).

          2.02.  OMNIBUS AGREEMENT; MARKETING AGREEMENT.  The Parties hereto
agree and intend that the Omnibus Agreement and the Marketing Agreement shall
continue in full force and effect in accordance with the terms thereof.

                                  ARTICLE III
                           CERTAIN BUSINESS MATTERS

          3.01.  EXCHANGE OF INFORMATION.  (a)  Each of PAAI and Newco GP LLC
agrees to provide or cause to provide to the other at any time after the Closing
as soon as reasonably practicable after written notice therefor any Information
relating to time periods prior to the expiration of the Transition Period (as
defined in the Transition Agreement) in the possession or in control of such
Party that the requesting Party reasonably needs: (i) to comply with reporting,
disclosure, filing or other requirements imposed on the requesting Party or its
subsidiaries (including under applicable securities or tax laws) by a
Governmental Authority having jurisdiction over the requesting Party, (ii) for
use in any other judicial, regulatory, administrative tax or other proceedings
or in order to satisfy audit, accounting, claims, regulatory, litigation, tax or
other similar requirements, or (iii) to comply with its obligations under this
Agreement or the Transition Agreement; provided, however, if any Party
                                       --------  -------
determines that any such a provision of Information could be commercially
detrimental, violate any law or agreement, or waive any attorney-client
privilege, the Parties shall take all reasonable measures to permit the
compliance with such obligations in a manner that avoids any such harm or
consequence.

          (b)    After the Closing Date, the Midstream Parties and the Upstream
Parties shall each have access during regular business hours (as in effect from
time to time) to the documents and objects of historical significance that
relate to the Midstream Business or the Upstream Business, as the case may be,
that are located in the records of the Upstream Parties and the Midstream
Parties, respectively.

          (c)    After the Closing Date, the Midstream Parties shall provide or
cause to be provided to PLX in such form as PLX shall request all financial and
other data and information that PLX determines necessary in order to prepare
PLX's financial statements and reports or filings with any Governmental
Authority.

                                       4
<PAGE>

          3.02.  COMPENSATION FOR PROVIDING INFORMATION.  The Party requesting
such Information shall reimburse the other Party for the reasonable cost, if
any, of creating, gathering or copying such Information, to the extent that such
costs are incurred for the benefit of the requesting Party. Except as may be
otherwise specifically provided elsewhere in this Agreement or any other
Agreement between the Parties, such cost shall be computed in accordance with
the providing Party's standard methodology and procedures.

          3.03.  RECORD RETENTION.  To facilitate the possible exchange of
Information pursuant to this Agreement after the Effective Date, the Parties
agree to use their reasonable best efforts to retain all Information in their
respective possession or control consistent with the records retention policies
of PLX and PAAI as in effect of the Effective Date as such may from time to time
be changed. Neither the Upstream Parties nor the Midstream Parties will destroy
or permit any of their subsidiaries to destroy any financial Information which
the Other Parties may have the right to obtain pursuant to this Agreement prior
to the third anniversary of the Effective Date. Furthermore, neither the
Upstream Parties nor the Midstream Parties will destroy or permit any of its
subsidiaries to destroy any Information which the Other Parties may have the
right to obtain pursuant to this Agreement prior to the sixth (6th) anniversary
of the Effective Date without first using its reasonable best efforts to notify
the Other Parties of the proposed destruction and giving the Other Parties the
opportunity to take possession of such Information prior to such destruction;
provided, however, that in the case of any Information relating to taxes or to
--------  -------
environmental liabilities, such period shall be extended to expiration of the
applicable statute of limitations (giving effect to any extensions thereof).

          3.04.  LIMITATION OF LIABILITY.  Neither the Upstream Parties nor the
Midstream Parties makes any representation or warranty to the Other Parties with
respect to the accuracy or completeness of any Information exchanged or provided
pursuant to this Agreement. Neither the Upstream Parties nor the Midstream
Parties shall have any liability to the Other Parties if any Information is
destroyed after the reasonable best efforts by such Parties to comply with the
provisions of this Agreement.

          3.05.  PRODUCTION OF WITNESSES, RECORDS AND COOPERATION.  After the
Effective Date, each of the Upstream Parties and the Midstream Parties shall use
its reasonable best efforts to make available to the Other Parties upon written
request its former, current and future directors, officers, employees, other
personnel and agents as witnesses, and any books, records or other documents
within its control or which it otherwise has the ability to make available, to
the extent that any such person (given consideration to business demands of such
directors, officers, employees, other personnel and agents) or books, records or
other documents may be reasonably required in connection with any Action in
which the requesting Party may from time to time be involved regardless of
whether such Action is a matter with respect to which indemnification may be
sought.  The requesting Party shall bear all costs and expenses (including
allocated costs of in-house counsel and other personnel) in connection
therewith.

          3.06.  CONFIDENTIALITY.  (a) Subject to Section 3.06(c) and (d) below,
each of the Upstream Parties and the Midstream Parties agrees to hold, and cause
its respective directors, officers, employees, agents, accountants and other
advisors and representatives (collectively, "Representatives") to hold, in
strict confidence, with at least the same degree of

                                       5
<PAGE>

care that applies to its own confidential and proprietary information, all
Information concerning the Other Parties that is either in its possession
(including Information in its possession prior to the Effective Date) or
furnished by the Other Parties at any time pursuant to this Agreement or
otherwise, and shall not use any such Information other than for such purposes
as shall be expressly permitted hereunder or thereunder, except, in each case,
to the extent that such Information has been: (i) in the public domain through
no breach of this Section 3.06 by such Party or any of its Representatives, (ii)
later lawfully acquired from other sources by such Party or any of its
Representatives which sources to the knowledge of such Party or such
Representative are not themselves bound by a confidentiality obligation), or
(iii) independently generated without reference to any proprietary or
confidential Information of the Other Parties.

          (b)  Subject to Section 3.06(c) and (d) below, each Party agrees not
to release or disclose, or permit to be released or disclosed, any such
Information to any other Person, except its Representatives who need to know
such Information (who shall be advised of their obligations hereunder with
respect to such Information), except in compliance with this Section 3.06.
Without limiting the foregoing, when any Information is no longer needed for the
purposes contemplated by this Agreement, each Party will promptly after request
of the other Party either return to the other Party all Information in a
tangible form (including all copies thereof and all notes, extracts or summaries
based thereon) or certify to the other Party that it has destroyed such
Information (and such copies thereof and such notes, extracts or summaries based
thereon).

          (c)  The Upstream Parties may release or disclose, or permit to be
released or disclosed, any such Information to any Person (and such Person's
Representatives) in connection with the bona fide sale to such Person of all or
a portion of the Upstream Parties' ownership interest in the Midstream Parties;
provided, however, that any such release or disclosure shall be pursuant to a
confidentiality agreement in form and substance reasonably satisfactory to the
Midstream Parties and the Upstream Parties shall be and remain liable for any
breach of such confidentiality agreement by any such Person or such Person's
Representatives.  Prior to any such release or disclosure, the Upstream Parties
shall provide prior notice to the Midstream Parties of the intended release or
disclosure including, with reasonable specificity, the Information proposed to
be released or disclosed.

          (d)  In the event that any of the Upstream Parties or the Midstream
Parties either determines on the advice of its counsel that it is required to
disclose any Information pursuant to applicable law or receives any demand under
lawful process or from any Governmental Authority to disclose or provide
Information of the Other Parties (or their Representatives) that is subject to
the confidentiality provisions hereof, such Party shall notify the Other Parties
prior to disclosing or providing such Information and shall cooperate at the
expense of the requesting Other Party in seeking any reasonable protective
arrangements requested by such Party.  Subject to the foregoing, the Party that
received such request may thereafter disclose or provide Information to the
extent required by such law (as so advised by counsel) or by lawful process or
such Governmental Authority.

                                       6
<PAGE>

                                  ARTICLE IV
                                INDEMNIFICATION

          4.01.  INDEMNIFICATION.  (a)  The Upstream Parties shall indemnify,
defend and hold harmless the Midstream Parties (the "Midstream Indemnitees"),
against any and all actions, claims, damages, losses, or liabilities resulting
from, relating to or arising, whether prior to or following the Effective Date,
out of or in connection with (i) operation of the Upstream Business or (ii)
federal or state securities laws or regulations, or the regulations of any self-
regulatory authority or similar body, or other similar claims (including any
actions, claims, damages, losses or liabilities with respect to which the
indemnification obligations in Sections 4.04 or 4.05 would apply) in connection
with the Upstream Business or the Midstream Business based upon or resulting
from acts or omissions, or alleged acts or omissions, by the Upstream Parties or
the Midstream Parties occurring on or prior to the Effective Date, and the
Upstream Parties shall reimburse each Midstream Indemnitee for any and all
reasonable costs and expenses (including attorneys' fees) incurred by any of
them in connection with investigating and/or defending any such action, claim,
damage, loss, or liability, other than legal fees incurred prior to the
Effective Date.

          (b)    The Midstream Parties shall indemnify, defend and hold harmless
the Upstream Parties (the "Upstream Indemnitees") against any and all actions,
claims, damages, losses, or liabilities (other than actions, claims, damages,
losses or liabilities with respect to which the indemnification obligations in
Sections 4.04 or 4.05 would apply) resulting from, relating to or arising,
whether prior to or following the Effective Date, out of or in connection with
the operation of the Midstream Business, and the Midstream Parties shall
reimburse each Upstream Indemnitee for any and all reasonable costs and expenses
(including attorneys' fees) incurred by any of them in connection with
investigating and/or defending any such action, claim, damage, loss or
liability, other than legal fees incurred prior to the Effective Date.

          4.02.  INDEMNIFICATION PROCEDURES.  (a)  If an Upstream Indemnitee or
Midstream Indemnitee (collectively, an "Indemnitee") receives notice of the
assertion of any Third-Party Claim with respect to which a Midstream Party or
Upstream Party, respectively is, or is likely to be, obligated under this
Agreement to provide indemnification (an "Indemnifying Party"), such Indemnitee
shall promptly give such Indemnifying Party notice thereof (together with a copy
of such Third-Party Claim, process or other legal pleading) promptly after
becoming aware of such Third-Party Claim; provided, however, that the failure of
                                          --------  -------
any Indemnitee to give notice as provided in this Section 4.02 shall not relieve
any Indemnifying Party of its obligations under this Section 4.02, except to the
extent that such Indemnifying Party is actually prejudiced by such failure to
give notice.  Such notice shall describe such Third-Party Claim in reasonable
detail.

          (b)    An Indemnifying Party, at such Indemnifying Party's own expense
and through counsel chosen by such Indemnifying Party (which counsel shall be
reasonably acceptable to the Indemnitee), may elect to defend any Third-Party
Claim. If an Indemnifying Party elects to defend a Third-Party Claim in
accordance with the foregoing, then, within ten (10) Business Days after
receiving notice of such Third-Party Claim (or sooner, if the nature of such
Third Party claim so requires), such Indemnifying Party shall notify the
Indemnitee of its intent to do so, and such Indemnitee shall cooperate in the
defense of such Third-Party Claim.

                                       7
<PAGE>

Such Indemnifying Party shall pay such Indemnitee's reasonable out-of-pocket
expenses incurred in connection with such cooperation. Such Indemnifying Party
shall keep the Indemnitee reasonably informed as to the status of the defense of
such Third-Party Claim. After notice from an Indemnifying Party to an Indemnitee
of its election to assume the defense of a Third-Party Claim, such Indemnifying
Party shall not be liable to such Indemnitee under this Section 4.02 for any
attorneys' fees or other expenses subsequently incurred by such Indemnitee in
connection with the defense thereof other than those expenses referred to in the
second preceding sentence; provided, however, that such Indemnitee shall have
                           --------  -------
the right to employ one law firm as counsel ("Primary Counsel"), together with a
local law firm in each applicable jurisdiction (collectively, "Local Counsel")
(and together with Primary Counsel, "Separate Counsel"), to represent such
Indemnitee in any action or group of related actions (which firm or firms shall
be reasonably acceptable to the Indemnifying Party) if, in the reasonable
judgment of such Indemnitee's counsel at any time, either a conflict of interest
between such Indemnitee and such Indemnifying Party exists in respect of such
claim, or counsel to such Indemnitee advises in writing there may be defenses
available to such Indemnitee which are significantly different from or in
addition to those available to such Indemnifying Party and the representation of
both Parties by the same counsel would, in the reasonable judgment of the
Indemnitee, be inappropriate, and in that event (i) the reasonable fees and
expenses of such Separate Counsel shall be paid by such Indemnifying Party (it
being understood, however, that the Indemnifying Party shall not be liable for
the expenses of more than one Primary Counsel and one Local Counsel in any one
jurisdiction with respect to any Third-Party Claim (even if against multiple
Indemnitees)) and (ii) each of such Indemnifying Party and such Indemnitee shall
have the right to conduct its own defense in respect of such claim. If an
Indemnifying Party: (i) elects not to defend against a Third-Party Claim; (ii)
fails to notify an Indemnitee of its election as provided in this Section 4.02
within the period of ten (10) Business Days described above; or (iii) elects to
defend a Third Party Claim but, in the reasonable judgment of the Indemnitee,
fails to timely, properly and adequately defend such claim, the Indemnitee may
defend, compromise, and settle such Third-Party Claim and shall be entitled to
indemnification hereunder (to the extent permitted hereunder); provided,
                                                               -------
however, that no such Indemnitee may compromise or settle any such Third-Party
-------
claim without the prior written consent of the Indemnifying Party, which consent
shall not be unreasonably withheld or delayed. Notwithstanding the foregoing,
the Indemnifying Party shall not, without the prior written consent of the
Indemnitee, (i) settle or compromise any Third-Party Claim or consent to the
entry of any judgment which does not include as an unconditional term thereof
the dismissal without prejudice of such Third Party Claim or delivery by the
claimant or plaintiff to the Indemnitee of a written release from all liability
in respect of such Third-Party Claim or (ii) settle or compromise any Third-
Party Claim in any manner that would be reasonably likely to have a material
adverse effect on the Indemnitee.

          4.03.  CERTAIN LIMITATIONS.  (a)  The amount of any indemnifiable
losses or other liability for which indemnification is provided under this
Agreement shall be net of any amounts actually recovered by the Indemnitee from
third parties (including, without limitation, amounts actually recovered under
insurance policies) with respect to such indemnifiable losses or other
liability. Any Indemnifying Party hereunder shall be subrogated to the rights of
the Indemnitee upon payment in full of the amount of the relevant indemnifiable
loss. An insurer who would otherwise be obligated to pay any claim shall not be
relieved of the responsibility with respect thereto or, solely by virtue of the
indemnification provision hereof, have any

                                       8
<PAGE>

subrogation rights with respect thereto. If any Indemnitee recovers an amount
from a third party in respect of an indemnifiable loss for which indemnification
is provided in this Agreement after the full amount of such indemnifiable loss
has been paid by an Indemnifying Party or after an Indemnifying Party has made a
partial payment of such indemnifiable loss and the amount received from the
third party exceeds the remaining unpaid balance of such indemnifiable loss,
then the Indemnitee shall promptly remit to the Indemnifying Party the excess
(if any) of (A) the sum of the amount theretofore paid by such Indemnifying
Party in respect of such indemnifiable loss plus the amount received from the
third party in respect thereof less (B) the full amount of such indemnifiable
loss or other liability. Nothing in this Section 4.03(a) shall obligate any
Indemnitee to seek to recover any amounts from any third party (including,
without limitation, amounts recoverable under insurance policies) prior to, or
as a condition to, seeking indemnification under this Article IV.

          (b)    The amount of any loss or other liability for which
indemnification is provided under this Agreement shall be (i) increased to take
account of any net tax cost incurred by the Indemnitee arising from the receipt
or accrual of an indemnification payment hereunder (grossed up for such
increase) and (ii) reduced to take account of any net tax benefit realized by
the Indemnitee arising from incurring or paying such loss or other liability.
In computing the amount of any such tax cost or tax benefit, the Indemnitee
shall be deemed to recognize all other items of income, gain, loss, deduction or
credit before recognizing any item arising from the receipt or accrual of any
indemnification payment hereunder or incurring or paying any indemnified loss.
Any indemnification payment hereunder shall initially be made without regard to
this Section 4.03(b) and shall be increased or reduced to reflect any such net
tax cost (including gross-up) or net tax benefit only after the Indemnitee has
actually realized such cost or benefit. For purposes of this Agreement, an
Indemnitee shall be deemed to have "actually realized" a net tax cost or a net
tax benefit to the extent that, and at such time as, the amount of taxes payable
by such Indemnitee is increased above or reduced below, respectively, the amount
of taxes that such Indemnitee would be required to pay but for the receipt or
accrual of the indemnification payment or the incurrence or payment of such
loss, as the case may be. The amount of any increase or reduction hereunder
shall be adjusted to reflect any final determination with respect to the
Indemnitee's liability for taxes, and payments between such indemnified parties
to reflect such adjustment shall be made if necessary.

          4.04.  DIRECTOR AND OFFICER INDEMNIFICATION - PLX. (a) PLX shall
honor all PLX's obligations to indemnify (including any obligations to advance
funds for expenses to) the current or former directors or officers of PLX (each,
a "PLX D&O Indemnified Party") for acts or omissions by such directors and
officers occurring on or prior to the Effective Date to the extent that such
obligations of PLX or any of its subsidiaries exist on the date immediately
prior to the Effective Date, whether pursuant to the certificate of
incorporation of PLX or otherwise, and such obligations shall survive and shall
continue in full force and effect in accordance with the terms of the
certificate of incorporation of PLX from the Effective Date until the expiration
of the applicable statute of limitations with respect to any claims against such
directors or officers arising out of such acts or omissions.

          (b)    For a period of six years from and after the Effective Date,
PLX shall cause to be maintained in effect for the benefit of the PLX D&O
Indemnified Parties the current policies of directors' and officers' liability
insurance maintained by PLX with coverage limits of

                                       9
<PAGE>

$15,000,000 (provided that PLX may substitute therefor policies with reputable
and financially sound carriers of at least the same coverage and amounts
containing terms and conditions which are no less advantageous and so long as
such substitution results in continuous coverage) with respect to claims arising
from or related to facts or events which occurred at or before the Effective
Date; provided, however, that PLX shall not be obligated to make annual premium
      --------  -------
payments for such insurance to the extent such premiums exceed 150% of the
annual premiums paid as of the date hereof by PLX for such insurance (such 150%
amount, the "Maximum Premium"). If such insurance coverage cannot be obtained at
all, or can only be obtained at an annual premium in excess of the Maximum
Premium, PLX shall maintain the most advantageous policies of directors' and
officers' insurance obtainable for an annual premium equal to the Maximum
Premium.

          (c)    From and after the Effective Date, to the fullest extent
permitted by Law and without limitation on the obligations of PLX pursuant to
Sections 4.04(a) and (b), PLX shall indemnify, defend and hold harmless the PLX
D&O Indemnified Parties") against all losses, claims, damages, liabilities, fees
and expenses (including attorneys' fees and disbursements), judgments, fines and
amounts paid in settlement (in the case of settlements, with the approval of the
indemnifying party (which approval shall not be unreasonably withheld or
delayed)) (collectively, "Losses"), as incurred (payable monthly upon written
request which request shall include reasonable evidence of the Losses set forth
therein) to the extent arising from, relating to, or otherwise in respect of,
any actual or threatened action, suit, proceeding or investigation, in respect
of actions or omissions occurring at or prior to the Effective Date in
connection with such Indemnified Party's duties as an officer or director of PLX
to the extent they are based on or arise out of or pertain to the transactions
contemplated by this Agreement or the Unit Transfer and Contribution Agreements.

          (d)    In the event that PLX or any of its successors or assigns (i)
consolidates with or merges into any other person and is not the continuing or
surviving corporation or entity in such consolidation or merger or (ii)
transfers or conveys all or substantially all its properties and assets to any
person, then, and in each such case, proper provision shall be made so that the
successor and assign of such party assumes the obligations of such party set
forth in this Section 4.04, and in such event all references to PLX in this
Section 4.04 shall be deemed a reference to such successor and assign.

          4.05.  DIRECTOR AND OFFICER INDEMNIFICATION - PAAI.  (a) PLX shall, to
the fullest extent permitted by Law, cause PAAI to, and PAAI shall honor all
PAAI's obligations to indemnify (including any obligations to advance funds for
expenses to) the current or former directors or officers of PAAI (each, a "PAAI
D&O Indemnified Party") for acts or omissions by such directors and officers
occurring on or prior to the Effective Date to the extent that such obligations
of PAAI or any of its subsidiaries exist on the date immediately prior to the
Effective Date, whether pursuant to the certificate of incorporation of PAAI or
otherwise, and such obligations shall survive and shall continue in full force
and effect in accordance with the terms of the certificate of incorporation of
PAAI from the Effective Date until the expiration of the applicable statute of
limitations with respect to any claims against such directors or officers
arising out of such acts or omissions.

                                       10
<PAGE>

          (b)    For a period of six years from and after the Effective Date,
PLX or PAAI shall cause to be maintained in effect for the benefit of the PAAI
D&O Indemnified Parties the current policies of directors' and officers'
liability insurance maintained by PLX with coverage limits of $15,000,000
(provided that PLX or PAAI may substitute therefor policies with reputable and
financially sound carriers of at least the same coverage and amounts containing
terms and conditions which are no less advantageous and so long as such
substitution results in continuous coverage) with respect to claims arising from
or related to facts or events which occurred at or before the Effective Date;
provided, however, that PLX shall not be obligated to make annual premium
--------  -------
payments for such insurance to the extent such premiums exceed 150% of the
Maximum Premium. If such insurance coverage cannot be obtained at all, or can
only be obtained at an annual premium in excess of the Maximum Premium, PLX or
PAAI shall maintain the most advantageous policies of directors' and officers'
insurance obtainable for an annual premium equal to the Maximum Premium.

          (c)    From and after the Effective Date, to the fullest extent
permitted by Law and without limitation on the obligations of PLX or PAAI
pursuant to Sections 4.05(a) and (b), PLX shall, and shall cause PAAI to,
indemnify, defend and hold harmless the PAAI D&O Indemnified Parties against all
Losses as incurred (payable monthly upon written request which request shall
include reasonable evidence of the Losses set forth therein) to the extent
arising from, relating to, or otherwise in respect of, any actual or threatened
action, suit, proceeding or investigation, in respect of actions or omissions
occurring at or prior to the Effective Date in connection with such Indemnified
Party's duties as an officer or director of PAAI to the extent they are based on
or arise out of or pertain to the transactions contemplated by this Agreement or
the Unit Transfer and Contribution Agreements.

          (d)    In the event that PLX or PAAI or any of their successors or
assigns (i) consolidates with or merges into any other person and is not the
continuing or surviving corporation or entity in such consolidation or merger or
(ii) transfers or conveys all or substantially all its properties and assets to
any person, then, and in each such case, proper provision shall be made so that
the successor and assign of such party assumes the obligations of such party set
forth in this Section 4.05, and in such event all references to PLX or PAAI, as
the case may be, in this Section 4.05 shall be deemed a reference to such
successor and assign.

                                   ARTICLE V
                               INSURANCE MATTERS

          5.01.  MIDSTREAM INSURANCE COVERAGE DURING THE INSURANCE TRANSITION
PERIOD.  (a)  Throughout the period beginning on the Effective Date and ending
on the date set next to each insurance policy listed on Schedule A hereto (the
"Listed Policies") or such earlier dates as the parties agree (with respect to
each Listed Policy, the "Insurance Transition Period"), the Upstream Parties
shall maintain the Listed Policies for the benefit of the Midstream Parties
(collectively, the "Covered Parties"), except as the parties otherwise agree.
Except as otherwise provided below, during the Insurance Transition Period, the
Listed Policies shall cover Covered Parties for liabilities and losses insured
prior to the Effective Date.

          (b)    Newco GP LLC, on behalf of the Midstream Parties, shall
promptly pay or reimburse the Upstream Parties, as the case may be, for its
share of premium expenses and all

                                       11
<PAGE>

applicable self-insurance retentions, deductibles, retrospective premium
adjustments and similar amounts with respect to the Listed Policies during the
Insurance Transition Period, and Newco GP LLC shall promptly pay or reimburse
the Upstream Parties for any costs and expenses which the Upstream Parties may
incur in connection with the insurance coverages maintained pursuant to this
Section 5.01, including but not limited to any subsequent premium adjustments.
Newco GP LLC's share of such expenses shall be determined in a manner consistent
with the allocation of such expenses between PLX and PAA prior to the Effective
Date. All payments and reimbursements by Newco GP LLC to the Upstream Parties
shall be made within fifteen (15) days after Newco GP LLC's receipt of an
invoice from the Upstream Parties.

          (c)    The control and administration of the Listed Policies shall
remain with PLX; provided, however, that any such action taken by PLX shall
                 --------  -------
treat fairly all insured parties and their respective claims and shall not
unduly favor one insured party over another. Newco GP LLC shall be provided,
upon request, with copies of the Listed Policies as in effect on the date of
such request.

          (d)    The provisions of this Article V represent only an allocation
of cost between the Parties with respect to the Listed Policies and shall in no
way affect the coverage provided by the Listed Policies or guarantee recovery by
the Midstream Parties under such policies.

          5.02.  INSURANCE COVERAGE AFTER THE INSURANCE TRANSITION PERIOD.  From
and after expiration of the Insurance Transition Period with respect to each
Listed Policy, Newco GP LLC, on behalf of the Midstream Parties, shall be solely
responsible for obtaining and maintaining insurance programs for its risk of
loss with respect to the subject matter of the relevant Listed Policy and such
insurance arrangements shall be separate and apart from the Upstream Parties'
insurance programs unless the parties otherwise agree.

                                  ARTICLE VI
                  FURTHER ASSURANCE AND ADDITIONAL COVENANTS

          6.01.  FURTHER ASSURANCES. (a) In addition to the actions specifically
provided for elsewhere in this Agreement, each of the Parties hereto shall use
its reasonable best efforts, prior to, on and after the Closing Date, to take,
or cause to be taken, all actions, and to do, or cause to be done, all things,
reasonably necessary, proper or advisable under applicable laws, regulations and
agreements to consummate and make effective the transactions contemplated by
this Agreement and the Transition Agreement.

          (b)    Without limiting the foregoing, prior to, on and after the
Closing Date, each Party hereto shall cooperate with the other Parties, and
without any further consideration, but at the expense of the requesting Party,
to execute and deliver, or use its reasonable best efforts to cause to be
executed and delivered, all instruments, including instruments of conveyance,
assignment and transfer, and to make all filings with, and to obtain all
consents, approvals or authorizations of any Governmental Authority or any other
Person under any permit, license, agreement, indenture or other instrument
(including any consents or governmental approvals), and to take all such other
actions as such Party may reasonably be requested to take by any other Party
hereto from time to time, consistent with the terms of this

                                       12
<PAGE>

Agreement and the Transition Agreement, in order to effectuate the provisions
and purposes of this Agreement and the Transition Agreement.

          (c)    Prior to the Closing Date, if one or more of the Parties
identifies any commercial or other service that is needed to assure a smooth and
orderly transition of the businesses in connection with the consummation of the
transactions contemplated by the Unit Transfer and Contribution Agreements that
is not otherwise governed by the provisions of this Agreement or the Transition
Agreement, the Parties shall cooperate in determining whether there is a
mutually acceptable arm's-length basis on which one or more of the other Parties
will provide such service.

          6.02.  DISPUTE RESOLUTION.  Resolution of any and all disputes arising
from or in connection with this Agreement, whether based on contract, tort, or
otherwise (collectively, "Disputes"), shall be exclusively governed by and
settled in accordance with the provisions of this Section 6.02.  The parties
hereto shall use all commercially reasonable efforts to settle all Disputes
without resorting to mediation, arbitration, litigation or other third party
dispute resolution mechanisms.  If any Dispute remains unsettled, the parties
hereby agree to mediate such Dispute using a mediator reasonably acceptable to
all parties involved in such Dispute.  If the parties are unable to resolve such
dispute through mediation, each party will be free to commence proceedings for
the resolution thereof.  No party shall be entitled to consequential, special,
exemplary or punitive damages.

          6.03.  NAMES.  As soon as reasonably possible after the date hereof,
and in no event later than the date that is 60 days from the date hereof, each
of PAAI and PAAI LLC, a wholly owned subsidiary of PAAI ("PAAI LLC"), shall take
all action necessary to change the names of PAAI and PAAI LLC to names bearing
no similarity to "Plains All American."

                                  ARTICLE VII
                                 MISCELLANEOUS

          7.01.  EFFECTIVENESS.  This Agreement shall become effective at the
close of business on the Closing Date.

          7.02.  SUCCESSORS AND ASSIGNS.  This Agreement shall be binding upon
the Parties hereto and their respective successors and permitted assigns and
shall inure to the benefit of the Parties hereto and their respective successors
and permitted assigns.  This Agreement may not be assigned by either Party
hereto to any other person without the prior written consent of the other Party
hereto.

          7.03.  NO THIRD-PARTY BENEFICIARIES.  Except for the Persons entitled
to indemnification hereunder, each of whom is an intended third-party
beneficiary hereunder, nothing expressed or implied in this Agreement shall be
construed to give any person or entity other than the Parties hereto any legal
or equitable rights hereunder.

          7.04.  ENTIRE AGREEMENT.  This Agreement constitutes the entire
agreement among the Parties with respect to the subject matter hereof.

                                       13
<PAGE>

          7.05.  AMENDMENT.  This Agreement may not be amended except by an
instrument signed by the Parties hereto.

          7.06.  WAIVERS.  No waiver of any term shall be construed as a
subsequent waiver of the same term, or a waiver of any other term, of this
Agreement.  The failure of any Party to assert any of its rights hereunder shall
not constitute a waiver of any such rights.

          7.07.  SEVERABILITY.  If any provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law or public policy, such
provision shall be deemed severable and all other provisions of this Agreement
shall nevertheless remain in full force and effect.

          7.08.  HEADINGS.  Section headings in this Agreement are included
herein for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.

          7.09.  NOTICES.  All notices given in connection with this Agreement
shall be in writing.  Service of such notices shall be deemed complete:  (i) if
hand delivered, on the date of delivery; (ii) if by mail, on the fourth Business
Day following the day of deposit in the United States mail, by certified or
registered mail, first-class postage prepaid; (iii) if sent by Federal Express
or equivalent courier service, on the next Business Day; or (iv) if by
telecopier, upon receipt by sender of confirmation of successful transmission.
Such notices shall be addressed to the Parties at the following address or at
such other address for a Party as shall be specified by like notice (except that
notices of change of address shall be effective upon receipt):

          If to Parent or PAAI:

          Plains Resources Inc.
          500 Dallas Street, Suite 700
          Houston, TX 77002
          Attention: Tim Stephens
          Fax No.: (713) 654-1523

          If to Newco GP LLC, Newco LP or PAA:

          Plains All American GP LLC
          333 Clay Street, 29/th/ Floor
          Houston, TX 77002
          Attention: Tim Moore
          Fax No.: (713) 646-4572

          7.10.  GOVERNING LAW.  This Agreement shall be governed by and
construed in accordance with, the laws of the State of Texas, without giving
effect to the principles of conflict of laws of such state or any other
jurisdiction.

                                       14
<PAGE>

          7.11.  COUNTERPARTS.  This Agreement may be executed in counterparts,
each of which shall be an original, but all of which together shall constitute
but one and the same instrument.

          7.12.  REMEDIES.  Each of the parties hereto shall be entitled to
enforce its rights under this Agreement specifically, to recover damages and
costs (including reasonable attorneys' fees) caused by any breach of any
provision of this Agreement and to exercise all other rights existing in its
favor.  Each of the parties hereto acknowledges and agrees that under certain
circumstances the breach by any of the parties hereto of a term or provision of
this Agreement will materially and irreparably harm the other party, that money
damages will accordingly not be an adequate remedy for such breach and that the
non-defaulting party, in its sole discretion and in addition to its rights under
this Agreement and any other remedies it may have at law or in equity, may apply
to any court of law or equity of competent jurisdiction (without posting any
bond or deposit) for specific performance and/or other injunctive relief in
order to enforce or prevent any breach of the provisions of this Agreement.

                                       15
<PAGE>

          IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to
be executed the day and year first written above.

                                   PLAINS RESOURCES, INC.

                                   BY: ______________________________
                                       NAME:
                                       TITLE:


                                   PLAINS ALL AMERICAN INC.

                                   BY: ______________________________
                                       NAME:
                                       TITLE:


                                   PLAINS ALL AMERICAN GP LLC

                                   BY: ______________________________
                                       NAME:
                                       TITLE:


                                   PLAINS AAP L.P.

                                   BY: PLAINS ALL AMERICAN GP LLC,
                                       its general partner

                                   BY: ______________________________
                                       NAME:
                                       TITLE:

                                       16
<PAGE>

                                   PLAINS ALL AMERICAN PIPELINE, L.P.

                                   BY: PLAINS AAP L.P., its general partner

                                   BY: PLAINS ALL AMERICAN GP LLC,
                                       its general partner

                                   BY: ______________________________
                                       NAME:
                                       TITLE:

                                       17
<PAGE>

                                  Schedule A

None.

                                       18