<PAGE>

                                                                    Exhibit 10.3

               ANCILLARY AGREEMENT TO PURCHASE AND SALE AGREEMENT

      This Ancillary Agreement to Purchase and Sale Agreement (the "Ancillary
Agreement") is entered into this 14th day of October, 2005, by and between Lynx
Production Company, Inc., whose address is 2100 Ross Avenue, Suite 860, LB 52,
Dallas, Texas 75201 (herein "Lynx") and Parallel, L.P., whose address is 1004 N.
Big Spring, Suite 400, Midland, Texas 97901 (herein "Parallel").

                                    Recitals:

   A. Contemporaneous herewith Lynx Production Company, Inc., et al. (herein
      collectively, "Sellers") are entering into a Purchase and Sale Agreement
      (the "Purchase Agreement") pursuant to which and subject to the terms and
      conditions thereof, Sellers are agreeing to sell to Parallel, and Parallel
      is agreeing to purchase from Sellers, the Assets (as therein defined)
      comprising oil and gas properties and related assets therein described
      which are owned by Sellers situated in Gaines and Andrews Counties, Texas.

   B. Certain aspects of the transaction contemplated in the Purchase Agreement
      pertain solely to Lynx and its interests in the Assets and do not relate
      to the interests of the other parties Sellers in and to the Assets.

   C. Lynx and Parallel address the terms of the transaction which pertain
      exclusively to Lynx and its interest in and to the Assets within this
      Ancillary Agreement.

                                   Covenants:

      For adequate consideration Lynx and Parallel agree, conditioned upon the
closing of the transaction contemplated in the Purchase Agreement and Parallel
becoming successor Operator of the oil and gas leases and wells included among
the Assets, as follows:

1.    Reserved Interest: Lynx will reserve unto itself and not sell or convey to
      Parallel an undivided ten percent (10%) interest in and to the Assets (the
      "Reserved Interest"). The portion of the Purchase Price allocated to Lynx
      pursuant to the provisions of the Purchase Agreement and attributable to
      Lynx' interests in the Assets will be reduced proportionately to the
      extent of the Reserved Interest

2.    Cascade Energy Corporation Interests: Lynx presently is considering the
      possibility of acquiring Cascade Energy Corporation ("Cascade") in a stock
      purchase transaction. If such transaction is consummated, its closing will
      occur prior to the final closing of the transaction contemplated in the
      Purchase Agreement. Cascade is a party to the Purchase Agreement. If Lynx
      acquires the stock of Cascade then, at Lynx' option, either (a) Lynx will
      retain the Cascade interests in the

                                                                               1
<PAGE>

      Assets as part of the Reserved Interest (in which event the provisions of
      the Purchase Agreement will no longer apply to Cascade's interests in the
      Assets) or (b) Cascade will close the sale of its interest in the Assets
      to Parallel per the provisions of the Purchase Agreement. If Lynx does not
      acquire the stock of Cascade, then the terms and provisions of the
      Purchase Agreement as relates to Cascade's interests in the Assets will
      remain legally binding and in full force and effect.

3.    On-going Land Work: Various land activities relative to the properties
      included among the Assets have been commenced and remain on-going. Such
      activities include leasing and lease renewals, as well as title
      examination and responsive curative efforts preliminary to drilling a new
      well in Section 21, Block A-23. Parallel recognizes the likely benefit of
      these activities which will accrue to Parallel as the purchaser of the
      Assets, despite the fact that much of the cost incurred in connection with
      this on-going activity will have been incurred prior to the Effective Date
      of the Purchase Agreement. In order to insure that these activities will
      not be interrupted due to the contemplated sale of the Assets, Parallel
      agrees that conditioned upon the consummation of the transaction
      contemplated in the Purchase Agreement, at closing Parallel will reimburse
      Lynx et al. (or Lynx Operating Co., Inc., the operator, as applicable) for
      all third party costs and expenses associated with this on-going land and
      title work, limited to such costs and expenses as are incurred in
      connection therewith subsequent to September 15, 2005. Such expenses
      currently are estimated to be $25,000, but in no event shall such expenses
      exceed $25,000.

4.    Reciprocal Lease Acquisition Rights: If within three (3) years
      following the closing, if either Lynx or Parallel acquires oil and gas
      leasehold interests within any of the sections of land described in
      Exhibit "A" hereto, which interests are inclusive of depths from the top
      of the Yates Formation down to the base of the Queen Formation (in the
      instance of acquisitions by Parallel) or any depths other than depths from
      the top of the Yates Formation down to the base of the Queen Formation (in
      the instance of acquisition by Lynx), then the non-acquiring party will
      have the option to acquire all of the acquired party's interest in the
      acquired leasehold as to the non-acquiring party's formation of interest
      (i.e. depths from the top of the Yates Formation down to the base of the
      Queen Formation, in favor of Lynx and any depths other than depths from
      the top of the Yates Formation down to the base of the Queen Formation in
      favor of Parallel) by paying the acquiring party the sum of One Hundred
      Dollars ($100.00) per net leasehold acre in exchange for a recordable
      assignment of all the acquiring party's rights to the formation of
      interest. Furthermore, if within three years following the closing either
      Lynx or Parallel acquires oil and gas leasehold interests within Sections
      8, 13 or 18, Block A-22, PSL, Gaines County, Texas, which interests are
      inclusive of depths from the top of the Yates Formation down to the base
      of the Yates Formation (in the instance of acquisitions by Parallel) or
      any depth other than depths from the top of the Yates Formation down to
      the base of the Yates Formation (in the instance of acquisitions by Lynx),
      then the

                                                                               2
<PAGE>

      non-acquiring party will have the option to acquire all of the acquiring
      party's interest in the acquired leasehold as to the non-acquiring party's
      formation of interest (i.e. depths form the top of the Yates Formation
      down to the base of the Yates Formation, in favor of Lynx, and any other
      depths in favor of Parallel) by paying the acquiring party the sum of $100
      per net leasehold acre in exchange for a recordable assignment of all the
      acquiring party's right to the formation of interest.

5.    Area of Mutual Interest. In addition to the rights provided for in
      paragraph 4, above, the parties hereto also hereby create an Area of
      Mutual Interest comprised of the lands described in Exhibit "A" hereto
      (the "AMI"). Under the terms of the AMI, lynx shall have the right to
      acquire an undivided 10% of the interest acquired by Parallel in any
      Leases (as defined in the Purchase Agreement), as to all depths covered by
      such Leases, SAVE AND EXCEPT depths from the top of the Yates Formation
      down to the base of the Queen Formation. Parallel shall give Lynx notice
      in writing of the terms of the acquisition of any such Leases. Lynx shall
      then have 15 days from the receipt of such notice in which to elect to
      acquire and tender payment for 10% of such interest. If Lynx elects to
      acquire a 10% interest in any such Leases, Lynx agrees that such interest
      shall be subject to an operating agreement on a form utilized by Parallel
      in its Carm-Ann Area in Andrews and Gaines Counties, Texas.

6.    Lynx Overriding Royalty Interest. Notwithstanding Exhibit "B" to the
      Purchase Agreement which reflects that the Non-Producing Leasehold Acreage
      will be assigned to Parallel and the net revenue interest to be delivered
      for such leases shall be 75%, with Lynx reserving an overriding royalty
      interest equal to the difference between 25% and the royalties provided
      for in such leases. Provided, however, that on any renewals or extensions
      of any such leases, Lynx shall not be entitled to any overriding royalty
      interest.

      The terms and provision of this Ancillary Agreement expressly are
conditioned upon the closing of the transaction contemplated in the Purchase
Agreement. In the event of a conflict between the provisions of the Purchase
Agreement and the provisions of this Ancillary Agreement, the applicable
provisions of this Ancillary Agreement will control and prevail. In the absence
of any such conflict the terms and provisions of the Purchase Agreement as
relates to Lynx' interests in the Assets will remain legally binding and in full
force and effect.

      Executed as of the date first set forth above.

                                               LYNX PRODUCTION COMPANY, INC.

                                               By:  /s/ Robert S. Craine
                                                   ----------------------------
                                                    Robert S. Craine
                                                    President

                                                                               3
<PAGE>

                                                PARALLEL PETROLEUM CORPORATION

                                                By: /s/ Donald E. Tiffin
                                                   ----------------------------
                                                   Donald E. Tiffin
                                                   Chief Operating Officer

                                                                               4
<PAGE>

                                   Exhibit "A"

1.    All of Sections 6, 7, 14, 15, 16, and 17, Block A-22, PSL, Gaines County,
      Texas

2.    All of Sections 10 and 11, Block A-23, PSL, Gaines County, Texas

3.    All of Sections 23, 24 and 25, Block A-22, PSL, Andrews and Gaines
      Counties, TX

4.    All of Section 21, Block A-23, PSL, Andrews and Gaines Counties, TX.

                                                                               5