<PAGE>
 
                                                                    EXHIBIT 10.8

                              GUARANTY AGREEMENT


                           Dated as of July 8, 1998

                                      by

                              OCEAN ENERGY, INC.,
                            a Louisiana corporation

                                  in favor of

                  CHASE BANK OF TEXAS, NATIONAL ASSOCIATION,
                           as Administrative Agent,

                  MORGAN GUARANTY TRUST COMPANY OF NEW YORK,
                             as Syndication Agent,

                              BARCLAYS BANK PLC,
                            as Documentation Agent,

                             ABN AMRO BANK, N.V.,
                       BANK OF AMERICA NATIONAL TRUST &
                             SAVINGS ASSOCIATION,
                                   PARIBAS,
                              NATIONSBANK, N.A.,
                      SOCIETE GENERALE, SOUTHWEST AGENCY,
                                      AND
                        WELLS FARGO BANK (TEXAS), N.A.,
                                 as Co-Agents,

                                      and

         THE LENDERS NOW OR HEREAFTER PARTIES TO THE CREDIT AGREEMENT
<PAGE>
 
                                  TABLE OF CONTENTS

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                 Article I Definitions and Accounting Matters

     Section 1.01  Terms Defined in Recitals..............................................   1
     Section 1.02  Certain Definitions....................................................   1
     Section 1.03  Credit Agreement Definitions...........................................   2

                            Article II The Guaranty

     Section 2.01  Obligations Guaranteed.................................................   2
     Section 2.02  Nature of Guaranty.....................................................   2
     Section 2.03  Lenders' Rights........................................................   2
     Section 2.04  Guarantor's Waivers....................................................   3
     Section 2.05  Maturity of Obligations; Payment.......................................   3
     Section 2.06  Lenders' Expenses......................................................   3
     Section 2.07  Obligation.............................................................   3
     Section 2.08  Events and Circumstances Not Reducing or Discharging the Guarantor's
                     Obligations..........................................................   3
     Section 2.09  Limitations on Obligation of the Guarantor Hereunder...................   5
     Section 2.10  Subrogation............................................................   5

             Article III Representations, Warranties and Covenants

     Section 3.01  Representations and Warranties.........................................   5
     Section 3.02  Covenants..............................................................   7

                   Article IV Subordination of Indebtedness

     Section 4.01  Subordination of All Guarantor Claims..................................   7
     Section 4.02  Claims in Bankruptcy...................................................   7
     Section 4.03  Payments Held in Trust.................................................   7
     Section 4.04  Liens Subordinate......................................................   8
     Section 4.05  Notation of Records....................................................   8

                            Article V Miscellaneous

     Section 5.01  Successors and Assigns................................................    8
     Section 5.02  Notices...............................................................    8
     Section 5.03  Authority of Administrative Agent.....................................    8
     Section 5.04  CONSTRUCTION..........................................................    9
     Section 5.05  Survival of Obligations...............................................   10
     Section 5.06  Subject to the Intercreditor Agreement................................   10
     Section 5.07  Status as Specified or Designated Senior Indebtedness.................   10
     Section 5.08  Interest..............................................................   10
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                                       i
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                              GUARANTY AGREEMENT

          This Guaranty Agreement dated as of July 8, 1998 is by Ocean Energy,
Inc., a corporation duly organized and validly existing under the laws of the
state of Louisiana (the "Guarantor"), in favor of each of the following: each of
the financial institutions that is now or hereafter a party to the Credit
Agreement (as defined below) as a lender (individually, a "Lender" and,
collectively, the "Lenders"); Chase Bank of Texas, National Association, as
administrative agent for the Lenders (in such capacity, the "Administrative
Agent"), Morgan Guaranty Trust Company of New York, as syndication agent for the
Lenders (in such capacity, the "Syndication Agent"), Barclays Bank PLC, as
documentation agent for the Lenders (in such capacity, the "Documentation
Agent"), and ABN Amro Bank, N.V., Bank of America National Trust & Savings
Association, Paribas, NationsBank, N.A., Societe Generale, Southwest Agency and
Wells Fargo Bank (Texas), N.A., as co-agents for the Lenders (in such capacity,
the "Co-Agents").

                                  RECITALS

     A.  Ocean Energy, Inc., a Delaware corporation (the "Company"), the
Administrative Agent, the Syndication Agent, the Documentation Agent, the Co-
Agents (collectively the "Agents") and the Lenders have executed that certain
Amended and Restated Global Credit Agreement of even date herewith (such credit
agreement, as amended, the "Credit Agreement").

     B.  One of the terms and conditions stated in the Credit Agreement for the
making of the loans and extensions of credit described in the Credit Agreement
is the execution and delivery to the Agents and the Lenders of this Guaranty
Agreement.

     C.  NOW, THEREFORE, (i) in order to comply with the terms and conditions of
the Credit Agreement, (ii) to induce the Lenders to enter into the Credit
Agreement, and (iii) for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Guarantor hereby agrees as
follows:

                                   ARTICLE I
                      DEFINITIONS AND ACCOUNTING MATTERS

                 ARTICLE I DEFINITIONS AND ACCOUNTING MATTERS

     SECTION 1.01 TERMS DEFINED IN RECITALS. As used in this Guaranty Agreement,
the terms defined in the Recitals shall have the meanings indicated in the
Recitals.

     SECTION 1.02 CERTAIN DEFINITION. As used in this Guaranty Agreement,
including the Recitals, the following terms shall have the following meanings,
unless the context otherwise requires:

     "Guarantor Claims" shall have the meaning indicated in Section 4.01.

     "Guaranty Agreement" shall mean this Guaranty Agreement, as the same may
from time to time be amended or supplemented.

     "Obligations" shall mean (a) the payment and performance of all present and
future indebtedness, obligations and liabilities of the Company to the Agents
and the Lenders under the Credit Agreement, including but not limited to, (i)
the full and punctual payment of the Notes issued thereunder, and any and 

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all promissory notes given in substitution for such Notes or in modification,
renewal, extension or rearrangement thereof in whole or in part, and (ii) the
reimbursement and other obligations of the Company under and with respect to
Letters of Credit and Letter of Credit Agreements now outstanding or hereafter
issued under the Credit Agreement; (b) all obligations of the Guarantor under
this Guaranty Agreement; and (c) all interest (whether pre- or post petition),
charges, expenses, reasonable attorneys' or other fees and any other sums
payable to the Agents and the Lenders in connection with the execution,
administration or enforcement of any of their rights and remedies hereunder or
any other Loan Document.

     SECTION 1.03 CREDIT AGREEMENT DEFINITIONS. Unless otherwise defined herein,
all terms beginning with a capital letter which are defined in the Credit
Agreement shall have the same meanings herein as therein.

                                  ARTICLE II

                                 THE GUARANTY

     SECTION 2.01 OBLIGATIONS GUARANTEED. The Guarantor hereby irrevocably and
unconditionally guarantees the prompt payment at maturity of the Obligations.

     SECTION 2.02 NATURE OF GUARANTY. This guaranty is an absolute, irrevocable,
completed and continuing guaranty of payment and not a guaranty of collection,
and no notice of the Obligations or any extension of credit already or hereafter
contracted by or extended to the Company need be given to the Guarantor. This
guaranty may not be revoked by the Guarantor and shall continue to be effective
with respect to debt under the Obligations arising or created after any
attempted revocation by the Guarantor and shall remain in full force and effect
until the Obligations are paid in full and the Aggregate Commitments are
terminated, notwithstanding that from time to time prior thereto no Obligations
may be outstanding. The Company, the Agents and the Lenders may modify, alter,
rearrange, extend for any period and/or renew from time to time, the Obligations
and the Agents and the Lenders may waive any Defaults or Events of Default
without notice to the Guarantor and in such event the Guarantor will remain
fully bound hereunder on the Obligations. Subject to the terms of the Credit
Agreement, this Guaranty Agreement may be enforced by the Agents and/or the
Lenders and any subsequent holder of the Obligations and shall not be discharged
by the assignment or negotiation of all or part of the Obligations. The
Guarantor hereby expressly waives presentment, demand, notice of non-payment,
protest and notice of protest and dishonor, notice of Event of Default, notice
of intent to accelerate the maturity and notice of acceleration of the maturity
and any other notice in connection with the Obligations, and also notice of
acceptance of this Guaranty Agreement, acceptance on the part of the Agents and
the Lenders being conclusively presumed by their request for this Guaranty
Agreement and delivery of the same to the Administrative Agent.

     SECTION 2.03 LENDERS' RIGHTS. Subject to the terms of the Credit Agreement,
the Guarantor authorizes the Lenders (or the Administrative Agent on behalf of
the Lenders), without notice or demand and without affecting the Guarantor's
obligation hereunder, to take and hold agreed-upon security for the payment of
the Obligations, and exchange, enforce, waive and release any such security; and
to apply such security and direct the order or manner of sale thereof as the
Agents and the Lenders in their discretion may determine; and to obtain a
guaranty of the Obligations from any one or more Persons and at any time or
times to enforce, waive, rearrange, modify, limit or release any of such other
Persons from their obligations under such guaranties.

     SECTION 2.04 GUARANTOR'S WAIVERS. The Guarantor waives any right to require
the Agents and the Lenders to (a) proceed against the Company or any other
Person liable on the Obligations, (b) enforce their 

                                       2
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rights against any other guarantor of the Obligations, (c) proceed or enforce
their rights against or exhaust any security given to secure the Obligations,
(d) have the Company joined with the Guarantor in any suit arising out of this
Guaranty Agreement and/or the Obligations, or (e) pursue any other remedy
whatsoever. Neither the Agents nor the Lenders shall be required to mitigate
damages or take any action to reduce, collect or enforce the Obligations. The
Guarantor waives any defense arising by reason of any disability, lack of
corporate authority or power, or other defense of the Company or any other
guarantor of the Obligations, and shall remain liable hereon regardless of
whether the Company or any other guarantor be found not liable thereon for any
reason.

     SECTION 2.05 MATURITY OF OBLIGATIONS; PAYMENT. The Guarantor agrees that if
the maturity of the Obligations is accelerated by bankruptcy or otherwise, such
maturity shall also be deemed accelerated for the purpose of this Guaranty
Agreement without demand or notice to the Guarantor. The Guarantor will,
forthwith upon notice from the Administrative Agent of the Company's failure to
pay the Obligations at maturity, pay to the Administrative Agent for the benefit
of the Agents and the Lenders at the Administrative Agent's Principal Office,
the amount due and unpaid by the Company and guaranteed hereby. The failure of
the Administrative Agent to give this notice shall not in any way release the
Guarantor hereunder.

     SECTION 2.06 LENDERS' EXPENSES. If the Guarantor fails to pay the
Obligations after notice from the Administrative Agent of the Company's failure
to pay any Obligations at maturity (whether by acceleration or otherwise), and
if the Agents or the Lenders obtain the services of an attorney for collection
of amounts owing by the Guarantor hereunder, or obtain advice of counsel in
respect of any of their rights under this Guaranty Agreement, or if suit is
filed to enforce this Guaranty Agreement, or if proceedings are had in any
bankruptcy, receivership or other judicial proceedings for the establishment or
collection of any amount owing by the Guarantor hereunder, or if any amount
owing by the Guarantor hereunder is collected through such proceedings, the
Guarantor agrees to pay to the Administrative Agent at its Principal Office the
reasonable attorneys' fees of the Agents and the Lenders.

     SECTION 2.07 OBLIGATION. It is expressly agreed that the obligation of the
Guarantor for the payment of the Obligations guaranteed hereby shall be primary
and not secondary.

     SECTION 2.08  EVENTS AND CIRCUMSTANCES NOT REDUCING OR DISCHARGING THE
GUARANTOR'S OBLIGATIONS. The Guarantor hereby consents and agrees to each of the
following to the fullest extent permitted by law, agrees that its obligations
under this Guaranty Agreement shall not be released, diminished, impaired,
reduced or adversely affected by any of the following, and waives any rights
(including without limitation rights to notice) which it might otherwise have as
a result of or in connection with any of the following:

     (a) Modifications, etc.  Any renewal, extension, modification, or increase
in the amount of the Aggregate Commitments as in effect on the Effective Date,
decrease, alteration or rearrangement of all or any part of the Obligations, any
Loan Document or any instrument executed in connection therewith, or any
contract or understanding between the Company, any Agent and/or  the Lenders, or
any other Person, pertaining to the Obligations;

     (b) Adjustment, etc.  Any adjustment, indulgence, forbearance or compromise
that might be granted or given by the Agents or the Lenders to the Company, the
Guarantor or any Person liable on the Obligations;

                                       3
<PAGE>
 
     (c) Condition of the Company or the Guarantor.  The insolvency, bankruptcy,
arrangement, reorganization, adjustment, composition, liquidation, disability,
dissolution or lack of power of the Company or the Guarantor or any other Person
at any time liable for the payment of all or part of the Obligations; or any
sale, lease or transfer of any or all of the assets of the Company or the
Guarantor, or any changes in the shareholders of the Company or the Guarantor;

     (d) Invalidity of Obligations.  The invalidity, illegality or
unenforceability of all or any part of the Obligations or any Loan Document,
including the Notes, for any reason whatsoever, including without limitation the
fact that the Obligations, or any part thereof, exceed the amount permitted by
law, the act of creating the Obligations or any part thereof is ultra vires, the
officers or representatives executing any Loan Document or otherwise creating
the Obligations acted in excess of their authority, the Obligations violate
applicable usury laws, the Company has valid defenses, claims or offsets
(whether at law, in equity or by agreement) which render the Obligations wholly
or partially uncollectible from the Company, the creation, performance or
repayment of the Obligations (or the execution, delivery and performance of any
Loan Document) is illegal, uncollectible, legally impossible or unenforceable,
or the Credit Agreement, the Notes or other Loan Documents have been forged or
otherwise are irregular or not genuine or authentic;

     (e) Release of Obligors.  Any full or partial release of the obligation of
the Company on the Obligations or any part thereof, of any co-guarantors, or any
other Person now or hereafter liable, whether directly or indirectly, jointly,
severally, or jointly and severally, to pay, perform, guarantee or assure the
payment of the Obligations or any part thereof, it being recognized,
acknowledged and agreed by the Guarantor that the Guarantor may be required to
pay the Obligations in full without assistance or support of any other Person,
and the Guarantor has not been induced to enter into this Guaranty Agreement on
the basis of a contemplation, belief, understanding or agreement that other
parties other than the Company will be liable to perform the Obligations, or
that the Agents and the Lenders will look to other parties to perform the
Obligations;

     (f) Security.  The taking or accepting of any security, collateral or
guaranty, or other assurance of payment, for all or any part of the Obligations;

     (g) Release of Collateral, etc.  Any release, surrender, exchange,
subordination, deterioration, waste, loss or impairment (including without
limitation negligent, willful, unreasonable or unjustifiable impairment) of any
collateral, Property or security, at any time existing in connection with, or
assuring or securing payment of, all or any part of the Obligations;

     (h) Care and Diligence.  The failure of any Agent or any Lender or any
other Person to exercise diligence or reasonable care in the preservation,
protection, enforcement, sale or other handling or treatment of all or any part
of such collateral, Property or security;

     (i) Status of Liens.  The fact that any collateral, security or Lien
contemplated or intended to be given, created or granted as security for the
repayment of the Obligations shall not be properly perfected or created, or
shall prove to be unenforceable or subordinate to any other Lien, it being
recognized and agreed by the Guarantor that the Guarantor is not entering into
this Guaranty Agreement in reliance on, or in contemplation of the benefits of,
the validity, enforceability, collectability or value of any of the collateral
for the Obligations;

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<PAGE>
 
     (j) Payments Rescinded.  Any payment by the Company to any Agent or Lender
is held to constitute a preference under the bankruptcy laws, or for any reason
an Agent or Lender is required to refund such payment or pay such amount to the
Company or someone else; or

     (k) Other Actions Taken or Omitted.  Any other action taken or omitted to
be taken with respect to the Credit Agreement or the other Loan Documents, the
Obligations, or the security and collateral therefor, whether or not such action
or omission prejudices the Guarantor or increases the likelihood that the
Guarantor will be required to pay the Obligations pursuant to the terms hereof;
it being the unambiguous and unequivocal intention of the Guarantor that the
Guarantor shall be obligated to pay the Obligations when due, notwithstanding
any occurrence, circumstance, event, action, or omission whatsoever, whether
contemplated or uncontemplated, and whether or not otherwise or particularly
described herein, except for the full and final payment and satisfaction of the
Obligations.

     SECTION 2.09 LIMITATIONS ON OBLIGATION OF THE GUARANTOR HEREUNDER. The
parties hereto (i) intend that the obligation of the Guarantor hereunder be
limited to the maximum amount that would not result in the obligation created
hereby being avoidable under Section 548 of the Federal Bankruptcy Code (11
U.S.C. (S) 548; hereinafter "Section 548") or other applicable state fraudulent
conveyance or transfer law and (ii) agree that this Guaranty Agreement shall be
so construed. Accordingly, the obligation of the Guarantor hereunder is limited
to an amount that is the greater of (x) the "reasonably equivalent value" or
"fair consideration" received by the Guarantor in exchange for the obligation
incurred hereunder, within the meaning of Section 548, as amended, or any
applicable state fraudulent conveyance or transfer law, as amended; or (y) the
lesser of (1) the maximum amount that will not render the Guarantor insolvent or
(2) the maximum amount that will not leave the Guarantor with any Property
deemed an unreasonably small capital. Clauses (1) and (2) are and shall be
determined pursuant to Section 548, as amended, or other applicable state
fraudulent conveyance or transfer law, as amended.

     SECTION 2.10 SUBROGATION. The Guarantor shall not exercise any rights which
it may acquire by way of subrogation, reimbursement, exoneration,
indemnification or participation, by any payment made under this Guaranty
Agreement, under any other Loan Document or otherwise until the Obligations have
been paid in full and the Aggregate Commitments are terminated; provided that,
notwithstanding the foregoing, the Guarantor reserves its rights of contribution
and reimbursement, if any, from its co-guarantors and other Persons liable on
the Obligations or otherwise. Except as described in this Section 2.10, the
Guarantor further waives any benefit of any right to participate in any security
now or hereafter held by the Agents and/or the Lenders.

                                  ARTICLE III
                   REPRESENTATIONS, WARRANTIES AND COVENANTS

     SECTION 3.01 REPRESENTATIONS AND WARRANTIES. In order to induce the Agents
and the Lenders to accept this Guaranty Agreement, the Guarantor represents and
warrants to the Lender Group (which representations and warranties will survive
the creation of the Obligations and any extension of credit thereunder) that:

     (a) Benefit to the Guarantor.  The Guarantor is a wholly-owned Subsidiary
of the Company and the Guarantor's guaranty pursuant to this Guaranty Agreement
reasonably may be expected to benefit, directly or indirectly, the Guarantor;
and the Guarantor has determined that this Guaranty Agreement  is necessary and
convenient to the conduct, promotion and attainment of the business of the
Guarantor and the Company.

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<PAGE>
 
     (b) Corporate Existence.  The Guarantor: (i) is duly organized and validly
existing under the laws of the jurisdiction of its formation; (ii) has all
requisite power, and has all material governmental licenses, authorizations,
consents and approvals necessary to own its assets and carry on its business as
now being conducted; and (iii) is qualified to do business in all jurisdictions
in which the nature of the business conducted by it makes such qualification
necessary and where failure so to qualify would have a Material Adverse Effect.

     (c) No Breach.  The execution and delivery by the Guarantor of this
Guaranty Agreement and the other Loan Documents to which it is a party, the
consummation of the transactions herein or therein contemplated, and the
compliance with the terms and provisions hereof will not (i) conflict with or
result in a breach of, or require any consent under (A) the charter or by-laws
of the Guarantor, or (B) any applicable law or regulation, or any order, writ,
injunction or decree of any court or other Governmental Authority, or any
material agreement or instrument to which the Guarantor is a party or by which
it is bound or to which it is subject in each case in such manner as could
reasonably be expected to have a Material Adverse Effect; or (ii) constitute a
default under any such agreement or instrument, or result in the creation or
imposition of any Lien upon any of the revenues or Property of the Guarantor in
each case in such manner as could reasonably be expected to have a Material
Adverse Effect.

     (d) Corporate Action.  The Guarantor has all necessary corporate power and
authority to execute, deliver and perform its obligations under this Guaranty
Agreement and the Loan Documents to which it is a party; and the execution,
delivery and performance by the Guarantor of this Guaranty Agreement and the
other Loan Documents to which such Person is a party have been duly authorized
by all necessary corporate action on its part.  This Guaranty Agreement and the
Loan Documents to which the Guarantor is a party constitute the legal, valid and
binding obligation of the Guarantor, enforceable against the Guarantor in
accordance with their terms, except as may be limited by applicable bankruptcy,
insolvency, reorganization or other similar laws affecting creditors' rights and
general principals of equity.

     (e) Approvals.  Other than consents heretofore obtained or described in the
Credit Agreement, no authorizations, approvals or consents of, and no filings or
registrations with, any Governmental Authority are necessary for the execution,
delivery or performance by the Guarantor of this Guaranty Agreement or the Loan
Documents to which it is a party or for the validity or enforceability thereof.
It is understood that continued performance by the Guarantor of this Guaranty
Agreement and the other Loan Documents to which it is a party will require
various filings, such as filings related to environmental matters, ERISA
matters, Taxes and intellectual property, filings required to maintain corporate
and similar standing and existence, filings pursuant to the Uniform Commercial
Code and other security filings and recordings and filings required by the SEC,
routine filings in the ordinary course of business, and filings required in
connection with the exercise by the Lenders and the Agents of remedies in
connection with the Loan Documents.

     (f) Solvency. The Guarantor (i) is not insolvent and will not be rendered
insolvent as a result of this Guaranty Agreement, (ii) is not engaged in a
business or a transaction, or about to engage in a business or a transaction,
for which any Property or assets remaining with the Guarantor are unreasonably
small capital, and (iii) does not intend to incur, or believe it will incur,
debts that will be beyond its ability to pay as such debts mature.

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<PAGE>
 
     (g) No Representation by Agents or Lenders.  Neither any Agent, any Lender
nor any other Person has made any representation, warranty or statement to the
Guarantor in order to induce the Guarantor to execute this Guaranty Agreement.

     SECTION 3.02 COVENANTS. The Guarantor acknowledges that it is has read the
Credit Agreement and hereby covenants and agrees to comply with covenants and
agreements set forth therein which restrict Restricted Subsidiaries of the
Company in so far as such covenants and agreements apply to it.

                                  ARTICLE IV
                         SUBORDINATION OF INDEBTEDNESS

     SECTION 4.01 SUBORDINATION OF ALL GUARANTOR CLAIMS. As used herein, the
term "Guarantor Claims" shall mean all debts and obligations of the Company to
the Guarantor, whether such debts and obligations now exist or are hereafter
incurred or arise, or whether the obligation be direct, contingent, primary,
secondary, several, joint and several, or otherwise, and irrespective of whether
such debts or obligations be evidenced by note, contract, open account, or
otherwise, and irrespective of the Person or Persons in whose favor such debts
or obligations may, at their inception, have been, or may hereafter be created,
or the manner in which they have been or may hereafter be acquired by the
Guarantor. Except for payments permitted by the Credit Agreement, until the
Obligations shall be paid and satisfied in full, the Aggregate Commitments are
terminated and the Guarantor shall have performed all of its obligations
hereunder and the Loan Documents to which it is a party, the Guarantor shall not
receive or collect, directly or indirectly, from the Company any amount upon the
Guarantor Claims.

     SECTION 4.02 CLAIMS IN BANKRUPTCY. In the event of receivership,
bankruptcy, reorganization, arrangement, debtor's relief, or other insolvency
proceedings involving the Company, the Administrative Agent on behalf of the
Agents and the Lenders shall have the right to prove their claim in any
proceeding, so as to establish their rights hereunder and receive directly from
the receiver, trustee or other court custodian, dividends and payments which
would otherwise be payable upon Guarantor Claims. The Guarantor hereby assigns
such dividends and payments to the Administrative Agent for the benefit of the
Agents and the Lenders. Should any Agent or Lender receive, for application upon
the Obligations, any such dividend or payment which is otherwise payable to the
Guarantor, and which, as between the Company and the Guarantor, shall constitute
a credit upon the Guarantor Claims, then upon payment in full of the
Obligations, the Guarantor shall become subrogated to the rights of the Agents
and the Lenders to the extent that such payments to the Agents and the Lenders
on the Guarantor Claims have contributed toward the liquidation of the
Obligations, and such subrogation shall be with respect to that proportion of
the Obligations which would have been unpaid if the Agents and the Lenders had
not received dividends or payments upon the Guarantor Claims.

     SECTION 4.03 PAYMENTS HELD IN TRUST. In the event that notwithstanding
Sections 4.01 and 4.02, the Guarantor should receive any funds, payments, claims
or distributions which is prohibited by such Sections, the Guarantor agrees (a)
to hold in trust for the Agents and the Lenders an amount equal to the amount of
all funds, payments, claims or distributions so received, and (b) that it shall
have absolutely no dominion over the amount of such funds, payments, claims or
distributions except to pay them promptly to the Administrative Agent, for the
benefit of the Agents and the Lenders; and the Guarantor covenants promptly to
pay the same to the Administrative Agent.

                                       7
<PAGE>
 
     SECTION 4.04 LIENS SUBORDINATE. The Guarantor agrees that, until the
Obligations are paid in full and the Aggregate Commitments terminated, any Liens
upon the Company's assets securing payment of the Guarantor Claims shall be and
remain inferior and subordinate to any Liens upon the Company's assets securing
payment of the Obligations, regardless of whether such encumbrances in favor of
the Guarantor, any Agent or Lender presently exist or are hereafter created or
attach. Without the prior written consent of the Administrative Agent, the
Guarantor, during the period in which any of the Obligations are outstanding or
the Aggregate Commitments are in effect, shall not (a) exercise or enforce any
creditor's right it may have against the Company, or (b) foreclose, repossess,
sequester or otherwise take steps or institute any action or proceeding
(judicial or otherwise, including without limitation the commencement of or
joinder in any liquidation, bankruptcy, rearrangement, debtor's relief or
insolvency proceeding) to enforce any Lien, mortgages, deeds of trust, security
interest, collateral rights, judgments or other encumbrances on assets of the
Company held by the Guarantor.

     SECTION 4.05 NOTATION OF RECORDS. All promissory notes and, upon the
request of the Administrative Agent, all accounts receivable ledgers or other
evidence of the Guarantor Claims accepted by or held by the Guarantor shall
contain a specific written notice thereon that the indebtedness evidenced
thereby is subordinated under the terms of this Guaranty Agreement.

                                   ARTICLE V
                                 MISCELLANEOUS

     SECTION 5.01 SUCCESSORS AND ASSIGNS. This Guaranty Agreement is and shall
be in every particular available to the successors and assigns of the Agents and
the Lenders and is and shall always be fully binding upon the legal
representatives, successors and assigns of the Guarantor, notwithstanding that
some or all of the monies, the repayment of which this Guaranty Agreement
applies, may be actually advanced after any bankruptcy, receivership,
reorganization or other event affecting either the Company or the Guarantor.

     SECTION 5.02 NOTICES. Any notice or demand to the Guarantor under or in
connection with this Guaranty Agreement may be given and shall conclusively be
deemed and considered to have been given and received in the manner and to the
address of the Guarantor as provided for in Section 12.02 of the Credit
Agreement.

     SECTION 5.03 AUTHORITY OF ADMINISTRATIVE AGENT. The Guarantor acknowledges
that the rights and responsibilities of the Administrative Agent under this
Guaranty Agreement with respect to any action taken by the Administrative Agent
or the exercise or non-exercise by the Administrative Agent of any option,
right, request, judgment or other right or remedy provided for herein or
resulting or arising out of this Guaranty Agreement shall, as between the Agents
and the Lenders, be governed by the Credit Agreement and by such other
agreements with respect thereto as may exist from time to time among them, but,
as between the Administrative Agent and the Guarantor, the Administrative Agent
shall be conclusively presumed to be acting as agent for the Lenders with full
and valid authority so to act or refrain from acting; and the Guarantor shall
not be under any obligation, or entitlement, to make any inquiry respecting such
authority.

     SECTION 5.04  CONSTRUCTION.

     (a) THIS GUARANTY AGREEMENT (INCLUDING, BUT NOT LIMITED TO, THE VALIDITY
AND ENFORCEABILITY HEREOF) SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF TEXAS.

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     (B) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS GUARANTY AGREEMENT
OR THE OTHER LOAN DOCUMENTS TO WHICH THE GUARANTOR IS A PARTY MAY BE BROUGHT IN
THE COURTS OF THE STATE OF TEXAS OR OF THE UNITED STATES OF AMERICA FOR THE
SOUTHERN DISTRICT OF TEXAS, AND, BY EXECUTION AND DELIVERY OF THIS GUARANTY
AGREEMENT, THE GUARANTOR HEREBY ACCEPTS FOR ITSELF AND (TO THE EXTENT PERMITTED
BY LAW) IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE
JURISDICTION OF THE AFORESAID COURTS.  THE GUARANTOR HEREBY IRREVOCABLY WAIVES
ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF
VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH
RESPECTIVE JURISDICTIONS.  THIS SUBMISSION TO JURISDICTION IS NONEXCLUSIVE AND
DOES NOT PRECLUDE THE ADMINISTRATIVE AGENT OR ANY LENDER FROM OBTAINING
JURISDICTION OVER THE GUARANTOR IN ANY COURT OTHERWISE HAVING JURISDICTION.

     (c) The Guarantor irrevocably consents to the service of process of any of
the aforementioned courts in any such action or proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to it, as the
case may be, at its said address, such service to become effective 30 days after
such mailing.

     (d) Nothing herein shall affect the right of any Agent or any Lender or any
holder of a Note to serve process in any other manner permitted by law or to
commence legal proceedings or otherwise proceed against the Guarantor in any
other jurisdiction.

     (e) THE GUARANTOR AND, BY ITS ACCEPTANCE HEREOF, EACH AGENT AND EACH LENDER
HEREBY (I) IRREVOCABLY AND UNCONDITIONALLY WAIVE, TO THE FULLEST EXTENT
PERMITTED BY LAW, TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO
THIS GUARANTY AGREEMENT OR ANY LOAN DOCUMENT TO WHICH IT IS A PARTY AND FOR ANY
COUNTERCLAIM THEREIN; (II) IRREVOCABLY WAIVE, TO THE MAXIMUM EXTENT NOT
PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH
LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR DAMAGES
OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES; (III) CERTIFY THAT NO PARTY
HERETO NOR ANY REPRESENTATIVE OR AGENT OR COUNSEL FOR ANY PARTY HERETO HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN
THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (IV)
ACKNOWLEDGE THAT IT HAS BEEN INDUCED TO ENTER INTO THIS GUARANTY AGREEMENT, THE
LOAN DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY, AMONG
OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION
5.04.

     SECTION 5.05 SURVIVAL OF OBLIGATIONSSECTION 5.05. To the extent that any
payments on the Obligations or proceeds of any collateral are subsequently
invalidated, declared to be fraudulent or preferential, set aside or required to
be repaid to a trustee, debtor in possession, receiver or other Person under any
bankruptcy law, common law or equitable cause, then to such extent, the
Obligations so satisfied shall be revived and continue as if such payment or
proceeds had not been received and the Agents' and the Lenders' Liens, rights,
powers and remedies under this Guaranty Agreement and each Loan Document shall
continue in full force and effect.

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In such event, each Loan Document shall be automatically reinstated and the
Guarantor shall take such action as may be reasonably requested by the
Administrative Agent and the Lenders to effect such reinstatement.

     SECTION 5.06 SUBJECT TO THE INTERCREDITOR AGREEMENT. This Guaranty
Agreement is subject to the terms of the Intercreditor Agreement which (a)
subjects the ability of the Lender Group to pursue remedies hereunder to the
prior consent of the Canadian Lenders and (b) sets forth a priority for the
application of proceeds upon any disposition of amounts received hereunder.

     SECTION 5.07 STATUS AS SPECIFIED OR DESIGNATED SENIOR INDEBTEDNESS. The
Guarantor hereby acknowledges and confirms that:

     (a) this Guaranty Agreement and the obligations of the Guarantor hereunder
are "Guarantor Senior Indebtedness" and "Specified Guarantor Senior
Indebtedness" under and for purposes of the 95 Indenture; and

     (b) this Guaranty Agreement and the obligations of the Guarantor hereunder
are "Guarantor Senior Indebtedness" and "Designated Guarantor Senior
Indebtedness" under and for purposes of the 96 Indenture, the 97 Indenture and
the 98 Senior Subordinated Indenture;

and that as such, the Lender Group is entitled to the rights and privileges
afforded holders of Guarantor Senior Indebtedness, Specified Guarantor Senior
Indebtedness or Designated Guarantor Senior Indebtedness, as applicable, under
each of such Indentures.

     SECTION 5.08 INTEREST. It is in the interest of the Guarantor and the
Lender Group to conform strictly to the usury laws applicable to each member of
the Lender Group. Accordingly, reference is made to Section 12.15 of the Credit
Agreement which is incorporated herein by reference for all purposes.

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     WITNESS THE EXECUTION HEREOF, effective as of the date first written above.


                                    OCEAN ENERGY, INC., a Louisiana corporation



                                    By:
                                         Jonathan M. Clarkson
                                         Executive Vice President
                                         Chief Financial Officer

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