<PAGE>
 
                                                                    EXHIBIT 10.3

                             AMENDED AND RESTATED
                              GUARANTY AGREEMENT



                          DATED AS OF MARCH 27, 1997


                                      BY

                             FLORES & RUCKS, INC.
                                 AS GUARANTOR,


                                  IN FAVOR OF


                           THE CHASE MANHATTAN BANK,
                                   AS AGENT,

                                      AND

                 THE LENDERS SIGNATORY TO THE CREDIT AGREEMENT
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                               TABLE OF CONTENTS

                                   ARTICLE I
                                 General Terms

Section 1.01  Terms Defined Above.......................................   1
Section 1.02  Certain Definitions.......................................   1
Section 1.03  Credit Agreement Definitions..............................   3

                                  ARTICLE II
                                 The Guaranty

Section 2.01  Obligations Guaranteed....................................   3
Section 2.02  Nature of Guaranty........................................   3
Section 2.03  Lenders' Rights...........................................   4
Section 2.04  Guarantor's Waivers.......................................   4
Section 2.05  Maturity of Obligations; Payment..........................   4
Section 2.06  Lenders' or Agent's Expenses..............................   4
Section 2.07  Liability.................................................   5
Section 2.08  Events and Circumstances Not Reducing
               or Discharging the Guarantor's Obligations...............   5
Section 2.09  Subrogation...............................................   6

                                  ARTICLE III
                   Representations and Warranties; Covenants

Section 3.01  Representations and Warranties............................   6
Section 3.02  Covenants.................................................   9
Section 3.03  Financial Covenants.......................................  12

                                  ARTICLE IV
                                   Security

Section 4.01  Grant of Security Interest................................  13
Section 4.02  Financing Statements......................................  13
Section 4.03  Remedies..................................................  13
Section 4.04  Rights....................................................  13

                                   ARTICLE V
                                 Miscellaneous

Section 5.01  Successors and Assigns....................................  13
Section 5.02  Notices...................................................  14
Section 5.03  Governing Law; Submission to Jurisdiction;
               Waiver of Jury Trial.....................................  14
Section 5.04  NO ORAL AGREEMENTS........................................  15
Section 5.05  Prior Guaranty............................................  15
 


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Exhibit A   Form of Certificate of Responsible Officer of Guarantor re:  
            No Default and Financial Covenants

Schedule I     Taxes
Schedule II    Subsidiaries



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          THIS AMENDED AND RESTATED GUARANTY AGREEMENT by FLORES & RUCKS, INC.,
a Delaware corporation ("Guarantor"), is in favor of THE CHASE MANHATTAN BANK,
as agent (in such capacity, "Agent") for the lenders which are or become parties
to the Credit Agreement (each lender individually called a "Lender" and
collectively called the "Lenders").


                                   RECITALS:

     A.   Flores & Rucks, Inc., a Louisiana corporation (the "Borrower"), the
Agent and certain financial institutions entered into that certain Credit
Agreement dated as of December 7, 1994, as amended by that certain First
Amendment to Credit Agreement dated as of December 31, 1994, and that certain
Second Amendment to Credit Agreement dated as of August 14, 1996 (the "Prior
Credit Agreement").

     B.   One of the terms and conditions stated in the Prior Credit Agreement
for the making of the loans described therein was the execution and delivery to
the Agent of that certain Guaranty Agreement dated as of December 7, 1994 (the
"Prior Guaranty Agreement").

     C.   Of even date herewith, the Borrower, the Agent and the Lenders are
entering into that certain Amended and Restated Credit Agreement (as amended or
supplemented from time to time, the "Credit Agreement") which amends and
restates the Prior Credit Agreement.

     D.   The Agent and the Lenders have requested and the Guarantor has agreed
to amend and restate the Prior Guaranty Agreement.

     E.   NOW, THEREFORE, (i) in order to comply with the terms and conditions
of the Credit Agreement, (ii) to induce the Lenders, at any time or from time to
time, to loan monies, with or without security to or for the account of the
Borrower in accordance with the terms of the Credit Agreement, (iii) at the
special insistence and request of the Lenders, and (iv) for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Guarantor hereby agrees as follows:

                                   ARTICLE I
                                 General Terms

     Section 1.01  Terms Defined Above.  As used in this Guaranty Agreement,
the terms "Agent", "Borrower", "Guarantor", "Lender", "Lenders", "Credit
Agreement", "Prior Credit Agreement" and "Prior Guaranty Agreement" shall have
the meanings indicated above.

     Section 1.02  Certain Definitions.  As used in this Guaranty Agreement,
the following terms shall have the following meanings, unless the context
otherwise requires:

     "Collateral" shall have the meaning indicated in Section 4.01 hereof.

     "Consolidated Net Income" shall mean, with respect to the Guarantor and its
Restricted Subsidiaries, for any period, the aggregate of the net income (or
loss) of the Guarantor and its Restricted Subsidiaries after allowances for
taxes for such period, determined on a consolidated basis in accordance with
GAAP; provided that there shall be excluded from such net income (to the extent
otherwise included therein) the following: (i) the net income of any Person in
which the Guarantor or any Restricted 

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Subsidiary has an interest (which interest does not cause the net income of such
other Person to be consolidated with the net income of the Guarantor and its
Restricted Subsidiaries in accordance with GAAP), except to the extent of the
amount of cash dividends or cash distributions actually paid in such period by
such other Person to the Guarantor or to a Restricted Subsidiary, as the case
may be; (ii) the net income (but not loss) of any Restricted Subsidiary to the
extent that the declaration or payment of dividends or similar distributions or
transfers or loans by that Restricted Subsidiary is not at the time permitted by
operation of the terms of its charter or any agreement, instrument or
Governmental Requirement applicable to such Restricted Subsidiary, or is
otherwise restricted or prohibited in each case determined in accordance with
GAAP; (iii) the net income (or loss) of any Person acquired in a pooling-of-
interests transaction for any period prior to the date of such transaction; (iv)
any extraordinary gains or losses, including gains or losses attributable to
Property sales not in the ordinary course of business; (v) the cumulative effect
of a change in accounting principles and any gains or losses attributable to
writeups or write downs of assets; and (vi) any write downs of non-current
assets, provided however, that any ceiling limitation write downs under SEC
guidelines shall be treated as capitalized costs, as if such write downs had not
occurred.

     "EBITDA" shall mean, for any period, the sum, determined (without
duplication) for the Guarantor and its Restricted Subsidiaries, determined on a
consolidated basis, of (i) net income (or net loss) of the Guarantor and its
Restricted Subsidiaries for such period (calculated before extraordinary items
and income attributable to minority interest in Affiliates which has not been
remitted in cash to the Guarantor or its Restricted Subsidiaries); plus (ii)
Interest Expense for such period to the extent deducted in the determination of
such net income (or loss); plus (iii) depreciation, amortization and other
similar non-cash items to the extent deducted in the determination of such net
income (or loss) plus (iv) all taxes accrued for such period on or measured by
income to the extent deducted in the determination of such net income (or loss);
provided that if the Guarantor or any Restricted Subsidiary shall acquire any
Person, EBITDA for the preceding 12-month period prior to such acquisition may
be determined on a pro forma basis using the revenue attributable to such
Person's Oil and Gas Properties net of operating expenses, severance and ad
valorem taxes incurred with respect to such Properties during the relevant
period.

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

     "Interest Coverage Ratio" shall mean the ratio of EBITDA as of the end of
any fiscal quarter to Interest Expense as of the end of any fiscal quarter.

     "Interest Expense" shall mean, for any period, the sum (determined without
duplication) of the aggregate amount of interest expense accruing during such
period on Debt of the Guarantor and its Restricted Subsidiaries, determined on a
consolidated basis, including the interest portion of payments under capitalized
leases and any capitalized interest, but excluding amortization of debt discount
and expense.

     "Obligations" shall mean (a) any and all indebtedness, obligations and
liabilities of the Borrower pursuant to the Credit Agreement and the other Loan
Documents to which the Borrower is a party, including without limitation, the
unpaid principal of and interest on the Notes (whether accruing prior or
subsequent to the filing of a petition or other action concerning bankruptcy or
other similar proceeding); (b) any additional loans made by the Lenders to the
Borrower; (c) payment of and performance of any and all present or future
obligations of the Borrower according to the terms of any present or future
interest or currency rate swap, rate cap, rate floor, rate collar, exchange
transaction, forward rate agreement or other exchange or rate protection
agreements or any option with respect to any such 

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transaction now existing or hereafter entered into between the Borrower and the
Agent or any of the Lenders; (d) payment of and performance of any and all
present or future obligations of the Borrower according to the terms of any
present or future swap agreements, cap, floor, collar, exchange transaction,
forward agreement or other exchange or protection agreements relating to crude
oil, natural gas or other hydrocarbons or any option with respect to any such
transaction now existing or hereafter entered into between the Borrower and the
Agent or any of the Lenders; (e) performance of all Letter of Credit Agreements
executed from time to time by the Borrower under or pursuant to the Credit
Agreement and all reimbursement obligations for drawn or undrawn portions under
any Letter of Credit now outstanding or hereafter issued under or pursuant to
the Credit Agreement; and (f) all renewals, rearrangements, increases,
extensions for any period, amendments or supplement in whole or in part of the
Notes or any documents evidencing the above.

     "Tangible Net Worth" shall mean,, as at any date, the sum of the following
for the Guarantor and its Restricted Subsidiaries determined (without
duplication) in accordance with GAAP:

          (i)   preferred stock (if any), par value of common stock, capital in
     excess of par value of common stock, and retained earnings; less

          (ii)  treasury stock (if any), goodwill, cost in excess of fair value
     of net assets acquired and all other assets as are properly classified as
     intangible assets under GAAP; plus

          (iii) the amount of noncash write downs of long-lived assets in
     compliance with GAAP, intangible drilling costs capitalized in accordance
     with GAAP and unamortized debt discount and expense to the extent
     classified as an intangible asset by GAAP.

     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 Borrower 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 Borrower and the Lenders may modify, alter,
rearrange, extend for any period and/or renew from time to time, the
Obligations, and the Lenders may waive any Default or Events of Default without
notice to the Guarantor and in such event the Guarantor will remain fully bound
hereunder on the Obligations.  This Guaranty Agreement shall continue to be
effective or be reinstated, as the case may be, if at any time any payment of
the Obligations is rescinded or must otherwise be returned by the Lenders upon
the insolvency, bankruptcy or reorganization of the Borrower or otherwise, all
as though such payment had not been made. This Guaranty Agreement may be
enforced by the Lenders and any 

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subsequent holder of the Obligations and shall not be discharged by the
assignment or negotiation of all or part of the Obligations. Without prejudice
to any notices expressly required by the terms hereof, 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 Lenders being conclusively
presumed by their request for this Guaranty Agreement and delivery of the same
to the Agent.

     Section 2.03  Lenders' Rights.  The Guarantor authorizes the Agent,
without notice or demand and without affecting the Guarantor's liability
hereunder, to take and hold security for the payment of this Guaranty Agreement
and/or 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 Agent in its 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 Lenders to (a) proceed against the Borrower or any other person
liable on the Obligations, (b) enforce its rights against any other guarantor of
the Obligations (c) proceed or enforce its rights against or exhaust any
security given to secure the Obligations (d) have the Borrower joined with the
Guarantor in any suit arising out of this Guaranty Agreement and/or the
Obligations, or (e) pursue any other remedy in the Lenders' powers whatsoever.
The Lenders shall not 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 Borrower or any other guarantor of the Obligations, and
shall remain liable hereon regardless of whether the Borrower or any other
guarantor be found not liable thereon for any reason.  Whether and when to
exercise any of the remedies of the Lenders under any of the Loan Documents
shall be in the sole and absolute discretion of the Lenders, and no delay by the
Agent in enforcing any remedy, including delay in conducting a foreclosure sale,
shall be a defense to the Guarantor's liability under this Guaranty Agreement.
To the extent allowed by applicable law, the Guarantor hereby waives any good
faith duty on the part of the Agent or the Lenders in exercising any remedies
provided in the Loan Documents.

     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, within
five (5) days after notice from the Agent of the Borrower's failure to pay the
Obligations at maturity, pay to the Agent, for its benefit and the benefit of
the Lenders, the amount due and unpaid by the Borrower and guaranteed hereby.
The failure of the Agent to give this notice shall not in any way release the
Guarantor hereunder.

     Section 2.06  Lenders' or Agent's Expenses.  If the Guarantor fails to pay
the Obligations after notice required under Section 2.05 from the Agent of the
Borrower's failure to pay any Obligations at maturity, and if the Lenders obtain
the services of an attorney for collection of amounts owing by the Guarantor
hereunder, or obtaining advice of counsel in respect of any of their rights
under the guaranty, or if suit is filed to enforce this Guaranty Agreement, or
if proceedings are had in any bankruptcy, probate, 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 Agent for
its benefit and the benefit of the Lenders the Lenders' reasonable attorneys'
fees.

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     Section 2.07  Liability.  It is expressly agreed that the liability 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, increase,
decrease, alteration or rearrangement of all or any part of the Obligations, the
aggregate Commitments, the Notes, or the Credit Agreement or any instrument
executed in connection therewith, or any contract or understanding between the
Borrower and 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 Lenders to the Borrower or the
Guarantor or any Person liable on the Obligations;

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

     (d) Invalidity of Obligations.  The invalidity, illegality or
unenforceability of all or any part of the Obligations, or any document or
agreement executed in connection with the Obligations, 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 the documents or otherwise creating the Obligations acted in excess of
their authority, the Obligations violate applicable usury laws, the Borrower has
valid defenses, claims or offsets (whether at law, in equity or by agreement)
which render the Obligations wholly or partially uncollectible from the
Borrower, 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 pertaining to the Obligations have been forged or
otherwise are irregular or not genuine or authentic;

     (e) Release of Obligors.  Any full or partial release of the liability of
the Borrower 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 Borrower will be liable to perform the Obligations, or
the Agent and the Lenders will look to other parties to perform the Obligations.

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

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     (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 the Agent 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 security interest or
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, collectibility or value of any of the
collateral for the Obligations.  Notwithstanding the foregoing, the Guarantor
does not hereby waive or release (expressly or impliedly) any right to be
subrogated to the rights of the Lenders in any collateral or security for the
Obligations, after payment in full of the Obligations; the Guarantor's rights of
subrogation are, however, subordinate to the rights, claims and Liens of the
Agent and the Lenders;

     (j) Payments Rescinded.  Any payment by the Borrower to the Lenders is
held to constitute a preference under the bankruptcy laws, or for any reason the
Agent and the Lenders are required to refund such payment or pay such amount to
the Borrower 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, and Loan Document, 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  Subrogation.  Until the Obligations have been paid in full
and the Aggregate Commitments terminated, the Guarantor hereby waives any claim,
right or remedy which the Guarantor may now have or hereafter acquire against
the Borrower which arises out of this Guaranty Agreement or from the performance
by the Guarantor hereunder, including without limitation, any claim, remedy or
right of subrogation, reimbursement, exoneration, indemnification, or
participation in any such claim, right or remedy of the Agent or any Lender
against the Borrower.  Until the Obligations have been paid in full and the
Aggregate Commitments terminated, 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 and Warranties; Covenants

     Section 3.01  Representations and Warranties.  In order to induce the
Agent and the Lenders to accept this Guaranty Agreement, the Guarantor
represents and warrants (which representations and warranties will survive the
creation of the Obligations and any extension of credit thereunder) that:

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     (a) Benefit to the Guarantor.  The Borrower is a wholly-owned Subsidiary
of the Guarantor; 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 Borrower.

     (b) Corporate Existence. The Guarantor (i) is a corporation duly
organized, legally existing and in good standing under the laws of the State of
Delaware; (ii) has all requisite corporate power, and has all material
governmental licenses, authorizations, consents and approvals necessary to own
its assets and carry on its business as now being or as proposed to be
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) Financial Condition.

     (i)   The audited consolidated balance sheet of the Guarantor and its
     Restricted Subsidiaries as at December 31, 1996 and the related
     consolidated statement of operations, stockholders' equity and cash flow of
     the Guarantor and its Restricted Subsidiaries for the fiscal year ended on
     said date, with the opinion thereon of Arthur Andersen LLP heretofore
     furnished to each of the Lenders, are complete and correct and fairly
     present, in all material respects, the consolidated financial condition of
     the Guarantor as at said date and the results of its operations for the
     fiscal year ending on said date, all in accordance with GAAP, as applied on
     a consistent basis (subject, in the case of the interim financial
     statements, to normal year-end adjustments).

     (ii)  The Guarantor has, on the Closing Date, no material Debt, contingent
     liabilities, liabilities for taxes, unusual forward or long-term
     commitments or unrealized or anticipated losses from any unfavorable
     commitments, except as referred to or reflected or provided for in the
     Financial Statements.  Since December 31, 1996, there has been no change or
     event having a Material Adverse Effect.

     (d) Litigation.  As of the Closing Date, there is no litigation, legal,
administrative or arbitral proceeding, investigation or other action of any
nature pending or, to the knowledge of the Guarantor threatened against or
affecting the Guarantor which involves the possibility of any judgment or
liability against the Guarantor not fully covered by insurance (except for
normal deductibles), and which would have a Material Adverse Effect.

     (e) No Breach.  Neither the execution and delivery of the Loan Documents
nor compliance with the terms and provisions hereof will conflict with or result
in a breach of, or require any consent which has not been obtained as of the
Closing Date under, the respective charter or by-laws of the Guarantor or any
Governmental Requirement or any agreement or instrument to which the Guarantor
is a party or by which it is bound or to which it or its Properties are subject,
or 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 assets of the
Guarantor pursuant to the terms of any such agreement or instrument other than
the Liens created by the Loan Documents.

     (f) Authority.  The Guarantor has all necessary corporate power and
authority to execute, deliver and perform the obligations under the Loan
Documents to which it is a party; the execution, delivery and performance by the
Guarantor of the Loan Documents to which it is a party, have been duly

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authorized by all necessary corporate action; and the Loan Documents to which
the Guarantor is a party constitute its legal, valid and binding obligations
enforceable in accordance with their terms.

     (g) Approvals.  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 the Loan Documents to
which it is a party or for the validity or enforceability thereof.

     (h) Taxes.  Except as set out in Schedule I, the Guarantor has filed all
United States Federal income tax returns and, to the best of its knowledge, all
other tax returns which are required to be filed by it and has paid all material
taxes due pursuant to such returns or pursuant to any assessment received by it.
The charges, accruals and reserves on the books of the Guarantor in respect of
taxes and other governmental charges are, in the opinion of the Guarantor,
adequate.  No tax lien has been filed and, to the knowledge of the Guarantor, no
claim is being asserted with respect to any such tax, fee or other charge.

     (i) No Material Misstatements.  No written information, statement,
exhibit, certificate, document or report furnished to the Agent and the Lenders
(or any of them) by the Guarantor or any of its Subsidiaries in connection with
the negotiation of this Guaranty Agreement or any Loan Document contained any
material misstatement of fact or omitted to state a material fact or any fact
necessary to make the statement contained therein not materially misleading in
the light of the circumstances in which made and with respect to the Guarantor
and/or the Borrower.  There is no fact peculiar to the Guarantor or the Borrower
which has a Material Adverse Effect or in the future is reasonably likely to
have (so far as the Guarantor can now foresee) a Material Adverse Effect and
which has not been set forth in this Guaranty Agreement or the other documents,
certificates and statements furnished to the Agent by or on behalf of the
Guarantor or any of its Subsidiaries prior to, or on, the Closing Date in
connection with the transactions contemplated hereby.

     (j) Defaults.  Neither the Guarantor nor any of its Subsidiaries is in
default nor has any event or circumstance occurred which, but for the expiration
of any applicable grace period or the giving of notice, or both, would
constitute a default under any material agreement or instrument to which the
Guarantor or any of its Subsidiaries is a party or by which the Guarantor or any
of its Subsidiaries is bound which default would have a Material Adverse Effect.

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

     (l) Copies of Indenture and Subordinated Indenture.  The Guarantor has
delivered to the Agent true and complete copies of each of the Agreements
evidencing the Subordinated Debt, the Indenture, the Senior Notes, the
Subordinated Indenture and the Subordinated Notes.

     (m) Receipt of Credit Agreement; No Representation by Agent or Lenders.
The Guarantor has received a copy of the Credit Agreement and is familiar with
the terms thereof.  Neither the Agent 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.

                                       8
<PAGE>
 
     (n) Subsidiaries.  Except as set forth on Schedule II, the Guarantor has no
Subsidiaries. Except as indicated on Schedule II, the Guarantor has no
Unrestricted Subsidiaries.

     (o) Environmental Matters.  Except as could not reasonably be expected to
have a Material Adverse Effect, (i) neither any Property of the Guarantor nor
the operations conducted thereon violate any order or requirement of any court
or Governmental Authority or any Environmental Laws; and (ii) the Guarantor has
no known contingent liability in connection with any release or threatened
release of any oil, hazardous substance or solid waste into the environment.

     Section 3.02  Covenants.  The Guarantor covenants and agrees that, so long
as any of the Commitments are in effect and until payment in full of all Loans
thereunder, all interest thereon and all other amounts payable by the Borrower
under the Credit Agreement:

     (a) Financial Statements.  The Guarantor shall deliver, or shall cause to
be delivered, to the Agent with sufficient copies of each for the Lenders:

     (i)   As soon as available and in any event within 120 days after the end
     of each fiscal year of the Guarantor, the audited consolidated and
     consolidating statements of operations, stockholders' equity, changes in
     financial position and cash flow of the Guarantor and its Restricted
     Subsidiaries for such fiscal year, and the related consolidated and
     consolidating balance sheets of the Guarantor and its Restricted
     Subsidiaries as at the end of such fiscal year, and setting forth in each
     case in comparative form the corresponding figures for the preceding fiscal
     year, and accompanied by the related opinion of independent public
     accountants of recognized national standing acceptable to the Agent which
     opinion shall state that said financial statements fairly present, in all
     material respects, the consolidated and consolidating financial condition
     and results of operations of the Guarantor and its Restricted Subsidiaries
     as at the end of, and for, such fiscal year and that such financial
     statements have been prepared in accordance with GAAP except for such
     changes in such principles with which the independent public accountants
     shall have concurred and such opinion shall not contain a "going concern"
     or like qualification or exception, and a certificate of such accountants
     stating that, in making the examination necessary for their opinion, they
     obtained no knowledge, except as specifically stated, of any Default.

     (ii)  As soon as available and in any event within 60 days after the end of
     each of the first three fiscal quarterly periods of each fiscal year of the
     Guarantor, consolidated and consolidating statements of operations,
     stockholders' equity, changes in financial position and cash flow of the
     Guarantor and its Restricted Subsidiaries for such period and for the
     period from the beginning of the respective fiscal year to the end of such
     period, and the related consolidated and consolidating balance sheets as at
     the end of such period, and setting forth in each case in comparative form
     the corresponding figures for the corresponding period in the preceding
     fiscal year, accompanied by the certificate of a Responsible Officer, which
     certificate shall state that said financial statements fairly present, in
     all material respects, the consolidated and consolidating financial
     condition and results of operations of the Guarantor and its Restricted
     Subsidiaries in accordance with GAAP, as at the end of, and for, such
     period (subject to normal year-end audit adjustments).

     (iii) Promptly after the Guarantor knows that any Default or any Material
     Adverse Effect has occurred, a notice of such Default or Material Adverse
     Effect, describing the same in reasonable 

                                       9
<PAGE>
 
     detail and the action the Guarantor proposes to take, or cause the Borrower
     to take, with respect thereto.

     (iv)  Promptly upon receipt thereof, a copy of each other report or letter
     submitted to the Guarantor by its independent accountants in connection
     with any annual, interim or special audit made by them of the books of the
     Guarantor and a copy of any response by the Guarantor or its Board of
     Directors to such letter or report.

     (v)   Promptly upon its becoming available, each financial statement,
     report, notice or proxy statement sent by the Guarantor to its stockholders
     generally and each regular or periodic report and any registration
     statement, prospectus or written communication (other than transmittal
     letters) in respect thereof filed by the Guarantor with or received by the
     Guarantor in connection therewith from any securities exchange or the SEC
     or any successor agency.

     (vi)  Promptly after the furnishing thereof, copies of any statement,
     certificate, report or notice furnished to the holders of the Senior Notes,
     the Subordinated Notes, the trustee under either the Indenture or the
     Subordinated Indenture, or any other Person pursuant to the terms of any
     indenture, loan or credit or other similar agreement, other than the Credit
     Agreement or this Guaranty Agreement and not otherwise required to be
     furnished to the Agent and/or the Lenders pursuant to any other provision
     of this Section 3.02 or the Credit Agreement.

     (vii) From time to time such other information regarding the business,
     affairs or financial condition of the Guarantor as the Agent may reasonably
     request.

     The Guarantor will furnish to the Agent, at the time it furnishes each set
of financial statements pursuant to clauses (i) or (ii) above, a certificate
substantially in the form of Exhibit A hereto executed by a Responsible Officer
(x) certifying as to the matters set forth therein and stating that no Default
has occurred and is continuing (or, if any Default has occurred and is
continuing, describing the same in reasonable detail), and (y) setting forth in
reasonable detail the computations necessary to determine whether the Guarantor
is in compliance with Sections 3.02(a), (b), (c), (d) and (e) of this Guaranty
Agreement as of the end of the respective fiscal quarter or fiscal year.

     (b) Litigation.  The Guarantor shall promptly give to the Agent notice of:
(i)  all legal or arbitral proceedings, and of all proceedings before any
Governmental Authority affecting the Guarantor, except proceedings which, if
adversely determined, would not have a Material Adverse Effect, and (ii) of any
litigation or proceeding affecting the Guarantor in which the amount involved is
in excess of $5,000,000 and not covered by insurance, or in which injunctive or
similar relief is sought.  The Guarantor will promptly notify the Agent (who
shall promptly notify each of the Lenders) of any claim, judgment, Lien or other
encumbrance affecting any of its Property if the value of the claim, judgment,
Lien, or other encumbrance affecting such Property shall individually or in the
aggregate exceed $5,000,000.

     (c) Maintenance.  The Guarantor shall preserve and maintain its corporate
existence and all of its material rights, privileges and franchises; keep books
of record and account in which full, true and correct entries will be made of
all dealings or transactions in relation to its business and activities; comply
with all Governmental Requirements if failure to comply with such requirements
will have a Material Adverse Effect; pay and discharge all taxes, assessments
and governmental charges or levies imposed on it or on its income or profits or
on any of its Property prior to the date on which penalties attach thereto,
except for any such tax, assessment, charge or levy the payment of which is
being contested in good faith 

                                       10
<PAGE>
 
and by proper proceedings and against which adequate reserves are being
maintained; upon reasonable notice, and permit representatives of the Agent or
any Lender, during normal business hours, to examine, copy and make extracts
from its books and records, to inspect its Properties, and to discuss its
business and affairs with its officers, all to the extent reasonably requested
by such Lender or the Agent (as the case may be).

     (d) Further Assurances.  The Guarantor will cure promptly any defects in
the execution and delivery of the Loan Documents to which it is party and will,
at its expense, promptly execute and deliver to the Agent upon its request all
such other documents, agreements and instruments to comply with or accomplish
the covenants and agreements of the Guarantor in this Guaranty Agreement or to
correct any omissions herein or to state more fully the obligations set out
herein.

     (e) Restricted Subsidiaries.

     (i)   The Guarantor shall not create, acquire or otherwise suffer to exist
     any Restricted Subsidiaries other than the Borrower which are not also
     Subsidiaries of the Borrower.   The Guarantor will not invest, loan or
     advance at any one time an aggregate amount of more than $15,000,000 to or
     in any of its Unrestricted Subsidiaries.  The Guarantor shall not permit
     any of its Restricted Subsidiaries to issue any preferred stock (other than
     to the Guarantor and/or one or more wholly-owned Restricted Subsidiaries)
     and shall not permit any other Person (other than to the Guarantor and/or
     one or more wholly-owned Restricted Subsidiaries) to own any Capital Stock
     of any Restricted Subsidiary; provided however that this Section 3.02(e)
     shall not prohibit the ownership by directors of director's qualifying
     shares or the ownership by foreign nationals of Capital Stock of any
     Restricted Subsidiary to the extent mandated by applicable law.

     (ii)  Upon the creation or acquisition of any Restricted Subsidiary which
     is organized under the laws of the United States or any state thereof, the
     Guarantor shall (1) cause such Restricted Subsidiary shall execute and
     deliver to the Agent a Subsidiary Guaranty Agreement, (2) the Guarantor
     shall pledge or cause to be pledged to the Agent 100% of the capital stock
     of such Restricted Subsidiary and shall execute and deliver or cause to be
     executed and delivered pledge agreements, stock powers and other
     instruments to effect such pledge, and (3) if the Oil and Gas Properties of
     such Restricted Subsidiary are to be included in the Borrowing Base, cause
     such Restricted Subsidiary to grant to the Agent Liens on its Oil and Gas
     Properties included in the Borrowing Base. Upon the creation or acquisition
     of any Restricted Subsidiary which is not organized under the laws of the
     United States or any state thereof, the Guarantor shall pledge or cause to
     be pledged to the Agent the maximum percentage of the Capital Stock of such
     Subsidiary which may be pledged to the Agent without constituting an
     investment of earnings in U.S. Property under Section 956 (or any successor
     provision) of the Code that would trigger an increase in the gross income
     of the Guarantor pursuant to Section 951 (or any successor provision) of
     the Code or such lesser percentage as may be acceptable to the Agent in its
     sole discretion. The Guarantor shall or shall cause to be executed and
     delivered pledge agreements, stock powers and other instruments to effect
     such pledge.

     (f) Modification or Repayment of Debt.  The Guarantor will not amend,
supplement or modify the Indenture, the Senior Notes, the Subordinated Indenture
or the Subordinated Notes or prepay, redeem, offer to purchase, purchase or
defease any of the Subordinated Debt, without the prior written consent of the
Majority Lenders.

                                       11
<PAGE>
 
     (g) Environmental Matters.  The Guarantor will promptly notify the Agent
(who shall promptly notify each of the Lenders) in writing of any threatened
action, investigation or inquiry by any Governmental Authority of which the
Guarantor has knowledge in connection with any Environmental Laws, excluding
routine testing and corrective action.  The Guarantor will not cause or permit
any of its Property to be in violation of, or do anything or permit anything to
be done which will subject any such Property to any remedial obligations under
any Environmental Laws, assuming disclosure to the applicable Governmental
Authority of all relevant facts, conditions and circumstances, if any,
pertaining to such Property where such violations or remedial obligations would
have a Material Adverse Effect.

     Section 3.03  Financial Covenants.  The Guarantor covenants and agrees
that, so long as any of the Commitments are in effect and until payment in full
of all Loans thereunder, all interest thereon and all other amounts payable by
the Borrower under the Credit Agreement:

     (a) Current Ratio.  The Guarantor shall not permit its ratio of (i)
consolidated current assets plus unused availability under the Aggregate
Commitments to (ii) consolidated current liabilities (excluding current
maturities of the Notes) to be less than 1.0 to 1.0 as of the last day of each
of the last two consecutive fiscal quarters.

     (b) Tangible Net Worth.  The Guarantor shall not permit its Tangible Net
Worth to be less than an amount equal to the sum of (i) $84,000,000, plus (ii)
an amount equal to 75% of the amount of any future issuance or sale of any
Capital Stock (or securities convertible into Capital Stock), plus (iii) 50% of
positive Consolidated Net Income for the period from January 1, 1997 to the date
of determination, taken as a single accounting period (and in no event shall the
amount calculated under clause (iii) be less than 0).

     (c) Interest Coverage Ratio.  The Guarantor shall not permit its Interest
Coverage Ratio as of the end of any fiscal quarter (calculated quarterly at the
end of each fiscal quarter) to be less than 2.5 to 1.00 for any fiscal quarter.

     (d) Leverage Ratio.  The Guarantor shall not permit its ratio of Debt to
EBITDA of the Guarantor as of the end of the preceding twelve month period
(calculated quarterly at the end of each fiscal quarter) to be greater than 4.0
to 1.0 for any fiscal quarter.

     (e) Dividends, Distributions and Redemptions.  The Guarantor shall not
declare or pay any dividend, purchase, redeem or otherwise acquire for value any
of its Capital Stock now or hereafter outstanding, return any capital to its
stockholders or make any distribution of its assets to its stockholders until
the Guarantor's Tangible Net Worth exceeds an amount equal to the sum of (i)
$84,000,000, plus (ii) an amount equal to 75% of the amount of any future
issuance or sale of any Capital Stock (or securities convertible into Capital
Stock), plus (iii) 50% of positive Consolidated Net Income for the period from
January 1, 1997 to the date of determination, taken as a single accounting
period (and in no event shall the amount calculated under clause (iii) be less
than 0) and thereafter, the Guarantor may declare dividends provided that, (1)
it maintains an Interest Coverage Ratio of 2.5 to 1.0, (2) no Default or
Deficiency has occurred and is continuing and such payment shall not cause a
Default or Deficiency, and (3) the Guarantor's Tangible Net Worth continues to
exceed an amount equal to the sum calculated under clauses (i), (ii) and (iii)
of this Section 3.03(e).

                                       12
<PAGE>
 
     (f) Adjusted Consolidated Net Tangible Assets.  The Guarantor shall not
permit, as of the last day of any fiscal quarter, its Adjusted Consolidated Net
Tangible Assets minus $35,000,000 to be less than 110% of the aggregate amount
of all Indenture Indebtedness (excluding Subordinated Indebtedness as defined in
the Indenture) of the Parent Company and its Restricted Subsidiaries.


                                  ARTICLE IV
                                   Security

     Section 4.01  Grant of Security Interest.  As security for the Guarantor's
obligations hereunder, the Guarantor hereby grants to the Agent for its benefit
and the benefit of the Lenders a security interest in, a general lien upon
and/or right of set-off against the following (herein referred to as the
"Collateral"): the balance of every deposit account, now or hereafter existing,
of the Guarantor with any of the Lenders and any other claim of the Guarantor
against the Agent and/or any of the Lenders, now or hereafter existing, and all
money, instruments, securities, documents, chattel paper, credits, claims,
demands and any other Property, rights and interest of the Guarantor, which at
any time shall come into the possession or custody or under the control of the
Agent or any of the Lenders or any of their agents or Affiliates, for any
purpose, and shall include the Collateral in transit to or set apart for them.

     Section 4.02  Financing Statements.  The right is expressly granted to the
Agent, at its discretion, to file one or more financing statements or a copy of
this Guaranty Agreement under the Uniform Commercial Code naming the Guarantor
as Debtor and the Agent as Secured Party and indicating therein the types or
describing the items of Collateral.

     Section 4.03  Remedies.  During the continuation of an Event of Default,
the Agent may sell or cause to be sold in one or more sales or parcels, at such
price as the Agent may deem best, and for cash or on credit or for future
delivery, without assumption of any credit risk, all or any of the Collateral at
any broker's board or at public or private sale, without demand or performance
or notice of intention to sell or of time or place of sale (except such notice
as is required by applicable statute and cannot be waived), and the Lenders or
anyone else may be the purchaser of any or all of the Collateral so sold and
thereafter hold the same absolutely, free from any claim or right of whatsoever
kind, including any equity of redemption of the Guarantor, any such demand,
notice or right and equity being hereby expressly waived and released.

     Section 4.04  Rights.  The grant of the above Lien shall not in anyway
limit or be construed as limiting the Lenders to collect payment of the
Guarantor's obligations hereunder only out of the Collateral, but it is
expressly understood and provided that all such obligations shall constitute the
absolute and unconditional obligations of the Guarantor.  The Agent shall not be
required to take any steps necessary to preserve any rights against prior
parties to any of the Collateral.


                                   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
Agent and the Lenders and is and shall always be fully binding upon the legal
representatives, heirs, 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, disability or other event affecting the Guarantor.

                                       13
<PAGE>
 
     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 accordance with Section
12.02 of the Credit Agreement, addressed to the Guarantor at the address on the
signature page hereof or at such other address provided to the Agent in writing.

     Section 5.03  Governing Law; Submission to Jurisdiction; Waiver of Jury
Trial.

     (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 NEW YORK.

     (B) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS GUARANTY AGREEMENT
SHALL BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES
OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, 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
THE STATE OF NEW YORK.  THIS SUBMISSION TO JURISDICTION IS NON-EXCLUSIVE AND
DOES NOT PRECLUDE THE GUARANTOR FROM OBTAINING JURISDICTION OVER OTHER PARTIES
IN ANY COURT OTHERWISE HAVING JURISDICTION.

     (C) FOR THE PURPOSES OF THIS GUARANTY AGREEMENT AND MATTERS RELATING TO
THIS GUARANTY AGREEMENT (BUT FOR NO OTHER PURPOSE), THE GUARANTOR HEREBY
IRREVOCABLY DESIGNATES CT CORPORATION SYSTEM LOCATED AT 1633 BROADWAY, NEW YORK,
NEW YORK 10019, AS THE DESIGNEE, APPOINTEE AND AGENT OF THE GUARANTOR TO
RECEIVE, FOR AND ON BEHALF OF THE GUARANTOR, SERVICE OF PROCESS IN THE STATE OF
NEW YORK IN ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS GUARANTY
AGREEMENT.  IT IS UNDERSTOOD THAT A COPY OF SUCH PROCESS SERVED ON SUCH AGENT
WILL BE PROMPTLY FORWARDED BY OVERNIGHT COURIER TO THE GUARANTOR AT ITS ADDRESS
SET FORTH UNDER ITS SIGNATURE BELOW, BUT THE FAILURE OF THE GUARANTOR TO RECEIVE
SUCH COPY SHALL NOT AFFECT IN ANY WAY THE SERVICE OF SUCH PROCESS.  THE
GUARANTOR FURTHER 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 THE GUARANTOR AT
ITS SAID ADDRESS, SUCH SERVICE TO BECOME EFFECTIVE THIRTY (30) DAYS AFTER SUCH
MAILING.

     (D) NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE 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 HEREBY (I) IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY LAW, TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING
RELATING TO THIS GUARANTY AGREEMENT AND FOR ANY COUNTERCLAIM THEREIN; (II)
IRREVOCABLY WAIVES, 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) CERTIFIES THAT NEITHER THE GUARANTOR NOR ANY
REPRESENTATIVE OR AGENT OF COUNSEL FOR 

                                       14
<PAGE>
 
THE GUARANTOR HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT THE
GUARANTOR WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVERS, AND (IV) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS
GUARANTY AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION 5.03.

     Section 5.04  NO ORAL AGREEMENTS.  THIS GUARANTY AGREEMENT EMBODIES THE
ENTIRE AGREEMENT AND UNDERSTANDING BETWEEN THE PARTIES AND SUPERSEDE ALL OTHER
AGREEMENTS AND UNDERSTANDINGS BETWEEN SUCH PARTIES RELATING TO THE SUBJECT
MATTER HEREOF AND THEREOF.  THIS GUARANTY AGREEMENT REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.  THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

     Section 5.05  Prior Guaranty.  This Guaranty Agreement supersedes and
replaces the Prior Guaranty Agreement.

                                       15
<PAGE>
 
     WITNESS THE EXECUTION HEREOF, as of the 27th day of March, 1997.

                                       FLORES & RUCKS, INC.



                                       By:___________________________________
                                          Robert L. Belk
                                          Senior Vice President and
                                          Chief Financial Officer

                                       Address:                           
                                                                          
                                       8440 Jefferson Highway             
                                       Suite 420                          
                                       Baton Rouge, Louisiana  70809      
                                                                          
                                       Telecopier No.:(504) 927-1454      
                                       Telephone No.: (504) 927-1450      
                                       Attention: Robert L. Belk          
                                                                          
                                                                          
                                       with a copy to:                    
                                                                          
                                       Flores & Rucks, Inc.               
                                       500 Dover Boulevard                
                                       Lafayette, Louisiana  70503        
                                                                          
                                       Attn:  Robert K. Reeves            
                                                                          
                                       Telecopier No.:      (318) 989-5919
                                       Telephone No.:       (318) 989-5900 

                                       16
<PAGE>
 
                                   Exhibit A
                                   [Form of]
                             Officer's Certificate

     The undersigned hereby certify that he is the ____________________ of
FLORES & RUCKS, INC., a Delaware corporation (the "Guarantor"), and that as such
he is authorized to execute this certificate on behalf of the Guarantor.  This
Certificate is delivered pursuant to Section 3.02 of that certain Amended and
Restated Guaranty Agreement (as amended or supplemented from time to time, the
"Guaranty Agreement") dated as of March 27, 1997 by the Guarantor in favor of
THE CHASE MANHATTAN BANK, AS AGENT (the "Agent"), and the Lenders.  All
capitalized terms not defined herein shall have the meaning assigned such terms
in the Guaranty Agreement and in that certain Amended and Restated Credit
Agreement dated as of March 27, 1997 among FLORES & RUCKS, INC., a Louisiana
corporation (the "Borrower"), the Agent and the Lenders (as amended or
supplemented from time to time, the "Credit Agreement"), as such terms are
incorporated by reference into the Guaranty Agreement.

     The undersigned hereby represents and warrants as follows:

     (a)  No Default has occurred and is continuing under the Credit Agreement,
the Guaranty Agreement or any of the Loan Documents [or if a Default exists,
specify the nature and status thereof and the Guarantor's or the Borrower's
proposed response].

     (b)  The Guarantor is in compliance with the following negative covenants:

          (i)   Current Ratio.  (Show Calculation)

          (ii)  Tangible Net Worth. (Show Calculation)

          (iii) Interest Coverage Ratio.  (Show Calculation)

          (iv)  Leverage Ratio.  (Show Calculation)

          (v)   Dividends, Distributions and Redemptions. (Show Amount of
                Dividends and Calculation)

     (c)  As of the last day of the [fiscal quarter/fiscal year], no Deficiency
exists and no event exists which would obligate the Guarantor to repurchase or
offer to repurchase any or all of the Senior Notes.   (Show calculation as per
Section 2.03(d) of Credit Agreement and Section 10.21 of Indenture).

     (d)  [If quarterly borrowings exceed $50,000,000 at any time, show
calculations for each of the Indenture and the Subordinated Indenture
demonstrating the foregoing:

INDENTURE:  PERMITTED INDEBTEDNESS

I.   Greater of:

     (A)  $50,000,000 or



                                  Exhibit A-1

<PAGE>
 
     (B)  $20,000,000 plus [$____________] (such amount being 20% of Adjusted
          Consolidated Net Tangible Assets as of the date of the proposed
          borrowing);

minus
-----

II.  [$______________] (such amount being the amount of Asset Sales applied to
     permanent reduction of Indebtedness)

equals
------

III. $___________________.

AGGREGATE AMOUNT OF LOANS AND LC EXPOSURE PLUS AMOUNT TO BE BORROWED OR LC
EXPOSURE TO BE INCURRED MUST NOT EXCEED III.

And, if the amount to be borrowed or the proposed Letter(s) of Credit to be
issued, renewed, extended or reissued is for (a) acquiring Oil and Gas
Properties, (b) refinancing Acquired Indebtedness (as defined in the Indenture),
or (c) making an Investment (as defined in the Indenture) in an Unrestricted
Subsidiary (as defined in the Indenture) for either of the foregoing purposes,
then the such amount cannot exceed 50% of III unless:

          (1) The Parent Company's Consolidated Fixed Charge Coverage Ratio (as
          defined in the Indenture) for the preceding four fiscal quarters is
          equal to at least:

          (i) 2.75 to 1.0 if such amount is to be incurred prior to December 31,
          1997; and

          (ii) 3.0 to 1.0 if such amount is to be incurred after December 31,
          1997; and

          (2) The Parent Company's Adjusted Consolidated Net Tangible Assets (as
          defined in the Indenture) are equal to or greater than 150% of the
          aggregate Indebtedness (as defined in the Indenture) of the Parent
          Company and its Restricted Subsidiaries.


SUBORDINATED INDENTURE:  PERMITTED INDEBTEDNESS

I.   Greater of:

     (A)  $100,000,000 or

     (B)  $30,000,000 plus [$____________] (such amount being 20% of Adjusted
          Consolidated Net Tangible Assets as of the date of the proposed
          borrowing);

minus
-----


                                  Exhibit A-2

<PAGE>
 
II.  [$______________] (such amount being the amount of Asset Sales applied to
     permanent reduction of Indebtedness)

equals
------

III. $___________________.

AGGREGATE AMOUNT OF LOANS AND LC EXPOSURE PLUS AMOUNT TO BE BORROWED OR LC
EXPOSURE TO BE INCURRED MUST NOT EXCEED III.

EXECUTED AND DELIVERED this ____ day of ______________, 199__.

                                       GUARANTOR:

                                       Flores & Rucks, Inc.



                                       By: _______________________________
                                           Name:
                                           Title:



                                  Exhibit A-3