Document:

<PAGE>

                                                                    Exhibit 10.2

                              INDEMNITY AGREEMENT

     This Indemnity Agreement is made as of the 31st day of January, 2001, by
Pure Partners, L.P., a Delaware limited partnership ("Pure Partners"), and Pure
Resources I, Inc., a Delaware corporation, individually and as general partner
of Pure Partners ("General Partner") (collectively, the "Indemnitors"), to
Southland Energy Company, IP Petroleum Company, Inc., International Paper Realty
Corporation, Transtates Properties Incorporated or any of their successors or
assigns with respect to their partnership interests in Pure Partners, and
International Paper Company ("Indemnitees"). Terms not defined herein shall have
the meanings assigned to them in the Limited Partnership Agreement (as defined
below).

                             W I T N E S S E T H:

     As of the date hereof, the General Partner, certain Affiliates of the
General Partner, and Indemnitees entered into the Amended and Restated Agreement
of Limited Partnership of Pure Partners (the "Limited Partnership Agreement"),
which contemplated Indemnitors' executing this Indemnity Agreement in favor of
Indemnitees, the specific terms of which are set forth below.

     NOW, THEREFORE, in consideration of Indemnitees' entering into the Limited
Partnership Agreement and related agreements, Indemnitors hereby covenant and
agree as follows:

     1.   INDEMNITY.
          ---------

     (a)  In the event of an occurrence of any Extraordinary Asset Disposition
or Tax Indemnified Event, Indemnitors hereby unconditionally and irrevocably,
jointly and severally, agree to pay as an indemnity the Special Tax Amount
within thirty (30) days of the occurrence of the Extraordinary Asset Disposition
or Tax Indemnified Event, and Indemnitors further indemnify against, hold
harmless from, and promise to pay Indemnitees any and all reasonable costs and
expenses (including, without limitation, court costs and attorneys' fees)
incurred as a result of a breach by Indemnitors of this sentence. Such payments
of the Special Tax Amount shall be made to the Indemnitees to or by whom gain
attributable to an Extraordinary Asset Disposition or Tax Indemnified Event is
allocated or recognized in accordance with Code Sections 704(c)(1)(A),
704(c)(1)(B) or 737(a).

     (b)  Any payment required to be made hereunder by the Indemnitors that is
not made on or before the date on which such payment is due under the terms of
this Indemnity Agreement shall bear interest at the rate of six and a half
percent (6.5%) per annum compounded annually.

     (c)  Indemnitors, and each of them, agree that the General Partner will
satisfy this indemnification obligation first out of its own assets to the
fullest extent legally possible and the balance of this indemnification
obligation will be satisfied out of the assets of Pure Partners.
<PAGE>

     (d)  The General Partner hereby waives any right of subrogation,
contribution or indemnity against Pure Partners that may be invoked by the
General Partner's honoring this Indemnity Agreement.

     (e)  Notwithstanding the foregoing, both Indemnitors are co-obligors,
jointly, severally and primarily liable to Indemnitees, who may pursue the
assets of either or both, sequentially or simultaneously, without any duty of
election.

     2.   DISPUTE RESOLUTION PROCEDURES. All controversies, claims, or disputes
          -----------------------------
between Indemnitors and Indemnitees arising out of or in connection with this
Indemnity Agreement shall be subject to the dispute provisions set forth in
Article XII of the Limited Partnership Agreement, the terms of which are hereby
incorporated as if set forth fully herein.

     3.   AMENDMENT OF INDEMNITY AGREEMENT. No term or provision of this
          --------------------------------
Indemnity Agreement shall be amended, modified, altered, waived or supplemented
except in a writing signed by Indemnitors and Indemnitees.

     Except as to applicable statutes of limitation, no delay of Indemnitees in
the exercise of, or failure to exercise, any rights hereunder shall operate as a
waiver of such rights, a waiver of any other rights, or a release of Indemnitors
from any obligations hereunder. Each and every right, remedy and power hereby
granted to the Indemnitors or allowed them by law or other agreement shall be
cumulative and not exclusive of any other and may be exercised by the
Indemnitors from time to time.

     4.   OBLIGATIONS ABSOLUTE. Indemnitors agree that they will perform their
          --------------------
obligations hereunder strictly in accordance with the terms of this Indemnity
Agreement regardless of any law, regulation or order now or hereafter in effect
in any jurisdiction affecting any of such terms or the rights of the Indemnitees
with respect thereto.

     This Indemnity Agreement shall continue to be effective or be reinstated,
as the case may be, if at any time any payment hereunder is rescinded or must
otherwise be returned by the Indemnitees upon the insolvency, bankruptcy, or
reorganization of any party or otherwise, all as though such payment or
performance had not been made.

     5.   NOTICE. Any demand, notice, request, instruction, correspondence or
          ------
other document given in connection with this Indemnity Agreement by any party to
another (herein collectively called Notice) shall be given in accordance with
Section 13.1 of the Limited Partnership Agreement.

     6.   MISCELLANEOUS. THIS INDEMNITY AGREEMENT SHALL IN ALL RESPECTS BE
          -------------
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
DELAWARE. This Indemnity Agreement shall be binding upon Indemnitors and their
successors and permitted assigns and shall inure to the benefit of and be
enforceable by Indemnitees and their successors and permitted assigns. Neither
this Indemnity Agreement nor any of the rights, interests or obligations
hereunder shall be assigned (x) by any of the Indemnitees (other than to
successors and permitted assigns of their Partnership Interests under the
Limited Partnership Agreement) without the prior written consent of the General

                                      -2-
<PAGE>

Partner or (y) by any of the Indemnitors without the prior written consent of
the Indemnitees. Nothing in this Indemnity Agreement, express or implied, is
intended to or shall confer upon any person other than the parties hereto, and
their respective successors and permitted assigns, any rights, benefits or
remedies of any nature whatsoever under or by reason of this Indemnity
Agreement. This Indemnity Agreement may be executed in any number of
counterparts and in separate counterparts, each of which when so executed shall
be deemed to be an original and all of which when taken together shall
constitute one and the same agreement. The headings in this Indemnity Agreement
are for purposes of reference only, and shall not affect the meaning or
interpretation hereof.

     7.   TERMINATION OF OBLIGATIONS OF GENERAL PARTNER. Upon a complete
          ---------------------------------------------
disposition by the General Partner of its Partnership Interest to a Permitted
Transferee, the General Partner's future obligations under this Indemnity
Agreement shall automatically terminate, but the General Partner will remain
liable on all obligations hereunder that are then outstanding at the date of
such disposition.

     IN WITNESS WHEREOF, Indemnitors have executed this Indemnity Agreement as
of the date first above written.

                                    PURE PARTNERS, L.P.

                                    By:  Pure Resources I, Inc.,
                                         its general partner

                                    By:  /s/ JACK HIGHTOWER
                                         --------------------------------
                                         Jack Hightower
                                         President

                                    PURE RESOURCES I, INC.

                                    By:  /s/ JACK HIGHTOWER
                                         --------------------------------
                                         Jack Hightower
                                         President

                                      -3-<PAGE>

                                                                    Exhibit 10.3
                              GUARANTY AGREEMENT
                              ------------------

     This Guaranty (the Guaranty) is made as of the 31st day of January, 2001,
by PURE RESOURCES, L.P., a Texas limited partnership (Guarantor), to IP
PETROLEUM COMPANY, INC., a Delaware corporation (IPP), SOUTHLAND ENERGY COMPANY,
a Texas corporation (Southland), INTERNATIONAL PAPER REALTY CORPORATION, a
Delaware corporation (IP Realty), and TRANSTATES PROPERTIES INCORPORATED, a
Delaware corporation (Transtates) (collectively, the IP Entities or the
Beneficiaries.)  Terms not defined herein shall have the meanings assigned to
them in the Limited Partnership Agreement (as defined below).

                              W I T N E S S E T H:

     A.  Guarantor, certain of its Affiliates, Pure Partners, L.P., a Delaware
limited partnership (Pure Partners), and certain Affiliates of the IP Entities
have entered into a Contribution Agreement dated as of January 29, 2001 (as
amended, supplemented, or otherwise modified from time to time, the Contribution
Agreement).

     B.  As of the date hereof, pursuant to the Contribution Agreement, the
Amended and Restated Agreement of Limited Partnership of Pure Partners, L.P., a
Delaware limited partnership (as amended, supplemented or otherwise modified
from time to time, the Limited Partnership Agreement) was executed, pursuant to
which IPP and Southland are each Class A Limited Partners, IP Realty, Transtates
and PK IV, L.P are each Limited Partners, PK I, L.P., PK II, L.P. and PK III,
L.P. (together with PK IV, L.P., the PK Limited Partners) are each Class B
Limited Partners, and Pure Resources I, Inc., a Delaware corporation, is the
General Partner (the General Partner).

     C.  Guarantor owns the majority limited partnership interest in each of the
PK Limited Partners, and thus Guarantor will derive substantial benefit from the
transactions contemplated by the Contribution Agreement and Limited Partnership
Agreement, the latter of which requires Guarantor's execution of this Guaranty
Agreement.

     NOW THEREFORE, in consideration of Beneficiaries and their Affiliates
entering into the Contribution Agreement and Limited Partnership Agreement,
Guarantor hereby covenants and agrees as follows:

                                   ARTICLE 1
                                   ---------

                                 General Terms
                                 -------------

     Section 1.1  Terms Defined Above.  As used in this Guaranty, the terms
                  -------------------
"Beneficiaries,"  "Guarantor," "Guaranty" and  "Limited Partnership Agreement"
have the meanings indicated above.

     Section 1.2  Certain Definitions.  As used in this Guaranty, the following
                  -------------------
     terms shall have the following meanings, unless the context otherwise
     requires (terms defined in the singular shall have the same meanings when
     used in the plural and vice versa):
                            ---- -----

                                       1
<PAGE>

     Funded Debt shall mean indebtedness owing under bonds, debentures or notes
     and any other indebtedness for borrowed money.

     Guaranteed Obligations shall mean:

     (i)   all obligations, duties and liabilities of the Indemnitors under the
     Indemnity Agreement;

     (ii)  all Losses (other than lost profits or consequential, incidental,
     special, treble, exemplary or punitive damages) incurred by the Indemnitees
     as a direct result of any acts or omissions of the General Partner that
     constitute gross negligence or willful or wanton misconduct of the General
     Partner in carrying out its duties or obligations under the Limited
     Partnership Agreement; provided, however, that any recovery for Losses
     related to tax liabilities of the Indemnitees is governed exclusively by
     Section 1.2(i) above; and

     (iii) the General Partner's obligation to restore its deficit capital
     account as required under Section 10.3(b) of the Limited Partnership
     Agreement.

     Guarantor Default shall have the meaning given to such term in Section 4.2.

     Indemnity Agreement shall mean the Indemnity Agreement executed as of the
     date hereof pursuant to the Section 11.08(a)(iv) of the Contribution
     Agreement, wherein the General Partner and Pure Partners are Indemnitors
     ("Indemnitors") and the IP Entities are Indemnitees ("Indemnitees").

     Obligors shall mean those parties liable for the Guaranteed Obligations
     according to the  Indemnity Agreement and any related agreements from which
     such Guaranteed Obligations arise.

                                   ARTICLE 2
                                   ---------

                                 The Guaranty
                                 ------------

     Section 2.1  Obligations Guaranteed.  Guarantor hereby irrevocably and
                  ----------------------
unconditionally guarantees the prompt payment, performance and indemnification
of the Guaranteed Obligations when due, whether at maturity or otherwise.

     Section 2.2  Nature of Guaranty.
                  ------------------

          (a)     This Guaranty is an absolute, irrevocable, complete, and
continuing guaranty of payment and not a guaranty of collection, and no notice
of the Guaranteed Obligations already or hereafter contracted by or extended to
Obligors need be given to Guarantor. This Guaranty may not be revoked by
Guarantor and shall continue to be effective with respect to Guaranteed
Obligations arising or created after any attempted revocation by Guarantor and
shall remain in full force and effect until the Guaranteed Obligations are paid
or performed in full, notwithstanding that from time to time prior thereto no
Guaranteed Obligations may be outstanding. Obligors and Beneficiaries may
modify, alter, rearrange, or extend the Guaranteed Obligations for any period
and/or renew the Guaranteed Obligations from time to time, and Beneficiaries may
waive any default without notice

                                       2
<PAGE>

to Guarantor, and in such event Guarantor will remain fully bound hereunder with
respect to the Guaranteed Obligations. This Guaranty shall continue to be
effective or be reinstated, as the case may be, if at any time any payment of
the Guaranteed Obligations is rescinded or must otherwise be returned by
Beneficiaries upon the insolvency, bankruptcy or reorganization of Obligors or
otherwise, all as though such payment had not been made. This Guaranty may be
enforced by Beneficiaries and any subsequent holder of any of the Guaranteed
Obligations and shall not be discharged by the assignment or negotiation of all
or part of the Guaranteed Obligations. Guarantor hereby expressly waives
presentment, demand, notice of non-payment, protest and notice of protest and
dishonor, notice of default, notice of intent to accelerate the maturity and
notice of acceleration of the maturity and any other notice in connection with
the Guaranteed Obligations, and also notice of acceptance of this Guaranty,
acceptance on the part of Beneficiaries being conclusively presumed by
Beneficiaries' request for this Guaranty and delivery of the same to
Beneficiaries.

          (b)  Except to the extent, if any, specifically provided herein or in
the Indemnity Agreement, in no event shall Guarantor be subject hereunder to
consequential, exemplary, equitable, loss of profits, punitive, tort, or any
other damages, costs, or attorneys' fees.

          (c)  Notwithstanding any other provision of this Guaranty Agreement,
the parties hereto agree and intend that Beneficiaries have all rights and
standing necessary to enforce for the benefit of Pure Partners all Guaranteed
Obligations that are owed directly to Pure Partners.

     Section 2.3  Beneficiaries' Rights.  Guarantor authorizes Beneficiaries,
                  ---------------------
without notice or demand and without affecting Guarantor's liability hereunder,
to receive and hold security for the payment of this Guaranty and/or the
Guaranteed 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 Beneficiaries in its discretion may determine; and to obtain a
guaranty of the Guaranteed 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 2.4  Guarantor's Waivers.
                  -------------------

          (a)  General.  Guarantor waives any right to require Beneficiaries to
               -------
(i) proceed against Obligors or any other Person liable on the Guaranteed
Obligations, (ii) enforce any of its rights against any other guarantor of the
Guaranteed Obligations, (iii) proceed or enforce any of its rights against or
exhaust any security given to secure the Guaranteed Obligations, (iv) have
Obligors joined with Guarantor in any suit arising out of this Guaranty and/or
the Guaranteed Obligations, or (v) pursue any other remedy in Beneficiaries'
powers whatsoever.  Beneficiaries shall not be required to mitigate damages or
take any action to reduce, collect or enforce the Guaranteed Obligations.
Guarantor waives any defense arising by reason of any disability, lack of
corporate authority or power, or other defense of Obligors or any other
guarantor of the Guaranteed Obligations, and shall remain liable hereon
regardless of whether Obligors or any other guarantor be found not liable
thereon for any reason.  Whether and when to exercise any of the remedies of
Beneficiaries under any of the Limited Partnership Agreement, the Contribution
Agreement, the Indemnity Agreement, or any other Operative Document shall be in
the sole and absolute discretion of Beneficiaries, and no delay by Beneficiaries
in enforcing any remedy, including delay in conducting a foreclosure sale, shall
be a defense to Guarantor's liability under this Guaranty.  To the extent
allowed by applicable law, Guarantor hereby waives any good faith duty on the
part of Beneficiaries in exercising any

                                       3
<PAGE>

remedies provided in the Limited Partnership Agreement, the Contribution
Agreement, the Indemnity Agreement, or any other Operative Document.

          (b)  Subrogation.  Guarantor absolutely waives all rights of
               -----------
subrogation or reimbursement against Pure Partners.  Otherwise, until the
Guaranteed Obligations have been paid in full, Guarantor waives all rights of
subrogation or reimbursement against Obligors other than Pure Partners, whether
arising by contract or operation of law (including, without limitation, any such
right arising under any federal or state bankruptcy or insolvency laws) and
waives any right to enforce any remedy which Beneficiaries now have or may
hereafter have against Obligors, and waives any benefit or any right to
participate in any security now or hereafter held by Beneficiaries.

     Section 2.5  Maturity of Guaranteed Obligations; Payment.  Guarantor agrees
                  -------------------------------------------
that if the maturity of any of the Guaranteed Obligations is accelerated by
bankruptcy or otherwise, such maturity shall also be deemed accelerated for the
purpose of this Guaranty without demand or notice to Guarantor.  Guarantor will,
forthwith upon notice from Beneficiaries of Obligors' failure to pay any
Guaranteed Obligations when due, pay to Beneficiaries as owed the amount due and
unpaid by Obligors and guaranteed hereby.  The failure of Beneficiaries to give
this notice shall not in any way release Guarantor hereunder.

     Section 2.6  Beneficiaries' Expenses.  If Guarantor fails to pay or perform
                  -----------------------
the Guaranteed Obligations after notice from Beneficiaries of Obligors' failure
to pay or perform any Guaranteed Obligations when due, and if Beneficiaries
obtain the services of an attorney for collection of amounts owing by Guarantor
hereunder, or obtaining advice of counsel in respect of any of its rights under
this Guaranty, or if suit is filed to enforce this Guaranty, or if proceedings
are had in any bankruptcy, probate, receivership or other judicial proceedings
for the establishment or collection of any amount owing by Guarantor hereunder,
or if any amount owing by Guarantor hereunder is collected through such
proceedings, Guarantor agrees to pay to Beneficiaries its reasonable attorneys'
fees.

     Section 2.7  Liability.  It is expressly agreed that the liability of
                  ---------
Guarantor for the payment and performance of the Guaranteed Obligations
guaranteed hereby shall be primary and not secondary.

     Section 2.8  Events and Circumstances Not Reducing or Discharging
                  ----------------------------------------------------
Guarantor's Obligations.  Guarantor hereby consents and agrees that with respect
-----------------------
to each of the following, to the fullest extent permitted by applicable law,
Guarantor's obligations under this Guaranty 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 Guarantor 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
     Guaranteed Obligations, or of the Limited Partnership Agreement, the
     Contribution Agreement, the Indemnity Agreement, or any other Operative
     Document or any instrument executed in connection therewith, or any
     contract or understanding between Obligors and Beneficiaries, or any other
     Person, pertaining to the Guaranteed Obligations;

                                       4
<PAGE>

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

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

          (d)  Invalidity of Guaranteed Obligations.  The invalidity, illegality
               ------------------------------------
     or unenforceability of all or any part of the Guaranteed Obligations, or
     any document or agreement executed in connection with the Guaranteed
     Obligations, for any reason whatsoever, including without limitation the
     fact that the Guaranteed Obligations, or any part thereof, exceed the
     amount permitted by applicable law, the act of creating the Guaranteed
     Obligations or any part thereof is ultra vires, the officers or
                                        ----- -----
     representatives executing the documents or otherwise creating the
     Guaranteed Obligations acted in excess of their authority, the Guaranteed
     Obligations violate applicable usury laws, Obligors has valid defenses,
     claims or offsets (whether at law, in equity or by agreement) which render
     the Guaranteed Obligations wholly or partially uncollectible from Obligors,
     the creation, performance or repayment of the Guaranteed Obligations (or
     the execution, delivery and performance of any document or instrument
     representing part of the Guaranteed Obligations or executed in connection
     with the Guaranteed Obligations, or given to secure the repayment of the
     Guaranteed Obligations) is illegal, uncollectible, legally impossible or
     unenforceable, or the Limited Partnership Agreement, the Contribution
     Agreement, the Indemnity Agreement, or any other Operative Document or
     other documents or instruments pertaining to the Guaranteed 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 Obligors on the Guaranteed Obligations, or any part thereof,
     or 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
     Guaranteed Obligations, or any part thereof, it being recognized,
     acknowledged and agreed by Guarantor that Guarantor may be required to pay
     the Guaranteed Obligations in full without assistance or support of any
     other Person, and Guarantor has not been induced to enter into this
     Guaranty on the basis of a contemplation, belief, understanding or
     agreement that other parties other than Obligors will be liable to perform
     the Guaranteed Obligations, or Beneficiaries will look to other parties to
     perform the Guaranteed Obligations;

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

          (g)  Release of Collateral, etc.  Any release, surrender, exchange,
               ---------------------------
     subordination, deterioration, waste, loss or impairment (including without
     limitation negligent, willful,

                                       5
<PAGE>

     unreasonable or unjustifiable impairment) of any collateral, property or
     security, at any time existing in connection with, or assuring or securing
     payment or performance of, all or any part of the Guaranteed Obligations;

          (h)  Care and Diligence.  The failure of Beneficiaries 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,
               ---------------
     security interest or lien contemplated or intended to be given, created or
     granted as security for the repayment or performance of the Guaranteed
     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 Guarantor that Guarantor is not entering
     into this Guaranty in reliance on, or in contemplation of the benefits of,
     the validity, enforceability, collectibility or value of any of the
     collateral for the Guaranteed Obligations;

          (j)  Payments Rescinded.  Any payment by Obligors to Beneficiaries is
               ------------------
     held to constitute a preference under the bankruptcy laws, or for any
     reason Beneficiaries is required to refund such payment or pay such amount
     to Obligors or someone else; or

          (k)  Other Actions Taken or Omitted.  Any other action taken or
               ------------------------------
     omitted to be taken with respect to the Limited Partnership Agreement, the
     Contribution Agreement, the Indemnity Agreement, or any other Operative
     Document, the Guaranteed Obligations, or the security and collateral
     therefor, whether or not such action or omission prejudices Guarantor or
     increases the likelihood that Guarantor will be required to pay and perform
     the Guaranteed Obligations pursuant to the terms hereof; it being the
     unambiguous and unequivocal intention of Guarantor that Guarantor shall be
     obligated to pay and perform the Guaranteed 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 Guaranteed Obligations.

                                   ARTICLE 3
                                   ---------

                        Representations and Warranties
                        ------------------------------

     Section 3.1  By Guarantor.  In order to induce Beneficiaries to accept this
                  ------------
Guaranty, Guarantor represents and warrants to Beneficiaries (which
representations and warranties will survive the creation of the Guaranteed
Obligations) that:

          (a)  Benefit to Guarantor.  Guarantor's guaranty pursuant to this
               --------------------
     Guaranty reasonably may be expected to benefit, directly or indirectly,
     Guarantor.

          (b)  Existence.  Guarantor has been duly organized and is validly
               ---------
     existing under the laws of Texas, its chief executive office and principal
     place of business is located in  Texas, and it is duly qualified and
     authorized to do business where it is required to be so

                                       6
<PAGE>

     qualified, except where the failure to be so qualified would not have a
     material adverse effect upon the financial condition, operations, or
     business of Guarantor.

          (c)  Power and Authorization.  Guarantor has full power and authority
               -----------------------
     to enter into and perform its obligations under this Guaranty and to carry
     on its business as currently conducted, and the execution, delivery, and
     performance of this Guaranty have been duly authorized by all necessary
     action on the part of Guarantor.

          (d)  Binding Obligations.  This Guaranty has been duly executed and
               -------------------
     delivered by Guarantor and constitutes the legal, valid, and binding
     obligation of Guarantor, enforceable against Guarantor in accordance with
     its terms, except as the enforceability hereof may be limited by (i)
     applicable bankruptcy, insolvency, moratorium, or other similar laws
     affecting the enforcement of creditors' rights generally, and (ii) the
     application of general principles of equity.

          (e)  Governmental Approvals; No Conflicts.  Guarantor's execution,
               ------------------------------------
     delivery, and performance of this Guaranty do not (i) conflict with or
     contravene or constitute a default under:  (A) the articles of
     incorporation and by-laws of Guarantor; (B) any material agreement or
     instrument to which Guarantor is a party or by which it or its properties
     is bound ("material" for the purposes of this representation means creating
     liabilities of $25 million or more); or (C) any law, regulation, judgment,
     order, license or permit applicable to Guarantor; or (ii) result in, or
     require, the creation or imposition of any lien of any nature upon or with
     respect to any of the properties owned by Guarantor.

          (f)  No Guarantor Default.  No event or circumstance has occurred and
               --------------------
     is continuing that constitutes, or with notification or with the lapse of
     time or otherwise would constitute, a Guarantor Default.

          (g)  No Missing Governmental Consents.  No authorization, consent,
               --------------------------------
     approval, license or formal exemption from, nor any filing, declaration or
     registration with, any court, governmental agency or regulatory authority
     is required in connection with execution, delivery and performance by
     Guarantor of this Guaranty (except for such authorizations, consents,
     approvals, licenses, exemptions, filings, declarations or registrations, if
     any, which have been duly obtained or made and that are in full force and
     effect).

          (h)  Solvency.  Guarantor (i) is not insolvent as of the date hereof
               --------
     and will not be rendered insolvent as a result of this Guaranty, (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
     such Guarantor is 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.

     Section 3.2  No Representation by Beneficiaries.  Neither Beneficiaries nor
                  ----------------------------------
any other Person has made any representation, warranty or statement to Guarantor
in order to induce Guarantor to execute this Guaranty.

                                       7
<PAGE>

                                   ARTICLE 4
                                   ---------

                       Covenants and Guarantor Defaults
                       --------------------------------

     4.1  Covenants.  Guarantor covenants with Beneficiaries that:
          ---------

          (a)  Notices.  Guarantor shall provide prompt notice to Beneficiaries
               -------
     of (i) the occurrence of any material and adverse change in the financial
     condition of Guarantor or in its ability to perform hereunder, and (ii) the
     disposition, in one or a series of related transactions, by Guarantor of
     assets with a fair market value at the time of disposition in excess of $50
     million.

          (b)  Financial Statements.
               --------------------

               (i) Guarantor will make available either on "EDGAR" or otherwise
          to transmit to Beneficiaries promptly after sending or filing thereof
          (x) a copy of each of Pure Resources, Inc.'s reports on Form 8-K (or
          any comparable form), (y) no more than 75 days after the end of each
          of the first three fiscal quarters of each of Pure Resources, Inc.'s
          fiscal years, a copy of Pure Resources, Inc.'s report on Form 10-Q (or
          any comparable form) for such quarter, which report will include Pure
          Resources, Inc.'s quarterly unaudited consolidated financial
          statements as of the end of and for such quarter, and (z) within 135
          days after the end of each of Pure Resources, Inc.'s fiscal year-end,
          a copy of Pure Resources, Inc.'s report on Form 10-K (or any
          comparable form) for such year, which annual report will include Pure
          Resources, Inc.'s annual audited consolidated financial statements as
          of the end of an for such year.

               (ii) Guarantor will also transmit to Beneficiaries, no more than
          75 days after the end of each of the first three fiscal quarters of
          each of Pure Resources, Inc.'s fiscal years, a copy of Pure Resources,
          Inc.'s consolidating financial statements for such quarter, and within
          135 days after the end of Pure Resources Inc.'s fiscal year-end, a
          copy of Pure Resources, Inc.'s consolidating financial statements for
          such year, which have been prepared in accordance with generally
          accepted accounting principals consistently applied (to the extent
          applicable to consolidating statements).

          (c)  Further Assurances.  Guarantor shall, within 30 days after notice
               ------------------
     thereof from Beneficiaries, do all such further acts and things and execute
     and deliver all such further documents as shall be reasonably requested by
     Beneficiaries in order to ensure that each provision hereof is and
     continues to be a valid and binding obligation of Guarantor.

          (d)  Existence.  Except as provided in the following subsection (e),
               ---------
     Guarantor will preserve and maintain its partnership existence and its good
     standing in its state of formation and the state of its chief executive
     office and principal place of business.

          (e)  Merger.  Guarantor will not merge, amalgamate, or consolidate
               ------
     with or into any other Person (with a sale, hypothecation or other transfer
     of substantially all of Guarantor's assets being deemed a merger of
     Guarantor into the transferee) (i) unless the survivor is a United States
     corporation, partnership, or business trust that has its chief

                                       8
<PAGE>

     executive office or principal place of business located in a jurisdiction
     in the United States, and (ii) unless the survivor or transferee expressly
     assumes, by an amendment hereto in form and substance reasonably
     satisfactory to Beneficiaries, all duties and obligations of Guarantor
     under this Guaranty.

          (f)  Ranking and Equal and Ratable Security.  The indebtedness of
               --------------------------------------
     Guarantor under this Guaranty does rank and will rank in priority of
     payment pari passu to all other unsecured and unsubordinated indebtedness
     of Guarantor.

          (g)  Disposition of Assets.  If Guarantor at any time disposes of, in
               ---------------------
     one or a series of related transactions, assets with a fair market value at
     the time of such disposition in excess of $50 million to an Affiliate of
     Guarantor (other than Unocal), Guarantor shall cause such Affiliate to
     provide a guaranty in favor of the Beneficiaries substantially in the form
     of this Guaranty, and in the event of a disposition of fifty percent (50%)
     or more in fair market value at the time of such disposition of Guarantor's
     assets to Affiliates of Guarantor (including, without limitation, Unocal),
     then Guarantor shall cause Pure Resources, Inc. to provide its additional
     guarantee in favor of Beneficiaries substantially in the form of this
     Guaranty; provided, however, that, in either case, the definition of
               --------  -------
     "Guaranteed Obligations" shall also include the following new clause:

          "and repayment of all indebtedness, obligations, and other liabilities
          of Pure Resources, L.P. in respect of any loans made to it pursuant to
          Section 3.6 of the Limited Partnership Agreement, according to the
          terms thereof."

          (h)  Alternative Credit Support.  If Guarantor shall (i) fail to pay
               --------------------------
     any principal of or premium or interest on any Funded Debt which is
     outstanding in the principal amount of at least $100,000,000 in the
     aggregate when the same becomes due and payable (whether by scheduled
     maturity, required prepayment, acceleration, demand or otherwise), and such
     failure shall continue after the applicable grace period, if any, specified
     in the agreement or instrument relating to such Funded Debt, or (ii) suffer
     any event to occur or condition to exist under any agreement or instrument
     relating to any such Funded Debt that in substance is customarily
     considered a default in loan documents (in each case, other than a failure
     to pay that is specified in clause (i) of this paragraph (h)) and the
     effect of such event is to cause such Funded Debt to become due, or to be
     prepaid in full (whether by redemption, purchase, or otherwise), prior to
     its stated maturity, then Guarantor shall cause Pure Resources, Inc. to
     provide its additional guarantee in favor of the Beneficiaries
     substantially in the form of this Guaranty; provided, however, that the
                                                 --------  -------
     definition "Guaranteed Obligations" shall also include the following:

          "and repayment of all indebtedness, obligations, and other liabilities
          of Pure Resources, L.P. in respect of any loans made to it pursuant to
          Section 3.6 of the Limited Partnership Agreement, according to the
          terms thereof."

     Section 4.2  Guarantor Defaults.  The term Guarantor Default shall mean the
                  ------------------
occurrence and continuance of any of the following:

                                       9
<PAGE>

          (a)  Guarantor shall fail to perform or observe any material term,
     covenant, or agreement contained herein but only if the Guarantor fails to
     cure such failure within 30 days after delivery of a written notice from
     any Beneficiary of such breach, or in the event that such breach is not
     capable of cure within such 30-day period, the Guarantor has diligently
     commenced the cure of such breach and such breach has been cured within 60
     days after delivery of such written notice; or

          (b)  any representation or warranty made or deemed made by Guarantor
     or any of its officers herein or in connection herewith shall prove to have
     been incorrect in any respect that is material and adverse to Beneficiaries
     when made or deemed made and such materiality is continuing, provided,
                                                                  --------
     however, that no Guarantor Default shall occur pursuant to this Section
     -------
     4.2(b) if the circumstances resulting in the incorrect representation or
     warranty can be eliminated or otherwise addressed to the reasonable
     satisfaction of Beneficiaries within 30 days after delivery of a written
     notice of such incorrect representation or warranty from any Beneficiary,
     or in the event that such circumstances cannot be eliminated or otherwise
     addressed to the reasonable satisfaction of Beneficiaries within such 30-
     day period, efforts have been diligently commenced to eliminate such
     circumstances or otherwise address them to the reasonable satisfaction of
     the Beneficiaries and they have been eliminated or otherwise addressed to
     the reasonable satisfaction of Beneficiaries within 60 days after delivery
     of such written notice.

                                   ARTICLE 5
                                   ---------

                                 Miscellaneous
                                 -------------

     Section 5.1  Successors and Assigns; No Third Party Beneficiaries.  This
                  ----------------------------------------------------
Guaranty is and shall be in every particular available to the successors and
assigns of Beneficiaries and is and shall always be fully binding upon the
successors and assigns of Guarantor, notwithstanding that some or all of the
monies, the repayment of which this Guaranty applies, may be actually advanced
after any bankruptcy, receivership, reorganization, or other event affecting
Guarantor.  There are no third party beneficiaries to this Guaranty.

     Section 5.2  Notices.  Any notice or demand to Guarantor under or in
                  -------
connection with this Guaranty may be given and shall conclusively be deemed and
considered to have been given and received in accordance with the  Limited
Partnership Agreement, addressed to Guarantor at the address on the signature
page hereof or at such other address provided to Beneficiaries in writing.

     Section 5.3  Construction.  This Guaranty shall be construed in accordance
                  ------------
with and governed by the laws of the State of  Delaware.

     Section 5.4  Invalidity.  In the event that any one or more of the
                  ----------
provisions contained in this Guaranty shall, for any reason, be held invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of this Guaranty.

     Section 5.5  Entire Agreement.  THIS WRITTEN GUARANTY EMBODIES THE ENTIRE
                  ----------------
AGREEMENT AND UNDERSTANDING BETWEEN BENEFICIARIES AND GUARANTOR WITH RESPECT TO
THE SUBJECT MATTER HEREOF AND SUPERSEDES ALL OTHER AGREEMENTS AND

                                       10
<PAGE>

UNDERSTANDINGS BETWEEN SUCH PARTIES RELATING TO THE SUBJECT MATTER HEREOF AND
THEREOF. THIS WRITTEN GUARANTY 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.

                                       11
<PAGE>

     WITNESS THE EXECUTION HEREOF, as of the 31st day of January, 2001.

                              PURE RESOURCES, L.P.,

                              By:  Pure Resources I, Inc.,
                                     its General Partner

                              By:  /s/ JACK HIGHTOWER
                                   -------------------------
                              Name: Jack Hightower
                              Title: President

                              Address: 500 West Illinois
                                       Midland, Texas 79701

                              Telephone No.:  915/498-8600
                              Telecopier No.: 915/498-2607

                                       12

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