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                                                                    Exhibit 10.3

               ANCILLARY AGREEMENT TO PURCHASE AND SALE AGREEMENT

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

                                    Recitals:

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

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

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

                                   Covenants:

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

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

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

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

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

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

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

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

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

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

      Executed as of the date first set forth above.

                                               LYNX PRODUCTION COMPANY, INC.

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

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                                                PARALLEL PETROLEUM CORPORATION

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

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                                   Exhibit "A"

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

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

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

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

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                                                                    Exhibit 10.4

GUARANTEE, dated as of October 13, 2005, of Parallel Petroleum Corporation, a
Delaware corporation (the "Guarantor"), in favor of Citibank N.A. (the
"Counterparty").

1. Guarantee. In order to induce the Counterparty to enter into an ISDA Master
Agreement, dated as of the date hereof (the "Agreement"), with the Guarantor's
wholly-owned subsidiary Parallel, LP, ("Primary Obligor"), the Guarantor
absolutely and unconditionally guarantees to the Counterparty, its successors
and permitted assigns, as primary obligor and not as a surety, the prompt
payment of all amounts payable by Primary Obligor under the Agreement, whether
due or to become due, secured or unsecured, joint or several together with any
and all expenses referred to under Section 11 of the Agreement incurred by
Counterparty in enforcing Counterparty's rights under this Guarantee (the
"Obligations") all without regard to any counterclaim, set-off, deduction or
defense of any kind which Primary Obligor or the Guarantor may have or assert,
and without abatement, suspension, deferment or diminution on account of any
event or condition whatsoever; provided however, that Guarantor's obligations
under this Guarantee shall be subject to Primary Obligor's defenses, rights to
set-off, counterclaim or withhold payment as provided in the Agreement. Any
capitalized term used herein and not otherwise defined shall have the meaning
assigned to it in the Agreement.

2. Nature of Guarantee. This Guarantee is a guarantee of payment and not of
collection. The Counterparty shall not be obligated, as a condition precedent to
performance by the Guarantor hereunder, to file any claim relating to the
Obligations in the event that Primary Obligor becomes subject to a bankruptcy,
reorganization or similar proceeding, and the failure of the Counterparty to
file a claim shall not affect the Guarantor's obligations hereunder. This
Guarantee shall continue to be effective or be reinstated if any payment to the
Counterparty by Primary Obligor on account of any Obligation is returned to
Primary Obligor or is rescinded upon the insolvency, bankruptcy or
reorganization of Primary Obligor.

3. Consents, Waivers and Renewals. The Guarantor agrees that the Counterparty
may at any time and from time to time, either before or after the maturity
thereof, without notice to or further consent of the Guarantor, change the time,
manner or place of payment or any other term of, any Obligation, exchange,
release, nonperfection or surrender any collateral for, or renew or change any
term of any of the Obligations owing to it, and may also enter into a written
agreement with Primary Obligor or with any other party to the Agreement or
person liable on any Obligation, or interested therein, for the extension,
renewal, payment, compromise, modification, waiver, discharge or release
thereof, in whole or in part, without impairing or affecting this Guarantee. The
Obligations of the Guarantor under this Guarantee are unconditional,
irrespective of the value, genuineness, validity, or enforceability of the
Obligations, any law regulation or order of any jurisdiction or any other event
affecting the term of any Obligation or of Counterparty's rights with respect
thereto and to the fullest extent permitted by applicable law, any other
circumstance which might constitute a defense available to, or a discharge of,
the Guarantor, including (a) any law rule or policy that is now or hereafter
promulgated by any governmental authority (including any central bank) or
regulatory body that may adversely affect

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Counterparty's ability or obligation to make or receive such payments, (b) any
nationalization, expropriation, war, riot, civil commotion or other similar
event, (c) any inability to convert any currency into the currency of payment of
such obligation, (d) any inability to transfer funds in the currency of payment
of such obligation to the place of payment therefor. The Guarantor agrees that
the Counterparty may have recourse to the Guarantor for payment of any of the
Obligations, whether or not the Counterparty has proceeded against any
collateral security or any obligor principally or secondarily obligated for any
Obligation. The Guarantor waives demands, promptness, diligence and all notices
that may be required by law or to perfect the Counterparty's rights hereunder
except notice to the Guarantor of a default by Primary Obligor under the
Agreement, provided however that any delay in the delivery of notice shall in no
way invalidate the enforceability of this Guarantee. No failure, delay or single
or partial exercise by the Counterparty of its rights or remedies hereunder
shall operate as a waiver of such rights or remedies. All rights and remedies
hereunder or allowed by law shall be cumulative and exercisable from time to
time.

4. Representations and Warranties. The Guarantor hereby represents and warrants
that:

      (i) the Guarantor is duly organized, validly existing and in good standing
under the laws of Delaware;

      (ii) the Guarantor has the requisite corporate power and authority to
issue this Guarantee and to perform its obligations hereunder, and has duly
authorized, executed and delivered this Guarantee;

      (iii) the Guarantor is not required to obtain any authorization, consent,
approval, exemption or license from, or to file any registration with, any
government authority as a condition to the validity of, or to the execution,
delivery or performance of, this Guarantee;

      (iv) as of the date of this Guarantee, there is no action, suit or
proceeding pending or threatened against the Guarantor before any court or
arbitrator or any governmental body, agency or official in which there is a
reasonable possibility of an adverse decision which could affect, in a
materially adverse manner, the ability of the Guarantor to perform any of its
obligations under, or which in any manner questions the validity of, this
Guarantee;

      (v) the execution, delivery and performance of this Guarantee by the
Guarantor does not contravene or constitute a default under any statute,
regulation or rule of any governmental authority or under any provision of the
Guarantor's certificate of incorporation or by-laws or any contractual
restriction binding on the Guarantor; and

      (vi) this Guarantee constitutes the legal, valid and binding obligation of
the Guarantor enforceable in accordance with its terms, subject to the effect of
any bankruptcy, insolvency, reorganization, moratorium or similar law affecting
creditors' rights generally, and to general principles of equity (regardless of
whether such

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enforceability is considered in a proceeding in equity or at law).

5. Subrogation. Upon payment by Guarantor of any sums to Counterparty under this
Guarantee, all rights of Guarantor against Primary Obligor arising as a result
thereof by way of right of subrogation or otherwise shall in all respects be
subordinate and junior in right of payment to the prior indefeasible payment in
full of all the obligations of Primary Obligor under the Agreement, including
all Transactions then in effect between Primary Obligor and Counterparty.

6. Termination. This Guarantee is a continuing guarantee and shall remain in
full force and effect until such time as it may be revoked by the Guarantor by
notice given to the Counterparty, such notice to be deemed effective upon
receipt thereof by the Counterparty or at such later date as may be specified in
such notice; provided, however, that such revocation shall not limit or
terminate this Guarantee in respect of any Transaction effected under the
Agreement which shall have been entered into prior to the effectiveness of such
revocation. Notwithstanding anything to the contrary in this Paragraph 6, this
Guarantee shall terminate, and Guarantor shall be released from all of the
Obligations hereunder with respect to any Transaction(s), immediately upon the
transfer or assignment of such Transaction(s) to an entity which is not an
Affiliate of Primary Obligor (as such term is defined in Section 14 of the
Agreement), if such transfer or assignment is completed in accordance with the
provisions of Section 7 of the Agreement.

7. Notices. Any notice or communication required or permitted to be made
hereunder shall be made to the appropriate addresses set forth below (or to such
other addresses as either party may designate by notice to the other party):

            If to the Counterparty:

            Citibank, N.A.
            250 West Street, 10th Floor
            New York, NY  10013
            Attention:  Director, Derivatives Operations
            Facsimile No.:  212-723-2956

            With a copy to:

            Legal Department
            77 Water Street
            9th Floor
            New York, NY  10004
            Attention:  Department Head
            Facsimile No.:  212-657-1452

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            If to the Guarantor:

            Parallel Petroleum Corporation
            1004 N. Big Spring
            Suite 400
            Midland, TX  79701
            Attention:  Steve Foster
            Facsimile No.:  432-684-3905

8. GOVERNING LAW; JURISDICTION. This Guarantee shall be governed by and
construed in accordance with the laws of the State of New York. The Guarantor
hereby irrevocably consents to, for the purposes of any proceeding arising out
of this Guarantee, the exclusive jurisdiction of the courts of the State of New
York and the United States District Court located in the borough of Manhattan in
New York City.

9. Waiver of Immunity To the extent that the Guarantor has or hereafter may
acquire any immunity from jurisdiction of any court or from any legal process
(whether through service or notice, attachment prior to judgment, attachment in
aid of execution, execution or otherwise) with respect to the Guarantor or the
Guarantor's property, the Guarantor hereby irrevocably waives such immunity in
respect of the Guarantor's obligations under this Guaranty.

10. Waiver of Jury Trial. The Guarantor here by irrevocably waives all right to
trial by jury in any action, proceeding or counterclaim (whether based on
contract, tort or otherwise) arising out of or relating to this Guarantee or the
negotiation, administration or enforcement hereof.

11. Miscellaneous. Each reference herein to the Guarantor, Counterparty or
Primary Obligor shall be deemed to include their respective successors and
assigns. The provisions hereof shall inure in favor of each such successor or
assign. This Guarantee (i) shall supersede any prior or contemporaneous
representations, statements or agreements, oral or written, made by or between
the parties with regard to the subject matter hereof, (ii) may be amended only
by a written instrument executed by the Guarantor and Counterparty and (iii) may
not be assigned by either party without the prior written consent of the other
party.

12. Deposits. If the Guarantor fails to pay any of the Guarantor's obligations
hereunder when the same shall become due and payable Counterparty is hereby
authorized at any time and from time to time, to the fullest extent permitted by
law, to set off and apply any and all deposits (general or special, time or
demand, provisional or final) at any time held and other indebtedness at any
time owing by Counterparty to or for any entity comprising the Guarantor's
credit or account against any and all of the Obligations, whether or not
Counterparty shall have made any demand under this Guarantee. Counterparty
agrees to promptly notify the relevant Guarantor after any such set-off and
application, provided that the failure to give such notice shall not affect the
validity of such set-off and application. Counterparty's rights under this
paragraph are in addition to other rights and remedies (including without
limitation other rights of set off) which Counterparty may have.

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13. Limitation of Liability. Notwithstanding anything to the contrary contained
herein or in the Agreement, whether express or implied, Guarantor shall in no
event be required to pay or be liable to the Counterparty for any consequential,
indirect or punitive damages, opportunity costs or lost profits.

      In Witness Whereof, the undersigned has executed this Guarantee as of the
date first above written.

PARALLEL PETROLEUM CORPORATION

By: /s/ Steven D. Foster
    -----------------------
    Name: Steven D. Foster
    Title:  CFO

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