Exhibit 10.3

                             STOCK OPTION AGREEMENT

         Agreement made as of the 23rd day of June 1992, between Kaneb Services,
Inc. (the "Company"),  and John R. Barnes ("Option Holder").

         Option  Holder has been elected and is presently  serving as President,
Chief  Executive  Officer and Chairman of the Board of the Company.  In order to
induce  Option  Holder to  continue  employment  with the  Company and to afford
Option  Holder the  opportunity  to purchase  shares of the Common  Stock of the
Company,  without par value (the "Stock"),  the Company and Option Holder hereby
agree as follows:

         1. Grant of Option.  Pursuant to foregoing recitals, the Company grants
to  Option  Holder an option to  purchase  from the  Company a total of  275,000
shares of Common Stock,  no par value,  of the Company at $8.50 per share (being
200% of the fair market value per share of the Stock on the date of this grant),
in the amounts,  during the periods and upon the terms and  conditions set forth
in this Agreement. The date of grant of this option is June 23, 1992.

         2. Time of Exercise.  Subject to the acceleration provisions and except
as otherwise  specifically provided elsewhere in this Agreement,  this option is
exercisable, in whole or in part, cumulatively at any time subsequent to (and to
the extent of) the vesting rights set forth below but prior to the expiration of
ten (10) years from the date of grant,  after which no  unexercised  part of the
option may be exercised.

         3.  Vesting.  The right to exercise  shall vest in the amounts and over
the periods of time as follows: (a) one-fifth (1/5) of the total optional shares
on June 23, 1993; (b) one-forty  eighth (1/48) of the total optional  shares per
month thereafter.

         4.  Acceleration  of  Vesting.  In the event of a Change of  Control or
Potential Change of Control,  any stock options not previously vested under this
Agreement shall be fully vested.  A Change of Control means (i) a person becomes
the beneficial owner of Company securities having 20% or more of the total votes
that may be cast for the  election  of  directors  of the  Company,  or (ii) the
stockholders  approve the sale of substantially all of the assets of the Company
or the merger or consolidation of the Company with or into another  corporation,
or (iii) as a result of or in  connection  with any  tender or  exchange  offer,
merger  or  other  business  combination,  sale  of  assets,  proxy  contest  or
combination of the foregoing, the directors of the Company immediately preceding
the event shall cease to  constitute  the  majority  of the  Company's  Board of
Directors. A Potential Change of Control means the entering into an agreement by
the Company, consummation of which would result in a Change of Control.

         5. Not Subject to Plan. This option and its exercise are not subject to
the Amended and Restated Kaneb  Services,  Inc. 1984  Nonqualified  Stock Option
Plan (the "Plan").

         6.      Term. This option will terminate at the first of the following:
                  (a)      5 p.m. on June 22, 2002.
                  (b)      5 p.m.  on the date  which is one (1) year  following
                           the date  that the  Option  Holder's  service  to the
                           Company  is   terminated  by  reason  of  the  Option
                           Holder's  death,  total and  permanent  disability or
                           voluntary or involuntary  termination,  as an officer
                           and/or  director,  without cause;  for the purpose of
                           this section 6(b),  the one (1) year period shall not
                           commence  until Option Holder is no longer serving as
                           either an officer or a director.
                  (c)      5 p.m. on the date which Option  Holder's  service to
                           the Company,  whether as an officer or  director,  is
                           terminated  involuntarily  for cause.  "Cause"  shall
                           mean Options  Holder's  gross  negligence  or willful
                           misconduct,  fraud  or final  conviction  of a felony
                           offense.

         7. Who May  Exercise.  During the lifetime of the Option  Holder,  this
option may be exercised  only by the Option Holder,  or by the Option  Holders's
administrators or assigns, as provided herein;

         8.  Restrictions on Exercise.  This option may be exercised in whole or
in part,  but only with respect to full shares and no fractional  share of stock
shall be issued.
<PAGE>
         9. Manner of Exercise. This option may be exercised upon written notice
to the  Company  of the  number of shares  being  purchased  accompanied  by the
following:
                  (a)      Full  payment of  the  option price for the shares of
                           stock being purchased; and
                  (b)      Such documents as the Company in its discretion deems
                           necessary to evidence  the exercise, in  whole or  in
                           part, of the option.

         Full payment for shares  purchased  upon exercise of an Option shall be
made in cash, by the Option Holder's delivery to the Company of shares of Common
Stock  which  have a fair  market  value  equal to the option  price,  or in any
combination  of cash and shares of Common Stock having an aggregate  fair market
value equal to the option  price.  The fair  market  value of each share of such
tendered stock shall be the closing sale price of a share of Common Stock on the
New York  Stock  Exchange,  Inc.  (the  "Exchange")  on the date the  Option  is
exercised,  or if the Common  Stock was not traded on the Exchange on that date,
then on the next  preceding  date on which the  Common  Stock was  traded on the
Exchange.  No shares may be issued  until full  payment  of the  purchase  price
therefore has been made, and the Option Holder will have none of the rights of a
stock holder until shares are issued to him.

         10. Non-Assignability. This option is not assignable or transferable by
the Option Holder except by assignment or transfer to members of Option Holder's
family or to an entity  created  for the  benefit of Option  Holder's  family or
family members, or by will or by the laws of descent and distribution.  Any such
assignee  or  transferee  shall be  subject  to all of the terms and  conditions
hereof and shall be prohibited from any further assignment or transfer.

         11. Rights of  Stockholder.  Except for the adjustment in the number of
shares as provided in Section 12 below, the Option Holder will have no rights as
a  stockholder  with  respect to any shares  covered  by this  option  until the
issuance of a certificate or  certificates  to the Option Holder for the shares.
Except as otherwise  provided in Section 12 hereof,  no adjustment shall be made
for dividends or other rights for which the record date is prior to the issuance
of such certificate or certificates.

         12.  Adjustment  of Number of Shares and  Related  Matters.  The Option
Holder   understands  that  in  the  event  of  the  merger,   consolidation  or
reorganization of the Company,  or in the event of the  recapitalization  of the
Company,  the number of shares that may be purchased upon exercise of the option
granted  hereunder  and the  exercise  price  thereof  shall be  proportionately
adjusted.  Notwithstanding  the  foregoing,  the existence of the option granted
hereunder  shall not affect the right of the Company to issue shares of stock of
any class,  or  securities  convertible  into shares of stock of any class,  for
cash, property, labor or services,  either upon direct sale or upon the exercise
of rights or warrants to subscribe  therefor,  or upon  conversion  of shares or
obligations of the Company convertible into such shares or other securities. The
issuance of such shares or  securities  shall not affect,  and no  adjustment by
reason  thereof  shall be made with respect to, the number or price of shares of
Stock subject to the option granted hereunder.

         Upon the  occurrence  of each  event  requiring  an  adjustment  of the
exercise  price  and/or  the  number  of  shares  purchasable  pursuant  to this
Agreement,  the Company shall as soon as practicable mail to the Option Holder a
copy of its computation of such  adjustment  which shall be conclusive and shall
be binding upon the Option Holder unless  contested by him by written  notice to
the Company  within thirty (30) days after the Option  Holder's  receipt of such
computation.

         13.  Option  Holder's  Representations.   Notwithstanding  any  of  the
provisions hereof, the Option Holder hereby agrees that he will not exercise the
option granted  hereby,  and that the Company will not be obligated to issue any
shares to the Option Holder  hereunder,  if the exercise thereof or the issuance
of such shares shall  constitute a violation by the Option Holder or the Company
of any  provision of any law or regulation of any  governmental  authority.  Any
determination  in this connection by the Board of Directors of the Company shall
be final, binding, and conclusive. The obligations of the Company and the rights
of the Option Holder are subject to all applicable  laws,  rules and regulations
including,  without limitation, the Securities Exchange Act of 1934, as amended,
the  Securities Act of 1933, as amended,  the Internal  Revenue Code of 1986, as
amended, any successors thereto, and any other applicable laws.

         14.  Investment  Representation.  By his execution  hereof,  the Option
Holder  represents  and  warrants  to the  Company  that all Stock  which may be
purchased  hereunder will be acquired by Option Holder for  investment  purposes
for his own account and not with any intent for resale or  distribution.  Unless
previously  registered or issued in a transaction  registered  under  applicable
federal and state securities  laws, all certificates  issued with respect to the
Common Stock shall bear an appropriate restrictive investment legend.

         15. Law  Governing.  This  Agreement is intended to be performed in the
State of Texas  and shall be  construed  and  enforced  in  accordance  with and
governed by the laws of Texas.
<PAGE>
         IN WITNESS  WHEREOF,  the  Company  has  caused  this  Agreement  to be
executed by its duly authorized officer,  and the Option Holder, to evidence his
consent and approval of all the terms hereof,  has duly executed this Agreement,
as of the date specified in Section 1 hereof.

                                        KANEB SERVICES, INC.

                                        By:
                                           -------------------------------
                                        Title:
                                              ----------------------------


                                        OPTION HOLDER:

                                        ----------------------------------
                                        John R. Barnes