EXHIBIT 10.2

                        ADMINISTRATIVE SERVICES AGREEMENT

     This  Administrative  Services Agreement (this "Agreement") is entered into
as of June 28,  2001,  between  Kaneb  Services,  Inc.,  a Delaware  corporation
("KSI"), and Kaneb Services LLC, a Delaware limited liability company ("KSL").

                               W I T N E S S E T H

     WHEREAS,  KSI and KSL are parties to the  Distribution  Agreement and other
related agreements; and

     WHEREAS,  KSI and KSL desire for KSI and its Affiliates to provide  certain
services to KSL and its Affiliates;

     NOW,  THEREFORE,  in  consideration  of the premises and for other good and
valuable  consideration,  the  receipt  and  sufficiency  of  which  are  hereby
acknowledged, KSI and KSL hereby covenant and agree as follows:

                                   DEFINITIONS

     All  capitalized  terms or other defined terms used but not defined in this
Agreement are used in this Agreement with the following meanings:

     "Affiliate" means, with respect to KSI or KSL, any Person, that directly or
indirectly,  is in control of, is  controlled  by,  controls or is under  common
control of KSI or KSL,  as the case may be.  For  purposes  of this  definition,
control  shall  include the  ownership of 50% or more of the legal or beneficial
interest  in any  Person or the power to  direct or cause the  direction  of the
management and policies of such Person,  whether through the ownership of voting
securities, by contract or otherwise. A Person who is an Affiliate shall only be
considered  an Affiliate  for so long as that Person meets the  definition of an
Affiliate. An officer,  director, general partner, managing member or trustee of
a Person or Affiliate of such Person shall not be  considered to be an Affiliate
unless such Person is under the direct or indirect  control or common control of
KSI or KSL, as the case may be. For  purposes  of  clarity,  neither KSI nor KSL
shall be considered  to be an Affiliate of the other,  nor shall Kaneb Pipe Line
Partners,  L.P. or its subsidiaries be considered an Affiliate of KSL solely for
the purposes of this Agreement.

     "Business  Day" shall mean any day other than a  Saturday,  Sunday or other
day on which  commercial  banks in Dallas,  Texas are  authorized or required to
close.

     "Closing Date" shall mean June 28, 2001.

     "Distribution  Agreement"  shall mean that certain  Distribution  Agreement
dated as of June  28,  2001,  by and  between  KSI and  KSL,  as the same may be
amended and in force and effect from time to time.

     "Governmental Authority" shall mean any nation or government,  any state or
other  political  subdivision  thereof  and  any  entity  exercising  executive,
legislative,  judicial,  regulatory or administrative functions of or pertaining
to government.

     "Person"  shall  mean an  individual,  partnership,  corporation,  business
trust,  limited liability company,  limited liability  partnership,  joint stock
company,  trust,   unincorporated  association,   joint  venture,   Governmental
Authority or other entity of whatever nature.

     "Services" shall mean,  collectively,  the Treasury Services, the Insurance
and Risk  Management  Services,  the Legal Services,  the Tax Services,  the MIS
Services,  the Investor Relations Services,  the Facilities Services,  the Human
Resources  Services and the Accounting  Services (each of which,  as hereinafter
defined).

                                  KSI SERVICES

     Services. KSI shall provide, or cause to be provided, the treasury and cash
management  services  set  forth  on  Annex  A (the  "Treasury  Services"),  the
insurance and risk management  services set forth on Annex B (the "Insurance and
Risk Management Services"), the legal services set forth on Annex C ( the "Legal
Services"),  the tax  services  set forth on Annex D (the "Tax  Services"),  the
management   information  system  services  set  forth  on  Annex  E  (the  "MIS
Services"),  the investor relations services set forth on Annex F (the "Investor
Relations  Services"),  the  facilities  services  set  forth  on  Annex  G (the
"Facilities  Services"),  the human resources services set forth on Annex H (the
"Human Resources  Services"),  the accounting services set forth on Annex I (the
"Accounting Services") and other services related to the Services.

     Fees; Expenses. For the provision of the Services, KSL hereby agrees to pay
to KSI $25,000 per month (the "Monthly Fee").  Annually,  KSI will determine the
costs of the Services  pursuant to this agreement and will reasonably adjust the
Monthly  Fee  accordingly.  KSL hereby  agrees to pay KSI the Monthly Fee on the
15th day of each month during the term of this Agreement.

     KSL and KSI  hereby  acknowledge  and  agree  that  the  Monthly  Fee  only
reimburses KSI for costs expended in connection with general  overhead and other
general business expenses and is not intended to reimburse KSI for out-of-pocket
expenses incurred by KSI solely for the benefit of KSL. Accordingly,  KSL hereby
agrees to reimburse  KSI any  out-of-pocket  expenses that KSI incurs solely for
the  benefit of KSL,  such  payment  to be made  within 30  calendar  days after
receipt of written notice of KSI incurring such an expense.

     KSL  agrees  to  pay to KSI  all  overhead  and  administrative  costs  and
expenses, except for the salaries and other compensation arrangements (including
amounts expended under benefit plans) of any executive officers of KSL, incurred
by KSI in  connection  with the provision of general  office and other  business
services to the executive and administrative  departments of KSL, including, but
not  limited  to,  the  salaries  of  support  staff and  expenses  incurred  in
connection with telephones, office supplies, office rent, dues and subscriptions
and computer networks and systems.

     Term and  Termination.  The term of this  Agreement  shall  commence on the
Closing Date and shall  continue  until,  and terminate  on,  December 31, 2005,
provided,  however,  that,  upon one hundred and twenty (120) days notice to the
other party,  each party shall have the right to terminate this  Agreement.  The
termination  of this  Agreement  shall not  release  (i)  either  party from its
liability to the other party under this Agreement  arising from a breach of this
Agreement,  (ii) either party from its rights and obligations  under Article III
or (iii) KSL from its payment obligations under Section 2.2.

     Allocation of liability; relationship; delegation of duty

     WAIVER AND  INDEMNIFICATION.  KSL HEREBY WAIVES ANY AND ALL CLAIMS  AGAINST
KSI, ITS  AFFILIATES AND THEIR  RESPECTIVE  DIRECTORS,  OFFICERS,  EMPLOYEES AND
AGENTS (THE "KSI PARTIES") FOR DAMAGES  RESULTING FROM  PERFORMANCE OF, ERROR OR
DELAY  IN  PERFORMANCE,  ATTEMPTING  TO  PERFORM  OR  FAILING  TO  PERFORM,  ANY
RESPONSIBILITIES  HEREUNDER,  OR  ANY  DAMAGES  OF  ANY  KIND  RELATED  THERETO,
INCLUDING  CLAIMS ARISING AS A RESULT OF THE EXPRESS  NEGLIGENCE OF SUCH PERSONS
UNLESS SUCH  DAMAGES  RESULTED  FROM THE  WILLFUL  MISCONDUCT  OF SUCH  PERSONS.
FURTHER,  KSL  HEREBY  AGREES  TO  DEFEND,  INDEMNIFY  AND HOLD THE KSI  PARTIES
HARMLESS  FROM AND  AGAINST ANY AND ALL  CLAIMS,  DAMAGES,  CAUSES OF ACTION AND
LEGAL LIABILITIES ARISING OUT OF, IN CONNECTION WITH, OR AS AN INCIDENT TO, THIS
AGREEMENT  OR ANY ACT OR OMISSION IN THE  PERFORMANCE  BY SUCH  PERSONS OF THEIR
RESPONSIBILITIES  HEREUNDER,  INCLUDING  DAMAGES,  CAUSES  OF  ACTION  AND LEGAL
LIABILITIES  ARISING AS A RESULT OF THE NEGLIGENCE OF SUCH PERSONS,  UNLESS SUCH
DAMAGES   RESULTED  FROM  THE  WILLFUL   MISCONDUCT  OF  SUCH  PERSONS   SEEKING
INDEMNIFICATION.

     LIMITATION ON WARRANTIES AND CONSEQUENTIAL DAMAGES. NONE OF THE KSI PARTIES
MAKES ANY WARRANTIES OR REPRESENTATIONS  REGARDING SERVICES PROVIDED PURSUANT TO
THIS AGREEMENT  OTHER THAN THOSE EXPRESSED IN THIS AGREEMENT AND NONE OF THE KSI
PARTIES MAKES ANY EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY OR OF FITNESS
FOR A PARTICULAR  PURPOSE.  SUCH SERVICES ARE FURNISHED ON AN "AS IS" BASIS, AND
NONE OF THE KSI  PARTIES  ASSUMES  ANY  RESPONSIBILITY  FOR ANY  DAMAGE  OR LOSS
(INCLUDING, WITHOUT LIMITATION, ANY CONSEQUENTIAL,  EXEMPLARY OR SPECIAL DAMAGES
OR LOST PROFITS) ARISING OUT OF, RESULTING FROM OR CAUSED BY SERVICES FURNISHED.

     EXPRESS  NEGLIGENCE.  THE  INDEMNITIES  SET FORTH IN THIS  ARTICLE  III ARE
INTENDED TO BE  ENFORCEABLE  AGAINST THE PARTIES IN ACCORDANCE  WITH THE EXPRESS
TERMS AND SCOPE THEREOF  NOTWITHSTANDING  TEXAS' EXPRESS  NEGLIGENCE RULE OR ANY
SIMILAR DIRECTIVE THAT WOULD PROHIBIT OR OTHERWISE LIMIT INDEMNITIES  BECAUSE OF
THE SIMPLE OR GROSS NEGLIGENCE (WHETHER SOLE, CONCURRENT,  ACTIVE OR PASSIVE) OR
OTHER FAULT OR STRICT LIABILITY OF ANY OF THE KSI PARTIES.

     INDEPENDENT CONTRACTOR. UNLESS OTHERWISE AGREED BY THE PARTIES WITH RESPECT
TO LEGAL SERVICES, IN PERFORMING THE SERVICES HEREUNDER, KSL AND KSI ACKNOWLEDGE
AND AGREE THAT THE KSI PARTIES  AND THEIR  REPRESENTATIVES  SHALL BE  CONSIDERED
INDEPENDENT  CONTRACTORS WITH RESPECT TO KSL AND SHALL UNDER NO CIRCUMSTANCES BE
DEEMED  TO  BE  EMPLOYEES,   AGENTS,   PARTNERS  OR  JOINT   VENTURERS  OF  KSL.
ADDITIONALLY,  KSI SHALL HAVE THE  AUTHORITY  AND  RESPONSIBILITY  TO SELECT THE
MEANS,  MANNER AND METHOD OF PERFORMING THE SERVICES REQUIRED TO BE CAUSED TO BE
PERFORMED BY IT HEREUNDER.

     Delegation  of Duty. In the  performance  of their  respective  obligations
under this Agreement, KSI and its Affiliates may act directly or through agents,
counsel (in-house or outside) or other persons,  may delegate the performance of
functions and may consult with agents,  counsel  (in-house or outside) and other
persons.  None of KSI or any of its Affiliates will be liable for the default or
misconduct of any persons  employed,  consulted or engaged thereby.  KSI and its
Affiliates  will be  entitled to  conclusively  rely for all  purposes  upon any
notice, document,  correspondence,  request or directive received by it from KSL
or its  Affiliates,  or any officer or director  of KSL or its  Affiliates,  and
shall not be obligated to inquire (a) as to the authority or power of any person
executing or presenting any such notice,  document,  correspondence,  request or
directive, or (b) as to the truthfulness of any statements set forth therein.


                                  MISCELLANEOUS

     Complete Agreement; Amendment. This Agreement, including the other writings
referred  to  herein  or  delivered  pursuant  hereto,  constitutes  the  entire
agreement  between  KSI and KSL with  respect to the subject  matter  hereof and
supersedes  all  other  agreements,  representations,   warranties,  statements,
promises  and  understandings,  whether  oral or  written,  with  respect to the
subject  matter hereof.  This Agreement may not be amended,  altered or modified
except by a writing executed by KSI and KSL.

     Notices.  All notices under this Agreement must be in writing and delivered
by personal  service;  certified or registered  mail,  postage  prepaid,  return
receipt  requested;  nationally-recognized  overnight  courier,  courier charges
prepaid;  or  facsimile  transmission  (followed by  telephone  confirmation  of
receipt), to KSI or KSL, as applicable, at the addresses herein set forth.

                  The addresses for notices are as follows:

                  If to KSI:

                           Kaneb Services, Inc.
                           2435 North Central Expressway, Suite 700
                           Richardson, Texas  75080
                           Attention:  Vice President Administration
                           Facsimile:  (972) 699-4025
                           Confirm:    (972) 699-4000

                  With a copy to:

                           Fulbright & Jaworski L.L.P.
                           1301 McKinney, Suite 5100
                           Houston, Texas  77010-3095
                           Attention:  John A. Watson
                           Facsimile:  (713) 651-5246
                           Confirm:    (713) 651-5428

                  If to KSL:

                           Kaneb Services LLC
                           2435 North Central Expressway, Suite 700
                           Richardson, Texas  75080
                           Attention:  President
                           Facsimile:  (972) 699-4025
                           Confirm:    (972) 699-4000

                  With a copy to:

                           Fulbright & Jaworski L.L.P.
                           1301 McKinney, Suite 5100
                           Houston, Texas  77010-3095
                           Attention:  John A. Watson
                           Facsimile:  (713) 651-5246
                           Confirm:    (713) 651-5428

All notices,  demands and requests will be effective  upon actual receipt or, in
the  case  of  delivery  by  facsimile  transmission,  the  completion  of  such
transmission  during the normal  business hours of the  recipient.  Rejection or
other refusal to accept or the inability to deliver  because of changed  address
of which no notice was given as provided  herein will be deemed to be receipt of
the  notice,  demand or request  sent.  By giving to the other party at least 10
Business Days' written  notice  thereof,  a party and its  respective  permitted
successors  and  permitted  assigns will have the right from time to time and at
any time during the term of this Agreement to change their respective  addresses
for  notices  and each will have the right to specify as its address for notices
any other address within the United States of America.

     Severability.  Any provision  hereof that is prohibited or unenforceable in
any jurisdiction will, as to such jurisdiction,  be ineffective to the extent of
such  prohibition  or  unenforceability   without   invalidating  the  remaining
provisions  hereof,  and  any  such  prohibition  or   unenforceability  in  any
jurisdiction will not invalidate or render  unenforceable  such provision in any
other jurisdiction.

     Assignment;  Other Benefits.  This Agreement will be binding upon and inure
to the benefit of and be enforceable by the parties hereto and their  respective
successors and permitted assigns. Neither party to this Agreement may assign its
rights  under this  Agreement  without  the prior  written  consent of the other
party; provided, however, KSI may assign any of its rights and obligations under
this Agreement to any Affiliate of KSI.

     Governing  Law.  This  Agreement  will be  governed  by, and  construed  in
accordance with, the internal laws of the State of Texas,  without  reference to
or the application of the rules of conflicts of laws set forth in such laws.

     Waiver. No consent or waiver,  express or implied,  by a party hereto to or
of any breach or default by the other party  hereto in the  performance  by such
other party of its  obligations  hereunder  will be deemed or  construed to be a
consent or waiver to or of any other  breach or default  in the  performance  by
such  other  party of the same or any  other  obligations  of such  other  party
hereunder.  Failure on the part of a party to  complain of any act or failure to
act of the other party or to declare the other party in default, irrespective of
how long such failure  continues,  will not constitute a waiver by such party of
its rights hereunder.  The giving of consent by a party in any one instance will
not limit or waive the  necessity to obtain such  party's  consent in any future
instance.

     Terminology.  All personal pronouns used in this Agreement, whether used in
the masculine,  feminine or neuter gender,  will include all other genders;  and
the  singular  will  include  the plural and vice  versa.  The  headings  of the
Articles and Sections of this  Agreement are included for  convenience  only and
will not be  deemed  to  constitute  part of this  Agreement  or to  affect  the
construction hereof or thereof.

     Force Majeure.  Except for the obligation of KSL to make payments hereunder
when due and the indemnification  obligations  arising hereunder,  neither party
shall be liable  for  delays in  performance  or for  non-performance,  directly
occasioned  or  caused by Force  Majeure.  As used in this  Agreement,  the term
"Force  Majeure"  means any event  beyond  the  reasonable  control of the party
claiming to be affected thereby,  including,  without  limitation,  acts of God,
storms,  floods, war, fire, strikes,  lockouts or differences with workers, acts
of the  public  enemy,  insurrections,  riots  or rules  or  regulations  of any
Governmental Authority asserting jurisdiction or control,  compliance with which
makes continuance of operations impossible.  Inability of either party to secure
funds shall not be  regarded  as Force  Majeure.  Upon the  occurrence  of Force
Majeure,  the party affected shall give prompt notice thereof to the other party
and shall,  at its cost and expense,  do all things  commercially  reasonable to
remove or mitigate its effect.

     Counterparts.  This Agreement may be executed in two or more  counterparts,
each of which  will for all  purposes  be deemed an  original,  but all of which
together will constitute one and the same agreement.

     Further Assurances.  Each party hereto agrees to do all acts and things and
to make, execute and deliver such written instruments, as will from time to time
be reasonably required to carry out the terms and provisions of this Agreement.

     IN WITNESS  WHEREOF,  the parties hereto have executed this Agreement as of
the date first set forth in the introduction to this Agreement.


                                       Kaneb Services, Inc.

                                       By:         //s//
                                            William H. Kettler
                                            Vice President


                                       Kaneb Services LLC

                                       By:          //s//
                                             Howard C. Wadsworth
                                             Vice President