Document:

<PAGE>

                                                                    EXHIBIT 10.7

                       THIRD AMENDMENT TO CREDIT AGREEMENT

         THIS THIRD AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as
of February 20, 2003, is executed by and among T-3 ENERGY SERVICES, INC., a
Delaware corporation (the "Borrower"), certain Banks party hereto (the "Banks")
and WELLS FARGO BANK TEXAS, NATIONAL ASSOCIATION, a national banking
association, as agent for itself and the other Banks (the "Agent").

                                    RECITALS:

         A.       The Borrower, the Agent and the Banks are party to that
certain Credit Agreement dated as of December 17, 2001 (as amended, extended,
renewed, or restated from time to time, the "Agreement"), pursuant to which the
Banks have extended credit to the Borrower in the form of a (a) revolving credit
facility to the Borrower not to exceed $41,500,000 outstanding at any time, with
a $2,500,000 sublimit for letters of credit and (b) single advance term loan in
the original principal amount of $16,500,000.

         B.       The Borrower, the Agent and the Banks desire to amend the
Agreement to modify certain covenants and other terms and conditions, and to
de-designate certain Subsidiaries as Guarantors, subject to the terms and
conditions contained herein.

         NOW, THEREFORE, in consideration of the premises herein contained and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows intending to be legally
bound (all provisions of this Amendment being effective as of the date hereof):

                                    ARTICLE I

                                   DEFINITIONS

Section 1.01  Definitions. Capitalized terms used in this Amendment, to the
extent not otherwise defined herein, shall have the same meanings as in the
Agreement, as amended hereby.

                                   ARTICLE II

                                   AMENDMENTS

Section 2.01  Amendment to Section 10.3. Section 10.3(d) of the Agreement is
hereby amended and restated in its entirety as follows:

                  "(d)     any such merger or consolidation of the Borrower or a
         Subsidiary of the Borrower into, with or to any other Person or any
         such purchase or other acquisition by the Borrower or any Subsidiary of
         the Borrower of the assets or stock of any other Person where (i)
         immediately before and immediately after giving effect to such
         transaction, no Default or Event of Default shall have occurred and be
         continuing; (ii) the Borrower and its Subsidiaries, taken as a

<PAGE>

         whole, are in pro forma compliance with all the financial covenants set
         forth in Article XI taking into account such purchase or acquisition;
         (iii) such Person (or its board of directors or similar body) has
         approved such acquisition or other purchase; (iv) taking into account
         and including all such transactions since the Effective Date, (A) the
         aggregate consideration to be paid or Funded Debt incurred (or assumed)
         by the Borrower and its Subsidiaries in connection with any single
         purchase or acquisition is not greater than $10,000,000 and (B) the
         aggregate consideration to be paid or Funded Debt incurred (or assumed)
         by the Borrower and its Subsidiaries in connection with all such
         purchases or acquisitions is not greater than $30,000,000; and (v)
         prior to the consummation of any such purchase or acquisition, the
         Borrower delivers to the Agent evidence satisfactory to the Agent that,
         after giving effect to such purchase or acquisition, the amount
         available to be borrowed pursuant to Section 2.1(a) of this Agreement
         shall be greater than or equal to $5,000,000; and"

Section 2.02  Amendment to Section 11.3.  Section 11.3 of the Agreement is
hereby amended and restated in its entirety, as follows:

                  Section 11.3 Funded Debt to EBITDA Ratio. The Borrower and its
         Subsidiaries will maintain at all times, on a consolidated basis, a
         Funded Debt to EBITDA Ratio of not greater than (a) 3.00 to 1.00 from
         January 1, 2003 through and including June 30, 2003, (b) 2.75 to 1.00
         from July 1, 2003 through and including December 31, 2003, and (c) 2.50
         to 1.00 at all times thereafter. The Funded Debt to EBITDA Ratio shall
         be calculated and tested quarterly as of the last day of each Fiscal
         Quarter for the Calculation Period ending on the last day of such
         Fiscal Quarter.

Section 2.03  Revocation of Designation of Certain Guarantors. The Borrower
has represented to the Agent that the following Subsidiaries (collectively, the
"De-Designated Subsidiaries") are not Material Subsidiaries:

                  (a)      First Texas Credit Corporation;

                  (b)      Losco, Inc.;

                  (c)      Rex Machinery Movers, Inc.;

                  (d)      United Wellhead Services of Louisiana, Inc.;

                  (e)      Wellhead Recycling, Inc.;

                  (f)      ARC Disposition, Inc. (f/k/a American Rivet Company,
                           Inc.);

                  (g)      Philform, Inc.;

                  (h)      OF Acquisition, L.P.;

                  (i)      T-3 Management LP, Inc.;

                  (j)      Cor-Val LP, Inc.;

                  (k)      Preferred Industries LP, Inc.; and

                  (l)      O&M Equipment LP, Inc.

         Therefore, pursuant to Section 4.19(c) of the Agreement, the Borrower
hereby revokes its designation of each of the De-Designated Subsidiaries as a
Guarantor. The Agent and the Required Banks hereby (a) accept such foregoing
revocation, and (b) agree that no mandatory

<PAGE>

prepayment under Section 4.4(a) is due in respect of such revocation. Upon this
Amendment being effective (irrespective of any notice requirement in Section
4.19(c)), (a) each such De-Designated Subsidiary is hereby released from all of
its obligations under any and all Loan Documents in accordance with Section
4.19(c) of the Agreement, and (b) the Agent has delivered (i) all appropriate
lien release documents and Uniform Commercial Code termination statements to
release its Liens on the assets owned and/or leased by the De-Designated
Subsidiaries, (ii) the originals of any applicable Guaranty Agreement executed
by each such De-Designated Subsidiary, (iii) the original stock certificates
described on Exhibit B attached to this Agreement (and the original stock powers
that correspond to such stock certificates), and (iv) such other documents,
releases or other instruments in respect of such revocation as the Borrower may
reasonably request.

Section 2.04 Amendment to Section 10.3(c). Section 10.3(c) of the Agreement is
hereby amended and restated in its entirety as follows:

                  "(c)     any such purchase or other acquisition by the
         Borrower of the assets or stock of any Guarantor or any Subsidiary of
         the Borrower, or by any Guarantor of the assets or stock of any
         Subsidiary of the Borrower;"

Section 2.05  Addition of Section 10.12.  The following language is added to
the Agreement as Section 10.12:

                  Section 10.12 Restrictions on Certain Subsidiaries.
         Notwithstanding any other provision of the Agreement, the Borrower will
         not permit any of T-3 Management LP, Inc., Cor-Val LP, Inc., Preferred
         Industries LP, Inc., or O&M Equipment LP, Inc. to: (i) incur, create or
         assume any Debt, (ii) grant any Liens on its assets, (iii) incur,
         create or assume any liabilities other than liabilities arising by
         operation of law and the costs of maintaining its corporate existence,
         or (iv) engage in any trade or business other than acting as a limited
         partner in the limited partnership in which it currently acts as a
         limited partner.

                                  ARTICLE III

                              Conditions Precedent

Section 3.01  Conditions to Effectiveness of Amendment. This Amendment
shall not be effective until the Agent shall have received each of the documents
or other items described on Exhibit A attached to this Amendment, in form and
substance satisfactory to the Agent and the Agent's counsel.

                                   ARTICLE IV

                  Ratifications, Representations and Warranties

Section 4.01  Ratifications. The terms and provisions set forth in this
Amendment shall modify and supersede all inconsistent terms and provisions set
forth in the Agreement and the other Loan Documents and except as expressly
modified and superseded by this Amendment, the terms and provisions of the
Agreement and the other Loan Documents are ratified and confirmed

<PAGE>

and shall continue in full force and effect. The Borrower, the Agent and the
Banks agree that the Agreement as amended hereby shall continue to be legal,
valid, binding and enforceable in accordance with its terms.

Section 4.02  Representations and Warranties. The Borrower hereby represents and
warrants to the Agent and the Banks that (i) the execution, delivery and
performance of this Amendment and any and all other Loan Documents executed or
delivered in connection herewith have been authorized by all requisite corporate
action on the part of the Borrower and will not violate the certificate of
incorporation, bylaws or other organizational documents of the Borrower, (ii)
the representations and warranties contained in the Agreement, as amended
hereby, and any other Loan Document are true and correct on and as of the date
hereof as though made on and as of the date hereof except for those that relate
solely to a specific date or have changed as a result of transactions permitted
by the Credit Agreement, (iii) after giving effect to this Amendment, no Default
or Event of Default has occurred and is continuing, and (iv) after giving effect
to this Amendment, the Borrower is in full compliance with all covenants and
agreements contained in the Agreement as amended hereby.

                                    ARTICLE V

                                  Miscellaneous

Section 5.01  Survival of Representations and Warranties. All representations
and warranties made in this Amendment or any other Loan Document including any
Loan Document furnished in connection with this Amendment shall survive the
execution and delivery of this Amendment and the other Loan Documents, and no
investigation by the Agent or any Bank shall affect the representations and
warranties or the right of the Agent or any Bank to rely upon them.

Section 5.02  Severability. Any provision of this Amendment held by a court of
competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.

Section 5.03  APPLICABLE LAW. THIS AMENDMENT AND ALL OTHER LOAN DOCUMENTS
EXECUTED PURSUANT HERETO SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE PERFORMABLE
IN HOUSTON, HARRIS COUNTY, TEXAS AND SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.

Section 5.04  Successors and Assigns. This Amendment is binding upon and shall
inure to the benefit of the Agent, the Banks and the Borrower and their
respective successors and assigns, except the Borrower may not assign or
transfer its rights or obligations hereunder without the prior written consent
of the Agent and the Banks.

Section 5.05  Counterparts. This Amendment may be executed in one or more
counterparts, each of which when so executed shall be deemed to be an original,
but all of which when taken together shall constitute one and the same
instrument.

Section 5.06  Effect of Waiver. No consent or waiver, express or implied, by the
Agent or any

<PAGE>

Bank to or for any breach of or deviation from any covenant, condition or duty
by the Borrower shall be deemed a consent or waiver to or of any other breach of
the same or any other covenant, condition or duty.

Section 5.07  Headings. The headings, captions, and arrangements used in this
Amendment are for convenience only and shall not affect the interpretation of
this Amendment.

Section 5.08  ENTIRE AGREEMENT. THIS AMENDMENT, THE AGREEMENT AND THE OTHER LOAN
DOCUMENTS EMBODY THE FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO RELATING
TO THIS AMENDMENT AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS,
REPRESENTATIONS AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THIS
AMENDMENT, AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES
HERETO. THERE ARE NO ORAL AGREEMENTS AMONG THE PARTIES HERETO.

             THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.

<PAGE>

         EXECUTED effective as of the date first written above.

                           BORROWER:

                           T-3 ENERGY SERVICES, INC.

                           By: /s/ STEVEN J. BRADING
                              --------------------------------------------------
                               Steven J. Brading, Vice President

                           AGENTS AND BANKS:

                           WELLS FARGO BANK TEXAS, NATIONAL
                           ASSOCIATION, as Agent and a Bank

                           By: /s/ SCOTT GILDEA
                              --------------------------------------------------
                               Scott Gildea, Assistant Vice President

                           GENERAL ELECTRIC CAPITAL
                           CORPORATION,
                           as Co-Arranger, Syndication Agent and a Bank

                           By: /s/ THOMAS S. BECK
                              --------------------------------------------------
                               Name:  Thomas S. Beck
                               Title: Duly Authorized Signatory

                           COMERICA BANK - TEXAS, as a Bank

                           By: /s/ KENYATTA GIBBS
                              --------------------------------------------------
                               Name:  Kenyatta Gibbs
                               Title: Vice President

                           WHITNEY NATIONAL BANK, as a Bank

                           By: /s/ EDGAR W. SANTA CRUZ III
                              --------------------------------------------------
                               Name:  Edgar W. Santa Cruz III
                               Title: Vice President

<PAGE>

         The undersigned Guarantors hereby consent and agree to this Amendment
and agree that the guaranty agreement respecting the Obligations, as applicable,
to which it is party shall remain in full force and effect and shall continue to
be the legal, valid and binding obligation of the Guarantors enforceable against
the Guarantors in accordance with its terms.

                           Bolt Manufacturing Co., Inc.
                           Control Products of Louisiana, Inc.
                           Cor-Val Holdings, Inc.
                           Landreth Metal Forming, Inc.
                           Moores Pump & Services, Inc.
                           O&M Equipment Holdings, Inc.
                           Preferred Industries Holdings, Inc.
                           The Rex Group, Inc.
                           Total Power Systems, Inc.
                           TPS Total Power Systems, Inc. (f/k/a TPS Coastal
                              Electric, Inc.)
                           T-3 Machine Tools, Inc. (f/k/a Regal Machine Tool,
                              Inc.)
                           T-3 Management Holdings, Inc.
                           WHIR Acquisition, Inc.

                           By: /s/ STEVEN J. BRADING
                              ------------------------------------------------
                               Steven J. Brading, Vice President of each
                               of the foregoing companies

                           A&B Bolt & Supply, Inc.
                           Manifold Valve Services, Inc.
                           LSS-Lone Star-Houston, Inc.
                           Pipeline Valve Specialty, Inc.
                           United Wellhead Services, Inc.

                           By: /s/ STEVEN J. BRADING
                              ------------------------------------------------
                               Steven J. Brading, Vice President

                           T-3 Support Services, Inc.

                           By: /s/ STEVEN J. BRADING
                              ------------------------------------------------
                               Steven J. Brading, Vice President

                           T-3 Financial Services LP, Inc.

                           By: /s/ GILBERT B. WARREN
                              ------------------------------------------------
                               Gilbert B. Warren, President

<PAGE>

                           Cor-Val L.P.

                           By: Cor-Val Holdings, Inc.,
                               its sole general partner

                           By: /s/ STEVEN J. BRADING
                              ------------------------------------------------
                                 Steven J. Brading, Vice President

                           T-3 Management Services, L.P.

                           By: T-3 Management Holdings, Inc.,
                               its sole general partner

                           By: /s/ STEVEN J. BRADING
                              ------------------------------------------------
                                 Steven J. Brading, Vice President

                           Preferred Industries, L.P.

                           By: Preferred Industries Holdings, Inc.,
                               its sole general partner

                           By: /s/ STEVEN J. BRADING
                              ------------------------------------------------
                                 Steven J. Brading, Vice President

                           O&M Equipment, L.P.

                           By: O&M Equipment Holdings, Inc.,
                               its sole general partner

                           By: /s/ STEVEN J. BRADING
                              ------------------------------------------------
                                 Steven J. Brading, Vice President

                           T-3 Financial Services, L.P.

                           By: T-3 Management Holdings, Inc.,
                               its sole general partner

                           By: /s/ STEVEN J. BRADING
                              ------------------------------------------------
                                 Steven J. Brading, Vice President<PAGE>
                                                                   Exhibit 10.16

                         MANAGEMENT STABILITY AGREEMENT

      This Management Stability Agreement is dated November 6, 2002, between
Tesoro Petroleum Corporation, a Delaware corporation (the "Company"), and Thomas
E. Reardon ("Employee").

                                    Recitals:

      WHEREAS, the Board of Directors of the Company has determined that it is
in the best interest of the Company to reduce uncertainty to certain key
employees of the Company in the event of certain fundamental events involving
the control or existence of the Company;

      WHEREAS, the Board of Directors of the Company has determined that an
agreement protecting certain interests of key employees of the Company in the
event of certain fundamental events involving the control or existence of the
Company is in the best interest of the Company because it will assist the
Company in attracting and retaining key employees such as this Employee; and

      WHEREAS, the Employee is relying on this Agreement and the obligations of
the Company hereunder in continuing to work for the Company.

      NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:

      1. Termination Following Change of Control.

      Should Employee at any time within two years of a change of control cease
to be an employee of the Company (or its successor), by reason of (i)
involuntary termination by the Company (or its successor) other than for "cause"
(following a change of control), "cause" shall be limited to the conviction of
or a plea of nolo contendere to the charge of a felony (which, through lapse of
time or otherwise, is not subject to appeal), a material breach of fiduciary
duty to the Company through the misappropriation of Company funds or property)
or (ii) voluntary termination by Employee for "good reason upon change of
control" (as defined below), the Company (or its successor) shall pay to
Employee within ten days of such termination the following severance payments
and benefits:

            (a) A lump-sum payment equal to three times the base salary of the
            Employee at the then current rate; and

            (b) A lump-sum payment equal to (i) three times the sum of the
            target bonuses under all of the Company's incentive bonus plans
            applicable to the Employee for the year in which the termination
            occurs or the year in which the change of control occurred,
            whichever is greater, and (ii) if termination occurs in the fourth
            quarter of a calendar year, the sum of the target bonuses under all
            of the Company's incentive bonus plans applicable to Employee for

                                                                          Page 1
<PAGE>

            the year in which the termination occurs prorated daily based on the
            number of days from the beginning of the calendar year in which the
            termination occurs to and including the date of termination.

The Company (or its successor) shall also provide continuing coverage and
benefits comparable to all life, health and disability plans of the Company for
a period of 36 months from the date of termination, and Employee shall receive
three years additional service credit under the current non-qualified
supplemental pension plans, or successors thereto, of the Company applicable to
the Employee on the date of termination.

                  For purposes of this Agreement, a "change of control" shall be
            deemed to have occurred if (i) there shall be consummated (A) any
            consolidation or merger of the Company in which the Company is not
            the continuing or surviving corporation or pursuant to which shares
            of the Company's Common Stock would be converted into cash,
            securities or other property, other than a merger of the Company
            where a majority of the Board of Directors of the surviving
            corporation are, and for a two year period after the merger continue
            to be, persons who were directors of the Company immediately prior
            to the merger or were elected as directors, or nominated for
            election as directors, by a vote of at least two-thirds of the
            directors then still in office who were directors of the Company
            immediately prior to the merger, or (B) any sale, lease, exchange or
            transfer (in one transaction or a series of related transactions) of
            all or substantially all of the assets of the Company, or (ii) the
            shareholders of the Company shall approve any plan or proposal for
            the liquidation or dissolution of the Company, or (iii) (A) any
            "person" (as such term is used in Sections 13(d) and 14(d)(2) of the
            Securities Exchange Act of 1934, as amended (the "Exchange Act"),
            other than the Company or a subsidiary thereof or any employee
            benefit plan sponsored by the Company or a subsidiary thereof, shall
            become the beneficial owner (within the meaning of Rule 13d-3 under
            the Exchange Act) of securities of the Company representing 20
            percent or more of the combined voting power of the Company's then
            outstanding securities ordinarily (and apart from rights accruing in
            special circumstances) having the right to vote in the election of
            directors, as a result of a tender or exchange offer, open market
            purchases, privately negotiated purchases or otherwise, and (B) at
            any time during a period of one year thereafter, individuals who
            immediately prior to the beginning of such period constituted the
            Board of Directors of the Company shall cease for any reason to
            constitute at least a majority thereof, unless the election or the
            nomination by the Board of Directors for election by the Company's
            shareholders of each new director during such period was approved by
            a vote of at least two-thirds of the

                                                                          Page 2
<PAGE>

            directors then still in office who were directors at the beginning
            of such period.

            For purposes of this Section 1, "good reason upon change of control"
            shall exist if any of the following occurs:

            (i) without Employee's express written consent, the assignment to
            Employee of any duties inconsistent with the employment of Employee
            immediately prior to the change of control, or a significant
            diminution of Employee's positions, duties, responsibilities and
            status with the Company from those immediately prior to a change of
            control or a diminution in Employee's titles or offices as in effect
            immediately prior to a change of control, or any removal of Employee
            from, or any failure to reelect Employee to, any of such positions;

            (ii) a reduction by the Company in Employee's base salary in effect
            immediately prior to a change of control;

            (iii) the failure by the Company to continue in effect any thrift,
            stock ownership, pension, life insurance, health, dental and
            accident or disability plan in which Employee is participating or is
            eligible to participate at the time of the change of control (or
            plans providing Employee with substantially similar benefits),
            except as otherwise required by the terms of such plans as in effect
            at the time of any change of control or the taking of any action by
            the Company which would adversely affect Employee's participation in
            or materially reduce Employee's benefits under any of such plans or
            deprive Employee of any material fringe benefits enjoyed by Employee
            at the time of the change of control or the failure by the Company
            to provide the Employee with the number of paid vacation days to
            which Employee is entitled in accordance with the vacation policies
            of the Company in effect at the time of a change of control;

            (iv) the failure by the Company to continue in effect any incentive
            plan or arrangement (including without limitation, the Company's
            Incentive Compensation Plan and similar incentive compensation
            benefits) in which Employee is participating at the time of a change
            of control (or to substitute and continue other plans or
            arrangements providing the Employee with substantially similar
            benefits), except as otherwise required by the terms of such plans
            as in effect at the time of any change of control;

            (v) the failure by the Company to continue in effect any plan or
            arrangement with respect to securities of the Company (including,
            without limitation, any plan or arrangement to receive and exercise

                                                                          Page 3
<PAGE>

            stock options, stock appreciation rights, restricted stock or grants
            thereof or to acquire stock or other securities of the Company) in
            which Employee is participating at the time of a change of control
            (or to substitute and continue plans or arrangements providing the
            Employee with substantially similar benefits), except as otherwise
            required by the terms of such plans as in effect at the time of any
            change of control or the taking of any action by the Company which
            would adversely affect Employee's participation in or materially
            reduce Employee's benefits under any such plan;

            (vi) the relocation of the Company's principal executive offices to
            a location outside the San Antonio, Texas, area, or the Company's
            requiring Employee to be based anywhere other than at the location
            of the Company's principal executive offices, except for required
            travel on the Company's business to an extent substantially
            consistent with Employee's present business travel obligations, or,
            in the event Employee consents to any such relocation of the
            Company's principal executive or divisional offices, the failure by
            the Company to pay (or reimburse Employee for) all reasonable moving
            expenses incurred by Employee relating to a change of Employee's
            principal residence in connection with such relocation and to
            indemnify Employee against any loss (defined as the difference
            between the actual sale price of such residence and the higher of
            (a) Employee's aggregate investment in such residence or (b) the
            fair market value thereof as determined by a real estate appraiser
            reasonably satisfactory to both Employee and the Company at the time
            the Employee's principal residence is offered for sale in connection
            with any such change of residence;

            (vii) any failure by the Company to obtain the assumption of this
            Agreement by any successor or assign of the Company;

      In the event of a change of control as "change of control" is defined in
any stock option plan or stock option agreement pursuant to which the Employee
holds options to purchase common stock of the Company, Employee shall retain the
rights to all accelerated vesting and other benefits under the terms thereof.

      The Company shall pay any attorney fees incurred by Employee in reasonably
seeking to enforce the terms of this Paragraph 1.

      2. Complete Agreement.

      This Agreement constitutes the entire agreement between the parties and
cancels and supersedes all other agreements between the parties which may have
related to the subject matter contained in this Agreement.

                                                                          Page 4
<PAGE>

      3. Modification; Amendment; Waiver.

      No modification, amendment or waiver of any provisions of this Agreement
shall be effective unless approved in writing by both parties. The failure at
any time to enforce any of the provisions of this Agreement shall in no way be
construed as a waiver of such provisions and shall not affect the right of
either party thereafter to enforce each and every provision hereof in accordance
with its terms.

      4. Governing Law; Jurisdiction.

      This Agreement and performance under it, and all proceedings that may
ensue from its breach, shall be construed in accordance with and under the laws
of the State of Texas.

      5. Severability.

      Whenever possible, each provision of this Agreement shall be interpreted
in such manner as to be effective and valid under applicable law, but if any
provision of this Agreement shall be held to be prohibited by or invalid under
applicable law, such provision shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement.

      6. Assignment.

      The rights and obligations of the parties under this Agreement shall be
binding upon and inure to the benefit of their respective successors, assigns,
executors, administrators and heirs, provided, however, that the Company may not
assign any duties under this Agreement without the prior written consent of the
Employee.

      7. Limitation.

      This Agreement shall not confer any right or impose any obligation on the
Company to continue the employment of Employee in any capacity, or limit the
right of the Company or Employee to terminate Employee's employment.

      8. Notices.

      All notices and other communications under this Agreement shall be in
writing and shall be given in person or by telegraph, facsimile or first class
mail, certified or registered with return receipt requested, and shall be deemed
to have been duly given when delivered personally or three days after mailing or
one day after transmission of a telegram or facsimile, as the case may be, to
the representative persons named below:

                                                                          Page 5
<PAGE>

      If to the Company:          Corporate Secretary
                                  Tesoro Petroleum Corporation
                                  300 Concord Plaza Drive
                                  San Antonio, Texas 78216-6999

      If to the Employee:         Thomas E. Reardon
                                  122 Canyon Circle
                                  Boerne, Texas 78015-8300

      IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.

                          COMPANY:         TESORO PETROLEUM CORPORATION

                                           By /s/ BRUCE A. SMITH
                                           -------------------------------------
                                           Bruce A. Smith
                                           Chairman of the Board of Directors,
                                           President and Chief Executive Officer

                          EMPLOYEE:        /s/ THOMAS E. REARDON
                                           -------------------------------------
                                           Thomas E. Reardon

                                                                          Page 6

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