Document:

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                                                                    EXHIBIT 10.1

                              FIRST AMENDMENT TO
                          REVOLVING CREDIT AGREEMENT
                          --------------------------

     THIS FIRST AMENDMENT TO REVOLVING CREDIT AGREEMENT (the "Amendment") is
made and entered into as of the 20th day of June, 2000 (the "Effective Date"),
by and among CROSS TIMBERS OIL COMPANY, a Delaware corporation ("Company"), the
Banks that are signatories hereto (collectively, the "Banks"), MORGAN GUARANTY
TRUST COMPANY OF NEW YORK, as Administrative Agent for Banks, BANK OF AMERICA,
N.A., as Syndication Agent for Banks, CHASE BANK OF TEXAS, N.A., as
Documentation Agent for Banks, and FLEET NATIONAL BANK, as Co-Documentation
Agent for Banks.

                             W I T N E S S E T H:
                             -------------------

     WHEREAS, Company, Morgan Guaranty Trust Company of New York, as
Administrative Agent for Banks, Bank of America N.A., as Syndication Agent for
Banks, Chase Bank of Texas, N.A., as Documentation Agent for Banks, Fleet
National Bank, as Co-Documentation Agent for Banks and Banks have entered into
that certain Revolving Credit Agreement dated as of May 12, 2000 (as amended
hereby and as amended from time to time hereafter, the "Loan Agreement").

     WHEREAS, the parties hereto desire to amend the Loan Agreement as set forth
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, intending to be legally bound, agree as follows:

                                   ARTICLE I
                          Definitions and References
                          --------------------------

     1.01      Unless otherwise specifically defined herein, each term used
herein which is defined in the Loan Agreement as in effect immediately prior to
the Effective Date shall have the meaning assigned to such term in the Loan
Agreement as so in effect. Each reference to "hereof," "hereunder," "herein" and
"hereby" and each other similar reference and each reference to "this Loan
Agreement" and each other similar reference contained in the Loan Agreement
shall from and after the Effective Date refer to the Loan Agreement as amended
hereby.

                                  ARTICLE II
                                  Amendments
                                  ----------

     2.01.     Amendments to Article I; Additional Defined Terms. Effective as
               -------------------------------------------------
of the Effective Date, Article I of the Loan Agreement is amended by including
the following defined terms:

     ""Cash Collateral":  Section 2.05(c)(iii)."
       ---------------
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     ""Issuing Bank" shall mean either Agent which in its sole discretion agrees
       ------------
to be and is designated by Company to issue one or more Letters of Credit in its
capacity as an issuer of Letters of Credit hereunder, and its successors and
assigns in such capacity."

     ""LC Application" shall mean any application for a Letter of Credit
       --------------
hereafter made by Company to an Issuing Bank in form and substance that is
customary to such Issuing Bank's letter of credit applications."

     ""LC Conditions":  Section 2.05(a)."
       -------------

     ""LC Obligations" shall mean, at the particular time in question, the sum
       --------------
of the Matured LC Obligations plus the aggregate amounts which any Issuing Bank
or Bank might be called upon to advance under all then outstanding Letters of
Credit."

     ""Letter of Credit" means any letter of credit issued by an Issuing Bank
       ----------------
upon the application of Company.  Each Letter of Credit shall be classified by
Issuing Bank as a "Commercial" Letter of Credit or a "Standby" Letter of Credit,
in accordance with the laws and regulations applicable to Issuing Bank from time
to time and in accordance with Issuing Bank's customary practices at such times
for reporting to regulatory authorities.  Each Letter of Credit shall be issued
for the account or benefit of Company or any Subsidiary that has guarantied the
Obligation.  Notwithstanding the foregoing, neither any letter of credit issued
according to sub-clause (xi) of Section 9.01 hereof nor the letters of credit
referred to in sub-clause (i) of Section 9.14 hereof shall be deemed a Letter of
Credit as defined herein."

     ""Matured LC Obligations" shall mean all amounts paid by Issuing Bank or
       ----------------------
any Bank on drafts or demands for payment drawn or made under any Letter of
Credit (or under or in connection with any LC Application) which have not been
repaid to the Issuing Bank or Bank (with proceeds of an Advance or otherwise)."

     2.02.  Amendment to Article I; Amendment to Certain Defined Terms.
            ----------------------------------------------------------

            A.   Effective as of the Effective Date, the defined term "Interest
     Period" as it appears in Article I of the Agreement is amended by inserting
     the phrase "one week or" preceding the phrase "one, two, three or six
     months thereafter" in the ninth line of such definition.

            B.   Effective as of the Effective Date, the defined term "Loan
     Papers" as it appears in Article I of the Loan Agreement is amended by
     inserting the phrase ", each Letter of Credit and each LC Application,"
     after the phrase "the Collateral Documents" in the second line of such
     definition.

            C.   Effective as of the Effective Date, the defined term
     "Obligation" as it appears in Article I of the Loan Agreement is amended by
     (a) inserting the phrase "or any Letter of Credit or LC Application and the
     LC Obligations" after the phrase "represented by the Notes" in the third
     line of such definition and (b) inserting the phrase "; and together with
     all indebtedness, obligations and liabilities of Company arising under the

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     Guaranty of Company referred to in sub-clause (i) of Section 9.14 hereof."
     at the conclusion of such definition.

            D.    Effective as of the Effective Date, in the definition of
     "Total Outstandings" as it appears in Article I of the Loan Agreement is
     deleted and the following is substituted therefor:

            ""Total Outstandings" shall mean, at any date, the aggregate of (i)
              ------------------
            the principal amount of, and accrued interest which is overdue and
            unpaid in respect of the Loan, (ii) the unfunded portion of Letters
            of Credit outstanding at such time and (iii) the amount of the
            unpaid Matured LC Obligations at such time, but excluding the face
            amount of any unfunded Letter of Credit that Company has designated
            to the Issuing Bank as being issued pursuant to Section 9.01(xi)
            hereof."

     2.03.  Inclusion of Section 2.05 for Letter of Credit Facility.  Effective
            -------------------------------------------------------
as of the Effective Date, Article 2 of the Loan Agreement is amended by
including the following Section 2.05 at the conclusion of Article 2:

     "Section 2.05  Letters of Credit.
                    -----------------

     (a)    Issuing Letters of Credit. Subject to the terms and conditions
            -------------------------
     hereof, Company may request Issuing Bank to issue one or more Letters of
     Credit for the benefit or account of Company and any Subsidiary that has
     guarantied the Obligation, provided that, after taking such Letter of
     Credit into account:

            (i)   the Total Outstandings do not exceed the Commitment then in
                  effect;

            (ii)  the expiration date of such Letter of Credit shall be no later
                  than one (1) year following the date of issuance of such
                  Letter of Credit, but in no event shall the expiration date of
                  such Letter of Credit be on or after the Maturity Date;

            (iii) such Letter of Credit is to be used for general corporate
                  purposes of Company or any of its Subsidiaries, but only to
                  the extent that the use of such Letter of Credit would be
                  permitted under the terms of this Loan Agreement if the use of
                  such Letter of Credit was deemed to be the use of proceeds of
                  the Loan;

            (iv)  the terms of such Letter of Credit are acceptable to Issuing
                  Bank in the reasonable exercise of its discretion;

            (v)   the face amount of such Letter of Credit shall be $100,000
                  or any integral multiple of $100,000;

            (vi)  a Borrowing Base Deficiency does not exist; and

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            (viii)  all other conditions in this Loan Agreement to the issuance
                    of such Letter of Credit have been satisfied.

     Issuing Bank will honor any such request if the foregoing conditions (i)
     through (viii) (herein called the "LC Conditions") have been met as of the
     date of issuance of such Letter of Credit.  Nothing herein shall be
     interpreted or deemed to obligate any Bank, other than either Agent, to
     issue any Letter of Credit hereunder, and the obligation of either Agent to
     act as Issuing Bank is subject to paragraphs (i) through (viii) of this
     Section 2.05(a) and to satisfaction of the conditions set forth in Section
     7.02 hereof.

     (b)  Requesting Letters of Credit.  Company must make written application
          ----------------------------
     pursuant to an LC Application for any Letter of Credit at least three (3)
     Business Days before the date on which Issuing Bank is requested to issue
     such Letter of Credit.  By making any such written application Company
     shall be deemed to have represented and warranted that the LC Conditions
     and the conditions precedent set forth in Section 7.02 will be met as of
     the date of issuance of such Letter of Credit.  Each such LC Application
     must be made in such form as may mutually be agreed upon by Issuing Bank
     and Company.  No more than two (2) Business Days after the LC Conditions
     for a Letter of Credit have been met as described in Section 2.05(a),
     Issuing Bank will issue such Letter of Credit at Issuing Bank's office or
     at such office of Issuing Bank of which Issuing Bank shall give Company
     written notice.  In the event of a conflict between any provision contained
     in this Loan Agreement and any provision contained in any LC Application,
     the provision contained in this Loan Agreement shall control.

     (c)  Reimbursement of Letters of Credit.
          ----------------------------------

          (i)  Reimbursement by Company.  Each payment of a draft or demand for
               ------------------------
               payment honored by Issuing Bank under a Letter of Credit shall
               constitute a loan to Company and part of the Obligation.
               Promptly upon receipt of written notice of Issuing Bank's
               honoring of a Letter of Credit, Company promises to pay to
               Issuing Bank, or to Issuing Bank's order at such office of which
               Issuing Bank shall give Company written notice, on demand, in
               Dollars, any and all amounts paid by Issuing Bank under any
               Letter of Credit, together with interest on any such amounts from
               the date payment is made by Issuing Bank under such Letter of
               Credit until but not including the date of the repayment of such
               amounts to Issuing Bank, at the Floating Base Rate; provided that
               if any such payment or reimbursement shall be reimbursed to
               Issuing Bank on the date Issuing Bank makes such payment or
               disbursement, interest shall be payable on the reimbursable
               amount at such rate for one (1) day.  In the event that Company
               fails to pay when due any Matured LC Obligation owed by it to
               Issuing Bank, Administrative Agent may, at its option, and
               without any notice or further authorization from Company, make,
               pro rata on behalf of Banks, a Floating Base Advance under this
               Loan Agreement in the amount of such unpaid Matured LC Obligation
               (whether or not such amount is less than the minimum Floating
               Base Advance or would result in the Total

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               Outstandings being greater than the Commitment), and apply the
               proceeds of such Floating Base Advance to the payment of such
               Matured LC Obligation. Company hereby expressly requests and
               irrevocably authorizes Administrative Agent to do all of the
               foregoing. The Floating Base Advances used to refinance Matured
               LC Obligations shall bear interest as provided in this Loan
               Agreement. Company hereby promises to pay, when and as due, all
               present and future levies, costs and charges whatsoever imposed,
               assessed, levied or collected on, under or in respect of this
               Loan Agreement with respect to any Letter of Credit and any
               payments of principal, interest or other amounts made on or in
               respect of any thereof. Company promises to indemnify Issuing
               Bank against, and to reimburse Issuing Bank on demand for, any of
               the foregoing levies, costs or charges paid by Issuing Bank and
               any loss, liability, claim or expense, including interest,
               penalties and legal fees, that Issuing Bank may incur because of
               or in connection with the failure of Company to make any such
               payment of levies, costs or charges when and as due or any
               payment of Matured LC Obligations when and as due.

               Company's obligation to reimburse Issuing Bank under this Section
               2.05(c) for payments and disbursements made by Issuing Bank under
               any Letter of Credit issued pursuant to this Section shall be
               absolute and unconditional under any and all circumstances and
               irrespective of any setoff, counterclaim or defense to payment
               which Company may have or have had against Issuing Bank or any
               Bank, including, without limitation, any defense based on the
               failure of such demand for payment under such Letter of Credit to
               conform to the terms of such Letter of Credit or the legality,
               validity, regularity or enforceability of such Letter of Credit.
               As among Company on the one hand, and each Issuing Bank and each
               Bank, on the other hand, Company assumes all risks of the acts
               and omissions of, or misuse of Letters of Credit by the
               beneficiary of such Letters of Credit. In furtherance and not in
               limitation of the foregoing, no Agent, Issuing Bank nor any Bank
               shall be responsible for:

               (A)       the form, validity, sufficiency, accuracy, genuineness
                         or legal effect of any document submitted by any Person
                         in connection with the application for and issuance of
                         and presentation of drafts with respect to any Letter
                         of Credit, even if it should prove to be in any or all
                         respects invalid, insufficient, inaccurate, fraudulent
                         or forged, excepting, however, errors or omissions
                         found by a final and nonappealable decision of a court
                         of competent jurisdiction to have resulted from the
                         gross negligence or willful misconduct of the Issuing
                         Bank;

               (B)       the validity or sufficiency of any instrument
                         transferring or assigning or purporting to transfer or
                         assign the Letter of Credit or the rights or benefits
                         thereunder or proceeds thereof, in whole or in part,
                         which may prove to be invalid or ineffective for any
                         reason;

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               (C)       the failure of the beneficiary of the Letter of Credit
                         to comply duly with conditions required in order to
                         draw upon such Letter of Credit;

               (D)       errors, omissions, interruptions or delays in
                         transmission or delivery of any messages, by mail,
                         cable, telegraph, telex or otherwise, whether or not
                         they be in cipher;

               (E)       errors in interpretation of technical terms;

               (F)       any loss or delay in the transmission or otherwise of
                         any document required in order to make a drawing under
                         any Letter of Credit or of e proceeds thereof;

               (G)       the misapplication by the beneficiary of the Letter of
                         Credit of the proceeds of any drawing under such Letter
                         of Credit; or

               (H)       any consequences arising from causes beyond the control
                         of either Agent, Issuing Bank or any Bank,

     (ii)      Reimbursement by Banks.  Issuing Bank irrevocably agrees to grant
               ----------------------
               and hereby grants to each Bank, and, each Bank irrevocably agrees
               to accept and purchase and hereby accepts and purchases from
               Issuing Bank, on the terms and conditions hereinafter stated, for
               such Bank's own account and risk an undivided interest equal to
               such Bank's Percentage of Issuing Bank's obligations and rights
               under each Letter of Credit issued hereunder and the amount of
               each draft paid by Issuing Bank thereunder. In the event that
               Company should fail to pay Issuing Bank on demand the amount of
               any draft or other request for payment drawn under a Letter of
               Credit as provided in Section 2.05(c)(i), each Bank shall, before
               2:00 p.m., Fort Worth, Texas time, on the Business Day Issuing
               Bank shall have given notice to Banks of Company's failure to so
               pay Issuing Bank, pay to Issuing Bank at Issuing Bank's offices,
               or at such other office of which Issuing Bank shall have given
               Banks written notice, in Dollars and in same day funds, such
               Bank's Percentage of the amount of such draft or other request
               for payment from Company plus interest on such amount from the
               date Issuing Bank shall have paid such draft or request for
               payment to the date of such payment by such Bank at the Federal
               Funds Rate. Each Bank's obligation to reimburse Issuing Bank
               pursuant to the terms of this Section is irrevocable and
               unconditional. Whenever, at any time after Issuing Bank has made
               payment under any Letter of Credit, and has received from any
               Bank its Percentage of such payment in accordance with this
               subsection, Issuing Bank receives any payment related to such
               Letter of Credit (whether directly from Company or otherwise,
               including proceeds of collateral applied thereto by Issuing
               Bank), or any payment of interest on account thereof, Issuing
               Bank will distribute to such Bank its

                                       6
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               Percentage thereof; provided, however, that in the event that any
               such payment received by Issuing Bank shall be required to be
               returned by Issuing Bank, such Bank shall return to Issuing Bank
               the portion thereof previously distributed by Issuing Bank to it.
               Each Bank shall indemnify and hold Issuing Bank harmless from and
               against any and all losses, liabilities (including, without
               limitation, liabilities for penalties), actions, suits,
               judgments, demands, damages, costs and expenses (including,
               without limitation, attorneys' fees and expenses) resulting from
               any failure on the part of such Bank to provide, or from any
               delay in providing, in accordance with this paragraph to Issuing
               Bank such Bank's Percentage of the amount of any payment or
               disbursement made by Issuing Bank to settle its obligations under
               any draft drawn under any Letter of Credit.

     (iii)     Cash Collateral Upon Event of Default. Upon the occurrence of an
               -------------------------------------
               Event of Default, an amount equal to the amount of the aggregate
               contingent liability of Issuing Bank and Banks in connection with
               each Letter of Credit then in effect shall be deemed (as between
               Banks and Company) to have been paid or disbursed by Issuing Bank
               and Banks under such Letter of Credit (notwithstanding that such
               amount may not in fact have been so paid or disbursed), and
               Company shall be immediately obligated to pay to Administrative
               Agent for the pro rata benefit of Banks in accordance with their
               respective Percentage, the amount so deemed to have been so paid
               or disbursed, which payment shall be made by depositing Cash
               Collateral with Administrative Agent in accordance with the
               provisions of this Section 2.05(c)(iv).

     (iv)      Procedures for Depositing and Returning of Cash Collateral.  Any
               ----------------------------------------------------------
               cash collateral amounts received by Administrative Agent pursuant
               to the provisions of Section 2.05(c)(iii) (the "Cash Collateral")
               shall be deposited in a separate interest bearing cash collateral
               account maintained at the offices of Administrative Agent or
               another Bank designated by Administrative Agent under the sole
               dominion and control of Administrative Agent and shall be
               retained by Administrative Agent for the pro rata benefit of
               Banks in accordance with their Percentage of the Loan and LC
               Obligations as collateral security for, and Company hereby grants
               to Administrative Agent for the benefit of the Banks a security
               interest in such Cash Collateral including all interest accruing
               thereon and the proceeds thereof to secure, first the payment of
               the Obligation of Company under or in connection with its Letters
               of Credit, and then the remaining Obligation of Company under and
               in connection with this Loan Agreement and the other Loan Papers,
               pro rata to each Bank in accordance with its Percentage of the
               Loan and all LC Obligations.  All Cash Collateral delivered to
               Administrative Agent may be applied by Administrative Agent from
               time to time against any of Company's reimbursement obligations
               with respect to any Letter of Credit as to which a draw is made.
               If and to the extent that the Event of Default giving rise to

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               the demand for Cash Collateral has been cured to the reasonable
               satisfaction of Agents or (a) the Obligation has been fully paid
               and satisfied and (b) no Letters of Credit remain outstanding,
               Administrative Agent shall promptly return to Company, upon
               Company's request therefor, all amounts previously paid to
               Administrative Agent pursuant to this Section 2.05(c)(iv) and not
               theretofore returned by Administrative Agent to Company or
               applied by Administrative Agent to reduce amounts payable by
               Company to Banks under or with respect to the Letters of Credit
               or other amounts due to Banks or Agents hereunder or under the
               other Loan Papers.

     (d)  Letter of Credit Fees.  In consideration of Issuing Bank's issuance of
          ---------------------
any Letter of Credit and each other Bank's agreement to purchase a risk
participation therein, Company agrees to pay to Administrative Agent:

          (a)  a letter of credit fronting fee for the account of the Issuing
               Bank with respect to such Letter of Credit upon issuance of each
               Letter of Credit in an amount equal to the greater of (i) $1,250
               or (ii) one-eighth of one percent (1/8 of 1%) per annum
               calculated on the face amount thereof; and

          (b)  a letter of credit fee for the account of Banks, to be
               distributed to Banks ratably in accordance with their Percentage,
               calculated on the face amount of each Letter of Credit in the
               amount of the Applicable Margin for a Eurodollar Borrowing,
               payable quarterly in arrears and at the expiration or termination
               of each Letter of Credit."

     2.04.  Amendment to Section 3.07.  Effective as of the Effective Date,
            -------------------------
Section 3.07 of the Loan Agreement is amended by inserting the phrase "and the
Obligation" after the phrase "The Loan" in the first line of such Section.

     2.05.  Amendment to Section 7.02.  Effective as of the Effective Date,
            -------------------------
Section 7.02 of the Loan Agreement is amended by (a) inserting the phrase "and
the obligation of the Issuing Bank to issue any Letter of Credit" after the
phrase "(including the Initial Advance)" in the second line of such Section, (b)
deleting the phrase "making such Advance" wherever such phrase appears in
Section 7.02(a), (c) and (d) of the Loan Agreement and substituting the phrase
"making such Advance or issuing such Letter of Credit" is therefor and (c)
deleting the phrase "date of such Advance" as it appears in Section 7.02(b) of
the Loan Agreement and substituting the phrase "date of such Advance or issuance
of such Letter of Credit" therefor.

     2.06.  Amendment to Section 9.01.  Effective as of the Effective Date, sub-
            --------------------------
clause (xi) of Section 9.01 of the Loan Agreement is amended by inserting the
phrase "Indebtedness arising under the letters of credit referred to in sub-
clause (i) of Section 9.14 hereof and" at the beginning of such sub-clause.

     2.07.  Amendment to Section 10.01(a).  Effective as of the Effective Date,
            -----------------------------
Section 10.01(a) is amended by inserting the phrase "or Company shall fail to
pay within one (1)

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Business Day after receipt of notice from an Issuing Bank any reimbursement
obligation with respect to any Letter of Credit" at the conclusion of such
Section.

     2.08.  Amendment to Section 13.04(b).  Effective as of the Effective Date,
            -----------------------------
Section 13.04(b) is amended by inserting the phrase "OR ISSUANCE OF LETTERS OF
CREDIT" after the phrase "PROCEEDS OF LOANS" in the eleventh line of such
Section.

     2.09.  Amendment to Sections 13.10.  Effective as of the Effective Date,
            ---------------------------
Section 13.10 of the Loan Agreement is amended by inserting the phrase "and
repayment of Company's obligations for reimbursement of Matured LC Obligations"
after the phrase "repayment of the Notes" in the second line of such Section.

     2.10.  Amendment to Section 13.15(b).  Effective as of the Effective Date,
            -----------------------------
Section 13.15(b) is amended by inserting the phrase "or LC Obligations" at the
end of the first sentence of such Section.

                                  ARTICLE III
                              Condition Precedent
                              -------------------

     3.01.  Counterparts; Conditions to Effectiveness.  This instrument shall
            -----------------------------------------
become effective (and the Loan Agreement shall be amended with the amendments
referred to herein) as of the Effective Date when Administrative Agent shall
have received a duly executed counterpart hereof signed by Company and Majority
Banks (or, in the case of any Bank included within Majority Banks as to which an
executed counterpart shall not have been received, Administrative Agent shall
have received telegraphic, telex or other written confirmation from such party
of execution of a counterpart hereof by such Bank).

                                  ARTICLE IV
                 Ratifications, Representations and Warranties
                 ---------------------------------------------

     4.01.  Ratifications.  The terms and provisions set forth herein shall
            -------------
modify and supersede all inconsistent terms and provisions set forth in the Loan
Agreement immediately before giving effect hereto and the other Loan Papers,
and, except as expressly modified, amended, and superseded herein, the terms and
provisions of the Loan Agreement and the other Loan Papers are ratified and
confirmed and shall continue in full force and effect. Company and Banks agree
that the Loan Agreement, as amended hereby, and the other Loan Papers shall
continue to be legal, valid, binding and enforceable in accordance with their
respective terms.

     4.02.  Representations, Warranties and Agreements.  Company hereby
            ------------------------------------------
represents and warrants to Banks that (a) the execution, delivery and
performance of the Loan Agreement as amended hereby has been authorized by all
requisite corporate action on the part of Company and will not violate the
Articles/Certificate of Incorporation or Bylaws of Company; (b) the
representations and warranties contained in the Loan Agreement, as amended
hereby, and any other Loan Papers are true and correct on and as of the date
hereof and on and as of the date of execution hereof as though made on and as of
each such date; (c) no Default or Event of Default

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under the Loan Agreement, as amended hereby, has occurred and is continuing; and
(d) Company is in full compliance with all covenants and agreements contained in
the Loan Agreement and the other Loan Papers, as amended hereby.

                                   ARTICLE V
                          Ratifications by Guarantors
                          ---------------------------

     5.01.  Ratification by Guarantors.  Arkoma Holding, CT Operating, CT
            --------------------------
Trading and the Gas Marketing Subsidiaries (collectively, the "Guarantors")
hereby acknowledge and agree to the terms hereof and hereby ratify and reaffirm
all of their respective obligations under their unconditional guaranties of the
Loan and Obligation (the "Guaranties").  Guarantors also hereby agree that
nothing in this Amendment shall adversely affect any right or remedy of Banks
under the Guaranties and that the execution and delivery of this Amendment shall
in no way change or modify their respective obligations as guarantor under the
Guaranties.  Although the Guarantors have been informed by Company of the
matters set forth in this Amendment and the Guarantors have acknowledged and
agreed to the same, the Guarantors understand that Banks have no duty to notify
Guarantors or to seek Guarantors' acknowledgment or agreement, and nothing
contained herein shall create such a duty as to any transaction hereafter.

                                  ARTICLE VI
                           Miscellaneous Provisions
                           ------------------------

     6.01.  Reference to Loan Agreement.  The other Loan Papers, and any and all
            ---------------------------
other agreements, documents or instruments now or hereafter executed and
delivered pursuant to the terms hereof or pursuant to the terms of the Loan
Agreement, as amended hereby, are hereby amended so that any reference in the
Loan Agreement and such other Loan Papers to the Loan Agreement shall mean a
reference to the Loan Agreement as amended hereby.

     6.02.  Expenses of Agents.  As provided in the Loan Agreement, Company
            ------------------
agrees to pay on demand all reasonable costs and expenses incurred by Agents in
connection with the preparation, negotiation and execution of this Amendment,
including, without limitation, the costs and fees of Agent's legal counsel, and
all reasonable costs and expenses incurred by Banks in connection with the
enforcement or preservation of any rights under the Loan Agreement, as amended
hereby, or any other Loan Papers, including, without, limitation, the reasonable
costs and fees of Agents' legal counsel.  Company shall not be responsible for
the cost or expense of legal counsel of any other Bank in connection with the
preparation, execution and delivery of this Amendment.

     6.03.  Counterparts.  This instrument 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.

     6.04.  Headings.  The headings, captions, and arrangements used herein are
            --------
for convenience only and shall not affect the interpretation of this instrument.

                                       10
<PAGE>

     6.05.  Applicable Law.  THE LOAN AGREEMENT AS AMENDED HEREBY AND ALL OTHER
            --------------
LOAN PAPERS EXECUTED PURSUANT HERETO SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE
PERFORMABLE IN AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF TEXAS UNLESS THE LAWS GOVERNING NATIONAL BANKS SHALL HAVE
APPLICATION.

     6.06.  Final Agreement.  THE LOAN AGREEMENT AS AMENDED HEREBY AND THE OTHER
            ---------------
LOAN PAPERS, EACH AS AMENDED HEREBY, REPRESENT THE ENTIRE EXPRESSION OF THE
PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF ON THE EFFECTIVE DATE THIS
AMENDMENT IS EXECUTED.  THE LOAN AGREEMENT AS AMENDED HEREBY AND THE OTHER LOAN
PAPERS, AS AMENDED HEREBY, 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.  NO MODIFICATION, RESCISSION,
WAIVER, RELEASE OR AMENDMENT OF ANY PROVISION OF THE LOAN AGREEMENT OR THE OTHER
LOANS PAPERS SHALL BE MADE, EXCEPT BY A WRITTEN AGREEMENT SIGNED BY COMPANY AND
EITHER BANKS OR MAJORITY BANKS, AS PROVIDED IN THE LOAN AGREEMENT.

     IN WITNESS WHEREOF, this Amendment has been executed in multiple originals
and is effective as of the date first above-written.

                          [SIGNATURE PAGES TO FOLLOW]

                                       11
<PAGE>

                              COMPANY:
                              -------

                              CROSS TIMBERS OIL COMPANY,
                              a Delaware corporation

                              By:    JOHN O'REAR
                                     -----------------------------------------
                                     John O'Rear, Vice President and Treasurer

                              GUARANTORS:
                              ----------

                              ARKOMA HOLDING LLC,
                              a Texas limited liability company

                              By:    JOHN O'REAR
                                     -----------------------------------------
                                     John O'Rear, Vice President and Treasurer

                              CROSS TIMBERS OPERATING COMPANY,
                              a Texas corporation

                              By:    JOHN O'REAR
                                     -----------------------------------------
                                     John O'Rear, Vice President and Treasurer

                              CROSS TIMBERS TRADING COMPANY,
                              a Texas corporation

                              By:    JOHN O'REAR
                                     -----------------------------------------
                                     John O'Rear, Vice President and Treasurer

                              RINGWOOD GATHERING COMPANY,
                              a Delaware corporation

                              By:    LOUIS G. BALDWIN
                                     -----------------------------------------
                                     Louis G. Baldwin, Vice President
                                     and Treasurer

                              CROSS TIMBERS ENERGY SERVICES, INC., a Texas
                              corporation,

                              By:    LOUIS G. BALDWIN
                                     -----------------------------------------
                                     Louis G. Baldwin, Vice President
                                     and Treasurer

                              TIMBERLAND GATHERING & PROCESSING COMPANY, INC., a
                              Texas corporation

                              By:    LOUIS G. BALDWIN
                                     -----------------------------------------
                                     Louis G. Baldwin, Vice President
                                     and Treasurer

                                       12
<PAGE>

                              BANKS:
                              -----

                              MORGAN GUARANTY TRUST COMPANY
                                OF NEW YORK

                              By:    JOHN G. KOWALCZUK
                                     -----------------------------------------
                                     John G. Kowalczuk, Vice President

                              BANK OF AMERICA, N.A.

                              By:    J. SCOTT FOWLER
                                     -----------------------------------------
                                     J. Scott Fowler, Managing Director

                              CHASE BANK OF TEXAS, N.A.

                              By:    ROBERT C. MERTENSOTTO
                                     -----------------------------------------
                                     Robert C. Mertensotto, Managing Director

                              FLEET NATIONAL BANK

                              By:    THOMAS E. O'LEARY
                                     -----------------------------------------
                              Name:  Thomas E. O'Leary
                                     -----------------------------------------
                              Title: Division Executive
                                     -----------------------------------------

                              ABN-AMRO BANK N.V., HOUSTON AGENCY
                              By:   ABN-AMRO NORTH AMERICA, INC.

                              By:    JAMIE A. CONN
                                     -----------------------------------------
                              Name:  Jamie A. Conn
                                     -----------------------------------------
                              Title: Vice President
                                     -----------------------------------------

                              By:    MATT MCCAIN
                                     -----------------------------------------
                              Name:  Matt McCain
                                     -----------------------------------------
                              Title: Assistant Vice President
                                     -----------------------------------------

                              BANK ONE, TEXAS, N.A.

                              By:    W.M. CRANMER
                                     -----------------------------------------
                                     W.M. (Mark) Cranmer, Vice President

                                       13
<PAGE>

                              BNP PARIBAS
                              (successor by merger to Paribas)

                              By:    BARTON D. SCHOUEST
                                     -----------------------------------------
                              Name:  Barton D. Schouest
                                     -----------------------------------------
                              Title: Managing Director
                                     -----------------------------------------

                              By:    A. DAVID DODD
                                     -----------------------------------------
                              Name:  A. David Dodd
                                     -----------------------------------------
                              Title: Vice President
                                     -----------------------------------------

                              FIRST UNION NATIONAL BANK

                              By:    PAUL N. RIDDLE
                                     -----------------------------------------
                              Name:  Paul N. Riddle
                                     -----------------------------------------
                              Title: Senior Vice President
                                     -----------------------------------------

                              BANK OF MONTREAL

                              By:    MELISSA BAUMAN
                                     -----------------------------------------
                              Name:  Melissa Bauman
                                     -----------------------------------------
                              Title: Director
                                     -----------------------------------------

                              THE BANK OF NEW YORK

                              By:    RAYMOND J. PALMER
                                     -----------------------------------------
                              Name:  Raymond J. Palmer
                                     -----------------------------------------
                              Title: Vice President
                                     -----------------------------------------

                              THE BANK OF NOVA SCOTIA

                              By:    F.C.H. ASHBY
                                     -----------------------------------------
                              Name:  F.C.H. Ashby
                                     -----------------------------------------
                              Title: Loan Operations
                                     -----------------------------------------

                              BANK OF SCOTLAND

                              By:    JOSEPH FRATUS
                                     -----------------------------------------
                              Name:  Joseph Fratus
                                     -----------------------------------------
                              Title: Vice President
                                     -----------------------------------------

                              COMERICA BANK-TEXAS

                              By:     MICHELE L. JONES
                                      -----------------------------------------
                              Name:   Michele L. Jones
                                      -----------------------------------------
                              Title:  Vice President
                                      -----------------------------------------

                                       14
<PAGE>

                              CREDIT LYONNAIS NEW YORK BRANCH

                              By:    PASCAL POUPELLE
                                     -----------------------------------------
                              Name:  Pascal Poupelle
                                     -----------------------------------------
                              Title: President & Chief Operating Officer
                                     -----------------------------------------

                              FORTIS CAPITAL CORP.
                              (f/k/a MeesPierson Capital Corp.)

                              By:    DEIDRE M. SANBORN
                                     -----------------------------------------
                                     Deirdre M. Sanborn, Vice President

                              By:    DARRELL HOLLEY
                                     -----------------------------------------
                                     Darrell Holley, Managing Director

                              NATEXIS Banque

                              By:    RENAUD D'HERBES
                                     -----------------------------------------
                              Name:  Renaud d'Herbes
                                     -----------------------------------------
                              Title: Senior Vice President & Regional Manager
                                     -----------------------------------------

                              By:    N. ERIC DITGES
                                     -----------------------------------------
                              Name:  N. Eric Ditges
                                     -----------------------------------------
                              Title: Vice President
                                     -----------------------------------------

                              U.S. BANK NATIONAL ASSOCIATION

                              By:    MARK E. THOMPSON
                                     -----------------------------------------
                                     Mark E. Thompson, Vice President

                              WELLS FARGO BANK (TEXAS), N.A.

                              By:    CHARLES D. KIRKHAM
                                     -----------------------------------------
                                     Charles D. Kirkham, Vice President

                              CREDIT AGRICOLE INDOSUEZ

                              By:    DOUGLAS A. WHIDDON
                                     -----------------------------------------
                              Name:  Douglas A. Whiddon
                                     -----------------------------------------
                              Title: Vice President & Senior Relationship Mgr
                                     -----------------------------------------

                              By:    SCOTT A. SCHROEDER
                                     -----------------------------------------
                              Name:  Scott A. Schroeder
                                     -----------------------------------------
                              Title: Assistant Vice President
                                     -----------------------------------------

                                       15
<PAGE>

                              FUJI BANK, LTD.

                              By:    YOSHIAKI INOUE
                                     -----------------------------------------
                              Name:  Yoshiaki Inoue
                                     -----------------------------------------
                              Title: Senior Vice President & Manager
                                     -----------------------------------------

                              INDUSTRIAL BANK OF JAPAN, LIMITED

                              By:    RYUSUKE AYA
                                     -----------------------------------------
                              Name:  Ryusuke Aya
                                     -----------------------------------------
                              Title: Senior Vice President, Houston Office
                                     -----------------------------------------

                              THE SANWA BANK LIMITED

                              By:    C. LAWRENCE MURPHY
                                     -----------------------------------------
                              Name:  C. Lawrence Murphy
                                     -----------------------------------------
                              Title: Senior Vice President
                                     -----------------------------------------

                              FROST NATIONAL BANK

                              By:    JOHN S. WARREN
                                     -----------------------------------------
                                     John S. Warren, Senior Vice President

                                       16<PAGE>

                                                                    EXHIBIT 10.2

                             AMENDED AND RESTATED
                             EMPLOYMENT AGREEMENT

     This Amended and Restated Employment Agreement ("Agreement") is entered
into this 16th day of May, 2000 (the "Effective Date"), between Cross Timbers
Oil Company, a Delaware corporation ("Cross Timbers") (Cross Timbers and, to the
extent applicable, one or more of its subsidiaries, being collectively referred
to herein as "Employer"), and Bob R. Simpson, who resides in Fort Worth, Texas
("Employee").

                                   RECITALS
                                   --------

     WHEREAS, Employee and Cross Timbers entered into that certain Employment
Agreement dated February 21, 1995 and effective March 31, 1995 (the "Original
Agreement"); and

     WHEREAS, Employee and Cross Timbers desire to amend and restate the
Original Agreement; and

     WHEREAS, Employer desires to employ Employee as Chairman and Chief
Executive Officer of Cross Timbers and as an officer and/or director of one or
more of Cross Timbers' subsidiaries upon the terms and conditions provided
herein; and

     WHEREAS, Employee desires to be so employed.

                            STATEMENT OF AGREEMENT
                            ----------------------

     NOW, THEREFORE, in consideration of the above recitals, and for and in
consideration of the mutual promises set forth below, the parties agree as
follows:

     1.   Employment.  Employer hereby employs Employee as Chairman and Chief
          ----------
Executive Officer of Cross Timbers, and Employee hereby accepts employment with
Employer upon the terms and conditions herein stated.

     2.   Term.  Subject to the provisions for termination set forth herein,
          ----
this Agreement shall be for the period commencing on the Effective Date and
ending on December 31, 2000 (referred to herein as the "Expiration Date).  In
the event Employee shall continue to be employed on the Expiration Date and no
previous Notice of Termination (as defined in Section 10.4) is effective on that
date, this Agreement and Employee's employment hereunder shall be automatically
continued from year to year thereafter until terminated by either party upon not
less than thirty (30) days written notice to the other party prior to any
anniversary of the Expiration Date.

     3.   Position and Duties.  Employee shall serve Employer in an executive
          -------------------
capacity as Chairman and Chief Executive Officer of Cross Timbers and as an
officer and/or director of one or more of Cross Timbers' subsidiaries.
Employee's duties shall include, in addition to those

                                       1
<PAGE>

enumerated in the Bylaws of Employer, those duties as may be directed by the
Board of Directors of Cross Timbers (the "Board"), including service as an
officer and/or director of one or more of Cross Timbers' subsidiaries.

     4.   Extent of Services.  Employee shall devote his best efforts and full
          ------------------
business time (with allowances for vacations and sick leave) and attention to
furthering the business of Employer, and shall not during the term of this
Agreement be engaged in other activities which require such substantial services
on the part of Employee that Employee is unable to perform the duties assigned
to him by Employer.  The foregoing shall not be construed as preventing Employee
from maintaining or making investments, or engaging in other business,
enterprises or civic, charitable or public service functions, provided such
investments, business or enterprises do not require services on the part of
Employee that would materially impair the performance of his duties under this
Agreement.

     5.   Compensation.  As his regular compensation for all services rendered
          ------------
by Employee under this Agreement to Cross Timbers and its subsidiaries and
affiliates, Employer shall pay Employee a salary (the "Regular Salary") of not
less than $625,000 per annum, payable in substantially equal semimonthly
installments during the term hereof. It is understood that Employer will review
annually and may, in the discretion of the Board (or any committee thereof),
increase Employee's Regular Salary, in which case the amount of such increased
salary shall thereafter be deemed to be the amount of Regular Salary contracted
for in this Agreement for all purposes and, if so increased, the Regular Salary
shall not thereafter during the term of this Agreement be decreased to less than
$625,000 per annum. All salary and any other current compensation (if any) paid
to Employee shall be subject to such payroll and withholding deductions as are
required by the laws of any jurisdiction, federal, state or local, with taxing
authority with respect to such salary and other compensation, if any. Regular
Salary payments (including any increased Regular Salary payments) hereunder
shall not in any way limit or reduce any other obligation of Employer hereunder,
and no other compensation, benefit or payment hereunder shall in any way limit
or reduce the obligation of Employer to pay Employee's Regular Salary hereunder.
It is acknowledged by the parties that Employee's Regular Salary, as well as any
cash incentive compensation and other employee benefits payable pursuant hereto,
may be paid or provided by one or more of Cross Timbers' subsidiaries, but shall
be the ultimate responsibility of Cross Timbers.

     6.   Incentive Compensation and Other Benefits.
          -----------------------------------------

     6.1  Employer shall pay to Employee cash incentive compensation as shall be
determined by the Board (or any committee thereof) from time to time.  Employee
shall be entitled to participate in any such plan established at a level to
provide Employee compensation commensurate with Employee's position and
responsibilities.  Upon the establishment of such plans, this Agreement shall be
deemed to be automatically amended to include all applicable terms of such
plans.

     6.2  Employee shall be qualified to participate in grants of options to
purchase units in a royalty trust pursuant to the 1998 and 1999 Royalty Trust
Option Plans or any other similar subsequently adopted royalty trust option
plans. Employee shall also be qualified to participate in

                                       2
<PAGE>

grants of Stock Options, Incentive Stock Options or Performance Shares (as
defined in the 1994, 1997 or 1998 Stock Incentive Plans of Cross Timbers) to
purchase or receive common stock of Cross Timbers pursuant to the 1994, 1997 or
1998 Stock Incentive Plans or any other similar subsequently adopted stock
plans.

     6.3  Employer shall also provide the following employee benefits to
Employee during the term of this Agreement:

     (a)  Life Insurance.  Employer will provide Employee with life insurance
          --------------
having a death benefit equal to $2,000,000.  Employee shall have the right to
designate on such policies the primary and contingent beneficiaries thereunder.

     (b)  Medical Insurance.  Employer shall maintain in full force and effect,
          -----------------
and Employee shall be entitled to participate in, any medical or health benefit
plan provided by Cross Timbers or any of its subsidiaries.

     (c)  Disability.  Employer shall maintain in full force and effect, and
          ----------
Employee shall be entitled to receive, such disability insurance protection as
is provided to other full-time executives of Cross Timbers or any of its
subsidiaries.

     (d)  Vacations.  Employee shall be entitled to four weeks paid vacation in
          ---------
each calendar year and to compensation in respect of earned but unused vacation
days, determined in accordance with Employer's vacation plan if such plan so
provides. Employee shall also be entitled to all paid holidays given by Employer
to the executives of Cross Timbers or any of its subsidiaries.

     (e)  Automobile and Related Expenses.  Employee shall be paid a monthly
          -------------------------------
automobile allowance of $1,600 and shall be reimbursed for all fees, tags,
insurance premiums and fuel and maintenance expenses regarding such automobile.

     (f)  Other Benefits.  Employee shall be entitled to all other benefits and
          --------------
to participate in and be covered by all such other employee benefit plans,
including deferred compensation programs, if any, as are provided to other full-
time executive employees of Cross Timbers or any of its subsidiaries from time
to time.

     6.4  Nothing paid to Employee under any plan or arrangement presently in
effect or made available in the future shall be deemed to be in lieu of the
Regular Salary payable to Employee pursuant to Section 5.  Employer shall not
make any changes in any plans or arrangements provided pursuant to this Section
6 that would adversely affect Employee's rights or benefits thereunder unless
such change occurs pursuant to a program applicable to all executives of Cross
Timbers or any of its subsidiaries and does not result in a proportionately
greater reduction in the rights or benefits to Employee as compared with any
other executive of Cross Timbers or any of its subsidiaries.

                                       3
<PAGE>

     7.   Representation of Employee.  As a material inducement to Employer to
          --------------------------
enter into this Agreement, Employee represents and warrants to Employer that, to
the best of Employee's knowledge, he is not now, nor has he been in the past,
the subject of any regulatory agency's investigation for violation of state or
federal securities law, nor has he had any judgment against him for violation of
these laws in any civil action in any court.

     8.   Working Facilities and Staff.  Employer shall furnish Employee with
          ----------------------------
such facilities, staff and services as are suitable to his position and adequate
for the performance of his duties.

     9.   Expenses.  Employer shall pay or reimburse Employee for all reasonable
          --------
expenses for entertainment, travel, meals, hotel accommodations and fees and the
like incurred by him in the interest of the business of Employer, such payment
or reimbursement to be made upon submission of an itemized accounting statement
by Employee documenting such expenses as may be required by the Internal Revenue
Code of 1986, as amended (the "Code"); provided, however, that Employee shall be
reimbursed for such expenses, whether or not such expenses are deductible by
Employer under the Code.

     10.  Termination of Agreement.
          ------------------------

     10.1 Notwithstanding any other provision hereof, Employee's employment
hereunder shall terminate:

     (a)  upon the death of Employee;

     (b)  upon the disability of Employee, which for the purpose of this
          Agreement shall be the physical or mental inability of Employee to
          carry out the normal and usual duties of his employment on a full-time
          basis for the entire period of six (6) continuous months with the
          reasonable likelihood as determined by the Board that Employee, upon
          the advice of a qualified physician, will be unable to carry out the
          normal and usual duties of his employment on a full-time basis for the
          following continuous period of six (6) months, and within 30 days
          after Notice of Termination (as defined in Section 10.4) is given
          Employee shall not have returned to the performance of his duties on a
          full-time basis (subject to the terms of Sections 6.3(c) and 11);

     (c)  "for cause" (as defined in Section 10.2 below), upon written notice of
          termination for cause given by Employer to Employee; or

     (d)  on the Expiration Date (subject to the terms of Section 2).

     10.2 Employer shall have "cause" to terminate Employee if Employee (a)
willfully and continually fails to substantially perform his duties with
Employer (other than a failure resulting from Employee's incapacity due to
physical or mental illness) which failure continues for a period of at least
thirty (30) days after a written notice of demand for substantial performance
has been

                                       4
<PAGE>

delivered to Employee specifying the manner in which Employee has failed to
substantially perform, or (b) willfully engages in conduct which is demonstrably
and materially injurious to Employer, monetarily or otherwise; provided,
                                                               --------
however, that no termination of Employee's employment shall be for cause until
-------
(x) there shall have been delivered to Employee a written notice authorized by
two-thirds (2/3) of the full Board of Directors, specifying in detail the
particulars of Employee's conduct which violates either (a) or (b) above, (y)
Employee shall have been provided an opportunity to be heard by the Board (with
the assistance of Employee's counsel if Employee so desires), and (z) a
resolution is adopted in good faith by two-thirds (2/3) of the full Board of
Directors confirming such violation. No act, nor failure to act, on Employee's
part, shall be considered "willful" unless he has acted or failed to act with an
absence of good faith and without a reasonable belief that his action or failure
to act was in the best interest of Employer. Notwithstanding anything contained
in this Agreement to the contrary, no failure to perform by Employee after
Notice of Termination is given by or to Employee shall constitute cause.

     10.3 Employee may terminate his employment hereunder for "Good Reason" upon
the occurrence of any of the following events or conditions:

     (a)  a change in Employee's status, title, position or responsibilities
          (including reporting responsibilities) which, in Employee's reasonable
          judgment, represents a substantial reduction of the status, title,
          position or responsibilities as in effect immediately prior thereto;
          the assignment to Employee of any duties or responsibilities which, in
          Employee's reasonable judgment, are inconsistent with such status,
          title, position or responsibilities; or any removal of Employee from,
          or failure to reappoint or reelect him to, any of such positions,
          except in connection with the termination of his employment for cause,
          disability, or as a result of his death, or by Employee other than for
          Good Reason;

     (b)  a reduction in Employee's Regular Salary as the same may be increased
          from time to time thereafter;

     (c)  Employer's requiring Employee (without the consent of Employee) to be
          based at any place outside a twenty-five (25) mile radius of his place
          of employment immediately prior to such proposed relocation, except
          for reasonably required travel on Employer's business which is not
          materially greater than such travel requirements prior thereto, or, in
          the event Employee consents to any relocation beyond such 25-mile
          radius, the failure by Employer to pay (or reimburse Employee) for all
          reasonable moving expenses incurred by him relating to a change of his
          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) his
          aggregate investment in such residence or (b) the fair market value of
          such residence as determined by a real estate appraiser designated by
          Employee and reasonably satisfactory to Employer) realized on the sale
          of Employee's principal residence in connection with any such change
          of residence;

                                       5
<PAGE>

     (d)  the failure by Employer to provide Employee with compensation and
          benefits at least equal (in terms of benefit levels and/or reward
          opportunities) to those provided to Employee under each employee
          benefit plan, program and practice as in effect immediately prior to
          the Effective Date (or as in effect following the Effective Date, if
          greater), including, but not limited to, Cross Timbers' 1999 Royalty
          Trust Option Plan, the 1998 Stock Incentive Plan, the 1998 Royalty
          Trust Option Plan, the 1997 Stock Incentive Plan, the 1994 Stock
          Incentive Plan, Key Management Incentive Bonus Plan, the Cross Timbers
          Oil Company Employees' 401(k) Plan, and any other stock or royalty
          trust unit option plan, pension plan, life insurance plan, health and
          accident plan or disability plan;

     (e)  any material breach by Employer of any provision of this Agreement; or

     (f)  any purported termination of Employee's employment for cause by
          Employer which does not otherwise comply with the terms of this
          Agreement.

     10.4 Any termination of Employee's employment by Employer or by Employee
(other than termination as a result of Employee's death) shall be communicated
by written Notice of Termination to the other party hereto.  For purposes of
this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Employee's employment under the provision so
indicated.

     10.5 "Date of Termination" shall mean (i) if Employee's employment is
terminated by his death, the date of his death, (ii) if Employee's employment is
terminated upon the disability of Employee, thirty (30) days after Notice of
Termination is given (provided that Employee shall not have returned to the
performance of his duties on a full-time basis during such thirty (30) day
period), (iii) if Employee's employment is terminated for cause, the date
specified in the Notice of Termination, and (iv) if Employee's employment is
terminated for any other reason, the date on which a Notice of Termination is
given; provided that if within thirty (30) days after any Notice of Termination
is given the party receiving such Notice of Termination notifies the other party
that a dispute exists concerning the termination, the Date of Termination shall
be the date on which the dispute is finally determined, either by mutual written
agreement of the parties or by a final judgment, order or decree of a court of
competent jurisdiction (the time for appeal therefrom having expired and no
appeal having been perfected).

     10.6 In the event of a Change in Control or a termination of Employee's
employment under this Agreement for any reason, Employee shall have no right to
receive any compensation, remuneration, bonus or benefit for any period
subsequent to the Date of Termination or the Change in Control, as the case may
be, except as may be provided in Sections 11, 12 and 13 or pursuant to Cross
Timbers' Management Group Employee Severance Protection Plan.  In the event that
Employee is entitled to receive Severance Benefits pursuant to Section 11 upon a
Change in Control,

                                       6
<PAGE>

Employee shall not be entitled to receive Severance Benefits upon the occurrence
of any other event that would otherwise have entitled Employee to receive
Severance Benefits, including without limitation a subsequent Change in Control
or a Termination of Employee's employment as contemplated by Section 10.1.

     11.  Compensation Upon Termination or Change in Control.
          --------------------------------------------------

     11.1 If (i) Employee's employment is terminated for any reason other than
termination by Employer for Cause or termination by Employee for other than Good
Reason, or (ii) there shall occur a Change in Control (as defined in Section
11.4), Employee shall be entitled to the following severance benefits
(collectively, "Severance Benefits"):

     (a)  Employer shall pay to Employee an amount in cash equal to three (3)
times the sum of (i) Employee's Regular Salary and (ii) an amount equal to the
greater of Employee's two most recent bonuses awarded under the Key Management
Incentive Bonus Plan adopted by Cross Timbers (or any other bonus plan or
program then in effect) multiplied by two, to be paid on or before ten (10) days
                        -------------
after the Date of Termination or forty-five (45) days after the Change in
Control, as the case may be.

     (b)  For a period of eighteen (18) months after Employee's termination of
employment or a Change in Control, Employer shall at its expense continue on
behalf of Employee and his dependents and beneficiaries, all medical, dental,
vision, and health benefits and insurance coverage which were being provided to
Employee at the time of termination of employment.  The benefits provided in
this Section 11.1(b) shall be no less favorable to Employee, in terms of amounts
and deductibles and costs to him, than the coverage provided Employee under the
plans providing such benefits at the time of termination. Employer's obligation
hereunder to provide a benefit shall terminate if Employee obtains comparable
coverage under a subsequent employer's benefit plan. For purposes of the
preceding sentence, benefits will not be comparable during any waiting period
for eligibility for such benefits or during any period during which there is a
preexisting condition limitation on such benefits. Employer also shall pay a
lump sum equal to the amount of any additional income tax payable by Employee
and attributable to the benefits provided under this Section 11.1(b) at the time
such tax is imposed upon Employee. In the event that Employee's participation in
any such coverage is barred under the general terms and provisions of the plans
and programs under which such coverage is provided, or any such coverage is
discontinued or the benefits thereunder are materially reduced, Employer shall
provide or arrange to provide Employee with benefits substantially similar to
those which Employee was entitled to receive under such coverage immediately
prior to the Termination Notice. At the end of the period of coverage set forth
above, Employee shall have the option to have assigned to him at no cost to
Employee and with no apportionment of prepaid premiums, any assignable insurance
owned by Employer and relating specifically to Employee, and Employee shall be
entitled to all health and similar benefits that are or would have been made
available to Employee under law.

     (c)  Employer shall transfer to Employee all right, title or other
ownership interest it may

                                       7
<PAGE>

have in any automobile then being provided by Employer for use by Employee.

     (d)  Employer shall transfer to Employee any right, title or ownership in
any club memberships provided by Employer for use by Employee.

     (e)  Employer shall transfer to Employee any right, title or ownership in
any life insurance owned by Employer on Employee's life.

     (f)  (i)  Notwithstanding any provision to the contrary in any option
     agreement, restricted stock agreement, or other agreement relating to
     equity-type compensation that may be outstanding between Employee and
     Employer, all units, stock options, incentive stock options, performance
     shares, stock appreciation rights and royalty trust options (under the 1991
     Stock Incentive Plan, the 1994 Stock Incentive Plan, the 1997 Stock
     Incentive Plan, the 1998 Stock Incentive Plan, the 1998 Royalty Trust
     Option Plan, the 1999 Royalty Trust Option Plan or any other plan or
     arrangement) held by Employee immediately prior to the Date of Termination
     or the Change in Control, as the case may be, and any such units, options,
     shares or rights received by Employee after the Date of Termination or the
     Change in Control, as the case may be (whether or not received in exchange
     for or in substitution for existing units, options, shares or rights) shall
     immediately become 100% vested and exercisable, and Employee shall become
     100% vested in all shares of restricted stock held by or for the benefit of
     Employee; provided, however, that to the extent Employer is unable to
     provide for such acceleration of vesting, Employer shall provide in lieu
     thereof a lump-sum cash payment equal to the difference between the total
     value of such units, stock options, incentive stock options, performance
     shares, stock appreciation rights, royalty trust options and shares of
     restricted stock (the "stock rights") as of the date of Employee's
     termination of employment or a Change in Control and the total value of the
     stock rights in which Employee is vested as of the date of his termination
     of employment.  The value of such accelerated vesting in Employee's stock
     rights shall be determined by the Board in good faith based on a valuation
     performed by an independent consultant selected by the Board; any such
     stock rights which are not in existence at the time of Employee's
     termination of employment or a Change in Control shall be valued as of the
     date of the Date of Termination or the Change in Control, as the case may
     be.

          (ii) Notwithstanding any provision to the contrary in any option
     agreement that may be outstanding between Employee and Employer, Employee's
     right to exercise any previously unexercised options under any such option
     agreement shall not terminate until the latest date on which the option
     granted under such agreement would expire under the terms of such agreement
     but for Employee's termination of employment; provided, however, that to
     the extent Employer is unable to provide for the extension of the
     expiration date of such options, Employer shall provide in lieu thereof a
     lump-sum cash payment equal to the value of such extension Employer is
     unable to provide.  Such values of such accelerated vesting and
     exercisability shall be determined by the Board in good faith based on a
     valuation performed by an independent consultant selected by the Board.

                                       8
<PAGE>

     11.2 If Employee's employment shall be terminated (i) by Employer for
cause, or (ii) by Employee without Good Reason, Employer shall pay Employee (i)
his Regular Salary through the Date of Termination at the rate in effect at the
time Notice of Termination is given and (ii) the vested portion of any incentive
compensation plan to which Employee is entitled in accordance with the terms of
such plan.

     11.3 During any period that Employee fails to perform his duties hereunder
as a result of incapacity due to physical or mental illness ("Disability
Period"), Employee shall continue to receive his Regular Salary at the rate then
in effect for such period until his employment is terminated pursuant to Section
10.1(b) hereof, provided that payments so made to Employee during the Disability
Period shall be reduced by the sum of the amounts, if any, payable to Employee
prior to the time of any such payment under disability benefit plans of Employer
and which were not previously applied to reduce any Regular Salary payment.

     11.4 Change in Control.
          -----------------

     (a) For purposes of this Agreement, a "Change in Control" shall mean any
one of the following:

          (i)   "Continuing Directors" no longer constitute a majority of the
     Board; the term "Continuing Director" means any individual who is a member
     of the Board on the date hereof or was nominated for election as a director
     by, or whose nomination as a director was approved by, the Board with the
     affirmative vote of a majority of the Continuing Directors;

          (ii)  any person or group of persons (as defined in Rule 13d-5 under
     the Securities Exchange Act of 1934, as amended ("Exchange Act")) together
     with his or its affiliates, becomes the beneficial owner, directly or
     indirectly, of 25% or more of the voting power of Cross Timbers' then
     outstanding securities entitled generally to vote for the election of Cross
     Timbers' directors;

          (iii) the merger or consolidation to which Cross Timbers is a party
     if the shareholders of Cross Timbers immediately prior to the effective
     date of such merger or consolidation have beneficial ownership (as defined
     in Rule 13d-3 under the Exchange Act) of less than 50% of the combined
     voting power to vote for the election of directors of the surviving
     corporation or other entity following the effective date of such merger or
     consolidation; or

          (iv)  the sale of all or substantially all of the assets of Cross
     Timbers or the liquidation or dissolution of Cross Timbers.

     (b)  Notwithstanding anything herein to the contrary, under no
circumstances will a change in the constitution of the board of directors of any
subsidiary, a change in the beneficial

                                       9
<PAGE>

ownership of any subsidiary, the merger or consolidation of a subsidiary with
any other entity, the sale of all or substantially all of the assets of any
subsidiary or the liquidation or dissolution of any subsidiary constitute a
"Change in Control" under this Agreement.

     11.5 Employee shall not be required to mitigate the amount of any payment
provided in this Section 11 by seeking or accepting other employment or
otherwise.

     12.  Cross Timbers' Guarantee of Severance Benefits.
          ----------------------------------------------

     12.1 In the event Employee becomes entitled to receive from Employer
Severance Benefits under Section 11.1 above and such Employer fails to pay or
                         ------------
provide such Severance Benefits, Cross Timbers shall assume the obligation of
such Employer to pay or provide such Severance Benefits. In consideration of
Cross Timbers' assumption of the obligation to pay or provide such Severance
Benefits provided under this Agreement, Cross Timbers shall be subrogated to any
recovery (irrespective of whether there is recovery from the third party of the
full amount of all claims against the third party) or right to recovery of
either Employee or his legal representative against Employer or any person or
entity. Employee or his legal representative shall cooperate in doing what is
reasonably necessary to assist Cross Timbers in exercising such rights,
including but not limited to notifying Cross Timbers of the institution of any
claim against a third party and notifying the third party and the third party's
insurer, if any, of Cross Timbers' subrogation rights. Neither Employee nor his
legal representative shall do anything after a loss to prejudice such rights.

     12.2 In its sole discretion, Cross Timbers reserves the right to prosecute
an action in the name of Employee or his legal representative against any third
parties potentially liable to Employee. Cross Timbers shall have the absolute
discretion to settle subrogation claims on any basis it deems appropriate under
the circumstances.  If Employee or his legal representative initiates a lawsuit
against any third parties potentially liable to Employee, Cross Timbers shall
not be responsible for any attorneys' fees or court costs that may be incurred
in such liability claim.

     12.3 Cross Timbers shall be entitled, to the extent of any payments made to
or on behalf of Employee or a dependent of Employee, to be paid first from the
proceeds of any settlement or judgment that may result from the exercise of any
rights of recovery asserted by or on behalf of Employee or his legal
representative against any person or entity legally responsible for the injury
for which such payment was made. Cross Timbers shall be reimbursed by Employee
or his legal representative an amount of money equal to all sums paid by Cross
Timbers under this Agreement to or on behalf of Employee and all expenses, costs
and attorneys' fees incurred by Cross Timbers in connection with the prosecution
and collection of Cross Timbers' subrogation interest. The right is also hereby
given Cross Timbers to receive directly from Employer or any third party(ies),
attorney(s) or insurance company(ies) an amount equal to the amount paid to or
on behalf of Employee.

                                       10
<PAGE>

     13.  Excise Taxes.
          ------------

     13.1 In the event it shall be determined that any payment or distribution
of any type by Employer to or for the benefit of Employee, whether paid or
payable or distributed or distributable pursuant to the terms of this Agreement
or otherwise (the "Total Payments"), would be subject to the excise tax imposed
by Section 4999 of the Code or any interest or penalties with respect to such
excise tax (such excise tax, together with any such interest and penalties, are
collectively referred to as the "Excise Tax"), then Employee shall be entitled
to receive an additional payment (a "Gross-Up Payment") in an amount such that
after payment by Employee of all taxes (including additional excise taxes under
said Section 4999 and any interest and penalties imposed with respect to any
taxes) imposed upon the Gross-Up Payment, Employee retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Total Payments.
Employer shall pay the Gross-Up Payment to Employee within twenty (20) business
days after the Payment Date.

     13.2 All determinations required to be made under this Section 13(c)(ii)
including whether a Gross-Up Payment is required and the amount of such Gross-Up
Payment, shall be made by the independent accounting firm retained by Employer
on the date of determination (the "Accounting Firm"), which shall provide
detailed supporting calculations both to Employer and Employee within fifteen
(15) business days of the Payment Date, if applicable, or such earlier time as
is requested by Employer. If the Accounting Firm determines that no Excise Tax
is payable by Employee, it shall furnish Employee with an opinion that he has
substantial authority not to report any Excise Tax on his federal income tax
return. Any determination by the Accounting Firm shall be binding upon Employer
and Employee. As a result of the uncertainty in the application of Section 4999
of the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments which will not have been made
by Employer should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that Employer exhausts
its remedies pursuant to Section 13.3 and Employee thereafter is required to
make a payment of any Excise Tax, the Accounting Firm shall determine the amount
of the Underpayment that has occurred, and any such Underpayment shall be
promptly paid by Employer to or for the benefit of Employee.

     13.3 Employee shall notify Employer in writing of any claim by the Internal
Revenue Service that, if successful, would require the payment by Employer of
the Gross-Up Payment. Such notification shall be given as soon as practicable
but no later than ten (10) business days after Employee is notified in writing
of such claim and shall apprise Employer of the nature of such claim and the
date on which such claim is requested to be paid. Employee shall not pay such
claim prior to the expiration of the thirty (30)-day period following the date
on which he gives such notice to Employer (or such shorter period ending on the
date that any payment of taxes with respect to such claim is due). If Employer
notifies Employee in writing prior to the expiration of such period that it
desires to contest such claim, Employee shall (w) give Employer any information
reasonably requested by Employer relating to such claim, (x) take such action in
connection with contesting such claim as Employer shall reasonably request in
writing from time to time, including, without limitation, accepting legal
representation with respect to such claim by an attorney reasonably

                                       11
<PAGE>

selected by Employer, (y) cooperate with Employer in good faith in order to
effectively contest such claim, and (z) permit Employer to participate in any
proceedings relating to such claim, provided, however, that Employer shall bear
and pay directly all costs and expenses (including additional interest and
penalties) incurred in connection with such contest and shall indemnify and hold
Employee harmless, on an after-tax basis, for any Excise Tax or income tax,
including interest and penalties with respect thereto, imposed as a result of
such representation and payment of costs and expenses. Without limitation on the
foregoing provisions of this Section 13.3, Employer shall control all
proceedings taken in connection with such contest and, at its sole option, may
pursue or forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its
sole option, either direct Employee to pay the tax claimed and sue for a refund,
or contest the claim in any permissible manner, and Employee agrees to prosecute
such contest to a determination before any administrative tribunal, in a court
of initial jurisdiction and in one or more appellate courts, as Employer shall
determine; provided, however, that if Employer directs Employee to pay such
claim and sue for a refund, Employer shall advance the amount of such payment to
Employee, on an interest-free basis and shall indemnify and hold Employee
harmless, on an after-tax basis, from any Excise Tax or income tax, including
interest or penalties with respect thereto, imposed with respect to such advance
or with respect to any imputed income with respect to such advance; and further
provided that any extension of the statute of limitations relating to payment of
taxes for the taxable year of Employee with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, Employer's control of the contest shall be limited to issues with
respect to which a Gross-Up Payment would be payable hereunder and Employee
shall be entitled to settle or contest, as the case may be, any other issue
raised by the Internal Revenue Service or any other taxing authority.

     13.4 If, after the receipt by Employee of an amount advanced by Employer
pursuant to Section 13.3, Employee becomes entitled to receive any refund with
respect to such claim, Employee shall (subject to Employer's complying with the
requirements of Section 13.3) promptly pay to Employer the amount of such refund
(together with any interest paid or credited thereon after taxes applicable
thereto). If, after the receipt by Employee of an amount advanced by Employer
pursuant to Section 13.3, a determination is made that Employee shall not be
entitled to any refund with respect to such claim and Employer does not notify
Employee in writing of its intent to contest such denial of refund prior to the
expiration of thirty days after such determination, then such advance shall be
forgiven and shall not be required to be repaid and the amount of such advance
shall offset, to the extent thereof, the amount of Gross-Up Payment required to
be paid.

     14.  Counsel Fees and Indemnification.
          --------------------------------

     14.1 In the event Employer or Employee is required to employ legal counsel
to enforce the performance of this Agreement or recover damages because of any
breach of this Agreement, the prevailing party shall be entitled to recover from
the other party reasonable attorneys' fees and the reimbursement of all
necessary expenses and court costs.

                                       12
<PAGE>

     14.2 Employer shall indemnify and hold Employee harmless to the maximum
extent permitted by law against judgments, fines, amounts paid in settlement and
reasonable expenses, including attorneys' fees and costs incurred by Employee,
in connection with the defense of, or as a result of any action or proceeding or
any appeal from any action or proceeding, in which Employee is made or is
threatened to be made a party by reason that Employee is or was an officer or
director of Cross Timbers or any of its subsidiaries or affiliates, regardless
of whether such action or proceeding is one brought by or in the right of Cross
Timbers or any of its subsidiaries or affiliates, to procure a judgment in their
favor (or other than by or in the right of Cross Timbers or any of its
subsidiaries or affiliates).

     14.3 The undertakings of Section 14.1 above are independent of, and shall
not be limited or prejudiced by, the undertakings of Section 14.2 above.

     14.4 The provisions of this Section 14 shall survive the termination of
this Agreement.

     15.  Notices.  All notices, requests, demands and other communications
          -------
required or permitted to be given under this Agreement shall be in writing and
shall be deemed to have been duly given on the date of service if served
personally on the party to whom notice is to be given and acknowledged by
written receipt, or on the seventh day after mailing if mailed (return receipt
requested), postage prepaid and properly addressed as follows:

     Cross Timbers/Employer:            Cross Timbers Oil Company
     ----------------------
                                        810 Houston Street, Suite 2000
                                        Fort Worth, Texas 76102
                                        Attention: Board of Directors

     Employee:                          Bob R. Simpson
     --------
                                        11521 Blue Creek Drive
                                        Fort Worth, Texas 76008

Any party may change its address for purposes of this Section 15 by giving the
other party written notice of the new address in the manner set forth above.

     16.  Assignment; Binding Effect.  Neither this Agreement nor any of the
          --------------------------
rights or obligations hereunder may be assigned by any party without the prior
written consent of the other party. This Agreement is binding upon and inures to
the benefit of Employee and Employer and their respective heirs, personal
representatives and permitted successors and assigns. As used in this Agreement,
"Employer" shall mean the Employer as hereinabove defined and any successors to
its business or assets as aforesaid which execute and deliver the agreement
provided for in this Section 16 or which otherwise become bound by the terms and
provisions of this Agreement by operation of law.

                                       13
<PAGE>

     17.  Governing Law.  This Agreement shall be governed by, and construed and
          -------------
enforced in accordance with, the laws of the State of Texas.

     18.  Waiver.  Any waiver by any party of a breach of any provision of this
          ------
Agreement shall not operate or be construed as a waiver of any subsequent breach
thereof or of any other provision of this Agreement.

     19.  Entire Agreement.  This Agreement constitutes the entire agreement
          ----------------
between the parties hereto with respect to the subject matter hereof and
supersedes any and all prior and contemporaneous promises, agreements and
representations not set forth in this Agreement including, but not limited to,
as of the Effective Date, the Original Agreement. This Agreement may not be
amended except by a mutual written agreement signed by all parties; provided,
however, that the terms of any cash incentive compensation plan or stock option
plan established by Employer subsequent to the date hereof in accordance with
terms previously outlined by Employer shall automatically become part of this
Agreement when established.

     20.  Severability.  Should any one or more of the provisions hereof be
          ------------
determined to be illegal or unenforceable, all other provisions hereof shall be
given effect separately therefrom and shall not be affected thereby.

     IN WITNESS WHEREOF, Employer and Employee have executed and delivered this
Agreement as of the date written above.

                              CROSS TIMBERS OIL COMPANY

                              By:   VAUGHN O. VENNERBERG, II
                                    ------------------------
                                    Vaughn O. Vennerberg, II
                                    Executive Vice President-Administration

                              EMPLOYEE:

                              BOB R. SIMPSON
                              --------------------------
                              Bob R. Simpson

                                       14

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