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                                                                    EXHIBIT 10.3

August 19, 2001

Mr. Steve Thorington
6623 Westchester
Houston,  Texas 77005

                    Re: Terms of Employment with the Company

Dear Steve:

I am pleased to offer you the position of Executive Vice President - Chief
Financial Officer of Plains Exploration & Production Company L.P. (the
"Company"). This offer letter shall outline the terms of your employment with
the Company.

Subject to earlier termination by either you or the Company, you will be
employed by the Company for a term of five years commencing as soon as possible
but no later than September 3, 2002 (the "Effective Date"). The term of your
employment will automatically be extended one year and again for successive
one-year periods on each anniversary thereof, if you and the Company have agreed
to new compensation terms at least ninety days prior to the end of the initial
five-year period and any additional one-year extensions (the initial five-year
term and any additional years are hereinafter referred to as the "Term"). Your
annual salary shall be $300,000, and you shall be eligible for an annual target
bonus of $300,000, (pro-rata for 2002 bonus consideration), subject to
attainment of goals set forth by the Company's Board of Directors (the "Board").

Your compensation shall include Stock Appreciate Rights ("SARs") covering
300,000 shares of the Company's common stock. The grant date of the SARs shall
be the Effective Date and the SARs shall have a per share exercise price equal
to the price of the Company stock in its initial public offering. The SARs
generally shall be fully exercisable upon a "change in control" of the Company
(as defined in the Company Stock Plan), upon a termination of employment by the
Company for any reason other than "cause" (as defined in the Company Stock Plan)
and upon your death.

In addition, you will be entitled to receive a signing bonus of $350,000 and
45,000 shares of restricted stock in Plains Resources Inc., vesting ratably over
three years from the Effective Date. Should the Spin-Off of the Company not be
successfully completed on or before May 22, 2003, you will succeed to the
position of Executive Vice President - Chief Financial Officer of Plains
Resources Inc., with the same terms of employment outlined herein and the SARs
will be converted to options in Plains Resources Inc. stock with an exercise
price equal to the closing price of Plains Resources Inc. common stock on the
Effective Date.

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August 19, 2002
Page 2 of 3

If the Company terminates your employment during the Term for any reasons other
than cause or if a "change of control" of the Company (as defined in the Stock
Plan) occurs or if your employment terminates due to your death during the Term,
you will receive a severance payment equal to two times the sum of your base
salary and last earned annual bonus, (provided that if such termination shall
take place prior to the end of the first full calendar year of employment (i.e.,
prior to December 31, 2003) the bonus used for the severance calculation shall
be the target bonus), and the SARs shall immediately vest. In addition, you will
be entitled to health benefits for up to two years, subject to mitigation should
you become entitled to health benefits under another plan.

During the Term and for any period thereafter, you shall not, without the
written consent of the Board or a person authorized by the Board, disclose to
any person, other than an employee of the Company or a person to whom disclosure
is reasonably necessary or appropriate in connection with the performance of
your duties as an executive of the Company, any confidential information
obtained by you while in the employ of the Company with respect to the Company's
business, including but not limited to technology, know-how, processes, maps,
geological and geophysical data, other proprietary information and any
information whatsoever of a confidential nature, the disclosure of which you
know or should know will be damaging to the Company; provided, however, that
confidential information shall not include any information known generally to
the public (other than as a result of unauthorized disclosure by you) or any
information which you may be required to disclose by any applicable law, order,
or judicial or administrative proceeding.

While you are an employee of the Company, you shall not in North America,
directly or indirectly engage in or become interested financially in as a
principal, employee, partner, shareholder, agent, manager, owner, advisor,
lender or guarantor of any person engaged in any business substantially
identical to the Business (defined below); provided, however, that you may
invest in stock, bonds or other securities any such business (without
participating in such business) if: (i)(A) such stock, bonds, or other
securities are listed on any United States securities exchange or are publicly
traded in an over the counter market and (B) its investment does not exceed, in
the case of any capital stock of any one issuer, 5% of the issued and
outstanding capital stock, or in the case of bonds or other securities, 5% of
the aggregate principal amount thereof issued and outstanding, or (ii) such
investment is completely passive and no control or influence over the management
or policies of such business is exercised. The term "Business" shall mean the
exploration, development and production of crude petroleum and natural gas.

Further, during the Term and for a period of one year thereafter, you shall not
solicit or hire, directly or indirectly, in any manner whatsoever (except in
response to a general solicitation), in the capacity of employee, consultant or
in any other capacity whatsoever, one or more of the employees, directors or
officers or other persons (hereinafter collectively referred to as "Employees")
who at the time of solicitation or hire, or in the

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August 19, 2002
Page 3 of 3

90-day period prior thereto, are working full-time or part-time for the Company
or any of its subsidiaries and you shall not endeavor, directly or indirectly,
in any manner whatsoever, to encourage any Employee to leave his or her job with
the Company or any of its Subsidiaries and you shall not endeavor, directly or
indirectly, and in any manner whatsoever, to incite or induce any client of the
Company or any of its Subsidiaries to terminate, in whole or in part, its
business relations with the Company or any of its Subsidiaries.

If you agree with the terms as set forth herein, please sign both copies of this
letter and return one copy to me at the above address.

Sincerely,

/s/ James C. Flores
---------------------------------------
James C. Flores
Chairman and Chief Executive Officer

Agreed to and accepted by on the 20th day of August, 2002:

/s/ Steve Thorington
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Steve Thorington<PAGE>
                                                                    EXHIBIT 10.4

                                 AMENDMENT NO. 1
                          TO EMPLOYEE MATTERS AGREEMENT

     AMENDMENT NO. 1 TO EMPLOYEE MATTERS AGREEMENT (this "Amendment"), dated as
of September 18, 2002, by and between Plains Resources Inc., a Delaware
corporation ("Plains"), and Plains Exploration & Production Company, a Delaware
corporation (fka Plains Exploration & Production Company, L.P., a California
limited partnership) ("Plains Exploration"). Undefined capitalized terms are
defined in the Agreement (as defined below).

     WHEREAS, Plains and Plains Exploration & Production Company, L.P., a
California limited partnership, entered into the Employee Matters Agreement,
dated as of July 3, 2002 (the "Agreement");

     WHEREAS, on September 18, 2002, Plains Exploration & Production Company,
L.P., a California limited partnership, converted into Plains Exploration;

     WHEREAS, Plains and Plains Exploration desire to enter into this Amendment
to change the treatment of Plains Options upon the Distribution as set forth
herein;

     NOW THEREFORE, in consideration of the premises and other good and valuable
consideration, the Parties hereby agree as follows:

     1. The following definitions shall be added to Article I of the Agreement:

     "Distribution Ratio" means the number of shares of Spinco common stock each
holder of Plains common stock on the Record Date (or such holder's designated
transferee or transferees) will be entitled to receive in the Distribution
determined by multiplying the number of shares of Plains common stock held by
such holder on the Record Date by a fraction, the numerator of which is the
number of shares of Spinco common stock beneficially owned by Plains on the
Record Date and the denominator of which is the number of shares of Plains
common stock outstanding on the Record Date.

     "Plains Stock Value" means the closing price (with dividend) of a share of
Plains common stock on the Distribution Date as reported on the NYSE.

     "Spinco SAR" means the right to receive an appreciation value of a share of
Spinco common stock pursuant to a plan providing such benefits to be established
by Spinco pursuant to Section 2.04 and ARTICLE VI.

     "Spinco Stock Value" means the closing price of a share of Spinco common
stock on the Distribution Date as reported on the NYSE."

     2. Sections 6.01 and 6.02 of the Agreement are hereby amended by deleting
them in their entirety and replacing them with the following:

     "Section 6.01 Plains Options. Outstanding Plains Options granted prior to
the Distribution Date that are unexercised and unexpired as of the Distribution
Date shall be replaced

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with two securities, one an Adjusted Plains Option and one a Spinco SAR as
follows. With respect to each Adjusted Plains Option, (i) the number of shares
of Plains common stock subject to such Adjusted Plains Option shall equal the
number of shares of Plains common stock subject to the Plains Option immediately
before the Distribution Date, and (ii) the per-share exercise price of such
Adjusted Plains Option shall equal the per-share exercise price of the Plains
Option immediately prior to the Distribution Date multiplied by (the "Plains
Price Adjustment Factor") 1 minus a fraction, the numerator of which is the
Distribution Ratio multiplied by the Spinco Stock Value and the denominator of
which is the Plains Stock Value. With respect to each Spinco SAR, (i) the number
of shares of Spinco common stock subject to such Spinco SAR shall equal the
number of shares of Plains common stock subject to the Plains Option immediately
before the Distribution Date multiplied by the Distribution Ratio, and (ii) the
per-share exercise price of such Spinco SAR shall equal the Spinco Stock Value
multiplied by (the "Spinco Price Adjustment Factor") a fraction, the numerator
of which is the per-share exercise price of the Plains Option immediately prior
to the Distribution Date and the denominator of which is the Plains Stock Value.
The exercise price per share of each such Adjusted Plains Option and Spinco SAR
will be determined such that, immediately following the Distribution Date, the
difference between the exercise price of each option and right and the fair
market value of the shares underlying each option and right approximately
equals, in the aggregate, the difference between the exercise price of each
Plains Option and the fair market value per share of Plains common stock (with
dividend) immediately prior to the Distribution Date. In addition, the ratio of
the exercise price of the Adjusted Plains Options to the fair market value of
Plains common stock immediately after the Distribution Date, and the ratio of
the exercise price of the Spinco SARs to the fair market value of Spinco common
stock immediately after the Distribution Date, will both approximately equal the
ratio of the exercise price of the Plains Options to the fair market value of
Plains common stock (with dividend) immediately prior to the Distribution Date.
Employment with Spinco, and service as a member of the Spinco Board, will be
treated as employment and service with Plains for purposes of the Adjusted
Plains Options, and employment with Plains, and service as a member of the
Plains board of directors, will be treated as employment and service with Spinco
for purposes of the Spinco SARs. Other than the adjustments described in this
Section 6.01, all other terms and conditions applicable to the Plains Options
(including, but not limited to, the vesting schedule) shall remain applicable to
the Adjusted Plains Options and the Spinco SARs following the Distribution Date,
and the Spinco SARs shall be issued pursuant to a Spinco stock incentive plan.
The intent of this Section 6.01 is to preserve fixed accounting treatment with
respect to the options adjusted hereunder, and to the extent possible, to
preserve the qualified tax treatment of options designated as "incentive stock
options". The compensation committees of Plains and Spinco shall have the
ability to make any adjustments to these formulas to preserve fixed accounting
treatment for outstanding options.

     6.02 Plains Restricted Shares. Except as otherwise provided in the
applicable restricted stock agreement, holders of time-based awards of
restricted shares of Plains common stock granted prior to the Distribution Date
that are outstanding on the Distribution Date shall receive awards of restricted
shares of Spinco common stock in the same ratio as Plains stockholders, but such
restricted shares of Spinco common stock shall be subject to the same time-based
vesting schedule and the other terms and conditions of the applicable plan under
which they were granted. Employment with Spinco will be treated as employment
with Plains for purposes of the awards of restricted shares of Plains common
stock, and employment with

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Plains will be treated as employment with Spinco for purposes of the awards of
restricted shares of Spinco common stock.

     6.03 General. The compensation committees of Plains and Spinco shall have
the ability to make any adjustments with respect to any respective equity-based
compensation that the respective companies have granted prior to the
Distribution Date to be consistent with the intent of the provisions in this
Agreement."

     3. Effect on the Agreement. Except as specifically amended or waived by
this Amendment, all terms and conditions of the Agreement shall remain in full
force and effect. The term "Agreement" used in the Agreement shall mean the
Agreement as amended hereby.

     4. Counterparts. This Amendment may be executed in counterparts each of
which shall be deemed to be an original but all of which shall constitute one
and the same agreement.

     5. Governing Law. This Amendment shall be governed by and construed in
accordance with the laws of the State of Texas, without regard to its principles
of conflicts of law.

                            [Signature Page Follows]

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     IN WITNESS WHEREOF, each of the parties have caused this Amendment to be
executed on its behalf by its officers thereunto duly authorized on the day and
year first written above.

                              PLAINS RESOURCES INC.

                              By: /s/ John T. Raymond
                                 -----------------------------------------------
                              Name:   John T. Raymond
                              Title:  President

                              PLAINS EXPLORATION & PRODUCTION COMPANY

                              By: /s/ James C. Flores
                                 -----------------------------------------------
                              Name:   James C. Flores
                              Title:  Chairman & Chief Executive Officer

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