                                                                    Exhibit 10.1


                               Kaneb Services LLC


October 31, 2004

Mr. Edward D. Doherty
c/o Kaneb Services LLC 2435 N. Central Expressway
Suite 700
Richardson, Texas 75080

Dear Mr. Doherty:

     You are and have been a valuable  and key  employee of Kaneb  Services  LLC
(the "Company") and/or one or more of its Subsidiaries (as hereinafter defined).
The Company  recognizes  that an attempt to effect a major change in the control
of the Company could have a disturbing  and  disruptive  adverse effect upon you
and your employment  relationship.  You and Xanser  Corporation,  formerly Kaneb
Services,  Inc. ("Xanser"),  entered into a letter agreement dated March 7, 1990
(the "Original  Agreement") with terms and provisions  substantially  similar to
the terms and  provisions  of this  letter  agreement.  In June of 2001,  Xanser
distributed  all of the Company's  common shares to the  shareholders of Xanser,
resulting in the Company  becoming an  independent,  publicly owned company (the
"Distribution").  From and after the date of the Distribution,  you continued to
be an employee of the Company and/or one or more of its Subsidiaries.  As of the
date of the  Distribution,  you  ceased  to be an  employee  of  Xanser  and the
Original  Agreement  terminated  in accordance  with its terms.  In writing this
letter to you, management of the Company desires to enter into an agreement with
you that is substantially  similar to the Original  Agreement and is endeavoring
to foster and encourage your continued attention and dedication to your assigned
duties in the face of potentially  disturbing  circumstances.  Accordingly,  the
Company agrees, in consideration of your continued service, as follows:

     In the event a third party begins a tender or exchange  offer,  initiates a
proxy contest or takes other steps to effect a Change of Control (as hereinafter
defined) of the Company,  the Company will pay to an escrow account  established
at any appropriate banking or trust institution selected by the Company ("Bank")
an amount equal to 299% of your Annual Base Salary.  The escrow  account will be
governed by a standard form of escrow agreement, an actual copy of which will be
furnished to you upon its execution and funding.  In addition,  the Company will
pay into escrow any incentive  compensation  amounts  accrued or earned to which
you are then entitled  otherwise  than as a result of Change of Control.  Annual
Base Salary shall mean your average  annual base salary,  including  annual cash
bonuses  paid to you or  payable  to you  pursuant  to the  2004  KPP  Executive
Group-Annual  Incentive  Program,  whether  or not any such  amounts  have  been
deferred  pursuant to a deferred  compensation plan of the Company or any of its
subsidiaries, for the most recent five taxable years ending before the Change of
Control,  or for such  shorter  period in the  event  your  employment  with the
Company  is less  than  five  years.  The  amounts  so  deposited  with Bank are
collectively referred to as Escrowed Funds.

     Thereafter, you agree that you will not voluntarily leave the employ of the
Company and all of its Subsidiaries and will perform the services of your office
until the third party has abandoned or terminated  efforts to effect a Change of
Control  or until a Change of  Control  has  occurred.  In the event a Change of
Control occurs,  and your employment by the Company and all of its  Subsidiaries
terminates,  voluntarily or involuntarily, for any reason, you shall be paid the
Escrowed Funds upon your written demand.  In the event such Change of Control is
supported  and endorsed by management  of the Company,  you agree,  upon written
request of the Board of  Directors of the  Company,  to assist,  for a period of
ninety (90) days from the date of Change of Control,  in the orderly  transition
of  management  of the Company,  provided the Company shall pay any expenses you
incur in connection with such assistance.

     For the purposes of this letter,  a "Change of Control"  shall be deemed to
have  taken  place if:  (i) a third  person,  including  a "group" as defined in
Section 13(d)(3) of the Securities  Exchange Act of 1934, becomes the beneficial
owner of Member Interests (as defined in the Limited Liability Company Agreement
of Kaneb  Services LLC) of the Company having 20% or more of the total number of
votes that may be cast for the election of directors of the Company;  or (ii) as
a result of, or in connection with, any cash tender or exchange offer, merger or
other business combination, restructure or proceeding under the bankruptcy laws,
sale or  assets or  contested  election,  or any  combination  of the  foregoing
transactions,   the  persons  who  are  directors  of  the  Company  before  the
transaction  cease to  constitute  a majority of the Board of  Directors  of the
Company or any successor to the Company;  or (iii) as a consequence  of a tender
or exchange  offer or a proxy  contest or third party  consent  solicitation,  a
majority of the fair market  value of the assets of the Company are  distributed
to the Company's securities holders.

     For the purposes of this letter, a "Subsidiary"  means, with respect to the
Company,  (i) a  corporation  a majority of whose  voting  stock is at the time,
directly  or  indirectly,  owned by the  Company,  by one or more  wholly  owned
subsidiaries  of the  Company or by the  Company  and one or more  wholly  owned
subsidiaries of the Company, (ii) a partnership in which the Company or a wholly
owned subsidiary of the Company is, at the date of  determination,  a general or
limited partner of such partnership, but only if the Company or its wholly owned
subsidiary  is entitled to receive more than fifty percent of the assets of such
partnership  upon its  dissolution  or (iii)  any  other  entity  (other  than a
corporation or partnership) in which the Company,  a wholly owned  subsidiary of
the  Company or the Company and one or more  wholly  owned  subsidiaries  of the
Company,  directly or indirectly,  at the date of determination thereof, has (x)
at least a majority  ownership  interest or (y) the power to elect or direct the
election of a majority of the directors or other governing body of such entity.

     The Company may withdraw the Escrowed  Funds held in the escrow  account if
one year elapses from the date of deposit by the Company of said Escrowed  Funds
into the escrow  account  and if no written  demand for payment has been made by
you during said one year period.  If, prior to the  expiration  of said one year
period,  there shall occur  another event of the type set forth in the preceding
paragraph,  the Company  will not be required to make an  additional  deposit of
Escrowed  Funds,  but the one year period  described  herein  shall be deemed to
commence on the date of the occurrence of the last such event; provided however,
if a period of six (6) months has expired  from the date of the initial  deposit
of Escrowed Funds, any incentive compensation to which you are entitled shall be
recomputed pursuant to the terms of the applicable  incentive  compensation plan
and an appropriate  deposit or withdrawal  adjustment based upon such recomputed
incentive compensation shall be made.

     The  Company  shall  pay the usual and  customary  charges  of the Bank for
acting as escrow  agent.  The Company will be entitled to the payment of any and
all interest and other income  earned by the Bank through the  investment of the
Escrowed Funds.

     The obligations of the Company  contained  herein shall be binding upon the
Company and upon its successors and assigns. Your rights to receive Escrow Funds
are personal to you and may not be assigned.

     If your  employment  with the  Company and all of its  Subsidiaries  should
terminate for any reason prior to the occurrence of the Change of Control events
described  above,  this agreement  shall  terminate and the Company will have no
further obligation to you hereunder.

     All  amounts  payable  to you under this  Agreement  or  otherwise  will be
subject to applicable  withholding of income, wage and other taxes to the extent
required by applicable law.

     If you are in agreement with the foregoing, please indicate your acceptance
by executing and  returning a copy of this letter to my  attention.  A duplicate
original is enclosed for your files.

                                       Very truly yours,

                                       KANEB SERVICES LLC


                                       By:  //s//  HOWARD C. WADSWORTH
                                          --------------------------------------
                                       Name:  Howard C. Wadsworth
                                       Title: Vice President, Treasurer and
                                                 Secretary

AGREED and ACCEPTED this 31st day of October, 2004:




   //s//  EDWARD D. DOHERTY
----------------------------------
Edward D. Doherty



