EXHIBIT 10.1

AMENDED AND RESTATED ESCROW AGREEMENT

This Amended and Restated Escrow Agreement, dated as of June 18, 2007, is
entered into by and among Cano Petroleum, Inc. (“Purchaser”), The Estate of
Miles O’Loughlin and Scott White (each, a “Seller” and collectively, the
“Sellers”) and The Bank of New York Trust Company, N.A., a national banking
association, as escrow agent (“Escrow Agent”) (the “Amended and Restated Escrow
Agreement”).  This Amended and Restated Escrow Agreement amends and represents
the Escrow Agreement dated as of November 29, 2005 by and among the Purchaser,
the Sellers and The Escrow Agent.

The Amended and Restated Escrow Agreement is the escrow agreement referred to as
the “Cash Escrow Agreement” in the Stock Purchase Agreement dated as of November
29, 2005, (the “Purchase Agreement”) among  the Purchaser, W.O. Energy of
Nevada, Inc. (“W.O.”),  and the Sellers. Capitalized terms used in this
agreement without definition shall have the respective meanings given to them in
the Purchase Agreement.

The parties, intending to be legally bound, hereby agree as follows:

1.                                       ESTABLISHMENT OF ESCROW

(a)                                  Purchaser previously deposited with Escrow
Agent an amount equal to $2,000,000 in immediately available funds (as increased
by any earnings thereon, the “Escrow Fund”).

(b)                                 Pursuant to the terms of the Modification
and Tolling Agreement dated June 18, 2007 by and among the Purchaser, the
Sellers, Leslie O’Loughlin and Jamie White, the Purchaser has agreed to release
to the Sellers the Escrow Fund and the Sellers have agreed to deposit with the
Escrow Agent 434,783 shares of common stock of the Purchaser owned by the
Sellers (the “Escrow Shares”).  The Escrow Agent shall also receive (i) all
cash, securities, dividends, increases, distributions and profits received from
the Escrow Shares or in connection therewith, including distributions or
payments in partial or complete liquidation or redemption, or as a result of
reclassifications, readjustments, reorganizations or changes in the capital
structure of the Purchaser; (ii) all dividends, and instruments and other
property from time-to-time received, receivable or otherwise distributed in
respect of or in exchange for any or all of the Escrow Shares; (iii) all
securities hereafter delivered to any Seller or the Escrow Agent in substitution
of the foregoing, all certificates representing or evidencing such securities,
and all cash, securities, instruments, documents, dividends, increases,
distributions and profits received therefrom, and any other property at any time
and from time-to-time received by, receivable by, otherwise distributed or
delivered to any Seller or the Escrow Agent in respect of or in exchange for any
or all of the property described; and (iv) all products and proceeds of the
foregoing and all general intangibles and contract rights related thereto,
including, without limitation, all revenues, distributions, dividends, property,
registration rights, contract rights and other rights and interests that the
Sellers are, or may hereafter become, entitled to receive as described in
subsections (i) — (iv) above (all such Escrow Shares, certificates, securities,
instruments, documents, increases, distributions, profits, intangibles, contract
rights and other property being herein collectively called the “Stock Escrow
Fund”).

(c)                                  Escrow Agent shall have physical possession
of the certificates or instruments representing or evidencing the Stock Escrow
Fund.  Sellers will deposit with Escrow Agent, along with the certificates or
instruments representing or evidencing the Stock Escrow Fund, duly

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executed stock powers in blank.  In addition, Escrow Agent shall in connection
with any required payments pursuant to this Amended and Restated Escrow
Agreement have the right to exchange certificates or instruments representing
the Stock Escrow Fund for certificates or instruments of smaller or larger
denominations for any purpose consistent with its performance of this Amended
and Restated Escrow Agreement.

(d)                                 At any time after the date of this Amended
and Restated Escrow Agreement, the Sellers may jointly request the Escrow Agent
in writing and the Purchaser shall join in the request (the “Substitution
Request”) to release to the Sellers the amount of Escrow Shares equal to the
Fair Value (as defined below) on the date of the Substitution Request of the
amount of cash to be deposited with the Escrow Agent in substitution of such
Escrow Shares.  Such cash that is deposited shall be considered part of the
Stock Escrow Fund.  The Escrow Agent shall make such release to the Sellers
within 3 business days of receiving the cash specified in the Substitution
Request.

(e)                                  Escrow Agent hereby agrees to act as escrow
agent and to hold, safeguard and disburse the Stock Escrow Fund pursuant to the
terms and conditions hereof.

2.                                       REPRESENTATIONS, WARRANTIES AND
COVENANTS OF SELLERS

Each Seller hereby jointly and severally represents, warrants and covenants
that:

(a)                                  Each Seller will not sell, contract to
sell, encumber or dispose of any of the Stock Escrow Fund or any interest
therein until this Amended and Restated Escrow Agreement and the obligations
hereunder have been satisfied pursuant to the terms hereof.

(b)                                 The deposit of the Stock Escrow Fund has
been duly authorized by each Seller.  No consent of any other party is necessary
if each Seller to perform its obligations hereunder, or if any such consent is
required, such consent has been received.

(c)                                  Each Seller shall possess all voting rights
pertaining to the Escrow Shares so long as no obligations of Seller under this
Amended and Restated Escrow Agreement have occurred and are continuing.

(d)                                 Sellers are the record and beneficial owner
of the Stock Escrow Fund, free and clear of all liens, claims and encumbrances
and have full right, power and authority to enter into and perform their
obligations under this Amended and Restated Escrow Agreement.

(e)                                  Each Seller will (i) from time-to-time,
promptly execute and deliver to Escrow Agent all such stock certificates
representing the Escrow Shares, stock power, assignments, supplemental writings,
and all other items, and do all other acts or things as Escrow Agent may
reasonably request regarding the Stock Escrow Fund; and (ii) promptly notify
Escrow Agent of any claims action or proceedings affecting title to the Stock
Escrow Fund, or any part thereof, and, at the request of the Escrow Agent,
appear in and defend, at Seller’s expense, any such action or proceeding.

3.                                       RELEASE OF STOCK ESCROW FUND

(a)                                  At any time there remains any portion of
the Stock Escrow Fund, upon a final determination of a claim by Purchaser
pursuant to Article X of the Purchase Agreement (an “Agreed Escrow Payment”),
Purchaser and Sellers shall provide a joint instruction to the Escrow

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Agent (an “Agreed Escrow Payment Notice”) to release to Purchaser from the Stock
Escrow Fund the Fair Value (as defined below) on the date of the Agreed Escrow
Payment Notice necessary the equal the Agreed Escrow Payment.  Within 3 business
days of receipt of an Agreed Escrow Payment Notice, Escrow Agent shall release
to purchaser the Fair Value of the Agreed Escrow Payment from (and only to the
extent of) the Stock Escrow Fund.  Fair Value of (i) any Escrow Shares on a per
share basis shall be (a) if the Purchaser’s common stock is listed for trading
on a national securities exchange or is quoted on the Nasdaq National Market or
the Nasdaq Capital Market, then the current value per share shall be the average
closing price of a Purchaser’s share of common stock over a 10-day period
immediately preceding the measurement date; (b) if the Purchaser’s common stock
is quoted on the over-the-counter market, then the current value per share shall
be the average of the closing bid price and asked price over a 10-day period
immediately preceding the measurement date; and (c) otherwise the fair market
value of a Purchaser share of common stock on the measurement date as determined
in good faith by the Board of Directors of the Purchaser; (ii) any other portion
of the Stock Escrow Fund that is a security  on a per share or per tradable unit
base shall be (a) if such security is listed for trading on a national
securities exchange or is quoted on the Nasdaq National Market or the Nasdaq
Capital Market, then the current value per share or other tradable unit shall be
the average closing price of such a share or tradable unit over a 10-day period
immediately preceding the measurement date; (b) if such security is quoted on
the over-the-counter market, then the current value per share or tradable unit
shall be the average of the closing bid price and asked price over a 10-day
period immediately preceding the measurement date; and (c) otherwise the fair
market value of the share or tradable unit on the measurement date as determined
in good faith by the Board of Directors of the Purchaser; and (iii) any other
portion of the Stock Escrow Fund that is not a security, the fair market value
of such portion of the Stock Escrow Fund on the measurement date determined in
good faith by the Board of Directors of the Purchaser.

(b)                                 Upon the later to occur of (i) the two (2)
year anniversary of the Closing Date and (ii) the date of the full and final
disposition of the OneOK Gas Litigation and all claims related thereto, whether
on appeal or otherwise, the Purchaser shall give a written notice signed by the
Purchaser (a “Release of Stock Escrow Fund Notice”) to Escrow Agent authorizing
the Escrow Agent to release to Sellers the remaining aggregate amount of the
Stock Escrow Fund (after taking into account any prior Agreed Escrow Payments)
less the fair value on the date of the Release of Stock Escrow Fund Notice of
the aggregate amount of all claims made by Purchaser pursuant to Article X of
the Purchase Agreement that are still pending and have not been paid to
Purchaser from the Stock Escrow Fund (the “Pending Claims”) (the aggregate
remaining amount less the Pending Claims being the “Released Stock Escrow
Fund”).  Within 3 business days of receipt of an Release of Stock Escrow Fund
Notice, Escrow Agent shall pay to the Sellers, as a whole, the Fair Value on the
Release of Stock Escrow Fund Notice from (and only to the extent of) the Stock
Escrow Fund.

(c)                                  To the extent that after the Released Stock
Escrow Fund is paid to Sellers there remains any amount in the Stock Escrow Fund
due to Pending Claims and upon a final determination of any Pending Claims and
the payment of all final Agreed Escrow Payments relating to such Pending Claims,
there remains any amount in the Stock Escrow Fund (the “Final Released Amount”),
the Purchaser shall give a written notice signed by the Purchaser (a “Final
Release of Stock Escrow Fund Notice”) to Escrow Agent authorizing the Escrow
Agent to release to Sellers the Final Released Amount.  Within 3 business days
of receipt of a Final Release of Funds Notice, Escrow Agent shall release the
Sellers, as a whole, the Final Released Amount from (and only to the extent of)
the Stock Escrow Fund.

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4.                                       TERMINATION OF ESCROW

Once the Stock Escrow Fund has been paid by the Escrow Agent in its entirety,
this Escrow Agreement shall terminate.  Section 5(e) and Section 5(b) shall
survive notwithstanding any termination of this Escrow Agreement or the
resignation of Escrow Agent.

5.                                       DUTIES OF ESCROW AGENT

(a)                                  Escrow Agent shall not be under any duty to
give the Stock Escrow Fund held by it hereunder any greater degree of care than
it gives its own similar property and shall not be required to invest any funds.

(b)                                 Escrow Agent shall not be liable, except for
its own negligence, gross negligence or willful misconduct and, except with
respect to claims based upon such negligence, gross negligence or willful
misconduct that are successfully asserted against Escrow Agent, the other
parties hereto shall jointly and severally indemnify and hold harmless Escrow
Agent (and any successor Escrow Agent) from and against any and all losses,
liabilities, claims, actions, damages and expenses, including reasonable
attorneys’ fees and disbursements, arising out of and in connection with this
Amended and Restated Escrow Agreement.

(c)                                  Escrow Agent shall be entitled to rely upon
any order, judgment, certification, demand, notice, instrument or other writing
delivered to it in connection herewith without being required to determine the
authenticity or the correctness of any fact stated therein or the propriety or
validity of the service thereof. Escrow Agent may act in reliance upon any
instrument or signature believed by it to be genuine and may assume that the
person purporting to give receipt or advice or make any statement or execute any
document in connection with the provisions hereof has been duly authorized to do
so. Escrow Agent may conclusively presume that the undersigned representative of
any party hereto which is an entity has full power and authority to instruct
Escrow Agent on behalf of that party unless written notice to the contrary is
delivered to Escrow Agent.

(d)                                 Escrow Agent may act pursuant to the advice
of counsel with respect to any matter relating to this Amended and Restated
Escrow Agreement and shall not be liable for any action taken or omitted by it
in good faith in accordance with such advice.

(e)                                  Escrow Agent does not have any interest in
the Stock Escrow Fund deposited hereunder but is serving as escrow holder only
and having only possession thereof. It is not acting in a fiduciary capacity.
Any payments of income from this Stock Escrow Fund shall be subject to
withholding regulations then in force with respect to United States taxes. The
parties hereto will provide Escrow Agent with appropriate Internal Revenue
Service Forms W-9 for tax identification number certification or non-resident
alien certifications.  During the term of this Amended and Restated Escrow
Agreement, Escrow Agent shall provide Purchaser and Sellers such information and
reports concerning the Stock Escrow Fund as any of them may reasonably request. 
Promptly after the termination of this Amended and Restated Escrow Agreement or
the resignation of Escrow Agent,  Escrow Agent shall make an accounting of the
Stock Escrow Fund to Purchaser and Sellers.  The fees and expenses of Escrow
Agent with respect to such reports and accountings shall be borne by Purchaser
and Sellers as provided in Section 5(j).

(f)                                    Escrow Agent makes no representation as
to the validity, value, genuineness or the collectability of any security or
other document or instrument held by or delivered to it.

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(g)                                 Escrow Agent shall not be called upon to
advise any party as to the wisdom in selling or retaining or taking or
refraining from any action with respect to any securities or other property
deposited hereunder.

(h)                                 Escrow Agent (and any successor Escrow
Agent) may at any time resign as such by delivering the Stock Escrow Fund to any
successor Escrow Agent jointly designated by the other parties hereto in
writing, or to any court of competent jurisdiction, whereupon Escrow Agent shall
be discharged of and from any and all further obligations arising in connection
with this Amended and Restated Escrow Agreement. The resignation of Escrow Agent
will take effect on the earlier of (i) the appointment of a successor (including
a court of competent jurisdiction) or (ii) the day which is 30 days after the
date of delivery of its written notice of resignation to the other parties
hereto. If at that time Escrow Agent has not received a designation of a
successor Escrow Agent, Escrow Agent’s sole responsibility after that time shall
be to retain and safeguard the Stock Escrow Fund until receipt of (i) a
designation of successor Escrow Agent, (ii) a joint written disposition
instruction by the other parties hereto or (iii) a final non-appealable order of
a court of competent jurisdiction.

(i)                                     In the event of any disagreement between
the other parties hereto resulting in adverse claims or demands being made in
connection with the Stock Escrow Fund or in the event that Escrow Agent is in
doubt as to what action it should take hereunder, Escrow Agent shall be entitled
to retain the Stock Escrow Fund until Escrow Agent shall have received (i) a
final non-appealable order of a court of competent jurisdiction directing
delivery of the Stock Escrow Fund or (ii) a written agreement executed by the
other parties hereto directing delivery of the Stock Escrow Fund, in which event
Escrow Agent shall disburse the Stock Escrow Fund in accordance with such order
or agreement. Any court order shall be accompanied by a legal opinion by counsel
for the presenting party satisfactory to Escrow Agent to the effect that the
order is final and non-appealable. Escrow Agent shall act on such court order
and legal opinion without further question.

(j)                                     Purchaser and Sellers shall pay Escrow
Agent compensation (as payment in full) for the services to be rendered by
Escrow Agent hereunder $3,500 in the aggregate annually and agree to reimburse
Escrow Agent for all reasonable expenses, disbursements and advances incurred or
made by Escrow Agent in performance of its duties hereunder (including
reasonable fees, expenses and disbursements of its counsel). Except as
specifically set forth above, any such compensation and reimbursement to which
Escrow Agent is entitled shall be borne 50% by Purchaser and 50% by Sellers.

(k)                                  Except as required by law, no printed or
other matter in any language (including, without limitation,  prospectuses,
notices, reports and promotional material) that mentions Escrow Agent’s name or
the rights, powers, or duties of Escrow Agent shall be issued by the other
parties hereto or on such parties’ behalf unless Escrow Agent shall first have
given its specific written consent thereto.

(l)                                     The other parties hereto authorize
Escrow Agent, for any securities held hereunder, to use the services of any
United States central securities depository it reasonably deems appropriate,
including, without limitation, the Depositary Trust Company and the Federal
Reserve Book Entry System.

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6.                                       LIMITED RESPONSIBILITY

This Amended and Restated Escrow Agreement expressly sets forth all the duties
of Escrow Agent with respect to any and all matters pertinent hereto. No implied
duties or obligations shall be read into this Amended and Restated Escrow
Agreement against Escrow Agent. Escrow Agent shall not be bound by the
provisions of any agreement among the other parties hereto except this Escrow
Agreement.

7.                                       OWNERSHIP FOR TAX PURPOSES

Sellers agrees that, for purposes of federal and other taxes based on income,
Sellers will be treated as the owner of the Stock Escrow Fund and that Sellers
will report all income, if any, that is earned on, or derived from, the Stock
Escrow Fund as its income in the taxable year or years in which such income is
properly includible and pay any taxes attributable thereto.

8.                                       NOTICES

All notices, consents, waivers and other communications under this Amended and
Restated Escrow Agreement must be in writing and will be deemed to have been
duly given when (a) delivered by hand (with written confirmation of receipt),
(b) sent by telecopier (with confirmation of receipt) provided that a copy is
mailed by registered mail, return receipt requested, or (c) received by the
addressee, if sent by a nationally recognized overnight delivery service, in
each case to the appropriate addresses and telecopier numbers set forth below
(or to such other addresses and telecopier numbers as a party may designate by
notice to the other parties):

To Buyer:

Cano Petroleum, Inc.

801 Cherry St., Suite 3200

Fort Worth, TX 76102

Attention:  James K. Teringo, Jr.

Facsimile No.:  817-698-0796

with copies to:

Haynes and Boone, LLP

901 Main Street, Suite 3100

Dallas, TX 75202

Attention:  W. Bruce Newsome

Facsimile No.:  214-200-0636

To Sellers:

Estate of Miles O’Loughlin

Scott White

Hwy 152 West

P.O. Box 960

Pampa, TX 79066

Facsimile No.:  806-665-1960

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To the Escrow Agent:

The Bank Of New York Trust Company, N.A.

10161 Centurion Parkway

Jacksonville, FL  32256

Attention: Corporate Trust; Harley Jeanty

Facsimile: (904) 645-1921

9.                                       JURISDICTION; SERVICE OF PROCESS

Any action or proceeding seeking to enforce any provision of, or based on any
right arising out of, this Escrow Agreement may be brought against any of the
parties in the courts of the State of Texas, County of Tarrant, or, if it has or
can acquire jurisdiction, in the United States District Court for the Northern
District of Texas, and each of the parties consents to the jurisdiction of such
courts (and of the appropriate appellate courts) in any such action or
proceeding and waives any objection to venue laid therein. Process in any action
or proceeding referred to in the preceding sentence may be served on any party
anywhere in the world.

10.                                 COUNTERPARTS

This Amended and Restated Escrow Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original and all of which,
when taken together, will be deemed to constitute one and the same.

11.                                 SECTION HEADINGS

The headings of sections in this Amended and Restated Escrow Agreement are
provided for convenience only and will not affect its construction or
interpretation.

12.                                 WAIVER

The rights and remedies of the parties to this Amended and Restated Escrow
Agreement are cumulative and not alternative. Neither the failure nor any delay
by any party in exercising any right, power, or privilege under this Amended and
Restated Escrow Agreement or the documents referred to in this Amended and
Restated Escrow Agreement will operate as a waiver of such right, power, or
privilege, and no single or partial exercise of any such right, power, or
privilege will preclude any other or further exercise of such right, power, or
privilege or the exercise of any other right, power, or privilege. To the
maximum extent permitted by applicable law, (a) no claim or right arising out 
of this Amended and Restated Escrow Agreement or the documents referred to in
this Amended and Restated Escrow Agreement can be discharged by one party, in
whole or in part, by a waiver or renunciation of the claim or right unless in
writing signed by the other party, (b) no waiver that may be given by a party
will be applicable except in the specific instance for which it is given, and
(c) no notice to or demand on one party will be deemed to be a waiver of any
obligation of such party or of the right of the party giving such notice or
demand to take further action without notice or demand as provided in this
Amended and Restated Escrow Agreement or the documents referred to in this
Amended and Restated Escrow Agreement.

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13.                                 EXCLUSIVE AGREEMENT AND MODIFICATION

This Amended and Restated Escrow Agreement supersedes all prior agreements among
the parties with respect to its subject matter and constitutes (along with the
documents referred to in this Amended and Restated Escrow Agreement) a complete
and exclusive statement of the terms of the agreement between the parties with
respect to its subject matter. This Amended and Restated Escrow Agreement may
not be amended except by a written agreement executed by Purchaser, Sellers and
Escrow Agent.  Other than with respect to the escrow of the Stock Escrow Fund as
set forth herein, nothing herein shall supersede or affect the rights and
obligations of Purchaser, Sellers and their successors and assigns under the
Purchase Agreement.

14.                                 GOVERNING LAW

This Amended and Restated Escrow Agreement shall be governed by the laws of the
State of Texas, without regard to conflicts of law principles.

* * * * *

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IN WITNESS WHEREOF, the parties have executed and delivered this Escrow
Agreement as of the date first written above.

BUYER

 

 

 

CANO PETROLEUM, INC., a Delaware corporation

 

 

 

 

 

By:

 /s/ S. Jeffrey Johnson

 

 

 

 Name:

S. Jeffrey Johnson

 

 

 Title:

Chairman and Chief Executive Officer

 

 

 

 

 

SELLERS

 

 

 

ESTATE OF MILES O’LOUGHLIN

 

 

 

 

 

By:

 /s/ Scott B. White

 

 

 

 Name:

Scott B. White

 

 

 Title:

Independent Executor

 

 

 

 

 

 

 /s/ Scott White

 

 

Scott White

 

 

 

 

 

ESCROW AGENT

 

 

 

THE BANK OF NEW YORK TRUST COMPANY, N.A.,
as Escrow Agent

 

 

 

 

 

By:

 /s/Harley Jeanty

 

 

 

 Harley Jeanty, Vice President

 

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