EXHIBIT 10.1

FIRST AMENDMENT TO
AMENDED AND RESTATED REGULATIONS OF
SABINE PRODUCTION OPERATING, LLC
A TEXAS LIMITED LIABILITY COMPANY

This FIRST AMENDMENT TO AMENDED AND RESTATED REGULATIONS OF SABINE PRODUCTION
OPERATING, LLC, a Texas limited liability company (this “First Amendment”) is
made effective as of January 8, 2007 (the “Effective Date”).

RECITALS

WHEREAS, Sabine Production Operating, LLC (the “Company”) was organized as a
Texas limited liability company by the filing of Articles of Organization (the
“Articles”) under and pursuant to the Texas Limited Liability Company Act (as
amended from time to time, the “Act”) and the issuance of a certificate of
organization for the Company by the Secretary of State of Texas, on May 12, 2005
(the “Formation Date”);

WHEREAS, effective the Formation Date, Cano Petroleum, Inc., a Delaware
corporation (“Cano”), Carlile Management, LLC, a Texas limited liability company
(“Carlile Management”), and Haddock Enterprises, LLC, a Texas limited liability
company (“Haddock Enterprises”), being all of the Members of the Company,
adopted, executed, and agreed to the Regulations of Sabine Production Operating,
LLC (the “Original Regulations”);

WHEREAS, effective August 3, 2005, Cano, Carlile Management, and Haddock
Enterprises, being all of the Members of the Company, adopted, executed, and
agreed to the Amended and Restated Regulations of Sabine Production Operating,
LLC (the “Restated Regulations”);

WHEREAS, Section 10.05 of the Restated Regulations provides that the Restated
Regulations may be amended only with the approval of the Governing Board of
Managers and all of the Members;

WHEREAS, the Governing Board of Managers and all of the Members of the Company
desire to amend the Restated Regulations as provided herein.

NOW, THEREFORE, in consideration of the foregoing premises, and for good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged and confessed by the parties, the Governing Board of Managers and
all of the Members do hereby adopt, execute, and agree to amend the Restated
Regulations, as follows, as of the Effective Date:

1.             The amount of the “$325,000.00” Commitment of each Member set
forth on Exhibit “A” to the Restated Regulations shall be replaced in its
entirety with the amount “$375,000.00”.

1

--------------------------------------------------------------------------------

2.             Section 3.04 of the Restated Regulations is hereby deleted in its
entirety and replaced with the following:

“3.04.  Withdrawal.  Notwithstanding anything to the contrary contained in these
Restated Regulations, subsequent to the funding of a Member’s Commitment, a
Member may withdraw from the Company without the approval of all of the other
Members; provided, however, that any Member that withdraws from the Company
thereby forfeits all of its Membership Interest and shall not be entitled to the
return of any amounts in such Member’s capital account or to receive the fair
value of its Membership Interest and shall have no obligation to return to the
Company any distribution made to it prior to its withdrawal and (except for
Member Recourse Debt, if any) shall have no obligation or liability with respect
to nonrecourse indebtedness of the Company.  In addition, the withdrawing Member
shall be deemed to be released from all of its obligations under these Restated
Regulations and the Transaction Documents.”

3.             Defined Terms.  Capitalized terms that are not otherwise defined
in this First Amendment shall have the same meanings ascribed to such terms in
the Restated Regulations.

4.             Counterparts.  This First Amendment may be executed in multiple
counterparts, and all such executed counterparts shall constitute the same
agreement.  It shall be necessary to account for only one such counterpart in
proving this First Amendment.  To facilitate the execution and delivery of this
First Amendment, the parties may execute and exchange counterparts of the
signature pages by facsimile, and the signature page of any party to any
counterpart may be appended to any other counterpart.

5.             Ratification and Confirmation.  Except as expressly modified and
amended hereby, all terms, conditions, and provisions of the Restated
Regulations remain unamended and unmodified and the Restated Regulations, as
amended and modified hereby, are hereby ratified and confirmed by the Members.

[SIGNATURES ON FOLLOWING PAGE]

2

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, the Members and the Governing Board of Managers hereto have
duly executed and approved this First Amendment as of the Effective Date.

Members:

 

CANO PETROLEUM, INC.

 

 

 

 

 

By:

/s/ S. Jeffrey Johnson

 

 

 

S. Jeffrey Johnson, Chairman and Chief Executive Officer

 

 

CARLILE MANAGEMENT, LLC

 

 

 

 

 

By:

/s/ Kenneth Q. Carlile

 

 

 

Kenneth Q. Carlile, President

 

 

 

HADDOCK ENTERPRISES, LLC

 

 

 

 

 

By:

/s/ Gerald W. Haddock

 

 

 

Gerald W. Haddock, President

 

 

 

Governing Board of Managers:

 

 

 

 

/s/ Jack I. Tompkins

 

Jack I. Tompkins, Manager

 

 

 

/s/ Dr. Kenneth Q. Carlile

 

Dr. Kenneth Q. Carlile, Manager

 

 

 

 

 

 

 

 

 

/s/ Gerald W. Haddock

 

Gerald W. Haddock, Manager

 

 

 

 

 

 

/s/ S. Jeffrey Johnson

 

S. Jeffrey Johnson, Manager

 

 

 

 

3

--------------------------------------------------------------------------------