Bayshore Exploration L.L.C.                        20501 Katy Freeway, Suite 216
                                                               Katy, Texas 77450
                                                            Phone (281) 646-1919
                                                              Fax (281) 647-9448
                                                      bayshoreexpl@sbcglobal.net

March 8, 2006

Paxton Energy, Inc.
2533 North Carson Street
Suite 6232
Carson City, Nevada 89706

         RE:      Lease Acquisition Agreement
                  3,200 acres, more or less
                  La Salle County, Texas

Gentlemen:

This letter is written to evidence the agreement between Bayshore Exploration
L.L.C. ("Bayshore") and Paxton Energy, Inc., ("Paxton") pertaining to the
acquisition and development of certain oil and gas leases and oil and gas lease
options located in La Salle County, Texas.

Bayshore is in the process of acquiring certain oil and gas leases and/or oil
and gas lease options on 3,200 acres ("the subject acreage"), more or less, for
the purpose of oil and gas exploration and production. The subject acreage is
outlined on the attached land plat and described as follows, to wit:

Tract One - 640 acres, more or less, being all of the H. & G.N.R.R. Survey No.
121, A-260, La Salle County, Texas.

Tract Two - 640 acres, more or less, being all of the A. Sullivan Survey No.
140, A-1084, La Salle County, Texas.

Tract Three- 640 acres, more or less, being all of P. Johnston Survey No. 150,
A-1042, La Salle County, Texas.

Tract Four- 640 acres, more or less, being all of the H. & G.N.R.R. Survey No.
139, A-267, La Salle County, Texas.

Tract Five - 640 acres, more or less, being all of the C. Sullivan Survey 122,
A-1082, La Salle County, Texas.

Paxton desires to participate for a 50% working interest ownership in the
acquisition and development of the subject acreage and hereby agrees to the
following terms and conditions:

<PAGE>

Page 2                                                            March 16, 2006

         1. Paxton agrees to pay to Bayshore, on or before March 20, 2006, the
         sum of $305,000.00 U.S. dollars which represents Paxton's share (50%)
         of the lease and lease option acquisition costs. In the event Paxton
         does not pay Bayshore the sum of $305,000.00 U.S. dollars on or before
         March 20, 2006, then this letter agreement and all of its terms and
         conditions will become null and void.

         2. Bayshore agrees to make its best effort to acquire said leases and
         lease options on the subject acreage within 90 days of the date of this
         letter agreement.

         3. In the event that Bayshore is unable to acquire all the subject
         tracts Paxton's deposit shall be applied at the pro-rata cost base and
         the balance returned to Paxton.

         4. Bayshore also agrees, upon acquisition of said leases and lease
         options on the subject acreage, to assign Paxton a 50% working interest
         ownership in the acquired leases and lease options.

         5. Within ninety days of this agreement, Paxton shall have an option to
         increase its leasehold working interest in the subject acreage to
         seventy-five percent on the same costs, terms and conditions as
         provided herein.

         6. Bayshore and Paxton agree to enter into a mutually acceptable Joint
         Operating Agreement to cover oil and gas exploration and production
         operations on the subject acreage naming Bayshore as operator.

         7. This agreement is the entire agreement between Bayshore and Paxton
         pertaining to the lease acquisition and options of the subject acreage.
         Any changes to this agreement must be agreed to in writing by both
         parties.

If the foregoing is your understanding of our agreement, please acknowledge your
acceptance by signing in the space provided below and returning one fully
executed agreement to Bayshore along with your check in the amount of
$305,000.00 U.S. dollars on or before March 20, 2006.

Sincerely,

BAYSHORE EXPLORATION L.L.C.

/s/ Jamin Swantner

Jamin Swantner
President
Attachment: Land Plat

                                                     AGREED to and ACCEPTED this
                                                     16th day of March, 2006.

                                                     PAXTON ENERGY, INC.

                                                     By: /s/Robert Freiheit
                                                        Robert Freiheit, CEO