**EXHIBIT 10.5**

 

**FIRST AMENDMENT TO THE**

**CANO PETROLEUM, INC.**

**NONQUALIFIED STOCK OPTIONAGREEMENT**

 

ThisFIRST AMENDMENT (the “***Amendment***”)to the Nonqualified Stock Option Agreement (the “***Agreement***”)dated December 28, 2006, is hereby made and entered as of the 2nd day ofJanuary, 2008 by and between Cano Petroleum, Inc., a Delaware corporation(the “***Company***”) and Donnie DaleDent (the “***Participant***”).  Terms used in this Amendment with initialcapital letters that are not otherwise defined herein shall have the meaningsascribed to such terms in the Agreement.

 

**WHEREAS**, Section 24 of the Agreement provides that theparties to the Agreement may change or modify the Agreement in a writing signedby the parties; and

 

**WHEREAS**, the parties desire to amend the Agreement’svesting provisions to reflect changes made by the Compensation Committee ofCano Petroleum, Inc. and the Board of Directors, on June 28, 2007 andthe Participant’s resignation as a director in good standing from the Board ofDirectors as determined by Cano Petroleum’s Compensation Committee on December 12,2007.

 

**NOW THEREFORE**, pursuant to Section 24 of theAgreement, in consideration of the mutual promises, conditions and covenantscontained herein and in the Agreement, and other good and valuable consideration,the adequacy of which is hereby acknowledged, the parties agree as follows:

 

1.                                       Sections 3 and4 of the Agreement shall be amended in their entirety to read as follows:

 

3.               and 4.  Vesting; Time of Exercise.  100% of the total Optioned Shares shall vestimmediately upon the Participant’s resignation on December 12, 2007, andthe Stock Option shall become exercisable for an extended period of Twenty-Four(24) months from the date of resignation with the exercise period ending at 5 p.m.on December 12, 2009.

 

2.                                       Section 27.a.of the Agreement shall be amended to read as follows:

 

a.                                       Notice to theCompany shall be addressed and delivered as follows:

 

Cano Petroleum, Inc.

Burnett Plaza

801 Cherry Street

Suite 3200, Unit 25

Fort Worth, TX  76102

Attn:  Corporate Secretary

 

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**IN WITNESS WHEREOF**, the parties hereto haveexecuted this Amendment the day and year first above written.

** **
| ** ** | **CANO  PETROLEUM, INC.** | ** **                            |
|------------|---------------------------|---------------------------------------|
| ** ** | ** **                | ** **                            | ** ** |
|       | By:                       | /s/  S. Jeffrey Johnson               |   |
|       | Name:                     | S.  Jeffrey Johnson                   |   |
|       | Title:                    | Chairman  and Chief Executive Officer |
|       |                      |                                  |   |
|       | **PARTICIPANT**           |                                  |
|       |                      |                                  |   |
|       | By:                       | /s/  Donnie Dale Dent                 |   |
|       | Name:                     | DONNIE  DALE DENT                     |   |

 

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