EXHIBIT 10.2


FIRST
AMENDMENT TO EMPLOYMENT AGREEMENT


THIS FIRST AMENDMENT TO EMPLOYMENT AGREEMENT (this “Amendment”) is made and entered into
by and between Cano Petroleum Inc.,
a Delaware corporation with its principal executive offices in Fort Worth, Texas
(the “Company”), and Patrick M. McKinney, an individual
currently residing in Tarrant County, Texas (“Vice President,” collectively,
the “Parties”), effective as of the 9th day of November, 2006 (the “Amendment
Effective Date”).


WHEREAS, the Company and Vice President entered into
that certain Employment Agreement dated as of June 1, 2006, (the “Agreement”);
and


WHEREAS, the Company and Vice President now desire
to amend, alter, modify and change the terms and provisions of the Agreement,
as follows.


NOW THEREFORE, for and in consideration of the mutual
benefits to be obtained hereunder and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged and confessed, the
Company and Vice President do hereby agree to amend, alter, modify and change
the Agreement, effective prospectively, as of the Amendment Effective Date as
follows:


1.             Each reference to “Vice President” in the Agreement is
deleted throughout the Agreement and the term “Senior Vice President” is
substituted in place and in lieu thereof.


2.             Section 1. Employment. shall be deleted in its
entirety and the following substituted in place and in lieu thereof:


1.             Employment.  The Company hereby employs
Senior Vice President in the capacity of Senior Vice President — Engineering
and Operations, and Senior Vice President hereby agrees to accept such
employment by the Company, upon the terms and conditions stated in this
Agreement.


3.             Section 4. (a)  Compensation.
shall be deleted in its entirety and the following substituted in place and in
lieu thereof:


(a)           Salary:  The Company shall pay Senior Vice President
for his services, a base salary, on an annualized basis, of $185,000.00 (One
Hundred Eighty-Five Thousand Dollars) per annum for the period from the
Effective Date through November 15, 2006, and a base salary, on an annualized
basis, of $200,000.00 (Two Hundred Thousand Dollars) per annum for the period
beginning on November 16, 2006, which salary shall be payable by the Company in
substantially equal installments on the Company’s normal payroll dates.  All applicable taxes on the base salary will
be withheld in accordance with applicable federal, state and local taxation
guidelines.



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4.             Section 4. (c)  Compensation.
shall be deleted in its entirety and the following substituted in place and in
lieu thereof:


(c)           Bonus: In addition to the base
salary described in paragraph 4(a) above, Vice President shall be eligible for
periodic cash bonuses in an amount up to 100% of the then base salary and/or
stock bonuses at the discretion of the Board of Directors of the Company.


5.             Section 4. (e)  Compensation.
shall be deleted in its entirety and the following substituted in place and in
lieu thereof:


(e)           Raises:  Vice President may receive periodic increases
in the base salary at the discretion of the Board of Directors of the Company,
which increased base salary shall become the base salary for purposes of this
Agreement. 


Except as specifically
amended, altered, modified and changed hereby and heretofore, the Agreement remains
in full force and effect as originally written.


Signatures


To evidence the binding
effect of the covenants and agreements described above, the Parties hereto have
executed this Amendment effective as of the date first above written.


 


	
  

  	
  THE COMPANY:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  CANO PETROLEUM, INC.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ S. Jeffrey Johnson

  	
   

  
	
   

  	
   

  	
  S. Jeffrey Johnson

  	
   

  
	
   

  	
   

  	
  Chairman and Chief Executive Officer

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  VICE PRESIDENT:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  /s/ Patrick M. McKinney

  	
   

  
	
   

  	
   

  	
  Patrick M. McKinney

  	
   

  



 


 



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