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ESCROW AGREEMENT

THIS AGREEMENT made and entered into as of the 5th day of
April, 2007.

AMONG:

> MEGAWEST ENERGY CORP., a British Columbia company
>         (the "Parent")

AND:

> MEGAWEST ENERGY (USA) CORP., a Nevada corporation
>         (the "Buyer")

AND:

> RAYMOND T. PIRRAGLIA
>         (the "Representative")

AND:

> CLARK WILSON LLP, Barristers and Solicitors,
>           of 800  885 West Georgia Street, Vancouver, British Columbia,
>           Canada V6C 3H1
>         ("Clark Wilson")

WITNESS THAT WHEREAS:

|A. | The Buyer and all of the members of Deerfield Energy LLC,
      a Delaware limited liability company (the "Sellers") are parties to
      a Membership Interest Purchase Agreement made as of March 26, 2007 by and
      among the Parent, the Buyer, Deerfield Energy LLC, the Sellers and the
      Representative (the "Purchase Agreement");                                              
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                
|B. | Pursuant to Section 2.2 of the Purchase Agreement, the
      parties thereto have agreed that the Buyer shall deliver to an escrow
      agent, designated by the Buyer and approved by the Representative,
      US$300,000 (the "Subject Monies") and certificates representing
      4,750,000 of the Parent's fully paid and non-assessable Common Shares (the
      "Subject Securities");

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|C. | The Buyer wishes to designate Clark Wilson as the Escrow
      Agent pursuant to the Purchase Agreement (which designation the
      Representative approves) and Clark Wilson wishes to accept such
      designation, all upon the terms hereinafter set out; and
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                    
|D. | Notwithstanding any provision of the Purchase Agreement,
      the Buyer and the Sellers have agreed that the Subject Monies and the
      Subject Securities shall be held by Clark Wilson and released thereby only
      in accordance herewith.                

THEREFORE, in consideration of the mutual covenants and
agreements herein contained and other good and valuable consideration (the
receipt and sufficiency of which are hereby acknowledged), the parties hereto
covenant and agree as follows:

**1.**                      
**INTERPRETATION**

1.1             
        In this Agreement:

| | (a) | the headings have been inserted for convenience of
      reference only and in no way define, limit, or enlarge the scope or
      meaning of the provisions of this Agreement;                                                                                                                                                                                                                                                                                                                                                          
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (b) | all references to any party, whether a party to this
      Agreement or not, shall be read with such changes in number and gender as
      the context or reference requires;                                                                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (c) | when the context hereof makes it possible, the word
      "person" includes in its meaning any firm and any body corporate or
      politic; and                                                                                                                                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (d) | in this Agreement and the recitals hereto, unless there
      is something in the subject or context inconsistent therewith, all
      capitalized terms used and not otherwise defined herein shall have the
      meaning assigned to them in the Purchase Agreement and, notwithstanding
      any other provision of the Purchase Agreement, if a conflict or
      inconsistency exists between a provision of this Agreement and a provision
      of the Purchase Agreement, the provisions of this Agreement shall
      prevail.

**2.**                      
**DEPOSIT INTO ESCROW**

2.1                      At
Closing, the Buyer shall deliver to Clark Wilson: (a) a certified cheque or bank
draft in the amount of US$300,000, representing the Subject Monies; and (b) two
share certificates (the "Share Certificates") each representing 2,375,000
Common Shares registered in the name of the Representative, to be held in escrow
by Clark Wilson in accordance with the terms and subject to the conditions set
out herein.

2.2                      At
Closing, the Representative shall deliver to Clark Wilson a duly executed power
of attorney, in form and substance satisfactory to Clark Wilson, in respect of
the Subject Securities represented by the Share Certificates. Without limiting
the generality of the foregoing, the Representative hereby appoints Clark
Wilson, without any further act of the Representative or any of the Sellers, as
the agent and attorney-in-fact for and behalf of the Representative in respect
of the Share Certificates.

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**3.**                      
**ESCROW PROVISIONS**

3.1                     
Clark Wilson shall hold the Subject Securities and the Subject Monies (which
shall be deposited into a segregated interest-bearing trust account at a
Canadian chartered bank or similar financial institution of the kind of account
normally used for such purposes) for the purpose of securing the indemnification
obligations of the Sellers pursuant to Article VIII of the Purchase Agreement
for a period of six months commencing on the Closing Date, subject to the
provisions of Section 3.2 hereof (the "Escrow Period"). The Subject
Monies plus any interest accrued thereon, the Subject Securities and any Common
Shares or other equity securities issued or distributed by the Parent in respect
of the Subject Securities during the Escrow Period (the "New Shares"), as
held by Clark Wilson, are hereinafter collectively referred to as the "Escrow
Fund".

3.2                      Notwithstanding
any other provision hereof, three months from the Closing Date the Escrow Period
with respect to one-half of the Subject Monies and one-half of the Subject
Securities shall terminate. At such time, Clark Wilson shall: (a) wire to the
Representative, as per the Representatives wire instructions, the amount of
US$150,000, representing one-half of the Subject Monies, plus the interest
accrued thereon; and (b) deliver, via courier, to the Parents transfer agent
(the "Transfer Agent") the Share Certificate representing 2,375,000
Common Shares, representing one-half of the Subject Securities, along with any
related New Shares. The Parent shall instruct the Transfer Agent and shall cause
the Transfer Agent to issue to the Sellers stock certificates representing such
Common Shares, as instructed by the Representative. Notwithstanding the
foregoing, if the said portion of the Subject Monies and/or the Subject
Securities are necessary to fully satisfy any unsatisfied claims made pursuant
to Article VIII of the Purchase Agreement, as specified in any Indemnity Claim
Notice received by Clark Wilson prior to the expiration of the said three-month
period, then the said Subject Monies and Subject Securities shall be retained by
Clark Wilson; provided that if, between the expiry of the three-month period and
the expiry of the Escrow Period, Clark Wilson is instructed by notice in writing
executed by the Parent and the Representative, in form and substance
satisfactory to Clark Wilson, to deliver any or all of the Subject Monies (plus
the interest accrued thereon) and/or the Subject Securities (and any related New
Shares) to a person designated in such notice, Clark Wilson shall deliver such
Subject Monies and/or Subject Securities, as directed.

3.3                     
Upon the expiration of the Escrow Period, Clark Wilson shall: (a) wire to the
Representative, as per the Representatives wire instructions, the amount of any
Subject Monies remaining in the Escrow Fund plus the interest accrued thereon;
and (b) deliver, via courier, to the Transfer Agent the Share Certificate(s)
remaining in the Escrow Fund along with any related New Shares. The Parent shall
instruct the Transfer Agent and shall cause the Transfer Agent to issue to the
Sellers stock certificates representing such Common Shares, as instructed by the
Representative. Notwithstanding the foregoing, if the said portion of the
Subject Monies and/or the Subject Securities are necessary to fully satisfy any
unsatisfied claims made pursuant to Article VIII of the Purchase Agreement, as
specified in any Indemnity Claim Notice received by Clark Wilson prior to the
expiration of the Escrow Period, then the said Subject Monies and Subject
Securities shall be retained by Clark Wilson; provided that if, after the expiry
of the Escrow Period, Clark Wilson is instructed by notice in writing executed
by the Parent and the Representative, in form and substance satisfactory to
Clark Wilson, to deliver any or all of the Subject Monies and/or the Subject
Securities to a person designated in such notice, Clark Wilson

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shall deliver such Subject Monies (plus the interest accrued
thereon) and/or Subject Securities (and any related New Shares), as directed.

3.4                      Clark
Wilson is authorized by each of the Buyer and the Sellers to make the deliveries
required by each of Sections 3.2 and 3.3 of this Agreement.

3.5                      Notwithstanding
any other provision of the Purchase Agreement, the parties hereto agree that
Clark Wilson shall not be obliged to deliver copies of any proxy solicitation
materials received by it, if any, to the Sellers or to the Representative, nor
to provide quarterly statements to the Representative regarding the Escrow Fund.
At the time of making any distributions from the Escrow Fund, Clark Wilson shall
make reasonable efforts to provide the Representative with a written statement
setting out the amounts of the Subject Monies plus interest accrued thereon, the
Subject Securities and the New Shares remaining in the Escrow Fund. The Parent
agrees that, during the Escrow Period, it shall attend to the delivery of any
proxy solicitation materials to the Representative.

**4.**                      
**ESCROW AGENT**

4.1                     
The Parent and the Buyer shall, jointly and severally, from time to time, and at
all times hereafter, well and truly to save, defend and keep harmless and fully
indemnify Clark Wilson and its successors and assigns from and against all loss,
costs, charges, suits, demands, claims, damages and expenses which Clark Wilson
and its successors and assigns may at any time or times hereafter bear, sustain,
suffer or be put unto for or by reason or on account of its acting pursuant to
this Agreement or anything in any manner relating thereto or by reason of Clark
Wilson's compliance in good faith with the terms hereof.

4.2                      If
case proceedings should hereafter be taken in any court respecting the Subject
Monies or the Subject Securities, Clark Wilson shall not be obliged to defend
any such action or submit its rights to the court until it has been indemnified
by other good and sufficient security in addition to the indemnity given in
Section 4.1 hereof against its costs of such proceedings.

4.3                     
Clark Wilson shall not be bound in any way or by any contract or agreement,
verbal, written or otherwise, between the other parties hereto whether or not it
has notice thereof or of its terms and conditions and the only duty, liability
and responsibility of Clark Wilson to the other parties hereto with respect to
the subject matter hereof shall be to hold the Subject Monies and the Subject
Securities as set out herein and to deliver the same to such persons and other
such conditions as are set out herein or directed in writing by all the other
parties hereto. Without limiting the generality of the foregoing, Clark Wilson
shall have no duty, liability or responsibility to any of the other parties
hereto or their successors or assigns in respect of the loss of all or any of
the Subject Monies or the Subject Securities, except the duty to exercise in the
performance of its obligations hereunder such care, diligence and skill that a
reasonably prudent person would exercise in comparable circumstances. Clark
Wilson may act on the advice of legal counsel, but shall not be responsible for
acting or failing to act on the advice of legal counsel.

4.4                      Clark
Wilson shall not be required to pass upon the sufficiency of any of the Subject
Securities or the notices delivered to Clark Wilson hereunder or to ascertain
whether or

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not the person or persons who have executed, signed or
otherwise issued or authenticated the said documents have authority to so
execute, sign or authorize, issue or authenticate the said documents or any of
them, or that they are the same persons named therein or otherwise to pass upon
any requirement of such instruments that may be essential for their validity,
but it shall be sufficient for all purposes under this Agreement insofar as
Clark Wilson is concerned that the said documents are deposited with it as
specified herein by the other parties hereto.

4.5                     
In the event that any or all of the Subject Monies or the Subject Securities are
attached, garnished or levied upon under any court order, or if the delivery of
such property is stayed or enjoined by any court order or if any court order,
judgment or decree is made or entered affecting such property or affecting any
act by Clark Wilson, Clark Wilson may, in its sole discretion, obey and comply
with all writs, orders, judgments or decrees so entered or issued, whether with
or without jurisdiction, notwithstanding any provision of this Agreement to the
contrary. If Clark Wilson obeys and complies with any such writs, orders,
judgments or decrees, it shall not be liable to any of the other parties hereto
or to any other person, form or corporation by reason of such compliance,
notwithstanding that such writs, orders, judgments or decrees may be
subsequently reversed, modified, annulled, set aside or vacated.

4.6                     
Except as otherwise provided herein, Clark Wilson is authorized and directed to
disregard in its sole discretion any and all notices and warnings which may be
given to it by any of the other parties hereto or by any other person, firm,
association or corporation. It shall, however, at its sole discretion, obey the
order, judgment or decree of any court of competent jurisdiction, and it is
hereby authorized to comply with and obey such orders, judgments or decrees and
in case of such compliance, it shall not be liable by reason thereof to any of
the other parties hereto or to any other person, firm, association or
corporation, even if thereafter any such order, judgment or decree may be
reversed, modified, annulled, set aside or vacated.

4.7                     
If Clark Wilson receives any valid court order contrary to the provisions of
this Agreement, Clark Wilson may continue to hold any or all of the Subject
Monies and the Subject Securities until the lawful determination by a court of
competent jurisdiction or otherwise of the issue between the other parties
hereto.

4.8                     
If written notice of protest is made by the Buyer or the Representative to Clark
Wilson to any action contemplated by Clark Wilson under this Agreement, and such
notice sets out reasons for such protest, Clark Wilson may at its sole
discretion continue to hold any or all of the Subject Monies and the Subject
Securities until the right to the Subject Monies and/or Subject Securities is
legally determined by a court of competent jurisdiction or otherwise.

4.9                     
Clark Wilson may resign as Escrow Agent by giving not less than ten (10) days
written notice thereof to the Buyer and the Representative. The Buyer and the
Representative may terminate Clark Wilson by giving not less than ten (10) days
written notice to Clark Wilson. The resignation or termination of Clark Wilson
shall be effective, and Clark Wilson shall cease to be bound by this Agreement,
on the date that is ten (10) days after the date of receipt of the termination
notice given hereunder or on such other date as Clark Wilson, the Buyer and the
Representative may agree upon. All indemnities granted to Clark Wilson hereunder
shall survive: (a) the termination of this Agreement; or (b) the termination or
resignation of Clark Wilson for whatever reason. In the event of termination or
resignation of Clark Wilson, Clark

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Wilson shall, within that ten (10) days notice period, deliver
the Subject Monies, the Subject Securities and any other property in the Escrow
Fund to the new Escrow Agent to be named by the Buyer and the Representative.

4.10                     Notwithstanding
anything to the contrary contained herein, Clark Wilson may act upon any written
instructions given jointly by the Parent and the Representative.

4.11                     Notwithstanding
any other provision hereof, if any dispute arises between any of the parties
hereto with respect to this Agreement or any matters arising in respect thereof,
Clark Wilson may in its sole discretion deliver and interplead the Subject
Monies, the Subject Securities and/or any other property in the Escrow Fund into
court and such delivery and interpleading shall be an effective discharge to
Clark Wilson of all of its obligations hereunder.

**5.**                      
**FEES**

5.1                      The
Buyer shall pay all of the compensation of Clark Wilson and shall reimburse
Clark Wilson for any and all reasonable expenses, disbursements and advances
made by Clark Wilson in the performance of its duties hereunder, including, but
not limited to, reasonable fees, expenses and disbursements incurred by its
counsel.

**6.**                      
**REPRESENTATIVE**

6.1                      The
Representative may be changed in accordance with the provisions of Section 8.5
of the Purchase Agreement. In such event, a Majority of the Sellers shall notify
Clark Wilson, the Parent and the Buyer in writing of any such change and Clark
Wilson, the Parent and the Buyer shall be entitled to rely upon such notice
without further inquiry.

6.2                      Notices
or communications to or from the Representative shall constitute notice to or
from each of the Sellers. A decision, act, consent or instruction of the
Representative shall constitute a decision of all of the Sellers and shall be
final, binding and conclusive upon each of such Sellers; and Clark Wilson, the
Parent, the Buyer and all other members of the Seller Group may rely upon any
such decision, act, consent or instruction of the Representative as being the
decision, act, consent or instruction of each and every such Seller. Clark
Wilson, the Parent, the Buyer and all other members of the Seller Group are
hereby relieved from any liability to any person for any acts done by them in
accordance with such decision, act, consent or instruction of the
Representative. The Representative shall not be liable to the Sellers for any
act done or omitted hereunder as the Representative except as provided in
Section 8.5 of the Purchase Agreement.

**7.**                      
**GENERAL**

7.1                     
Except as otherwise provided herein, no subsequent alteration, amendment,
change, or addition to this Agreement shall be binding upon the parties hereto
unless reduced to writing and signed by the parties hereto.

7.2                      This
Agreement shall enure to the benefit of and be binding upon the parties hereto
and their respective heirs, executors, administrators, successors and assigns.
Nothing in this Agreement, express or implied, is intended to confer upon any
party other than the parties

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hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.

7.3                      The
parties hereto shall execute and deliver all such further documents, do or cause
to be done all such further acts and things, and give all such further
assurances as may be necessary to give full effect to the provisions and intent
of this Agreement.

7.4                     
This Agreement shall be governed by and construed in accordance with the laws of
the Province of British Columbia and the federal laws of Canada applicable
therein.

7.5                      The
parties hereto agree that irreparable damage would occur in the event that any
of the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties hereto shall be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the provisions of this
Agreement, this being in addition to any other remedy to which they are entitled
under this Agreement.

7.6                      Any
notice required or permitted to be given under this Agreement shall be in
writing and may be given by delivering, sending by electronic facsimile
transmission or other means of electronic communication capable of producing a
printed copy, or sending by prepaid registered mail, the notice to the following
address:

| | (a) | If to the Parent or the Buyer:                                                                     
| | --- | ---------------------------------------------------------------------------------------------------
| |     |                                                                                                    
| |     | 1010 - 789 West Pender Street Vancouver, British
      Columbia Canada V6C 1H2                     
| |     |                                                                                                    
| |     | Attention:      George Orr
      Telephone:    (604) 606-7978
      Facsimile:       (604)
606-7980
| |     |                                                                                                    
| | (b) | If to the Representative:                                                                          
| |     |                                                                                                    
| |     | Raymond T. Pirraglia 74 Narrows Road South Staten
      Island, New York 10305                     
| |     |                                                                                                    
| |     | Telephone:    (718) 273-5950
      Facsimile:      (718)
  815-2987                                

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| | (c) | If to Clark Wilson:                 
| | --- | ------------------------------------
| |     |                                     
| |     | Clark Wilson LLP                    
| |     | 800  885 West Georgia St           
| |     | Vancouver, British Columbia         
| |     | Canada V6C 3H1                      
| |     |                                     
| |     | Attention:      Virgil
      Z. Hlus
| |     | Telephone:    (604) 687-5700        
| |     | Facsimile:      (604)
      687-6314

(or to such other address as any party may specify by notice in
writing to another party). Any notice delivered or sent by electronic facsimile
transmission or other means of electronic communication capable of producing a
printed copy on a business day shall be deemed conclusively to have been
effectively given on the day the notice was delivered, or the electronic
communication was successfully transmitted, as the case may be. Any notice sent
by prepaid registered mail shall be deemed conclusively to have been effectively
given on the third business day after posting; but if at the time of posting or
between the time of posting and the third business day thereafter there is a
strike, lockout, or other labour disturbance affecting postal service, then the
notice shall not be effectively given until actually delivered.

7.7                     
Time is of the essence of this Agreement.

7.8                      This
Agreement may be executed in one or more counterparts, all of which shall be
considered one and the same agreement and shall become effective when one or
more counterparts have been signed by each of the parties hereto and delivered
to the other parties hereto, it being understood that all parties hereto need
not sign the same counterpart. This Agreement may be executed by delivery of
executed signature pages by fax and such fax execution shall be effective for
all purposes.

IN WITNESS WHEREOF the parties hereto have caused this
Agreement to be executed as of the day and year first written above.

|**MEGAWEST ENERGY CORP.** |                                | **MEGAWEST ENERGY (USA) CORP.**
|------------------------- | ------------------------------ | -------------------------------
|                          |                                |                                
|                          |                                |                                
|Per:                      | /s/ George
      Orr           |                                
|                          | Name: George Orr               |                                
|                          | Title: Chief Financial Officer |                                
|                          |                                |                                
|                          |                                |                                
|**THE REPRESENTATIVE:**   |                                | **CLARK WILSON LLP**           
|                          |                                |                                
|                          | /s/ Raymond
      T. Pirraglia |                                
|                          | Raymond T. Pirraglia           |                                
|                          |                                |                                

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