Document:

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:

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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, CEOBayshore Exploration L.L.C.                         20501 Kay Freeway, Suite 216
                                                              Katy, Texas  77450
                                                            Phone (281) 646-1919
                                                              Fax (281) 647-9448

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

                              EXPLORATION AGREEMENT

         THIS AGREEMENT is made and entered into this 1st day of March, 2006 by
and between BAYSHORE EXPLORATION LLC ("Bayshore"), a Texas limited liability
company and PAXTON ENERGY, INC. ("Paxton"), a Nevada corporation (collectively
referred to in this Agreement as the "Parties").

         In consideration of the covenants contained in this Agreement, the
Parties agree as follows:

                                    ARTICLE I
                            PURPOSE OF THE AGREEMENT

         1.1 The Parties hereby join together for the purpose of developing the
existing Cooke Ranch Prospect acreage (8,840 acres, more or less) and acquiring
additional prospective oil and gas properties on which to explore for, develop
and produce oil and gas thereon in accordance with the terms and provisions of
this Agreement.

                                   ARTICLE II
                                   DEFINITIONS

         2.1 "Area of Mutual Interest" ("AMI") is the area outlined with the
bold outline on Exhibit "A" and Exhibit "B" attached hereto and located in La
Salle County, Texas.

         2.2 "Excluded Interest" shall have the same meaning as set forth in
Article 6.1.

         2.3 "Oil and Gas Interest" shall refer to oil and gas leases, and
contractual rights thereto such as farm-out agreements, participation
agreements, assignments and back-in agreements covering and relating to oil and
gas, or either of them.

         2.4 "Oil and Gas" shall include not only hydrocarbons, but also other
minerals to the extent the lease or other instrument affecting or relating to
oil and gas or either of them also affects or relates to other minerals.

         2.5 "Operating Agreement" shall mean the Joint Operating Agreement
attached hereto as Exhibit "C."

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Page 2                                                             March 1, 2006

         2.6 "Original Acquiring Party" is the party who is subject to this
agreement that first acquires an Oil and Gas Interest in the AMI.

                                   ARTICLE III
                                    EXHIBITS

         The following exhibits are attached hereto and made a part hereof for
all purposes:

         3.1 Exhibit "A" and Exhibit "B" describe and outline the Area of Mutual
Interest of the Parties.

         3.2 Exhibit "C" is the form of Operating Agreement that the Parties are
executing contemporaneously with the execution of this Agreement to govern oil
and gas exploration, development and operations on the jointly acquired
properties.

         3.3 Exhibit "D" is the certain Purchase Agreement dated December 30,
2005 between the parties for the purchase of additional working and leasehold
interest by Paxton in the Cooke Ranch 8840 acre project.

                                   ARTICLE IV
                    EXPANSION OF THE AREA OF MUTUAL INTEREST

         4.1 The AMI shall automatically be expanded under the following terms
and conditions:

In the event a test well in search of hydrocarbons is drilled within 5,280 feet
of the boundary of the AMI and encounters formations which indicate hydrocarbons
the AMI shall automatically be expanded to include an area of 640 acres, as near
as reasonably possible in the shape of a square around such well with such well
to be located as near as reasonably possible in the center of such area. Only
the Parties participating in said test well mentioned above shall have the right
to participate in the expansion of the AMI.

In the event geophysical operations are conducted within the AMI or such data is
purchased, and a party elects not to participate in such expense, then that
party shall not be entitled to access or ownership of such data.

                                    ARTICLE V
                          PRESENT STATUS OF OPERATIONS
                                 WITHIN THE AMI

         5.1 Within the AMI the Parties have drilled two wells. The Cooke No. 3
Well has been completed in the Escondido Formation as an oil well. Bayshore, et
al, owns 91.5% working interest and Paxton owns 8.5% working interest in the
well. The Cartwright No. 1 Well has been drilled and is in the process of being
completed in the Escondido formation. Bayshore, et al, owns 88.25% working
interest and Paxton owns 11.75% working interest in the well with the right for
Paxton to acquire an additional 20% working interest pursuant to an agreement
dated December 30, 2005 attached hereto as Exhibit "D." Under the terms of the
purchase agreement Paxton will also own a 31.75% leasehold interest in the 8840
acre Cooke Ranch project. In addition, the Parties are evaluating the subject
acreage for additional drilling locations.

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Page 3                                                             March 1, 2006

                                   ARTICLE VI
                       ACQUISITION OF OIL AND GAS INTEREST
                                 WITHIN THE AMI

         6.1 If any of the Parties acquire any Oil and Gas Interest within the
AMI during the term of this Agreement, the party acquiring such Oil and Gas
Interest (the "original acquiring party") shall give the other parties written
notice, with supporting documentation of the interest acquired and the actual
cost, terms and conditions of such acquisition within fifteen (15) days of the
actual date of acquisition. Each of the Parties receiving such written notice
shall have thirty (30) days (or forty-eight [48] hours if there is drilling rig
on the property covered by the Oil and Gas Interest) after receipt of written
notice of such acquisition, to acquire a share of the Oil and Gas Interest. Such
election shall be made by delivering by Express Mail to the original acquiring
party its share of the actual acquisition costs as determined by this Agreement
and agreeing to be bound by the terms and conditions of the acquisition. Failure
to respond within the specified period shall conclusively be deemed to be an
election not to acquire an interest in the Oil and Gas Interest so offered and
as to such party, the Oil and Gas Interest will be excluded from the AMI
(referred to hereafter as the "Excluded Interest"). Each party shall be entitled
to acquire in the acquisition, the proportion that such party's interest as set
forth in the Operating Agreement bears to the total interest of the parties
electing to participate in the acquisition and shall deliver to the original
acquiring party its proportionate share of the actual cost of the acquisition at
the time the election is made. Any acreage so acquired within the AMI that
Paxton elects to participate in for its proportionate share shall be subject to
a 75% Net Revenue Interest (NRI). The terms of the Area of Mutual Interest shall
run concurrent with this Agreement.

         6.2 In the event any party elects not to acquire its proportionate
share of any Oil and Gas Interest offered to it pursuant to paragraph 6.1 of
this Agreement, such party agrees that:

         (i) It shall hereafter not be entitled to the benefits of Paragraph 6.1
of this Agreement as to any Oil and Gas Interest acquired by the participating
parties.

         (ii) It will not acquire or attempt to acquire through itself or any of
its representatives, officers or directors, any Oil and Gas Interest within the
Excluded Interest for a period of three (3) calendar years after the date of its
election not to acquire the Oil and Gas Interest offered to it by the original
acquiring party.

                                   ARTICLE VII
                                   ASSIGNMENTS

         7.1 Within forty-five (45) days after a party's election hereunder to
acquire a portion of an Oil and Gas Interest, the original acquiring party shall
assign to all parties who elect to acquire a portion of an Oil and Gas Interest
the interest so acquired.

                                  ARTICLE VIII
                     OPERATIONS OF THE OIL AND GAS INTERESTS
                         ACQUIRED BY ALL OF THE PARTIES

         8.1 The Oil and Gas Interests and the properties covered thereby shall
be operated by the parties in accordance with the terms and provisions of the
Operating Agreement attached hereto as Exhibit "C" when such Oil and Gas
Interest is owned by all of the parties in the proportion set forth in Exhibit
"A" to such Operating Agreement. The location and timing of the initial well to
be drilled under the terms of the Operating Agreement will be determined by the
Operator.

<PAGE>

Page 4                                                             March 1, 2006

                                   ARTICLE IX
                     OPERATIONS OF THE OIL AND GAS INTERESTS
                    IN THE EVENT OF AN ELECTION BY LESS THAN
                   ALL PARTIES TO ACQUIRE OIL AND GAS INTEREST

         9.1 In the event an Oil and Gas Interest becomes an Excluded Interest,
the property covered thereby shall be deleted from the Operating Agreement
attached hereto as Exhibit "C", and the parties acquiring such interest shall
enter into successor operating agreement on the same terms and conditions as the
Operating Agreement attached hereto as Exhibit "C," except the Operating
Agreement shall be limited to and cover only the Excluded Interest and the
ownership interest of the party shall be revised to reflect their ownership of
the Excluded Interest covered by the successor operating agreement.

                                    ARTICLE X
                             TERM OF THIS AGREEMENT

         10.1 This Agreement shall be effective as of March 1, 2006 and shall
continue for a period of three (3) years or a period of six (6) months after the
termination of the last expiring leasehold interest acquired pursuant to the
terms of this Agreement, whichever is the later date.

                                   ARTICLE XI
                                     GENERAL

         11.1 The Parties agree to execute such additional agreements and
documents as may be necessary to effectuate the intentions of this Agreement.

         11.2 Unless otherwise specified in this Agreement, notice of the
parties shall be deemed sufficiently given, if sent by first class mail or
facsimile document transfer addressed to the party to be notified, at the
address stated herein, and shall be deemed to have been received within
seventy-two (72) hours of posting or at the time set forth on the facsimile
document transfer transmission statement, as the case may be; provided that if
the time period for receipt expires on Saturday, Sunday, or a legal holiday, the
time for receipt shall be deemed to be the next ensuing business day.

         11.3 This Agreement shall be construed in accordance with and governed
by the laws of the State of Texas, shall be binding upon and shall inure to the
benefit of the Parties and shall extend to and be binding upon their respective
successors and assigns.

         11.4 This Agreement shall supersede all prior oral and written
agreements between the Parties in connection with the AMI matter hereof.

         11.5 This Agreement may not be altered except in writing signed by all
Parties. In addition the Parties agree not to enter into any new agreement or
agreements concerning the matters set forth herein unless such agreement or
agreements are evidenced by a written document signed by all of the Parties.

         11.6 The section headings are inserted for convenience only and shall
not control the meaning or construction of any provisions of this Agreement.

<PAGE>

Page 5                                                             March 1, 2006

         11.7 In the event of a conflict between the terms of this Agreement and
any Exhibit attached hereto, this Agreement shall control.

         EXECUTED THIS 17th day of April, 2006 but effective as of March 1,
2006.

         BAYSHORE EXPLORATION L.L.C.

         By:  /s/ Jamin Swantner
            -------------------------
            Jamin Swantner, President

         PAXTON ENERGY, INC.

         By: /s/ Robert Freiheit
            -------------------------
            Robert Freiheit, CEO

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