FIRST AMENDMENT TO THE CANO PETROLEUM, INC. NONQUALIFIED STOCK OPTION AGREEMENT

EXHIBIT 10.4

FIRST AMENDMENT TO THE

XXXX PETROLEUM, INC.

NONQUALIFIED STOCK OPTION AGREEMENT

This FIRST AMENDMENT (the “Amendment”) to the Nonqualified Stock Option Agreement (the “Agreement”) dated December 13, 2005, is hereby made and entered as of the 2nd day of January, 2008 by and between Xxxx Petroleum, Inc., a Delaware corporation (the “Company”) and Xxxxxx Xxxx Xxxx (the “Participant”).  Terms used in this Amendment with initial capital letters that are not otherwise defined herein shall have the meanings ascribed to such terms in the Agreement.

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

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

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

1.             Section 3 of the Agreement shall be amended in its entirety to read as follows:

3. Vesting; Time of Exercise.  100% of the total Optioned Shares shall vest immediately upon the Participant’s resignation on December 12, 2007 and the 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 5:00 p.m. on December 12, 2009.

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

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

Xxxx Petroleum, Inc.

Xxxxxxx Plaza

801 Cherry Street

Suite 3200, Xxxx 00

Xxxx Xxxxx, XX  00000

Attn:  Corporate Secretary

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

	XXXX PETROLEUM, INC.
	By:	/s/ S. Xxxxxxx Xxxxxxx
	Name:	S. Xxxxxxx Xxxxxx
	Title:	Chairman and Chief Executive Officer

	PARTICIPANT
	By:	/s/ Xxxxxx Xxxx Xxxx
	Name:	XXXXXX XXXX XXXX