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

EXHIBIT 10.4

FIRST AMENDMENT TO THE

CANO 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 Cano Petroleum, Inc., a Delaware corporation (the “ Company ”) and Donnie Dale Dent (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 Cano Petroleum, Inc. and the Board of Directors, on June 28