SUBORDINATED GUARANTY AGREEMENT
This Subordinated Guaranty Agreement dated as of March 17, 2008 (this “ Guaranty ”) is executed by
each of the undersigned (individually a “ Guarantor ” and collectively, the “ Guarantors ”), in favor of
UnionBanCal Equities, Inc., as Administrative Agent for the ratable benefit of itself, the Lenders (as defined
below) (together with the Administrative Agent and the Lenders, individually a “ Beneficiary ”, and collectively,
the “ Beneficiaries ”).
A. This Guaranty is given in connection with that certain Subordinated Credit Agreement dated as
of March 17, 2008 (as it has been or may be amended, supplemented, restated or otherwise modified from time
to time, the “ Credit Agreement ”), among Cano Petroleum, Inc., a Delaware corporation (the “ Borrower ”), the
lenders party thereto from time to time (individually a “ Lender ” and collectively, the “ Lenders ”), and
UnionBanCal Equities, Inc. as administrative agent (“ Administrative Agent ”) for such Lenders.
B. Each Guarantor is a Subsidiary of the Borrower and will derive substantial direct and indirect
benefit from the transactions contemplated by the Credit Agreement and the other Loan Documents (as defined
in the Credit Agreement).
C. Each Guarantor is executing and delivering this Guaranty (i) to induce the Lenders to provide the
Advances and the other considerations under the Credit Agreement, and (ii) intending it to be a legal, valid,
binding, enforceable and continuing obligation of such Guarantor, whether or not such Guarantor derives any
benefit from the Credit Agreement or from any other Loan Document.
NOW, THEREFORE, in consideration of the premises, each Guarantor hereby agrees as follows:
Section 1. Definitions. All capitalized terms not otherwise defined in this Guaranty that are defined
in the Credit Agreement shall have the meanings assigned to such terms by