Exploration Agreement

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."


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
< ...