Cano Petroleum, Inc’s Reserves and Operational Update

Cano Petroleum, Inc has recently told the press about the results of its Fiscal Year End Reserves as prepared by Miller and Lents, Ltd., its new independent petroleum engineer. Proved developed producing (PDP) reserves increased 25% to 10.6 million barrels of oil equivalent (BOE) up from 8.5 million BOE (after FY ’08 production of 0.5 million BOE). The increase in PDP reserves was primarily driven by a 1.4 million BOE proved undeveloped (PUD) to PDP conversion based upon initial response at the Cockrell Ranch waterflood. The balance of the PDP increase came from our infill drilling program at the Cato Field. As a result of our programs and commodity price increases, the pre-tax net present value, discounted at 10% (PV10), of our PDP reserves increased from $108 million to $425 million.

Notwithstanding our PDP growth, overall estimated proved oil and natural gas reserves decreased approximately 20% to 53.2 million BOE as of June 30, 2008, as compared to 66.7 million BOE as of June 30, 2007. Total proved reserves were primarily impacted due to a high-grading of our development plans to focus on our core assets, the Panhandle and Cato fields. We had a material amount of reclassifications from PUD to Probable reserves associated with our Pantwist PUDs given that we are seeking strategic alternatives with this asset. Furthermore, we had revisions associated with our Barnett Shale project as we have elected to not aggressively develop this asset in the near term.

Oil reserves accounted for 72% of total reserves. Based upon the ending June oil price of $140.00 per barrel and natural gas of $13.15 per mcf, the pre-tax PV-10 of our reserves is $2.24 billion.

Cano Petroleum Inc. is an independent Texas-based energy producer with properties in the mid-continent region of the United States. Led by an experienced management team, Cano’s primary focus is on increasing domestic production from proven fields using enhanced recovery methods. Cano trades on the American Stock Exchange under the ticker symbol CFW