Cano Petroleum Announces New Field Barnett Shale Discovery & Operational Update

FORT WORTH, Texas--(BUSINESS WIRE)--Cano Petroleum, Inc. (AMEX:CFW) announced today a new field discovery in its Desdemona Field located in Eastland County, Texas. The company has successfully completed its first vertical Barnett Shale well (#E-8) with an Absolute Open Flow (AOF) rate of approximately 820 mcfpd, at a depth of approximately 3,450 feet from a 125 foot thick producing interval. The #E-8 was fracture stimulated on November 17th and flow tested for 10 days resulting in a stabilized flow rate of approximately 400 mcfpd and 100 barrels of water per day. Current gas sales from this well are approximately 350 mcfpd. Water production appears to be coming from the Marble Falls formation which is situated directly above the Barnett Shale. The water will be re-injected into the Duke Sand formation where the company is planning to initiate a waterflood in 2007.

“With our approximately 10,000 contiguous acre position and 20 acre spacing, this new field discovery could provide significant added value for our shareholders.”

Gas sales from the #E-8 well commenced on November 24th, 27 days after spud date. Due to extensive existing infrastructure in this field, Cano has the capacity to deliver up to 10 mmcfpd under its existing gas sales contract and is currently exploring opportunities for up to 20 mmcfpd of additional capacity.

In addition to the #E-8 well, Cano has drilled and completed 3 additional Barnett Shale wells in the field and has fracture stimulated 2 of them (#E2 and #E10). Both wells are currently flowing back load water while the remaining well (#E11) is scheduled to be stimulated within the next 7 days. The company is currently drilling ahead with two drilling rigs on its 5th and 6th wells in the field. Cano currently plans to complete only the Barnett Shale formation in its previously announced 10 well program in field and will later look to test the Marble Falls formation. The Marble Falls formation is currently producing from 3 wells the company re-completed earlier this year in the field. Gas sales from these Marble Falls wells are approximately 135 mcfpd. The company is examining the addition of gas compression for the Marble Falls wells as their current gas sales are being restricted due to high line pressure.

Cano anticipates having all 10 Barnett Shale wells in its initial program drilled and completed by February 2007. Upon completion and evaluation of this 10 well program, field development for both the Barnett Shale and Marble Falls formations could be continued on 20 acre vertical well spacing.

"We are very encouraged about the early results from our Barnett Shale drilling program," said Jeff Johnson, Cano's Chairman and CEO. "With our approximately 10,000 contiguous acre position and 20 acre spacing, this new field discovery could provide significant added value for our shareholders."

OPERATIONAL UPDATE

Panhandle Field - Phase I Waterflood Development

Cano has 1 drilling rig and 15 workover rigs running in the Panhandle Field. Cano has drilled and completed the first waterflood replacement well in its Phase I pattern. The company plans to drill up to 20 replacement wells prior to commencing Phase I of waterflood operations in its Cockrell Ranch Unit. The company anticipates Phase I water injection to commence in the second quarter of calendar year 2007, with initial response anticipated in the fourth calendar quarter of 2007.

Desdemona Field – Waterflood Development

Cano anticipates beginning drilling of its initial waterflood pattern of up to 4 water injection wells and 7 producers in the Desdemona Field in the first calendar quarter of 2007, with water injection anticipated to commence in the second calendar quarter of 2007. Initial response is anticipated in the fourth calendar quarter of 2007.

Corsicana Field

Cano currently has 1 drilling rig and 1 workover rig running in the Corsicana Field. To date the company has drilled and completed 11 waterflood pattern wells out of a total of 16 total anticipated to be drilled. The company plans to re-establish a prior waterflood with water injection commencing in the second calendar quarter of 2007. Based on the waterflood pattern response and timing, an ASP pilot is anticipated to be designed and is projected to be implemented in the third calendar quarter of 2007.

Nowata Field

Cano currently has 2 workover rigs running in the Nowata Field with approximately 10 out of 15 scheduled wells to date having been returned to production. The company has sourced surfactants, polymers and plant facilities for a scheduled second calendar quarter 2007 start-up of an ASP pilot.

Davenport Field

Cano has 2 workover rigs running in the Davenport Field with 12 of a scheduled 24 wells having been returned to production to date. The company anticipates having all scheduled wells being returned to production within 90 days. Upon completion of the workovers, the company anticipates initiating an ASP pilot project in the first calendar quarter 2008 contingent upon successful laboratory studies.

Jeff Johnson, Cano’s Chairman and CEO said, “As is evident from our increased level of activity, Cano remains on track to expend our previously announced FY 2007 $41 million capital budget.”

ABOUT CANO PETROLEUM:

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. Additional information is available at www.canopetro.com.

Safe-Harbor Statement -- Except for the historical information contained herein, the matters set forth in this news release are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The company intends that all such statements be subject to the “safe-harbor” provisions of those Acts. Many important risks, factors and conditions may cause the company’s actual results to differ materially from those discussed in any such forward-looking statement. These risks include, but are not limited to, estimates or forecasts of reserves, estimates or forecasts of production, future commodity prices, exchange rates, interest rates, geological and political risks, drilling risks, product demand, transportation restrictions, the ability of Cano Petroleum, Inc. to obtain additional capital, and other risks and uncertainties described in the company’s filings with the Securities and Exchange Commission. The historical results achieved by the company are not necessarily indicative of its future prospects. The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.