Cano Announces Fiscal Year 2009 Capital Budget of $97.5 Million, Fiscal Year 2008...

Cano Announces Fiscal Year 2009 Capital Budget of $97.5 Million, Fiscal Year 2008 Reserves and Operational Update

FORT WORTH, Texas--(Business Wire)--
Cano Petroleum, Inc. (AMEX:CFW) today announced 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.

-0-
*T
Summary of Changes in Proved Reserves MBOE
----------------------------------------------------------------------

Reserves at June 30, 2007 66,726
Estimated Production (532)
Acquisitions 1,872
Additions and Development 4,776
Revisions (3,010)
Reclassifications (16,447)
---------
Reserves at June 30, 2008 53,185
*T

Jeff Johnson, Cano's Chairman and CEO stated, "I am very pleased
with the success exhibited in our reserve conversion. The 25% growth
rate of our PDP reserves was in line with our expectation for FY '08,
and tracks with our expectations for the next several years as we
continue to develop our resource potential."

2009 Capital Budget of $97.5 Million

Cano plans to spend approximately $97.5 million on its capital
projects during Fiscal Year 2009 which includes plans to drill 114 net
wells. The Panhandle waterflood and projects in the Cato Field are
expected to account for the majority of the spending. The table below
details the plans:

-0-
*T
Capital Projects $MM Net Wells Drilled
----------------------------------------------------------------------

Corsicana $ 0.4 -
Davenport 0.4 -
Desdemona Waterflood 6.7 11
Desdemona Barnett 3.0 2
Nowata 10.0 10
Panhandle 37.0 43
Pantwist - -
Cato Field 40.0 48
----------------------------
Total $ 97.5 114
*T

Operational Update

Panhandle Field--Cockrell Ranch Waterflood:

Cano's third-party engineer, Miller and Lents, approved conversion
of 1.4 MMBOE of PUD waterflood reserves to PDP reserves based on the
positive response seen at the waterflood to date. This represents
approximately one-third of the 2007 PUD reserves booked for the
Cockrell Ranch Unit with the remaining two-thirds remaining in the PUD
category. Gross oil production in the month of June exceeded 2,400
barrels, a three-fold increase from February. Full injection of over
50,000 barrels of water per day is continuing at the Cockrell Ranch
Unit and the cumulative injected pore volume is over .20, or 20% PVI.
Extensive well surveillance is being performed to install larger
pumping units and optimize production. Additionally, 15 injection
wells have been worked over to optimize and re-direct water injection
into the highest remaining oil saturation intervals of the Brown
Dolomite formation. Total fluid production has increased to over 9,000
barrels per day and we are starting to see the first signs of
increases in injection well pressure. This is the initial sign of
placing injected water into "unswept" areas of the formation and
should result in varying degrees of increasing oil-cut in the next
three to six months.

The next phase of the waterflood project at the Panhandle Field
consists of six separate "mini" Phases on reduced well spacing that
will allow Cano to accelerate the field's development. The tighter
spacing and smaller development patterns should allow quicker
permitting and response times, and allow a larger development
bandwidth over a greater acreage position in the field.

Production for the month ended June 2008 at Panhandle Field
averaged 540 net BOEPD. Including the increases in the Cockrell Ranch
Unit, as previously discussed, field production was off over 80 BOEPD
from April 2008 as unscheduled gas plant maintenance and the
initiation of a field-wide chemical treatment program took a large
number of non-waterflood wells offline. As of the first week in July,
production levels in the field were starting to approach previous
levels.

Cato Field Infill Waterflood Development Project:

The results of third-party reservoir engineering firm, H.J. Gruy
and Associates, helped buttress significant reserve additions,
approved by Miller and Lents, at the Cato Field.

The development plan for FY 2009 is to drill 48 new waterflood
pattern wells and initiate water injection. We presented our
waterflood application to the New Mexico Oil and Gas Conservation
Commission in May and stand ready to commence ten water injection
wells once the permit application is approved. We will be in a
position to initiate water injection in 10 additional wells at Cato
within 60 days of permit receipt.

Production for the month ended June 2008 at the Cato Field was 233
net BOEPD. As previously reported, Cano released the drilling rig in
May to concentrate on waterflood facility infrastructure and no new
wells have been brought on-line since then. In July we reinstated our
drilling program. Pipe was set on the first new well last week.
Production from the 20-acre infill drilling program should resume in
the near-term.

Nowata Properties. Our ASP tertiary recovery pilot project at the
Nowata Field has been in full operation since December 2007. To date
we have injected close to .12 pore volumes of ASP, or 12% PVI. The ASP
Pilot is reacting according to plan and we expect an initial response
by the end of the calendar year. Production for the month ended June
2008 averaged 218 net BOEPD at the Nowata Field.

Total Cano production averaged 1,446 net BOEPD in June. In
addition to the production variances mentioned above, normal
production declines were seen in non-core areas of the company. Cano
is currently evaluating the sale of non-core assets at the Pantwist
and Davenport fields. Based on the positive development results seen
from our FY 2008 capital programs at Panhandle and Cato, we would look
to commit any sale proceeds to these core properties and/or to
strategic acquisitions.

Conference Call

The Company will hold a conference call to provide an update on
its operations on Wednesday, July 23, 2008, at 10:00 A.M. Eastern Time
(9:00 A.M. Central Time).

Interested parties can participate in the call by dialing
866-356-4279. For calls outside the U.S., parties may dial
617-597-5394. The pass code is 24416988. A replay of the call will
also be available through July 30, 2008 by dialing 888-286-8010,
passcode 77479008.

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.

Cautionary Notes to Investors -- The Securities and Exchange
Commission (SEC) permits oil and gas companies, in their filings with
the SEC, to disclose only proved reserves that a company has
demonstrated by actual production or conclusive formation tests to be
economically and legally producible under existing economic and
operating conditions. Cano uses "non-proved reserves" in this news
release, which the SEC's guidelines strictly prohibit it from
including in filings with the SEC. Investors are also urged to
consider closely the disclosures in Cano's Form 10-K for the fiscal
year ended June 30, 2007, available from Cano by calling 877-698-0900.
This form also can be obtained from the SEC at www.sec.gov.

Cano Petroleum, Inc.
Ben Daitch, 877-698-0900
Senior Vice President & CFO
INFO@canopetro.com

Copyright Business Wire 2008