Cano Petroleum Announces Third Quarter Fiscal Year 2009 Results, Earnings Call and Operations Update

FORT WORTH, Texas--(Business Wire)--
Cano Petroleum, Inc. (NYSE Amex: CFW) today announced financial and operating
results for the third quarter of fiscal year 2009.

Highlights

* Increased sequential quarterly production by 5.1% to 1,263 net BOEPD
* Increased sequential quarterly oil production by 8.1%
* Reduced lease operating expense, sequentially, from $44.06/BOE to $35.70/BOE
in the third-quarter. March 2009 lease operating expense, on a production basis,
dropped to $33.30/BOE
* Reduced annual cash general and administrative expense run-rate by
approximately $3.0 million
* Resolved all outstanding Panhandle wildfire lawsuits (excluding the Burnett
appeal)

Jeff Johnson, Cano`s Chairman and CEO, commented, "I am pleased with our oil
production increase as a direct result from waterflood operations. We achieved
meaningful growth without drilling any new producers in over six months."
Johnson continued, "This quarter we realized lease operating expense savings of
approximately $500,000 from measures taken last quarter. Additionally, steps
taken this quarter should reduce annualized general and administrative expense
by approximately $3.0 million. The increased production and our cost cutting
initiatives, coupled with the elimination of the outstanding lawsuits which
stemmed from the 2006 Panhandle wildfires, are very positive for our Company."

In the third quarter production was 1,263 net BOEPD, up 5.1% sequentially over
the second quarter and up 7.2% from the third quarter 2008 as a result of
waterflood response. Revenue for the third quarter was $3.9 million, down 57%
compared to $9.2 million for the same period last year because of lower gas
production and lower commodity prices. The net loss applicable to common stock
for the quarter was $1.2 million or a loss of $0.03 per share. As a function of
production growth at our waterfloods, we are increasing our capital expenditure
budget from $38.5 million to $49.8 million. Capital expenditures incurred for
the third quarter of fiscal year 2009 were $12.1 million.

As of May 10, 2009, we had $27.8 million available under our $60 million
borrowing base senior credit facility. On March 17, 2009, we drew down the $15.0
million of availability under our subordinated credit agreement and used the
proceeds to reduce borrowings under our senior credit facility.

Earnings Call

The Company will hold an earnings call to discuss fiscal third quarter 2009
results and provide an update on its operations on Tuesday, May 12, 2009, at
11:00 A.M. Eastern Time (10:00 A.M. Central Time). Interested parties can
participate in the call by dialing 800-901-5248. For calls outside the U.S.,
parties may dial 617-786-4512. The passcode is 79899515. This call is being
webcast by Thomson/CCBN and can be accessed at Cano`s website at
www.canopetro.com.

The webcast is also being distributed through the Thomson StreetEvents Network.
Individual investors can listen to the call at www.earnings.com, Thomson`s
individual investor portal, powered by StreetEvents. Institutional investors can
access the call via Thomson StreetEvents (www.streetevents.com), a
password-protected event management site.

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 NYSE AMEX 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.

CANO PETROLEUM, INC.
OPERATING REVENUES

Quarter ended Nine months
March 31, Increase ended March 31, Increase
2009 2008 (Decrease) 2009 2008 (Decrease)
Operating Revenues (in thousands) $ 3,928 $ 9,172 $ (5,244 ) $ 19,736 $ 23,455 $ (3,719 )
Sales
-- Crude Oil (MBbls) 78 68 10 221 180 41
-- Natural Gas (MMcf) 181 216 (35 ) 571 709 (138 )
-- Total (MBOE) 108 104 4 316 298 18
Average Realized Price
-- Crude Oil ($/ Bbl) $ 35.49 $ 92.64 $ (57.15 ) $ 66.01 $ 84.51 $ (18.50 )
-- Natural Gas ($/ Mcf) $ 5.52 $ 13.06 $ (7.54 ) $ 8.49 $ 11.34 $ (2.85 )

Operating Revenues and Commodity Derivative Settlements (in thousands) $ 6,774 $ 8,844 $ (2,070 ) $ 23,743 $ 23,386 $ 357

Average Adjusted Price (includes commodity derivative settlements)
-- Crude Oil ($/ Bbl) $ 62.34 $ 87.33 $ (24.99 ) $ 79.70 $ 81.32 $ (1.62 )
-- Natural Gas ($/ Mcf) $ 9.64 $ 13.21 $ (3.57 ) $ 10.21 $ 12.15 $ (1.94 )

COMMODITY DERIVATIVES

Time Period Floor Ceiling Barrels Floor Ceiling Mcf Barrels of
Oil Price Oil Price Per Day Gas Price Gas Price per Day Equivalent
Oil per Day
4/1/09 - 12/31/09 $ 80.00 $ 110.90 367 $ 7.75 $ 10.60 1,667 644
4/1/09 - 12/31/09 $ 85.00 $ 104.40 233 $ 8.00 $ 10.15 1,133 422
1/1/10 - 12/31/10 $ 80.00 $ 108.20 333 $ 7.75 $ 9.85 1,567 594
1/1/10 - 12/31/10 $ 85.00 $ 101.50 233 $ 8.00 $ 9.40 1,033 406
1/1/11 - 3/31/11 $ 80.00 $ 107.30 333 $ 7.75 $ 11.60 1,467 578
1/1/11 - 3/31/11 $ 85.00 $ 100.50 200 $ 8.00 $ 11.05 967 361

CANO PETROLEUM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

Three Months Ended Nine Months Ended
March 31, March 31,
In Thousands, Except Per Share Data 2009 2008 2009 2008
Operating Revenues:
Crude oil sales $ 2,774 $ 6,271 $ 14,577 $ 15,182
Natural gas sales 1,001 2,822 4,847 8,035
Other revenue 153 79 312 238
Total operating revenues 3,928 9,172 19,736 23,455

Operating Expenses:
Lease operating 4,067 3,530 13,910 8,760
Production and ad valorem taxes 375 691 1,854 1,672
General and administrative 2,157 3,320 16,561 10,700
Impairment of long-lived assets - - 22,398 -
Depletion and depreciation 1,585 969 4,157 2,721
Accretion of discount on asset retirement obligations 76 51 226 152
Total operating expenses 8,260 8,561 59,106 24,005

Income (loss) from operations (4,332 ) 611 (39,370 ) (550 )

Other income (expense):
Interest expense and other (165 ) (99 ) (419 ) (492 )
Impairment of goodwill - - (685 ) -
Gain (loss) on derivatives 3,486 (3,571 ) 48,480 (5,674 )
Total other income (expense) 3,321 (3,670 ) 47,376 (6,166 )

Income (loss) from continuing operations before income taxes (1,011 ) (3,059 ) 8,006 (6,716 )
Deferred income tax benefit (expense) 308 1,089 (3,731 ) 2,378

Income (loss) from continuing operations (703 ) (1,970 ) 4,275 (4,338 )
Income (loss) from discontinued operations, net of related taxes (6 ) 920 11,388 2,320
Net income (loss) (709 ) (1,050 ) 15,663 (2,018 )

Preferred stock dividend (470 ) (877 ) (2,261 ) (2,732 )
Preferred stock repurchased for less than carrying amount - - 10,890 -

Net income (loss) applicable to common stock $ (1,179 ) $ (1,927 ) $ 24,292 $ (4,750 )

Net income (loss) per share - basic
Continuing operations $ (0.03 ) $ (0.07 ) $ 0.29 $ (0.20 )
Discontinued operations - 0.02 0.25 0.06
Net income (loss) per share - basic $ (0.03 ) $ (0.05 ) $ 0.54 $ (0.14 )

Net income (loss) per share - diluted
Continuing operations $ (0.03 ) $ (0.07 ) $ 0.29 $ (0.20 )
Discontinued operations - 0.02 0.22 0.06
Net income (loss) per share - diluted $ (0.03 ) $ (0.05 ) $ 0.51 $ (0.14 )

Weighted average common shares outstanding
Basic 45,316 37,370 45,359 35,029
Diluted 45,316 37,370 52,519 35,029

CANO PETROLEUM, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)

March 31, June 30,
In Thousands, 2009 2008
Except Shares
and Per Share
Amounts
ASSETS
Current
assets
Cash and cash $ 327 $ 771
equivalents
Accounts 2,308 3,916
receivable
Deferred tax - 3,592
assets
Derivative 8,776 -
assets
Inventory and 1,510 642
other current
assets
Assets held - 25,912
for sale
(Note 2)
Total current 12,921 34,833
assets
Oil and gas 294,695 247,930
properties,
successful
efforts
method
Less (34,378 ) (7,962 )
accumulated
depletion and
depreciation
Net oil and 260,317 239,968
gas
properties
Fixed assets 3,147 2,096
and other,
net
Derivative 5,913 125
assets
Goodwill 101 786
TOTAL ASSETS $ 282,399 $ 277,808
LIABILITIES,
TEMPORARY
EQUITY AND
STOCKHOLDERS`
EQUITY
Current
liabilities
Accounts $ 7,680 $ 8,679
payable
Accrued 5,004 2,840
liabilities
Deferred tax 3,143 -
liabilities
Liabilities - 1,398
associated
with
discontinued
operations
Oil and gas 564 815
sales payable
Derivative 84 9,978
liabilities
Current 344 345
portion of
asset
retirement
obligations
Total current 16,819 24,055
liabilities
Long-term
liabilities
Long-term 43,700 73,500
debt
Asset 3,068 2,865
retirement
obligations
Deferred - 6,000
litigation
credit
Derivative - 16,390
liabilities
Deferred tax 29,568 26,062
liabilities
Total 93,155 148,872
liabilities
Temporary
equity
Series D 25,127 45,086
convertible
preferred
stock and
cumulative
paid-in-kind
dividends;
par value
$.0001 per
share, stated
value $1,000
per share;
49,116 shares
authorized;
23,849 and
44,474 shares
issued at
March 31,
2009 and June
30, 2008,
respectively;
liquidation
preference at
March 31,
2009 and June
30, 2008 of
$26,709 and
$48,353,
respectively.
Commitments
and
contingencies
Stockholders`
equity
Common stock, 5 4
par value
$.0001 per
share;
100,000,000
authorized;
47,346,812
and
45,643,735
shares issued
and
outstanding,
respectively,
at March 31,
2009; and
40,523,168
and
39,254,874
shares issued
and
outstanding,
respectively,
at June 30,
2008.
Additional 188,821 121,831
paid-in
capital
Accumulated (24,012 ) (37,414 )
deficit
Treasury (697 ) (571 )
stock, at
cost;
1,703,077 and
1,268,294
shares held
in escrow at
March 31,
2009 and June
30, 2008,
respectively.
Total 164,117 83,850
stockholders`
equity
TOTAL $ 282,399 $ 277,808
LIABILITIES,
TEMPORARY
EQUITY AND
STOCKHOLDERS`
EQUITY

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

Copyright Business Wire 2009