Cano Petroleum Updates Proved Reserve Estimates

Cano Petroleum has revised its proved reserve estimates upward based on the fiscal year-end report prepared by Forrest A. Garb & Associates. As shown in the table below, Cano's SEC PV-10% total proved reserve value increased to $46.3 million as of June 30, 2005, from $1.5 million, as of June 30, 2004. The net change in present value was primarily due to acquisitions, as well as reserve additions from enhancements, drilling, reserve revisions and increased oil and natural gas prices.
                                  June 30,    December 31,  June 30,
                                     2005         2004         2004
                                 ------------ ------------ -----------
Total Proved Reserves:
  Oil (Mbbls)                          3,056        2,758         213
  Gas (Mmcf)                          10,388        5,014           0
                                 ------------ ------------ -----------
Proved Barrels of Equivalent Oil
 (MBOE)                                4,787        3,594         213
Pre-tax PV-10%                   $46,300,000  $34,092,000  $1,500,000

Jeff Johnson, Cano's Chairman and CEO, stated, "While increases in the first half of the year were mostly the result of acquisitions, we are especially pleased with the increases in production and reserves in the second half that were due to enhancements to these assets at the field level. We hope to maintain this trend by continuing to implement sound engineering practices in order to maximize our recovery efficiencies as we prepare these fields for their respective enhanced oil recovery programs."

In addition to its proved reserves, Cano estimates its probable reserves to be approximately 41 MBOE which it will seek to reclassify as proven reserves utilizing enhanced oil recovery (EOR) methods. The company is in the third of three phases of laboratory analysis to determine the formulation and methodology for the planned surfactant-polymer flooding of its Nowata Field -- the first of its assets scheduled for waterflooding and/or chemical EOR treatment. Cano has three assets that meet specific criteria for waterflooding and/or chemical EOR, including its Davenport and Nowata Fields in Oklahoma, and its Desdemona Field in Texas.

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