Cano Petroleum Initiates Plan to Increase Production on Existing Assets

Cano Petroleum plans to substantially increase production and proved reserves through a variety of projects and improvements at its existing assets. The company expects capital expenditures totaling approximately $13.6 million over the next 12 months, to be allocated to the five fields it currently owns in Oklahoma and Texas. Cano anticipates its investment, to be made from funds recently raised in two private placements, will result in an incremental increase in production of more than 600 barrels of oil equivalent per day and will provide up to approximately 11 million barrels of additional proved reserves with an estimated PV10 value of $247 million, based upon the June 30, 2005, SEC price of $56.54/bbl. These approximately 11 million barrels of additional proved reserves are currently classified as probable reserves.

The asset development plan is comprised of various projects, including recompletion work at the company's Davenport, Rich Valley, Nowata and Desdemona fields. Additionally, the company plans to drill seven infill wells and complete a waterflood evaluation at Rich Valley. The company also intends to expand current waterflood operations at Desdemona, a field with approximately 100 million barrels of original oil in place that has never been waterflooded. Surfactant and polymer (SP) evaluations will be performed on several of the fields, along with the previously announced SP pilot that will be implemented at Nowata. Approximately $1.2 million of the capital expenditure budget has been designated for the acquisition of additional leases and royalty interests. The planned asset development capital expenditure levels and allocations may be subject to adjustment depending upon specific field results.

Jeff Johnson, Cano's Chairman and CEO, stated: "We are very excited at the prospect of significantly increasing our production and reserves with a relatively modest investment and substantially less risk compared to exploration. More importantly, our field development plan underscores the benefits of our focus on secondary and enhanced oil recovery of mature fields and demonstrates the potential upside value that is inherent in our business model: converting our probable reserves to proved."

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 Company: Cano Petroleummore info
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