Company Website: http://www.canopetro.com
IRVING, Texas -- (Business Wire)

Cano Petroleum, Inc. (NYSE Amex:CFW) today reports its operating results for its third quarter (“Third Quarter of 2011”) and nine months (“Current Nine Months of 2011”) ended March 31, 2011, which are summarized as follows:

Operating Revenues

Operating revenues were $6.7 million in the Third Quarter of 2011, 16% higher than $5.8 million in the third quarter of 2010 (“Prior Year Quarter”). The $0.9 million increase is attributable to higher prices received for crude oil and natural gas sales and increased natural gas sales volumes, partially offset by decreased crude oil sales volumes. The increase in the natural gas sales volume is primarily due to the return-to-production project at the Desdemona Properties and higher natural gas sales at the Cato Properties since the natural gas purchaser had temporarily declined to take Cato’s natural gas production for most of the prior year quarter. The decreased crude oil sales volumes occurred primarily at the Cato Properties as we worked to restore production facilities damaged due to the weather-related electrical outage during October 2010 and inclement weather at our Panhandle Properties.

During the Third Quarter of 2011, the average prices the Company received for its oil and natural gas were $89.26 per barrel and $9.69 per Mcf. During the Prior Year Quarter, the average prices the Company received for its oil and natural gas were $72.62 per barrel and $9.70 per Mcf.

Operating revenues were $18.6 million in the Current Nine Months of 2011, 13% higher than $16.4 million in the nine months ended March 31, 2010 (“Prior Year Nine Months”). The $2.2 million increase is attributable to higher prices received for crude oil and natural gas sales and increased natural gas sales volumes (as previously discussed), partially offset by decreased crude oil sales volumes, as previously discussed.

During the Current Nine Months of 2011, the average prices the Company received for its oil and natural gas were $79.32 per barrel and $8.53 per Mcf. During the Prior Year Nine Months, the average prices the Company received for its oil and natural gas were $67.56 per barrel and $7.17 per Mcf.

LOE

LOE was $2.5 million in the Third Quarter of 2011, 31% lower than $3.6 million for the Prior Year Quarter. On a BOE basis, LOE for the Third Quarter of 2011 was $33.58, down from $36.88, a reduction of $3.30 from the Prior Year Quarter. The LOE reduction was aided by a credit to expense for costs to restore production facilities of $0.3 million due to the $0.5 million insurance claim settlement partially offset by $0.2 million of costs incurred to restore the facilities. LOE was $9.2 million in the Current Nine Months of 2011, 22% lower than $11.8 million for the Prior Year Nine Months. On a BOE basis, LOE for the Current Nine Months of 2011 was $32.52, down from $39.80, a reduction of $7.28 from the Prior Year Nine Months. This reflects our on-going efforts to reduce LOE. The operational efficiencies which yielded our LOE reduction were primarily driven by reduced service rates, reduced workover expenses, and lower chemical costs.

General & Administrative (G&A) Expenses

G&A expenses were $1.3 million the Third Quarter of 2011, 55% lower than $2.9 million for the Prior Year Quarter. G&A expenses were $5.4 million the Current Nine Months of 2011, 42% lower than $9.3 million for the Prior Year Nine Months. For both the Third Quarter of 2011 and Current Third Months of 2011, our reduced G&A expenses were primarily driven by the termination of the Resaca merger, lower stock-based compensation, lower payroll and benefits expenses and lower fees paid to our board of directors.

Operating Results

For the Third Quarter of 2011, we had a loss applicable to common stock of $5.2 million. We had a loss applicable to common stock of $0.2 million for the Prior Year Quarter. Items that positively impacted the Third Quarter of 2011 were lower operating expenses of $2.6 million and increased operating revenues of $0.9 million. These items were more than offset by increased loss on derivatives of $6.2 million, lower income from discontinued operations of $1.7 million, higher loss on sales of oil and gas properties of $1.0 million, increased interest expense of $0.9 million and increased preferred stock dividend of $0.4 million.

For the Current Nine Months, we had a loss applicable to common stock of $14.8 million. We had a loss applicable to common stock of $13.1 million for the Prior Year Nine Months. Items that positively impacted the Current Nine Months were lower operating expenses of $11.6 million and increased operating revenues of $2.2 million. These items were more than offset by increased loss on derivatives of $7.2 million, increased interest expense of $4.3 million, lower income from discontinued operations of $2.1 million, higher loss on sales of oil and gas properties of $1.0 million and increased preferred stock dividend of $0.9 million.

The increased interest expense for both the Third Quarter of 2011 and Current Nine Months of 2011 is due to additional interest and fees due under the Credit Agreements with our lenders.

Liquidity and Cash flow from Operations

At March 31, 2011, we had cash and cash equivalents of $1.1 million. We currently have very limited access to additional capital. We continue to focus on cost reduction efforts to improve profitability and cash flow from operations. For the Current Nine Months of 2011, our LOE and G&A expenses are $2.6 million and $3.9 million lower, respectively, as compared to the Prior Year Nine Months. We continue to work with our lenders and advisors as we consider strategic alternatives. We continue to make our interest and derivative settlement payments timely to our lenders; however, we were not compliant with our covenant ratios at March 31, 2011. To date, our lenders have taken no definitive actions associated with the termination of the Consent and Forbearance Agreements.

Cash flow from operations was $2.1 million in the Current Nine Months of 2011, a 291% improvement as compared to ($1.1) million for the Prior Year Nine Months. The cash flow increases for the Current Nine Months of 2011 resulted from increased operating revenues, lower operating expenses and the sale of certain natural gas commodity derivative contracts of $0.8 million.

Financial Data

Detailed financial data, including the income statement, balance sheet, cash flow statement and current derivative positions are included in the following pages.

Operations Update

During the Third Quarter of 2011, our primary operating activities focused on continued reduction in LOE expenses, maintaining existing production and restoration of production facilities at the Cato Properties, as previously discussed.

James R. Latimer, III, our CEO commented, "Our quarterly results demonstrate our continued efforts to reduce operating expenses and to maintain consistent revenue levels. We are actively reviewing strategic alternatives to resolve liquidity issues and improve the company.”

No Earnings Conference Call

There will be no earnings conference call.

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.

(a) As discussed in Note 5 to our Consolidated Financial Statements, on August 10, 2010, we sold certain natural gas commodity derivative contracts realizing net proceeds of $0.8 million pursuant to the Forbearance Agreement. The $0.8 million is excluded from the commodity derivative settlements listed above.

Contacts:

Cano Petroleum, Inc.
Mike Ricketts, 214-687-0030
Chief Financial Officer
INFO@canopetro.com

Source: Cano Petroleum, Inc.