Cano Petroleum Announces Permian Basin Acquisition

Business Wire, April 2, 2007

FORT WORTH, Texas -- Cano Petroleum, Inc. (Amex:CFW) ("Cano") announced today that a wholly owned subsidiary has closed an acquisition of producing oil and gas properties in the Permian Basin for a purchase price comprised of $7,000,000 cash and 404,204 shares of restricted common stock.

The acquisition adds approximately 12 million net barrels of oil equivalent (BOE) of proved reserves according to internal estimates of which approximately 1 million BOE are proved producing and 11 million BOE are proved undeveloped. Approximately 75 net BOE will be immediately added to Cano's daily production from the historically prolific San Andres formation.

Estimated capital requirements to develop the undeveloped reserves is $50 million. Approximately $3 million will be invested over the next 12 months returning idle wells to production. The additional $47 million in capital will be used to convert proved undeveloped reserves to proved producing reserves beginning in late 2008 utilizing waterflood recovery.

Cano also estimates the probable/possible reserves attributable to secondary/tertiary recovery applications on the properties to be 23 million BOE. The properties cover approximately 20,000 acres in Chavez and Roosevelt Counties, New Mexico.

The effective date of the acquisition is February 1, 2007 and the acquisition was funded through an existing credit facility with Union Bank of California and the issuance of 404,204 restricted shares of Cano common stock. The common shares will be restricted for 12 months and no more than 25% of the issued shares may be sold in any quarter after the 12 month restriction expires.

Jeff Johnson, Cano's Chairman and CEO, stated, "This acquisition offers an outstanding waterflood opportunity at an acquisition cost of less than $1.00 per BOE of proved reserves. The opportunity to diversify our asset base while entering the Permian Basin is very exciting."

The company will continue to examine additional recovery opportunities in these properties through an expanded waterflood and CO2 application.

In conjunction with an operational update, Cano will hold a conference call to discuss the acquisition on April 3, 2007, at 11 A.M. Eastern Time (10 A.M. Central Time).

Interested parties can participate in the call by dialing 866.711.8198 (617.597.5327 outside the U.S.). The passcode is 95237920. The call and the presentation is also being webcast by Thomson/CCBN and can be accessed via the webcast icon on Cano's website at www.canopetro.com.

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 urged to also consider closely the disclosures in Cano's Form 10-KSB for the fiscal year ended June 30, 2006 and Cano's Form 10-Q for the fiscal quarter ended December 31, 2006, available from Cano by calling 866-314-2266. These forms also can be obtained from the SEC at www.sec.gov.