Cano Announces Fiscal Year 2008 Third-Quarter Results and Provides Operational Update: Meaningful Response Seen at Cockrell Ranch Waterflood and Results of Third Party Engineering Report at Cato Field

Business Wire, May 9, 2008

The development plan for the next phase of the waterflood project at the Panhandle Field, the Harvey Unit, is underway. This project is currently scheduled for a formal review by the Texas Railroad Commission (RRC). The RRC hearing date is set for June, and drilling will commence once final approvals are received. It is expected that the permit process will take two to four months after the hearing with the RRC. The waterflood facilities design is complete and much of the injection infrastructure was completed during the Cockrell Ranch construction and included in the estimated capital amount totals for FY 2008.

Cato Field Infill Waterflood Development Project and Results of H.J. Gruy Reservoir Engineering and Geologic Report:

Cano commissioned third-party reservoir engineering firm, H.J. Gruy and Associates, to study the reservoir and geologic considerations of the Cato Field to determine the Estimated Ultimate Recoveries (EUR) based upon plans to develop the waterflood operations on 20-acre infill spacing. The results of the study conclude that the P-1 and P-2 intervals of the field contain up to an additional 20% increase in Original Oil in Place (OOIP). This represents an increase from previous estimates of between 95 MMBOE to 105 MMBOE. The results of this study indicate that 20-acre infill drilling and waterflood secondary recovery operations could yield substantial increases in Proved Undeveloped Reserves (PUD) above what is currently in Cano's Proved Reserve base for this field. Additionally, increases in Probable and Possible reserves may also be revised upward. Cano currently has 8.3 MMBOE of PUD reserves for waterflood development based on 40-acre spacing. This data will be analyzed and reported in conjunction with our normal SEC Fiscal Year End reserve audit by our third-party engineers on June 30, 2008.

To date we have drilled and completed twenty-five (25) 20-acre infill wells at the Cato Field. As previously discussed, these infill wells' primary purpose is to develop the 20-acre waterflood of the P-1 and P-2 zones in the field. An associated benefit derived from this drilling was the opportunity to deepen these wells by approximately 500 feet to test undeveloped lower zones of the San Andres reservoir that were not historically produced by previous operators. To date, incremental production is approximately 210 BOEPD from these wells (See Graph Below). The last four wells completed in the P-2 thru P-5 zones have averaged IP's in the 20-30 BOEPD. As we mentioned previously, these wells experience high initial decline rates and we estimate that they will level off at about 5-7 BOEPD within the first year. Total Field Production for the month ending March 2008 was 240 BOEPD net.

We have just begun the process of perforating the primary P-1 zone and sand-frac stimulating the P-1 thru P-5 intervals in the majority of the wells. As previously discussed in our earlier filings, the prior initial production rates reported were provided after acid-frac stimulations were performed on these wells. We have since sand fracture stimulated a number of wells and have experienced positive increases in production rates compared to the earlier acid fracture stimulations. We are still testing the initial sand-fractured wells, but are encouraged by the preliminary results. Total capital at the Cato Field for the FY 2008 is estimated to be $37.7 million.