Cano Announces Fiscal Year 2009 Capital Budget of $97.5 Million, Fiscal Year 2008 Reserves and Operational Update
July 22 2008 - 6:15PM
Business Wire
Cano Petroleum, Inc. (AMEX:CFW) today announced the results of its
Fiscal Year End Reserves as prepared by Miller and Lents, Ltd., its
new independent petroleum engineer. Proved developed producing
(PDP) reserves increased 25% to 10.6 million barrels of oil
equivalent (BOE) up from 8.5 million BOE (after FY �08 production
of 0.5 million BOE). The increase in PDP reserves was primarily
driven by a 1.4 million BOE proved undeveloped (PUD) to PDP
conversion based upon initial response at the Cockrell Ranch
waterflood. The balance of the PDP increase came from our infill
drilling program at the Cato Field. As a result of our programs and
commodity price increases, the pre-tax net present value,
discounted at 10% (PV10), of our PDP reserves increased from $108
million to $425 million. Notwithstanding our PDP growth, overall
estimated proved oil and natural gas reserves decreased
approximately 20% to 53.2 million BOE as of June 30, 2008, as
compared to 66.7 million BOE as of June 30, 2007. Total proved
reserves were primarily impacted due to a high-grading of our
development plans to focus on our core assets, the Panhandle and
Cato fields. We had a material amount of reclassifications from PUD
to Probable reserves associated with our Pantwist PUDs given that
we are seeking strategic alternatives with this asset. Furthermore,
we had revisions associated with our Barnett Shale project as we
have elected to not aggressively develop this asset in the near
term. Oil reserves accounted for 72% of total reserves. Based upon
the ending June oil price of $140.00 per barrel and natural gas of
$13.15 per mcf, the pre-tax PV-10 of our reserves is $2.24 billion.
Summary of Changes in Proved Reserves � MBOE � Reserves at June 30,
2007 � 66,726 Estimated Production (532 ) Acquisitions 1,872
Additions and Development 4,776 Revisions (3,010 )
Reclassifications (16,447 ) Reserves at June 30, 2008 53,185 Jeff
Johnson, Cano�s Chairman and CEO stated, �I am very pleased with
the success exhibited in our reserve conversion. The 25% growth
rate of our PDP reserves was in line with our expectation for FY
�08, and tracks with our expectations for the next several years as
we continue to develop our resource potential.� 2009 Capital Budget
of $97.5 Million Cano plans to spend approximately $97.5 million on
its capital projects during Fiscal Year 2009 which includes plans
to drill 114 net wells. The Panhandle waterflood and projects in
the Cato Field are expected to account for the majority of the
spending. The table below details the plans: Capital Projects � $MM
� Net Wells Drilled � � Corsicana $ 0.4 - Davenport 0.4 - Desdemona
Waterflood 6.7 11 Desdemona Barnett 3.0 2 Nowata 10.0 10 Panhandle
37.0 43 Pantwist - - Cato Field � 40.0 � 48 Total $ 97.5 114
Operational Update Panhandle Field�Cockrell Ranch Waterflood:
Cano�s third-party engineer, Miller and Lents, approved conversion
of 1.4 MMBOE of PUD waterflood reserves to PDP reserves based on
the positive response seen at the waterflood to date. This
represents approximately one-third of the 2007 PUD reserves booked
for the Cockrell Ranch Unit with the remaining two-thirds remaining
in the PUD category. Gross oil production in the month of June
exceeded 2,400 barrels, a three-fold increase from February. Full
injection of over 50,000 barrels of water per day is continuing at
the Cockrell Ranch Unit and the cumulative injected pore volume is
over .20, or 20% PVI. Extensive well surveillance is being
performed to install larger pumping units and optimize production.
Additionally, 15 injection wells have been worked over to optimize
and re-direct water injection into the highest remaining oil
saturation intervals of the Brown Dolomite formation. Total fluid
production has increased to over 9,000 barrels per day and we are
starting to see the first signs of increases in injection well
pressure. This is the initial sign of placing injected water into
�unswept� areas of the formation and should result in varying
degrees of increasing oil-cut in the next three to six months. The
next phase of the waterflood project at the Panhandle Field
consists of six separate �mini� Phases on reduced well spacing that
will allow Cano to accelerate the field�s development. The tighter
spacing and smaller development patterns should allow quicker
permitting and response times, and allow a larger development
bandwidth over a greater acreage position in the field. Production
for the month ended June 2008 at Panhandle Field averaged 540 net
BOEPD. Including the increases in the Cockrell Ranch Unit, as
previously discussed, field production was off over 80 BOEPD from
April 2008 as unscheduled gas plant maintenance and the initiation
of a field-wide chemical treatment program took a large number of
non-waterflood wells offline. As of the first week in July,
production levels in the field were starting to approach previous
levels. Cato Field Infill Waterflood Development Project: The
results of third-party reservoir engineering firm, H.J. Gruy and
Associates, helped buttress significant reserve additions, approved
by Miller and Lents, at the Cato Field. The development plan for FY
2009 is to drill 48 new waterflood pattern wells and initiate water
injection. We presented our waterflood application to the New
Mexico Oil and Gas Conservation Commission in May and stand ready
to commence ten water injection wells once the permit application
is approved. We will be in a position to initiate water injection
in 10 additional wells at Cato within 60 days of permit receipt.
Production for the month ended June 2008 at the Cato Field was 233
net BOEPD. As previously reported, Cano released the drilling rig
in May to concentrate on waterflood facility infrastructure and no
new wells have been brought on-line since then. In July we
reinstated our drilling program. Pipe was set on the first new well
last week. Production from the 20-acre infill drilling program
should resume in the near-term. Nowata Properties. Our ASP tertiary
recovery pilot project at the Nowata Field has been in full
operation since December 2007. To date we have injected close to
.12 pore volumes of ASP, or 12% PVI. The ASP Pilot is reacting
according to plan and we expect an initial response by the end of
the calendar year. Production for the month ended June 2008
averaged 218 net BOEPD at the Nowata Field. Total Cano production
averaged 1,446 net BOEPD in June. In addition to the production
variances mentioned above, normal production declines were seen in
non-core areas of the company. Cano is currently evaluating the
sale of non-core assets at the Pantwist and Davenport fields. Based
on the positive development results seen from our FY 2008 capital
programs at Panhandle and Cato, we would look to commit any sale
proceeds to these core properties and/or to strategic acquisitions.
Conference Call The Company will hold a conference call to provide
an update on its operations on Wednesday, July 23, 2008, at 10:00
A.M. Eastern Time (9:00 A.M. Central Time). Interested parties can
participate in the call by dialing 866-356-4279. For calls outside
the U.S., parties may dial 617-597-5394. The pass code is 24416988.
A replay of the call will also be available through July 30, 2008
by dialing 888-286-8010, passcode 77479008. 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
also urged to consider closely the disclosures in Cano's Form 10-K
for the fiscal year ended June 30, 2007, available from Cano by
calling 877-698-0900. This form also can be obtained from the SEC
at www.sec.gov.
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